Sunday, 10 August 2014

Investing Is A Life-Long Learning Journey

It is often said that it is important to start investing early, so that the magic of compounding can do its wonders. For investors who are keen in active investing, there is another reason for starting early, which is that it takes time to learn about investing. Thanks to my father, I was introduced to investing at the age of 11, and yet after 28 years, I am still learning about investing. Below is an account of my learning journey in investing.

The Growing Years (1986 - 1998)

From 1986 till 1998, I was helping my father monitor stock prices while he was away at work. Through this, I had learnt about the buying and selling of stocks, lotteries of Initial Public Offerings (IPOs), leverage of warrants, arbitrage of Malaysian stocks listed on both the Central Limit Order Book (CLOB) market in Singapore and Malaysian stock exchange, etc. It was quite a fascinating period. There was no scripless trading then. When you buy a stock, you get a share certificate delivered to you on settlement date. But the name on the share certificate is not your name. When the company pays a dividend, the dividend does not go to you, but to the person whose name is registered on the share certificate! You need to register the share certificate in your name in order to receive the dividend. Through this loophole, you could sometimes collect dividends even after you have sold your shares!

IPOs then were not always conducted by ballot. There were a couple of IPOs which were conducted via Dutch auctions. In this method, you could indicate the highest price you are willing to pay for the shares. At the close of the IPO period, the IPO manager would determine the highest price at which all the shares could be sold. Every successful bidders would pay the same price. For example, if you bid $2.10 for 10 lots and the successful bid price is $2.00, you will be allocated all 10 lots and pay only $2.00 per share. Conversely, if the successful bid price is $2.20, you will receive none of the shares. A tranche of Singtel IPO in Oct 1993 was conducted via the Dutch auction, with the successful bidders paying $3.60 compared to $1.90 for the discounted share tranche.

Along the way, I had witnessed first-hand the stock market crash of 1987 (crash for no good reasons), 1989 (yet another crash for no good reasons), 1990 (Iraqi invasion of Kuwait), 1997/98 (Asian Financial Crisis) and between them, the super bull run of 1993/94 (Singtel IPO).

During this period, I had also figured out that IPOs were not a good way of being introduced to investing. The reason is very simple. IPOs are packaged to sell. After it has been sold, buyers have to live with whatever quality they have bought. It is similar to job interviews. All potential applicants would put their best foot forward, but after the "best" applicant has been hired, he might not perform to the level he had shown during the interview. You may wish to read The Initial Public Offering for more info.

The Wild Wild West Years (1998 - 2001)

By 1998, I had graduated from university and was ready to invest with my own money. You might have thought that investing would be a breeze for me with the wealth of experience I had built up. Actually, no. During this period, I thought that there were 3 ingredients necessary to be successful in the stock market. The 3 ingredients were: Brains, Guts and Capital. You need the brains to figure out what nobody has yet to figure out, the guts to act on your conviction at a time when the whole world was acting against you, and the capital to profit from your insights. Unfortunately, I realised later that the same 3 ingredients of Brains, Guts and Capital were also the recipe for failure in the stock market! If your analysis is incorrect, having the guts to act on it can be a mistake. Hence, for a while, I had both hits and misses. My portfolio was getting nowhere.

The Game Plan Year (2001)

In 2001, by sheer luck, I had picked up a second-hand investment book titled "Buffettology" from a book fair. It described the methods Warren Buffett used to analyse stocks. The methods in the book became the model that I used to analyse stocks to this date. This was an important development, as it taught me the importance of having a system for investing. If I were to use the analogy of baking cakes, during the Wild Wild West Years, my recipe of baking cakes would be to "add some flour, some sugar and some water". At times, it would turn out well. At other times, it would turn out burnt. I had no idea whether the next cake would turn out well or burnt. With a system for investing, the recipe becomes "add 400g of flour, 10 teaspoons of sugar and 800mL of water". If the cake turns out burnt, you could change the amount of flour, sugar and/or water in controlled amounts and observe the outcome again. After sufficient iterations, you would probably figure out how much flour, sugar and water to add to bake a sufficiently good cake. Of course, there is always the unpredictability of the stock market, but at least you have some factors related to the companies' performance under control.

With a system for investing, that became the improved Brain component of the investing recipe. Sometime during this period, I also developed a plan for allocating the amount of capital to stocks. This became the improved Guts component of the recipe that I had used more or less to this date. The plan essentially institutionalised the contrarian way of investing by tying the level of stock allocation to the stock market index inversely. When the index is high, the level of stock allocation would be lower. Conversely, when the index is low, the level of stock allocation would be higher. By following this plan strictly, it forces me to buy shares when the index is low and sell shares when the index is high. You may wish to read Have a Plan for more info.

Finally, after working for several years already, I had built up sufficient capital to make meaningful investments in the stock market. The improved Brains, Guts and Capital recipe had served me well. I began to see some positive direction in my portfolio gains. While they have not made me a highly successful investor, at least they made me a competent investor.

The First Crash Years (2000 - 2003)

The years from 2000 till 2003 were quite bad for the stock market, having to navigate through the dot-com bust in 2000, September 11 terrorist attacks in 2001, US accounting scandals in 2002 and Severe Acute Respiratory Syndrome (SARS) in 2003. I thought I would manage quite well during this period, having experienced several market crashes already. The truth is that it is one thing watching a crash on the sideline and another thing experiencing it yourself. The losses, although only on paper, were very real. And when you run out of capital (which I did then), you are subject to the full force of the absurdity of Mr Market. If he wants the market to drop 50%, you just have to accept it since you have no more capital to take advantage of him and fight back. Thankfully, I had preserved some capital in my Central Provident Funds (CPF). That was the only period when I had to draw on my CPF reserves. I had learnt to set aside some reserves to save my portfolio during severe market crashes. You may wish to read Behind Every Successful Bear Market Recovery is A Cash-Like Instrument for more info.

The Back-to-School Years (2004 - 2006)

When you survive a crash, you will only get back stronger. After the crash years of 2000 till 2003, the stock market made a recovery in 2004, which was when I made my first pot of gold with the investing system and plan mentioned earlier. It was time that I thought I should receive a proper education in investing, having read through financial statements without fully understanding them previously. Using part of that profits, I enrolled myself in a part-time course in Masters in Applied Finance, graduating a year later. I also sat for the Chartered Financial Analyst (CFA) examinations, passing all 3 levels in 2006.

You might have thought that having academic qualifications would make me a better investor.  Again, no. My first wipe-out (i.e. stock whose company went bankrupt or was delisted with no exit offer) came in 2010, when JTIC went bankrupt after having some accounting irregularities. It was followed by 2 other wipe-outs earlier this year with Hongwei and Sunray. Having said that, I did managed to avoid Mini-bonds (narrowly) after reading through their prospectus. So, the academic knowledge helped to some extent, but not totally. The market does not give you additional respect simply because you have a degree in finance or passed your CFA examinations.

The There-Is-No-Spoon Years

I am not sure when this period started. After several years of investing, finding and fine-tuning investing formula and coming back from crashes, I somehow reach a state of "confusion". Confusion because of a realisation that there is probably no such thing as a sure-win investing formula. Of course, the investing system and plan mentioned earlier still work, but they only make one a competent but not a highly successful investor. There are probably greater forces at work that I have still not figured out after 20+ years in investing.

When you are not tied to any particular investing formula, you will try all sorts of formulas. I started a Dollar Cost Averaging programme in unit trusts in 2007, growth investing in 2012, passive investing with portfolio re-balancing in early this year and turn-arounds also in early this year. The objectives were not to find a winning formula, but a recognition that there is no winning formula.


Investing is often a life-long journey. It takes time to learn and unlearn about investing. After 28 years of investing, I am still learning it. I will probably keep on learning throughout my investing journey.

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  1. Chin Wai,

    Now that's how we should do a review of our investing journey!

    You also burnt by Jurong Tech?

    The market gives (I happy like bird when Omni- Industries & Seksun were bought over); the market takes back (Jurong Tech).

    Now I can laugh about it.

    It's a rite of passage that either makes us stronger or make us cynical....

    From your sharing, I think it's the former ;)

    Graduate in 88? That's means you are either a goat or horse. I goat :)

    1. Yes, I got burnt by Jurong Tech.

      True. I always believe that if you can survive a crash, you will come back stronger.

      I graduated in '98. I'm a rabbit :)

    2. Opps!

      Shit, I need reading glasses...



  2. 28 years is almost 3 decades, if you can start all over again, what would be your best advice to the past you? I believe we can all learn from this. Since we are on Buffett, I love an explanation from him: "We do not need high IQ to be good on investing, IQ is like an engine horsepower, some people have 400, but they only output 200 due to their temperament, rationality, etc. I would rather wish for 200 horsepower and maximise my output to 200." After 28 years, if you are still investing, you have already won half the battle, hopefully the finishing line will be in sight soon. Cheers, Y

    1. If I could summarise all that I've learnt in the past 28 years, it is this: All roads lead to Rome. Whether it is value investing, growth investing, dividend investing, index investing, they all work. But they all don't always work. There is no need to be fixated on any one investing style. Being too fixated can lead to undesirable consequences.

      The investing journey will never end. Once an investor, always an investor ;) All the best in your investing journey!

      BTW, I've read your blog and quite like it. Keep it up!

  3. Much thanks for your candid sharing. I enjoyed reading your post.

    While I have not experienced any wipe-out so far, I had a misadventure watching one of my penny stock investments wither from 5 cents to 0.5 cents. It was an eye opener for me in my younger days.

    1. Thanks :) Mistakes are part and parcel of the investing journey. Their purpose is to help us learn in our investing journeys.

  4. Wow! 28 years of experience is "don't pray pray" kind of thing, I started really late but will keep going till the very end ;-)

    1. Investing is a marathon. You too will finish the race ;)