Six Lessons I have learned as an Investor – continued
In the previous issue, we discussed the first three lessons of my investing journey. To recall, they were ‘buy and hold’ (the right company), ‘invest in company with clear earning visibility’ and ‘spare some cash always’.
As emphasised earlier, spare cash itself would not solve all your problems, as somehow you would buy an underperformed company, whether because of its earnings or share prices. So when this happens, what do you do?
4) Switching is essential
It means sell the underperformed company and buy a company that would potentially give you good returns. Even though we have done our due diligence before buying a company, there are still chances that something we would miss out and the company do not perform.
And if you read our column regularly, you would have seen we do not just buy and hold rigidly, but follow through (its earnings, prospect and chart pattern) and act when necessary. If its earnings and prospects meet our expectation, we’ll hold; but if the company’s fundamental has changed, or it has turned downtrend, we would consider selling.
For example, let’s have a look at our portfolio performance on 14th December 2017:
Refer to the table – We have gained 273% return since its inception in November 2015. Obviously, these kinds of results are not only achieved through buy and hold, but buy and switch if required.
For instance, we bought Crest Builder in July 2017 at 1.08 per share. While there were many good reasons to support this investment, such as good earnings, high order book and attractive valuation, its chart pattern has showed downtrend and broke below the MA200 support, which is divergent to its sound fundamentals. With its prolonged underperforming share price, we sold 40000 shares of Crest Builder at 0.97 and incurred a loss of RM4400.
With the sales proceeds gained and some cash, we switched to another potential counter, Jaycorp (7152).
Jaycorp is mainly involved in furniture manufacturing and trading, which contributes 80% of its revenue. The rest of the 20% comes from packaging, wood processing, renewable energy and construction. There are a number of salient points in Jaycorp:
- Company profit before tax has tripled in the last five years from 9.9 million in 2013 to 33 million in 2017.
- Jaycorp’s quarter revenue and earnings are very stable in the last 12 quarters, with an average EPS at 4.6 sen per quarter for the last four quarters.
- Strong balance sheet with net cash of nearly 25 million according to 2018 Q1 report. Its strong cash flow has led to generous dividend, which increased from 3.5 sen in 2013 to 11 sen in 2017, a very attractive yield at 7.3% based on price at 1.5.
- According to the management, ‘The Group’s furniture segment is expected to benefit from China’s high demand for imported wooden furniture and reconstruction efforts following recent natural disasters in the USA.
- Jaycorp has ventured into construction business and have secured contracts such as UMS and Likas projects.
With the above strength, we bought 40000 shares of Jaycorp at 1.47, using RM58800 cash. Our new cash level is now at RM42725.
5) Be a Contrarian
The reason that very few people make money in the stock market is that most people follow each other.
For example, while the global stock market was bullish (2017), the Malaysia market sentiment turned weak since mid-September 2017 until mid-December, even though the Ringgit has strengthened then. Yet, many people preferred to sell and stay on the sideline as they felt the crash was coming.
If you are a contrarian, you would have bought on dip while everyone else was scared. And now you are sitting on a decent profit. Of course, your courage must come from your understanding to specific potential company and the market psychology.
6) No such thing as a Sure Thing
This is especially true in the stock market. A forecast is just a forecast, and variables could have been neglected.
Understand that there is no such thing as a Sure Thing and this would help you stay more grounded and humble. People get defeated because of complacency. Therefore, while confidence would help you to win the battle, overconfidence could lead to a disaster.
In essence, investing is an art. Successful investors do not only make money, they earn the lessons and wisdom too. The journey is always continued.