The truth is most people still have not unlock the 8 myths that impede them from taking the right actions for their value investment in Singapore.
Do Value Investment In Singapore After Unlocking 8 Myths
Myth 1. Value Investing is complicated and difficult to learn.
Not sure if anyone attempts to read famous value investing books such as “The Intelligent Investor” and “Security Analysis”. It was originally authored by Professor Benjamin Graham. Some of us might have given up half way reading it as there are sections which cover fairly complicated mathematical formulas for stock valuation.
For example, the original Benjamin Graham formula is V*= [EPS x (8.5 +2g) x 44] / Y.
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But do we really have to go through these calculation to determine the intrinsic value of a stock?
Frankly speaking, I do not use the old school formula like the above at all. I just based on a systematic approach using a targeted set of financial ratios taught in the our value investing bootcamp and apply them whenever I do value investing.
Myth 2. Difficult to Spot Undervalued Stocks.
Many Singaporeans have the notion that it is not easy to find undervalued stocks. They have a mis-perception that they can only get undervalued stocks through insider information or having paid subscription service in order to access detailed research data or screening tools.
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Research work is no longer tedious but has been simplified to suit value investors. Fundamental indicators such as financial and profitability ratios need not be computed manually. The data available can cover from 5 to 10 years ago. Value investors are basically spoon-fed with free, valuable information.
Myth 3 – Value Investors are bargain hunters.
Many Singaporeans think that value investors are only buying stocks at their rock bottom prices.
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That’s not the truth. In fact, these savvy value investors do not time the market to enter. They have developed the practice of comparing stock prices to the true or intrinsic value of a company. For them, pricing is relative. A stock worth S$0.30 per share may look cheap but it can be still overpriced when fundamental analysis is applied. On the contrary, a stock that is priced 2 or three times more could be a bargain.
Myth 4 – Value Investing is 100% safe and guarantee
If you apply enough margin of safety, you are 100% risk free to buy value stocks.
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Value investing can bring good returns to you in the form of capital appreciation and dividends in the long run. But it can also gives a financial setback if there is a sudden change in the company dynamic e.g. change of management or unexpected business fall over. Investing in stocks is never 100% risk free. Value investing can minimise such risks by maximising the amount of profits in returns based on fundamental analysis and historical track records over a long period of time. What value investing does is to enable the investor to screen out over-value stocks to lower their investment risk.
Myth 5 – Proficiency In Finance and Accounting
Another wrong thinking of value investing is the need for you to be financially trained so as to read financial statements like an certified accountant or an auditor.
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You need not need to know inside out of a company’s financial statement. Though, financial statements are complex and difficult for a normal layman to understand, a basic understanding of how to derive a financial ratio such as C=A/B and knowing if it exceeds certain value will suffice for a savvy value investor.
Just remember that accountants prepare balance sheet, cashflow, profit and loss and non financial opinions in according to the accounting standards. And, an auditor is to scrutinise a financial statement for any qualified audit opinion or any or false declaration of the company’s directors in their financial reporting. Does this sound too difficult for you to understand?
Not to worry. Value investors do not prepare the financial reports themselves. It’s the analysis of the contents they’re good at. The financial ratios and profitability ratios would influence investment decisions. What is important is to develop analytical skills to make well-informed investment decisions before they buy any stock.
Myth 6 – Ride the trend to buy growth stocks and not value stocks.
Many retail investors are excited to invest in growth stocks as they think that their capital investments can be appreciated in a shorter time frame as compared in investing in value stocks. Hence, they think that the price of growth stocks with huge potential upside can get higher quicker.
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The risk is not about riding on rising price trend to win the investment game fast. The risk actually lies in the riding on the current rising popularity of the stock without assessing its value. One very good example is bitcoin investing. Is it safe to invest in bitcoin now? Nobody knows. In my personal opinion, it is just another hype riding on the popularity of blockchain technology. I posted an article, Into Bitcoin Investing in early 2018 with a bitcoin price of 16,563. Back then, I highlighted the risk of bitcoin investing and my argument is supported by both Warren Buffett and Jack Ma.
So, lets take a stock check now. What is the current price of bitcoin? Do you still think you have missed the boat in 2017? Probably not. The risk to invest in bitcoin gets higher with an increasing regulatory risk in more jurisdictions. The funny part is Japan who is a strong supporter of bitcoin also starts to regulate their own crypto-currency exchanges. And I must count you lucky not to join as a bitcoin speculator in late 2017 if you have not done so.
Myth 7 – Invest only a few value stocks to maximise your portfolio returns
Stay focus to build a stock portfolio with only a few value stocks. This will maximise your return of investments.
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Value investors do not scare of market corrections if they have done their due diligence. However, they diversify their value investing portfolios is to eliminate non-market risk. This non market risk is directly linked to the business itself. e.g. a sudden death of a top management personal or a factory burn down and etc. These can create negative market news which can drive down the stock price fairly quickly. There will be short sellers who leverage on such negative news to push down the stock prices of the affected stocks.
So what’s the safe guards used by value investors? They will usually do position sizing to ensure a good mixture of value stocks in their stock portfolio.
Myth 8 – I can invest well by reading value investing books and online resources.
Many novice investors started off their investment journey by jumping into the market without acquiring sufficient knowledge. They might probably read some value investing books or stock related articles.
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Probably I might be the best person to unlock the myth. I started off as an inexperienced stock investor some 18 years ago. Reading investment books and attending free seminar talks were my past time favourite. For quite a few trades I did, I either listened to market rumors or followed my good friends’ advise to invest in so called “insider stocks”. Automated system tools were also used to define my cut loss and exit to profit. But all these methods did not help me much. And I ended up losing a lot of my savings.
My new investment journey begins after I am exposed to value investing through Sean Seah. Things have changed since then and I never look back on those stupid mistakes I had made in the past. Love yourself by investing on yourself first.
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