It has been slightly more than 6 months since I have started investing and I am still holding on to one of the two stocks that I first bought on 22th of September 2011. One is a success (VICOM) while the other was a lesson learnt from blindly following Peter Lynch (Eratat Lifestyle). 9 out of my first 10 trades resulted in realised loss and this prompt me to become serious about investing. I did started reading The Intelligent Investor before that but to be able to internalize it and maintain one's emotional stability is another issue.
I am pretty satisfied with the progress that I have made thus far, of course not before the various trip and fall that I have suffered. From getting very excited about the intra day up-tick and down-tick , I am now able to control myself to look at the stock prices only at the end of the trading session. The more one does not look at it, the easier it is not to get affected by Mr Market. Hopefully, I will be able to reach the stage where I will only be looking at the price once every month instead.
Accounting wise, I am now able to decipher and interpret financial report of most companies, other than those unusual terms that may come out once in a while. I have also gained an understanding of what FCF and ROE are really all about as well as the difference between economic profit and accounting profit. This understanding has allowed me to build my screen and modify it along the way. There's no easier way to learn about these other than to practise analysing the various annual report. I will be focusing more on valuation techniques next though I do understand that they are meant to serve as a guide as they can never be a precise valuation. However, without having an estimation of the intrinsic value, how can I be following a margin of safety?
For business fundamentals, the more I learn, the less I know. Whereas profit is all about revenue minus cost, business is often another issue. While cost management is important, focusing overtly on it is akin to being a short-term looking manager and not being an owner. For e.g., in The Hour Glass, staffs are being "very, very well-compensated" so as to keep staff turnover very low. This is because it often takes years to make sure that they are knowledgeable about watches and adequately trained. Reading "What I learned before I sold to Warren Buffett" by Barnett C. Helzberg, you will know that he is the classic owner-manager and how he goes about building the Helzberg Diamonds to what it is today. In such relationship-type of business, customer satisfaction and quality of products are more important than cost. As buying a stock is the same as buying a business, understanding how business operates will be a key priority. I will also be exposing myself more to stocks outside my area of competence like finance, property, offshore and marine and manufacturing. By the end of the year, I hope to be able to do a write-up on who's the strongest bank in Singapore through analysing their financial statement.
2 events of great significance happened during this 6 months journey. The first was joining Value Buddies forum in December. Value Buddies is a great place where you have lots of veterans there sharing their experience and knowledge. Serious questioning and debates help to challenge and train the mind, in applying the same rigorous thought process in stock selection. Positive peer pressure also helps to keep one in check in exercising control over Mr Market as well as Greed and Fear.
The second was the decision to start this blog at the end of December 2011 when one of the blog that I have been following was discontinued. I am surprised that total visits have exceeded 10,000 in less than 3 months and I will like to thank all the readers for the support. This blog has allowed me to rationalise and structure my thought process as well as honing my equity research analysis skill.
Going forward, I will like to focus more on doing shorter company write-up than doing equity research report as the latter involves a lot more time wasted on compiling and writing than the actual analysis. Given that my basic has been more firm, I will also be starting to venture out of my circle of competence and these shorter company write-up will be useful. As for equity research report, I will likely be doing one again in either June or July.
Company analysis aside, Young Investor Series will also be part of my focus as I feel that financial knowledge and investment know-how are seriously lacking in our mainstream education. Of course, I must make sure that I am capable and knowledgeable before I can teach others, thus this will be done at a slower pace. And one last focus will be for me to pen down my thoughts and philosophy on investing , be it regarding business model, financial statement analysis or value investing principles.
With all these in mind, I shall continue on the next 6 months of journey where I will reach the 1 year mark. I do hope that VICOM will stop spiking up so that I can reach the milestone of holding a stock for more than a year.