Ironically, I hate to read books since young, be it story books, text books or any kind of materials. However, few years back I chanced upon 'The Warren Buffett Way', and after reading it, I was captivated by investing and was totally mesmerized by Warren Buffett's charisma and words of wisdom.
There is no turning back. Since then, I have been feeding on all kinds of materials, be it books, articles and websites. As long as there is the slightest correlation to investing, I will get my hands on it and digest them with great enthusiasm.
Having vested in the stock market for these years, I will like to share the golden rule of investing with you. This golden rule had stood by me all these years and served me greatly in times of both good and bad. In fact, this rule was uncovered during my first investing book and was taught by the Sage of Omaha, Warren Buffett.
Investing Rule #1 = Never Lose Money
Investing Rule #2 = Do not forget Rule #1
The above rules are very true. Capital preservation is of utmost importance to investing. Face the fact, at the end of day, we invest our hard-earned money into companies for the purpose of growing our assets. So if we are not even able to attain the above-mentioned rule, then what is the purpose of investing?
Many people do not realise the impact of capital loss. Let me paint a scenario to you. You start your investing journey with $10,000 and hastily bought into a company with the entire sum without adequate research. Few months or few weeks later, or worse few days later, the stocks which you purchase is only worth $5,000. You panicked and you sold your stocks off to recoup the remaining $5,000. This permanent loss of 50% capital is disastrous.
Take the best investor on earth for example, Warren Buffett. He maintains a 20+% per annum returns over the past few decades. So even if the remaining $5,000 is given to him for investing, he can only earn back the initial $10,000 after around 4 years of hard work. How many 4 years do we have in our lifetime? Try making a few more mistakes which results in permanent capital loss, you can guess whether if you still have a chance to financial freedom.
I hereby urge all investors to remember this golden rule at all times. Always ask yourself if there is a great possibility of capital loss before you purchase any stocks. Be smart to step out if you sense danger.
Having said all these, I am sure there are still many who are willing to put in a $100 stake with the same probability of winning/losing $20 - I recommend this group to play big/small in a nearby casino. It is much simple and less time-wasting. =)
Remember this, you DO NOT lose money by forgoing money-making opportunities. You WILL lose money when you head for money-losing chances.
I will be sharing more of my investing experiences and rules in the new year ahead! Stay tuned!
Monday, December 31, 2007
Investing Rule #1
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5 comments:
Hi TYL,
From your postings, you sound like a value investor. Perhaps you can check out my blog at http://sgmusicwhiz.blogspot.com as I blog on value investing and some personal finance issues as well.
By the way, good research report on SP Chemicals . Was that done independently and where did you manage to compile the pictures and get the format/layout ? Are you yourself vested in any SGX-listed companies ?
Thanks, and have a good new year !
Regards, Musicwhiz
Hi Musicwhiz,
I am both a value and growth investor. A great believer in Warren Buffett. =)
And yes, the SP Chemicals report was done by me alone and independently. I compiled the images/info from all my available sources. As for the format/layout, it was a simple one which I built. Will appreciate if you can let me know if more useful sections are needed in my report.
Will be providing more such research reports on good companies.
And yes, I am definitely vested in the market.
Will take a look at your blog. Cheers and happie new year!
Hi TYL,
We need more value investors from Singapore LOL ! But in general, 95% are speculators/punters/traders while only 5% are investors. And of the 5%, only about 1% or less are value investors. Value and growth are joined at the hip, thus I will just call myself value investor for short.
I will read your report on SP Chem in greater detail in the next few days.
How did you arrive at the FY07F figures ? Are they your own estimates and what are they based on ? It is mighty hard to predict an entire P&L and BS, which is why I do not actually do it myself when I analyze companies. I just get a rough gauge of intrinsic value using Porter's 5 Forces and computations. I do not specifically use DCF or other valuation methods.
Will check back on your blog now and then.
Regards, Musicwhiz
Hi Musicwhiz,
Yes, not many ppl are as patient as us. Long-term investing is too boring a game for most ppl =)
I am really happie that you are reading my report. Will be good if you can spread my site/reports to those who are interested.
Yes, all my figures are forecasted. Honestly, it gives you a better picture if you try to forecast figures. It makes you feel more comfortable in the company because it is predictable from one's standpoint. A rule of thumb from me, if you are not able to forecast a company with comfort, then I recommend you do not invest in the company. Why do you want to put your hard-earned money into something so unpredicatable? =)
And yes, I intend to teach people how to do a forecast in time to come. For FY07, it is pretty straight forward since we have 3 quarters of actuals till date. I will always try to forecast the revenue first. I will just discuss how I forecast my remaining 2007Q4 revenue. SP Chemicals plants will be closed down for around 15 days for maintenance in Q4. So I will use 2006Q4 revenue and reduce it by 15 days. Furthermore, there are export rebates cut starting from Jul 2007. So more revenue reduction is done for FY07Q4.
Feel free to shoot your queries. I am glad to help.
I need a help from you. Whenever I access my site, I encounter errors shown in the status bar. Do you encounter such problems? I have this '_WidgetManager is undefined' error.
After reading these comments, I am so ashamed of myself. I am Finance trained, but not putting my knowledge to good use. I am not sure if I can call it Knowledge now, cos I won't be able to do what YL has done on his report. Will keep both your websites on my computer and will definitely read it and spread them around.
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