Recently, Bursa has been very volatile with a downward bias. Most days and majority of all the stocks are down. Foreign selling is still continuing and recently, the support and interest amongst the locals have been increasing. I think this is a good sign or is this the beginning of the end? Even Ringgit was not spared and the real cause was said to be the falling oil price which will affect the economy. Thus, with oil prices down, everyone is afraid and is rushing for a safer currency and that is US$. How convenient right? Ok, when stocks are down, let’s stock up! No, that’s not from me. That’s from many people who continuously quoted the famous quote of, ‘be brave when others are fearful and be fearful when others are ‘crazy’. (I changed a bit but meaning’s the same). Is the time now? Let’s refer to the guru in stock market and some of the things he said before.
Everyone knows Warren Buffet. Many of us have read some books written to tell us how he invests. On and off we see quotes which are attributed to him and we would go, ‘wah…’. Two examples I love a lot: “Buy into a company because you want to own it, not because you want the stock to go up.” Another one: “People have been successful investors because they’ve stuck with successful companies. Sooner or later the market mirrors the business.” Until today, I still cannot say that I can follow all but in terms of fundamental investing I think I am following pretty closely. For the past many years, I have stopped buying any stock because someone told me to buy, even if that someone is richer than me. The very last 2 times I did that, I lose money. Plain simple. If I did not understand and I buy and I profited, that’s luck. I think I was not lucky in those two times. Today, BURSA is very volatile, mostly negative anyway. I did a survey just weeks ago, and written an article on it. It seems nearly everyone is not interested in buying shares and majority said they lost money. Article is here: Is stock market scary for many? It does seem so.
This brings us to the question of should we buy or not buy? Should we not wait for market to be stabilised before buying? I always ask myself three questions before I buy. Of course I would do research etc but I have only three questions before I buy.
1) Is it a business I personally understand? For example, if I am buying a semi-conductor company, do I know what kind of products are they producing, which are their export markets etc? If I am buying stocks of a property developer, do I know what cycle are they in today? Just launching? Already halfway building the properties? Near to completion and delivery of their latest project? Well, I do not buy both these types of companies because I could not know for sure.
2) Is it profitable? If yes, does it have good margins? Return on investment is very important. Thus, if a company has a profit margin of just a few percentage points, I am worried too. What if the market slows? This would affect it easily. Should we then look for companies with only high margins? Not true all the time but between a low margin and a high margin, please tell me your choice? 🙂 If it is not profitable, I would skip immediately even if my best friend tells me that within 2 years, the company would boom. It’s ok, there are way too many companies to choose from.
3) Debt-Level. There are many types of companies with huge operating expenditure. For example, does the company need to buy ever more equipments to get ever higher profits? If they incur such high debts, what would happen when the market slows? For example, airlines need to buy new planes all the time so that they can expand their routes and offer connectivity. They may be looking at record profits etc but their debt level would always be pretty high unless they intend to continue using old planes or stop expanding.
Once it passes these three levels, I would then look at its management team, cash reserves, net tangible assets etc. Oh yeah, I must admit well in advance that I do not understand as much as any of the professional brokers or analysts from the research houses. However for the three questions above, I understand as much as anyone in the market. Should we buy now or should we buy later? Actually, the three questions above would already give you the answer. Even during economic slowdowns or recessions, there are still companies which are considered safe. For example, poultry related, food processing, alcohol, pharmaceutical and more. However, even during good times, you have also seen companies going bust because they were not well managed etc. Thus, the question is never when is the best time to buy. The question should be what is the best company to buy. Just buy and leave it there until its its share price mirrors its business.
Oh yeah, if you expect to earn fast money, going to casino is faster than buying stocks. Alternatively, online betting, informal football betting and more. So, when stocks are down, stock up. Happy waiting, listening or buying during current volatility.
written on 31 Dec 2014
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