Suddenly friends started to say, ‘we should buy based on fundamental, should not buy based on speculation.’ The reason? Well, the High-Speed Rail KL – SG (HSR) – read here has been scrapped and a day after, the MRT Line 3 (Circle Line)- read here has been scrapped too. Apparently they were referring to friends who may have bought some potential investments related to these mega projects. This was why they said people should not have bought into all these speculative stuffs. Frankly, do we know what is speculative and what is project being scrapped? Speculative is when it’s not official, something that we came to know from rumours and speculative is also when we try to guestimate what’s the potential share price like tomorrow or next week. Both the HSR and MRT 3 has been in the news like forever in all major media and confirmed by the former government of the day. How can these two be under the ‘speculative category?’ Yes, I hate speculative stuffs. Earlier article here. And also another one here.
What is buying based on fundamental then? It’s buying with knowledge about what we are buying in and it may be undervalued or fully valued. As long as it’s not over-valued. A very good example, buying blue chip stocks. A famous company is usually fully valued or sometimes over-valued. People continue to buy those bluechips because they believe the business will keep growing and thus, fully valued for the stock prices this year will be under-valued next year. Isn’t this a little like speculating? Should we not be looking at those blue chips and then use the same performance benchmarks in some cheaper stocks which not many knows about yet? Haha. Yes, those reasons WHY you bought the bluechips, use it to evaluate the cheaper stocks.
Another example, buying a property. We know the properties in hotspots are already much higher than other not so popular areas. However if given a chance, we would immediately buy into a hotspot instead of trying to understand the WHY factors for the hotspot to be a hotspot. Even more importantly, we did not even evaluate our actual reasons for buying in the first place. Was it because it’s close to our office? If it is, please note that there are at least 4 different places we can buy. Areas north of our office, areas south of our office and well, you guessed it, west and east too. So, how can it be just evaluating ONE area? If we buy just one area but not considering the other three sides, is it not also a bit speculative as well? If it’s due to an international school, there are now plenty of them everywhere. If it’s due to access to expressways or even the LRT / MRT (except MRT 3), then the choices suddenly explode. Yes, understand the reasons WHY you like the hotspot and use those same reasons to evaluate the cheaper spots. Usually those are the future potential hotspots but we will be entering by investing lesser.
I think fundamentally, we must invest in order to get returns and making our money work harder. Earlier article here. Investing in fundamental whether it’s the stock market or the property market is however beyond looking at just the usual. It involves understand the WHY. If we do not know the WHY, we should not be saying that we are investing in the fundamental because fundamentally we have not done enough research and we do not understand what we are buying, fundamentally. Oh yeah, the next time the government announces any mega projects that will start only after a future general election, should we say that we better wait till the election is over to make a decision? Frankly, NO. The businesses of the listed companies will still be the same before and after the election if that’s the reason we are buying. Unless we are buying because it’s connected to some political parties yeah… As for the properties, do note that many of the hotspots of today were not really hotspots 20 years ago yeah. All will continue to change when new catalysts are built into the equation. Happy investing with a WHY in mind.
written on 31 May 2018
Next suggested article: Buying a new home? Ask why, not just where. (updated)