With the proper knowledge, wealth can be obtained and sustained. Make money work harder for you instead of let time work against you. Risks only comes from not knowing what you are investing in. You are unique, and only you know what is best for yourself. Even if you need help, defining what you need best would make it clearer for other people whom you seek help from. These are some of the common sense concepts outlined in Lai Seng Choy’s first book, Infinite Wealth.
Starting from a humble background as a know-nothing investors, Lai Seng Choy has came a long way from shunning stocks to actually learning about value investing, and formulated a way that suited him the best. Note that best for him might not be best for everyone – in fact he never claimed his method is the best. However, it is worth taking note his stock investing methodology as reference and then perhaps formulating a way that suited to you – after all, as Lai say, “You are unique, and only you know what you need or want.”
In case you are wondering Lai’s stock investment process is a way to make quick money, it is absolutely NOT. In fact, he stressed that there is no magic formula to make quick money in stock market. He further urged readers to wake up and accept the fact that the so-called hot stock tip is tip for general public, but history for big traders. So why bother? Big traders are there to grab immediate profit when the general public is buying based on “the tip”. But how many of us still cling on such “hot tip” and refuse to accept this fact?
What he has is a straightforward step-by-step, systematic, effective and proven way to get impressive investment results in long term. But extensive homework is required, using the proper tools which – some are free, some are not. The book didn’t really cover the demonstration of the exact tools used; that is Lai and I co-founded InvestBursa.com, where members could engage Lai live on the “fishing methods” instead of giving us “the fish”.
In case you are wondering why there’s no mention of value investing, there IS – at a back chapter of the book. No stock investor will defy the power of value investing – buy a company a half of its price aka at bargain. Being in the stockmarket for 10 years, survived 2 major downturns and came out unscathed to write a book on it – Lai too, is well versed in the principle of value investing (ie calculating the intrinsic value of a company). But then he realized applying this concept alone didn’t work for him. As he narrated to me, if you spotted a good counter, you know its intrinsic value well, but it might NOT drop to this bargain price until the next recession – say 4 years from now. Then the next question comes in – what will you do with the money you have allocated to invest for the next 4 years?
Conversely, if you spotted an undervalued company with intrinsic value of $ 100 but its stock price is currently trading at $ 15, would you doubt if your intrinsic value calculation is correct? Want to ask Warren Buffett to verify it? 🙂
Which is why Lai fundamental investing focuses on a few metrics that makes sense in determining business profitability. Things like, net profit margin, cash flow (cash is always king) and return of equity. Then in the second part of his method, he shared only 5 simple technical analysis to gauge entry and exit prices. Just 5 – don’t need to be overly complicated.
I don’t think Lai is overtly averse to using margin to generate higher returns – it is just that he is against borrowing money to invest because that means you are really not in a good shape yet to dabble in stock markets. What he don’t want to happen is that readers might misinterpreted his words and use borrowed money solely to invest. If things head south, one would end up in a even dire situation than what he begins with. He advocated that one should build up strong foundation of having 6 months emergency buffer fund, clearing off high interest rates debt which eats into our return (credit card’s 18% per annum) and a couple of things as well.
As for the definition of financial freedom, Lai is with the group who believes one should be debt free. Another group which contradicts with such thoughts is that you don’t have to be debt free, but have good debts instead to generate more investment returns which is higher than the cost of borrowings. Neither is wrong nor right – it depends on your preference. He shares his thought in an interview with me previously here – on his second book, Freedom.
Freedom Interview with Lai Seng Choy
Now the Chief Editor at Kanyin is kind enough to send me 2 copies of this book titled Infinite Wealth to be give away exclusive for you, my subscribers.
This giveaway is sponsored by:
All you need to do is to answer this question:
What is your stock investment style?
Post your comments below – short or long. Winners to be announced 20 Mar 2013.
Update: Winner for this round is choong and Stephanie. Thanks for the comments. Another giveaway coming in April 🙂
Value investing ala Warren Buffett is the best way to go. How can one argue about purchasing a stock at a fraction of what it is actually worth?
True, that’s the concept 🙂 Many people are not willing to do the hard work though, you, Wei Jung are definitely NOT one of them 🙂
Value investing makes the most sense to me. Understanding that stocks are not just pieces of paper but part ownership in business is key. If you do, you will focus your attention on finding a business with favourable long term prospects and operated by honest and competent people.
The stock market is there to serve you not to instruct you. You should only look to buy a wonderful business or stocks at a fair or discount price. Not when prices are going through the roof. In fact, the two golden rules of investing is (1) Don’t lose capital (2) Don’t forget rule number one. Patience is indeed a virtue in investing, so wait for the “perfect pitch” and invest for the long term.
Thanks for the comments Carina. You sounded like Buffett himself in his letters to shareholders 🙂
My strategy for stock investment is both long and short term.
1. In my long term portfolio, I will hold high dividend stocks that have passed through my PE, Growth, Gearing and High Dividend filter. I will study their business model and understand and like their business. I will hold these stocks as my core holdings.
Will not sell unless there is change in fundamentals or price have exceeded fair values. Meanwhile, I will be receiving yearly dividends that will help to reduce my costs and for income.
2. In my short term/tactical portfolio, I will get a bit of excitement from trading in shares where there is M&A news flow, special dividend announcement, privatisation news, etc. These are my tactical investments to generate additional income.
My core portfolio will consist of 80% and tactical 20%. These percentages can be adjusted according to market conditions and my market outlook.
I’m much a conservative investor, with a bit of risk taking especially on the industry that i’m confident and familiar with.
First of all, we need to build our foundation first, that is having “savings”, and protection such as life insurance, 36 illness, medical card, etc. These two should be our main concern. Then when you have these two in foundation, then we can start to do investment.
Before investment, one must have many type of funds, such as retirement, child education, etc. With this in mind, then you will know which stocks that you should go for.
I personally likes value investing, this can be used whether is for long term or medium term.
Everyone have their own style. Just use the style that you are comfortable with. No point following others bulat bulat.
Hi Howie, industry you are familiar with is perhaps IT? Tech companies I reckon?
Very well said, many people invest all their money without an emergency buffer fund in the form of FD to cover for a few months worth of living expenses should unforeseen circumstances occured. Then go for protection, coz no matter how well we are invested, without protection, all money invested will equal to nothing in order to cover say medical bills, instead of wealth accumulation
I probably odd one that buy but seldom sell its investments; therefore the entry/selection is most important. Banking counters, blue chips, and REITS seem to be common in my stock portfolio but properties are heaviest in the overall total investment.
Chew, you mean brick-and-mortar property investments?
Hi CF,
Thanks for great post, the part i like most:
“He advocated that one should build up strong foundation of having 6 months emergency buffer fund, clearing off high interest rates debt which eats into our return (credit card’s 18% per annum) and a couple of things as well.”
Most importantly, we need to know why invest? Retirement ? Short/Long term cash flow ? etc. And which $$$$ MUST NOT be touched.
Then only choose the correct stock investment style/approach.
My take is value investing approach, understanding the company business and track records for valuation. Be focus on few stocks. Invest 60% for short term, 40% for long term.
Hi Adrian
What you said is absolute jackpot. The foundation of the “pyramid” is financial planning – setting our goals – (retirement, etc) then invest. No goal setting translates to – “I want return as high as possible” which is unrealistic.
I am curious though when you mention invest 60% for short term. How so?
I’m not a fresh graduate but can be considered a young working adult and I save and invest for the long term. I’m a firm believer in long term investment. My stocks are mostly high dividend paying stocks especially like REITs.
Also the company that I work for provides Employee Share Benefit program which allows me to purchase it’s stock off NYSE for a 15% discount!
And the third method I invest in is my super long term investment which is unit trust 🙂
Will look into actual property investment soon but still have loads to learn.
So these are the few main things that I invest in.
Yea, I reckon most MNC has this ESOS program. This one you must read, my friend – https://howtofinancemoney.com/2011/09/employee-stock-purchase-plan-part-2-employee-0-government-1.html
I firmly believe and practice value investing principles. Yes, Lai has a point- what do i do with the money set aside for investments if the price of the stock doesn’t come down to the estimate intrinsic value? Like M-REITS now… I’d just invest more in undervalued palm oil companies, but there would be no diversification then. I still haven’t found my answer to Lai’s point yet. Perhaps ‘Infinite Wealth’ would be a good place to start!
Hi Dr Stephanie. It is, but it requires work 🙂 I know you are very busy nowadays 🙂
Hi LCF,
Well, my stock investment style goes like this:-
Short/Medium and Long Term.
Short/Medium Term on Trading stocks (1 – 2 yrs holding) to lock in profits before the stock tumbles thereby preserving the capital for further acquisitions during a Market correction. Will need to use Technical Analysis for this.
Long Term (> 5 yrs) for Dividend Income and Capital Appreciation on good Fundamental stocks eg. REITS and good dividend paying Blue Chips stocks. Of course the holding is not forever as the fundamental of the stock may change over time. When this happens, then will have to sell off the stock and realise the gains. Will need to use Fundamental Analysis for this.
Understandly most people will only have 1 or the other style. I prefer both as I have seen my Capital evaporate when I didn’t sell on time for the Short/Medium Term duration and learning from this experience will help to avoid such mistakes in future.
Hey Steve, did you get my email reply which contains my contact# on the thing you asked previously?
Yup. Sure did. Will call you during the weekend. 🙂 Cheers.
Hi CF,
In order not to risk all the hard earn money, self emotional must be controlled, no rushing is allow in the market, whereas, I will put aside funds available for investment and wait to enter the market at the right price with right timing.
As a conservative investor, I will do my homework to discover the counter that I familiar with in my real life, calculate and identify using Mr. Lai’s STARs method process 1 to ensure the business is profitability and process 2 to identify the enter and exit prices along with power of value investing as a reference to build my confident on the stock markets toward achieving my financial freedom!
Jason, your second paragraph is packed with OOMMPHHH! 🙂
My stock investment styles is 2 approaches
a) long-term eg for my retirement income
b) short-term ( 1 mth to 1 year)
in my (a) type usually IPO in M-REITS
and (b) by using a stock analysis software and
trend following strategy ( buy high, sell higher)
Hey Tan, how many percent of allocation for short term? Just curious?
I am guessing IGBREIT and perhaps KLCCP are in your portfolio ?
Actually i am prefer long term small growing company and hold it for long time… A lot and a lot of people always buy stocks that looked very promising in the first place(according to the newspapers and special reports).. That was wrong my boy..!! Understand the nature the business and if you could not give yourself 10 good explaination and with solid proves…Forget your dreams to get rich from stocks.. Instead it will make you poorer!!
Such words only comes from someone who had really been there and done that. Respect is the only word I have for you George 🙂