Can anyone claim he has never lost money investing in the stock market, or any investment for that matter? The book by Professor Philip Cheng, Taming the Money Sharks: 8 Super-Easy Stock Investment Maxims is dedicated to all retail investors who have both profited and lost money investing in stocks. I want to quote two distinct real stories narrated by the author in this book, and I want you as the reader to analyse how investors went from losing money to making money without feeling like much extra work at all.
Since this is one of the best written book I’ve read for long time, I intend to break it into 2 parts and share with you some of the other important points in Part 2.
Profile of the Professor Philip Cheng
Drawing on his years as an investor for leading banks in the U.S. and Asia, Philip Cheng delivers down-to-earth strategies guaranteed to make you “shark-proof” while you optimize investment returns. Statistics show that only 20% of small investors ever come close to achieving their investment goals. The other 80% get eaten alive by “investment sharks”—investment advisors, fund managers and other hucksters out to line their pockets with your hard-earned cash. Motivated by a sense of fair play, Cheng resolved to write an investor’s survival guide in which he’d share everything he’s learned in his years as a successful professional investor.
Many of you are professionals in specialized industries, but may not be in finance or investments. For example, John was the head of an IT department in a multibillion-dollar asset insurance company. John is very smart and very knowledgeable in the IT field, given his 25 years in the industry. However, he confided to me that his stocks had always been losing money.
He told me he had been trying to take advantage of every profitable stock situation deemed to be attractive at that time. The results, however, had been Miserable. Can you relate?
I advised him to stick to buying investments only in the IT industry. Just stick with this for one year, I urged and he agreed. John trusted me and promised me. He began to study all the major IT-related companies in the global arena. His homework included basic fundamental and financial analysis of the target companies with respect to the IT industry trends and markets. He started to look into Google, Apple, Cisco, etc.
John was buying Apple stocks beginning in 2008 and through 2010 with cost averaging below $200 per share. As of early 2013, the price was about $450 per share, which is a fairly handsome profit.
I might add that John did not become afraid when AAPL prices dropped below $100 in early 2009. Instead of panicking like other investors, John just bought more via different tranches, as he was confident and knew the intrinsic value of such a good company. Even for great companies, their stock prices will fluctuate based on the perception of buyers and sellers at any one time.
Meanwhile temptations continued from other industries in the form of “strong buys” from John’ usual sources, stock gurus from TV programs, analysts from brokerage houses, stock columnists from newspapers, and so on. But John stuck to his guns, unwaveringly.
Since John knew the IT trends of these businesses, including software, hardware and other related business models, he was suddenly making money, to his total surprise. He knew when to get into a stock, and when to get out. He was a happy IT guy.
Mary is an accountant – and her investment results had been disastrous because she had been hopping from company to company depending on the prevailing fad. When I advised her to stay in accounting-related stocks, she declined. She said she wanted to get away from financial numbers for a change of mood during non-working hours. For that I don’t blame here.
When I began to ask for her hobbies or personal interests, she simply said none. I respected her honesty. I started to grill her for anything that she might like but came up blank. Finally, after I questioned her some more, she admitted that she only had one past time – shopping.
Then I recommended to her that even shopping could be an investment industry homework target if she put her mind to it. Mary was delighted.
Later I found out that Mary loves to shop at Tiffany, Coach, LV, Prada and other luxury consumer goods companies. She loved handbags, etc. I began to counsel her that she should study the financial backgrounds of these companies and learn their business models. I encouraged her to do basic fundamental analysis and some simple tracking of their stock prices and how they correlate with certain economic cycles and consumer sentiments.
Again, I made her to promise me, just for one year, not to invest in any stocks outside the luxury goods industry. She agreed.
Mary now had a focus as to the due diligence she needed to do in an industry she already knew quite well from product standpoint. She enjoyed doing her market research, visiting various luxury goods companies and trying to note the strengths and weaknesses of the companies regarding products, services, fashion trends, and reliability. Her sharp instincts also assisted her in her evaluation of high-class luxury items, from elegant design of jewelries to expert stitching of handbags. She learned by asking pointed questions, whether she was doing her field trips or performing fundamental analysis.
She would continue to examine industry and company reports. She would confirm or dispute their conclusions with her newly acquired expertise. Even though she had a full time job, she began to know why certain companies continued to do well while others just faded away.
Mary diligently tracked famous luxury goods companies. She was on top of industry trends and consumer spending capabilities. She was able to capitalize on market signals when they appeared, whereas average investors would have missed them totally.
For the ensuing years, Mary continued to profit from investing in luxury goods companies at the right prices at the right time. In short, the results were very favourable, in terms of both her own past time and her investments, which made for a happy accountant.
Mary enjoyed the financial results of her homework and became really excited. She informed me although she generally disliked reading company annual reports, reading attractive annual reports of luxury goods companies was fun.
The book, retailing for RM 71+ at Borders, is now available to you at no cost if you post a comment below on the following:
What is the investment mantra for Scenario 1 and Scenario 2?
The 2 best answers for this and for Part 2 (coming soon), well, like previous giveaways, the publisher Wiley will ship to your home 🙂