Protected by Margin of Safety - A value investor's 'airbags'.

By early 2009, I had bought most of my stocks that I held today. My portfolio during early 2009 included stocks like CapitaCommercial Trust, MacArthurCook Industrial REIT, Parkway Holdings, Tat Hong Holdings, Keppel Corp, Jaya Holdings and STI ETF. I kept to less than 10 stocks adopting a focused investing approach since I was determined to pick up skills in analysing businesses, and I will only hold stocks that I find after analysis that have good continuing business economics in the long run. There is no need to hold too many stocks (more than 10 stocks) since I only need a few big winners in my portfolio to achieve good returns.

Diversification is for investors who do not want to or do not know how to get involved in knowing about the underlying businesses of their portfolio stocks. As such, these investors are better off with diversifying into owning more than 10 stocks so that some may generate returns while others losses and it may still provide the investor with average returns in the long run. He may also consider investing in exchange traded funds (ETF) which also offers diversification to achieve average returns. At least diversification is a conservative approach which may still yield average returns suited to the "know not" investor.

However, since I was determined to be a focused value investor, I had to learn more about focused value investing. Focused investing requires me to learn how to evaluate businesses. This will help me to select only stocks of a few good businesses to invest in since my funds are focused in only a few businesses. I shall discusss more of my experiences on learning how to evaluate businesses in later posts. To some, focused investing may sound risky. What makes one thinks he can be absolutely correct about a business's long term potential? What if he makes mistake in his evaluation and invested in a lousy business, he will have to incurr larger losses since he will have more funds invested in every selected businesses? Yes. Focused investing is one of the best ways to achieve greater returns than STI index benchmark. However, there is a flipside to it. It magnifies returns and also magnifies losses as well since there is no diversification.

Focused investing will not be complete if there is no value investing approach. It will be like a body without limbs. Both focused investing and value investing are intertwined together and complement each other. One cannot do without the other. Therefore, a more appropriate way to call this excellent method of investing is "Focused Value Investing". Focused means focusing on evaluating and investing in businesses with great business economics. Only a few businesses is selected since the selection process must be rigourous. Not any business can be selected for investment. A focused investor only constantly seeks the best few businesses around for investment investing heavily in such few businesses. Value investing means only investing in such few excellent businesses at undervalued prices.

I shall focus my discussion on value investing and concept of margin of safety. An investor can peg a fair stock price for every stock. This can be a subjective affair since not every investor perceive the underlying business of the same stock in the same ways. The business underlying the stock maybe perceived as average performing to one investor but high performing to another. It all depends on what measurements each investor uses to evaluate the business. There are just too many measurements and ways to go about evaluating a business that this affair of business evaluation is more of an art than science. This is also what captivates me most (the thrill of evaluating businesses).

When a value investor has determined after analysis a fair stock price for a stock, he then seeks to invest at only below this fair stock price (or sometimes called intrinsic value of stock). By doing so, he buys the stocks only when its stock price is traded below its intrinsic value. This will make it a bargain buy. Another important note is that by buying at bargain prices, an investor is also buying the stocks at a margin of safety (this importance is usually underestimated).

I bought stocks of Jaya Holdings from October 2008 to April 2009 after some evaluation of its business. I perceived it as having an excellent track record (high consistent EPS, ROE and profit margins, high dividends and consistently increasing shareholders' equity value). As I bought more of this stocks over early this year, my average holding price was around $0.30 per share. When news of the difficulty in refinancing its business came, its stock price dropped drastically from around $0.60 plus range to close to $0.30 plus range. Then, came news of impairment losses on reducing some of its vessels that it intends to build. This resulted in its net profit for the most recent year plunged heavily until around making only 1 to 2 % net profit for the year. Thankfully, revenue and profits from its support vessel chartering business is still growing and prevented the company from making a potential loss.

I decided to divest this stocks after considering that there are better companies around to invest (e.g. companies with net cash position in their war chest or low gearing). I had the ease of exiting this stocks at around $0.40 plus range and still made a small profit on divestment. Whether I had made the right choice of exiting this stocks, only time will tell. However, my ability to divest without making a loss was due to the fact that I had pursued a low average holding price giving me adequate margin of safety. I was protected from the sharp fall in price due to a margin of safety made only possible by buying at as low price as possible below the intrinsic value of the stocks (fair value of the stocks). This is akin to driving with airbags installed (holding stocks at low undervalued prices) providing a margin of safety from getting hurt in car crashes (sharp fall in future stock price). One does not want to have car crashes or sharp fall in stock price. However, it pays to be prepared for this uncertainity which may come without knowing.

Of course, buying at undervalued prices below what a stocks is worth not only offers a margin of safety. It also provides potential for greater long term returns since one is paying less to receive the total net earnings or total free cashflows a company can potentially generate over a period of time.

Discussion points:- Focused value investing is a total approach. Focus one's energy and capital on evaluating and finding a few great businesses to invest heavily in. Invest heavily in such few excellent businesses by paying less for their great value (value investing). These two approaches complement and is interdependent on each other like the body and its limbs.

Value investing has two benefits. It provides a margin of safety to buffer against future drop in stocks price. It also allows the investor to pay less to receive the total net earnings or total free cashflows a promising company can potentially generate over a period of time.

Benefits of exchange traded funds (ETFs)

During the sharp continuous decline of the bear market in year 2008 until March 2009, I learnt about the importance of "waiting patiently for the perfect pitch to buy stocks", "averaging down only when prices are significantly undervalued after waiting for the dust of the bear market to settle" and "focused investing in selecting only a few excellent companies to concentrate one's investment". It was also then that I discovered a new investment product that is superior to unit trust funds that I have so far invested with insurance companies.

Prior to the bear market of 2008, I had no knowledge of stocks investment. I had invested my CPF funds into a few different unit trust funds since 2006. All my unit trust funds had performed well during the run in 2007 just before the sub-prime crisis came. When the sub-prime crisis came, as with the global stocks markets, all my unit trust funds also decreased sharply in value until I saw paper losses for every unit trust funds I had.

It was then that I reflected carefully on the worthiness of investing in unit trust funds. All the myth about steady growth in returns on unit trust funds described by my financial consultants suddenly seemed so distant in reality. I wondered why my CPF funds have instead depreciated over the four years since I had started investing in unit trust funds. Of course, one can argue that during the financial crisis in 2008, most investment products were not spared, much less unit trust funds. It was also during year 2008 that I was introduced to a superior investment product (exchange traded funds - ETFs) that provides similar features as unit trust funds by my brother who was a more experienced stocks investor who had entered the stocks market much earlier than me.

Exchange traded funds (ETFs) are similar to unit trust funds in that both are diversified investment products. ETFs and unit trust funds usually invest in a basketful of securities based on either geographical locations, individual sectors, diversified sectors or individual assest classes. For example, the Straits Times Index Exchange Traded Fund (STI ETF) invest in the 30 component stocks in Singapore (restricted to the location of Singapore). Gold ETFs invest in the assest class of gold. REIT ETFs invest in a number of real estate investment trusts as another assest class.  Many ETFs have came into the investment scene in recent years. This provides investors looking at diversification into particular regions, assest classes or sectors a chance to invest in the many innovative ETFs that have been created so far.

Apart from offering diversification, ETFs also boast of minimal annual charges compared to higher annual charges incurred by investing in unit trust funds. Annual charges though small still eats into the returns from investing in either ETFs or unit trust funds. Thus, it is better to have minimal charges incurred by investing in ETFs than unit trust funds. However, if one trades an ETF frequently through online brokerages, the transaction costs added in may not make ETFs more attractive than investing in unit trust funds since the total charges and transaction costs of trades made may even be higher in investing in ETFs than unit trust funds.

ETFs provide liquidity since ETFs units can be easily bought and sold through online brokerages. An investor can buy and sell ETFs units at exact quoted prices through online brokerages. However, it is a longer process to buy and sell units of unit trust funds. An investor looking to buy or sell units of unit trust funds may not get the exact price he wants due to delay in time needed to settle the transaction of the units and the investor may buy or sell at delayed prices reflected few days later.

Some ETFs may provide dividends for investors that unit trust funds may not provide. As such, an investor has a steady income stream through dividends given by ETFs even while invested which unit trust funds may not offer. Dividends can be used for reinvestment to allow compounding to work for the investor.

After considering the benefits of ETFs over unit trust funds, I decided to divest all my CPF funds from unit trust funds and started buying up units of STI ETF from early 2009. I recalled a friend of mine who also researched into investments told me that he will not invest in shares of companies for fear of company failures, even that of large companies. Though I am not so extreme in thinking as him, I still cannot help but agree that no matter how excellent a company is perceived to be, there is always the possibility of failure as nothing is perfect in this world. As such, I make it a point to invest in STI ETF which invests in 30 component stocks of STI. This is a conservative approach to protect one's capital from potential loss since we cannot have all 30 companies fail at the same time. The probability of that happening is just too low.

I managed to have an average holding price of around $1.73 per unit of STI ETF after buying into the units over a period of few months. Considering now that Straits Times Index (STI) has increased from its low of around 1500 points in March 2009 to current close to 2700 points, I was fortunate to invest near the bottom. By investing most of my CPF funds heavily into STI ETF during early 2009 when STI was at the low range, I was being "greedy when others are fearful", and also "swinging the bat when a perfect pitch has arrived".

Another point to note is that since only 35% of CPF funds from ordinary account can be only invested into stocks, one can use the other remaining 65% of the ordinary CPF funds to invest in professional investment products (of which the only one that is eligible under this category is STI ETF). This makes sure that all CPF funds from ordinary account can be invested in stocks and STI ETF getting a potentially higher annual rate of return than 3.5% (given by CPF if one leaves the CPF funds idle in the ordinary account). Of course, over here we are also assuming the CPF funds allowed for investment is on top of the first $20,000 in the CPF ordinary account that cannot be invested.

Discussion points:-
ETFs offer similar features to unit trust funds but at a lower annual charge.
ETFs also offer dividends which many unit trust funds do not.
ETFs can be easily traded over online brokerages with better transparency in prices than unit trust funds which take much longer to transact the units.

One can invest the remaining 65% of CPF funds in ordinary account into STI ETF apart from the 35% cap allowed for stocks. All investible amounts is on top of the first $20,000 in the CPF ordinary account which cannot be invested in any form. It maybe better to invest one's CPF funds prudently into an investment product (STI ETF) that offers diversification and potentially higher annual rate of returns than 3.5% given by CPF ordinary account on funds that remains in the account.

If an investor is knowledgeable and prudent, it is afterall better to use the CPF funds to do own investment getting potentially better annual rates of return than leaving it untouched in the CPF ordinary account. 

Waiting for the perfect pitch - Looking at yield on one's investment

I shall discuss 2 sections here. First section is on the concept of "waiting for the perfect pitch". Second section is on recognising the perfect pitch, on when to invest based on looking at long term yield on one's investment.

First section:- "Waiting for the perfect pitch."
Warren Buffet describes wise investing as having a punch card with limited number of lifetime investment decisions (20 times perhaps). Each time a decision is made, the card is punched once. One can only excecute at most 20 investment decisions in one lifetime (each decision maybe a single buy or sell order). Once exhausted the 20 limited number of decisions, one cannot carry out any more investment actions. Though unrealistic, this really paints a strict investing principle of "one should only invest when it is wise to do so, otherwise do nothing". It also makes one thinks very carefully before making each investment decision.

Further to the punch card example, a more suitable demonstration of "waiting for the perfect pitch" describes a baseball batter who needs to constantly decide when to swing his bat at the ball. Warren Buffet describes a famous baseball batter who divides the batting range into many smaller square sections where the ball can fall into when flying towards him. This baseball batter only swings his bat when the ball is flying into a few particular square sections that give him a very high probability to hit the ball for a perfect pitch. Otherwise, he does nothing.

Investing is wise only after it is given thoughtful and careful consideration as shown in the punch card and baseball examples. One only invest when there is a high probability of winning (making excellent returns) and low probability of losing one's capital. As such, Warren Buffet also has two golden rules for his investment:- First rule is never to lose money. Second rule is never to lose money too.

A point to note is that this concept of "waiting for the perfect pitch" cannot be misinterpreted and wrongly applied. For example, a contra player in the stock market may buy heavily into the stock of a particular company after a good news is released about the company thinking the stock price will soar on short-term. He thinks he is betting heavily since he has a perfect pitch. However, Buffett's intention for using this concept of "waiting for the perfect pitch" applies mainly to a long term nature of investing (e.g. he makes his perfect pitch to buying a company stocks not for a short-term speculative gain). His investments are mostly held for long term compounding returns, and his idea is to buy particular stocks when it is most attractively priced for its value with great long term potential for excellent returns.


Second section:- "Recognising the perfect pitch - when to invest based on looking at long term yield on one's investment."
There are many ways to determine whether a stocks is most attractively priced for its value to make good one's investment. One can look at price-earnings ratio (P/E), price-book ratio (P/B), intrinsic value (which is subjectively determined). Traditionally, the lower the P/E ratio (10 and below) and P/B ratio (1 and below), the more attractively priced is a stocks for its value.

Through my reading of investment books, I came across a book based on Buffett's wisdom of recognising when is the perfect pitch. One can look at the long term yield on one's investment. E.g. One buys a share of a company (e.g. XYZ company) at $1 and the company has a earnings per share (EPS) of $0.10. This means for every $1 dollar invested, one expects to receive $0.10 returns on the $1. The current yield on this investment will be ($0.10/ $1) X 100% = 10%. Is this a good deal?

If shares of another company LMN is priced at $1 per share and EPS is $0.20, the investor gets $0.20 for every $1 invested. The current yield is 20%. This is definitely a better deal than the earlier one. Of course, the investor does not get the full $0.20 returns per share physically on his $1 invested per share. Only dividends is given back to the investor and all remaining earnings of a company is usually used as retained earnings to further grow its business. However, as long as the investor remains invested, he still has interest to the full earnings (dividends already given to him plus any earnings not given to him but retained by the company).

It gets a bit tricky when we look at the growth of earnings per share (EPS). EPS of company XYZ is projected to be growing at a compounded rate of 20% per annum while EPS of company LMN is growing at compounded rate of 5% per annum. After 10 years, the EPS of company XYZ will be $0.62 while that of company LMN will be $0.33. So, an investor with company XYZ will have a future yield after 10 years of 62% on his initial $1 per share invested getting $0.62 on every dollar invested. On the other hand, an investor with company LMN though starting with a higher yield of 20% will only end up with a yield of 33% in 10 years time (not a significant increase in yield of returns).

In conclusion, one can look at current yield and future yield to determine whether a company is worthy of being a "perfect pitch".

I bought into the shares of Keppel Corp during March 2009 @ $4.05 per share. Illustrated below is the 6 years record of EPS for Keppel Corp.

2003: $0.511,     2004: $0.603     2005: $0.721     2006: $0.954      2007: $0.715       2008: $0.69

Therefore, my current yield based on year 2008 EPS is ($0.69/ $4.05) X 100% = 17.0%
Based on the 2003 EPS and 2008 EPS, the annual compounding rate of growth in EPS over this 5 year period is 6.19%. Assuming Keppel Corp keeps growing its EPS at this compounded rate per annum, its EPS after another 10 years will be $1.258.
My future yield will be ($1.258/ $4.05) X 100% = 31%.

31% yield may not be too impressive. However, it is still a decent figure getting 31% future yield per annum and growing still. Some stocks were trading at even higher yield based on their EPS and share price (more than 20 %) during March 2009. To an astute investor who can recognise high yielding stocks (current yield more than 20%) that can grow their EPS at high compounded annual rate (10% or more), it may not be too surprising to see the future EPS of such company may even reach the initial share price an investor paid for. By then, the investor that holds onto his shares may get a 100% yield ($1 returns for every original $1 invested).

Discussion points:- Wait patiently for the best chance to invest which is waiting for the perfect pitch. Otherwise do nothing.

One of the way to recognise the perfect pitch is to look at current yield and future projected yield. Buy stocks only when their current yield is high (more than 20%) and their EPS is projected to grow at high compounded annual rate (more than 10%). Thus, one should expect to get a high future yield on one's original invested capital (assuming one holds the shares long term and the company is still performing well).

Averaging down - A bane or a blessing in disguise?

Now that I have purchased my first 5 lots in CapitaCommercial Trust units @ $1.95 per unit late June 2008, I waited for a few weeks until the unit price descended to hover between around $1.80 to $1.85 per unit range. I recalled the price held strongly over that range for a few weeks, and I got impatient and bought two more lots around $1.83 per unit price hoping to average down my unit average holding price. I thought that averaging down was a good way to increase my amount of units in CapitaCommercial Trust and decrease my average unit holding price. Averaging down does provide these two benefits especially if the investor is convinced after analysing that a company's shares is worth further investment that he should rightly buy even more shares at a lower price.

However, averaging down has its loophole depending on the manner in which it is conducted. Firstly, averaging down does not work on an impatient investor. My situation was that I was too impatient and my next lower purchase price ($1.83 per unit) was simply not much attractively priced compared to my earlier purchase price ($1.95 per unit). Though averaging down can work, but I could not get it to work harder for me as I did not use this strategy properly. I landed up with even more units (7 lots) held at average price of only $1.9157 per unit after averaging down (compared with my earlier holding price of $1.95 per unit). So much for wasting my money in brokerage transaction fee and locking up more money into more units bought.

Secondly, the stock market was still in descent in July to August 2008, so the probability of the unit price going further down is very high. By averaging down, I was in fact repeating my earlier mistake of catching some more falling knives. Indeed, the unit price continued its descent further to come close to $1 per unit range by October 2008. Before October 2008, I made further purchases around $1.60 price per unit and $1.37 price per unit, and finally gave up getting tired of catching some more falling knives. It was a really gruelling and horrible experience of averaging down for me.

Due to my inexperience back then using the averaging down strategy, I suffered the consequences. It was also during that period of time that I came to know about technical analysis as the alternative approach to fundamental analysis for timing entry and exit into a particular stocks. Many technical analysts back then would tell of the dangers of entering the market because all technical indicators point to strong continued descending price action. Actually on hindsight, it was also not difficult nor mysterious to tell that the market is going on a bear descent even for a layperson. Had I been more patient and less emotional, I would not have made further purchases in the name of averaging down to my disadvantage.

It was much later that the unit price of CapitaCommercial Trust continued to decrease further until around the range of $0.60 to $0.70 per unit during March 2009. On hindsight, if I had been patient, I would have bought significantly more units at such low prices and my average holding price during March 2009 would be around $0.95 per unit assuming 20 lots were bought @ $0.70 per unit and adding in earlier 5 lots @ $1.95 per unit. So much difference in bringing down my average unit price from $1.95 per unit to $0.95 per unit. Of course, one can argue that had I waited even more patiently until March 2009 to buy all 25 lots @ $0.70 per unit, I would be even much better. My answer to this statement is that "I am not a prophet nor fortune teller, so do not assume I can do that."

Discussion points:- Averaging down needs to be used properly and can work in two unique situations.
First:- The investor knows a company is worthy of continued investment after careful analysis. He has an initial holding price of the company shares that is already undervalued (below the intrinsic value of the company shares). Upon further descent in share price below his initial holding price, he is in fact purchasing even more undervalued shares of the company. However, if the company share price is beaten down because of permanent problems with the underlying business, an investor should exercise extreme caution because the lower share price may ultimately mean shares having no value instead of undervalued.

Second:- Averaging down does not work on a prolonged sharp market descent (prolonged bear market or recession) because prices are free falling. Instead, an investor should be waiting patiently for the perfect pitch (waiting for prices to stabilise after the sharp fall which does not usually happen in a few days or few weeks, but may take months) before purchasing more shares to average down only at the best opportunate moment.

More on the concept of "Waiting for the perfect pitch" or "Betting heavily at the only best moment, otherwise it is always better to do nothing" in later post..........

Emotions do not rule in stocks investment

After setting up a trading account with a local stock brokerage firm in late June 2008, I was all geared up to make my first purchase into stocks. I had only by then read up only a few books on stocks investment and had got complacent that I should be ready to start my first stocks purchase. I call this a first-timer enthusiasm kills.

I made my first purchase (5 lots (5000 units) of CapitaCommercial Trust units @ $1.95 per unit). I recalled I was quite eager to hit the buy button of my online trading platform while watching the unit price of CapitaCommercial Trust keep changing by the second. It was like my moods was caught and held by the constantly changing quoted price on the online trading platform. It was a trying moment for me to keep my cool and patience watching the constant price change. I waited for the whole first day since the start up of my trading account and decided against buying the units. However, the second day came and I watched with the same undying enthusiasm at the constantly changing unit price of CapitaCommercial Trust. I finally gave in to my temptation and hit the buy button to purchase my 5 lots of CapitaCommercial Trust units. I consoled myself that the unit price has already dropped a few cents after one day's time, and I should have made a good purchase at that unit price.

Little did I know that a few days later, the unit price of CapitaCommercial Trust went on a further descent, and it continued its descent weeks later like going on a road of no return. It was during July 2008 when stocks market was still heading downwards. I got my first taste of the bear market descent. The feeling of watching the unit price keep descending was next to horrible. It was like a falling knife. It was also later that I learnt of the term "to catch a falling knife" which expresses my situation back then very aptly. I was really catching a falling knife without knowing (getting locked into the descent of my purchased units).

I further encountered some more bumps and knocks in my stocks investing adventure further ahead before I learnt some more lessons the hard way.

More to be continued...............

Discussion points:-
Thinking back, I commited several mistakes through my initial stocks purchase.

Mistake One:- I was affected by my emotions (extreme first-timer enthusiasm) which really kills at stocks investing.

Mistake Two:- I neglected and underestimated the effects of the financial crisis already looming at large causing the global stocks market to go on a descent. It was really heartache to catch a falling knife watching one's stocks holdings continually depreciating in value.

Mistake Three:- I did not analyse the fundamentals of the stocks carefully before I made my purchase. Back then @ $1.95 per unit, the distribution yield of CapitaCommercial Trust was only around 5% to 6% which was average, and not particularly attractive. I also did not consider the possibility of any maturing debts due for refinancing within one year's time. The unit price @ $1.95 was only slightly below its net asset value (NAV) around $2.50 per unit one year back which was not very attractively cheap.

Emotions kill at stocks investing.

One should consider also the macroeconomic big picture after considering an attractive company to purchase its shares. This is to time one's purchase into stocks carefully to "prevent catching a falling knife" (betting against a market descent which spares no investors). However, one should not try to time market bottom as it maybe unlikely for anyone to accurately do so.

No matter what investing approach one uses, it is always prudent to analyse the underlying business fundamentals of a stocks before purchasing to avoid any unwelcomed surprises.

My first baby steps in stocks investment

After considering that putting money into bank savings account and unit trust funds (more discusssion on my experience with unit trust funds in another later post) are not very lucrative in generating returns, I embarked on exploring investment in stocks. Being wary of the dangers and risks of the stocks market (from seeing how my father has lost money in his stocks investment), I decided that the best way to approach the stock market is to be educated in stocks investment. Thus, I began to visit the library to borrow up books on stocks investment. I recall my friend who was my financial consultant told me about this guy Warren Buffett who is very successful in stocks investment. I then began to keep a look out for books written about him and his investing approach. I also searched online for articles written about him and his investment approach.

Warren Buffett is a really excellent legend in investment. He managed to compound his returns from stocks investment at a high rate of around 23% consistently over a period of at least 30 years, a feat not easily achieved by many investors. After being amazed by this excellent track record of him, I began to study his investing methodology carefully. He is a value investor who does value investing. Value investing is buying stocks at below their intrinsic value hoping to pay less and get more returns out of the investment. Warren Buffett was influenced by his mentor Benjamin Graham who is known to be the father of value investing to see the worth of value investing.

After reading up from some books and the internet about Warren Buffett and his value investing methodology, I was still a bit hesitant about entering the stocks market, still not able to overcome my fear of the possibility of losing money. During that time, my financial consultant friend also introduced me to a virtual stocks website. I decided that I shall try out stocks investment with this virtual website. Afterall, there is no real money involved in such virtual stocks website. I finally started my hands-on experience on stocks investment with this virtual stocks website.

In this virtual stocks investment website platform, one can try out many things without fear of losing money since one is not playing with real money. I recalled I was given $50k virtual money. It was around May 2008 that I started playing this virtual stocks website. I noticed how fellow players in this virtual website made or lose their money. I found that those successful ones actually bought only one or two companies stocks, but bet large number of shares in just one or two companies. When the stock price rose a little bit, they made lots of money since they were holding a large number of shares. Those that diversified into many stocks holdings (more than 5) had mediocre results from their investments (as some stocks rose while others sank in prices which even out their profits). However, those that focused on only one or two stocks also saw the most loss when the stocks sank in price. So, betting heavily on less stocks can boost one's returns as well as risk big losses. To prevent this from happening, I also noticed successful players immediately sold their stocks if the stocks has fallen by a certain amount (which later I found out they were working based on principle of cutting loss) to prevent risk of making big losses. So, with a strict cutting loss principle in place plus a focused approach (buying only one or two stocks), those players tended to be more successful over a period of time.

The above was my learning experience from playing the stocks market virtually. I stopped playing with this virtual stocks website sometime in late June 2008. This virtual stocks website exposed me to playing the Singapore stocks and I at least got familiar with the different names of the companies that were traded on the Singapore stocks market. This experience paved the way for me to start off my adventure with real stocks in the real Singapore stocks market come late June 2008. I finally started a trading account with a local brokerage firm in late June 2008. All excited, I began to buy my first real baby stocks in late June.

To be continued..........

Discussion points:-
Many of my prior investing experiences did not make sense to me then until later when I aligned my experience to what I know in theory or practise.....for example, Warren Buffett adopts a focused investing approach investing heavily in only a few top holdings which he saw the highest potential while less funds were held in less promising stocks. I now realised this focused approach was already displayed in the successful players mentioned in my virtual stocks investing experience who invest heavily in one or two stocks. But their way of playing is on short-term basis while Warren Buffett's focused approach is more robust in that he analyses and only put his funds into excellent businesses and he wishes to invest long term in such few excellent top holdings of his.

Also, it was only later that I learnt about the principle of strict cutting loss which was already displayed in the successful players of the virtual stocks who sold their shares immediately when the stock price had hit a certain cut loss percentage below their holding price. This was to prevent them from incurring large loss since they betted heavily in only one or two stocks. 

My maiden foray into stocks investment......

I started investing in the Singapore stocks market during late June 2008. That was the time when I had already started working as a full-time tutor not so long ago back in January 2008.

There were two factors that prompted me to start off my stocks investment journey. The first motivating factor was to grow my exisiting income and savings. I noticed that as a full-time tutor, I had no CPF contributions and in order to grow my savings for retirement or emergency use, I had to either put my savings with a bank savings account or a unit trust fund (hopefully to grow my savings). I considered these two options carefully and based on my experience with bank savings account (which has returns less than 1% per annum) and my unit trust funds (which suffered a paper loss during June 2008 due to the financial crisis), I decided against putting savings into these two instruments. A bank savings account offers liquidity for parking cash which is needed for short-term use and it is no more than this. One shouldn't hope to gain much returns from putting cash in savings account. The mearge returns is just not enough to even fight inflation which erodes the value of money over time.

Unit trust funds maybe good for long term investment, however I think there are far better investing instruments than unit trust funds. I shall discuss more on my experience with investing in unit trust funds on a later post (which I am quite dissapointed with and has now largely divested all my money out of unit trust funds). The second motivating factor that prompted me to start my investing journey into stocks is also because the unit trust funds I have invested in have all made paper losses during June 2008. Thinking that I maybe able to do better in stocks than unit trust funds, I made my first foray into stocks investment in late June 2008.

I shall discuss more about my exciting experiences into the stocks market which has intrigued me all along and even until now in my further post. In a nutshell, stocks investing so far has been very eventful and exciting for me. I never regretted the move into stocks investment, and until now my experiences with stocks investing still lingers on and never fails to fascinate me even at current moment........Keep in tune for further post on my stocks investing journey.......It all begins here......

The dynamics of the stock market is so fascinating. Investing is an endless topic where the learning always continues.