However, I do realize that sometimes people are becoming too fearful of something they don’t know. Just the other day, a friend of mine told me he’s going to venture into land investing. I asked why don’t he consider stock instead because the entry cost is lower. You don’t need so much money to go into stock investing and you definitely don’t need to get a bank loan for it. His reply was simple – “I don’t like to gamble”.

I think most people have the thinking that stock investing = gambling. Unfortunately, it’s not if you know what you’re doing and if you’re not trying to get rich quick. Based on The Free Dictionary, gambling is “the act of playing for stakes in the hope of winning”. This definition is somewhat similar to the definition of speculation: “Engagement in risky business transactions on the chance of quick or considerable profit.” And I often put these 2 together due to their similarities.

But to say stock investing IS NOT gambling, is kind of an understatement. Because there are a lot of stock investors who do speculate and gamble. These are normally the short-term stock owners. They tend not to keep a particular stock for more than few months. They do short-term buying and selling, and they trade a lot. However, when asked why are they investing in a particular company, most of them will not be able to answer you. Investing with uncertain future is, in a way, speculation. And as long as it’s speculation, it can be considered as gambling.

But this does not apply to stock investing alone. It also applies to other form of investing, be it land, property or stock investing. Truth to be told, this kind of method does help you earn a lot if you’re lucky but it is also very very high risk. I’ve burnt myself in the past due to stock speculation and it wasn’t a pleasant feeling. So easy come, and easy go. Just like how you can go buy lottery and if you’re exceptionally lucky, you will win a large sum of money.

However, if given a choice, I would encourage people not to speculate in stocks and never do all those short-term trading. It is too risky. If you want to invest in stocks, be prepared to spend an awful amount of time understanding the way it works, how the companies operate, the track records of the company’s management team, the prospects, etc. There are tonnes and tonnes of stuff for you to do research on. From there, you can shortlist some of the companies that you’re interested in and wait for them to drop to a price which you think is cheaper than the fair value. Then go in for those undervalued stocks. Invest and keep. But be prepared to keep them for 3-5 years (or even longer than that!). Yes, stock investing is about holding on to a particular stock for long term. If you’re trying to sell within few months, then it’s not really investing. It’s speculating.

So there you go, the myth of stock investing. As you can see, the proper way of stock investing is very different from what most people believe it should be. It’s not gambling at all. There are some uncertainties, but you make the decision based on your research and studies, not based on some unfounded rumors. And by far, it is also the best investing for me. Low entry cost, decent profit.

Just make sure you know what you’re investing in.

Why? Well, it’s because it’s more rewarding than our Fixed Deposit and less risky than investing in stocks. For some, it is because they don’t really need to manage their portfolio. They normally just leave it to the fund managers to handle their money for them. The losses will be minimal, and same goes to the rewards.

But lately, things have changed a little on the mutual fund front. There are more and more funds to choose from now. Investors need to read up about the background, the industry, market segment, etc before deciding which to invest in (and choosing a proper mutual fund can be quite a daunting task now). Also, investors can start to trade their mutual fund units ONLINE.

As you can see, the mutual fund we have now is no longer the same as the one we used to know. Instead, it has become something similar to the stock investing that we all know (and some of us fear) - online trading, a lot of options and plenty of research works to be done.

So other than the high service charges, the minimal losses and profits…. there’s really not much difference from stock investing. If that is the case, why are people still interested in mutual fund investing and the same group of people remain fearful of stock investing? Aren’t these 2 becoming incredibly similar? Mmm perhaps most people still don’t know anything about these 2 and the mutual fund…being cheaper, definitely looks to be ‘safer’.

Not really. For your information, my losses in mutual fund in the year 2008 was about 60% while my stock losses was lesser than that. And to make things worse, I can’t simply change/sell the funds because it’ll incur further losses for me – service charges. I can only stop putting money in, cost averaging, or switch to bond (and incur service charges). Who says mutual fund is safer?

That is why I always suggest people to look into stock investing. There’s really not much difference between the 2 and for me, the pros of stock investing far outweighs the pros of mutual fund. Treat mutual fund as a form of saving, and stock investing as…well…a form of investment.

But either way, you should know what you are putting your money in BEFORE you actually do so. Putting money into something you have no idea off is equivalent of gambling….and not investing. So thread carefully.

So the next question is, is this the right time to enter the stock market?

Well, it depends on what kind of stocks you are looking at. If you are planning to invest in a good company with good management (and good cash flow. Don’t just look at the profit), then I don’t see any problem. Buy it when the price is right…..not the lowest and not the highest. Then keep it for few years.

On the other hand, if you are a speculator and want to invest in those stocks with fluctuating price, you better be careful. Don’t forget what happened during the stock market crash especially the one in 1997-1999 period. Stocks which were priced at $20 could disappear within a weak. That is 20k worth of money burnt in 1 week.

These stocks are what I always call empty vessels. Companies which have no proper cash flow, limited assets and yet have a ridiculously high price tag.

My advice, never to invest in such stocks. Yes, you might be able to earn a lot by trading them within a short period of time due to their fluctuating prices but chances are, you will get yourself in big big trouble most of the time. Because the stock price does not reflect the true value of the company.

Remember that investing in stock market is not gambling. And if it’s not gambling, why do you want to put your money into a company which is practically an empty vessel? And if you are not investing in empty vessels, there’s no need for you to panic even if the stock market crashes.

p/s…. over the years, there have been a number of companies which are regarded as empty vessels. If you have been in the stock market for long, you should be able to see. I won’t give any examples here though.

p/s…. empty vessels are not necessarily petty stocks. Some petty stocks actually have pretty good records, with proper management.

Should I go against the market?

Some investors who managed to catch stocks at cheaper prices may have been selling most of their holdings lately. Unfortunately, the market continues to trade higher than previous selling prices. In such situation, the worst mistake for some retail investors is to abandon their contrarian strategies and start buying back the shares that they disposed off earlier at even higher prices.

I still remember one of Warren Buffett’s favorite quotes is something like “to be fearful when others are not, and to be brave when others are fearful”. In other words, when others are panicking and sell, the price of the stocks will take a plunge. That is the good time for long term investors to acquire some stocks. And when others are franctically buying in order to jump on the so-called ‘wave’, it’s time to sell before the bubble bursts.

But as you’ve read in the article, this is not always the case and it CAN be disastrous if you don’t have a proper plan. I believe the keyword here is patience. Never ever panic. Remember that in stock market, missed opportunities are nothing special. Whatever that goes up will eventually come down.

Conclusion, go against the market and also the main population (of the investors) if you know what you are doing. Don’t ever become impatient because being impatient can be disastrous when investing in stock market. But if you are truly an investor (and not speculator), buy low on the stocks that you really interested to invest in. Just be prepared to hold on to your stocks for at least 3 to 5 years.

And our stock market value is nothing but a result of all these speculations. There are times when our stock market does not reflect the actual value it has….and a technical correction is inevitable. Sometimes, such correction can reap in profits for the speculators, but most often than not, it will only make them lose a lot of money.

So what exactly is a speculator and what is an investor?

Speculator is someone who guesses, based on some complex calculations, the value of a stock. And people who time the market can be considered as speculators too. Anything that is not 100% true is considered as speculation. Even if the speculator is confident that 99% of the time, his guesses will be correct..there is still the 1% chance that it’ll fail. The speculator is very active in buy and sell activities.

Investor, on the other hand, invest in a company because he/she likes and understands the business. He is willing to hold the stock irregardless of what is happening to the stock market. And he/she will not try to guess the performance or the “actual” value of a particular stock based on some complicated calculations. Buy and sell activities will not happen often.

To cut things short, our stock market is populated by speculators who buy and sell without looking at the true value of a company. True, speculators do earn a lot but they also lose a lot. Warren Buffet is not a speculator, he is an investor. He hardly sells any of his stocks! So from here, you can see that investors actually earn more and win in the long run….but the 1 thing that every investor needs to learn is patience. Because the stock market will, without a doubt, go up and down like there’s no tomorrow due to speculation activities. The investor will just have to stay put and trust in the company that he/she invests in.

For me, I used to be a speculator and I’ve lost a lot. Nowadays, I prefer to invest and just put my money there. It takes less time to monitor and the risks, to me, are lower too.

Take a look at this article from The Star – Can the market rally be sustained?

Let us take a look at some of the reasons which I think have contributed to the market rally one way or another.

• Malaysians are still spending especially with the smart marketing moves made by the businesses. We’ve seen a LOT of warehouse sales this year.
• Some Malaysians are still unaware of the actual economy situation in other countries. Malaysians tend to be oblivious at times. This indirectly leads to more spending from this group of oblivious Malaysians. So in a way, they are helping our economy.
• 2006-2008 are 3 years where a lot of people get their hands into property investing. Most of them buy for their own use and 2009 is about the right time their properties get completed. And of course, upon completion, people will need to spend a lot of money.
• A lot of operations in the US, UK, Australia, etc are moving to Malaysia as a cost cutting measure. It’s cheaper here so a lot of companies are going for the offshore model. This has in turn create more job opportunities for the people here. True, we still have jobless people but we’re not as badly hit as US or UK.
• Kudos to our Bank Negara. The folks over there are really doing a good job. Without them, I’ve no idea where our economy will be heading.

Those are some of the reasons I can think of which I feel have helped our country in this recession. But having said that, I do feel that the stock market has gone a little bit too high up. Perhaps the fund managers are doing something there, I don’t know. But if I were you, I’ll be extremely careful. I do have a feeling that the bubble might burst anytime.

Well, again, I must say that I am not an expert. For me, I’ll stay put for now and will only invest in a company if I feel the company has good prospects AND the stock price is reasonable. I’ll do that irregardless of the economy and the stock market movement.

It’s investing we’re talking about here, not gambling. So don’t speculate too much. If you feel it’s cheap, buy. Else, just wait. It pays to be patient.

And then I interrupted.

I said that it is true that this stock broker is a very careful person. But a stock broker is, after all, just a stock broker. He earns if you buy/sell and by telling you not to buy, he ends up not earning anything. But if you insist, you can still buy! Nobody is stopping you from that. The stock broker’s role here is just to give you his opinions and advice since stock brokers tend to get news faster than us.

To be honest, I rather not lose 1000 than not earn 1000. So having a cautious stock broker is always better than having a stock broker who always gives me wrong information.

Also remember that at the end of the day, stock brokers rely on news most of the time. You still need to do your own research before making a buy/sell decision. If you don’t do that, then don’t start blaming people (stock brokers) if things don’t go your way.

We all know that most mutual funds/unit trusts are based on DCA concept since they encourage you to pump in money every month. So if the market goes down, you will use the money to buy the units at a lower price and when it goes up, you can sell them for profit. Remember the standard “buy low, sell high” concept and DCA is based on it.

The important thing is to be able to hold it for long. Otherwise, DCA will not work.

What about stock investing? Can DCA work? The answer: it depends on 2 questions:

• How long are you willing to hold? DCA does not work most of the time for contra-based or short-term investors.
• Are you sure you are buying into something worthwhile? DCA can bring you down if you are using it on something useless.

By answering these 2 questions, you will be able to know if DCA can work for you or not. Always remember that in investing…be it stocks or mutual funds, it pays to be patient. If you are sure the company you are investing has good prospects and healthy cashflow, and if you are willing to hold for 3-5 years, then you really have nothing to fear even if the current stock market plunges (*touch wood*).

Why?

Because the interest rates for foreign cars has been increased while the interest rates for local cars has been lowered, albeit just a little. To me, this move is pretty obvious that the government is trying to “encourage” people to get local cars Proton or Perodua.

For stock investors like myself, what does this change mean to me? I guess it’s quite obvious that there WILL be impact on the companies involved in auto industry namely Tan Chong, UMW, Proton, etc. Do bear in mind that these companies’ sales rates were not very good towards the end of 2008 and early 2009, and having this increase in car loan interest will further deter people from buying cars…at least foreign cars.

Check out this article from The Star – Interest rates for car loans raised.

p/s….. the effect might not be that obvious just yet. I guess we’ll see it in the next quarter or the one after that.

Malaysia's stock market rebounding?

Is this the sign of more good things to come? Is our stock market staging a fierce come back after so many months of below-par performance?

Actually, part of the positive come back is due to the announcement of the cabinet by our new Prime Minister and also the recent Wall Street’s rally. But if you were to ask me (I’m a newbie, to be honest) about the sustainability of this rebound, I’m quite skeptical about it.

In my opinion, it is still too early for any form of market recovery even though market movement is actually 6 months earlier than the actual economy. So if you predict that the economy is going to recover in Dec 2009, the stock market should be showing some signs of recovery in June 2009.

But from the looks of it……an immediate recovery is not likely. After all, there are still plenty of jobless people in our country (and even more in US and Europe). This doesn’t do the economy any favor since people will still be unwilling to spend money. In fact, more people are more conscious about their spending now than they were few months ago. People have finally woke up from their assumption that “economy will be fine very soon”.

Also, the recent mini budget looks more like a slow and long-term plan. The effects will not be immediately visible .

But even if there’s no real sign of positive recovery, I do believe that the worst is over for now. Maybe there will be worse news in the next few months, but most people will be prepared for it.

So let’s just keep our fingers crossed for now.

p/s…….. If you’re looking to invest your money, try to look into properties. Stock market in my opinion, is a little bit expensive after the recent rebound. Do wait for a while and see how it goes. The rebound is too drastic for my liking. But then again, I’m just a newbie when it comes to stock market and I could be wrong.