Donald Trump’s Inaugaration!
I woke up around 6AM and all the event coverage of Donald Trump’s election was done.
You can watch most of it from PBS NewsHour’s Youtube Channel. It was attended by rising political stars and former presidents such as Mike Pence, Jared Kushner, Bill Clinton, Jimmy Carter, and George W. Bush. Interestingly, a low profile member of the Trump’s family, Tiffany Trump brought her boyfriend Ross Mechanic to the inauguration.
We are living in a lot more uncertainty and frankly speaking, this is the ripe season to go out there to hunt for great companies and keep them under your watchlist.
Among many other things, I tend to look at the correlation of S&P 500 and its earnings to see where are we headed. A good website would be Macrotrends. For the past few months, it seems that the S&P 500 EPS remains flat while S&P 500 index continues its ascent. There are many notable uncertain events such as Theresa May’s control over the Brexit situation, critical elections happening throughout Europe, and China’s growth targets.
In this world, we look towards superpower countries such as USA and China to kickstart the growth momentum, so it’ll be critical to watch out for their developments.
One thing for certain, the human population continues to grow despite our history that is filled with stock market crisis, doomsday predictions, life-threatening diseases and wars. This is good news for investors. This means there will be growth in the area of consumption. People still have to eat. People still require a shelter. People still need to wear clothes. This is precisely why businesses continue to flourish and prosper.
It pays to be an investor in companies that create innovative products and services to serve the humanity.
This morning, I chanced upon this article called How to invest like… Warren Buffett’s hero Philip Carret. Frankly speaking, I did know about Benjamin Graham and Philip Fisher earlier on. Not Philip Carret.
Carret’s parents were earning good money yet they are unable to manage their money well. It is akin to someone who won the lottery and spent it away quickly. Fast money comes and goes. He decided that “if I were ever to gain wealth, it would have to be by my own efforts”. Carret exchanged investment ideas with Howard Buffett’s, father of Warren Buffett. He was impressed by Warren Buffett that he bought shares of Berkshire Hathaway. The rest is history.
To simplify Carret’s philosophy, here are some pointers from the article:
- I have a very simple strategy, I buy good companies at attractive prices. Then I sit on them.
- Holding stocks for weeks or days is the pinnacle of stupidity.
- Have inquisitive mind for new products on the shelves and talk to people regularly to generate stock ideas
- Look for a strong balance sheet, a good position in a niche market, and a strong management team
- Patience is more important than intelligence.
A lot of investors out there do not have the quality of patience or holding power. It is simple. If there is nothing to do, don’t do anything. Many crave for action so you’ll see a lot of trading activity happening. It doesn’t pay well because frictional costs such as brokerage eat into your profits. It is called churning.
In the The Art of Execution
“One of the key requirements of staying invested in a big winner is to have (or cultivate) a high boredom threshold.
Meeting some of my Connoisseurs could be very, very boring because nothing ever changed. They would talk about the same stocks they had been invested in for the past five years or longer. On the days I had a meeting scheduled with a Connoisseur, I sometimes struggled to get out of bed.
The fact is, most of us will find it difficult to emulate the Connoisseurs because we feel the need to do something when we get to the office (or home trading desk) every day. We look at stock price charts, listen to the latest market news on Bloomberg TV, and fool ourselves into believing we could add value from making a few small trades here and there. It is very hard to do nothing but focus on the same handful of companies every year; only researching new ideas on the side.
Many of us, seeing we have made a profit of 40% in one of our stocks, start actively looking for another company to invest the money into – instead of leaving it invested. This is precisely why lots of investors never become very successful.”
Earlier in my investing journey, I made a terrible mistake. I was impatient. There was a particular stock whose earnings are accelerating very well and it is undergoing a turnaround situation. By 2nd quarter, the company had doubled its earnings already. However, the share price did not move at all. I was so frustrated because there is real opportunity cost, placing my capital in a stock that did not produce returns. I did not have the patience to wait out for Mr. Market to recognise its business value, and I sold out. A month later, the stock ascended by 70 – 80% and it became a painful investing experience for me. I allowed boredom to get the better of me.
I crafted a few questions to guide me when such events happen again:
- Is the business fundamental stronger year after year?
- Are the management working hard for the shareholders?
- Am I influenced by the share price or business fundamental?
In a way, as long as the business fundamental continues to grow well, I should have no issues holding this stock. Alluding back to Carret’s sharing, our mission is to buy a good company at an attractive price and wait out for Mr. Market to recognise it and growth to materialise.
Hope this sharing is useful and wishing everyone, Happy New Year!