Investment Principles - overcoming greed & fear

When I first learn of Warren Buffett's approach and mindset towards investment, I came to realise the reason for years of poor investment result - greed and fear. How many times have I heard people, professional analysts, retailers, brokers etc saying this:

- "This stock can go up further, it is still cheap...."
- "Market corrected badly, you better sell everything before you're left with nothing...."
- "I suffer huge losses in this stock, I can't sell it now, I'll wait....."
- "My broker told me that syndicates are going to speculate this stocks, we better grabbed now...."

The kind of remarks such as those listed above, I can sum up with a few words: sentiment, emotion, feeling, speculation etc. To-date, all my friends who invested based on sentiment had failed and left the market totally. For those who still hang around, including myself, we fully understand in one truth – to survive and earn from equity investment, we must first overcome greed and fear. This means that investment decision should be based on a company’s fundamental, not on (market) sentiment.

Let me illustrate. In 2002, right after the infamous 911 (and start of global recession), Raffles Medical Group (RMG) reported first ever losses and its stock slides further. After studying RMG’s history background, performance and businesses, I concluded that we should jump into this company while others are dumping. We should be logical and not emotional. Only a colleague in the Army believed in me and bought into RMG at a price below S$0.30. We hold RMG as its turn profitable the year after and continued its growth. We enjoy high dividend yield while sitting on unrealised gain.

And this the kind of thing I love about stock investment. You get rid of your greed and fear, find a gem that has been overlooked by the market, invest in it while people are dumping. And subsequently the company you invested continues to grow such that you enjoy both high yield and unrealised gain. Every year, your dividend yield from the company way exceeded bank's rate. The worst thing that can happen to you is when the share price fall back to your purchase price and your unrealised gain forfeited. But so what? Throughout my years of experience in investment, if you found a growth company before anyone else, and bought it cheaply, even in times of market correction, it is quite difficult for the price to fall back to your purchase price, assuming that the company's fundamental remains.

Unfortunately, sometimes I tend to forget what I’ve learned. I’m still human. After the exposure of US subprime woes in Jul 2007, DJIA and Asian markets tumbled. Initially I choose to stay and turned a blind eye to the issue. Until 17 Aug, after various market update of sharp fall in the STI (breaking the psychological support line), I gave in to the threat and join the queue of panic selling. Guess what? STI rebounded strongly before it closed for the day and on 20 Aug, STI surged another 191.67 points (6.1%) to end at 3,322.38. It recovered its ground but I had sold a few companies resulted in small realised losses. To add salt on my wound, I had sold off one of my favourite company – Aqua Terra, at BREAKEVEN!!!. That is the consequence of following the market’s FEAR. I learned my lesson, again.