Value Investment – It’s True Value
If anyone asked me the best book I ever read, that would be “Essay of Warren Buffett”. I read this book somewhere in 2002 which totally changed my approach and strategy in investment management. The book covers Warren Buffett’s approach in investment analysis and some technical concepts. But if you only read the book and never put it into practice, you gained nothing. You must put it into practice. And this is always the problem with many people; they read self-enrichment books like any storybooks such as Lord of the Rings.
Last year, one of my colleagues was complaining about our job (again) and that he says that likes to read books. Out of curiosity, I asked him if he have read Robert Kiyosaki’s “Rich Dad, Poor Dad”? He couldn’t remember initially, but finally recalled. I continued to ask him for his comment on the book, and whether the book changed his life in any way? He replied “ok lah, it’s a good book, nothing much lor”. I smile and changed the subject. That was an expected but disappointed answer. He read the book like any storybooks – no wonder it took him sometime to recall.
Whenever I lent a self-enrichment book to a friend or colleague, I always tell them beforehand not to read it like a storybook. Instead they are to understand it, appreciate it and try to relate it to their current situation. Buying self-enrichment book is an investment; we should expect a return from it. If you need a storybook, go to library and borrow for free.
Impact Of Reading Essay Of Warren Buffett
After I read Essay of Warren Buffett, I immediately put it into practice. I totally change my approach and strategy in stock investment. I start to analyse company’s annual report and evaluate those figures vigorously. I also use Warren Buffett mindset to question certain figures and corporate announcements. For example, many companies frequently announce to market that it has plans to do this and that. Or that it believes that it can sustain growth by certain percent. Or it targets to maintain certain profit margin or market share etc. But after applying Warren Buffett’s approach, I always disregard this kind of empty promises. On the newspaper, you can also find many analysts writing reports on companies and like to use motherhood statements such as company so and so is expected to clinch so much contracts, or expected to benefit from industrial growth, or pursuing active for mergers and acquisitions etc. I will throw this kind of report immediately into the dustbin.
So what have I actually learnt from Warren Buffett? A few months ago when I attended a seminar conducted by a land banking company, I use exactly the same mindset/approach when I asked critical questions to evaluate its business (you can find it in my archive). If you invest in anything, check for its real (or intrinsic) value. Check the facts and double checks again. The word “expecting” or “target” has zero value. But “signed million-dollar contract" has good value. Also when we study a company’s fundamental, focus on company’s cashflow and not on items that can easily be manipulated. What else have I learnt? I also learnt to overcome greed and fear. If you think that this is pure commonsense and going to rebuke me, don’t! I can show you tonnes of examples on how people got cheated or loss lots of money because of greed and fear. I was once one of them. Commonsense.... my ACCA lecturer used to say that “commonsense is the least common human attributes”.
So Warren Buffett’s teachings not only make me a winner in stock investment but also equipped me with the skill to evaluate any investment objectively. Everyday, there are someone in another part of the world coming up with new investment scheme to “make money”. Some may be genuine while others are scams. I like to ask all readers of my blog, how do you:
1) Differentiate between a genuine investment and scam?
2) For genuine investment, how do you evaluate its risk and return?
If you are hoping that in this article I am going to share the answer with you, you are going to be disappointed. It is not that I am stingy in my sharing, but that this is a huge topic. I can only share with you my experience for a start. To be that good in the above two points, you must keep reading, learning and practicing.
My Approach To Sunshine Empire’s Scheme
I had previously shared my experience on Sunshine Empire in my blog. I never jump to any conclusion; I never allege that it is a scam. But based on what I learnt from Warren Buffett, I am able to evaluate the scheme objectively (point 2 above). Last Saturday, I went back to office to finish a report for Monday. One of my colleagues was working on shift then. She came to me and then suddenly we talked about Sunshine Empire again. It’s a hot topic now. She asked for my opinion. The following is what I shared with her:
1) I discovered that many retail investor, aunties and uncles are seriously lacking of fundamental knowledge in investment evaluation. I am talking about really simple knowledge.
2) If you want to invest in any scheme or products, you must first understand how it generates the income and whether it is sustainable. Preferably, we want to see growth of course.
3) You should never be convinced by PowerPoint slides, pictures or video clips on company's assets and finance. You must obtain assurance by somebody trustworthy which, in an unfortunate event, you can hold him/her responsible if there is negligence or fault. This “somebody” must be qualified and independent. For example, it must be a lawyer, external auditor, independent property evaluator etc. This qualified professional must sign on his report and you must see (and even obtain a copy) of such black and white. Preferably, get a copy of Sunshine Empire’s annual report together with the external auditor’s report.
4) We must be satisfied with all the questions on risk before even talking about return, regardless of the rate. I meant what’s the point of talking about return if you cannot ascertain or manage risk? If risk is not an issue so long the return is very high, then a casino would probably solve everything. There is a chance to earn 100% return in every minute if risk is not an issue! Sunshine Empire certainly cannot provide such return.
5) I told her to first overcome greed if she wants to protect herself forever from all tempting schemes. Of course that does not means that we should become so timid that we place all our savings with the bank. With higher expected inflation next year, you may even incur a loss (in value of money) even if you save your money in fixed deposit.
6) Do not succumb to hard sales tactical. There is no such nonsense as “this opportunity comes only once in a lifetime and valid only for three days” etc. Anyone making this statement, give him/her 50 cents to buy a kite – to fly.
My colleague continues to ask me if there are better investments that come with low risk but reasonable return, at least higher than the inflation rate. I shared with her a few products such as bonds which I had covered intensively in my blog.
So is my approach to Sunshine Empire’s scheme correct? If you read The New Paper on Sunday (18 Nov), page 12 – 13 gives some updates.
1) The press check with the relevant authority in Taishung, Taiwan, found that Sunshine Empire’s affiliate Emcom is not in partnership for the wireless broadband business. Emcom has never contacted them on this project.
2) Malacca theme park. The paper reported that Malacca City Council did not receive any such proposal.
Lacking Basic Knowledge In Investment Evaluation
So I found many aunties and uncles (and sometimes young men) seriously lacks very basic skills in investment evaluation. And I am not talking about reading annual report or legal document. I am talking about not knowing how to “get the facts correct”. And they actually believe that someone is there to help them to reach financial freedom. I asked one of the Sunshine Empire’s partners on why would the founder wants to share such lucrative returns? He could have borrow from the bank cheaply and keep all the remaining. I mean if their investment yield approximately 10% returns a month, the founder could have borrowed from the bank at less then 10% cost a year! The answer given to me was “the company wants to share wealth with commoners instead of bankers”!
I didn’t know Jesus walks the earth again! If anyone can believe such statement, he/she is not naïve – he/she is stupid at an unbelievable level. Perhaps I should start a course on basic investment evaluation.
If anyone asked me the best book I ever read, that would be “Essay of Warren Buffett”. I read this book somewhere in 2002 which totally changed my approach and strategy in investment management. The book covers Warren Buffett’s approach in investment analysis and some technical concepts. But if you only read the book and never put it into practice, you gained nothing. You must put it into practice. And this is always the problem with many people; they read self-enrichment books like any storybooks such as Lord of the Rings.
Last year, one of my colleagues was complaining about our job (again) and that he says that likes to read books. Out of curiosity, I asked him if he have read Robert Kiyosaki’s “Rich Dad, Poor Dad”? He couldn’t remember initially, but finally recalled. I continued to ask him for his comment on the book, and whether the book changed his life in any way? He replied “ok lah, it’s a good book, nothing much lor”. I smile and changed the subject. That was an expected but disappointed answer. He read the book like any storybooks – no wonder it took him sometime to recall.
Whenever I lent a self-enrichment book to a friend or colleague, I always tell them beforehand not to read it like a storybook. Instead they are to understand it, appreciate it and try to relate it to their current situation. Buying self-enrichment book is an investment; we should expect a return from it. If you need a storybook, go to library and borrow for free.
Impact Of Reading Essay Of Warren Buffett
After I read Essay of Warren Buffett, I immediately put it into practice. I totally change my approach and strategy in stock investment. I start to analyse company’s annual report and evaluate those figures vigorously. I also use Warren Buffett mindset to question certain figures and corporate announcements. For example, many companies frequently announce to market that it has plans to do this and that. Or that it believes that it can sustain growth by certain percent. Or it targets to maintain certain profit margin or market share etc. But after applying Warren Buffett’s approach, I always disregard this kind of empty promises. On the newspaper, you can also find many analysts writing reports on companies and like to use motherhood statements such as company so and so is expected to clinch so much contracts, or expected to benefit from industrial growth, or pursuing active for mergers and acquisitions etc. I will throw this kind of report immediately into the dustbin.
So what have I actually learnt from Warren Buffett? A few months ago when I attended a seminar conducted by a land banking company, I use exactly the same mindset/approach when I asked critical questions to evaluate its business (you can find it in my archive). If you invest in anything, check for its real (or intrinsic) value. Check the facts and double checks again. The word “expecting” or “target” has zero value. But “signed million-dollar contract" has good value. Also when we study a company’s fundamental, focus on company’s cashflow and not on items that can easily be manipulated. What else have I learnt? I also learnt to overcome greed and fear. If you think that this is pure commonsense and going to rebuke me, don’t! I can show you tonnes of examples on how people got cheated or loss lots of money because of greed and fear. I was once one of them. Commonsense.... my ACCA lecturer used to say that “commonsense is the least common human attributes”.
So Warren Buffett’s teachings not only make me a winner in stock investment but also equipped me with the skill to evaluate any investment objectively. Everyday, there are someone in another part of the world coming up with new investment scheme to “make money”. Some may be genuine while others are scams. I like to ask all readers of my blog, how do you:
1) Differentiate between a genuine investment and scam?
2) For genuine investment, how do you evaluate its risk and return?
If you are hoping that in this article I am going to share the answer with you, you are going to be disappointed. It is not that I am stingy in my sharing, but that this is a huge topic. I can only share with you my experience for a start. To be that good in the above two points, you must keep reading, learning and practicing.
My Approach To Sunshine Empire’s Scheme
I had previously shared my experience on Sunshine Empire in my blog. I never jump to any conclusion; I never allege that it is a scam. But based on what I learnt from Warren Buffett, I am able to evaluate the scheme objectively (point 2 above). Last Saturday, I went back to office to finish a report for Monday. One of my colleagues was working on shift then. She came to me and then suddenly we talked about Sunshine Empire again. It’s a hot topic now. She asked for my opinion. The following is what I shared with her:
1) I discovered that many retail investor, aunties and uncles are seriously lacking of fundamental knowledge in investment evaluation. I am talking about really simple knowledge.
2) If you want to invest in any scheme or products, you must first understand how it generates the income and whether it is sustainable. Preferably, we want to see growth of course.
3) You should never be convinced by PowerPoint slides, pictures or video clips on company's assets and finance. You must obtain assurance by somebody trustworthy which, in an unfortunate event, you can hold him/her responsible if there is negligence or fault. This “somebody” must be qualified and independent. For example, it must be a lawyer, external auditor, independent property evaluator etc. This qualified professional must sign on his report and you must see (and even obtain a copy) of such black and white. Preferably, get a copy of Sunshine Empire’s annual report together with the external auditor’s report.
4) We must be satisfied with all the questions on risk before even talking about return, regardless of the rate. I meant what’s the point of talking about return if you cannot ascertain or manage risk? If risk is not an issue so long the return is very high, then a casino would probably solve everything. There is a chance to earn 100% return in every minute if risk is not an issue! Sunshine Empire certainly cannot provide such return.
5) I told her to first overcome greed if she wants to protect herself forever from all tempting schemes. Of course that does not means that we should become so timid that we place all our savings with the bank. With higher expected inflation next year, you may even incur a loss (in value of money) even if you save your money in fixed deposit.
6) Do not succumb to hard sales tactical. There is no such nonsense as “this opportunity comes only once in a lifetime and valid only for three days” etc. Anyone making this statement, give him/her 50 cents to buy a kite – to fly.
My colleague continues to ask me if there are better investments that come with low risk but reasonable return, at least higher than the inflation rate. I shared with her a few products such as bonds which I had covered intensively in my blog.
So is my approach to Sunshine Empire’s scheme correct? If you read The New Paper on Sunday (18 Nov), page 12 – 13 gives some updates.
1) The press check with the relevant authority in Taishung, Taiwan, found that Sunshine Empire’s affiliate Emcom is not in partnership for the wireless broadband business. Emcom has never contacted them on this project.
2) Malacca theme park. The paper reported that Malacca City Council did not receive any such proposal.
Lacking Basic Knowledge In Investment Evaluation
So I found many aunties and uncles (and sometimes young men) seriously lacks very basic skills in investment evaluation. And I am not talking about reading annual report or legal document. I am talking about not knowing how to “get the facts correct”. And they actually believe that someone is there to help them to reach financial freedom. I asked one of the Sunshine Empire’s partners on why would the founder wants to share such lucrative returns? He could have borrow from the bank cheaply and keep all the remaining. I mean if their investment yield approximately 10% returns a month, the founder could have borrowed from the bank at less then 10% cost a year! The answer given to me was “the company wants to share wealth with commoners instead of bankers”!
I didn’t know Jesus walks the earth again! If anyone can believe such statement, he/she is not naïve – he/she is stupid at an unbelievable level. Perhaps I should start a course on basic investment evaluation.
