I am proud to be able to call Mr. Koon Yew Yin (the famed super investor) a friend after many emails and a couple of lunches and dinners. Was back at Ipoh over the weekend and thought I call him for dinner, and within half an hour he called back to say he has another 11 people coming for dinner. That was a shocker but gotta roll with it. Then he casually mentioned that I probably have to speak a little prior to the dinner.
No Such Thing As A Free Dinner (LOL)
I know there is no such thing as a free dinner but it seems I have to be speaking for my dinner as well. My mind was still blank as I drove up to his house. My topic for the short speech was still "up in the air" as I was introduced to the guests. Then it was my turn to speak.
I don't even remember what I said but it lasted 15 minutes or so, I think. Finally some questions, and the discussion got its own life. There were some nice insights about investments:
Macro and Economic Developments
Mr. Koon and I both believe reading about macro and economic developments is largely a waste of time, generally. Yes, there are merits in know how macro factors develop, but Mr. Koon insisted that all he needed to know about share investing is that the company makes more money the next quarter than the following quarter, then he will keep holding the stock.
To a large extent, most macro stuff is noise. You invest in companies, if you are not a trader, all you have to make sure is the company makes money.
Of course he will also have some parameters prior to stock selection, mostly standard stuff from Ben Graham and Buffett. Actually all the stuff is out there, why are not more people making money from their investments?
Loss Aversion
Some of the stuff I shared is in the "momentum fundamental investing" which my readers would be well aware. I brought up the fact that I receive many emails (mostly from housewives, you draw your own conclusion) from readers who want advice on their portfolio, what to sell what to keep. Its the same type of list, each totalling at least 15-20 stocks of mostly crap. Many a times I will highlight 3-5 stocks worth holding from their list, but I am not sure they will ever learn to cut.
This brought me to comment on loss aversion and gains euphoria mentality. We need to know ourselves very well. Yes, when we make a good trade, we are happy. But when we make a loss, that is in most people's minds, a very drastic proposition. If we can count in terms of a happy/sad quotient, making a profitable trade may rank 5/10 but in many cases making a loss is -9/10. The main reason being, loss aversion, it makes us enormously sad and depressed to be making losses. Somehow in our minds, paper loss is not losses??!!
Averaging Down
Somehow that led me to talk on averaging down. We need to seriously view how we regard averaging down. If you buy a stock and it drops, do you average down when its off 5% or 10% or 20%? First we need to recognise that when we average down, we are saying our initial purchase WAS A MISTAKE, we bought too high, the timing was off or there were other indirect factors... whatever they were, we were wrong.
Two, to average down means placing more bets on a stock you entered wrongly in the first place. That is the crux, if we have 5 stocks on average in our portfolio of RM100,000. To average on one means the exposure on that stock rises substantially relative to the rest. Thirdly, we assume all stocks gravitate to the mean, i.e. its off 10%, it will go back to 0% soon - let you know a secret, the market DOES NOT HAVE A CENTER OR A MEAN, its all in your mind.
When you are considering averaging down, I would always consider averaging UP on the performing ones. These are the ones you got right, why now reward good ones instead of placing more bets on weak ones.
Dinner At Tuck Kee
Btw, we had dinner at Tuck Kee, somewhere behind Tow Boo Keong Temple, it was fantastic. The smoke duck was pink but melts in your mouth, its even softer than top grade wagyu, I have never seen that being done at any top 5 star dining establishments. Roast pork was incredible, tofu was like silk even though it was pre fried. Go there for dinner if you can but must book beforehand.
Plus we got to drink a few bottles of the vibrant (and expensive) Bird In Hand shiraz as well.
Not to be confused with Tuck Kee Noodles. This one is at Pasir Pinji.
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