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Successful investing is not simply the buying and selling of a commodity, stock or real estate. Besides your capital, we believe the six basic ingredients are needed.
T- Time
E- Experience
S- Skill
T- Temperament
E- Emotional detachment
D- Discipline
When we talk about time, we are not talking about timing. We are talking about length of period. A trader in the market would regard 6 months as long term whereas a long-term investor would regard anything less than 2 years as short-Term. A friend of mine sold a particular Hong Kong stock for HK$2.00. His cost was less than a dollar. He was asked by his broker to take profits. The stock climbed to HK$10.40 before dropping to HK$8.50 and it has been hovering around this level for several months. Our capital requires the element of time and not simply the right timing. Many investors have regretted selling their shares too early. They are not willing to give enough time for their money to work. Of course, it is not possible to sell at the top and buy at the bottom. However, an investor is usually better off if he gives longer time for his investment to grow.
It would be foolish for a novice investor to invest all his resources when he lacks the experience. Even the most experienced investor still makes mistakes in his investment. An inexperienced investor may not afford the same mistakes of an experienced investor. Experience comes from learning from the mistakes we made. After the market crash in 1973, I was selling short all the way for two years. I went long in late 1974. Twice I was proved right. However, when the market took a different turn, my years of profit was completely wiped off within a week. It was indeed a lesson that I would never forget. Experience is something that you cannot get from the books or from any investment seminar. It has to be something that you have personally gone through.
Skill is hard to define if you are an investor. A long-term investor need not possess the same skill of a professional trader. A short-term trader is concerned about price movement, volumes and market trend whereas an investor focuses on earnings, growth and the financial strength or resources of the company etc. Skill is going beyond the financial statements and balance sheet of the company because there are many times the figures do not reveal the whole story. Skill is needed to tell whether the high price of the stock is justified or whether the drop of the price is overdone in terms of what each security is worth. Skill comes from application and not from study or head knowledge. One can give lectures on investment but if he has never applied what he has learnt he will never master the skill that is needed for consistent success.
Not everybody possesses the temperament to be an investor. I know of someone who bought stocks and got very jittery when he received conflicting advice from two different persons. He started calling his broker when the price started to drop a little. He called his broker practically every hour to enquire about the price of the stock. He has what is called the ‘kiasu’ mentality. These people are afraid to lose their capital. A drop in price may give them insomnia. They simply do not possess the temperament which is needed whether a person is long-term or short-term in his approach. A person with the right temperament may not always make money, but he is unlikely to lose sleep over his investment. With the right temperament, he can still concentrate on what is important to him and is not distracted by what is not important.
It is important that we do not become sentimental towards the investments we own. Some people fall in love with their investments and are not willing to part with it even though the investment is not worth holding. Others can become enamoured with a certain stock because the company is known to be solid in its financial strength. There were investors who refused to sell OCBC at more than $50 per share (in 1972 dollar) even though the family needed the money for other pursuits or purposes. Some investors refused to sell their shares which their forebears have held for years even though the company has ceased to achieve its historical double digit growth in earnings for many years. To have emotional attachment to a human being makes sense but not to your investment.
A person who learns to discipline himself is likely to turn out to be a winner in the long run. He may not make quick money like many speculators but he is likely to be rewarded for his discipline. A disciplined investor ignores the sporadic ups and downs of the market. He knows that as long as he is disciplined, he is unlikely to be affected by news which has nothing to do with the fundamentals of the company or the economy