Saturday, August 26, 2017

Ten Year Series Mentality Amongst Investors

I just experienced how tough it is to be in the investment education business.

Like Brian Halim, I was invited to TUB's value investing seminar. You can check out Brian's account of today's event here.

A big problem which plagues the business is that investors have this Ten Year Series mentality. They want to skip the entire process of figuring out how to invest and go directly into buying the stocks that is  owned by the information vendor. Just like a secondary school student, they just want the model answers and do not really care for the process.

This is highly dangerous for both the vendor and the customer.

Some blog articles ago, I spoke about the danger of getting paid in a public seminar and then mentioning stock names too overtly and then running the risk of contravening the Securities and Futures Act. I'm glad that neither Terence nor John bowed to client pressure in today's talk.

The customer suffers as well as he or she would also not have a plan of exit buying the stock because there is no clear idea of the conditions which arose to make the purchase in the first place.

At this stage, on balance, I think we need to be fair to the vendor. Filtering the stocks and going through the bottom up process to select stocks for one's portfolio is tough work involving quite a lot of man-hours. To expect the model answers after paying $20 is not being reasonable at all.

Besides, I actually felt that Terence and John probably revealed too much in today's session because I was definitely confident that I can reverse engineer their processes to produce returns which will be similar to what they can replicate in their portfolios.

But I will NOT do this because I really want these plucky entrepreneurs to succeed in Singapore.

Instead, over the next few days I will verify their investment thesis by back-testing a few of their investment ideas to give everyone a hint of whether what they claim is true at least for the local markets :

a) For John, I will verify the effectiveness of growth metrics combining CAGR (net profit), low D/E and a PEG below 1 to see if claims of outperformance are true along with semivariance information to see if it comes with a greater downside. It is time for me to gain some useful insight into growth investing.

b) For Terence, I am already relatively confident about his claims because I have tested some of his ideas independently on my own but I would focus on two of his novel suggestions : his dividend yield to price/book ratio idea and his management capability ratio represented by price/book value divided by return on equity.

Hopefully, I would be able to share return characteristics and the expected volatility of these portfolios.

And no, I will not share the actual stock picks from my stock screens.

Either you do your own due diligence or pay these guys because they've done fairly solid work to show you how to outperform the markets.

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