My First Investing Loss

I was recently interviewed by Timothy Ho, co-founder of the personal and business finance online knowledge portal Dollars and Sense. The interview is part of Dollars and Sense’s #MyFirstLoss interview series. With permission, I’ve reproduced my conversation with Timothy here. We covered a number of topics, such as the losses I’ve made in investing, and why I decided to start The Good Investors with Jeremy. You can  head here for the original interview.

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Interview

Timothy Ho (Timothy): We always start this column with the same question. Do you remember the first time you made a loss in your trades? #MyFirstLoss

Chong Ser Jing (Ser Jing): I remember all the losers in my portfolio. My first-ever transactions in the financial markets were made in October 2010 for my family’s investment portfolio, and they were the purchases of six US stocks. Even back then, I invested with the mindset of a long-term business owner. I saw, still see, and will always see, stocks as partial ownership stakes in actual businesses.

From October 2010 to June 2020, the portfolio of the six stocks expanded to more than 50 with regular capital infusions. But the selling happened rarely. I only sold eight stocks, and only two of these sales were voluntary – the rest of the sales happened because the companies were being acquired.

My aversion to selling is by design – because I believe it strengthens my discipline in holding onto the winners in my family’s portfolio. Many investors tend to cut their winners and hold onto their losers. Even in my earliest days as an investor, I recognised the importance of holding onto the winners in driving my family portfolio’s return. Being very slow to sell stocks has helped me hone the discipline of holding onto the winners. And this discipline has been a very important contributor to the long-run performance of my family’s portfolio.

I think it’s important that investors focus on portfolio-level returns instead of the gains and losses produced by individual stocks they own. It’s a guarantee that we will make mistakes when investing. But the key is to make sure that the decisions we do get right can significantly outweigh the ones we get wrong.

Timothy: You have been writing full-time since 2013. Was the motivation to continue writing the reason why you started The Good Investors after the closure of The Motley Fool Singapore?

Ser Jing: When I was in university, I realised I wanted a career in the investment world. I have a deep passion for investing. I see the financial markets as an intellectual puzzle to solve, and by learning about companies, I get to have a front-row seat to observe how the world is changing. For example, there’s a company in the USA that is currently applying electric fields to the human body to treat cancer – how cool is that!?

But at the same time, I wanted my involvement in the investment world to be something where I could positively impact as many lives as possible. This mindset has not changed, and it was a big reason behind my motivation to join the Motley Fool Singapore in January 2013. The Motley Fool has a strong purpose that its employees believe in. Back then, the Fool’s purpose was to help the world invest better. Today, it is to make the world smarter, happier, and richer. Both are wonderful.

During our careers at Fool Singapore, Jeremy and myself experienced first-hand how important financial education is for Singapore’s public. Many people do not understand investing and bumble their way through the financial markets, leading to a deterioration in their financial health – and the scale of the problem was larger than I thought before I joined the Fool. When Fool Singapore closed, Jeremy and I felt that we still have plenty to offer in terms of investor education and we needed to continue doing our part. We just think it’s the right thing to do.

Timothy: Besides the website, you also started the Compounder Fund for accredited investors earlier this year. What was the reason for doing so?

Ser Jing: For many years while I was at Fool Singapore, I had been exploring a fund management business. My vision was to help spearhead a fund management business for Motley Fool Singapore. At the Fool, I thought we were excellent at serving the DIY (“do it yourself”) investors – we provide investment research and ideas, and these DIY investors can make their own decisions. But I also believed (and I still do) that there’s an even larger group of investors in Singapore who require a fully-outsourced investment solution because they do not have the time, energy, capability, or interest to invest by themselves. It’s true that there are many investment funds in Singapore, but it’s rare to find one that I think is investing soundly (global in nature, and invests with a focus on long-term business fundamentals). This is why I thought it’s essential for Fool Singapore to build a fund management business in Singapore – but nothing concrete on the front ever got started when I was with the company.

When Fool Singapore closed, I thought, “Why not try it out on my own?” I approached Jeremy and shared my ideas and he was on board from Day 1. To Jeremy and myself, Compounder Fund is more than just a business – there are strong social objectives we want to accomplish too, such as having fees that decline as assets under management grow, and running the fund very transparently to play our part in investor education. These objectives will be hard for us to meet in a commercial setting (there will be commercial pressure), so it’s better if we did it ourselves where we had only ourselves to answer to, and where the measurement of success of the fund goes beyond how much fees it can generate.

Timothy: As someone who has been writing about investing for so long, and also manages investment monies on behalf of investors, what are some common mistakes that you see investors and traders making?

Ser Jing: I think one of the common mistakes that investors and traders commit is not putting in the effort to understand market history.

If they look at market history, they will realise that stocks are volatile creatures. Volatility is in their nature. But crucially, this volatility has occurred even when stocks have gone on to generate fantastic returns. A great example is the energy drinks maker Monster Beverage (which Compounder Fund does not own). From 1995 to 2015, its stock price grew by 105,000%. But in those years, its stock price fell by 50% or more on four separate occasions. If they understand that volatility is part and parcel of the game, then perhaps they wouldn’t be so stressed out over short-term market declines.

Also, if they looked at market history, they will understand that the world is always in a state of crisis. As the saying goes “History is just one damn thing after another.” Uncertainty is always around. But how many times have you heard someone say that they prefer to wait for the dust to settle before they invest? The thing is, if you wait for the robins, spring will be over. Peter Lynch also once said that “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Timothy: What should investors or traders be mindful of during this volatile COVID-19 period?

Ser Jing: I think it’s important to be mindful of our own emotions. As I alluded to earlier, volatility tends to bring out harmful emotionally-driven investment behaviours. Put in place a system where decisions are made based on business developments and not stock price movements.

Another thing to be mindful of would be companies with weak balance sheets. Antifragility is a term introduced by Nassim Taleb, a former options trader and author of numerous books including Black Swan and Antifragile. Taleb classifies things into three groups:

• The fragile, which breaks when exposed to stress (like a piece of glass, which shatters when dropped)
• The robust, which remain unchanged when stressed (like a football, which does not get affected much when kicked or dropped)
• The antifragile, which strengthens when exposed to stress (like our human body, which becomes stronger when we exercise)

Companies too, can be fragile, robust, or even antifragile. The easiest way for a company to be fragile is to load up on debt. If a company has a high level of debt, it can crumble when facing even a small level of economic stress. On the other hand, a company can be robust or even antifragile if it has a strong balance sheet that has minimal or reasonable levels of debt. During tough times (for whatever reason), having a strong balance sheet gives a company a high chance of surviving. It can even allow the company to go on the offensive, such as by hiring talent and winning customers away from weaker competitors, or having a headstart in developing new products and services. In such a scenario, companies with strong balance sheets have a higher chance of emerging from a crisis – a period of stress – stronger than before.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.