Everyone who knows me, knows my passion for business and investments.
It has been almost 3 years since my last venture and the yearn to work hard and see a business grow is still very much alive in me. I have been fortunate to have Darren as a mentor for many years, and someday I hope we could work together again, even though I know the time is not now.
For now, I am contented with my current process of learning: dissecting industries, understanding business annual reports and invest through thoughts and analysis of my own. I try to shield myself from chatters and forums, making trades based solely on data and understanding of human behaviour. Here are some of the good points I noted down for myself.
Growth beats income
Through trial and error for the past 9 years of trading, I have come to prefer high and consistent ROE with low yield, over low ROE with high yield.
The logic is simple: no risks, no rewards.
I may be biased as my appetite for risk might be higher due to my age. But my logic is this: if money is plowback into growing the business instead of giving back to the shareholders, you have a higher chance of growing your competence and competitive advantage for a longer period. Granted, the business direction needs to be, in my view, reasonably logical, adding value to existing product offerings and ethical.
Taken from the textbook perspective, when a company starts returning money as dividends, it usually means the cash cow is being milked and the firm is not reinventing itself for growth.
Advertising as a signal
When a company advertises a lot, it could mean having a lot of free cash flow. It’s a sign that warrants further investigation but could potentially be a signal for growth, which presents opportunity to swim along the tide and ride the wave.
Technical indicator for entry
Fundamentals are good for long-term investment.But, argue what you will, technical indicators have worked well for me as trade entries/exits. Some signals I use consistently are EMA (30,50,150), MACD crossing and VWAP.
Buying into new high
Say you are hiring a plumber to fix a broken pipe. One has a proven track record of job well done but slightly more expensive while another has only a few experiences. Rumour has it that situations have been made worse instead of better. Who would you hire? Let’s say you are hiring a software engineer to grow your company. Two candidates came forward. One had history of fast-paced development with revenue impact while another had worked in the same company for 20 years in the same position. Who would you hire? It may not be a clear-cut decision since there will be many other factors to consider, but our preferences will bias proven track record instead of botched ones, willings to risk, learn and grow rather than a stagnant one. So, why don’t people buy into a business whose share price just hit new high? I get that it’s not always straight-forward. Some firms can and do sometimes produce positive ROI and presents growth potential, but it is important not to immediately discredit buying into shares that hits new high as being too expensive.
Technology
Scalability. Margin. First mover advantage. Productivity. I don’t know where to start explaining on this.
However, as a closing note, it is important to acknowledge that trading is fun and exciting but forever poses a danger for those growing a business while also looking at share prices.