Buy and hold is NOT Fail Proof. Even Warren Buffett gets burnt – 13 Oct 2014
Mr Buffett is the 4th largest shareholder in Tesco. Tesco is a multinational grocery and general merchandise retailer headquartered in UK and is the second-largest retailer in the world (measured by revenues) after Walmart.
Sounds like a no-brainer investment, right. A business in the business of providing necessities. Perhaps even recession proof, you might think.
Buffett bought into Tesco shares in 2006/2007, to amass a 5.2 per cent stake. 5 years later, when Tesco issued a profit warning in January 2012, (Its profits fell for the first time in two decades), Warren picked up some more.
Worst was to come. Tesco’s share price eventually fell to a new 11-year low on 3 October 2014, closing at 172.15 pence, down from 487 pence at its peak in 2007. By then, Buffett was looking at about US$ 750m of unrealized losses.
The competitive landscape Tesco competes in had changed dramatically since Buffett bought into Tesco. It had over-expanded, losing touch with its customers who in droves had moved over to discount rivals like Aldi and Lidl.
Finally, after holding Tesco shares for 7 years, Buffett admitted to CNBC, “I made a mistake on Tesco. That was a huge mistake by me.”
Things are going to get worse as Tesco is under UK’s financial regulator’s investigation after management admitted that it had overstated its 1H2014 profits by £250m.
Buffett’s mistake is all too common among investors who hold on to stocks of companies that have since lost their glory days and hope against hope that their battered share price will bounce up. Buffett is going to trim his losses. He too knows that this time, the leak is too severe to plug.
Buying and hold, hold, hold is not a “Fail-Proof” investment approach. You still need to adjust your position from time to time. Many promoters tell you stock picking is easy. Buy the stock of a “good” company and just hold. Don’t need to care too much. Tesco was a “good stock” when Buffet took a huge position in it. Look what happened. You have to know the correct approach to investment. Whoever tells you that investment is just buy and hold is not competent, lying or just don’t care enough about you to tell you the truth.
Our Best, Always
Empower Advisory Team
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Putting Our Investment Theory into Practice – 26 Nov 2013
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1) At the most recent outreach at Bras Basah on 23 Nov, I flashed on screen an investment position I made on Zynga on 15 Nov 2013 at 4 USD.
2) Prior to that, I had mentioned to the outreach participants that in stock investment, one must not be greedy and aim to sell at the peak. If you think like that, you will never sell but forever looking towards the next peak (If it comes).
3) On Monday, the indicators I use suggested to me that Zynga might pull back. Without second guessing, I decided to lock in a 11.25% gain by selling at 4.45USD (near its 1 yr high of 4.55). I placed my order and closed my computer.
4) The next day, I was pleasantly surprised that it closed at 4.50. Did I scold myself for not selling at 4.50? Of course not.
5) First, whoever had bought from me had made 1.1% (on paper or realized). I was happy someone else had gained too.
6) Second, I had locked in a profit of 11.25% in just 10 days in a non-speculative investment trade. (Not crazy spectacular but a happy early Christmas present nonetheless). Why did I call it a non-speculative investment trade. Zynga is no penny stock like Blumont. It is a company with more than USD1 billion in sales and develops, market and operates online social games over the Internet, mobile platforms and on social networking sites like Facebook. It is still loss making but has recently improved its performance with a management and product focus overhaul. It also has a large cash hoard to buy itself time to become profitable.
7) This is why you have to combine fundamental analysis with technical analysis to give yourself a better picture.
8) Am I still monitoring Zynga’s performance? You bet. There’s more profits to be made if you know how.
9) Once you know you can make double digit returns in a matter of days by yourself, you will never be attracted to scams that try to hook you by “promising” you 8 to 20% yields in a loooooong yr (365 days) or more.
Our Best, Always
The Art of Profit Taking (lessons to share) – 19 Jul 2013
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Participants at our course preview in June would have known I bought Microsoft at USD28.08 a couple of months back. After the dramatic drop in Microsoft shares following less than stellar earnings, some have asked with concern if I had exited in time.
Here is the good news. I have and the proof as usual is in the pudding. See below.
I sold off near the peak 2 days before Microsoft announced its earnings. What did I do right? Did I have insider information? It’s simple. I always keep tabs on my stock. I don’t obsess over them but I will know major news concerning them. Prior to the earnings results, Microsoft announced that it was slashing the retail price of its surface tablets by USD150. That is almost 30%. It means that Microsoft wants to gain tablet market share by sacrificing profits. While the market cheered Microsoft’s move, it worried me a little. I also suspected that it was the tip of an iceberg. Perhaps inventory of PCs were not moving very much (And hence Microsoft software) and so Microsoft had to push out its tablets faster, more aggressively.
Fundamentally, the signs to sell were there. The technical indicators looked good though. Sentiment was still upbeat for a favorable earnings report from Microsoft. And so i decided to sell into strength and sold my entire stake at US36.40 (not at the high of USD36.44 but near enough) and made about 30% profit. Not spectacular gains, but decent enough for me. I’m not greedy and hope the one who bought from me at USD36.40 will make some money eventually. If I had hesitated and not sell, I would have made only 11% profit.
Did Microsoft become a lousy company overnight? Of course not. It just didn’t meet high expectations but it is on its way to a restructured growth path. I’m now exploring if there are new entry price point for Microsoft.
My best, as Always
Here comes the panic at the Disco – 20 Jun 2013
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Is the party finally over? Today, the Singapore stock market fell 2.5%, the biggest daily decline in more than 19 months in line with weakening global markets after US FED Chairman Bernanke hinted strongly that US economic stimulus will end by next year, indicating an eventual rise in interest rate level.
It’s actually good news since it means that the US economy is in better shape and Bernanke is removing the economic powerhouse from its crutches. Why then are global markets panicking? Well, nobody likes interest rates to go up especially since global economic growth is uneven with some countries even stuck in technical recession. Nevertheless, markets are once again spooked and it may be time to look for an attractive entry point.
Below are the entry levels of some of my investments over the years which have benefited from panicky markets. I have no intention to show off. They are just to illustrate that multi-baggers with good companies are possible if you can sniff them out. At the seminar, I will share more of such positions with you!
Our best, always!
Google – did you miss its amazing trajectory? – 7 Jun 2013
Oh, Google. What else can I say about this innovative company that has sunk deep root in our lives through its plethora of products offering like Youtube, the android operating system for smartphones, cloud software, Google maps and voice navigation, Nexus tablets, Google glasses and even a futuristic driverless car? It is little wonder why its share price has rocketed more than 800% since it IPOed at USD85 back in 2004. Today it hovers near the USD900 mark as the chart below shows.
For a company that included in their 2004 IPO prospectus that “We believe strongly that in the long term, we will be better served—as shareholders and in all other ways—by a company that does good things for the world even if we forgo some short term gains”, it has reaped for itself and its shareholders wonderful rewards indeed.
Google is one of many examples that I use to illustrate to folks that one must understand how a stock is valued and it doesn’t mean that just because a stock appear expensive, its potential for upside is limited. From my observation, many people like the idea of buying penny stocks worth a few cents thinking that they can easily double or triple in value. What they fail to understand is that when a stock trade near the value of zero, it is usually because the company is struggling, or worse still, on the verge of closure. I have learnt my lesson dabbling in local penny stocks such as Digiland and it has taught me a good lesson. The white knight (back-door listing) that we hope to come to the rescue of a penny stock is often a mirage. Penny stocks are also a playground for manipulative trading forces to churn up trading volume and suck in the clueless. Don’t risk your hard earned money on speculative penny stocks. There are many wonderful companies like Google, with sound fundamentals and global products. All you have to do is look around you conscientiously! Our course will show you how to identify these gems!
Our best, as always.