How I Became a Profitable Investor After Losing $30,000 Secrets of Turning Your Losses into Profits
KOH MING SHAO
First Published: Feb 2015 Published By : Koh Ming Shao Copyright © 2015 by Koh Ming Shao All rights reserved. No part of this publication may be reproduced or transmitted in any form or any means electronic or mechanical, without the written permission by the copyright owners or publisher. While great care was taken in the preparation of this book, the author and publisher disclaim any legal responsibility for any errors or omissions, and they disclaim any liability for losses or damages incurred through the use of the information in this book. For information contact: kohmingshao@gmail.com Book Cover Design By: Rank Books ISBN: 978‐981‐09‐4146‐8 Printed in Singapore
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CONTENTS Acknowledgment
1
Introduction – My Story
3
Disclaimer
7
1. Why Investing Is Not A Choice?
9
2. Investment Gone Sour. Have You Invested in Some?
13
3. Formal Education vs. Financial Education
16
4. Alternative Investments
18
5. Why Invest in Stock?
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28
6. A Trip to the Stock Market 7. The Business Cycles
38
8. Risk Factors
43
9. Having the Right Mindset
49
10. Managing Your Finances
52
11. How Do You Get Started?
57
60
12. Where Do You Find Companies to Invest?
13. Investing Strategy
63
14. Introduction to Financial Statements
69
15. Money Making Financial Ratios
84
16. Calculating Intrinsic Value
104
17. How to identify a good stock?
117
18. Stocks that Warren Buffett Avoids and Here’s Why
123
19. When to Sell?
127
134
21. The 10 Deadly Mistakes to Avoid
138
22. The 10 Winning Habits of Successful Investor
145
23. The Power of a Mastermind Group
153
24. The 5 Secrets to Healthy Living
157
25. Are You Giving Back?
161
Final Words
162
Further Reading List
163
165
20. The D.I.C.E Rule of Investing
Investment System Framework
Acknowledgments Writing this book was by no means an easy feat for me but I have done it. However this would not have been possible without the support, guidance and patience of many individuals, and I would like to thank all of them. I am highly indebted to my mentors Ken Chee, Clive Tan and Attlee Hue for imparting their knowledge on value investing in stocks and REITs to me through their programs. If not for them, I would still be lost on my investing journey. I would like to say a special thanks to Joe Lee who has been so inspiring and helped me in my most challenging times, and I cannot forget Jacky Lim for imparting the skill and knowledge of NLP during the time I attended his Practitioner program. I would like to say a BIG Thank You to Sam Choo for coming up with the idea of the “Publish the Book Challenge,” which got me writing, and his generosity in sharing his knowledge and experience. I would like to express my sincere thanks to my mastermind group members, both present and past: Wendy Lam, Susan Tan, Thomas, Joe Tang and Victor Chng for their sharing, insight and energy. I would like to extend my gratitude to my parents and sisters
How I became a profitable investor after losing $30,000
for their love and encouragement. I am extremely grateful to my wonderful wife and two lovely children for their unwavering love, understanding, support and co‐operation in my investing and writing journey. Many thanks to my friends who have encouraged me throughout and my colleagues, both past and present, who have been a great help in my career over the past years. I can never thank them enough. Lastly, I would like to acknowledge my growth and courage for breaking away from my comfort zone and publishing my first book.
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My Story It was 3 am in the morning when my wife woke me up and asked, “Did you really lose our 10 years of hard earned savings? Are we still able to recover our money?” I knew she could not accept what had just happened. I could only say sorry to her for losing our 10 years of hard earned savings. You see, I am an ordinary executive working in a 9‐to‐5 deskbound job just like some of you. My wife works on a part‐ time basis. Moreover, I do not come from a well‐to‐do family. My family fell apart when I was in my late 20s due to bankruptcy. As my children were very young at that point in time, our financial commitments were heavy. Losing so much money during that period was like a blow of a hammer to my family. How did it all start? In the heady early days, I was an investor in wine, foreign land deals and an exotic lubricant. Stocks were a mundane, common route to riches, I thought—until my investments crashed. It was any investor’s worst nightmare—companies disappearing overnight, executives jailed, and my investment portfolio wiped out. My investment exploits started as I sought a way of increasing the family savings. After eight years in the workforce, I discovered that relying on our savings or an executive pay
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How I became a profitable investor after losing $30,000
check from our day jobs was never going to be enough for retirement. I started to look for ways to let money work for me. I started to read books on investing to find ways to let my money work harder. The first book I read was “Rich Dad Poor Dad” by Robert Kiyosaki. I began to understand the importance of financial freedom and look for investment opportunities. I did not want to go into stock investing as I heard horror stories about people losing their money in the stock market and how their families were broken up following the loss. The stock market was like a ghost house to me. I simply refused to hear or learn how to invest in stocks. My answer would be a firm “No” when someone asked me to invest in stocks. Through my financial adviser, I invested in investment‐linked funds. I made some money and lost some as well. I wanted something more. I wanted an investment that could generate higher returns. The opportunity came in 2007 when I saw an advertisement on wine investing. I picked up the call the next day to arrange for a meeting with the sales representative. I signed the agreement after the second meeting. In 2008 came another investment opportunity on television. It was a land investment that could generate a potential of 100% return over a period of 5‐to‐7 years. After attending the presentation, I signed the agreement to purchase a plot of land
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overseas. The following year, I invested in a lubricant product that could generate a 12.5% return in 6 months! The economic crisis in 2008 killed all my investments. I could not sell my wine because the value had dropped. My calls to the wine company went unanswered. Their website was down as well. I managed to contact my sale representative only to find out that he had left the company and the wine company had closed down. In 2010, the company through which I had invested in land and lubricant products was being investigated by the Commercial Affairs Department. It eventually closed its operations and the Directors were subsequently jailed for a scam. In the span of three years, I lost $30,000. To some, it may not sound like a lot but for a middle‐income person, it means a lot! I could not simply pretend nothing had happened. I had to get back on my feet and get myself financially educated to ensure I did not commit such foolish mistakes again. I started looking around for programs that could teach me how to invest. I attended a preview of a Forex trading course after I saw the advertisement in the papers. I signed up for the program on that day. After some time, I found Forex trading very stressful. I did not make any money and I decided to stop. It was another few thousand dollars gone. I was very discouraged until one day I
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How I became a profitable investor after losing $30,000
chanced upon a program that teaches Value Investing. I signed up after attending the preview TWICE and I never looked back since. Since then, I have generated returns in the range of 20% to 100% excluding dividends, of which some are realized profits while others are unrealized as I am still holding the stocks. Investing is not always rosy. I lost money when I started to invest in stocks due to mistakes, but that did not stop me from investing. In fact, I have learnt from those mistakes and become a wiser and smarter investor. I am now enjoying my investing journey and there is still much to learn. I am not a millionaire nor am I an investment guru, but I want to share my experience. I want to encourage others like me who have no knowledge of stock investing to start to invest if you are committed to letting your money work harder. However, this book is not for you if: You feel that you are already a perfect master investor. You are not prepared to take time to learn. You are looking to get rich quickly.
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Disclaimer The information and content provided in this book is meant only for general reading purposes. The views being expressed in this book constitute the opinions and experience of the author and therefore cannot be considered as guidelines, recommendations or a professional guide. Readers are advised to seek independent professional advice before making any investments. The examples and illustrations in this book are for educational purposes only and not a recommendation to buy, hold or sell stocks. The information used may represent the past and is not a representation of the present or future. Every effort is being made to keep the information accurate and updated. The author is not responsible for any loss, risk, professional or otherwise, which is incurred directly or indirectly arising from the use and application of the content of this book.
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1 Why Investing Is Not a Choice? Weekends were always the day at the betting kiosk for my good friend, Timmy. There were times when I met Timmy to watch football games. While I was rooting for my favourite team, Tim would hold his betting slip nervously. There were days when he was smiling and there were days when he sulked. With each loss he made, he would place higher bets with the prospect of winning back his losses. This continued for years until he was broke and barely able to feed himself. For Timmy, sports betting were a bad investment. Do you agree that investing is the only method to grow money? Is buying a lottery ticket investing? Playing the lottery is not investing. It is gambling! And the expression playing the horses has, of course, become synonymous with gambling. Investing is the solution to hedge against inflation as it allows your money to compound and grow over time. Inflation erodes the value of money. What is worth $1 today will be less in 10 years’ time. Just think about it. A movie ticket 10 years ago cost about $4.50,
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How I became a profitable investor after losing $30,000
and now it costs about $10.00 a ticket. That is a walloping 122% increase over 10 years and a 12.2% increase on an annual basis. Only a year ago, my favourite chicken rice at my neighbourhood shop cost $2.50. Recently they raised their price to $3.00, which is a 20 % increase! Things are getting more and more expensive but the value of your money is getting smaller and smaller. If you think putting your money in the bank is safer than investing, think again. The table on the next page shows the different fixed deposit rates in Singapore. With the inflation rate in Singapore at 5%, what kind of return will you be generating? The brutal truth is the gap between the rich and the poor is getting wider but the good news is you can do something about it—INVEST! If you are an employee and your annual wage increment is 5%, you are typically very happy. Do you agree? There are some companies which declare only a 3% to 4% annual increment. If you think again, with inflation at 5% and your increment at 5%, does it make any difference?
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Source: www.imoney.com If you do not invest, you will find the value of your money getting lesser and lesser. This can only mean one thing: You will get poorer and poorer.
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How I became a profitable investor after losing $30,000
.
Key Lesson: Inflation will erode the value of money over time.
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2 Investments Gone Sour. Have You Invested in Some?
How I became a profitable investor after losing $30,000
Have you come across these headlines in the papers in recent times? My questions to you: Are you of one of them? Why did it happen? I really hope you or your love ones are not one of the jilted investors. Very often, such unfortunate incidents happen for two reasons – GREED and IGNORANCE. In fact, I was very fortunate to still have time to bounce back
and invest again. What about those elderly investors who have invested their life savings and lost it? How many more decades do they have to recoup their losses? There are so many moneymaking opportunities and investments out there which claim to be able to generate unbelievably high returns over a relatively short horizon. The next time you are introduced to such investments, this book aims to make you more aware of, and help you avoid falling for, them like I and others have. If you have encountered similar experiences like other victims, learn from your mistakes and be wiser. Everyone should receive financial education before investing his or her money.
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Key Lesson: Do not fall into the trap of greed and ignorance. What is too good to be true is really too good to be true. Get yourself educated before investing. Â
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