Adam Hartung summarized the 4 Investment Myths and 1 Truth in Forbes(http://www.forbes.com/sites/adamhartung/2012/10/18/remembering-the-87-crash-4-investment-myths-and-1-truth/2/ last visited 24/10/2012). It is a very fascinating and useful contribution. However, I believe value investors are very unique, all of them has own personality and investment philosophy. Based on my investment philosophy, I do not totally agree with the Myths. In this post, I simply list out my points of view regarding the Myths:
Myth 1 – Equities are Risky
Partially agree. Because all investments have their own risks in nature. These are unavoidable and very normal in general. However, I do not recommend people to take unnecessary risks. My view is doing sufficient homework can ultimately reduce unnecessary risks and increase the probability to make a right investment decision.
Myth 2 – Invest Only In What You Know
Partially agree. Even though we do not need to understand the entire business that we are interested in, we do need to know its business model. We may do not need to understand how to write a OS program for Windows, we do need to know whether the product is widely accepted or not, the future prospect (uncertainty) of a particular product, its current and future potential market etc.
Myth 3 – Dividends Are Important to Valuation
One way to avoid being a victim from "cooking the books" company is to see whether a company/business is capable of "generating" cash. As a retail investor, I have no authority and time to justify the financial conditions of all my invested companies. Distributing the exceed cash for investors annual can be a way to tell me you are in good financial condition and do not short of money. Additionally, a good company should capable of generating abundant of cash while maintaining or even growing its market. But if a company really very capable of using all the available resource to generate more values, investors will ultimately use its dividend to accumulate more shares from the company.
Myth 4 – Long Term Investors Do Best By Purchasing an Index (or Giant Portfolio)
Totally agree. In fact, owning a business do not need to pay those hidden cost, such as, annual administration fees.
1 Truth – Growing Companies Create Value
Totally agree. However, it is worthy to point out that the growing rate must higher than the inflation.
Written by: Xaivier Chia
(P/S: The above sharing is solely based on personal insight. Please do not take it seriously. However, your valuable feedbacks are very welcome. )
Myth 1 – Equities are Risky
Partially agree. Because all investments have their own risks in nature. These are unavoidable and very normal in general. However, I do not recommend people to take unnecessary risks. My view is doing sufficient homework can ultimately reduce unnecessary risks and increase the probability to make a right investment decision.
Myth 2 – Invest Only In What You Know
Partially agree. Even though we do not need to understand the entire business that we are interested in, we do need to know its business model. We may do not need to understand how to write a OS program for Windows, we do need to know whether the product is widely accepted or not, the future prospect (uncertainty) of a particular product, its current and future potential market etc.
Myth 3 – Dividends Are Important to Valuation
One way to avoid being a victim from "cooking the books" company is to see whether a company/business is capable of "generating" cash. As a retail investor, I have no authority and time to justify the financial conditions of all my invested companies. Distributing the exceed cash for investors annual can be a way to tell me you are in good financial condition and do not short of money. Additionally, a good company should capable of generating abundant of cash while maintaining or even growing its market. But if a company really very capable of using all the available resource to generate more values, investors will ultimately use its dividend to accumulate more shares from the company.
Myth 4 – Long Term Investors Do Best By Purchasing an Index (or Giant Portfolio)
Totally agree. In fact, owning a business do not need to pay those hidden cost, such as, annual administration fees.
1 Truth – Growing Companies Create Value
Totally agree. However, it is worthy to point out that the growing rate must higher than the inflation.
Written by: Xaivier Chia
(P/S: The above sharing is solely based on personal insight. Please do not take it seriously. However, your valuable feedbacks are very welcome. )
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