Investment in Stocks

Archive for the ‘Competitive Advantage’ Category

In my book, “Winning the Money Game”, i shared a story about a friend named ‘Fred’ (not real name). He was asking me how to start managing his finances and how to invest.

This type of question usually will get me on fire, because i was excited about this topic. I began firing off a series of tips and personal experiences to which most he merely answered, “I already know that.”

Whenever, he gave me the answer, “I already know that”, i will quickly jump to something which i think he doesn’t already know. To my surprise, Fred is a very knowledgble dude and “knows”, most of the things already.

So in the end, I asked him, “Fred, your knowledge is probably as good as mine, what is your experience in investing so far?” He paused at my question and confidently answered, “Well, investing is just too risky, i have not started and will not start until i get enough knowledge.”

Are you a “Fred”? Waiting to accumulate enough knowledge before you are willing to risk your dear hard-earned money? Don’t get me wrong! I do not wish for anyone to risk their cash, but let me share this, to Not Invest, is a sure way of losing your cash through this pesky guy called Inflation!

But Fred feels that he doesn’t have enough knowledge to move on? He is waiting until he gets to complete his thesis and gets his PHd before he is willing to invets a single cent… But we know that the the best investors aren’t Professors, they are Practitioners!

The best investors, invests!

Let me share with you the other end of the spectrum. Those people who acquire enough knowledge just to get them into big trouble. I was one of them. I started by attending a trading course and then threw my entire savings in. Guess what? I lost huge bucks! OUCH!

I am thankful that our authorities are regconizing this problem and are aiming to educate investors before they get themselves into trouble.

Now, let me share my concern…

In this new rule, investors are requried to fill in a form to declare how experience they are before being allowed to trade financial deriatives. If you trade more than 6 trades, you are good to go. If you have less than 6 trades before, you are required to complete an online education session followed by a quiz.

Out of curiosity, i attempted the online education session and the quiz. I think that tremendous effort was put into the design, but alas, the skills taught are very very basic. In fact, i would classify them as non-tertiary skills (in other words, just textbook theories that cannot be applied). If taken out of context, it can be misleading as well.

Nevertheless, i applaud the authorities for taking action to emphasize the need to proper financial education before investing your cash.

Who then should we learn from?

When i was in NTU choosing what subject to major in, i asked my friend for advise. I wanted to do ‘Marketing’ as a major but he challenged me asking, “Does it mean that you will be a better marketer after you major in marketing? If we both set up a business, does it mean you will have more sales than mine?”

That made me ponder… If i want to be a good marketer, who then should i learn from?

Probably Steve Jobs, Donald Trump or Bill Gates rather than Marketing Professors.

Does that mean academics is not useful? Not at all, because they provide basics and are studies of people who had gone the path. My point is that we should further seek knowledge from those who produce fruits.

A book, a seminar very often give the illusion of getting you more knowledgeable or educated, but you know that you really know when you do it and produce results.

Seek practical knowledge, seek it from the right source (people who already produced knowledge)

Come to our free workshop and learn how every single one of us produce consistent results via Value Investing.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,

Last weekend, I had a wonderful time with friends on the yatch.

And I was asked to give some investment tips.

The first investment tip i gave was to never accept any investment tips from anyone… blindly.

And then, i shared a G.S.T framework for analyzing investment opportunities.

Below is the video, if you want to join us to learn how to do it live, you can join us at our next free workshop.

Click HERE to book a Free Investing Workshop.

I do hope you learnt something from the video. The key is to really first learn how to invest properly before putting your money to work. To learn to invest properly, join us at our next free workshop.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com, http://www.nlpinsingapore.com

When choosing businesses to buy, one of the ratios we look at will be the Return on Equity.

Return on Equity measures the rate of return on business owner’s interest or equity.

Return on Equity =        Net Income

Share Holder’s Equity

Each time a business makes profits, it can use it in a few ways.

1. Issue profits out as dividends
2. Retain the profits which adds to the Shareholder’s Equity
3. Reinvest in itself by either expanding or buying back its own shares.
   
   

In other words, the profits which the business has made can either be issued to us, or kept by the business for continued operations or investments. If the business is keeping the profits, it is kept mainly as part of the owner’s equity and we want to know that this amount of money is put to efficient use. Return on Equity tells us how well this amount of money has been used.

For example, ABC company makes $100,000 this year and the amount of share holder’s equity it is holding is $5,000,000.

Return on Equity =        $100,000 = 2%

$5,000,000

What?! We put or keep $5million with ABC company and it only made 2% or $100,000 out of it. That is simply not efficient and thus ABC company does not seem like a good place to put our money in. As a gauge, we should look for companies that have a consistent average ROE of 15%.

ROE is only one of the ratios we look at when we are checking a business’ track records. It is important to look at a few figures as a cross check to make sure that these numbers are not manipulated to fool investors.

Do come and join us for our free workshop as we run through some items to check to avoid the pitfalls of investors who simply do not know where to look. Be an intelligent investor and join us at our workshop.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Hi,

Today I would like to share my experience regarding “Hyped Up” advertisements! Fortunately or not, i do not yet have the ability to display my feelings through my writing, otherwise, you will be able to feel my anger, frustration, compassion and disappointment.

For those who have read my book, “Winning the Money Game”, you would have read on the part where I started venturing into the stock market after one of my friend, Suffian, showed 6 of us that it is possible to make money from stocks. After our talk with Suffian, I began searching.

To my excitement, I found many courses that promised me that I can get rich quick, quit my job, be a full time trader etc etc…

I paid about $5,000 (i think), joined the course and became confident. I traded some money and won. My confidence grew, so the next step i did was to be a nice kind person and asked 2 of my good friends if they want to make money as well. They said yes, so i took their money and graciously lost about 50% for them. I never forget the feeling.

But i didn’t give up. I attended more courses and lost more money. The funny thing during the time i was trading was this – I identified myself as a Trader. I began to feel good about trading. I read books, attended courses, traded every night. I honestly want to find the “magic” system, strategy… whatever.

Years later, I have arrived at a stage where i began to understand the stock market much better so much so that i can make consistent profits… interestingly, not using any of the techniques taught by me from the courses i attended, but through some guidance from some personal mentors, some books and some practice.

Looking back, i do not think it is fair to say that those course I have attended are fraud, scam etc etc. These course do teach the participants certain amount of skills and i think for beginners, if you need guidance in Trading, it is probably a good idea to get someone to help you get started.

BUT! What ANGERS me is the HYPE in all the marketing!

“I made 700% in my first trade”; “After attending the course, I made my first 3 trades and  make $75,000!”

HYPEsss! I hate to wake you up from your dreams…. In fact those of you who attended such courses probably already woke up!

I recently brought my 2 boys to a drum class. And without a single bit of biasness, they are excellent, had so much potential and talent… just like their dad. But even then, i am clear headed enough to know that they need more than a few drum sessions to make them professional. Being a Professional Trader is the same, it takes years…

I met a nice gentlemen at Philips Capital who used to be a Professional Institutional Trader. He traded millions, made and lost billions and he say that when he saw those claims from trading courses, he is wondering “why MAS is not doing anything to clamp these guys down.” (His exact words). He knew that it is not possible for anyone to make money consistently as claimed by these advertisements.

But even with this post, with all the newspapers journalist warning people, there will still be many people who “see and hear what they want to see and hear” – that is, How to Get rich Quick over night and how to be able to sack their boss 3 months from now….

If you want a real solid plan on your financial destiny, if you want to really learn how to invest- not get rich quick… then I am here to help you. Because i have been through the pain, I understand the feeling and frustration. I see many of my initial trading coursemates had a worse life because of the course we attended.

It is my appeal to you: To be a wise, Intelligent Investor, not a greedy blind mouse. Take a moment to pause and observe your feelings and be honest to yourself… Are you willing to take effort to learn and take time to… W.A.I.T. (Btw, W.A.I.T does not stand for anything, it just means wait, but i want to create the pause effect after each alphabet, just to make you wait…).

Ok, after all this, I do have good news. If you are able to just take time to learn, you can in fact “get rich quick”… in 2 to 5 years! And let me tell you a secret, 2 to 5 years is QUICK!

But that also depends on your starting capital, your needs and your effort. So you can either B – Buy Assets, and if you are starting out with huge cash, with the proper knowledge, you can buy so much cashflow into your life. I know a couple of people who started out with huge savings. After learning how to Invest properly (not trade… mind you), they become much richer, much faster.

I really do wish to share with you, but only if you are willing to be rationale, to learn and to use what you learn. Do join us at our free workshop where i share how to really avoid the hypes and how to have a real plan for a real future.

Click HERE to book a Free Investing Workshop.

To your dreams,

In the meantime, Don’t Let the HYPE Bite You!

Sean Seah
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

The 4 Question Check List

There is some probing questions you can ask when faced with a company you suspect has a competitive advantage

Q1: What is the Value the business is providing?

Lets take for example we talk about KFC. The value is yummy chicken.

We then move on to the next question.

Q2: Can you get it else where?

The answer is yes to this question. We can buy yummy chicken from many other places. We move on the the next question. But if the answer to this question is no, we find that we have pick a monopoly with nu competition.

Q3: If yes, then why don’t you get it else where?

If we can get chicken from else were, why don’t we get it from these other places? If your answer is that you will get from these places, then you realize that the business do not have a competitive advantage. If you realize that you only go to KFC because you want the KFC chicken’s consistency, the unique taste and the entire meal. You know that KFC has a competitive advantage over other fast food or fried chicken restaurant.

Q4: Is the competitive advantage discovered in Q3 easily sustainable?

We want a business which have sustainable competitive advantage. If a business needs to spend huge amount of money to sustain the competitive advantage, it is not easily sustainable. Looking at KFC again, the unique taste is not something that is easily duplicable by its competitors, nor is it something that is expensive to maintain. There is little need for Research and Development on the KFC’s recipe.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com

Competitive Advantage Part 2

In the last post about competitive advantage we looked at the first 2 ways which a company can build an economic moat.

Today let’s explore the other 3 ways:

Low Costs or Prices

Offering the same or similar product or service at a lower price can be a powerful economic moat, especially in commodity industries. Airlines and PCs are a couple of commodity industries.

Cost advantages are created by either inventing a better process or achieving a larger scale.

Dell is an example how a better process can reduce costs. Dell PCs are built only after purchase orders are received. This way Dell could avoid stocking up on inventory and letting the inventory value erode while waiting for orders to come in.

At the same time, Dell could take advantage of the rapid price decrease of PC components. This allows Dell to do one of 2 things. Keep the selling price the same, thus increasing margin, or lower the selling price as the price of components fall.

Scale advantages are difficult to beat because they build on themselves. Consider Wal-Mart. Its strength is in the sales volume. Manufacturers are desperate to get their products displayed on the shelves. Hence, this gives Wal-Mart the strength to negotiate lower costs from the manufacturers which is then pass on to consumers through lower pricing or better deals. This in turn attracts even more consumers and more sales resulting in stronger negotiation power for Wal-Mart.

Locking In Customers

Companies can deter customers from switching to competitors’ products by creating high customer switching costs.

If the customer has to undergo significant amount of training and incur lost productivity during the training period, then the customer will be reluctant to switch.

If a company’s product is tightly integrated with the customer’s business, then the customer will be reluctant to switch. Example, a customer manufactures food and buys an ingredient, such as a sauce, from a company. Switching supplier and buying the sauce from another company may result in the finished product having a different taste and texture which may negatively affect consumer preference.

Locking Out Competitors

Companies holding patents of popular and lucrative products have deep and wide economic moats. Patents protect the patent holder from direct competition. A great example is Pfizer and its line of top-selling drugs in the world.

Majority of the cities cannot support more than one large daily newspaper. This means the incumbent holds an advantage. It is difficult for a competitor to enter the market and grab a sizable market share from the incumbent and at the same time still make a decent profit.

Conclusion

The first filter in the funnel is to sift out companies with Economic Moat from those that do not have economic moat.

When researching the company, use the 5 Economic as a basis for a checklist and ask if the company has either any of the advantages. Also ask if the advantage can be easily duplicable within years.

If the answer is uncertain, we rather give this company as miss. Being able to identify the Moat of the company takes a bit of practice and conditioning. But after a while, the difference should be obvious.

Click HERE to book a Free Investing Workshop.

Sean
Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffet Way
http://www.investment-in-stocks.com