You Missed the Best Day to Buy

Read an interesting article posted at The Motley Fools. The original post is here. Below is the excerpts:

There was once a woman who prayed every day for 20 years that she'd win the lottery. Every single day. Finally, in despair, she said, "God, I've been a true and faithful servant and have lived an exemplary life. Why won't you grant me this one thing?"

"Look," said God, "at least meet me half way -- buy a lottery ticket."

Buy the ticket!

Similarly, in order to take advantage of the greatest long-term wealth-building machine available to individual investors, you have to be in the market. And if the current craziness is keeping you away because you fear a huge drop, you're ignoring the advice of some of history's top investors.

In the latest edition of his book Stocks for the Long Run, Jeremy Siegel charted returns for a hypothetical unlucky investor who happened to invest at the absolute top of six major 20th-century market peaks. After 30 years, this investor actually accumulated four times more wealth in stocks than he would have in bonds, and five times more than in T-bills. For a 20-year period, he doubled the bonds return.

Consider John Templeton, founder of Templeton Growth Fund and widely regarded as one of the best investors of his generation. His advice about getting into the market is simple: "The best time to invest is when you have money. This is because history suggests it is not timing which matters, it is time."

David and Tom Gardner, who've beaten the market by a tremendous amount in Motley Fool Stock Advisor, also eschew timing the market. "The best time to invest was yesterday," says Tom. "The next best time is today." So even though the tongue-in-cheek title of this article implies you've missed your best chance, you can see that you really haven't. If you've got money you won't need for five years or more, just get in the game as soon as you can.

Still need convincing? I looked back a decade, specifically searching for companies that had been up 50% or more in one year. Surely, many investors back then were worried that stocks were too rich and ready for a great fall. Well, a gnarly bear market did start up a couple of years later, and yes, these stocks fell (he's referring to the dot com bubble that went burst in late 2000). And yet despite their tremendous prior one-year gains, and despite the great bear market, their returns were magnificent for those who held for the long term.

.. he went on to show a table of stocks that have been claimed as "too high" back in 1998 like Yahoo, Dell, WalMart and etc. Some of these stocks continued to grow (from 1998-2008) and posted returns that even exceeded the S&P 500's (the index for the 500 largest American companies) returns of 51% over the next 10 years.

I am not encouraging people to simply go out and buy whatever they see in the market today, for 2 reasons:
1) There are always bargains, as well as overblown balloons in the market. Nobody wants to get caught holding inflated balloon (a thin sheet of rubber holding only empty air). What the above article was saying is that the "MARKET" will generally be up in the long run, not individual stocks. In other words, if you've bought every single stock in the market, on average, you will have a positive returns in the long run. This is good for those who doesn't want the trouble of researching the individual company and opt for investing in the market. Best way I have known to "invest in the market" is through the purchasing of the Index Funds. These are the funds that hold every counter in the index; and

2) This method of investing might have proven to work in mature markets like the US and European markets, but I doubt that there are studies that have been carried out in our own regional markets. So, whoever that decided to construct a statistical studies on own regional markets, please do forward me a copy of your studies. I will be more than happy to have a look.

The funny things about economic and finance

I like finance and economics. They are so fun to read. I admire people who writes articles on economic and financial news. It requires alot of imagination and creativity. Look, they have to explain whatever happened to the market, day in day out. Today, when they see the market rising, they have to come up with ideas and themes like "election", "January effects", "plantation play", "oil and gas" stories and etc and etc. Remember last week? When our own KLCI has reached an all time high? People are targeting 1600 points for the year 2008. People were chasing plantation stocks like it is going to be the fastest route to riches. Then there were also people who opted for companies that are politically linked. Where else to speculate when the election is a sure thing this year? (I wonder why election got anything to do with investing in a company's future performance. Well, there maybe, but it's just beyond my understanding.)

There were also views that the China and India markets are going to lead the next global boom? Even new term was created, called the "Decoupling of the Asian market from the US market". What does it means? The meaning is not as fancy as it sounds, it simply means that the Asian markets no longer rely on the US market for growth or survival. I do agree that these Asian markets have lots of growth potential, with its big consumer market, and most importantly, the liquidity. Even big companies from the US and Europe are finding ways to invest in these countries, although the barriers to entry, the working culture and regulations are much different from their own countries. It's no longer about its cheap labour or land cost, but the potential it offers, and the opportunity to get closer to the Asian markets. They can't afford to miss out on the economic booms in the region. Well, I didn't made these up. They were all over the papers. Some of these were the views given when the Asian markets are moving in different directions from the US market, namely, last week!

And one fine morning just a couple of days later, when the overnight US market plunged, the Asian markets follow suit. (uh-oh.. reasons? reasons?) First on the US market. Economists were saying that the US market is heading into recessions. Then some data are given, including unemployment rates rising la, house sales drop to whatever months low la, new houses launches dropped la and etc. Then to make matters worse, even corporate news like the biggest losing quarter of the Citigroup in its 196 years of history has been brought to attention (wow! that's like the biggest achievement in a few generations!), followed by Gold and Oil prices fell into dunno how many weeks low la and so on (Now I am confused whether we want these prices to rise or fall). I am also glad that I have learnt a new word in "Stagflation" (I haven't heard of this term back in my uni year.. gosh! I must have skipped too many classes..). Anyway, this means a stagnant inflation. Back in the old days, when the economy booms, inflation usually follow, where the prices of things rise. Simple demand and supply thingy. When the economy is good, people makes more money, they are willing to spend more money, so prices of things go up. But when stagflation happens, inflation rises with the economy contracting or stayed stagnant. Imagine such time when people are losing their jobs and business going out of business but prices of things still increase. Aren't that a very bad thing to happen? Anyway, what caught my attention this morning was the latest story that the US market is heading into a bear market. A bear market is said to be in play when the index fell 20% off its last peak. The US market will "officially" be in the bear market if it falls below 11,358 points, which is only around 650 points away. If we apply this definition across board, the last time I checked, the Singapore, Japan and Hong Kong markets are all already in the Bear market! (Surprisingly, Malaysia isn't already yet! Malaysia Boleh!!! or is the storm looming? or we aren't in such situation because we haven't seen much rise earlier when the others are booming?) And then, there were people from the other camp that stood up and said proudly, "hey, see what I've told you? the US is still the world's largest consumer market, if it fails, the whole world is still gonna suffer!!" (now, I am confused, which camp should I follow? The "decoupling" guy or the "American still rocks" guys?) So now, the whole thing suddenly turn gloomy again at our own soil. (The sun no longer shining, the wind no longer blowing and the birds no longer singing).. And the Asian stock market crashed!

Well well, I guess I have more or less summarised what I have read for the past few weeks. So, how's the road ahead for us investors? (Long term loyal readers to my site should have guessed what I am going to say) Told you I am not good with economics. But from what I have read, it seems like the US is really in for a pretty hard time, so is their stock market. Not because of a couple of bad corporate news, but also the sentiment of the whole economy as a whole. However, it doesn't mean that a couple of bad things are going to bring the whole world into a collapse. Of course, companies who relied heavily on the US consumer markets are going to suffer, but there are also businesses that are going to survive, and continue to grow regardless what's happening to the other part of the world. As an investor, we should concentrate our efforts in finding these good companies with business prospects that are going to flourish in the long term. In fact, this could be one good opportunity to accumulate shares of good companies. Well, if you believe in long term fundamental investing.

Evaluating companies using ROE and PER

Came accross an article from The Star today: Ways to evaluate a company. Below are some of the excerpts (in green) with my comments (in blue):

Some investors may be wondering, between return on equity (ROE) and price earnings ratio (PER), which method is more suitable to value a company. According to John Neff, ROE is regarded as the best single measure of managerial performance because it shows the management’s ability to generate profit from the capital it employs. It is the ratio of net income to shareholders’ equity.

Warren Buffett said a good business should be able to achieve good ROE without employing high debts. Companies with high gearing are vulnerable to financial risk during the economic downturn and high interest rate environment. Besides, any future investment plans should be funded by internally generated cash flow without having to call on shareholders to contribute. Unless the return generated from the shareholders’ money is greater than ROE, it will show lower shareholders’ returns as a result of the enlarged share capital.

(A brief explanation to those without a financial background: Business can be run with 2 types of funding, Debts and Equity. Debts include loans from banks, leasing and etc and they carry fixed interest charges, regardless if the company is making money. So, in a bad time, when the company is not making much money and with margins squeezed, those with heavy debts are usually those to go down first. The US subprime crisis is an example of how deadly debts can be. Equity are also known as Capital or Shareholders' Fund, include Reserves, Retained Earnings and Paid Up Capital.)

As Buffett is a conservative investor, he prefer companies who are able to generate profits without using much debts and hence, will have higher resilience during bad times. In other words, he think a good company should be able to return good profits to shareholders with minimum capital. However, an aggressive business usually doesn't mind to take on extra debts to fund its expansion, provided the extra returns generated from such expansion is sufficient to cover the interest expense. That's why we have another ratio called "Times Interest covered" which measured how many times the earnings can cover the interest costs. Anyway, ROE is one of my favorite tool in finding "the right company to invest".

PER is defined as the market price of a company divided by its earnings per share (EPS). The principle behind this method is the concept of payback period. This ratio tells us how many times the price is greater than the annual earnings of a share. For example, Company A is currently selling at a PER of 15 times. This means that it takes 15 years for an investor to get back his returns through the company’s annual earnings, assuming that the company will produce the same EPS during that period.

A higher PER implies that it takes more years to get back your returns from the company’s earnings. Based on the academic view, a higher PER is better than a lower one because this implies that investors are willing to pay more than the normal market PER. Nevertheless, in practice, most analysts will say that a lower PER is better because it implies that the company is undervalued and cheap at the current valuation. So which view should we follow?

In an efficient market, companies that are selling at a higher PER are better than companies with a lower PER. This is because when the market is efficient, the current price will reflect past, current and future information.

That is also why high growth companies in highly efficient market like those Google, Yahoo, Alibaba and etc command high PER. People are buying into the idea that they will grow exponentially and bringing down the PER in a few years' time.

In Malaysia however, most academic researchers have concluded that our stock market is not efficient, which implies that the current stock prices do not reflect all information. Hence, there may be some potential past or future information that is not fully reflected in a stock’s current price. Given this, it is quite possible to find some undervalued companies on Bursa Malaysia if we select those with low PERs.
First, we have to understand what causes a company stock to be sold at a low PER, where the market price is lower relative to its earnings. However, not all stocks with low PER imply good value for investing. As mentioned earlier, sometimes the cheap valuation may be a true reflection of certain negative aspects of the company, for example, poor corporate governance, high gearing, uncertainty of future earnings and or it is facing litigation. However, as a result of asymmetric information, not all investors are fully aware of the market’s worries. Hence, analysts with the necessary knowledge, skills and market information play a very critical role in helping investors to analyse companies in detail and identifying those that are truly undervalued based on fundamentals.

One additional point: when we look at past PER, we do not look into any single year or only the latest PER. There might be a year or two when the company is able to earn extra income from some "one-time" gain like selling of properties or revaluation of assets and etc., which might not necessarily reoccurring in the future. Hence, PER is only useful when evaluating a stable company who has been making consistent income over the years.

Also, do not fully trust most PERs published in the newspapers or magazines because they might be using different calculation method. Some of them are even outdated. It is still better to compute your own PER based on the latest company's announced financial reports.

On a side note, low ROE companies (<10%) usually have low PER(<10).

Tamco announcement

Came across a very interesting article in The Star yesterday: Tamco to announce new core business in six months. Reposting below with comments from Yours Truly:


SUBANG JAYA: Tamco Corporate Holdings Bhd will announce its new core business in six months, group managing director Abdul Latif Mahamud said. “We will make that announcement in six to eight months when we feel the time is right,” he said after the company EGM yesterday.
There are 2 possibilities:
Possibility 1) Assuming they DO have a business plan in mind. From the point of view of an investor of the company, isn't it the obligation of the company to inform every shareholders the future direction of the company? Even if there is a delay, aren't 6 to 8 months a bit too far fetched? Let's look it another way. Let's say you and a partner, let's call him Ah Kiang, is operating a business, Ah Kiang being the managing partner. One fine day, Ah Kiang wake up and suddenly decided to sell off the business. Well, since he is the managing partner, you agree with his move and whatever the price he is selling. So now, the business gone and you two are holding a huge pile of money (to be exact, he is holding, because bank signatories are all under his name). So, you ask Ah Kiang, "what to do now?" And Ah Kiang replied "I cannot tell you now, but I will tell you in 6 to 8 months time, when I feel the time is right." I don't know about you. But I will laugh if I hear him saying this to me.
Possibility 2) They don't have a business plan in mind. The way I look at it, this is a more likely possibility.

Abdul Latif did not disclose the nature of the company’s future core business but said: “We are considering several options. We have plans but we cannot reveal them at this moment.”
However, he confirmed that the company was venturing into “new and different” business streams.
“We are looking at businesses other than what we have now and have identified certain areas,” he added.
Again it's like saying, "We don't know what to do with your money yet, but since you ask, I can only tell you that we are not going back into the old business".

Meanwhile, deputy chairman Datuk Siew Ka Wei said the company was in good hands and had a promising outlook.
“This is the management that brought the company from where it was (when it was listed) to where it is today.
“The management deserves the trust (of its shareholders) to look for a new business that would create value,” Siew added.
Now, Dato Siew is a more reasonable guy. My interpretation is: "Look, we've made you this much money over the years, so you have to give us time to sort this @#% out."
Anyway, I am excited with the phrase "promising outlook" he used.

At the EGM, Tamco shareholders approved the proposed disposal of the company’s core switchgear business to India-based engineering company, Larsen & Toubro Ltd, for RM378mil.
Siew said the bulk of the proceeds would be distributed to shareholders.
Nice proposals. Let's see if it materialise.

Tamco will be disposing of its entire equity interest in four subsidiaries: Tamco Switch-gear (M) Sdn Bhd, Tamco Shanghai Switchgear Co Ltd, Tamco Electrical Industries Australia Pty Ltd and PT Tamco Indonesia.
The disposal is expected to be completed in the first half of this year.
Whatever the case, I think the MD has a trustworthy look. So, the shareholders should have some patience and wait for 6 to 8 months when things become "Promising".

Professionals vs Amateurs

According to definitions from the Wikipedia:
Professional is defined as “a person who earns his living from a give field” or “a person with extensive knowledge or ability in a given subject”;
Amateur is defined as “Someone who pursues something part time, as a hobby or not very seriously”

In sports, under normal circumstances, a professional will beat an amateur by a huge margin. An amateur golfer will never beat Tiger Woods (even if he uses only a 7-iron for the whole course). A casual runner will not run faster than Justin Gatlin or Asafa Powell in a 100m Sprint (either they are on steroids or not). An amateur tennis player who plays only on weekends can only dream of beating Roger Federer or Maria Sharapova (even with them having both hands tied together). Why are these people good at what they are doing? Aren’t they human like us? In my opinion, apart from being born talented, these so-called professionals have put in extra efforts, have been doing what they are doing day in day out, and most importantly, they have the PASSION and determination to do well in their games.

But there is one field where Professionals do not necessarily do better than us amateurs! In some occasions, comparing some of their scores to ours could even put them into abysmal positions. And that’s of course in the world of Investing! This is a playing field where we, amateurs, can beat a 7 figures salaried professional year in year out, if we do the right things! Need proof? Simply look at the Fund Performance table in the newspapers or magazines that track these. I am sure there are many of them who are currently trading below what they were selling 1 to 2 years back. People who have yielded positive returns over the last 2 years are considered to have beaten these professionals! People who have doubled their money or more over the period (I know people who did), can put these professionals in shame!

Well, that’s not funny. I have entrusted my hard-earned money into the hands of these so-called professionals years back and realize now that they are in fact worth way less than what I have paid for 2 years back! My own portfolio has done better! Why have I invested in those funds earlier if I can invest myself? I used to buy into the ideas that these professional stock pickers can invest better than us, with advantages like big research teams, super-skilled professionals (my ass!), superb past performances (this is where past performance doesn’t guarantee future success) and all sorts of crabs. Bottom line is, they want your money! And they want to charge you management fees as a “Professionals”, even if they fail! And they will brag about it like it’s a big deal if they return slightly above the Fixed Deposit rate, when in fact, even the indexes have done much better. In whichever circumstances, they are the winners and we are the suckers. I haven’t even mentioned those funds that got caught in the subprime mortgage crisis, where big chunk of their portfolios got wiped out in days.

Don’t get me wrong, I didn’t say that ALL professional fund managers are bad. There are fund managers that have truly earned my respects. One of them is Mr Tan Teng Boo from I Capital. If I have put all my money into I Capital rather than those X@#$%^* fund, I could be laughing my way to the bank right now!! Besides, there are in fact a couple of funds who did extremely well over the years too. Some top performing funds have even grew the clients' initial investment by a few times. My salute to those! Anyway, my point here is, do not invest blindly into funds. Investing in fund is NOT a fool-proof or sure-win strategy for investment. Things can still go wrong, and on occasions, terribly wrong! If one has the time and resources to do their own asset allocations, one should pick their own stocks rather than entrusted them into unknown hands. Trust me, the chances of success is much higher than beating Tiger Woods!

Reminder: If you don’t have the time to do the stock picking yourself, buy I-Capital (whenever it is selling near its NAV)!

Things I wish will happen in 2008

As this is a brand new year, I would like to make a wish list here and see how many will come true at the end of the year:

1) every family and friends to have a save and healthy year
2) My private fund to return 20% p.a.
3) The global financial market to rebound from the subprime woes
4) KLCI to cross 2000 points
5) I Capital to trade above RM3 (this might sounds greedy, but hey, it's a wish)
6) My daughter knows how to call me "Papa"
7) Malaysia to have a smooth and fair election (no riot, no sudden blackout during counting of votes, no "ghost voters" and etc)
8) The China market did not collapse after Beijing Olympic as predicted by most "experts"
9) some bad and dirty Malaysian politicians are diagnosed with cancers and retired
10) Malaysia Government to manage the tax payer money more efficiently, like clean government, low corruption ("No" corruption is too far-fetched), lower income tax, low crime rate, car AP system to be abolished, Proton to be sold off and etc.
11) Arsenal winning the Premier League
12) Alex Ferguson resigned from Man United and his post is taken over by Bryan Robson (hey, a wish, remember)
13) Hamilton wins the F1 (pity him for losing the title in the final race in year 2007 la)
14) Warren Buffett come to Malaysia for vacation and I meet him on the street and take a photo with him.

I will be a happy person if half of these come true.

Happy New Year 2008

Wishing all my readers a HAPPY NEW YEAR!!
(I really appreciate that you are still visiting this page)

During the past 2 months, 2 GREAT things happened to me. The first, the arrival of my baby girl to the family. She is the greatest gift I have ever received for years and I have been busy picking up new skills on how to take care of her. Now I have finally realised the meaning of "Everyday is a miracle". Believe me, for those who are yet to become a father, this is one exciting experience!

2nd thing, I have FINALLY decided to kick start my personal fund that I have been talking for months since I resigned from my day job. The main reason for me to start this fund is that I have lost patience with the poorly managed funds and unit trusts that are being offered in the market lately. Ok, I admit it, I have such misfortune to have invested in money losing funds, even though I have already held them for 3 years plus. Although I do hear some very good funds that return 10-20% per year, but hell, how much did the market return this year? the KLCI returned around 30% for year 2007, not to mention other big performers like the China Market and Hong Kong ones which have returned 93% and 50% respectively (they have reached much higher levels during the year). So, is it reasonable for us to pay 4~7% management fees for some fund managers that performed even worse than the market? not to mention those that have even yielded negative returns! Oh well, isn't it similar to paying extra high bonuses for company's directors even when they have made losses for the company? What to do? It's an unfair world out there! (sorry, I always got carried away when I start talking about paying people to lose my money!)

Anyway, it's great to start writing again! My apologies for being away for so long and many thanks to those people who have pushed me to start writing this blog again. Let's hope that this is going to be one good NEW Year for all!

Growth Investing - part 1

Read an interesting article by David Gardner from The Motley Fools: "The Highest Possible Returns. Period." He is one of those investors that like to go after high growth companies. For those who like young and exciting companies, he is one to refer to. Below are an excerpt from the article about his experience of coming across the then so-called-overvalued AOL (America Online):
"In 1992, I was 26 and already spending my fair share of time online. For several years, I'd been a satisfied customer of America Online. Although I liked the service, I decided not to buy shares of the company at the initial public offering that year. I thought I'd wait a while. Idiot.
I kicked myself for two years while the stock quadrupled (means, up by 4 times). In the spring of '94, I followed my instincts and became an AOL shareholder -- in spite of an article in a major financial publication that declared AOL grossly overvalued and predicted that the stock would decline by 35%. (these sort of pessimism sound familiar?)
The following year, the stock dropped 25% or more three times. (oh wow!! it did fall!!) And then in 1996, shares absorbed a drop of 65%! (oh my God! jump ship! jump ship! cut lose! cut lose!) Despite these setbacks, the company went on to wreak havoc on the business and journalistic establishments en route to putting up some of the best returns available during a decade of great investment returns. Even with all of the temporary downturns, and even though the stock is today down from its all-time high, my initial investment has still increased about 37 times overall -- $10,000 in stock at that time would now be worth $372,156, which amounts to an annualized return of 31%." (er...)

Seriously, we might have heard of these kind of stories many times. Some examples from our own soil include Public Bank, IOI Corp, Genting and etc, have all gone through those kind of growth phase and returned as much. Congratulations to those who have hold on to them for such long time! I personally knew a few who does. Who said investing for long term is boring? I have some painful experiences myself (I kicked myself too hard!). Some close friends of mine can proved that I am not lying. One example is when Parkson was listed in China 2 years back. I remember the IPO price was around HK9 something, when I-Capital started to recommend this stock. Although actual feedbacks from friends in China are that the Parkson Stores there are doing very well, I hesitated because I thought the price is slightly high. So I bought the holding company Lion Diversified instead (Thank you, I-Captial!) Well then, fast forward to today, how much do you think Parkson Retail is selling? Reminder, HK9 just 2 years ago. As at last friday, it hit an intraday high of HK85! (Although the mother did almost as well, I swear I have sold all my holdings earlier. So, I haven't made all the gains myself. Told you who did. I-Capital! They are still holding big chunks of its shares.)

Anyway, back to the article, David Gardner did point out 6 signs of identifying these sort of Rule Breakers (as he called these high growth market leaders):

1) Top dog and first mover in an important, emerging industry.
2) Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors.
3) Strong past price appreciation.
4) Good management and smart backing.
5) Strong consumer appeal.
6) You must find documented proof that it is overvalued according to the financial media.

More details discussion on these 6 signs later.

The Black Monday Deja Vu

The Dow Jones stumbled by 366 points or around 2.6% on last Friday, 19th October. People tried to find the causes and among them: concerns on crude oil prices at all time high, which in turn will eat into corporate profits for the months to come; concerns on the aftermath of the Sub-prime melt-down and its impact that can pull down earnings of big financial institutions; super high inflation and etc. (Remember when I said human fear of the unknown? People have to find excuses to get rid of that fear). But what I find most interesting is the saying that it was the effect of the 20th Anniversary of the Black Monday that happened on the 19th October 1987. Some history: on that day, the Dow Jones was down by 22.61% in a single day, wiping USD 500 Billion off the market back then. How big is 500 Billion? To give a simple comparison, as at last count on end June 07, the Bursa Malaysia has a total market capitalisation of USD387 billion (should be higher by now), that means, the USD500 Billion lost during that Black Monday alone could have bought up ALL the listed company on Bursa Malaysia today, with a fat 20+% premium. Mind you, that was way back when the Dow Jones was still at 1739 points (compared to around 14,000 points today), which means those super huge corporations like Exxon Mobil, Citibank, McDonalds and etc were still at their teenage years. Today, Exxon Mobil alone have a market capitalization of over USD 500 Billion. Sorry, got swayed off topic. This post isn't suppose to whine about how tiny our market is. Anyway, that Black Monday was the single largest decline in the history of the American stock market in percentage term.

So, what caused the Black Monday back then? There were a few potential causes, among them: overvaluation, illiquidity and market psychology. Sounds familiar? Yup, we tend to hear these terms almost every other day for the last few months now. Anything new? well, the credits should go to the market commentators and economy experts for their creativity. They start to think of something new like the oil crisis, carry trade, trade deficits, external debts, weakening of the Dollars and etc as excuses. These have already been there for like many months now, what happened since then? The market continues to rise into unseen territory. And today, you see the Black Monday thingy. *applause*

Anyway, I didn't say that the market will not Correct or the year-long Bull-Market-party won't end. It will, sooner or later. It's the economical cycle we all have to go through every few years. So? do we go out and sell everything we have? Before that, please have a look at the following graph:

This is a 100 years record of the Dow Jones Industrial Average. Where the arrows are pointing are some major events in the history of the US stock market. The first one to the left, around year 1914, it was when the First World War broke out and the market have to be closed for four months. The second one at around 1929, was the beginning of the Great Depression, where the American stock market went into a slump that it never recovered until almost 20+ years later, this was also regarded as the longest bear market in known history. The third one around year 1987 was the Black Monday mentioned above. And the last one, which only happened not too long ago, was the burst of the IT bubble, which brought the whole market down. Have you noticed the panics that happened after the September 11 terrorist attack? The Iraq war? The murder of JFK? You might need a microscope to find those.

So, what's the implication of all these histories? Would you noticed all those major events or market crashes (except for the last one) if I didn't point them out? I doubt so. Why? because they are so insignificant. When we look back into history, these setbacks are like nothing. The market will continue to grow, people will learn new ways to do business more efficiently and more profitably (like using computer and internet), and find new ways to solve problems (like using Biodiesel to substitute oil) and etc. Most importantly, good companies will continue to grow and bring more profits to shareholders, in turn, increasing their market value. Remember when I mentioned above that the total market value lost during the biggest one day stock market crash in history is only equivalent to the market value of one Exxon Mobil today? That's the nature of human beings. We grow. We evolve.

So, does it matters if we see another Black Monday or Bloody Red Tuesday next week? Yes, of course. You might want to see if there are bargain discounts. By the way, I haven't mentioned that the largest one day percentage gain of the Dow Jones, actually happened just 2 days after the Black Monday, have I? Don't worry about the market crash. We can't predict them anyway.

Conclusions. I know I have mentioned this far too many times, oh well, no harm mentioning it again then. There are only 2 important things that matters when it comes to long term value investing: THE RIGHT COMPANY TO BUY and THE RIGHT PRICE TO PAY.

You've got to find what you love - Steve Jobs

Below is a link to the commencement speech given by Steve Jobs 2 years back in Stanford. Steve Jobs is the CEO of Apple Computer, founder of Pixar Animation Studio and is currently on the Board of a few big listed companies in the US. He is worth around USD5.5 billion as of this writing. Many of you might have heard it or even read it, but I am posting here again for those who haven't and for my future reference. It is a wonderful piece of speech and should be read by those who are hesitating with what to do with their life now. Really, it will be a 10 minutes very well spent:

http://news-service.stanford.edu/news/2005/june15/jobs-061505.html