This is # InsightsInterview Episode 2, with founder of SmallCapAsia, financial blogger and exclusive InvestingNote marketplace provider, James Yeo.
We launched of a series of short interviews called # InsightsInterview, to understand how reputable financial experts, bloggers and influencers in the InvestingNote community think as winning investors.
This series is to showcase financial experts, influencers and bloggers on a personal and insightful manner, to get glimpse of their investment journeys and their insights on the market in the near future. Every one of them have different styles of investing, expertise in different types of securities and also have their own story to tell.
This week, we sat down with James on a weekend to understand more about his investing strategies, his investing “idols” and what motivated him to get started in the first place.
Tell me more about yourself and how did you get started?
I am an avid value-growth investor since 2007 and has chalked up more than 10 years of experience with a decent track record. I began my investing journey since the army days and had made countless mistakes along the way.
My turning point came when I joined the Motley Fool Singapore as a writer and joined a group of like-minded investors. It was also during that time where I learnt about the great works of successful investors such as Warren Buffett, Peter Lynch, Sir John Templeton, and more.
After being a columnist for the Yahoo Finance and The Motley Fool, I have founded Smallcapasia.com and now focus on uncovering small to mid-cap hidden gems through our subscription service called Value Momentum.
What is the most extravagant thing you have done in your investing journey so far? ($ amount invested, company focus)
If you talk about the monetary loss, it would probably be CFD trading. I remember earning up to a high 5-figure sum before losing all of it due to bad emotional decisions which were made worse with each painful loss.
It is just as what Warren Buffett has said, you can be right about your prediction at the end but still lose your entire capital due to the volatility and excessive leverage.
What is your average time horizon for your investments?
I do not have a specified time horizon – I can hold them for 3 months and up to a few years.
I usually monitor my holdings and check if my investment thesis still holds. I will carry on holding them if the hypothesis is still valid.
When you evaluate a company, how much time do you spend on understanding the business versus doing the valuation work?
I spend much more time understanding the business (more than a few days) compared to doing valuation work.
The reason is because I feel that valuation is both an art and science; and subjective on what kind of lens you use to value it. One party may say that Tesla is undervalued due to its massive growth potential (1st mover of electric cars) but another may say that it is grossly overvalued due to its losses in the past 10 years.
Why did you choose to be a growth investor?
Growth is the lifeblood of all businesses. When a business stops growing, it will be irrevocably be replaced by its competitors. Such is the case for Kodak and Nokia.
On the same point, I think Charlie Munger (Warren Buffett’s partner) puts it aptly in his famous quote:
“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return – even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive-looking price, you’ll end up with a fine result.”
This is probably how Charlie Munger help steer Warren Buffett’s thinking from buying cheap companies into buying great companies at a fair price.
What is one thing that growth investors should never miss while evaluating a company?
One key aspect is the management team. In almost all great companies out there, there is always a great leader and his team with the vision to propel the company forward.
Preferably, we look for founder-led companies with vested interests so that they will think in terms of the shareholders too.
“Be greedy when others are fearful.” – Warren Buffett. How true is this statement from your experience of the SG stock market?
I think it is very true and that this maxim works well across all markets and even in property investing.
The reason is simple – we as human beings have the inherent desire to be part of a herd. Thus, when most people say that something is good, everyone will rush and want to get a piece of it.
It also mimics the herd behaviour of many Singaporeans as they like to queue for something new or delicious, e.g. iPhones, Tim Ho Wan or Gong Cha (check out this article).
Therefore, being a contrarian investor is a good step to being a successful investor. Remember those who have made it big by buying into stocks and/or properties during the last few recessions.
What is the most common misconception that investors usually have when stock picking?
Whether the stock is hitting 52 week lows or highs. Think about it, how can Apple company crossed the $1 trillion market cap recently? It has to keep surpassing 52 week highs to do so.
In short, do not simply invest based on the share price (unless you are a trader) and focus on the company’s fundamentals instead.
What are the most common mistakes that investors usually make when stock picking?
There are plenty! But I will just highlight one here – investing without a plan. Up to 90% of retail investors choose to invest their money without having a game plan. It is like going to war without a battle strategy.
Many of them enter a trade in hope that the share price will go the direction they wanted. And when things are not going their way, they are more prone to panic and abandon it due to a lack of concrete plan.
A concrete plan is one that outlines your objectives, desired returns, potential risks involved, multiple exit strategies, and a purposeful action plan crafted based on your current goals, background, preferences, characteristics, and financial status. It is subjective to each of his own and requires some soul searching.
What valuation methodology do you use when selecting stocks?
I uses a simple valuation yardstick called forward PEG. It means Price-Earnings Ratio divided by the Earnings Growth Rate. I would estimate the next year’s EPS growth rate and see whether the company can continue to achieve it.
What sets apart a good stock from a bad one? What are the key criteria?
One may argue that it doesn’t matter if it’s a good or a bad stock as long as it makes them money.
But I beg to differ on this point as you may get lucky on a few stocks (lucky break)but ultimately it’s the process that counts in the long run. Be it value investing, dividend investing or purely price action trading, the process is the one that sets successful investors apart.
If you talk about value-growth stocks, some key criteria I would consider include economic moats, double-digit earnings growth rate and decent growth prospects.
James currently has more than 300 followers and 900 likes on social media. Follow him to get the latest updates and insights on the Singapore stock market. He is also an exclusive provider of premium analysis in our Investors’ Marketplace.
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