We try to price, rather than time, purchases.

This article was extracted from Warren Buffett's letters to Berkshire Hathaway's shareholders in 1994. It's available at : http://www.berkshirehathaway.com/letters/1994.html

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We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?

We purchased National Indemnity in 1967, See's in 1972, Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott Fetzer in 1986 because those are the years they became available and because we thought the prices they carried were acceptable. In each case, we pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If we see this approach as making sense in the purchase of businesses in their entirety, why should we change tack when we are purchasing small pieces of wonderful businesses in the stock market?

Before looking at new investments, we consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process. We would love to increase our economic interest in See's or Scott Fetzer, but we haven't found a way to add to a 100% holding. In the stock market, however, an investor frequently gets the chance to increase his economic interest in businesses he knows and likes.

Letter to a fund manager of a local Insurance Company

Here's a letter i wrote to a fund manager (investment-linked) of a local insurance company. Until today, there's no reply from them.

In the year ending Nov 30th, 2007, A** Equity Fund had 92.6% in Equities. That time, the index was 1,396.98. 1 year later, when KLCI is at 866.14, A**'s Equity Fund's equity exposure drop to 42.5% ! Isn't that "buy high, sell low"?

Put it another way, the summary is as below:
Date ------------------- KLCI ---------------A** Equity Fund's Equity Exposure
30th Nov 2007 --------1,396.98 ---------------------------92.6%
30th Nov 2008 ---------866.14 ----------------------------42.5% !!!

Shouldn't it be the other way round? And if the fund manager can't time the market (which i believe nobody can), shouldn't A** Equity Fund maintains as an "Equity" Fund with 70% to 90% in Equity? Having 42.5% in Equity is less than what a balanced fund is putting! And having 42.5% in Equity when prices are low is even more unexplainable!

Please explain this when i can't see any logical reasons for it (other than the fund manager having "buy high, sell low" syndrome, or join the herd mentality to be fearful when prices are low or trying to gamble the market's direction).

And in year 2009, KLCI earned 44.7% while A** equity fund earned less than 2/5 of KLCI's return! And the annual report don't even mention the reason for such poor performance! If the unit holders are truly the owners of that fund, don't they deserve an explaination for such poor performance?

And please don't say that A**'s equity fund return of 17.5% is better than FD! If you travel from Penang to Singapore by flight, and reach there after 7 hours (when other air planes can reach within 1 hour), do you accept excuse as "At least our flight is faster than going by car" ?

As a result, A** under perform KLCI during these times. Am i right to say that? If that is so, then what's the point of hiring A** as the fund manager for their equity funds? Might as well they just buy the Index or ETF and save the 1.5% management fees, and don't earn a return WORSE than KLCI (not to mention savings on the huge upfront service charge, or ended up being tied up to the terrible fund for 6 years to enjoy 0% service charge).

And also, please don't say A** equity fund beat benchmark since launch. The comparison is simply not fair because KLCI doesn't include dividends into their price. Had KLCI add between 3% to 4.5% yearly dividends to the price, A** Equity fund would under perform by a wide margin!

Waiting for an explaination for me to explain to my unhappy clients.

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Lesson Learned:

Don't find mechanic regarding your health.

Don't find doctor regarding legal issues.

Don't find investment companies for insurance.

Don't find insurance company for investments. They Suck!

Some Questions (Q) and Answers (A) about investing

Q: Calculation of Intrinsic value depends on how accurate is business evaluation on projected income growth
A: I don't use that, because i don't forecast/ project. I don't see any difference in forecast vs speculate, which to me, both are gambling. Ask any person who does business/ in the sales line, and ask them to project their income growth "accurately" (some so-called analyst even project to 2 decimal point), which i find it amusing.

Q: What is the Risk free Rate for Malaysian stocks
A: There is no such thing as "risk-free rate for stocks". All stocks have Risk (and depending your definition of "risk", all financial instruments have risk, including FD which have one of the highest risk of inflation "depreciating" your money).

Academicians and Statisticians defines risk as "volatility (or fluctuation) of its price around their return". Based on such definition, Risk Free Rate in Malaysia (if you're asking that) is the FD rate. Depending on your definition again, it could be 1 month FD, 1 year FD, or even the FD rate that you're getting.


Q: Identify good companies
A: A good company is one which consistently generates high Return on Equity on its normalised earnings. A good company might not mean a good investment (if you're paying a high price for it), though it's a good place to start.

My Personal Money interview in 2008.

In January 2008’s issue of Personal Money, I was asked about my investing sentiment for 2008, and my answers below might be of interest for review for the entire year of 2008.

Question 1: What is your investing sentiment for 2008. Are you optimism or more guarded? What are the main reasons for your sentiment?
My Answer : Frankly speaking, i don't have any investing sentiment for 2008. I make no attempt to predict how security markets will behave. Successfully forecasting short term price movements is something I think neither me or anyone else can do. However, it is clear that stocks cannot forever outperform their underlying businesses, as they have so dramatically done for some time.

Question 2: What will you be investing in 2008. For example, if staying in equities - will you be looking to acquire more defensive type stocks or buying property or investing outside the country?
My Answer : More than 99% of my assets are invested in these 3 categories (currently, and into the forseeable future) :
a) Bond Funds - For emergency needs, and temporary "parking" for my funds until i can deploy into equities at good price.
b) Equity Unit Trust - For long term capital growth, with minimum time needed to supervise.
c) Direct equity through shares - I consistently search for businesses that are sold below it's intrinsic value. Though it might not happen everytime, but when it does, I might invest up to 40% of my assets in a single security under conditions coupling an extremely high probability that my facts and reasoning are correct with a very low probability that anything could drastically change the underlying value of the investment. Personally, i am willing to trade the pains of substantial short term price variance in exchange for maximisation of long term performance. However, i am not willing to incur risk of substantial permanent capital loss in seeking to better long term performance.

My only foreign equity (excluding Equity Funds) is Berkshire Hathaway, a company which its' CEO and biggest shareholder is Warren Buffett.

Question 3: What other plans would you have for your investing portfolio (e.g. long term objectives or diversifications strategies)
My Answer : Besides what i shared above, i've also does a few things which helps me to achieve financial independence better, safer and faster:
a) Our family does not own any Fixed Deposits. Also, we keep our cash in Savings/ Current Account to a very minimum level. This is because every dollar there, would lose it's value after inflation.
b) At the low rate and the right terms, i'm willing to borrow to invest. But i clear off my credit card balance every month, as i know my investment limitations.
c) We don't focus on how much we earn but on how much we save every month.