Looking back, 2014 was a volatile year filled with both pessimism and optimism. Historically, when the consensus is either one, the opposite takes place in general prices of stocks. That being said, 2015 is starting off the same as 2014 with much pessimism due to all current happenings; Greek debt, ISIS terror, global slowdown, currency shocks and others.
Peering further back, market prices, even during world war periods did not crash the Dow Jones. Looking at World War 1(WW1), American business and industrial stock prices rose from 1914 - 1918. This is a simple scenario of the strength of a nation, people's believe in its business and freedom stature and profits that ensued from economics benefits WW1 brought about.
Bull markets or periods where prices move upwards as a trend tend to end on euphoria (mentioned in previous blog posts) which today doesn't seem too apparent if compared to the dot.com bubble era in the 90s.
That being said, recently the KLSE has had a correction (post head and shoulders trend for technical trendies) hence providing some opportunities.
However, this site continues to firmly suggest to disregard economic factors be it macro or micro and continue looking for bargains. If you can't find any, keep cash/liquid assets so when they come you will be ready to gobble them up.
There are some stocks that have had declines of above 20% as such Titijaya Land Bhd and Guiness Anchor Bhd however this post will suggest another type of strategy moving forward.
Growth stocks.
As famously propounded by Philip A. Fisher, an accomplished investor, in all of his writings, investing in companies that can continuously grow earnings should bring about the best returns in estimates of 100% and above 1000% if kept for periods of 5-10 years and above. Interestingly, he notes that selling out on such growth companies before it is ripe with the idea of getting back in when the prices come down has been done with almost no success by anyone in all his time in the investment world(>50yrs). Short term attempts were made to despond his wisdom with results reaffirming his conclusions.
Such returns, 100-1000% would then suggest buying prices as long as not overpriced (preferably undervalued) should not be frowned upon for small differences i.e. buying/bidding price of RM1.50 is not grabbed awaiting for prices such as RM1.49, RM1.48. One may miss out on a terrific investment over such an issue.
That being said, in identifying growth companies, some companies grow with more success with strategic reinvestment of non distributed dividends and eventually most companies experience stalled growth upon reaching a mature size. At this point, they tend to return dividends to shareholders.
Other benefits of growth stocks is the cost typically incurred over long periods of time are significantly lower than trading activities which may build up to a large sum.
Hence, a prospective growth stock investor would have many benefits using a growth strategy with necessary diligence to find proper growth stock candidates and to recognize when growth is slowing to exit such a stock. As always, management of such companies is key to driving successful growth.
There are numerous strategies to building a portfolio hence the above is one of them.
Another strategy for achieving yearly performance will be posted in the future as the writer plans to initiate a larger portfolio with new clients/partners.
Looking ahead into 2015, the preferred portfolio should be one consisting of about 10-25% cash/liquid assets with at least 30% of undervalued stocks.
As mentioned above, when everyone is panicky, typically stock prices tend to soar higher towards year end which could be a scenario this year but by no means can be foreseen or predicted.
Additional info - A short sale definition:
"In a short sale, traders borrow shares and sell them, hoping to repurchase those securities later at a lower price and return them to the original owner, pocketing the difference." - Bloomberg & printed in Starbiz newspaper section
As always, happy investing until next time.
