Decision to invest the simple ways

Decision to invest

the simple ways

Several years ago in Penang, there was this nice semi corner three storey ground floor apartment for sale at a then record price of RM300K. (It was a record price because at that time, never has there been a sale of more than RM300K or near it in this low density gated apartment).

This ground floor unit’s balcony and kitchen’s views are excellent, over-looking a big playing field with plenty of big trees. In the early morning and evening, many people would be exercising, taking a walk or jogging there. Such a nice place to stay.

This “good friend of mine” was real keen to purchase the unit for his staying with his family. Having a real feel of the unit when the broker allowed him for a viewing, he was real, real upbeat to pay the record price. (At that times, several people were also viewing the unit).

But this “good friend of mine” was unsure whether he would be paying too much for this unit. He consulted a few of his good friends for their views before making the purchase. None of them agreed to the asking RM300K price. They felt the price was too much. They valued the unit’s price should not be more than RM280K. 

Encouraged by his “expert” friends’ valuation price, this “good friend of mine” refused to pay the asking price. Instead he offered RM280K which was flatly rejected. But this “good friend of mine” still liked the unit very much. So this “good friend of mine” decided to increase his offer to RM285K which was also rejected.

The broker advised this “good friend of mine” to just pay the asking price and secure his dream home just like that. But because this “good friend of mine” was influenced by the views of his friends’ lower valuation price, he refused and only offered to increase his price to RM290K the next morning. Still it was rejected.

But this “good friend of mine” was convinced that this unit was a real nice happy place to stay, he decided to increase his offer to RM295K by the afternoon. And if still rejected, then he would give to his asking price of RM300K.

So in the afternoon, when he called the broker again, (convinced that he would close the deal), he was shocked to learn that someone else had purchased it at the asking price only one hour earlier!

This “good friend of mine” was devastated that such a nice unit would not be his anymore. (Not that he could not afford, but because he wasn’t willing to pay for the asking price initially). Even until today, each time he drives pass that area, there is this painful feeling in his heart of missing out to purchase and stay in this nice ground floor unit).

What can we learn

from the above true story?

It is only natural to seek others’ views when deciding to purchase a property that most probably costs such a big amount of money. But different people will give different views. If only this “good friend of mine” had seek even more views, there could be just one simple view from someone else who may just ask this “good friend of mine” this simple question : Do you really like to stay in this unit? Would you be happy to stay there? Can you afford within your means? If the answers are yes, then just pay the asking price. Unfortunately, this “good friend of mine” did not meet that someone who would be asking him that three questions. Instead what he was told was that the concerned property was too overvalued.

It is also natural that when it comes to investing in Bursa Malaysia, we tend to seek the views of other “experts”. The more “experts” we seek out to ask, the more views one will get until it becomes too complicated for one to digest.

Actually, one should not be too concerned about this. For there is always two sides to a coin for everything. There are always pros and cons too.

I do not seek the views of others, but I do read their views if possible. Who knows, sometimes they would be seeing from another different angles which I will not see it. But in the end, I seek my own views, decide on it finally when it comes to investing. I like to look for small companies that are making reasonable consistent profits, have some cash, paying our regular dividends and trading at undemanding levels. Their businesses must also be easy to understand. Better still if their businesses are there to stay for years and years to come.

That is the way how the writer makes

his decision to invest the simple ways.

So dear Jeremiah Jonas-Lee, I hope to clear your doubts about investing regarding YSPSAH which in the email, you expressed your concerned about this numbers ie:

1. ROE  of around 7%

2. 5 year average ROE of 9%

3. Profit margin of 7%

4. Decreasing EPS

5. Payout ratio over 60%

    (for a company supposedly expanding?)

6. Dividend growth rate of only 3%

Do not be too worry about all this numbers. For each time, a company announces its quarterly reports, the above numbers would not be the same anymore.

There is no such thing called a perfect stock. There are always some element of risks involved when it comes to investing.  There is no free lunch when it comes to investing. Even the “most perfect” stock that one has invested may turn out into the most hated and sick stock when its business could not compete with its competitors and suffers declining sales and eventually leading to making loss. When that happens, you can bet that its share price will also be going down somewhere.

In short, do not be too confused and complicated by too much views of many. Make it simple. Make investing a joy especially when it comes to receiving dividends that is above average fixed deposit’s rate and seeing some capital appreciation in the share price.

Happy investing, Jeremiah!