My First Trade

My First Trade....

My first exposure to the world of stock trading took place when I was about 10-years old. At the time, the Kuala Lumpur Stock Exchange (KLSE) – now known as Bursa Malaysia – was experiencing its greatest superbull charge of all time. Almost every adult I knew was invested in the stock market, from my primary school headmaster and homeroom teacher, to the fishmonger at my neighbourhood wet market. Heck, even my godmother, who lived just one apartment down below us, had also invested a great part of her savings into the shares of Malaysian blue chip companies. And they were all playing the market, believing that their bets on the market would make them filthy rich.

And then the 1994 KLSE Stock Market Correction happened.

People lost their money; some even lost their homes and family. My family was too cash-strapped back then to invest in the stock market, and therefore didn’t get burnt, unlike many of my uncles and aunts who lost thousands, some even hundreds-of-thousands of ringgit playing the market.  

It was at this point when all the “good” advices started coming out...

“Don’t put your money in the stock market! It is a gambling den, and you will surely lose everything!”

“Why are you so interested in the stock market?! Keep your head in your books and stop thinking about useless things!”

“Look at your bum-of-an-uncle... thought he was some kind of investment superstar.... ended up as what? Left his wife and kids alone and destitute, while he is on the run from the loan sharks!”

Fortunately (or unfortunately, depending on how things turn out for me in the end), my curiosity was far stronger than those verbal deterrents. But don’t mistake my curiosity with plain ignorance; the experience of the 1994 stock market meltdown has been carved deeply in my thoughts. I am acutely aware and concerned about the risks involved with “playing the market”. In fact, other similar experiences such as the 1997 Asian financial crisis, and then the global economic slump in 2001, 2003 and 2008, have all served to reaffirm those concerns. I only began to get serious about investing in the stock market in 2006, when I first started working. Over time, I made up my mind that if I ever invested into the stock market, it was never going to be about “playing” the market or speculating; instead, it was going to be about making investments in the right companies for the right price, i.e. value investing.

But I only bought my first stock almost 8 years later.

The truth is, while I remained curious about investing in the shares of publically traded companies, I was hesitant to make an investment all those years simply because I wanted to be sure that I could, in fact, grow my investment through the stock market. So much so, that my first real stock market linked investment were a small amount of equity-based unit trust which I bought in 2006.

Ya ya ya... unit trusts are not even in the same space as stock investing, but hey, we all have to start somewhere right? Anyway, investing in unit trust allowed me to peek into the minds of fund managers, to see what kind of companies they invested in, discover the reasons for making those investments, and how they managed the funds overall. 

I am quite a risk averse person, but I also knew that some risk is needed in order to generate higher returns. The unit trust I have been investing in has been giving me returns of around 7% each year, but I knew that the stock market gave better returns. In fact, fund managers rarely ever beat the stock market. If you had bought a basket of shares similar to the companies listed on the Dow Jones or S&P 500, you would be averaging 9% to 12% a year without doing much. Now that’s a lot higher than what unit trusts can offer.

I wanted in, and I was clear with my thoughts. I knew the risks, and I wanted to minimize the risk of losing money. I knew I won't be playing the market per se, but would rather invest in value. I knew that not only would I want capital protection, I desired a 17%-20% annual growth in capital appreciation. I knew that being too greedy always ends badly. And so, for nearly 8 years, I studied and practiced the art of investing on demo accounts . Eventually, I formed a value investment strategy that worked for me, although I am still constantly improving it along the way. 

And then I took the plunge.

On 21 April 2014, I finally  made my first real investment, if you could call it that. To me, it was an experiment I initiated to see if a regular Joe like me was any good at making sound investment returns through the stock market. This was really it; I was using real money on a real account, taking on real risks. 

The companies I invested in were primarily listed on the NASDAQ and NYSE. The amount I risked was small, but still significant to me. And on the first anniversary (20 April 2015), I evaluated my investment performance. The following is a summary of that evaluation. My benchmark are the S&P 500 and Dow Jones Industrial Index.

Period of evaluation:- 21/4/2014 to 20/4/2015

My Returns:-

Investment Capital	USD 320.00	MYR 1,056.00 (@MYR 3.30/USD)
Current Investment Value	USD 402.76	MYR 1,449.94 (@MYR 3.60/USD)
% Rate of Return (ROR)	25.86%	37.30% (FOREX-adjusted)

 

S&P 500:-

Index value (21 Apr 2014)	1,871.89
Index value (20 Apr 2015)	2,100.40
% Rate of Return (ROR)	12.21%

Dow Jones Industrial Index:-

Index value (21 Apr 2014)	16,449.25
Index value (20 Apr 2015)	18,034.93
% Rate of Return (ROR)	9.64%

Note: These are all non-leveraged trades, no margin trading involved either. Yes, I paid agent fees and commission. No, I spent no more than 10 hours a week on this, including doing the necessary research, filtering, and trading. The method I used comprised entirely of long (buy) trades. The average holding time for the stocks I bought was 4-weeks. Due to the small amount of cash I had, I could only invest in 1 or 2 companies at most each time.

Summary of findings:-

Even a half-baked Joe like myself has been able to gain a return that is about twice that of the S&P 500, and nearly 3-times the Dow Jones. While 25% returns may not seem like much, it is far higher than the returns gained from FDs, EPF, and many over-hyped unit trust funds COMBINED. Do bear in mind that all this was attained by a guy who knows almost nothing about technical analysis, depended mostly on studying the fundamentals of the companies he invested in, and followed that age-old advice of "buying low and selling high".

Now, I did have my fair share of losses. Yes, I lost substantially on one particular stock. Thankfully, I only had 20% exposure, and that helped to limit the losses. Adequate diversification, as I've discovered, can be a real life-saver when investing. Still, seeing the stock you're invested in lose a quarter of its value can be quite a nail-biting experience. As such, stock investing really is not meant for just anyone. You need to have nerves of steel, great patience, and the discipline and diligence in researching the companies you want to invest. Otherwise, you will investing without direction, and it will just be akin to gambling.

Just one clarification other though: the US-stock market is currently in its 6th bull market year, so the returns I gained should not come as a surprise. And honestly, there are many other people who've done far better. The real test, will be in the coming bear market years. As a former boss once said: "It is easy for anyone to make money during boom years; but only truly good money-makers will survive during the leaner times".