In my last article,” Do you want to be a super investor, and can you, and should you?” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/145665.jsp
I elaborated about the “7 traits of a super investor” and concluded that
“None of these traits can be learned once a person reaches adulthood. It can be honed, but not developed from scratch because it mostly has to do with the way your brain is wired and experiences you have as a child.”
In conclusion, I said “it is better to put in some effort to be an above average investor following some proven success process and strategies to build long-term wealth, slowly, steadily but surely. It is good enough. Follow some of the traits but forget about becoming a super investor. Instead, focus on other important things in life, such as your business, career, family, friends, hobbies, health etc. Money and wealth is important but it is not everything in life. It may not be the most important thing in life.”
Today, I read some sayings by Mark Twain, one of which is below,
“Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” – Mark Twain
When I wrote and published my article in a public forum such as that of i3investor, I aim to educate the public on the proper mindset and process in investing to build long-term wealth slowly, steadily but surely. I discuss about concept, methodology, and use of fundamental ways of investing. Notice I never tout any stock in my articles, although sometimes I may have discussed my thesis of investing in a certain company. I propagate this to the public so that hopefully more people can be steered to the “right path” in investing and become above average investors. It is very hard, as a responsible citizen, “to keep my mouth shut, and appear to be stupid”, another saying of Mark Twain, when I read something which is seriously wrong, like propagating margin finance to speculate in a stock which has been touted relentlessly, and its price has risen sky high, with the “intention to help you become rich”. This is as the saying goes,
“The world is not dangerous because of those who do harm, but because of those who look at it without doing anything”. Albert Einstein
The above saying of Mark Twain makes me ponder whether I am belonging to the “small people” who is “belittling your ambitions”. I think I have to make some clarifications to avoid misunderstanding.
Let me use trait No. 5 to illustrate.
Trait #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism.
The cognitive bias of overconfidence
Confidence is a quality personal trait for our career and whatever we do. When we have confidence, good results can be achieved easier. For example, if we are confident, we can do better in public speaking or networking. In investing, I believe one can do better too if he has the confidence to stand away from the crowd, provided he has the right experience, knowledge, the correct mindset and the proper and proven successful approach. Overconfidence may be a healthy attribute too. It makes us feel good about ourselves, creating a positive framework with which to get through life's experiences. This I strongly encourage everyone to go, to be confident, for it as it is good for you.
Unfortunately, being overconfident of our investment skills can lead to some disastrous results in investing in the stock market. Investors think they know more than they do or they can interpret information better. You can overestimate your ability of predicting the future, the probability of the success of your investment thesis, or underestimation of the role luck played in your investment performance.
Seth Klarman said, “You need to balance arrogance and humility… when you buy anything, it’s an arrogant act. You are saying the markets are gyrating and somebody wants to sell this to me and I know more than everybody else so I am going to stand here and buy it. I am going to pay an 1/8th more than the next guy wants to pay and buy it. That’s arrogant. And you need the humility to say ‘but I might be wrong.’ And you have to do that on everything.”
A lot of naïve investors also over-confident on the “kindness” of others who would help them to make money in the stock market, buying stocks touted by them, even after the share prices have gone sky high. Worse still, they are enticed by the purported oversized gain of others who borrow heavily to speculate, and they continuously harping on their success without mentioning of their failures.
Leverage, the fatal blow
What about if one combines overconfidence with leverage, say 50% in margin finance?
I had used Henyuan as an example of the peril of margin finance in the link, “Are you a super investor?” here,
https://klse.i3investor.com/blogs/kcchongnz/144864.jsp
The article shows how so many people enticed by the numerous article about Hengyuan with “good intention” to help you make money, and chasing the stocks from RM12 to RM15, to RM17 and even to RM19. Many started buying at around RM12, and “continued to buy using margin finance. As the price goes higher, they can borrow more to buy”.
Looking at the share price movement of Hengyuan recently, the average price of buying may be around RM17.00. The volume of trading spiked, with the above “good” advice of using other people’s money (OPM). This was also evidenced from the sources in the market that there was huge increase in margin financing for Hengyuan during that period.
About three weeks ago, the share price of Hengyuan started to fall from RM17.00 and plunged to less than RM12.00, with heavy volume. Those who bought Hengyuan during the peak of RM19.00 when it was hyped up and relentlessly touted, would have lost a whopping 37%. Even those who bought at an average of RM17 would have lost 30%, in less than three weeks. If one “continued to buy using margin finance. As the price goes higher, they can borrow more to buy”, say using 50% margin, they would have lost more than 70%.
When you combine overconfidence and leverage, you get some pretty interesting results.
It is also very interesting to ponder on the statements below,
“Remember the stock market is not like your rich father who would simply pay up your debts. You cannot get rich if you are stupid.”
“To be able to make money from the stock market, you must outsmart the losers.”
“There are more losers than winners. Losers are born every day. Otherwise, there will be no more ikan bilis for big sharks to eat.”
So, what do you think? Who are the “smart” speculator, and who are the “stupid” being branded?
Who are the “winners” and who are the “losers”?
Who are the “sharks” and who are the “ikan bilis”?
Other questions,
Am I belittling you when I told you to try to be an above-average investor to build long-term wealth slowly, steadily but surely, rather than taking the unnecessary risks above?
Am I “small people” by doing so, or you still prefer to listen to the “great” that makes you feel great too, even tough you may have lost your pants?
Can you feel my “kindness” to try to guide you from falling into the pitfalls in investing and am I a “small people” advising you to be an above-average investor and focus on other important things in life, such as your business, career, family, friends, hobbies, health etc.
Just ponder and wonder.
Happy investing.
KC Chong at ckc13invest@gmail.com
Please note that this article is about issues. It has nothing to do with personality. Discussion in issues are encouraged, but personal attack is highly discouraged and uncalled for.
