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Recently I met up with a friend. Naturally being me, as we conversed, we veered more toward talking about investing. As we talk, I found out that this friend of mine had invested in the same US company as I did back in August 2011.
Back then, he had asked me what company I was investing in. At that time Gap Inc (GPS) was falling some 32% from its high of US$23, to below US16. Of course after doing much due diligence, I deemed that GPS was undervalued (I shall spare the fundamental analysis portion), and I told him I just bought GPS and told him the reasons why I think this is a good company to invest in. And without doing due diligence, he bought…
Coincidentally he had bought at the same price as me – US$16.16, although the exchange rate and broker fees might be slightly different. After 2 and a half years, how does each of us fare?
Friend: loss of S$65
Me: sitting with a 100% return of investment, with some 54% of my original shareholdings earning residual dividends + capital gains!
Back then, he had asked me what company I was investing in. At that time Gap Inc (GPS) was falling some 32% from its high of US$23, to below US16. Of course after doing much due diligence, I deemed that GPS was undervalued (I shall spare the fundamental analysis portion), and I told him I just bought GPS and told him the reasons why I think this is a good company to invest in. And without doing due diligence, he bought…
Coincidentally he had bought at the same price as me – US$16.16, although the exchange rate and broker fees might be slightly different. After 2 and a half years, how does each of us fare?
Friend: loss of S$65
Me: sitting with a 100% return of investment, with some 54% of my original shareholdings earning residual dividends + capital gains!
Apparently, right after he invested, the price of GPS went up and down several times. So much so that he could not take the emotional strain and he sold his entire stake in early October, 2013. He didn’t even manage to receive a single dividend during the time he was invested and made a small loss. The chart below shows what happened.
As for me, I have been holding since I bought it till June 2012, when I sold 46% of my shares for a total return of my original investment capital, plus a bit more. My remaining stake has gained some 163% In value and I have also received some dividends every now and then from the company. The chart below gives a pictorial view of what I have described.
Why such a big discrepancy?
I’m sure readers of financial blogs would know that emotions affect one’s decision in investing and trading. Emotions and personality can often get in the way of successful investing. As a result, many people have tendencies to:
1. Buy on tips from other people
2. Buy on a whim
3. Buy the hype
4. Ride a winner till it goes bust
5. Fail to exit a loser
As an investor, we should recognize our own emotional strengths and weakness, and approach investing in a way that is more suitable to our investing style. It is paramount that you know what type of investor you are and not follow other investors blindly. Their investing style might be very different from yours!
As an investor, we should recognize our own emotional strengths and weakness, and approach investing in a way that is more suitable to our investing style. It is paramount that you know what type of investor you are and not follow other investors blindly. Their investing style might be very different from yours!
Read other guest blogs by Matthew Seah: here.
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