I want to talk about profits.
Years ago, when I opened my first brokerage account, I bought stocks hoping would go up over the next few days, or next few weeks.
My heart was in my mouth every time I turned on my computer.
When stocks went up 5-10%, I’d quickly sell. I was chasing prices.
That meant taking quick profits, while “trying” to avoid huge losses. Well, that’s kind of true.
But this is a dangerous kind of truth. Why?
Because I didn’t have a strategy.
Every time I bought a stock, I didn’t bother checking if the stock had strong financial numbers – growing profits, free cash flow or they paid consistent dividends.
I didn’t care any of these. I’d buy stocks whose businesses I never knew much about. Remember I wrote about Hyflux? Well, I invested in Hyflux shares for a quick profit. I thought: “This stock is going to fly.”
Indeed, I was right… The stock did fly.
It flew straight into the bin.
I didn’t know Hyflux’s debt was filled to the brim, cash flow dried up, and a Middle Eastern crisis forced its shares into a freefall. I’d risked my money for quick profits.
I was gambling.
And losing thousands of dollars was painful.
As I dug deeper into investing, I realized superinvestors like Howard Marks, Seth Klarma, Joel Greenblatt, Michael Burry all had one thing in common: fundamental research.
These investors don’t bother using trading indicators or chart patterns. Instead, they studied economies, currencies, businesses and how they all relate to each other. They analyze data, talk to industry experts and make sense of numbers.
What’s most interesting was these superinvestors weren’t chasing 5-10% quick profits.
They were growing dividends and compounding their capital over a long period of time.
Focus on the big wins
When I stopped chasing small profits and focused on the big wins, things changed.
I picked fundamentally strong businesses whose stocks were in bad shape.
In 2018, Goldman Sachs was stuck in the 1MDB scandal. The market hated Goldman Sachs shares, which plunged more than 34%.
Yet, despite paying fines from the scandal, Goldman Sachs remained one of the biggest US investment banks in the world. In fact, its strong banking franchise still puts it at the top of the investment banking league table.
Plus, I knew Goldman Sachs had very strong recurring revenues, consistent profits and produced massive free cash flow.
A fellow trader said: “Willie, I’m not sure you want to buy Goldman Sachs (shares). 1MDB is messy…”
I ignored the noise, bought Goldman Sachs shares in 2019, and sat my hands under my backside.
The key point is this: I wasn’t trying to chase quick, small profits. I did my homework… held on to a strong business that’s undervalued by the market, and waited.
Eventually, the media on the 1MDB scandal died down. Shares began recovering again. And that got me 128% profits in over a year. Not too bad. Not too bad.
What I learnt is you don’t need to be a superinvestor to make good profits.
You don’t need to be picking coins in front of bulldozers…
What you need is some patience, do good research and go for the big wins.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
