Investing

(Revised) How to overcome your emotion in investing

 

If you know financial and technical analysis your performance will be better than an average investor. Besides FA and TA, if you have good business sense, you are a super investor.

Even if you are a super investor, you will often have difficulties in overcoming your emotion of fear, greed and ego to be able to think logically to buy or sell shares.

As I am not a psychologist, unless I use an example for illustration, I am not able to explain to you all these psychological problems. Let us look at Eversendai:

The chart shows that Eversendai share price has been going up from 50 sen on 28 Feb 2017 when the company announced its losses in 2016, to close at Rm 1.37 on the last trading day.

Many investors sold at 50 sen because they were afraid that it could drop lower. There must also be some investors with good business sense dare to buy. As the share price keep going up, there must be a lot of sellers and buyers on every trading day. The sellers do not think the price will continue to go higher but the buyers think that it will go higher.

As any share price cannot continue to go up or down continuously for whatever reason without a break as shown on the chart. It is called correction. Many people sold during correction. What happen if the share price continues to go up again because the company reported increased profit? Many people who sold would not buy it back at a price higher than the price they sold because of shame. Only really super investors can overcome this psychological problem of shame.

Now it has gone up to close at Rm 1.37. Do you dare to buy it at Rm 1.37 or higher? That is the question.

Our brain has 3 basic functions such as auto, emotional and logical   thinking. Auto function controls the breathing, blood circulation and reflex action. Emotional function controls your emotion such as fear, greed or ego. Logical thinking is the ability to analyse any problem and make a sensible decision.

My remisier Ricky Kon of TA Securities Ipoh and Allan Yeoh of Kenanga Ipoh can confirm that I have been buying Eversendai from 50 sen to Rm 1.37. You can see from the company announcements that I have been buying on almost every trading day.

My reasons for buying are:

About 3 months ago, I gave a talk under the title “How to overcome contractors’ difficulties?’ at the Master Builders Association Malaysia (MBAM) Building in Kuala Lumpur. MBAM members are most of the contractors who have been building all the properties in every town and city. The entrance fee for each attendee was Rm 300. The total collection was Rm 34,000 and I donated Rm 100,000 to start a scholarship fund.

Open tender system

The most difficult obstacle every contractor has to overcome is the open tender system- cheapest tender gets the contract. Every tenderer must be very optimistic in his estimation of his cost so that he can submit the cheapest price. He must assume that he has no difficulties in getting his labour and materials at current prices. He must also assume that he will not meet too much rain and he will have no construction difficulties.

When he is awarded the contract, invariably almost all his assumptions will not come true. Due to inflation and other reasons, all the labour and materials will cost more than what he has allowed. Moreover, he will meet more bad weather and unforeseen construction difficulties.

As a result, he will not be able to complete his contract on time. Statistics shows that almost all construction contracts cannot be completed within the original programme.

One: I was pleasantly surprised to see that Tan Sri A K Nathan, who is Chairman and CEO of Eversendai and Deputy President of MBAM, stood up and said that he has no difficulties in completing all his contracts on time. Wah! I am very impressed.

Two: I am also very impressed by Eversendai’s press release after its recent AGM. It has contract works in 15 different countries and it has secured projects worth RM557.6 million to-date, bringing a total of RM1.3 billion projects secured for the year 2017. Eversendai have been executing projects in India from 2009 and have gone through great details over the years in learning the intricacies in doing business in the sub-continent. This has culminated in a successful year for the Group here in 2016 with future projection looking very promising for making inroads and improving profits through capitalising on significant projects. “India continues to be a focal point for the Eversendai Group as the country continues to push construction as part of their rapid economic growth. We are continuously establishing ourselves as a niche steel contractor for highly complex land mark projects,”

Three: Eversendai specialises in large steel structures and was involved in the construction of several large and tall buildings such as Capital Gate Tower, Abu Dabai, Burj Al Arab, Dubai, Tanjong Bin 3 X 700 MW coal fired power plant, Malaysia and many others.

Four: Eversendai is not like most construction contractors. I believe there are very few contractors of this class in the world. As a result, it has less competitors and should be able to secure contracts with a higher margin of profit.

Five: Tan Sri Nathan openly declared that his company can complete Rm 2 billion value of works in the current year. From long experience in the contracting industry, I can safely assume that he can achieve 5 % net profit for the current year and 7.5% for next year. Based on these profit growth prospect, I have been buying Eversendai.

Conclusion:

Those staunch believers of financial analysis will not buy Eversendai because it reported losses for last year and it reported only earning 2 sen per share for its first quarter. They have missed the opportunity to make good profit.

Staunch Chartists will buy because I think it has moved above the 70day moving average.

I must admit I also have many psychological problems to overcome. I am very egoistic. I wrote this to boast. After written this article to boost my ego, I have created a problem for myself because when I sell I have to make announcement which will depress the share price.

However, my intention is to teach investors to improve their knowledge to be able to make more money.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Most Popular

To Top