Hi everyone, it’s been about 3 weeks since I last posted. Was away for a military exercise in Thailand. A lot have happened while I was in Thailand, the weather was crazily hot, GID outbreak in camp and I also sold one of my stock holding that gave me a 100 percent return on investment. The profits made from that investment was able to cover out all my losses incurred when I just started out investing. Today, I will be sharing more about the characteristics of that stock and the things I have learnt from this episode.
1) 100% return in just 3 months?!
Yup I was equally surprised! Some of you may have noticed that in most of my recent posts, I have been using AEM Holdings as an example. Yup this is the company that have became my very first multibagger (a stock that returns more than 100%). It all started out when I was screening for low PE stocks in the SGX. (Value approach). This company popped out in the screener which caught my eye. It has innovated a cutting edge product that no one in the world has been able to and back then its PE was less than 10 (relatively undervalued). The company have also just returned to making profits and are planning to ramp up the production of this product which means that further earnings growth is guaranteed.
Since it fulfills the basic principles I set out for a fundamentally sound company and I read an interesting piece of analysis by the guys over at thelittlesnowball.com which reaffirmed my beliefs, I vested into the company at $0.885 per share.
From the chart, I entered AEM at $0.885 per share, added more shares at $1.055, before selling them at $2. If you were wondering why did I decide to sell it instead of holding onto it longer, it was because this stock was about 60% of my portfolio. I have about $2000 invested in it. As this stock catches the attention of more people, it will become more volatile as big players come into the fray. Since I am just a small fish in this, I decided to take the money off the table and only enter again when there is a dip in prices.
Not all company can be like AEM, which gives a 100% return in just 3 months but there are certain characteristics that the company possessed.
- Growing earnings
- No debt
- Frequent share buybacks
and most importantly it has major catalysts (in the form of their cutting edge products) coming its way.
2) Lesson learnt from this episode
I think the most important lesson I learnt from this episode is to be consistent in your approach. A lot of times, young investors like us tend to be swayed by our emotions. For instance, chasing the next hot stock etc etc. When we are swayed by our emotions, we tend to forget all the framework that we set in place for ourselves. Hence being consistent in our approach and calm minded are very important when we are investing.
This episode also shows that you do not need to be in many trades to profit from investing. Sometimes, all you need is that 1 stock to do the magic. Hence, when you are disappointed because you had to be force to exit a stock due to the stop loss in placed, remember that 1 win can easily make up for many small losses if you exit them early. Personally, I was down about $600 since I started investing and this was still when I didn’t learn to cut loss. In that $600 includes the 70% lost incurred from my Noble’s debacle. I am glad that my revised approach, have led me to recover from my losses and rake in a small profit.
I would like to say that not all stocks can be like AEM. However, many stocks do have some resemblance to it. With enough due diligence, and a small leap of faith you may just stumble upon the next AEM. Most importantly, do not forget the framework you built for yourself while investing. Personally that has been the most important rule that led me to find this undervalued gem!