HIGH DIVIDEND YIELD INVESTMENT

By NEOH SOON KEAN

PREAMBLE

In my 40+ years’ career as a serious investor, I am regularly asked by friends and acquaintances for advice on investment. Aside from the fact that I am not allowed under capital market regulations to give off-the-cuff investment advice to anyone who asks, I do find that a big majority of people who have approached me with this question really just want a one-time tip for them to make a quick buck.

Unfortunately, I am not able to provide such one-time tips because most of the time I have none. Investment is a serious life-long pursuit, and for many people it is likely to be the second largest (or even the largest) monetary decision they have to make in their lives (the largest is possibly the decision to buy a house).

For an ordinary person, being a successful investor can make the difference between a comfortable or a mediocre retirement. Life expectation in Malaysia is now well over 70 and if you live to past 60, you are likely to have at least another 20 years or more ahead of you. You would want to build up a nice nest egg for these golden years.

Hence you see the sub-title above: it is taken from the title of a book by Spooner published a number of years ago. Like me, this author had found that most people who profess to be interested in investment were not truly serious about it.

So, the uppermost question is: “Are you serious about investment?” If you are, then read on. There are three important steps that you must take. We will cover the First Important Step today in this four-part series, with the Second Important Step to be covered in Part 2 scheduled to be published on July 8.

FIRST IMPORTANT STEP: BE MENTALLY AND EMOTIONALLY PREPARED

If one were to read the biography of some of the best-known investors such as Warren Buffet or John Templeton, one would find that they share many of the mental and emotional attributes which I am going to discuss. Of course, we are not so fortunate to be endowed with the necessary attributes of a highly successful investor, many of whom were born that way (Warren Buffet made his first investment when he was 11) but we can try to emulate them by adopting their attributes.  It is never too late.

I only first read about Warren Buffet when I was around 25 and there and then I decided to adopt him as my investment role-model. It took many years to rid myself of some of the unsuitable attributes I was born with in order to become a reasonably successful investor in the end. What are the necessary attributes?

1.       BE PREPARED TO WORK HARD AT IT

Unfortunately, there is no easy answer to being a successful investor – it requires you to put in a lot of hard mental work. Unless you have a dear, generous and highly investment savvy friend who is willing to share his knowledge with you, you have to work hard at it yourself. The work required involves much studying, researching and analysing: both the principles of investment and the companies you intend to invest in.

Again, I must say that the current generation of investors are an extremely lucky lot. Not only are shares very good value now (as I mentioned in one of my earlier articles), the knowledge and information one needs for being a successful investor are so easily obtained online.

Contrast the current situation with the situation when I first started investing. At that time, if I wanted to study the annual report of a company, I had to write to that company and ask for a copy. Some of the PLCs even refused to do so. In such cases, I would have to make a trip to KLSE or SES library to study them there or to pay (very expensively) to have them photo-copied. Now, the annual reports of every single PLC going back many years are available online. The interim financial reports are also available online immediately.

Back in the ‘bad old days’, I had to wait for such reports to be published in the newspapers and that involved close scrutiny of every newspaper during reporting time. In a follow-up to this two-part article, I shall lay out the sort of work you need to do to become a serious investor.

The same development has also made learning the principles of investment much easier.  Nowadays, if one wants to learn more about any aspect of investment, one just has to Google the subject; there would be a dozen experts ready to share their knowledge generously with you for free.

Again, in the ‘bad old days’ one had to attend a university or read many books to study investment. Incidentally I find www.investopedia.com an extremely useful website to learn about investment. Try it. Just type in an investment topic, say, ‘free cash flow’, you will get a very clear and full explanation all about it (as well as providing links to subjects connected to it).

2.       BE PREPARED TO INVEST FOR THE LONG TERM

As all experts will tell you, investment is a long-term game. It takes at least one market cycle (typically three to four years) before you can tell whether your efforts are successful. If one is unlucky, the market cycle can stretch well beyond the average. For example, the last bear market of KLSE lasted five and half years. Admittedly, this was extremely unusual (because of the unique political situation) but you must have the mental fortitude to tolerate a long bear market should it happen.

So, an investor has to be very patient and be prepared to stay for the long run. Very often, it is the desire to make a quick buck that drives investors to chase the ‘stocks du jour’ and follow rumours and hearsay rather than do their own research and analysis.

3.       KEEP YOUR HEAD WHEN ALL AROUND YOU PEOPLE ARE LOSING THEIRS (after Kipling)

Most experts agree that the stock market is a high schizophrenic place – it can be highly optimistic sometimes and highly pessimistic at other times. One has to be a contrarian. The Rothschilds (the richest family of Europe during the 19C) had a saying: “Buy on the canons (i.e. when there is war) and sell on the carillons (i.e. when church bells are rung in celebration of victory)”. When everything looks very bleak, it is not the time to sell and when everyone is highly optimistic, it is not time to buy.

When KLSE was at its lowest during the Covid pandemic at its worst, it would have been a very good time to buy shares. In fact, for much of 2023 when everyone was very gloomy about KLSE, it would have been an excellent time to buy high DY stocks. Unfortunately, in both instances few new investors would have the courage to invest.

Look out for Part Two on July 8.