17 October 2011

Human Factor in Running a Business

I am a self-employed person under Kim Eng Securities Pte. Ltd. Previously I was with Bursa Malaysia and Phillip Securities Pte. Ltd and I was learning how to run a trading business especially in Equities and Unit Trusts as a programmer, business analyst as well as business development executive.

The ways of doing business, are not more than communicating with other people in your daily life. When you wake up from the morning, you will watch the TV program and the news reporter will tell you the market movement in the market. After that you might want to read the research articles written by various research team from different broking firm. You may also wish to make the investment decision when the market is open.

When you read from the news or research articles, you may also wish to do some homework yourself, by reading through the charts (Technical Analysis) as well as its fundamentals (Fundamental Analysis). You may use about 1-2 hours to make a decision on buying a financial products such as CFD, Equities, Unit Trusts as well as others.

Of course, when you are not in a very sure position to make a decision, you may consult your remisier as well as your wealth manager. For those trained in financial products, they may give you financial advices based on your risk & return appetite. You have to understand the underlying risk and potential return before you start a brand new investment. The more sophisticated investor you are, the more risk that you can undertake, as you would be able to go through the downturn as well as upturn in the market.

Let me give you an example on how to evaluate a company:

DBS is a Singapore Local bank that similar to Maybank in Malaysia. Besides that Asset and Liabilities in the Balance Sheet, you may also wonder why the Price / Book Ratio is higher than its peers. What makes it superior than its peers when they are running the same business?

Intangible Asset that makes a different. From here, we may not know how to evaluate the intangible asset in a company. We have to understand how the company runs its business before we can determine how much the intangible asset is. I would take 'Management' as one of the intangible asset - an asset that makes a company different from its peers. You would be able to notice that a company stock price is dropping (for example Steve Jobs from Apple) when he stepped down as a CEO of a company. Besides that "Management", "Company Culture" & "Business Model" are those intangible assets that make a company different from another. Some company that good in 'R&D' may enhance its leadership in creating a better products or some company that good in 'managing cost effeciently' may also enlarge its business scale so that it can achieve economy of scale.

If you read the book titled 'Good to Great' or 'Built to Last', you may understand why some industry leaders are able to extain its leadership for a certain period of time (e.g. means that they are able to enjoy higher and consistent ROE for a period of long time). For the industry followers, they would find their niche to achieve better  than average result in the industry. If you are able to find it from the market, then it is good that you can hold it for a longer period until you find another undervalued company that worth to switch to.

Trust me, that investing is an art. You would never able to judge a company stock price just based on graph or fundamental figures. The more you understand the business model the company has, the better potential result you may get.

Good luck in your investing. :)

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