Why 入魔容易入道难?

Today, I have dinner with my colleagues and we start talking about the effect of Israel-Iran war on the share market.

Colleague A is an engineer. His major asset is in EPF savings, and few properties and unit trusts. He mentioned that it is hard to make profit from share market as it is very uncertain (which I fully agree). So, his philosophy is: Using EPF to gain consistent 5-6% of dividends, and use a small amount of money in speculating in penny stocks, which might give him enormous gain in short term according to him. I asked him why speculating but not investing instead. He said EPF has done the investing part for him (and it generates consistent dividend so far). So, he would rather use some of his monies to 博一博 and buy in penny stocks, hoping to generate handsome return if somebody is willing to "goreng" the stock. He would look into the news, such as projects secured by the company that could trigger the share price to increase. He has got some shares of certain loss-making counters where he lost big, and still willing to hold them as he is too reluctant to realize the loss.

Colleague B likes dividend, claiming that only bank and REIT stocks are worth for investment in Malaysia. He prefers to invest in a local Chinese bank only, and he will keep on doing that when the price is right (not sure how he figures out the right price), as he claims that this bank is stable (which is true). And, he will not sell a single stock of this bank regardless of the stock price. His reasoning is that he might not able to buy the stock at low price again. I asked him why don't sell the stock when the company is overvalued and shift the money to more undervalued companies. He said he got no time to look into all the counters.

Colleague C is somewhat similar to Colleague A, focusing on EPF savings, but use some of his monies to invest in share market. He does not dare to invest big, but only use little monies to buy the stocks of some good companies. Most of these good companies are recommended by his friends, rather than picked by himself by doing thorough analysis.

Colleagues D and E are not interested on the share investment topic, and just listen to our stories. I aware that they invested in properties though.

The above investment stories of my colleagues could reflect the perceptions of general public on share market. Several categories have been identified based on my observation so far: 

Category 1: Somewhat "careful" speculator, who would use monies to 博一博. They don't dare to buy big (yet).

Category 2: Hardcore investor who strongly believe buy-and-hold strategy would work for a company in long term.

Category 3: Do not believe share market would bring wealth. So, properties are their first choice of investment.

I noticed that none of them practices value investing to full extent. No wonder Warren Buffet always said : "value investing is simple but not easy".

The difficult parts of value investing are:

• spending time in analyzing the financial reports of various companies;
• identifying good and undervalued companies out of the pool of listed companies; and
• allocating appropriate capitals to each company. 

Not many peoples are able to do all that, due to lack of time, interest, etc.

That could be the reason why speculators outnumber value investors by a huge margin. 

As the saying goes: 入魔容易入道难.

Being a true value investor (入道) is definitely a long and boring journey, as not many peoples are able to follow and stay consistent with it. Reasons? Too boring for them, and they might get sidetracked by speculators (魔) along the long journey. Being a 魔 can earn fast money, and it is simpler (according to them) to practice by looking into all those technical charts before buying/selling a stock.

So, should we become a 魔 ? or 半道半魔 ?

When I am about to be sidetracked by a 魔 (especially those semi-con/AI stocks that people are chasing them like crazy nowadays), I always recall the following ground (proven) truth:

Peoples that can survive in share market in the long run are value investors, not traders and speculators.