Ep 67: When do I actually sell my stocks…

I’ve been doing this for a while and even the post-producers say, “Hey, you know, when you do stock picking content, it’s very easy to edit because there’s no uh eeh aw la la,” because that’s just something that I’ve been doing for a while, and I do like it. I think a lot of these things that I’m sharing with you over time has been internalized by me already. So it’s not something that I have to create, or do a lot of research because I’ve been doing a lot of these things and I know you guys have this question, right? It’s like, when do I sell my stocks? When do I sell my stocks? When do I sell my stocks? So that’s always a very big problem. And I’m going to start out by establishing some fundamental principles and kind of debunking some of these other strategies that people do. Which I don’t use them, and I give you my reason why. 

But before that, okay, let me just establish what kind of investor I am. So I’m a long-term growth investor. Essentially, I look for long-term companies that I can hold for a very, very long time and for them to compound and grow and for the stock price to reflect as it goes along and I make my capital gains over time. So I have a very long horizon to hit like 10 years, 20 years. That is kind of how I see investing. So with that backdrop, I’m going to share with you some thoughts. One of the main thoughts is this whole idea of value investing. There is this perspective that you can find an intrinsic value and then there’s the undervalue, and then there’s the overvalue margins, right? So every time when it’s below its intrinsic value, then that is undervalued and you should buy it. Every time it’s above its intrinsic value, you should sell it. And to me, I question that understanding la. Not saying that it is wrong. I’m sure there are a lot of people that practice this way of investing and that is them, but I don’t use it because — let me share with you my perspective: number one is because it is very difficult to determine intrinsic value.

A lot of people use the DCF model, discounted cash flow. I’m not here to explain more. If you are already in this, you understand, if not, you can Google  DCF. This is a lot to explain. And in DCF, there are certain assumptions, right? Terminal growth rate and growth rate. Right? So growth rate is something that is very interesting. Under normal situations you realize that there are no consistent growth rates. Growth rates are forever changing. So people are taking medians, right? People are taking averages when it comes to growth rates because certain companies can be doing something for a really long time. Like maybe they had been doing health food for a really long time. And then suddenly there’s like a huge health trend and then whatever  they’re selling just flies, or they have been doing this whole e-commerce software kind of thing. And then doing, COVID suddenly all their numbers fly, right? And you don’t know what is going to happen to the growth rate after this situation — will the growth rate continue or what is going to happen?

And big companies also tend to do a lot of mergers. Like they will buy other companies, the other competition or other verticals and see how they can continue to generate growth rate. So all those things right will fundamentally affect the accuracy of growth rate as a factor in discounted  cashflow. And so to translate to human language, it just means that it is very difficult to determine how fast the company will grow and how consistent will they keep growing. Or will they one day just stop growing. And so from that perspective, as a long-term growth investor, I’m not extremely reliant on this idea of calculating an intrinsic value.

And also one thing I want you to know is that I tend not to buy below “intrinsic value.” I do use a calculator and then I tend not to buy below it, a lot of people will be like, oh, you need to have 20% margin of safety, must buy below it. But I don’t because my perspective is that good companies tend not to be cheaper. Good companies tend to have a premium and that’s an inevitability. And it tends to be the case. It’s very tough, very very tough to find companies, especially in this market that are like below “intrinsic value.” So, because I don’t believe in this idea of intrinsic value, like below value, then I also don’t really sell “above value,” right? Because to me this, the whole thing is just a bit questionable la. I don’t really use them. So it’s my perspective. 

And also another thing you should know is that I think a lot of people don’t understand that big companies can go bigger and high stock prices can continue to go higher. A lot of people feel like what goes up, must come down. What goes up must come down. It sounds very logical but in the stock market, it may not always be the case. What will go down, can continue to go down. What go up can continue to go up. So as a long-term investor, I want to hold it for the long. I want to see companies that can keep growing and keep growing and keep growing. And eventually their share price will reflect. So with all of these basic understanding of like how I don’t exactly believe in the idea of DCF intrinsic value, you know how I understand the stock market, as good companies can keep growing and the stock price can keep going up, you know, and I’m a long-term growth investor.

Now I’m going to share with you when do I actually sell my stocks? Okay. So the very, very first situation, you know, where I will sell my stocks is that when I have a better place to go, I will sell it, okay. So why do I say so, let me give you a better understanding. So I see things from a capital deployment kind of way, you know, which actually is what a lot of long-term investors, especially a lot of fund managers, that’s what they do. They deploy capital. They have, let’s say a million dollars and then they’ll be like, okay, so what do I want to buy this, this, this, and what’s my thesis. And then I’ll buy them and I’ll wait and see how things goes. So that’s kind of how it is. But when it comes to the retail investors, right? I mean, it’s people like you and I, a lot of people right, they have 50,000, they have 100,000, and when they invest in the stock market, right, they are more concerned about making the most profit. So that means like if the stock they buy, like UOB la, I don’t know, they buy DBS or whatever. Few dollars they buy it, and then suddenly, you know, go up by 5%, then “eh, must sell already, must sell already, make money already, later the stock come down.” So if they are like traders, I think they are like gamblers la. But let’s say they’re traders then so be it. But if you call yourself a long-term investor, then why are you selling because prices are going up, then what is your understanding of long-term growth investing or even long-term value investing?

So if you understand the idea of long-term, then your thesis should, to me, for selling should not be because prices are going up, right. Because that is the expectation mah. Fundamentally prices should go up if you are buying good companies. So instead of thinking of making the most, which is the kind of, a lot of people have this idea, I see it from buying the best that I can understand, which is the capital deployment way of looking at things. And I hope that you can see this way, which is to look at things, you know, you have this $50,000, you have this $100,000 capital, you want to buy the best of what you can understand. So this is how I invest, and this is how I see it. On top of all the, you know, like all the studying, the financial, studying management, all the fundamental analysis, all those I’ve done it. After I do all those, then how I deploy my capital is this way of seeing things, which is buying the best that I can understand. So when I sell it, it must also mean that I have something else better to go to. How I do it is usually my portfolio has a max of 20 companies at any one time. Any more, I’ll be a bit luan already, too many things to follow.

Think about that, right? If any companies, every quarter they release, you know, their investor report, annually they will release their  financials. Dude, the amount of work just to go into looking at all these things are nuts, right. And I’m not full time, so I’m not going to go crazy and buy 40, 50, 60 companies. So I have about 20 companies that I believe in. And when I look at it from that angle, how I sell it is a bit like a Royal Rumble, right. I’m sure WWE fans are out there — Royal Rumbo. Essentially, if I want a company to come into my portfolio and someone tells me about this company, and I thought, “Pretty interesting, let me go and study it and understand if it fits my investment palette.” Then if I think that this company is potential, okay, I will take it into my consideration and look at all these companies that I already have, all these different stocks that I already have and ask myself, which one I can sell. All right.

So if I sell this to put into the new company that I want to go into that is when I sell it because I have a better place to go. Not because, you know, must make money, must take it out. Because what goes up can go higher. Okay. If you are a long-term growth investor, you want to see long-term and not just because prices are going up.

So that is number one situation when I sell. It must be: I have a better place to go. And I must understand this place, not just because someone tell me it’s good and I’ll go already. So people share ideas, they exchange thoughts, and that is great, but you must have your own fundamentals as to why you buy this company. So in any case, yeah. If I have a better place to buy, I will go. So that is when I will sell — number one situation. 

Number two reason when I sell my stocks is when the story of the company has changed. Okay. So what do I mean by, I only sell my companies when the story has changed. So every time I invest in a company, I need to believe in what they are trying to do. So I am a long-term growth investor. I look at the fundamentals, right? So if, uh, let’s say, okay, I own Facebook, right? I own Facebook on this idea that they will continue to grow the ecosystem; more and more people will be on Facebook and then they can continue to sell ads and, you know, keep incorporating this whole business effectiveness into their whole ad ecosystem.

So more and more businesses will be using advertisements on Facebook and more and more people will be using Facebook. So that is their growth story. Of course, they have like Instagram, WhatsApp, Oculus, all those kind of additional stuff, I know, okay. But simply put that’s the idea: more and more people partake in the Facebook ecosystem and more and more businesses want to advertise to this ecosystem.

And recently there’ve been a lot of backlash from Congress and from people in general that are very unhappy that Facebook is dominating the space. Of course not just Facebook, Amazon, Google, Apple all getting whack, all the Big Tech. So if Facebook and some getting some sort of  antitrust lawsuit and have to break up, right, that means, Instagram has to go solo, WhatsApp have to separate from Facebook. Then the story has kind of changed. So then in that case, I’ll be questioning, hmm, should I still continue to own Facebook? But that is my analysis for myself. Next time I can share with you more. I have not finished analyzing the situation because it has not actually happened. So currently the story is still intact, but if Facebook is forced to sell off, Instagram, it’s forced to separate all these different companies and break up their ecosystem, then hey, does Facebook still have that same original value? I don’t know, but has the original story changed? It has changed because when I invested in it, this was the reason, but now it’s a different scenario. So the story has changed and I may sell my Facebook shares if that happens. 

So another company and I own is jd.com. Jing Dong. It’s a Chinese company, listed in the US, of course also listed in Hong Kong and yeah, fundamentally they are just doing e-commerce. It’s a bit like a Shopee, a bit like a Lazada, right. So they’re doing e-commerce, but they are way bigger of course. And the growth story is that they will continue to expand their user acquisition. They’ll continue to refine their whole backend logistics ecosystem so that more and more companies will want to use them when they are thinking of setting up online shops and also get a bigger reach and more and more audience, more transactions on their platform. So more transactions, more ecosystem partners, more merchants want to come on and then they could charge all these additional fees for logistics and whatnot for all these other merchants.

Have you ever wondered why Taobao, JD and all these Lazada, Shopee, they don’t really charge you much fees, you know, from the start. They don’t charge you because they charge the merchants, right? The merchants pay for fulfillment costs, the merchants pay to use their logistics platform. Because if you think about it, Singapore is very small, a lot easier, right. But in China state to state, you know, it’s huge, billions of people like I think 1.5 billion people at this point in time. Come on, man. If you are a company and you’re trying to sell something and you need to fulfill all these orders all around. How are you going to do that right. So that’s why JD gives us a solution. Of course Alibaba also does that, right. So when I see their growth story, as long as they continue to drive more and more, you know, gross merchant volume. Okay. So as long as more people — I’ll speak human, okay — more and more people are buying on their platform, more and more users on their platform, they can continue to get more and more companies to come on and continue to sell and use their ecosystem, then the growth story is intact.

But in any case, if something happens, if their competitors like Pin Duo Duo are coming up and like just challenging their original front, then things have changed. But as of now, it’s fine. Everything seems okay. And so if you understand that I only sell my stocks when the narrative has changed — that means their stories have changed — then let me just give you some breakdown as to what some of the factors that usually occur, usually you see, right? So there are factors beyond the company and factors within the company. Factors beyond the company will be things like if some Big Tech is entering the space, like how Apple, Google has announced to enter gaming, right? Then all the gaming  stocks, like Activision, EA then, you know, goes a little nuts, like crazy because you don’t know what’s going to happen, because these big guys are coming in, like Amazon coming into the whole grocery business. And yeah, you get an idea; when big guys enter your space, you know, then eh, crazy man, can we still strive? Can we still continue to push, right. So there’s this whole thing of the Amazon effect la. So everyone is worried about big tech coming into their sector. So that is something that you should know. That’s something that I look out for. And another point is, what if competition is pulling way ahead. That means like when you first start, like the whole marijuana business, right? Many players when they first came on marijuana and all these weed providers, and then over time, in a very short one or two years period, you see a few big boys pulling away from the competition, like Canopy Growth, like Aurora. So they become the leaders in the pack and everyone else is out already, right. So when you start to see that a company that you may have bet before is,  you know, losing the run because it is a whole fast growth pace. Then you may want to kind of revisit that because the competition is way ahead already, right. Or if there is a change in market realities, let’s say consumer preferences are changing or government plans are changing.

Like this whole government lockdown and now, you cannot do retail; you have to go online. So that is a huge change in terms of factors beyond the company, right? Or let’s say the consumers are all eating healthy and people are all going, vegetarian, all going vegan. And then you know, if you own Tyson Foods, if you own like some of those big producers, then you have to question what is the long-term reality for these companies. Because the factors beyond the companies have changed. Also factors within the companies looks like M&A plans that means if they buy other companies, you know, or if they have a sudden business expansion that I don’t agree with, you know, or let’s say there’s a management change that I don’t like then yeah. All these are good reasons for me to sell the company, because the story has changed, which brings me to my third and last point. And that is when I need money la. 

When I need money for my life, that is when I will encash and essentially get some sort of capital out. And that is the cold hard truth when you are a retail investor, okay. Let me just — give me some air time, okay. Don’t turn off. So when you are an institutional investor, that means you are a professional fund manager and you do all those things, you don’t  really need to care about your personal expenses, right? Because all these people, they give you the capital, you do what you need to do, right. And you can play very, very long-term. You can look at things very, very far, or you can do a lot of trading depending on what is your investment thesis, how you guys do it and how you sell to your investors. But when I am a retail investor, I need to care about how my money is affecting my life in actuality.

So if my life has some situation, like my friend recently got married, right. And when you get married you need a lot of money and you know, you sell down your portfolio so that you can then encash the money to put into, you know, your marriage. If let’s say that is how you want to do it. So I only really encash my money when I have something better to do with it la.

So in this case, if my life requires me to take out the cash, whether is it, you know, family issues, whether it’s a new business opportunity, that’s out of the market or whether is it like, you know, I got some things I need to pay for, then I will encash the money, which usually doesn’t really happen. So for lack of a better way to put it, I don’t usually sell my stocks. I’m a net buyer and, uh, a bit like a Buffet; so Buffett is a net buyer of stocks over time. 

So I’m going to sum up these three points. Last point sounds a bit stupid but it’s very realistic, right? Because you are not an institutional investor. We are retail investors; we need to care about our situation. If we need money, then we sell. If we don’t need money, then it’s okay. We can hold for the longer, as long as the story’s intact. 

So to sum up, when do I sell my stocks? Number one is when I have a better place to go for the money. So I have a certain capital, see it as a capital deployment. I’m not always about making the most; I’m about buying the best that I can understand. So if let’s say there’s a better company coming in and I want to get that, then I’ll sell out whatever I have to then buy this new, better company. Number two is when a story has changed and a story has changed for 101 reasons, whether there’s factors beyond the company or factors within the company. If whatever I buy into there’s an original thesis, and this story is no longer the same, then I will sell out the company and buy into something else that I believe is better. Number three is when I need money la. So if I need money for my life, then I will sell my stock portfolio, essentially. That is the reality as to how I do it, okay. Don’t give me one star review. [laughs] Anyway. Yeah, I hope you learned something useful today — see ya!

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Test test. Okay, yep, so that’s it: how do I sell my stocks? I know you guys always DM on Telegram like, “Hey, is this a good time to sell? Hey, is this a good price to go?” Okay now you got the answer. Clearly I’m a net buyer. I don’t really sell based on price movements. I want to know that the company fits my bill for the long term and yeah, I’ve shared with you exactly how I do it. Don’t be worried to keep the questions coming, right. So still very happy to talk to you guys, or even as a remindes, like, okay, this is how I do it, but hey, keep the questions coming. 

And for next week, next week we’re gonna, talk a little bit about how to start a business. Because I think a lot of you guys are trying to start your own business or your own side hustle. And different businesses require different ways of running. Whether if we’re running a fast-growth startup, then we need to talk about certain things: the founders agreement, all the way through share distribution, you know,  investment  timeframe, and then, you know, when to exit blah, blah, blah, those kind of stuff. But I think a lot of people just want to do a small little side business, potentially make enough money to then hop onto it. So if you don’t really have a lot of budget and you don’t really want to commit a lot, I think there is a way to do this kind of business, right? Small budgets, small business. And yeah, I’m going to share with you how I believe it is done. I think there are a lot of misconceptions out there. A lot of things that new entrepreneurs, they end up focusing on and I’m like, ah, dude, don’t focus on these things, that ain’t make sense. So as someone that has tried a few businesses and, you know, essentially built a pretty successful podcast here and running a decently strong company — yeah, I have some thoughts and I hope you learn something useful next week: how to start a business with limited budget. Limited does not mean no budget, hah? you still need money to do business, but yeah. See you next week. Bye!