Remember the Fundamentals!

Kuala Lumpur Composite Index (KLCI) has been enjoying an excellent run since the recent market crash in late February and early March, rising from a low of 1090 to yesterday's 1307 (almost 20% gain)! Those investors who were long-term-minded and decided to hold on to their investments then would likely be making handsome profits by now. Back then, it was also the right time to bottom fish as almost every single stocks were battered down. I did exactly that by buying up a number of fundamentally sound stocks, knowing that their true values will eventually recover based on fundamental values.

Recently I spoke to a number of retail investors and the sad thing they told me was that their stocks have not appreciated much despite the market having risen so much! Some of them laid the blame to the notion that the index rise was only attributable to gains in blue chips and index-linked heavyweights, which they could not afford to buy! This fallacy of thinking cannot be blamed but the truth is, it is simply a case of them not picking the right stocks! The sad fact is many investors are still holding on to their "legacy" stocks which they have bought way back in 1993 (the year of market bull run which collapsed thereafter) or speculative stocks that had degenerated into worthless piece of paper! This is indeed a common problem when an investor "falls in love" with the wrong stocks!

Investors should remember the following basic principles of investing in stocks:

1. buy stocks of companies that are fundamentally sound. Do some homework (such as reading analyst reports and doing your own research by checking up company's earnings reports and future business prospects).
   
2. Don't buy stocks based PURELY on rumours or tips!
3. Cut losses when stock price goes against prediction. Even the best investment decision can go wrong sometimes! 20% is the general rule of thumb. You are better off reinvesting the money into other more profitable options.
   
4. Rebalance your stocks portfolio every 3 to 6 months, taking into account your risk profile and prevailing economic and market conditions.
   
5. Detach your emotions from investments!
   
6. Think long term and be patient!