Hello friends,
I have some quick updates regarding my investing plan in this time of market distress.
Before I proceed, I just want to express a disclaimer that I am very thankful for being in my current financial position right now. In essence, I have some money that I managed to squeeze out of one of my emergency fund and channel it into the market. I'm saying this because I do acknowledge the position of luxury that I am in right now due to various fortunate reasons such as I have no dependencies, I still live with my parents, my frugal nature and a recently stable job. Having these thoughts at the back of my head, I will always tread cautiously as to not to take my blessings for granted. So without further ado, lets proceed with my investing updates.
So I've been making some calculations today and I realized that my funds isn't as huge as I thought that I could've muster. This has direct result in terms of my selections on the business that I want to own. The question that I'm facing right now is not just about the best business to buy, but also which business that I can afford while being cheap?
So allow me to explain a very simple concept that I used to have some confusion about. Cheap and affordable are the two words that are often misunderstood and may used interchangeably by mistake.
A cheap business refers to how high in value that a company is able to give you relative to its price. On the other hand, an affordable business is one that you could afford as of your current available liquidity. So for example, a company trading at RM10 but with a PE ratio of 5 is considered to be very cheap. But in order to purchase that company, you need to purchase at least 100 units which equals to RM1000. From this example, the company is cheap but not affordable. Similarly, if a company is trading for RM1 but its PE ratio is 20, then by a simple glance it would seem that the company is expensive. However, since 100 unit of the company is only RM100, it is very affordable. So in general, a good company is gauged to be the cheapest one that you can find as it represents greater value for your money. But a cheap company may not necessarily be affordable.
So this is the problem that I'm having right now, with my limited fund, my constraints in choosing a high value business is more restricted because I need to prioritize affordability first before its cheapness. As a result, some of the wonderful companies are slightly out of my reach.
The easiest way to combat this would to go after the cheapest company regardless of its affordability. Though the rationale would still justify the actions, I would severely compromise the diversification aspect of investing. And that is definitely something that I wouldn't risk.
As of right now, there is only one company that I found that perfectly meet the balance between cheapness and affordability. I'm happy to say that I've already put my limit order somewhat below the market value just to squeeze a tad bit more of value in the purchase.
This action may seem as I'm timing the market to which at some degree, I do agree with that. However, in the depressing state of the market right now, my margin of safety is relatively high and even the market rebounds before it hits my limit order, I already have another fair value of the stock that I have in mind at which I am more than happy to accept it. I have also put in place a limit order for several other stocks and thus, the waiting game begins.
As I'm going through this bear market, I'm also writing out my thought process here so that I could get a birds eye view of my frame of mind as I try to figure out the best way to approach this event to be successful on the other side.
My goal as to writing all these down are such that I want to instill a behavior within me that tries to decide on the best set of choices that leads to a good outcome. In essence, aiming to make a good decision. I believe that making a good decision is always the best step to take even if it doesn't lead to a good outcome.
That's all what I want to say for now. Stay safe and wash your hands.
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