In the Parable of the Shrewd Manager (found in Luke 16 of the Bible), Jesus says:
 
“No servant can serve two masters. Either he will hate the one and love the other, or be devoted to the one and despise the other. You cannot server both God and Money.”

For some of us, the single biggest test in our lives is MONEY. For the sake of money people will do almost everything… lie, cheat, hate, backstab and perhaps more.

I believe that for individual investors, learning to deal with our greed is a key factor to succeed in the stock market.

I have lost money on the stock market before and it was largely because of greed.
 
In hindsight I consider the losses to be ONE OF THE GREATEST BLESSINGS in my life. Stock market players usually tell you how much they make. They keep quiet when they lose. You never hear of the loss.

But if you reflect on the loss, it can be a source for great lessons in your life.

Dig into your wallet now and reach for your largest note. See that it has four corners, right? So remember money has four legs. We humans have two legs…so we cannot run as fast. If we chase after money, it will somehow outrun us.

That was something I picked up from a conference speaker. Simple as it may sound, it also contains a powerful truth.

God clearly teaches us not to be greedy and not to focus our lives around money. See what Jesus has to say:

Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up treasures for yourselves in heaven, where moth and rust do not destroy and where thieves do not break in and steal. For where your treasure is, there your heart will be also.
The Holy Bible, Mathew 6:19 (NIV)

This teaching goes against the very grain of our human nature. Society today teaches us how to excel in our studies and in our work… so that we can make more money, buy more things and be one up on the other person.

For many the stock market is a way to get rich fast. If you are such a person, you are really setting yourself up for disappointment.

People Make Mistakes

In his book One Up on Wall Street (Page 74), Peter Lynch likens stock market investment to the game of Stud Poker.

“Betting on seven-card stud can provide a very consistent long-term return to people who know how to manage their cards. Four of the cards are dealt face-up, and you can not only see all of your hand but most of your opponents’ hands. After the third or fourth card is dealt, it’s pretty obvious who is likely to win and who is likely to loose, or else it is obvious there is no likely winner. It’s the same on Wall Street. There’s a lot of information in the open hands, if you know where to look for it. By asking some basic questions about companies, you can learn which are likely to grow and prosper … you can never be certain what will happen, but each new occurrence – a jump in earnings, the sale of an unprofitable subsidiary, the expansion into new markets – is like turning up another card. As long as the cards suggest favourable odds of success, you stay in the hand.”

I’ve never really thought of the stock market as a poker game, but the truth is that there is a lot of uncertainty in the market. The more I think of it, the more I realize that you can be the best investment analyst in the world, yet there are just tons of factors that are beyond your control. We are in a game where we need to put smart bets and find grace through divine guidance.

Lynch says that consistent winners accept the fact that “they’ll occasionally be dealt with three aces and bet the limit, only to loose to a hidden royal flush. They accept their fate and go on to the next hand, confident that their basic method will reward them over time. People who succeed in the stock market also accept PERIODIC LOSSES, SETBACKS and UNEXPECTED OCCURRENCES. Calamitous drops do not scare them out of the game.”

Hmmm… so it’s OK to loose money every now and then. Feeling better already?

If like me you are dealt with investment losses from Black October 2008, take heart. You are in a casino where you can tilt the odds in your favour. There’s heaps of free information to help you invest. Make a resolution to learn from your mistakes. Even the best experts make mistakes. Here’s Peter Lynch again:

“If seven out of ten of my stocks perform as expected, then I’m delighted. If six out of ten of my stocks perform as expected, then I’m thankful. Six out of ten is all it takes to produce an enviable record on Wall Street.”

Change Your Focus

Take a break from routine to refocus. Is money the only reason you are in this game? Say you make a lot of money later on, what do you plan to do with it?

Do you know where your treasure is? … because your heart will be there too. The Apostle Peter said this in his writings in 2 Peter 1:

Make every effort to add to your faith goodness;
and to goodness, knowledge;
and to knowledge, self control;
and to self control, perseverance;
and to perseverance, godliness;
and to godliness, brotherly kindness;
and to brotherly kindness, love.

Peter shared close fellowship with Jesus, so you can bet that he knows a thing or two about storing treasures in heaven. And for the people who find great delight in God’s commands, look at what God says:

He will have no fear of bad news;
His heart is steadfast, trusting in the LORD.
Psalm 112:7

I hope you have been blessed by this article which will be my final one for the year. I will continue to share with you over the coming year. May God shower you with His wonderful love and grace. May He be a guiding light in your investments and finances for 2009.

Happy New Year 2009!

Recently in my Church Cell I was reminded of how we should always be humble. I’ve never really associated humility with stock market investment but after reflecting on it, I must say it is extremely relevant.

All this while, I’ve been wandering in the dark thinking that I know it all.

The truth is well put by Peter Lynch:

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”

I hear stories of people who suffered the 1997-98 stockmarket crash and never recovered. This is sad indeed.

If you have been in that situation, my heart goes out to you. You probably hate the stock market so much that you vowed never to buy stocks again. If this is so then perhaps I can offer you a fresh perspective.

I’ve lost money on the market before and I know how it feels. It was a humbling experience. For a time I didn’t want to touch the market.

But I’m glad I am now over that phase.

See, the stock market itself isn’t necessarily bad. It’s just a tool in the economy for people to use. What is bad is in our heart and attitudes, in the way we invest. Our motive is to get rich quick so we can satisfy the cravings of our heart. We want that new BMW, Gucci handbag, or that prized property. The bible says:

Guard your heart more than anything else
Because the source of your life flows from it
Proverbs 4:23 (God’s Word – Student Edition)

You know, some of us are fitness fanatics. We jog and run miles and do everything we can to keep our heart in tip-top condition. We know that when the heart stops pumping we die.

In the same way, how many of us actually exercise our spiritual heart? When do we say enough is enough when it comes to money? When do we put our own ego aside and say maybe the other person is right?

Humility means that when we make a mistake, we admit it and rely on the grace of God to move on. The more humble we are, the more of God’s grace we receive in our lives.

Palm Oil
I’ve always liked palm oil. It’s a useful commodity, something that the world needs that we can supply. But when CPO started reaching RM3500 per ton, I started disliking it as an investment proposition. And looking back I was right about this.

Am I saying this to boast? Far from it! When we are right we tend to be overconfident in ourselves. And that is where we make many investment mistakes.

You see the palm oil analysis to me is quite simple… producers can produce at a cash cost of around RM1000 per ton. Basic economics would tell you that there are super normal profits in the industry and supply will increase because everyone wants to make more money, and therefore price will drop. It was only a matter of time. But everyone was bullish. Analysts were screaming Buy at 3000 and when it reached 4000 it was still a Buy. What garbage I thought… to a point where I was scornful of all this palm oil analysis!

I realized that each good call I made caused me to be more confident about myself. And guess what? The obvious happened… I made some bad calls.

Humility would say that everything happens according to God’s timing. We ought NOT to think ourselves more highly than others.

Keep an Open Mind

The smarter you are, the more you think you know. But we are told that knowledge puffs up, while love builds up.

“The man who thinks he knows something does not yet know as he ought to know. But the man who loves God is known by God.”
1 Corinthians 8:3 (NIV)

Humility would say that despite not agreeing with the analysts on palm oil, I should respect their call. In fact my closed mind has both caused me to lose money and kept me from making money on some stocks.

IOI Corporation started at around RM3.00 in the year 2000, before its spectacular run. If we adjusted for bonus issue and share split, I estimate that the recent peak of RM8.60 would equate to an adjusted share price of around RM60 (someone please correct me if I’m wrong). So it has gone up 20 times in the span of 8 years! But my closed mind said at RM5.00 that it could not go up much further. The analysts who were still calling Buy are just plain silly. Of course, I was wrong about that too.

I am not afraid to admit my mistakes to you. I hope it will give you more insight and wisdom and if you are blessed by it, then it would be a cheap price to pay.

(Picture Source: One Year Bible Images)