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Small change; Hot stock tip: Look and listen

26th Feb 2012 The Straits Times (The Sunday Times) By Goh Eng Yeow, Senior Correspondent 2012 Singapore Press Holdings Limited To know what to buy and sell, it pays to observe consumers' habits Recently, I received a heart-rending e-mail message from a distraught day-trader who lost a big fortune in the turmoil that rocked the stock market last year. 'With mounting bills, and zero financial reserve left, and no job, the current state of mind is like losing a wing man in Tom Cruise's Top Gun. Every day is a challenge mentally and physically to put food on the table. I never thought I would end up in such a state since I had always been prudent financially,' he wrote. For some people, his message of distress simply confirms the follies of investing in the stock market. Better to lock up the money in the bank and throw the key away, they would say. But that would be too cynical an attitude to take. Disasters do happen, but life goes on. And keeping hard cash is hardly the answer. Its value gets eroded by inflation over time. As a markets writer whose career started in the aftermath of the 1987 Wall Street crash, I get harried from time to time by friends and even strangers for stock tips. Surely, they argue, I must be privy to what is going on, with my wealth of contacts. 'Got any stock to buy or not? Any inside information?' they would ask. They would turn away in disbelief when I tell them that I do not buy shares on inside information even if I possess any - and that I make an investment only after careful analysis. Still, it raises one valid question. Is it really so difficult to sniff out a good investment opportunity? Does one really have to plough through mountains of annual reports and investment research just to find the right stocks to invest? Strangely enough, I find myself saying no, after reflecting on my own investment experience in the past 25 years. I notice that some of my best investment ideas come from observing the habits of consumers, including myself. One of my best investments - Cerebos Pacific - came by chance. Many years ago, I was

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in a Bangkok convenience store when a guy walked in to buy half a dozen bottles of Brand's Essence of Chicken, the tonic manufactured by the company. He drank all of it on the spot. The memory stayed with me, and when the stock plummeted some years later due to the Sars crisis in 2003, I picked up some of it, reckoning that the share would make a comeback, given the loyalty its product commanded among consumers. It turned out to be a good call. Then there was the mechanic who serviced my car a few years ago. On the day that Citigroup sank below US$1 in March 2009, I was at his workshop, chatting with him about the US bank's plummeting share price, as my car was being repaired. But while far more financially savvy investors like myself were traumatised by the global collapse in stock prices, my mechanic saw it as the buying opportunity of a lifetime. 'How else can you buy one Citibank share for less than the cost of a bowl of wonton noodles?' he said. His investment rationale might sound flawed, but he was rewarded many times over when Citi's share price recovered in the next 12 months. There was also the stray observation made last year by a friend at an HDB coffee shop about the changing habits at the dining table. 'Look at the next table,' he said. I turned around to have a look, and saw a family enjoying a meal. Nothing unusual about that. But what was unusual was that the parents and their son were not talking to one another. Instead, they were eating and typing into their iPhones at the same time. 'Do you suppose they have forgotten how to talk, and they are now relating to one another through the iPhone?' my friend wondered. It is a scene which I see repeated over and over again, whether I am in a coffee shop or an upmarket restaurant. But while I merely switched to an iPhone, like millions of other phone users, my friend bought Apple shares at what I considered to be an astronomical price of US$320. With Apple climbing close to US$520 (S$654), he has reaped a 60 per cent profit on his shares. If everyday observations can give rise to buy calls, they can also flag sell signals. One good example would be beleaguered United States photo giant Eastman Kodak, which filed for bankruptcy last month. As recently as 2007, it had looked unassailable as

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it commanded a market value of US$8.1 billion. That year, I bought my first digital camera, and I never looked back, given the convenience of storing the photo images on a hard disk instead of in a photo album. It was a change in photo-taking habits experienced by millions of other photographers. So even if you were a die-hard Kodak investor, it would have been tough for you to ignore the writing on the wall that the company's days were numbered. Another good example is Japanese electronics giant Sony Corporation. When it reported the appointment of Sony's new boss, Mr Kazuo Hirai, three weeks ago, The Economist noted that he was taking over the reins at a time when the company had suffered four straight years of losses and had a TV division that lost US$80 on each set it sold. You do not have to be a rocket scientist to work out Sony's problems. Take a walk down any electronics store and you will notice how cheap flat screen LCD TV sets have become. When I bought my first LCD TV set eight years ago, I paid nearly $3,000 for it. But a brand new set with far more features now costs less than $1,000. It makes you wonder how any firm can make money out of making TV sets, no matter how much it trims its costs. In giving all these examples, the point I want to stress is that in making an investment, we should not miss the wood for the trees. Rather than chase after the next so-called sexy counter because you are given a hot stock tip, relax, take a deep breath and look around you. Sometimes, the best investment ideas are right in front of you, if you only pay attention. Source: The Straits Times, engyeow@sph.com.sg