Monday, June 2, 2008

The prehistoric investor (Chapter 1)

As I mentioned earlier, I left my house earlier to beat the ERP and during my new found free time, I am currently reading a borrowed book (from my brother) known as The prehistoric investor written by Curtis J. Montgomery.

I have only finished Chapter 1 (yes, in between the little breaks I have) but I really really like his writing style and his examples (stocks and business) are mostly within Singapore context.

It is obvious he is a staunch follower of Benjamin Graham and Warren Buffett, which my investment style is inclined to. In fact, one point he highlighted in chapter one is that:

“There do not appear to be any technical analysts among Forbes list of the wealthiest people in the world while Buffett and dozens others with a fundamental investment style have became billionaires.”

I believe the above sentence is really encouraging to all subscribers of fundamental analysis like Kleer and Musicwhiz!

One think I like about this book (or at least chapter 1) is that it basically summarizes all the books I have read about fundamental analysis and financial behavioural science! Every sentence seems to me that I have read somewhere (but forgotten) and catches my breath and attention!

(You got to read Your money and your brain: how the new science of neuroeconomics can help make you rich by Jason Zweig if you enjoy understanding how our mind works when it comes to investing.)

One paragraph of chapter 1 was particularly relevant to me! I rigorously highlighted the whole paragraph! Basically it meant that companies that do not pay out dividends retain the full decision to control how money is spent on future investments. However, if dividends are paid out, shareholders (YOU) will now play a part in managing the company’s earnings. YOU can save and spend; reinvest into the same company, other better companies or even competitors. In a way, YOU take part in the decision making process of managing earnings!

True yah?!

The point that struck me is: You must reallocate your earnings (dividends) responsibly!

Hence, do not get too happy when you get your dividends and blow them on the latest gadget! (I know IT fair is coming!) Spare some for reinvestments/diversification/hedging or you will be doing a disservice to yourself and your company! Do not waste your company’s money! You have a share in it too!

For those who are interested in getting the book, you can get it FREE here:

My brother got 2 books free by answering 2 quizzes online. I will not be getting it as he has lent it to me and allowed me to highlight, draw, underline and kiss the book. He is currently finishing “The philosophical investor” , also free from web by Curtis J. Montgomery.

All yours now!

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