20 January 2019
US billionaire Warren Buffett is among those who has proved the merits of long-term value investing. Photo: Bloomberg
US billionaire Warren Buffett is among those who has proved the merits of long-term value investing. Photo: Bloomberg

Letter to a young investor: Try hard, play hard

Dear Zijian,

From your letter, I gather that you graduated from university recently and that you are focused on value investing. You say you are perplexed that your investment performance has not been as good as those around you who are focusing on charts and other tools.

Now, don’t worry! You are not alone in having such confusion.

We periodically see young stock trading “legends” who give the impression that making money is just a matter of clicking a button. They may score easy successes, but the question is: How many of those people will sustain the winning streak in the long term?

Jesse Livermore, who can be deemed to be a founder of sorts of technical trading, had suffered several bankruptcies during his lifetime. In contrast, Benjamin Graham, who started value investing, and others who followed that principle — people like Warren Buffet, Peter Lynch and Anthony Button — are all perfect proof that value investing is a reliable approach to get you rich.

The flagship funds of Value Partners and First State Investment, both adopters of value-investing, have seen their values exceed previous peaks seen before the financial crisis. 

People are usually impacted by what they’ve seen and experienced. The stock market has been moving sideways since 2010, which may have affected investors’ mentality.

Benjamin Graham, a guru for Warren Buffet, has gone through the Great Depression in the 1930s. That experience made him very cautious in his investments. 

A person is usually limited by the era he/she is in, and easily affected by the things around. One of Buffet’s favorite practices is selecting the top 10 listed companies with the largest market value. He would then study the performance of the companies over a long period to break the time boundaries.

Hong Kong launched the mainland individual visitor program in 2003 after the city struggled with five years of deflation. Nobody would have foreseen that the share price of jewelry retailer Luk Fook (00590.HK) would soar from around HK$3 to nearly HK$40 by 2011. 

Being young, you might have missed the fast-growth period in China’s economic expansion. But you should bear in mind that the economy will maintain a period of stable growth if the current reforms succeed.

Value investing will help you capture the big trend. Don’t be excessively bothered about what’s going on. Try to widen your horizon by looking back into history.

In the 1980s, Peter Lynch and Anthony Button were star fund managers at Fidelity. But they had totally different investment styles. Lynch focused on the potential growth of a company, while Button opted to go against the trend. However, both of them would dig deeply into company fundamentals.

Buffet said: “I tap-dance to work. I do business with people I like, respect and admire”. You will be good at something only if you like it. If you try harder and enjoy investing more than anybody else, you will find your fortune sooner or later.



This article appeared in the Hong Kong Economic Journal on Feb. 13.

Translation by Julie Zhu

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Columnist at the Hong Kong Economic Journal

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