The Success Formula of a Dynamic Entrepreneur Revealed & Exposed!

I switch on my computer this morning and I nearly flipped! This is why …….

SGX is trading at S$10.10 to S$10.30! I checked the newspaper and based on yesterday closing at S$9.80, the Price Earning ratio (PE) is nearly 55 X. This means that the current price per share is 55 times more than their actual earning. In another words, SGX share is priced 55 times on premium over the real value of the business/share now.

This is a classic case of Mr. Market at work. Now if you read Benjamin Graham, Intelligent Investor and practice value investing, you would be aware that there are 2 concepts we need understand before we invest in equity market: Mr. Market and Margin of Safety.

Who is Mr. Market? Well, he represent general layman including institutional investors and has a BIPOLAR Personality. Every day (except for weekend in the stock market), Mr. Market will come to you as a potential investor to offer you something (in this case, we use SGX as an example) base on certain price. One day, Mr. Market could be VERY DEPRESSED and offer you very LOW PRICE or suddenly, the next day, Mr. Market will be in extremely GOOD MOOD and offer you at very HIGH PRICE based on the same item. These entire mood swing without factoring the actual value of the business which is past and present earning of the business!

This is an important concept because investor can profit and take advantage of Mr. Market mood swing when Mr. Market is DEPRESSED and not when he is in happy mood. This, which lead to a second concept called “Margin of Safety” (which should be 50% and below), stated that an investor make money when we BUY a stock not when we SELL. Value investor constantly scouts for stock that is priced below their true value. Using Price Earning ratio is one of the methods we use. Our Value Investing mastermind rule of thumb is usually looking at company which is below PE = 15.

Let me put it in a simple way, if you know the actual value of the beef is S$1 per kg and when you saw the super market (Mr. Market) is selling it for S$0.50, what do you do? Most likely, you would load up for the week because it is UNDERVALUED. Then, next day, you see Mr. Market advertise the same beef for $55 per kg, do you still buy? I am not too sure about you but I would rather look at chicken or fish which might have a super under value discount. It is the same as investing in stock market and yet most people do the opposite, they BUY when Mr. Market in the good mood and Sell when Mr. Market in depressed mood. No wonder most investors I know never profit from Mr. Market.

Hope you benefit from this article and good luck to your investment. Your comments?