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I guess I didn't know how to describe what I am about to say, thus the very vague and clumsy title above ! But dear reader, perhaps by now you would have read about the global financial crisis, the sub-prime contagion and be bombarded by endless information about bank bailouts, auto bailouts and what-nots. This is how I define "uncertain future", and as I go along my investment journey, I realize that what confronts me as an investor is not just my ability to analyze and select good companies, but to be able to assess their future potential and survival to a certain extent. Let me elaborate further.....
As investors, our role and job is to assess the ability of companies to grow their earnings and ensure a steady stream of cash flows. Our returns will then be based on the capital appreciation of the shares (representing part ownership of the Company) as well as any dividends accrued over the years. Looking at past data is always easy and it is a cinch to crunch past numbers in order to attain some semblance of being able to identify a good company. However, the fuzzy part of investing is not in analyzing the past, but in predicting the future. Businesses are subject to constant change from a myriad of factors, and stakeholders are forever interacting with the company and altering its intrinsic value, thus I realized that the notion of "the fundamentals are still the same" is misleading; due to the fact that changes in the external environment and within the company itself would cause some degree of shift in its so-called "fundamentals".
With the advent of ths current severe economic downturn and sharp recession, visibility has suddenly been greatly reduced. It's as if 2 years ago in 2007 we were driving a Porsche in clear fine weather, but now the skies have darkened considerably, it's pouring and a fog has sprung out from nowhere to ensnare the unwary driver (investor). Not to mention that the Porsche has probably been downgraded to a battered 10-year old spluttering Ford car ! As an investor who used to be certain about the future potential of the companies I own, I suddenly find myself thrust in the middle of a dense fog with no sign of lifting, and there is no clear visible path to take. Thus, the best thing to do is to tread slowly and uncertainly through the mist, all the while monitoring the humidity and whether the mist threatens to turn into a deadly airborne plague. This analogy aptly describes what I had gone through in the past 12 months as the global financial turmoil engulfed all my companies, rendering many of their plans useless and forcing them to change course and steer clear of danger. Read more...[caption id="attachment_1634" align="alignright" width="240" caption="Photo by { shine }"][/caption]
I guess I didn't know how to describe what I am about to say, thus the very vague and clumsy title above ! But dear reader, perhaps by now you would have read about the global financial crisis, the sub-prime contagion and be bombarded by endless information about bank bailouts, auto bailouts and what-nots. This is how I define "uncertain future", and as I go along my investment journey, I realize that what confronts me as an investor is not just my ability to analyze and select good companies, but to be able to assess their future potential and survival to a certain extent. Let me elaborate further.....
As investors, our role and job is to assess the ability of companies to grow their earnings and ensure a steady stream of cash flows. Our returns will then be based on the capital appreciation of the shares (representing part ownership of the Company) as well as any dividends accrued over the years. Looking at past data is always easy and it is a cinch to crunch past numbers in order to attain some semblance of being able to identify a good company. However, the fuzzy part of investing is not in analyzing the past, but in predicting the future. Businesses are subject to constant change from a myriad of factors, and stakeholders are forever interacting with the company and altering its intrinsic value, thus I realized that the notion of "the fundamentals are still the same" is misleading; due to the fact that changes in the external environment and within the company itself would cause some degree of shift in its so-called "fundamentals".
With the advent of ths current severe economic downturn and sharp recession, visibility has suddenly been greatly reduced. It's as if 2 years ago in 2007 we were driving a Porsche in clear fine weather, but now the skies have darkened considerably, it's pouring and a fog has sprung out from nowhere to ensnare the unwary driver (investor). Not to mention that the Porsche has probably been downgraded to a battered 10-year old spluttering Ford car ! As an investor who used to be certain about the future potential of the companies I own, I suddenly find myself thrust in the middle of a dense fog with no sign of lifting, and there is no clear visible path to take. Thus, the best thing to do is to tread slowly and uncertainly through the mist, all the while monitoring the humidity and whether the mist threatens to turn into a deadly airborne plague. This analogy aptly describes what I had gone through in the past 12 months as the global financial turmoil engulfed all my companies, rendering many of their plans useless and forcing them to change course and steer clear of danger. Read more...
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I guess I didn't know how to describe what I am about to say, thus the very vague and clumsy title above ! But dear reader, perhaps by now you would have read about the global financial crisis, the sub-prime contagion and be bombarded by endless information about bank bailouts, auto bailouts and what-nots. This is how I define "uncertain future", and as I go along my investment journey, I realize that what confronts me as an investor is not just my ability to analyze and select good companies, but to be able to assess their future potential and survival to a certain extent. Let me elaborate further.....
As investors, our role and job is to assess the ability of companies to grow their earnings and ensure a steady stream of cash flows. Our returns will then be based on the capital appreciation of the shares (representing part ownership of the Company) as well as any dividends accrued over the years. Looking at past data is always easy and it is a cinch to crunch past numbers in order to attain some semblance of being able to identify a good company. However, the fuzzy part of investing is not in analyzing the past, but in predicting the future. Businesses are subject to constant change from a myriad of factors, and stakeholders are forever interacting with the company and altering its intrinsic value, thus I realized that the notion of "the fundamentals are still the same" is misleading; due to the fact that changes in the external environment and within the company itself would cause some degree of shift in its so-called "fundamentals".
With the advent of ths current severe economic downturn and sharp recession, visibility has suddenly been greatly reduced. It's as if 2 years ago in 2007 we were driving a Porsche in clear fine weather, but now the skies have darkened considerably, it's pouring and a fog has sprung out from nowhere to ensnare the unwary driver (investor). Not to mention that the Porsche has probably been downgraded to a battered 10-year old spluttering Ford car ! As an investor who used to be certain about the future potential of the companies I own, I suddenly find myself thrust in the middle of a dense fog with no sign of lifting, and there is no clear visible path to take. Thus, the best thing to do is to tread slowly and uncertainly through the mist, all the while monitoring the humidity and whether the mist threatens to turn into a deadly airborne plague. This analogy aptly describes what I had gone through in the past 12 months as the global financial turmoil engulfed all my companies, rendering many of their plans useless and forcing them to change course and steer clear of danger. Read more...
