At 23, NSF is already a stock market veteran

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At 23, NSF is already a stock market veteran











Tuesday, Oct 21, 2014


Rachel Boon


The Straits Times




All it took was a TV programme featuring renowned investor Warren Buffett to kick-start Mr Cheng Xiang Nian's interest in investing when he was a teenager.


The 23-year-old full-time national serviceman already has five years of experience in the stock market. He embarked on his investing journey the moment he turned 18.


Discovering this passion has given him a sense of direction. "When I tried money management and dabbling in the markets, it was the only thing I felt passionate about.


I enjoyed what I did - going through spreadsheets, analysts' reports, the balance sheet - it's not dry for me."


This is why he intends to work at a major brokerage firm, hedge fund or bank "because I think they can bring my investing skills to the next level, so I can not only help myself, but also others in managing their funds next time".


He plans to study finance in Britain as part of the pathway to achieving his goal.







20 tips from Warren Buffett





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Mr Cheng has been aware of the value of a dollar since he was a child, having seen how hard his father, a businessman, worked to make his money, and says "you have to respect money".


He does not shy away from the mistakes he has made in investing, and wants to spread the word.


He says: "I just want to emphasise the point that if someone wants to attempt this (investing), he has to have proper knowledge before he begins, because if you do not respect this 'game', the market will demand its pound of flesh.


It's as dire as it sounds."


The self-taught investor also sees the need for investors to be emotionally stable.


"Usually when a beginner loses money, he feels angry, frustrated, his ego is hurt, and he doesn't want to admit that he is wrong."


The person could wait for the stock to rise to levels where he breaks even, as that proves he was not wrong, but Mr Cheng warns that "that is very dangerous thinking".


"Most of the time, the price will not go back to its original state and you end up destroying your account."


He cites Wall Street legend Martin Schwartz as a good example of someone who persevered past his failures.


"When he first started out, he did fundamental analysis purely, for 10 years. He said he did not make money and was terrible at it.


"It was only after 10 years that he made the switch to technical analysis. He started to make money and became incredibly successful."


Mr Cheng uses both fundamental analysis and technical analysis, looking to Mr Schwartz and investment guru Jim Rogers as inspirations.


Referring to Mr Schwartz, he adds: "I'm not trying to say technical analysis is better. I'm trying to say that there are many roads to Rome, so find your own style that fits your personality.


"Find a methodology that works for you and do not be disheartened by your failures."


Q: Are you a spender or saver?


I took to saving at a very early age. In Primary 1, my dad would give me $3 a day and I'd save about $2 every time if possible.


I have had this habit from a long time ago. I also keep all my receipts over the course of a month and log them on a personalised Excel spreadsheet.


I divide my expenditure into dining, entertainment, video games, clothes, petrol, insurance... so at the end of every month I can make adjustments if I am overspending in one category.


I spend the most on books about whatever I feel that's interesting. I may buy $300 worth of books every few months.


Q: How much do you charge to your credit cards every month?


I try to spend a maximum of $200. I prefer to pay everything by cash if possible, because if you allow the habit of letting the credit card interest rates snowball, it can be impossible to clear your debt.


I also do not buy anything unless I absolutely need to. I don't really enjoy shopping.


Q: What financial planning have you done for yourself?


I divide my savings and salary into four different components.


I devote 25 per cent to long-term holdings, where I'm looking for sturdy and strong companies that I can hold for the foreseeable future.


I'm honestly buying my long-term holdings, working towards my retirement, as ridiculous as that sounds.


In this part of my portfolio, I buy real estate investment trusts (Reits), exchange-traded funds (ETFs) that mirror indices like the Straits Times Index (STI), S&P 500 and Nikkei 225.


I also look for blue chips like the big banks and a few prominent companies in the United States like Walmart.


These are big companies that will mostly withstand the test of time. If they give good dividends, that will just add to my passive income.


In this section, I use mostly fundamental analysis and I look for things like high ROE (return on equity).


I try to see how much debt they are using to finance their operations... (and) the long-term growth rate that analysts have projected for these companies to see if people are confident about this stock, as well as whether key staff members are holding and buying their own shares.


I use 50 per cent for this part of my portfolio that I call "aggressive growth". I use a contract for difference (CFD) account, which lets me use leverage.


Go into CFDs only if you're sure about yourself and your strategy. The losses can come incredibly fast.


When I'm using the CFD account, I buy more volatile US stocks and mostly currency pairs.


In this section, I use mostly technical analysis. I use long-term and short-term moving averages, average true range to measure volatility... and support and resistance, which is very basic but very powerful.


Q: Moneywise, what were your growing-up years like?


When I was young, I didn't really have any clear-cut direction. I didn't know what I wanted to be until I tried out investing.


My dad also emphasised doing volunteer work, sharing your good fortune with the less fortunate. He took me to homes for the physically disabled and schools for the intellectually disabled.


When I was younger, I was quite pampered, I didn't really understand what real life was about. And after seeing these people, it was very humbling as their everyday lives are a struggle.


That really taught me a lesson: I do not deserve the right to complain that something is too difficult or something is too challenging to be accomplished.


That was ingrained in me at a very young age, and translated very well into investing. It's very hard to master, but because of that mentality I was able to persevere.


Q: How did you get interested in investing?


I was 17 years old, watching TV, and came across a programme on Warren Buffett. The show mentioned that he was one of the world's richest men and he was investing in this thing called stocks.


At a young age, I was like, "How did he become so rich investing in these things?" I didn't even know what a stock was.


It piqued my interest, so I dived deeper into it. The basic idea I got when I was younger was: You can buy a portion of a company for $5 and you can sell it for $15. The extra money you manage to earn is money that you keep.


It's like a video game. You make the correct judgment and they validate you by giving you money, so I loved it. I was like, "This sounds easy, I'm going to try."


When I was 18, my dad and I went to open a brokerage account for me, and I went in guns blazing.


I thought that this was going to be a walk in the park, I'm going to be the next Jim Rogers and I'm going to make a lot of money, which was very delusional.


Like many amateurs, I made tonnes of mistakes, every mistake imaginable by someone who has no knowledge. I didn't know what was position sizing, when to cut my losses or take profit.


I bought so many books to learn from the experts. I watched YouTube videos for tips, but the painful lessons were the best teachers.


They ensured that I would try not to make those mistakes again. Most (of my investor knowledge) is self-taught, and another way is talking to people in the industry.


Q:What property do you own?


I'm working towards my bachelor pad in the east (laughs), so I may be near my parents to take care of them. Now, Singapore property is incredibly expensive, so the ideal age (to buy) would be 30 or 32.


Q: What's the most extravagant thing you have bought?


I buy only small gifts for my parents, nothing extravagant, and take them out to dinner once in a while.


Q:What's your retirement plan?


I plan to retire by the age of 50. How I deem when I can retire is the moment I've passive income from my portfolio that generates about $8,000 to $10,000 a month. I know that's an insane amount of money, so I have to start early.


And like the great Jim Rogers, I want to travel the world, see different cultures.


Q: Home is now....


A landed property in the east.


Q: I drive....


A Honda City that I share with my mum. I wish I could pay for something so expensive, but I just borrow it to use once in a while.


WORST AND BEST BETS


Q: What is your worst investment to date?


It was my first share purchase, funnily enough. I invested in Genting Singapore. My methodology was terrible.


I bought it because I had heard of the name before, "Genting? Yeah I've heard of it, okay buy it".


It's on the Straits Times Index (STI), I thought it must be good. And I read one analyst report that said you should buy Genting Singapore.


These three criteria were enough for me to enter the market. I didn't know when to make an exit and how large a position I should take, so it was a very painful first experience.


I made a loss of 40 per cent on that one counter.


So it comes back again to being knowledgeable (about investing) before you do anything.


I held it for far too long... I didn't know about risk management and had a "wait and see" mentality.


I just waited and waited. Finally, I couldn't handle the pain anymore and sold it at a huge loss.


Q: What is your best investment to date?


I've two, actually. The first was when I went "long" - I bought it and the price went up - on eBay.


It was fundamentally sound and strong, I approved of it by my criteria, and it was trading in a channel for more than half a year.


I waited till the price came down to the bottom of the channel, took my position there and placed a very small stop-loss (a stop-loss order sets the price at which a stock is bought or sold).


My risk was tiny and the share started to climb, and at the end of the channel, which was the resistance (a level where the market usually does not rise higher after), I took my profit. I made about a 30 per cent gain on that.


The other investment was when I went "short" on euro-US dollar currency pair.


Via technical analysis, it was on a short-, medium- and long-term downtrend. Basically it was very negative.


I had three profit targets and my "take profit" levels were all at support (the converse of resistance).


I made only 3 per cent, but because of contracts for differences and the margin, it was still quite a sizeable amount of money.



This article was first published on Oct 19, 2014.
Get a copy of The Straits Times or go to straitstimes.com for more stories.











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