This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, February 2018). All views expressed in the article are the independent opinion of DollarsAndSense.sg
After earning his PhD in chemistry from Imperial College London, David Kuo opted to work at Hilton Group’s Horse Racing division. Armed with diverse knowledge from two industries that were booming at the time, David then joined Motley Fool UK as a financial analyst.
His deep understanding of the biotechnology and online gaming sectors gave him a leg up in identifying and writing about companies within both spaces. After close to 15 years of doing this, David moved back to Singapore, where he spent his growing up years in school, to spearhead Motley Fool Singapore.
Over the years, he has also successfully built a six-figure investment portfolio, and the DollarsAndSense team met up with him for our #MyFirstTrade column to find out more about his investment philosophy and how he imparts this knowledge to people in Singapore.
DollarsAndSense (DNS): We ask everyone we meet this question – do you remember what was your #MyFirstTrade and how it performed?
David Kuo (DK): It was a very, very, very long time ago. It was a company called Cadbury Schweppes, which made chocolates and aerated drinks. I enjoyed eating its confectionery and I was quite partial to its fizzy pop, too. I bought shares in the company primarily because I liked its products. As it turned out someone else, namely, Kraft, liked the product more than I did. They made a bid for the company and bought the whole kit caboodle at a premium in 2009.
DNS: You were previously working in the UK for close to 20 years. How did you take the decision to move here as CEO of Motley Fool Singapore?
DK: It wasn’t a hard decision to make. My home and my heart is in Asia. My family originated in Shanghai; I was born in Hong Kong and I grew up in Singapore. So, Asia is very much in my DNA. It’s true that I had spent the best part of my working life at The Motley Fool UK. But my goal was always to bring The Motley Fool’s long-term, buy-to-hold investing philosophy to Asia.
DNS: One interesting tool on Motley Fool Singapore is Stock Advisor Gold, which also gives us a peek into your personal six-figure income portfolio. Can you give us a sneak peek into one or two stocks that you currently own, as well as how else investors can benefit from it?
DK: Within Stock Advisor Gold sits a number of investing themes. But the Personal Income Portfolio or PIP is unique in that it is a real-money portfolio that provides a look at my allocation preference. It shows how 20 property-related stocks can be combined in a logical way to deliver income, growth and a bit of fun. There is a heavy weighting of REITs (but not exclusively of REITs) that generates lots of cash, which is invested back into the portfolio.
I am particularly pleased with the way that CapitaLand Mall Trust has performed within PIP. It is a well-managed business that has not only delivered income but growth, too. Another two stock that I have been delighted with are Link REIT, which is listed in Hong Kong, and American Tower, which is listed in the US. They highlight the importance of looking outside of Singapore if we want to find something a bit different.
On that point, the recently-launched Malaysia MoneyMakers is a purely Malaysia-focussed portfolio. It is a market that many of us are familiar with, but perhaps a little afraid to invest in because of some legacy issues and also concerns about currency risk. However, Malaysia, which is still an emerging economy, could be on the cusp of becoming a developed market. I hope to show through Malaysia MoneyMakers that the best time to invest is when the market is fearful.
DNS: Looking at your overall investment portfolio, how do you decide which stocks to buy and when to buy them?
DK: My portfolio allocation is roughly 70% income, 20% growth and 10% speculative. Every share in my portfolio pays a dividend.
I am an income investor. So, I am buying a stream of income. Some companies pay generous dividends, but grow slowly. Some have comparatively lower yield now but have the propensity to grow the payout quickly. The speculative type of shares pay a dividend too, but could be volatile.
With volatility, sometimes, I might have to pay more for the prospective income stream. At other times, when the market falls, I might pay less. While this is better for me, I am always in the market to buy an income stream (dividend-paying stock).
DNS: We’ve had the pleasure of being on a few panel discussions together in the past, and we loved the analogies you use to simplify investing concepts. Do you have an analogy to share with our readers on how to picking the right stocks?
DK: Apart from investing, my other passion is cooking. I had to learn how to cook for myself, when I went abroad to university. It was either that or eating McD’s for six years. But I didn’t start off as a good cook. In fact, I was pretty awful.
But today I can dish up a pretty good meal without too much fuss. So, how did I learn? I started with something simple – spaghetti Bolognese. It’s easy to get hold of the ingredients. And it’s hard to go wrong with the mincemeat ragu.
The same goes for stock picking. Start with easy-to-understand businesses, such as retailers. Learn as much about the things that make the retailer tick. Hang around the store and watch the reaction of shoppers to the merchandise. Compare the store with its competitors. How do its accounts compare with its peers?
The next step is the most important – eat your own cooking. Buy a small quantity shares in the business and follow its progress over time. Master one sector before moving onto another. Be as expert as you can. Incidentally, I can now make spaghetti Bolognese blindfolded!
DNS: You probably interact with investors with diverse expertise on Motley Fool. What are the biggest challenges you see new investors facing?
DK: Perhaps the biggest challenge any investor – not just Motley Fool subscribers – has to face is to remain calm when markets are volatile. It can test even the most experienced of investors and it can cause inexperienced investors to panic.
But the thing to remember about volatility is that it can cut both ways. We are quite comfortable if the stock market jumps 20%. But we are devastated if it should lose 20%. Why is that? Why should we be delighted if we profit from volatility but disappointed when we don’t.
The single most important lesson is to remain calm under any market condition. Most of us have the intelligence to be good investors. But not all of us have the stomach for it.
DNS: Starting to invest is already a big hurdle for many. Building on it can be equally challenging. What advice would you give a new investor to improve after making his or her first trades in the market?
DK: Focus on the long term. Imagine what the company could be like in five, 10 or 20 years from now. If you can’t visualise the future for the company, then you should not even consider buying its shares at all. Investing is about working out the all the cash flow generated by the business from now to infinity. If you can’t do that, then how can you put a value on the shares. You might not be 100% correct. But it is better to be roughly right than totally wrong.
DNS: What are some of the biggest challenges you faced when you first started/ or some of the biggest mistakes you made when you first started?
DK: Without question it is learning the basics of building a portfolio. It is important to know how apparently disparate shares can fit in a coherent way to deliver sustainable income and growth. It was a light-bulb moment, when everything that I had learnt over the years suddenly came together.
DNS: If you met your younger self today, after you had just completed your first trade in the market, what advice would you give yourself?
DK: I would ask myself to explain, in one sentence, what the company does. I don’t want an essay. Just a simple sentence will suffice. Next, tell me a story about the company. What is it hoping to achieve? Then tell me how you plan to follow the story over time. What are the numbers that you intend to follow to know whether the company is on track to see the story unfold. One of the biggest mistakes we make as investors is to confuse the price with the story.
Becoming A Better Investor
In our conversation with David Kuo, he shared how new and even seasoned investors are often unable to stomach volatility. To overcome this, investors need to start by building their knowledge base – gaining a better understanding of the companies they are investing in, putting together a well-diversified portfolio to shield them from volatility and even looking beyond Singapore’s shores to have a difference-maker in their portfolio.
We can think of volatility as opportunities as well – investors can buy into stocks when market prices fall below what you think they are valued. At the same time, you can also trade volatility on a shorter-term basis to profit from market fluctuations. In the same way knowledge helps to improve our investing decisions, it will also aid in improving our trading decisions. To help you learn more on how to trade in a volatile market, IG has partnered with Bloomberg to create an exclusive free eBook on Volatility.
There are many resources we can tap on to further our investment and trading journey, including reading personal finance websites, such as DollarsAndSense and Motley Fool Singapore, joining free online courses, webinars and seminars on IG Academy, interacting with like-minded traders in a trading community as well as trying it out on a demo account before trading with real funds.
Discover CFD Trading In Today’s Market
For those of you who want to find out more about what CFDs are, what it means to go long or short in the market, as well as how you can effectively trade CFDs in today’s market, you can download another eBook that IG has written in partnership with Bloomberg – CFDs: A Trader’s Guide .
If you’d like to meet with and hear from David in person, he’ll be one of the speakers at DollarsAndSense’s inaugural investing event, In The Footsteps Of Masters: Going Beyond #myfirsttrade, happening on 11 May 2019.
Organised in partnership with InvestingNote and supported by IG, this event brings together experts as they share with us their own investing and trading journey, the mistakes they have made, and how their personal experience has led them to adopt the investing and trading philosophy that they now practice and advocate for today.