1. When fundamentals deteriorate, sell NOW.
I wish I'd listened to myself in 2008. I would have ended 2008 with a lot more money! By the time 2009 rolled around the fundamentals were pretty much at the bottom. So it would have been time to start buying instead.For 2009 there wasn't much more deterioration in fundamentals so I was a net buyer.
2. The market leader is not always a good investment.
The market leaders in finance and property e.g. DBS, Capitaland and Capitamall Trust were also the ones who did rights issues. These were severely dilutive to existing shareholders. Those who managed to pick up excess rights ended up doing very well, but since their profits were at the expense of the original shareholders I think it speaks poorly of the company management to have given so much wealth away.I did much better with companies who were not market leaders but had outstanding balance sheets. No rights issues, no business risk, and many of them doubled anyway.I will continue to ignore "market leaders" in favour of what the financial statements tell me.
3. AGMs and EGMs are a valuable source of information.
I made it to a few AGMs and again, it was good to read the body language of the management and see how they answered shareholders' questions. In one case where I sat in as an observer, the management gave a reason for not paying dividends. I went home and counterchecked, and concluded the excuse was nonsense. I stayed away, and later in the year the company's results took a significant turn for the worse.I also made appointments to visit a few companies, and called some others. All very useful, and sufficient to seal the buy/don't buy decision.I continue to believe it is vital to meet management every chance you get.
4. The margin of safety must be sufficient.
A hard lesson here. I took an unnecessary 25% loss on a large holding because I thought a low price was sufficent to compensate for a so-so business. Nope. As it turns out, if I'd held on and sold later the strong market would have rescued me. But I was proven right about the business: fundamentals declined in the quarters after I sold out.
5. Beware companies in cyclical industries.
No kidding. The business decline for cyclicals like steel, airlines and shipping (both container and bulk) was not funny. Since I was on the sidelines here it was not painful, merely interesting.On the other hand, the buyout of SPC pointed to the importance of understanding replacement value. SPC couldn't be easily replaced, so even in the worst of times it had a value. Maybe this will be useful in future when looking at steel mills. But aircraft and ships are fungible assets so replacement value doesn't hold here.Property is also cyclical, and here I did well with the replacement/liquidation value method.
6. Dividends are important.
All hail the almighty dividend! Cash is indeed king. Dividend yield was a great screening tool in 2009. From the list of high-yielders, I bought the strongest balance sheets. Many yielded 10% and some over 15%. Low risk, high return. Best deal I'd seen in years.
7. Keep some spare investment ammunition.
I started 2009 with 47% in cash so it was a blessing to be able to invest on the way down (into March). If I'd been fully invested I would have been unable to take advantage of the fantastic prices.As prices went up I began to sell. I think it is good to keep some spare cashavailable at all times. You never know when you'll find something good.
8. Watch out for changes in the core business
None of the companies I followed had significant changes to their businesses. Only those who were floundering were trying to buy new businesses. Environmentally-friendly businesses like water treatment, waste treatment, solar energy etc seemed rather popular. Maybe that's where the next bubble will be.
9. Watch the gross profit margin
I looked into many companies and concluded that companies with a long-term trend of declining gross margins were headed for mediocrity. Declining gross margins point to severe competition as well as lack of pricing power. Good for customers, bad for shareholdes. Given the many bargains available I decided to reserve my money for companies that had demonstrated pricing power. At least those will have a fighting chance against the secular background trend of inflation.
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