Monday, 6 May 2013

Stocks or Unit Trust? You Decide!

The 13th General Election fever is now over and I believe many are now suffering what I call an election hangover. Unless there is a re-election, there will not be anymore mega ceramah, free dinner & handouts or mega concerts for Malaysians to go to every night. Most of us have gone back to our daily routine, while some are still celebrating (BN supporters) and some I know are still depressed and sulking by the outcome (Pakatan supporters) of the election. 

For many investors, fears of the Bursa Malaysia Index suffering a dip due to uncertainty were laid to rest as the ruling coalition maintains its position for another 5 years. Investors whom have stayed invested and held on to their shares and unit trust before election are beaming ear to ear as the Bursa gained 57.25 points (+3.38%). Leading the gains were companies that were expected to be scrutinized if the Pakatan were to form the federal government such as financial giant, CIMB adding 74cents (where the CEO is our PM's brother), gambling giant, Genting adding 67cents and gas producer, Petronas Dagangan adding 106 cents. 

On the other end of the spectrum, there are also investors whom have prepare cash hoping for opportunity buying today if the outcome of the election is the other way around. Whenever the general sentiment is negative, most stocks will suffer a drop in price thereby allowing investors to purchase good stocks at low price. The general pre-election consensus was that the stock market will suffer a dip if the Pakatan coalition forms a government as both local and foreign investors would stay away from stocks while waiting for Pakatan to get their house in order. However this scenario fail to materialized and the stock market was rewarded with a big boost today as investors whom have gotten used to the 55 years rule of the ruling coalition return actively to trade.

Undeniably this is how all stock market works, the overall sentiment, both positive or negative, political or non-political plays a role in determining the movement of stock prices. In stocks you can make money fast as well as losing it quckly. This is not to say that you can never make money out of investing in stocks, just that you need to have the patience and the effort to learn the trade and pick stocks which are fundamentally strong. This has been done and many have done it successfully!

If you find that stocks is just not your cup of tea, yet would still like to see your savings grow faster then the Fixed Deposit rate or EPF dividend, then unit trust could be an option for you. Generally, most unit trust are also invested into the stock market. The fund manager for a particular unit trust funds will decide how our money is invested, i.e which stock to buy, when to buy and when to sell. In a nutshell, a unit trust investor leaves the difficult part of investing in stocks to the fund manager. The time saved from analyzing stocks can be put to use into other priorities in life (e.g family, hobby, etc). Furthermore, you need not lose sleep even if the stock market crashes the next day for we leave all of that worries to the fund manager. An experienced fund manager with first hand information and years of investment experience should be able to take the necessary precaution in order to protect our investment and minimize losses.  

When investing in unit trust, there is no guarantee of profit year in year out. Therefore if an agent comes and tell you investing in unit trust guarantees you consistent profit, that agent is a LIAR! 

Here's a screenshot of an actual unit trust fund performance (investing 90% of its fund into Malaysia stock market):

Looking at the performance above, in 2008 during a market crash, this fund lost about -24.73% of its total investment. Then in 2009, it gained 33.31%, 2010 gained 32.71%, 2011 added 19.07% and in 2012 added  14.06%.

Say for example if we take the average of 5 years gains for this fund, it comes out to about 14.9% annually. Far better then both the FD and EPF dividend rate. This is what I term as passive long term investing without worrying about the details of stock investing. 

In addition, this also proves a point that even in unit trust we are susceptible to losses as what happened in 2008. We will suffer losses from a stock market crash just as much as we profit from a fantastic bull run. The tip about long term investing in unit trust is selecting a fund that has a good track record and managed by a fundamentally sound fund manager.

Secondly, it is recommended to consistently invest (monthly or quarterly) for a period of 5 years or longer. This is to leverage on the concept of dollar cost averaging. I intend to post an article about cost averaging in the near future, so you might have to Google it first to find out more. 

On a personal level, I invest both in unit trust and in stocks. Unit trust for long term horizon (10 years or more) and stocks for a shorter horizon (3-10 years). You might ask why not just invest entirely into stocks? Firstly, I'm also in the process of learning the trades of stocks and it is not a risk worth taking by investing a large sum of money into it when you're still learning. Secondly, I only invest into stocks with whatever additional cash I have in hand. For the amount of cash I have, I seriously doubt I am able to invest heavily into expensive blue chip stocks. Thirdly, I am an investor and not a speculator, penny stocks (goreng stocks), despite being cheap are not fundamentally sound and will never be a part of my stock investment strategy. Lastly, making my own decision on which stocks to invest in gives me a great sense of satisfaction especially if the stocks I pick start to make gains.

As for unit trust, this is a long term investment strategy (10 years or more) that I intend apply whereby:
1. Investing in unit trust that invest in the stock market allows me to benefit from good quality stocks purchased by the fund managers.
2. Good stocks which I am unable to afford using my own cash can be owned indirectly from the unit trust fund. With fund size ranging from RM50 million to few hundred millions, fund manager are able to invest into own these stocks.
3. Provides me an opportunity to invest overseas such as the Asia Pacific region via unit trust fund that offers this type of investment.
4. Enjoy great dividend from good performing unit trust funds. 

So you see, it is a two pronged approach which I practice in terms of investment strategy. I started by researching into unit trust and now I'm moving into stocks. Both are investment options with pros and cons, believers and non-believers. Lastly, the most important investment one must first make is an investment into knowledge. That will become your key and guidance to become a successful investor.

Cheers and Happy Investing!

P.s : If you are based in Johor Bahru and would to know more about investing, feel free to e-mail me at

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1 comment:

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