I was recently interviewed by Business Times. The interview was published today. Do refer to the article below.
Published September 26, 2011
Inspired by a soap opera (Business Times, 26 Sep 11)
Ernest Lim knew he wanted to be an investor at the age of 21, reports DOLLY CHIA
OBTAINING his Chartered Financial Analyst or CFA certification at a tender age of 28, Ernest Lim says he is currently getting 10 to 20 per cent returns from his investment capital every year.
|Mr Lim: ‘Sometimes we need to make mistakes in order to know what is lacking in our investment strategy.’
Inspired by ‘The Magnate’, a 1994 soap opera, the 30-year-old saw the financial world as his route to wealth.
Unlike most people, he chose to study accounting during his time at Nanyang Technological University (NTU) with no intention of becoming an accountant, but rather, an investor who fully understood financial statements.
Q: What is your investment strategy?
A: Its more to buy the best company in the best industry at near to the best price.
I don’t pounce on very speculative stocks. When I trade I put in a lot of research. It’s not like the uncles and aunties who invest based on tips they heard.
The company must be a company you understand. You must know their business calculations and know what they are doing.
Q: How much have you earned with investing?
A: More or less about 10 to 20 per cent per year since I started nine years ago. I also made some losses during the financial crisis.
Q: What was your best investment?
A: My best investment was after my NTU days. It is a company called Broadway Industrial. It’s a small to mid-cap company, which does actuator arms.
It is actually a big company in this field as it is the top three suppliers for actuator arms, which is used in the hard disk drive industry.
I bought in at around 29 cents in December 2009 and sold it in January getting 60 to 70 per cent returns.
Q: When was the first time you invested your own money in the stock market?
A: That was when I could open a trading account when I was 21 years old and put small amounts of money in my account. I was studying at NTU then.
The excitement of investing in stocks made me gain interest in them. I also like to work by myself and I like to do research.
As long as you put in the effort to understand the company, chances are you will get your returns when you invest.
Compared to working for a company, you will grow your wealth faster if you invest in the stock market, but it has to be at a sustainable rate.
Q: What was your initial capital?
A: It was not big. When I set aside capital for investment, I will make a case assumption that the money will be lost.
Even if I do all the homework to research any one company, the company may go bust and the financials may not be what it seems.
I set aside about 5 to 10 per cent of investable capital, so assuming the company goes bad I will only lose that amount.
Q: What was your worst investment?
A: My worst investment was done during my time in NTU. It was in ACCS, which is also a small to mid-cap company. It does the service and repair of mobile phones in Singapore and Asia.
I bought in February 2005 when they announced that they lost Nokia as a customer and the share price dropped. It was a good bargain then.
I did not have the proper knowledge when I was in NTU as well as the contacts and people to know more about the company.
I saw in some forums that people were posting comments saying that the company would have other customers who will pick up the slack.
In the end, it was not true and that was quite a bad investment because I bought it at 50 cents and I had to cut loss at 30 cents. It went lower to 10 cents after that. It has now been renamed, and below the radar screen of most investors.
Sometimes we need to make mistakes in order to know what is lacking in our investment strategy.
Research takes time and I thought that the price would move up by the time I’m done with it. Given another chance I would not do that again.
Q: How has taking accounting in school helped you? Would you be better off with a finance degree?
A: During my NTU days, I also took up finance modules. In NTU, the business and accountancy classes have the same first year syllabus.
During year two and three, I took up financial modelling and derivatives securities so as to know the concepts behind investing.
Q: When did you know that you wanted to be an investor?
A: Since I was 21, I knew that I wanted to be an investor. I did not see myself as a remisier but I’ve always wanted to be in this field. Even though I studied accountancy, I did not go to the Big Four when I graduated.
I went to GIC Special Investments to help support the investment groups. I then went to an asset management firm to manage assets of high net worth clients.
During my last year in accountancy, I took up the CFA to be more knowledgeable in portfolio management.
Q: At what age did you get your CFA?
A: The CFA requires four years of relevant industry experience so I took the first paper during my third year in NTU and passed.
There is a total of three papers and I took two to three years to pass them. I then worked till I was 28 and completed my CFA. That is the fastest path to get a CFA.
Q: How many companies do you currently invest in?
A: At this point of time, I do not currently invest in many companies. From this year, there are a lot of event risks that are uncontrollable. The outcomes of these events are very difficult to predict.
For example, in February there were problems in the Middle East, like Egypt. In Singapore in late February, there were the S-chip problems, and accounting irregularities which affected sentiment. Then in March, there was the Japan earthquakes. On and off, you had European and US debt problems.
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