Important Lesson that We Could Learn from FGV's Plunge in Share Price

There is one step that I would usually do first prior to any equity investment which is to look into the companies' historical price chart. 

What has been the historical trend of the price chart? long term uptrend? long term downtrend? volatile? flat?

There will bound to be some fluctuation in prices in short term, but a company with strong fundamentals should see long term uptrend in its share prices as market will eventually acknowledge the success of these good companies if one believes in fundamental analysis.

     Source: Bursa Malaysia

I do know someone who bought into the Felda Global Ventures (FGV) and suffered huge losses! The price chart above refers to FGV's share price performance. 

Investors will definitely be MAD if the share price of his equity investments perform like the above.

Imagine if we suffer more than 50% losses? 

Say from RM100k declined to RM50k, to gain back to RM100k, the existing smaller investment base of RM50k needs to generate 100% return in order to reach break-even level, is it easy to make 100% in stock market? how confident are we in making such amount of return in short term just to break-even?

Hence, avoiding bad companies is very important to manage downside risk.

FGV has suffered from the following:

1) Plunge in Profit.

2) Fraud at Turkish Unit.

3) Investors' concerns on the aggressive acquisition appetite of previous CEO which burnt tonnes of cash.

4) Political influence and more.

The Turkish Fraud discovered in November 2016 was like another bombshell to investors, reinforced investors' view that fundamentals of FGV remains poor. Therefore, it is not surprising that EPF eventually sold off its shareholding in FGV recently.

In our journey to become a successful equity investor, do not just focus to look for good companies, we must be mindful of bad companies as well in order to manage downside risk and optimise upside returns.

To my readers, happy investing in 2017:)