Impatient to make money fast, executive learnt about investing the painful way
The first motorcycle Mr Ethan Lee bought as a teenager was an example of discipline, dieting and cold hard cash.
"I got my bike licence without my parents' knowledge, and I saved up to buy a bike in polytechnic. As pocket money was so tight, I didn't spend it on food and saved up for two years, losing 10kg in the process," he recalled.
"I went to a company near Alexandra, took out a bag of coins and told the uncle, 'Here is exactly $2,500. You can count it.'"
Mr Lee, 27, recalls the salesman looking at him in disbelief as he spent an hour counting the money, and he simply told him: "Look, I want my bike now."
That same impatience led the executive, who works in the production team of manufacturing firm Completion Products, to ditch long-term investing for shorter-term stock trading.
"I started out on shares that way, but the returns didn't appeal to me and were slow. I decided to change my strategy six months after I first started out, and my account went haywire.
"The losses spiralled out of control for two years and I became emotionally attached to the shares, but people can't afford that."
Worst and best bets
Q What has been your biggest investing mistake?
A Purchasing a share based on "gut feel" and not doing my own research. That's like jumping out of a plane without a parachute.
Some of the worst trades I made were in 2009. One was BlackBerry, formerly known as Research In Motion.
I made US$1,000 (S$1,350) in one night, but over the course of six months to a year, it went downhill. It went down US$200 a night or US$300 a night. In the end, I made a massive loss of about US$10,000 to US$12,000.
I wondered why I waited so long to let it go. You've just got to ensure your expectations are more realistic. My trade on Twitter did as badly.
Q And what has been your best investment move?
A To invest in learning which led to me being able to read and analyse the market and know the time at which to buy the shares, to maximise the profit from their sale.
You need to put in a lot of effort to learn how the market works and functions, like how Brexit affects the shares now. You have to cover a lot more stocks in your portfolio to give you an advantage.
It's hard to specify which share was the best investment because it could have been the best at that point, but that quickly changes over time.
The share with the best return on equity was Valeant Pharmaceuticals, which I shorted last year, as the price was coming down. I made at least US$20,000 in one trade.
If I had shorted it overnight, I would have gained almost US$100,000. I didn't want to take that risk because I've been whacked many times. I didn't even consider it and got out straightaway.
It was an accumulation of factors like timing the market; I bought it at the right point and the order could be executed - sometimes you can place an order but it doesn't go through. A lot of things went in my favour, and I was a bit lucky.
He decided to start afresh in 2010, selling his shares at a loss, and learnt not to listen to hearsay as the tendency to buy on that is high.
Mr Lee, who trades only on the New York Stock Exchange (NYSE), became disciplined about his research and strategies.
"The NYSE opens at 9.30pm. I reach the office at 6.45am and end work at 4.30pm, return home and check my e-mail and work. I work my butt off, then give myself two hours to research on the shares that I want to buy.
"I come up with a weekly schedule of potential stocks. Every day, I look at the counters I've shortlisted, and think of a plan. Even though it rarely goes as planned, you must also be ready for change."
It took a lot of time and hard work before Mr Lee saw results and, even then, sometimes he found it hard to believe.
"My portfolio started to turn positive only in 2014. This was after six years or so of trading. It's a long time. Within this period, companies folded and reopened.
"I was getting a return on investment (ROI) of about 15 per cent, and that made me seriously think that I knew what I was doing. It gave me confidence."
When he started seeing results, he could afford to return to his father the initial capital of a low five figures, with an ROI of 25 per cent.
"My father is my greatest inspiration. He believed in me when no one else did," added Mr Lee, who started trading using his own capital - a high five-figure sum - last year, and has made a five-figure profit this year alone.
"The funny thing was that my PSLE grades were horrible, and in Curtin University, economics and accounting nearly killed me. But I learnt that trading is just a matter of reading up, and without news, you have no idea of what's going on in the world.
"I feel people my age think investment is something that's sure to make money. They can put in a certain amount of money in one share and hope it goes up, and it might after three to five years. But they are also the people who lose a lot and that affects their lives."
He suffered losses a lot of times, and also learnt that reading books could go only so far - it was the real-life experience that shaped his methods.
"What matters most is that you trade live and that's where you really learn. Books can teach you only so much, like concepts in an ideal world. Over the years, I had to tinker with what works and what doesn't."
It is also important to be informed and all it takes could be an article. "I read Bloomberg and CNBC articles. Sometimes just by reading an article, you can pick out bits and pieces before the trading day starts. In an industry, shares are interlinked," he said.
"For example, I bought Tesla because I read that the chief executive would be coming up with a grand plan of change.
"There are a lot of tools out there but you've got to find them. Books don't tell you what are the two variables that will allow you to trade better or how you should sell a stock, or when you should time it. You'll find out only when you're trading hands on."
Q Moneywise, what were your growing-up years like?
TRACKING A COUNTER
I look at the firm's profit and loss statement, what its forecast for the year is - if there's a new product coming out in the next six months - and whether the shares are overpriced, or pumped up by rumours, before deciding to purchase a stock. I never buy a stock on impulse and use technical tools for trend analysis.
'' MR ETHAN LEE, on his investment strategy.
A I grew up in a household where my brother, who is seven years older, and I were taught from a young age to understand the value of money.
If we wanted anything, we worked hard and saved up for it. If we wanted to go for outings but didn't have enough, we just didn't go. It was as simple as that.
Both my parents are certified public accountants. It's ironic as I had problems with accounting and maths.
My parents would plan my budget on a spreadsheet. In polytechnic, the budget each day was $5, including transport. With everything rounded up, I got $200 a month.
The first time I got $200, I blew it all in five days. I had no money to get through the rest of the month until they relented, but there was a lot of negotiation. That was the real first lesson for me, that money does not grow on trees.
It was very different for my brother. They didn't have any problems with him.
Q How did you get interested in investing?
A I was intrigued by investments when I was 17 because I needed more pocket money. Learning to understand the various market sentiments and being exposed to financial news on TV also fuelled my appetite.
As I wasn't good at my studies, I reached a point where I was worried about what I could do. So during national service, I spent a lot of time reading about investing.
I convinced my father to provide seed capital for me to start trading on the NYSE, and opened an account in his name.
He said to me: "Whatever you do, don't lose everything." His strategy of investing is very different, which is to buy and hold stocks for five to 10 years.
In the beginning, I was lucky that the price of every stock I bought went up, but that soon changed, and my inexperience and failure to understand the market soon caught up with me.
I landed in a hole for two years, where my account was down 40 to 45 per cent. I bought shares which I thought could make easy money, but it was based on rumours.
I didn't know what to do to rescue my account. It was a mental hurdle and I felt a sense of guilt over having invested poorly with money that wasn't mine.
I decided to relook the fundamentals and analysed what was wrong. Over the next few years, I managed to crawl my way out and turn a profit on my investments, and started an account in my name in the middle of last year.
Q Describe your investing strategy.
A First, I read the news. Then I come up with a shortlist of stocks. Then I scrutinise the information from my research about the company and its management.
I look at the firm's profit and loss statement, what its forecast for the year is - if there's a new product coming out in the next six months - and whether the shares are overpriced or pumped up by rumours before I decide to purchase a stock.
I never buy a stock on impulse and use technical tools for trend analysis.
I look at the relative strength index (RSI) value and the exponential moving average (EMA) to understand the stock better.
I use EMA to understand the average price of a stock over a period of days, which allows me to understand where the stock trends in the market currently.
I prefer to use RSI and EMA as I don't have much time to research as much as I would like to. I base my analysis on the statistical trend of the stock.
When the US market opens every night, the indices move in a general trend. The difficulty comes in spotting which counter will trend up or down, regardless of market sentiment.
I use the Bollinger Band, which allows you to understand roughly where the stock is trading at and where it's trending. But there's no one-size-fits-all method.
I don't buy penny stocks, unless you know exactly what you're doing. I don't buy stocks before their earnings report. I focus on not more than five stocks at a time within my portfolio.
I hold a stock for a couple of hours to six months because I don't like to sit on shares. I also set trade triggers to buy shares at a certain price, and put in stop-loss orders.
Q What's in your portfolio?
A I invest only in the NYSE and equities. I buy two to three stocks per industry and they range from US$13 to US$200 a share.
I do not hold them for the long term, so it's easier for me to focus on them. My portfolio is worth six figures now.
You can have 20 stocks but when things happen, you won't be able to react fast enough.
The ones that I really like are those like biotechnology firm Biogen, which is about US$240 a share, and Valeant Pharmaceuticals, which was trending at US$200 and has now crashed to US$20.
I have a target ROI of 15 per cent a year.
Q What do investing and money mean to you?
A Over time, I realise that you should keep the profit and be happy with what you have. You can't be greedy. You make $1 in the stock market, it's still $1; be happy with it. If you make more, it's good.
Q What's the most extravagant thing you have done?
A I bought a Canon EOS 5D Mark III and EOS-1D X , and two Leica cameras last year. My firm sponsors its own race team, so I took the chance to buy the cameras to take photos of cars on the race track last year.
I got interested in photography because my fiancee told me I took bad photos, and I wanted to prove otherwise. I used money that I had saved for at least five years.
Q What are your immediate investment plans?
A I've got time on my side, so I'd like to focus more on stock trading and finding ways to improve profitability. I would also like to get a house here, which will take some time. I'll wait when the market softens further.
Q How are you planning for retirement?
A I'll need about $3,000 to $5,000 a month. Even though my parents don't need the cash, I'd like to give them some. This amount also includes planning for my future kids' education, and their insurance plans, and my fiancee and I might want to take short trips abroad.
Q Home is now...
A A landed property in the east with my parents.
Q I drive...
A A Toyota Corolla Altis. I share half of the financial expenses of the car with my dad, but I'll eventually have to pay him back.
A version of this article appeared in the print edition of The Sunday Times on July 17, 2016, with the headline 'Real-life lessons shape his strategy'. Print Edition | Subscribe
We have been experiencing some problems with subscriber log-ins and apologise for the inconvenience caused. Until we resolve the issues, subscribers need not log in to access ST Digital articles. But a log-in is still required for our PDFs.