MATT SETO

Matt Seto, son of a Chinese immigrant was born in 1978 in U.S.A. He developed love for the stock market when he was all of nine years old. At age 10, he was reading the The Wall Street Journal, Fortune, Forbes and Barron's.

Matt Seto started investing in 1992 when he was only 14 years old. By 1993, he had put together a private mutual fund for $23,000 through funds from his family and named it Matt Seto Fund. Here is the performance of the fund :

Why only three years performance displayed? More on that later.

In 1995, The Wall Street Journal covered him on the front page in an article calling him the whiz kid of Wall Street.

He followed three basic principles of investing -

• Educate yourself.

• Think Independently.

• Be logical.

1. Educate yourself :

You not only need to know about investing but also about current affairs, history and economics. You have to know what's going on at the shops in your local mall. What stores are people talking about? Where are the customers jamming the doors?

2. Think Independently :

You probably hear a lot about jumping on market trends. You listen to commentary on business channels and various forums. But if you ride the bandwagon on the way up, you're just as likely to tumble with it on the way down. Discover solid companies that the crowd may be ignoring in its rush for the latest fad.

3. Be logical :

It may sound obvious but it needs to be said : In your deliberations about the market, use your head. There is no substitute for logical thinking. If you keep your wits and think things through carefully, you're bound to avoid painful mistakes.

It is remarkable for a teenager to have this kind of investment knowledge. He learned quickly though. Below are excerpts that reflect his thought process on various investing issues :

On holding a stock :

“ When I was an idiot trader I would buy 100 shares of a stock like Electronic Arts at $21. Then I'd sell it at $23. Then I'd wait for it to drop to $21 and buy it back again. The superiority of buying and holding came home to me when I watched the video game maker Electronic Arts climb from $21 to $30. If I had just held on after first purchasing the stock at $21, my profits would have been higher. Never forget : Time is your friend in the stock market.”
 

On when to sell a stock :

“I bought Chipcom, a maker of computer networking hardware at $34. Then it took a dive, sinking all the way to $22. But I'd identified it as a good stock, so I didn't panic and sell. I picked up another bunch of shares at around the $22 level. Over the next six months, Chipcom climbed to $50. I sold it at $48 a share. My gain in that one stock was 52%.

First, it's important to point out that even though I insist on a long term approach to investing, I can't emphasize enough that that doesn't mean investing forever. Stocks are meant to be bought and sold. Be careful about falling in love with your stocks. If your attachment becomes too great, you will end up sitting by idly watching your stocks reach glorious heights and then sink down again. A rule of thumb I use is that you don't want to sell until you've chalked up a gain of 25% to 30% on your stock. It's the only way to make good money”.

Attractiveness of Cash levels in a company:

“The higher the cash per share, the more attractive the stock is. Remember a decade ago when corporate raiders targeted cash rich companies for takeovers and then took the money and ran? Clearly shareholders can benefit from high cash levels. Just ask Chrysler shareholders. The automaker's stock jumped hansomely after Kirk Kerkorian's celebrated takeover bid. And what made Chrysler so attractive to Kerkorian? Chrysler's huge cash reserve of $7.3 billion.”

On calling the company :

“ Getting the management to speak is sound advice, but don't get your hopes up about getting any other information out of a company. If you think anybody is going to answer your probing questions sincerely, you're fooling yourself. Calling seemed logical enough but I soon gave it up, realizing I could better use the time for real research”.

On Price to Earnings ratio :

“A low P/E stock may rise very fast, just as fast as a high P/E stock. P/E doesn't measure anything about a company. Far from it. A low P/E doesn't neccessarily mean the company is weak, just as a high P/E doesn't mean the company is strong. Good companies often fall into the low P/E range simply because the market, for whatever reason, doesn't expect a lot of the company. In my view, it's more often the case that stocks are mispriced than priced correctly. And that's good news for smart investors who study the numbers carefully.”

Matt Seto had a penchant for technology stocks. He made money on several bets. Adobe Systems, Tseng Labs, Chipcom and Circuit City are some of the notable names he made money on. This was his take on technology stocks : “It's almost impossible to avoid technology stocks. If you look at the four major areas of technology – telecommunications, software, semiconductors and computers -- that's the future." His best investment remains Best Buy Inc.

Best Buy Inc :

Best Buy was a retailer of audio systems. It ventured into video equipment, microwave ovens and major appliances. Best Buy had soared 1100% between 1990 to 1993. Matt Seto used his investment acumen to purchase the stock at the end of 1993. In a year, the stock doubled and Matt made a neat profit.

Matt went on to pursue his studies. That is the reason for only a three year return statistics shown above. He joined Babson College in Massachusetts, where he majored in economics.

Since then, no public information is available on his stock performance. He currently works as an investment analyst at securities firm GMO.

Compiled by Siddharth Oberoi