kcchongnz blog
Two paths to value investing kcchongnz
I wonder how many retail investors dabbling in Bursa know what value investing is. My hunch is that when asked the reply, if any, would be buying cheap stocks – those that are trading at low price to earnings or low price to book value.
If you read the comments from a self-proclaimed “super investor” in i3investor below about his poor understanding on value investing. You can’t stop laughing at his foolishness and naivety,
{Posted by qqq3 > Aug 13, 2018 11:28 AM | Report Abuse
too bad for all the value investors....value investors specialize in buying lousy shares at low PE.
[Posted by qqq3 > Sep 11, 2018 05:26 PM | Report Abuse
firstly, to practise Bufalology, you really need to buy the bigger companies, the more established companies, those with some history as guidance...
i3 forum members what they chase? go ask KC the fake Bufalo man....he likes the small caps, easier to go up, ...or ask OTB, the adventurer....the FA and TA man.....all hang pig head sell dog meat.]
In the link below, I have taken the trouble to explain what value investing actually is,
https://klse.i3investor.com/blogs/kcchongnz/89477.jsp
It has nothing to do with buying cheap stocks, those with low PE or price-to-book ratios. Far from it.
The key principles describing why value investing works as explained by Benjamin Graham in his widely followed book “The Intelligent Investor” are summarised as below,
1. Price is not value
2. Mr. Market is a crazy guy
3. Every stock has an intrinsic value
4. Only buy with a margin of safety
5. Diversification is the only free lunch
I have deliberated these key principles in the link below,
https://klse.i3investor.com/blogs/kcchongnz/174104.jsp
The key principles of value investing are plausible. Value investing follows a process. It has been shown in the experience of many followers of this school of thought. In my article below, “Does value investing work and what are the evidences” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/174215.jsp
I have shown the phenomenal track records of each of nine disciples of Benjamin Graham with annual compounded returns of between 18% and 29% lasting between 14 to 30 years, using various and different strategies of value investing.
There are many academic researchers in US, Europe, Asia and other parts of developed markets which showed evidences that value investing works all over the world.
What are the different strategies in value investing which successful investors have used? Do they work in Bursa?
- Buy-and-hold great companies’ stocks at fair prices
[Posted by qqq3 > Sep 30, 2018 01:34 PM | Report Abuse
where is that NZ guy?
long term investments work for him or not?
why no defender of value investing and buy and hold?]
After reading the stocks held by a forumer who practises fundamental value investing in i3investor recently, I have chosen his portfolio of stocks for illustration. The stocks and their returns after about 10 and a half years are shown in Table 1 in the Appendix.
This portfolio above consists of high quality big-caps stocks which are followed closely by fund managers and institutional investors. They are considered as great companies following my criteria as deliberated in the link below,
https://klse.i3investor.com/blogs/kcchongnz/161473.jsp
The stocks in the portfolio are great companies with durable business and moat, and great management. They also generally meet the requirement of quantitative value investing in one form or another such as stability of earnings and cash flows, high return on capitals, growth, high dividend yield etc. It returned an average of 362% over the last 10 and a half years as on 4th January 2019 as compared to the return of the broad index of 52% during the same period. In compounded annual return (CAGR), it is a whopping 15.4%, close to 4 times the 4.1% of the broad index.
There are indeed great companies in Bursa worth to buy and hold for a long time. One thing I must raise up is that they were actually selling at fair prices at an average PE ratio of just 14 then, not long after the US Subprime Crisis. Nestle was selling at a PE of just 20. Their PE ratios have mostly expanded; for example, the PE ratio of Nestle is two and a half times now at 51.
As these are great companies, I believe if these stocks are held for another 10 years, their return will still be satisfactory, but probably not as good as before, unless the good growth continues, as there is a limit of PE expansion. However, as a company grows bigger, it is generally harder to grow as the previous fast rate of growth. That is inevitable for most businesses.
- Buy good or mediocre companies’ stocks at cheap prices
I refer here an article in a Chinese Investing periodical, The Bust Weekly sometime in September 2017.
In the above article, it mentions that for the last 10 years from the year 2007, just before the subprime housing crisis in the US, which also adversely affected the stock markets all over the world, and up till September 2017, 70% of the stocks in Bursa had positive returns.
My estimation shows that the broad KLCI increased by about 52% for the 10 years period from 1414 points to 1784 points as on 18th September 2017. Together with dividends, the compounded annual rate of return (CAGR) was about 5.5%.
The Busy Weekly also compiled a list of 20 “bull” stocks with a mix of good and mediocre companies, returned over 1000% over the 10 years. They were mostly small and mid-cap stocks listed in Bursa which were selling at cheap or fair prices. The best performer, MYEG, returned 3443%, and the last in the list, Poh Huat, also a 10-baggers at 1147%. Those numbers are equivalent to a CAGR of 43% and 29% respectively, more than 10 times the return of fixed deposit a year, for each of the 10 years.
The returns of those stocks out-performed the broad index as well as the returns of the great companies above by a very wide margin. However, if you were to hold those stocks until now, the return would still be commendable, but a far off from the good time in September 2017.
Hence, investing in good companies at a particular time of cyclical businesses may not be wise to hold for too long. The rules of value investing such as intrinsic value and margin of safety has t be followed more closely. It is not easy though.
My personal experience in value investing
My strategy in value investing is to buy a basket of 10-15 stocks of good companies selling at cheap prices, with a margin of safety high enough above their estimated intrinsic values. I would like to summarize all the portfolios of stocks which I shared in i3investor over the years and their returns after the portfolios were formed.
In my article, “Investing in Bursa for 5 years: 5 年的等待”in the link below,
https://klse.i3investor.com/blogs/kcchongnz/138098.jsp
I have shown that the portfolio of 10 ordinary stocks named “GE13 Watch” established in i3investor on 21st January 2013 returned 146%, more than seven times the return of the broad market of just 20% in the same period of about 5 years.
My second portfolio of 11 stocks named “2013 2H Stock Pick Challenge” established in i3investor on 1st August 2013 and as shown in the link below, “Search for The Holy Grail in Investing: The Magic Formula” returned 175% in about four years against the return of the broad market of just 10% during the same period.
https://klse.i3investor.com/blogs/kcchongnz/127825.jsp
The excess return of the portfolios of stocks was huge.
The stocks in the two portfolios were chosen following the principle of the Magic Formula of Joel Greenblatt; buying quality companies with high return of capital of the firm when they are selling cheap as valued at the enterprise level.
My third established portfolio in i3investor was done at the end of year 2015 for investing for year 2016. This was using a different value investing strategy; the high dividend yield investing strategy as documented in the link “Tips for Dividends Investing: A sure cash flow for investors” below,
https://klse.i3investor.com/blogs/kcchongnz/122285.jsp
This portfolio of 5 high dividend stocks has gained an average of 67.4% for the one-and-a-half-year period as on 5th April 2017, compared to the gain of the broad market of just 3.8% during the same period, again with huge excess return.
My last established record in i3investor was in the stock pick challenge for 2017. I did not do that well in this portfolio of stock, but it is still a positive return of 5% at the end of the year.
I must say that if I were to hold all the stocks in the portfolios above until now, the return would have been greatly diminished, but I believe they are still satisfactory. Hence most stocks in the portfolios are not advisable to hold for long term, unlike those great quality companies above.
It is also noted that value investing is about buying, and selling of stocks basing on the prices and their intrinsic values, the change in macro and micro conditions, and not the least, the alternative opportunities available.
Does value investing work all the time?
Of course not. In fact, no strategy works all the times under all market conditions. Most value investors would have their portfolio value diminished substantially for the year 2018. But what other investment strategies make money in 2018?
I do understand there were some traders who made money in 2018. One particular guy wrote blogs and numerous comments in i3investor boasting he bought a stock at say RM1.00 and then sold at RM1.05 a couple of days later and made 20%. However, it is hard to prove that unless he shows his trading records. This is only hearsay, and has no value to us.
In the abundance of evidences available and my own personal experience, value investing works most of the time and over a long period of time. However, it doesn’t mean it works all the time. At least, it works better than all the alternatives I can think of.
Conclusions
Value investing has been shown to work in almost all matured as well as emerging markets in the past everywhere in the world. I have also shown that it works in Bursa.
The principles of value investing are logical and plausible, control your emotion of fear and greed, be contrarian and right about it. Have an estimated value of the business and compare with the price, and only buy at a big margin of safety, and sell when price is above estimated intrinsic value. It may not work all the time, and sometimes not in the short-term, but it will certainly work for most of the time, and in the long-term.
There are different paths in value investing. One could invest in great companies when the opportunities arise when they are selling at fair prices and hold them for long term, or one can buy some mediocre and good companies at cheaper prices and wait for the realization of values by others, and hence their rise in prices and profit by selling.
All roads in value investing lead to Rome. Both strategies will yield good results. The later strategy of may yield better return, but for most investors, the earlier strategy of buy-and-hold may be better. However, both strategies require the knowledge, experience and hard work.
KC Chong at ckc14invest@gmail.com
Appendix
Table 1: Return of portfolio of great companies
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Discussions
Be the first to like this. Showing 50 of 51 comments
luckily there is a guy here who shows how stock market has make a huge difference,.....no need your value here value there....
kc...people like u will always land up with all the lousy companies like Insas.......
2019-01-06 20:02
kc...people like u will always land up with all the lousy companies like Insas.......
why? because fundamentally, u are scared.....u will never get the best.
and without the best...how to get the conviction to buy enough to make a difference?
2019-01-06 20:03
Qqq3 why never follow kyy's tips to buy currymee leh?
Ops.....he never give u this one ah?
2019-01-06 20:05
some times tell me , some times keep quiet...
I am not his keeper.....
I know he was buying Hibiscus W.......I not interested, told him so......
2019-01-06 20:19
I don't think KYY can tell anyone until and unless his purchases has went up and can boast about it......now...u can follow or u can ignore......
2019-01-06 20:24
I thought it is too illiquid for him.....
but I guess it is typical stuffs that he likes.....
2019-01-06 20:28
He treated u not bad lah..
Knowing u r not that rich n not much of inv knowledge n skills in stocks
2019-01-06 20:35
kc
when was the last time u bought a share of a really good company? I mean the share of a company u can be proud of?
2019-01-06 22:18
Posted by qqq3 > Jan 6, 2019 10:18 PM | Report Abuse
kc
when was the last time u bought a share of a really good company? I mean the share of a company u can be proud of?
In this article, if you have read through and look for all the evidences I have provided, you will find I have invested in many good companies over the last 6 years and have earned good returns. They are verifiable records, all published in i3investor.
It is unlike you. Over the last 3 years, you have been shouting panic moment, dynamite investing, pong lang pa investing etc, and sailang and margin two particular stocks. They were non other than Jaks and Sendai.
Their share prices have dropped from RM1.80+ and RM1.30+ to just about 50 to 60 sen now.
If I were you, I would be so shameful now and looking for holes in the ground to hide, instead of continue trolling here.
2019-01-06 22:30
really meh? U mean u actually bought a share of a good company?
how did u justify that to your students? Valuations of good companies is beyond what u normally willing to pay.....all your value here value there then how?
2019-01-06 22:37
Jaks, Sendai...these two shares depended on one person's buying and selling the last 1-2 years.....nothing to do with your value here value there.......
2019-01-06 22:44
Posted by qqq3 > Jan 6, 2019 10:37 PM | Report Abuse
really meh? U mean u actually bought a share of a good company?
how did u justify that to your students? Valuations of good companies is beyond what u normally willing to pay.....all your value here value there then how?
You mean your English is so poor that you can't even understand simple English?
They were all good companies, measured by certain metrics as explained, and they were selling at cheap prices as explained in my detail analysis and valuations.
Yes, I have bought, and sold all of them.
You see, I don't just talk cock like you, buy this and sell that all what price. I provided the portfolio of stocks published in i3investor, and detail analysis, valuation and comprehensive reports.
2019-01-06 22:45
Posted by qqq3 > Jan 6, 2019 10:44 PM | Report Abuse
Jaks, Sendai...these two shares depended on one person's buying and selling the last 1-2 years.....nothing to do with your value here value there.......
Over the last 3 years, you have been shouting panic moment, dynamite investing, pong lang pa investing etc, and sailang and margin two particular stocks. They were non other than Jaks and Sendai.
Their share prices have dropped from RM1.80+ and RM1.30+ to just about 50 to 60 sen now.
If I were you, I would be so shameful now and looking for holes in the ground to hide, instead of continue trolling here.
2019-01-06 22:46
kcchongnz > Jan 6, 2019 10:46 PM | Report Abuse
If I were you, I would be so shameful now and looking for holes in the ground to hide,
========
no need....people who buy and sell Jaks and Sendai should know what they are doing...if not, none of my business.
2019-01-06 22:49
Posted by qqq3 > Jan 6, 2019 10:49 PM | Report Abuse
kcchongnz > Jan 6, 2019 10:46 PM | Report Abuse
If I were you, I would be so shameful now and looking for holes in the ground to hide,
========
no need....people who buy and sell Jaks and Sendai should know what they are doing...if not, none of my business.
Wow, I really salute you. i have never met someone so shameless, thick skin, man without morality, consciousness, and humility.
2019-01-06 23:04
kcchongnz > Jan 6, 2019 11:04 PM | Report Abuse
Wow, I really salute you. i have never met someone so shameless, thick skin, man without morality, consciousness, and humility.
=========
I have no idea what u are talking about.....
people make money or lose money really none of my business.....if I write, it is in the spirit of sharing...nothing more nothing less.
so, what shares u bought and sold in 2018?
or got good company shares or not?
2019-01-06 23:13
that long number is good. He says he been buying and still holding.. QL, Top Gloves, Yinson Hartaniage, and
2019-01-06 23:35
Posted by qqq3 > Jan 6, 2019 11:21 PM | Report Abuse
kc. shameless not me, it's u.... I just post, never asked for money
Why am I shameless?
Did I cheat the newbies and public by asking them to sailang and margin on Jaks and Sendai and as a result profited from them by selling to them high like you did?
Did I lick anyone boot and PLP so shamelessly like you have been doing, someone with no dignity at all, all these years?
Do I cheat anyone's money?
Have I robbed anyone?
Did I steal any money?
2019-01-06 23:55
actually anyone who collects fees are shameless..... no respect for the market... just trying to chew. t people
2019-01-07 00:05
So you are saying you got sick you go see doctor and he charges you a fee and he is shameless?
You get an accountant to prepare to do your tax return and he charges you a fee he is shameless?
Your son works as an analysis in a company and the company charges a fee for a valuation report is shameless?
Everyone who earns a living by charging a fee is shameless?
I will tell you what is shameless as described aptly by SSLee as below,
[Dear fake accountant qqq3,
I am very mean and cruel to you in order to be kind to all the i3 community by exposing you for what you are. You are a fake accountant, a fraudster, a backstabber, a bootlicker, an ass-kisser, a shameless manipulator and good for nothing low life parasite feeding newbie and even super-investor Mr. Koon with manipulated information for you owe self benefit.]
2019-01-07 00:24
sted by kcchongnz > Jan 7, 2019 12:24 AM | Report Abuse
Everyone who earns a living by charging a fee is shameless?
============
I say it is shameless to be an internet unregulated sifu in stock market and collect fees.....just taking advantage of victims who does not know any better.......
2019-01-07 00:39
I will tell you what is shameless as described aptly by SSLee as below,
[Dear fake accountant qqq3,
I am very mean and cruel to you in order to be kind to all the i3 community by exposing you for what you are. You are a fake accountant, a fraudster, a backstabber, a bootlicker, an ass-kisser, a shameless manipulator and good for nothing low life parasite feeding newbie and even super-investor Mr. Koon with manipulated information for you owe self benefit.]
==========
that sslee? he must have lost a fortune.....due to his own stupidity....what has that to do with me?
2019-01-07 00:41
Dear KCChong ,
Just for the record from my previous post:
Sep 8, 2018 06:45 AM | Report Abuse
Dear KCChong,
I did bought Jaks but after attended JAKS AGM in 2017. I have doubt on CEO Mr. Ang ability thus sold all the share and never look back.
Thank you
Sep 7, 2018 06:12 PM | Report Abuse
Dear ks55,
I did not invest in sendai as I agreed with KCChong that the risk is too high and not suitable for ordinally investor. Now my biggest holding is in INSAS and TAE.
Tq
2019-01-07 08:56
Posted by Sslee > Jan 7, 2019 08:56 AM | Report Abuse
Dear KCChong ,
Just for the record from my previous post:
Sep 8, 2018 06:45 AM | Report Abuse
Dear KCChong,
I did bought Jaks but after attended JAKS AGM in 2017. I have doubt on CEO Mr. Ang ability thus sold all the share and never look back.
Thank you
Sep 7, 2018 06:12 PM | Report Abuse
Dear ks55,
I did not invest in sendai as I agreed with KCChong that the risk is too high and not suitable for ordinally investor. Now my biggest holding is in INSAS and TAE.
Tq
You are definitely more skillful, savvy and smarter than the above fellow and many others in investing.
Not the slightest doubt about it.
2019-01-07 12:23
Dear all,
After traveled the world and met with all sorts of people I have now development another sense in telling people apart as:
1. Good Person.
2. Person that trap in their past (greed, attachment, anger, envy, ignorance and etc). This people need some guidance for them to return to the right path.
3. Crook/dishonest person. This people need to learn their hard lesson in order to be good again.
4. Bad person. This people doing bad things because influence by circumstances thus when circumstance change (rule of law) they will learned/forced to be good.
5. Finally the pure evil person. They do not have conscience, dignity, self worth and feel neither shame nor remorse on their many most disgusting things they did. They will be forever behave as they are and no amount of rebuke/advice/teaching/shaming you put in trying to save their soul will work because they have no soul as their soul are in THE HELL. Best leave them alone and let the hell take care of them.
Thank you.
2019-01-07 12:48
There are four guidelines to investing
1 listen to your heart
2 don't listen to badass
3. Invest after CNY
4 if not convinced read Sslee above.
Good luck!
2019-01-07 13:11
sslee
I got one more point
5. I don't trust people who ends every post with
tq and thank yous
2019-01-07 13:26
Posted by tm9999 > Jan 6, 2019 11:06 PM | Report Abuse
Kc, will u chase hibiscus tomoro?
You may make money doing so, and may not. Most importantly, don't be too greedy.
Here is a good guide,
Posted by Goh Kim Hock > Jan 6, 2019 08:30 PM | Report Abuse
same old modus operandi. lol. 被騙第一次是純真，第二次是無知，第三次就是愚蠢
2019-01-07 13:36
Posted by i3lurker > Jan 7, 2019 01:27 PM | Report Abuse
you look like "Jow Foh Yup Moh
=========
maybe more serious than that....who knows?
2019-01-07 13:37
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
qqq3
value here value there is what the analysts community do all the time....they are selling ideas to make commission....do they make money from stocks or from commissions?
u? u selling to get fees?
2019-01-06 19:55