kcchongnz blog
Examining the “Golden Rule” Investing Strategy kcchongnz
This article is purely for the sharing of some experience gained through the years in investing, which in my opinion, is very useful for those newbies and oldies alike. It is a discussion about ideas, not people.
“If I’d only followed the Golden Rule from i3investor, I’d have ten million Ringgit today. Provided I’d started with a hundred million Ringgit”. Adapted from Jon Stewart
[stockmanmy has left a new comment on your post "Margin Finance, Ever-Sendai: A real time case study kcchongnz": Sept 27 2017
sendai from 80 sen to 95 sen now...................
KC lousy timing, lousy business sense and lousy analysis.]
Two years has passed, and Sendai share price dropped from 95 sen to close at 37.5 sen yesterday on 9th October 2019, while the broad KLCI lost about 10% during the same period.
In my last article, “Sendai and the Golden rule of investing strategy, some important lessons” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/227786.jsp
James lost a considerable amount of his wealth from investing in Sendai from three years ago, which perfectly fit the Golden Rule in Investing, GRIS. That has derailed his retirement planning financially somewhat. He needs to seek answers why the GRIS failed in order to avoid losing big again in the future.
To recall, GRIS is simple; if the company announces increased profit this quarter compared to the corresponding quarter, or preceding quarter, for two quarters, or something like that, and if the stock is trading at a PE of below 10, the share price will definitely go up and vice versa. Hence if investors follow this “sure win” strategy, he will quickly become a very rich man, and no more require working for the rest of his life.
When you hear about 1, 2, or 3 friends who have bought lottery tickets and strike a million Ringgit, can you make the conclusion that “the best way to riches is to buy lottery ticket”?
Of course you can’t, as for the few who have strike lottery, tens of thousands have burned hundreds of millions of their money every month buying lottery tickets with the hope of becoming a millionaire.
Similarly, in stock investing. One has to look at a few things before he can conclude that a certain investment strategy had worked and will continue to work in the future, and coupled with patience, he can build long-term wealth. Among them are;
- Is the strategy plausible, or having an appearance of truth or reason seemingly worthy of approval or acceptance? Is it credible, and is it believable?
- What are the evidences? Are there any academic researches showing that it has worked?
- What is the experience investing in Bursa?
On the surface, this GRIS appears to be plausible, is it? Is this obsession merited? Do earnings announcements have significant effects on value? What were the evidences? More importantly, can you make money off earnings announcements?
Bursa requires companies listed in its bourse to announce their quarterly results within two months for the period ending for the quarter. Most companies announce their results in the last two weeks of the two-month period. By then, the insiders such as directors, management and employees, their friends and relatives would have known about the results to be announced as it is already two months into the period, and the stock price would have risen or fallen before the results, good or bad, have been announced. In fact, often, the stock price fell when a company announces a better quarterly report as the share price has risen too much and insiders began to take profit.
Furthermore, the fact that Bursa is made up of more than 70% of institutional investors who are always on their toes, constantly trying to get new information, it is somewhat efficient in some way, that the prevailing stock prices have incorporated some kind of expectations of the results before they are announced. Unless the quarterly report is better than the expectation, the share price may not go up, or even go down. For example, if the reported good results, say +20% in net profit, are not better than the expectation of +40%, the share price will normally go down; or share price may even go up if the poor results of decline profit of 30% are better than the expectation of decline of 50%.
How good are you in guessing this expectation? Unless one is an insider, or has insider information, which is illegal to use it to trade in the first place, there is no way an average retail investor has that advantage. I must admit that some of the investors do have that prowess in estimating the expectation, but there are far and few in between.
In fact, the estimation of expectation is made more complicated with companies becoming more attuned to playing the earnings game, and have become increasingly adept at beating earnings or earnings expectations, or analysts work to mold the actual earnings, using both accounting choices (earnings management) and operating discretion (timing of capital and R&D expenses, for instance) to deliver results that try to beat or smoothen earnings or beat expectations. The problem with this game is that markets will eventually catch on with it and adjust expectations accordingly.
The other major problem with this GRIS is clearly it is a highly speculative strategy for the short term. It is very hard to find a company which has increasing earnings for a few quarters as business goes in cycle and it has seasonality. For example, a company selling eggs can’t have increasing profit every quarter, not even more than say for a year as egg prices changes very frequently, sometimes even quarter from quarter and hence affecting the earnings of the company. Growth companies spend money on capex for growth and depreciation on new plant and machineries affect earnings. Even great companies like Coca Cola, Nestle, Dutch lady, Carlsberg etc. do not have increasing profit every quarter. So how? Buy when the last quarter make increasing profit, and sell when less profit the next quarter? How to be a super investor like that? It is definitely not suitable for James who wish to build long-term wealth for his retirement, does it?
For point 2 above, many academic researchers have been working hard to carry out vigorous academic researches to see if investors can capitalize this anomaly. However, they have shown a mixed bag of results, nothing close to what the propagator of the rule has claimed.
In Bursa, this GRIS has been propagated in i3investor for tens of stocks listed in Bursa since about 6 to 7 years ago. Has it worked well? Worked well for how many stocks out of a total of how many?
Know and understand statistics and its significance. It is good to make your own judgment, and always be a Doubting Thomas, rather than blindly following the GRIS, or any other investing rules for that matter. There are some investment strategies which are plausible, backed by academic researches and experiences, and with right psychological mind set would likely yield extra-ordinary results but there is no Holy Grail of investing in the stock market.
James has learnt that through the hard way. He will continue to seek the reasons why he has failed in his investing endeavor in Sendai to avoid encountering huge losses in the stock market again. There are indeed numerous lessons he can learnt from his bad experience from investing in Sendai. He will learn it one by one, before thinking about making big money yet.
“If you don't lose (big) money, most of the remaining alternatives are good ones” Joel Greenblatt.
KC Chong (ckc13invest@gmail.com)
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Discussions
2 people like this. Showing 50 of 93 comments
Hi probability, i think you may have slightly interchanged the meaning of the word money and value.
money is a part of value, but value is far more than just money.
For example, in a closed economy, all valuable business (services, production, manufacturing, plantation) has a quota in value, but some are so valuable that more money has to be created to meet that quota in value.
We call this capital. As services, production and plantations are met and exceeded, the government then creates a influx of money to meet this value in the market.
To explain in simpler terms, revenue of an economy is never a zero sum game, as time goes on, more people are created and born, creating more demand, opportunities, and services, meaning as time goes by, if the population does not go down, more and more profit and revenue will be generated in total. That is why we have GDP (gross domestic product) as a more apt explanation of your "distrubing fact". Malaysia= 314b gdp, brunei 12b gdp, etc. interestingly, countries which are connected worldwide have better gdp, for example singapore 323b and hong kong 341b.
even simpler, revenue does not only come from wages earned by households, there are also location location location (hk and sg), durian fall from the sky (brunei and dubai and middle east), taxation banking ( ireland and switzerland) and innovation (silicon valley).
that is why people today(despite popular opinion) are far far richer than at any previous time in our history, the net value of a human being has exponentially increased since the time of jesus until today.
a simple final example: a man armed with a rocket launcher in the dark ages would be worth far more than all the money in the world... agree? so to hire such a man, we would have to print a lot of money to meet this value.
>>>>>>>>>>>>>>
probability sslee sifu, i have one very dumb question....
if all business collectively (economy-wide in a closed economy) makes profit, i.e total revenue is more than all the wages & cost of production...
from where is the money for profit coming from? Mass balance of the money does not make sense if one argues...the revenue is from the wages earned by the households.
........
any sifu can help to answer this disturbing fact? :(
05/10/2019 6:57 PM
2019-10-06 18:33
To be honest, I think the golden rule still applies.
Problem is, it has been simplified into a single metric with a single minded result.
Instead, one should always tell it like the original:
A business that increases its revenue and earnings throughout the years while keeping shareholder value will always see its share price go up in the long run - Philip Fisher
The problem is when you tell it like the original, many people begin to misinterpret the entire meaning and start buying the wrong stocks.
1. Increasing revenue and earnings must be forward, not based on past results. (which then becomes risky by default, something not even warren buffett can avoid) One must know where the company is going in the future, not where it is right now.
2. keeping shareholder value means making sure dividends, stock buybacks, rights issue, warrants issue, private placement or simply just any stock dilution has to be with the mind of increasing company value, not reducing it.
2019-10-06 18:41
Hi Jason Toshi Ho, thanks for the attempt to explain...i totally agree with you on value creation - that is why we have GDP growth.
And money has to be in System as per the size of economy, else we will have deflation or inflation (if in excess). Its like addition of salt in growing stream of river (value) to maintain salinity level.
What i was actually trying to grasp was the mechanism the money is injected to the Circular flow of Money in a closed economy.
I am aware of the Interest Rate effects too.
As far i understand, either via reduction of interest rates or via quantitative easing by active purchasing of government bonds to inject money to the economy is still a BORROWING.
It is still a liability on a balance sheet of commercial bank (if it came from central bank via encouragement of borrowing, by interest rate reduction or even reduction of reserve ratio) or the bond issuer, where the borrowed money eventually has to be paid back from business profits.
If there no other way to inject it (i am not sure if there is), Revenue cannot indefinitely be higher than wages. It should balance to give net zero profit when the economy stops expanding.
This to me has a very deep ethical implication if one is truly concern for future generations.
2019-10-06 19:38
"A business that increases its revenue and earnings throughout the years while keeping shareholder value will always see its share price go up in the long run - Philip Fisher"
But does the "Golden Rule" we are talking about here has any similarity with what Philip Fisher said?
Did Fisher named his statement as "Golden Rule"?
I would also like to add that the above statement is generally true, but not all the time.
If you buy those stocks at a lofty price, your return won't be encouraging, even for a long period.
Warren Buffet through Berkshire Hathaway invested in Coca Cola from year 1987. He invested in it because in his analysis, Coca Cola was an excellent quality company, and it still is. On 1st July 1990, share price of Coke was $5.69. At earnings of 30 cents per share, PE was only 19, a fair price to pay for a company which grew its earnings at a CAGR of 13.4% over the next 8 years to 82 cents a share in 1998. The share price grew at a much faster rate at a CAGR of 29% over the next 8 years to $42.59, six and a half baggers. PE ratio of Coca Cola in 1998 expanded to 52.
Over the next 21 years from July 1998 to July 30th, 2019, EPS of Coca Cola still grew by 83%, but just at CAGR of 2.9%. Its share price barely grew by 22.6% to $52.2 per share, or a CAGR of just 1%, while the Dow Industrial Index has doubled during the same period. The PE ratio of Coke has contracted to about 35. Those investors who bought Coke, a great company, at its peak price 21 years ago way under-performed the broad market during the same period.
It is the same story for Microsoft. If you have bought it in year 2000, your return won't be good. There are many others.
2019-10-06 22:43
Your problem can be solve from the 2nd part of the puzzle call wealth mah or capital formation mah...!!
Thats why USA is the biggest borrower in the world but yet it is still the richest nation in the world mah...!!
Yes u can borrow but u need to invest in some in productive purpose create some economic growth and possible u create profit and multipler effects such as creating jobs and more consumption mah....!!
1MDB is a good example where there are failure due to leakages bcos of corruption and investing disregarding the stage of over capacity in the property sector.
Usually good successful investment will generate sufficient high impact economic growth and revenue and profit for u to pay your cost of capital or interest loh....!!
Coming back to investment & prudent borrowing means your long term investment return must be very far exceed your cost of borrowing loh...!!
"If there no other way to inject it (i am not sure if there is), Revenue cannot indefinitely be higher than wages. It should balance to give net zero profit when the economy stops expanding".
THE ABOVE INTERPRETATION ARE TOTALLY WRONG LOH....BCOS VALUE ADDED ARE NOT WAGE ALONE THERE ARE many variable like PROFIT ELEMENT, USE OF OWN CAPITAL RESOURCES LIKE PLANT & MACHINERY, USE OF PRODUCTIVE MONIES WHICH ARE MUCH MORE THAN WAGES ETC LOH....!!
BTW RECENTLY STUDY FOR MSIA THE WAGE ELEMENT COMPRISES ON THE AVERAGE ABOUT 30% TO 45% OF THE VALUE ADDED ON THE ALL OF THE AGGREGRATE BUSINESS OF MSIA LOH....!!
"What i was actually trying to grasp was the mechanism the money is injected to the Circular flow of Money in a closed economy.
I am aware of the Interest Rate effects too.
As far i understand, either via reduction of interest rates or via quantitative easing by active purchasing of government bonds to inject money to the economy is still a BORROWING".
ON THE ISSUE OF LOWER INTEREST RATES AND QUANTITATIVE EASING IT HAS THE EFFECT OF SPEEDING UP THE FLOW OF MONIES AND CONSUMPTION AND REDUCING THE HURDLE OF INVESTMENT CONSTRAINTS & limitation THUS ENHANCING INVESTMENT activity LOH...!!
For investors that means, they can have more option to invest when cost of monies or interest rates are lower loh....!!
2019-10-06 23:49
It is plain simple logic.
The return of your investment depends on the price you pay.
If you pay a lofty price, even for a great company, your return over the long term won't be good. You may even lose money, even over a number of years.
I have just shown the example of Coca Cola if you have bought it at a PE of over 50 in 1998, you wold have lost a great sum of money if you have to sell it 10 years later.
Even if you hold it until now, which the price is closed to all time high, your CAGR is only about 2%-3%, way under-perform the broad market.
By the way, not everyone is Warren Buffett who holds his shares forever.
2019-10-07 14:15
Correctloh....this is what raider emphasizing for a very long time loh....!! Always buy with big margin of safety & do not overpay loh...!!
Posted by kcchongnz > Oct 7, 2019 2:15 PM | Report Abuse
It is plain simple logic.
The return of your investment depends on the price you pay.
If you pay a lofty price, even for a great company, your return over the long term won't be good. You may even lose money, even over a number of years.
I have just shown the example of Coca Cola if you have bought it at a PE of over 50 in 1998, you wold have lost a great sum of money if you have to sell it 10 years later.
Even if you hold it until now, which the price is closed to all time high, your CAGR is only about 2%-3%, way under-perform the broad market.
By the way, not everyone is Warren Buffett who holds his shares forever.
2019-10-07 14:29
#A less ambitious form of pricing is the simple effort to make sure that when you buy you do not pay too much for your stocks.
This may suffice for the defensive investor, whose emphasis is on long-pull holding; but as such it represents an essential minimum of attention to market levels.#
2019-10-07 14:42
As always, it is very easy to make pointed decisions based on past year predictions and to just buy once. but luckily we are about the future and the intrinsic valuation of the long term prospects of the business.
Assuming that we dont have a crystal ball, if we did not invest in these companies, what companies do we then invest in? PE 15 companies like bear sterns and lehmann brothers?
In the case of microsoft, if we have bought it in year 2000, then and only then, our return would definitely not be good. but if we had continously bought quarter after quarter after that, as each years growing revenue, free cash flow and profits from 2000-2019 will show, the initial "bad investment" in microsoft, amazon, ebay and netflix in the year 2000 will in the end turn into a wonderful investment if continously grown.
in the end the question remains: HOW DO WE GAIN THE CONFIDENCE TO PUT BIGGER AND BIGGER INVESTMENT AMOUNTS BEHIND A STOCK? IT IS THROUGH A RULE OF GROWING REVENUE, GROWING EARNINGS WHILE KEEPING SHAREHOLDER VALUE.
but in the end, reality and academia rarely meet.
Those who had sold their microsoft, amazon, netflix, ebay shares in fear after losing so much money 2000, would miss out on a great growth of shareholder value in the next 20 years due to their nagging fear of losing money and once bitten twice shy attitude.
If PE alone (high or low) were a fair determinant of a companies future, then investing based on pe would be easy.
Unluckily, PE alone doesn't mean anything due to the fact that PE cannot predict future EPS. it is just a determinant of what the market is willing to pay for the company based on current earnings. If PE is low, it doesn't mean the share price is sure to go up, and if PE is high it also doesn't mean the share price is sure to go down. Dont understand? Just study AMAZON and INSAS 5 year PE trend to get a grasp of this concept.
Plain simple logic indeed.
The "golden rule" does predict the trend of a company, in a simplistic way. If growth and earnings are on an upward trend quarter by quarter (yes caveat of shareholder value being upheld), then you can be assured the share price is guaranteed to go up (sooner or later), and vice versa.
>>>>>>>>>
Over the next 21 years from July 1998 to July 30th, 2019, EPS of Coca Cola still grew by 83%, but just at CAGR of 2.9%. Its share price barely grew by 22.6% to $52.2 per share, or a CAGR of just 1%, while the Dow Industrial Index has doubled during the same period. The PE ratio of Coke has contracted to about 35. Those investors who bought Coke, a great company, at its peak price 21 years ago way under-performed the broad market during the same period.
It is the same story for Microsoft. If you have bought it in year 2000, your return won't be good. There are many others.
2019-10-07 14:59
Correctloh....but u r promoting your overvalue Nestle at PE above 50x, very dishonest of u loh....!!
Posted by 3iii > Oct 7, 2019 2:42 PM | Report Abuse
#A less ambitious form of pricing is the simple effort to make sure that when you buy you do not pay too much for your stocks.
This may suffice for the defensive investor, whose emphasis is on long-pull holding; but as such it represents an essential minimum of attention to market levels.#
2019-10-07 15:10
This is another conman, he has been promoting his overvalue QL with PE above 50x loh.....!!
Posted by Jason Toshi Ho > Oct 7, 2019 2:59 PM | Report Abuse
As always, it is very easy to make pointed decisions based on past year predictions and to just buy once. but luckily we are about the future and the intrinsic valuation of the long term prospects of the business.
Assuming that we dont have a crystal ball, if we did not invest in these companies, what companies do we then invest in? PE 15 companies like bear sterns and lehmann brothers?
In the case of microsoft, if we have bought it in year 2000, then and only then, our return would definitely not be good. but if we had continously bought quarter after quarter after that, as each years growing revenue, free cash flow and profits from 2000-2019 will show, the initial "bad investment" in microsoft, amazon, ebay and netflix in the year 2000 will in the end turn into a wonderful investment if continously grown.
in the end the question remains: HOW DO WE GAIN THE CONFIDENCE TO PUT BIGGER AND BIGGER INVESTMENT AMOUNTS BEHIND A STOCK? IT IS THROUGH A RULE OF GROWING REVENUE, GROWING EARNINGS WHILE KEEPING SHAREHOLDER VALUE.
but in the end, reality and academia rarely meet.
Those who had sold their microsoft, amazon, netflix, ebay shares in fear after losing so much money 2000, would miss out on a great growth of shareholder value in the next 20 years due to their nagging fear of losing money and once bitten twice shy attitude.
If PE alone (high or low) were a fair determinant of a companies future, then investing based on pe would be easy.
Unluckily, PE alone doesn't mean anything due to the fact that PE cannot predict future EPS. it is just a determinant of what the market is willing to pay for the company based on current earnings. If PE is low, it doesn't mean the share price is sure to go up, and if PE is high it also doesn't mean the share price is sure to go down. Dont understand? Just study AMAZON and INSAS 5 year PE trend to get a grasp of this concept.
Plain simple logic indeed.
The "golden rule" does predict the trend of a company, in a simplistic way. If growth and earnings are on an upward trend quarter by quarter (yes caveat of shareholder value being upheld), then you can be assured the share price is guaranteed to go up (sooner or later), and vice versa.
>>>>>>>>>
Over the next 21 years from July 1998 to July 30th, 2019, EPS of Coca Cola still grew by 83%, but just at CAGR of 2.9%. Its share price barely grew by 22.6% to $52.2 per share, or a CAGR of just 1%, while the Dow Industrial Index has doubled during the same period. The PE ratio of Coke has contracted to about 35. Those investors who bought Coke, a great company, at its peak price 21 years ago way under-performed the broad market during the same period.
It is the same story for Microsoft. If you have bought it in year 2000, your return won't be good. There are many others.
2019-10-07 15:12
raider is interested in others getting into his stocks at higher and higher prices so that he may liquidate his own stocks to these new suckers.
2019-10-07 15:39
Not trueloh.....raider always promote when low....when there are margin of safety mah...!!
Posted by 3iii > Oct 7, 2019 3:39 PM | Report Abuse
raider is interested in others getting into his stocks at higher and higher prices so that he may liquidate his own stocks to these new suckers.
2019-10-07 15:41
>>>
Posted by stockraider > Oct 7, 2019 3:41 PM | Report Abuse
Not trueloh.....raider always promote when low....when there are margin of safety mah...!!
Posted by 3iii > Oct 7, 2019 3:39 PM | Report Abuse
raider is interested in others getting into his stocks at higher and higher prices so that he may liquidate his own stocks to these new suckers.
>>>
Because raider does not know how to do valuation, he is more interested in the game I termed, Selling to Suckers.
.. Hengyuan's intrinsic value of $45. Deep margin of safety. BUY! BUY! I hope you did not follow raider in buying this stock. Very dishonest person.
2019-10-07 16:34
Quality versus Net asset value bargains
Quality: Price today $12. Price in 5 years?
Net asset value bargains: price today is $12 and its intrinsic value should be $18.
It is always better to buy compounders.
It is always better to buy growth.
If you are buying an asset because it is cheap, your upside is limited.
Buying cheap assets is not the name of the game. Do not focus on cheap assets.
Always better to buy high growth where the intrinsic value is growing, at an unreasonable price. Look for these diamonds in the stock markets.
You should look for both: good and cheap.
The greater the margin of safety the higher the potential return.
Always demand a huge margin of safety.
2019-10-07 16:47
buy when fearful, sell when greedy...
but clever one sell when fearful...
so who the fool
2019-10-07 17:37
or u can send email to bursa...
tell them u got fooled by warren...
sure they pity u, refund ur losses...
2019-10-07 17:38
see... tak guna otak
want earn dividend u need buy millions of shares...
buy 100 lots can feed u every month meh...
u think u tony, mamak sapura, chinamen...
2019-10-07 17:47
Posted by Jason Toshi Ho > Oct 7, 2019 2:59 PM | Report Abuse
As always, it is very easy to make pointed decisions based on past year predictions and to just buy once. but luckily we are about the future and the intrinsic valuation of the long term prospects of the business.
It is pure common sense that your return depends on the price you pay, be it in a business or in a stock. You may not like to use the E in PE, and you can use other measures, be it enterprise value, cash flows, intrinsic value, or whatever. There must be a value to relate to price.
It doesn't matter if you buy once at the time when the price is high, say at a PE of 100,50 or whatever, or continue to buy when Pe continue to go up, going down, or stay the same. As long as you continue to buy at a pe of say more than 40 most of the time, it is likely you will under-perform. Because in the long term, unless they are like Goggle or Amazon in the early stage of growth, pe will contract and reverse to the mean. It is pure economics and maths, practically, and not theory.
2019-10-07 21:52
Note when I use PE of 40 is for a great business with a moat, with a growth potential of more than 20% over an extended period. For a normal company, pe of 20 is too much and if you continue buy it at a pe above this value for most of the time, it is unlikely to be able to get extra-ordinary return.
2019-10-07 21:58
Different businesses different industries have different outlooks. Buying tech or growth companies at below pe20 you will only get sunset industries or buying into shrinking businesses like GE , Marvell and other companies. I totally agree with kccgongz concept of relating value with price, but investors who invest based on PE and quantitative methods tend to cast their net too small or sell their shares too fast for too small a profit.
The concept of one should sell a stock just because it's PE has run up is insanity. No one ever knows the future. The only thing that investors can do qualitatively is invest their money into wonderful growing companies and monitor their growth quarterly.
If I had not taken this great advice by Phillip Fisher, I would have sold my topglove, QL and yinson shares long long ago when I had made a small little profit and the pe has gone up. Now my shareholdings post splits are worth millions and my dividends far outweighs my initial investments.
Then again, not everyone expands their worldview. I'm lucky to be able to buy more gkent ( paying 6% dividend, 230 million net cash, huge incoming growth in revenue and earnings from LRT business and Honeywell licensing of smart water meters) at 1.02, PCHEM (20% net profits versus industry peers of 10%, 16 billion revenue, 4 billion earnings, incoming production growth from PIC),
Notice how I start with the business valuation first, instead of jumping into pe, charts, cash flow and other quantitative metrics? If we can just look into the business itself, understand the model and the ecosystem and the "moat", then it will shape the worldview on the PE of the stocks and if it is warranted.
Why did Jeff bezos not take your advice and sell his shares when it went up to PE 200? Obviously because he is not stupid and he looks at the business first and foremost.
Don't do a screener and judge all stocks above a certain pe level as BAD. But instead try to judge the PE qualities, is it warranted? Is it safe? What are the long term prospects of the company?
PE is supposed to trigger those questions, not kill it.
2019-10-08 05:51
# Coca-Cola: Even though the stock price has been overvalued at times, an investor would have been filled with regret later after selling off their stake. #
2019-10-08 06:36
Posted by Jason Toshi Ho > Oct 8, 2019 5:51 AM | Report Abuse
Notice how I start with the business valuation first, instead of jumping into pe, charts, cash flow and other quantitative metrics? If we can just look into the business itself, understand the model and the ecosystem and the "moat", then it will shape the worldview on the PE of the stocks and if it is warranted.
Why did Jeff bezos not take your advice and sell his shares when it went up to PE 200? Obviously because he is not stupid and he looks at the business first and foremost.
I fully agree that an investor should start with the quality analysis, start with a story first. I do that all the time. Every good investor should do that.
However, a good story is not good enough. It must come with valuation and has to have some good numbers. All super investors, Warren Buffett, Seth Klarmen, Howard Marks, Mohnish Pabarai, Joel Greenblatt, they are multi-billionaire, purely from investing and for sure I know they all do it. They all compae price with value.I have read Common stock and uncommon profit a couple of times, but can't remember if Philip Fisher did that. But vaguely I think he did in some way.
As I have said, few companies grow like Goggle and Amazon at their early stage, and they are tech companies selling their products and services all over the world and demand all over the world. I don't think you can compare PE of a normal company growing 10% a year with the valuation of a top tech company at its early stage, with a PE of 200. A PE of 50, or an intrinsic value way below its present price, or whatever measure, but expect to grow at 10% a year for the next 5 or 10 years is simply too expensive.And yes, I may buy it and continue to buy it when it is, a good company, trading below PE say 20 or whatever valuation measure, but not when it is 40, or whatever measure, and will definitely sell it if PE is 50.
You can put it in a simple valuation model to see that. It is simple maths.
However, each and everyone has his way of investing, and each and everyone can make money in his own way.
2019-10-08 07:18
Posted by 3iii > Oct 8, 2019 6:36 AM | Report Abuse
# Coca-Cola: Even though the stock price has been overvalued at times, an investor would have been filled with regret later after selling off their stake. #
Investors who bought Coca Cola in the eighties when it was selling at low valuation and sold in 1998 when PE was 50+, and then buy back in its lows in 2007 2008 when its PE was below 20 wold be overjoyed and have become multi-millionaire.
Yes, for value investors, they would have bought low and sold high, not necessary at the exact lowest or highest, but even 20% around them. That is their principle.
2019-10-08 07:25
Dear kcchong,
Thank you in explaining the concept of qualitative and the important of quantitative evaluation of value versus market price. Many of us had been trying to tell Philip and 3iii than any company listed is Bursa with PE> 50 is overvalued because their PEG ratio did not tell a very high growth rate (Growth yes but not at the pace deserving PE>50 as they are not an internet of things company where they have a global reach with very high growth rate like Amazon/Alphabat Inc/Google and etc).
We are doing so with no ill intention but as a concern that perhaps they had fall in love/trap with their beloved shares and enable to listen to reason (behavioral biases). Should they sell some of those PE> 50 company shares and invest in Pchem which is at very attractive price now or face a long price stagnation of their beloved shares?
Thank you
2019-10-08 08:17
sslee.....I rather spend time pointing out the fallacy of value investors in Insas than investors in good quality companies even if the PE is a bit high......
people want to buy good quality companies I congratulate them............their choice, they are adult enough. These are genuine investors, not speculators.
It is value investors who like Christians are narrow minded, tunnel vision, not flexible ...so are u a Christian?
self righteousness...........self righteousness of HK black shirts............better be a contrarian than to be self righteousness..............
2019-10-08 10:28
international media celebrates the freedom fighters of HK ,
soft cover books promotes value investing........
well....I don't like mainstream....I like contrarians
contrarians need to think harder, and they do think harder........
2019-10-08 10:33
Dear sslee,
I repeat AGAIN respectfully so you may understand.
Any business where the revenues and earnings are growing consistently while keeping shareholder value will see is share price growing.
50 pe or not, the last 5 years performance of QL has been exemplary. Management has guided towards double digits growth in their future until 2025. Cash flow is brilliant and growing. The total dividend has been increasing year after year after year. Are you able to guarantee or predict long price stagnation of QL?
If you are able to show me your Crystal ball or give me a profit guarantee for insas I would be more than willing to sell all of my ql shares and go all in on your INSAS and buy a 5% stake in the company.
Just because something is expensive doesn't mean it has to drop. Just as something that is cheap will never go cheaper.
But I do appreciate your concern, but I am blessed enough by topglove, ql, yinson in the past and I expect to be blessed more by gkent and pchem in the future.
Unlike some I don't sell a beautiful first wife just to get the younger sexier second wife. Especially when the first wife can surprise you yet!
>>>>>>>>
We are doing so with no ill intention but as a concern that perhaps they had fall in love/trap with their beloved shares and enable to listen to reason (behavioral biases). Should they sell some of those PE> 50 company shares and invest in Pchem which is at very attractive price now or face a long price stagnation of their beloved shares?
Thank you
2019-10-08 17:02
kc chong................look at u....pick all the low quality companies and have the gumption to talk about investing.....if that is not speculations , what is?
2019-10-09 00:53
Dear Philip,
Are you showing symptom of emotion or cognitive biases? We are talking about stocks considered as overvalued because their PEG ratio did not tell a very high growth rate and you talk about selling fist wife getting second wife? My god “Unlike some I don't sell a beautiful first wife just to get the younger sexier second wife. Especially when the first wife can surprise you yet!”
Thank you
P/S:
QL last five year performance
https://klse.i3investor.com/servlets/stk/fin/7084.jsp?type=last10fy
Revenue: 3,613M: 3,263M: 3,012M: 2,853M: 2,707M
NP to Shareholder: 216.7M: 206.2M: 195.9M: 192.1M: 191.4M
EPS: 13.36: 12.71: 15.70: 15.39: 15.34
DPS: 4.5: 4.5: 7.25: 4.25: 4.25
2019-10-09 08:05
Fabien "The Efficient Capital Allocater"
One, certainty of growth of earnings (even if somewhat modest) is far more valuable than a dazzling growth but which is one time, uncertain or indeterminate.
Two, quality of growth (as represented by capital efficiency) adds far more to long-term value creation than just the earnings growth.
Three, it is important to buy only quality at as good a margin of safety as one can get, rather than buying inferiority but justifying that with arithmetical "cheapness", which more often than not is a "honey trap".
2019-10-09 11:17
Fabien "The Efficient Capital Allocater"
As far as stock selection criteria are concerned, which create long-term value, there are five simple ideas, which I regard as material. One, Size of Opportunity is a mother idea. It is less about how big a business was or is. It is virtually all about how big it can get from where it is. It dwells almost entirely in future rather than in the past or present. It is more about the size of a pond rather than the size of a fish. Pond has to be large so that there is headroom for a capable fish to grow.
Two, Management Quality is far more tangible than is believed to be. In the buoyant phase of markets, this truth is conveniently ignored but at one's investment peril. This can hardly be over-emphasized. Capital allocation and capital distribution skills are the hallmarks of a good management. Integrity, vision and execution are the defining attributes of a quality management. It is only when a large size of opportunity meets with quality management, that the outcome is gratifying.
Three, the union of the above two results in the Earnings Growth. This is key because the absence of growth or its materiality reduces equities to bonds. The growth doesn't necessarily have to be dazzling. What's more important for the growth is to be long-term, relatively predictable and consistent. Such growth creates compounding machines.
Four, while growth is essential, it is not enough by itself. It needs to be Quality Growth for it to create value. Quality comes from the ability of the underlying business to create rising economic value. That can happen only when business generates not only superior but also durable, predictable and consistent ROCE. Quality of business is at a heart of good stock picking for outstanding long-term value creation. Again, it is only when a reasonable growth cohabits with high quality of growth, that great economic value is created.
Five, an investor in a (such) business can create investment returns only if the underlying business can create economic value. Ultimately, investing is nothing if not business like. It is a myth to believe that one can earn investment returns even if the underlying business has inferior economic value creation; or, that a business creates outstanding economic value but somehow does not get reflected in investment returns. Neither can happen. Certainly, not over a long enough period of time. An investor can generate investment returns, even superior to the underlying economic returns if he can buy such a business at a Margin of Safety (or, Price-Value Gap) to its intrinsic worth. In essence, the science and art of investing lies in the above, rather, simple ideas. However, investing is simple but not easy.
2019-10-09 11:18
Posted by qqq3 > Oct 9, 2019 12:53 AM | Report Abuse
kc chong................look at u....pick all the low quality companies and have the gumption to talk about investing.....if that is not speculations , what is?
Pick “low quality companies”? Please elaborate,
1) Which “low quality” companies you are talking about?
2) Why are they “low quality” companies?
3) What are your criteria to judge they are “low quality” companies?
4) Why can’t pick “low quality” companies?
5) Are you invest in the stocks and hope to make money? Or are you
6) Looking for a wife to get married?
7) How are the performance of the business of my “low quality” companies?
8) How have been the share price performance of my “low quality” companies?
It is best if you have something to compare with for points (7) and (8) above. It is best to use the stocks mentioned by the character below,
Posted by stockmanmy > Jul 6, 2017 9:20 PM | Report Abuse
"and picking Jaks and Sendai is very illustrative of the thinking behind the man."
winning strategies place great value on earnings certainties. and Jaks and Sendai have great earnings certainties and transparencies and that is worth a lot. They will be reporting ever increasing earnings in coming quarters with great certainties.
I think it a great strategy to follow.
as recovery stocks coming from a low base, not many other stocks have the same level of earnings certainties.
will out perform most other portfolios.
2019-10-09 22:34
Please sell your INSAS and buy better stocks. The 5 year return is far far better than INSAS performance. Please abandon your emotion and cognitive biased and buy a good stock for once.
QL is guaranteed to continue to do well, while INSAS is just another mediocre performing company, full of talk but no action.
Thank you.
>>>>>>
Posted by Sslee > Oct 9, 2019 8:05 AM | Report Abuse
Dear Philip,
Are you showing symptom of emotion or cognitive biases? We are talking about stocks considered as overvalued because their PEG ratio did not tell a very high growth rate and you talk about selling fist wife getting second wife? My god “Unlike some I don't sell a beautiful first wife just to get the younger sexier second wife. Especially when the first wife can surprise you yet!”
Thank you
P/S:
QL last five year performance
https://klse.i3investor.com/servlets/stk/fin/7084.jsp?type=last10fy
Revenue: 3,613M: 3,263M: 3,012M: 2,853M: 2,707M
NP to Shareholder: 216.7M: 206.2M: 195.9M: 192.1M: 191.4M
EPS: 13.36: 12.71: 15.70: 15.39: 15.34
DPS: 4.5: 4.5: 7.25: 4.25: 4.25
2019-10-11 16:53
Dear Philip,
Thank you for your advice to sell my INSAS and buy better stocks. I have no problem in selling INSAS but after attending the last 2 AGM and knowing very well that minority shareholders did not get a fair share of INSAS’s wealth, I had decided to stay on for another 2 AGM to fight for the rightful share of INSAS’s wealth from the controlling shareholder Dato’ Sri Thong.
It is always easy to walk out a deal/just sell your shares/surrender your rightful right and let the powerful to bully you to submission/take advantage of you or a long and lonely walk to stand up and fight for your rightly right not just for yourself but for the common good of all.
I had chosen that long and lonely path, so please wish me luck.
Thank you.
2019-10-12 12:42
Stockraider is a conman. He promise insas 90 cents after Merdeka, then say hengyuan intrinsic value 45, then say sapura rm3 value. Can believe this myvi delivery boy? You already lost all credibility. Please stop talking to me.
2019-10-13 07:09
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Posted by qqq3 > Oct 5, 2019 6:53 PM | Report Abuse
kc...want to make money?
follow the trend, take some risk...........
margin, sailang and all in at appropriate times....maybe, one can be the next multi billionaire...............................
Unfortunately, this is the same statement from the same character which caused someone to lose a total of RM150 million in the last two years.
Why are you so proud of that?
2019-10-06 16:25