Dear moneyface88,

Here is my response to you.

http://klse.i3investor.com/blogs/kcchongnz/78867.jsp

Dear moneyface88,

Here is my response to you.

http://klse.i3investor.com/blogs/kcchongnz/78867.jsp



Posted by moneyface88 > Jun 24, 2015 12:06 AM | Report Abuse

Hello Mr Sifu KC Chong .... from New Zealand ?

Your article very Keng , very analytical. I have learnt a lot reading this article of yours.
Then got worried and sold my V.S Share then share price moved up strongly.
Today Q2 result announced, not what you have expected, you must be disappointed

How much you charge ah to learn something from you ?
Please tell me so that I can subscribe to your tips

Posted by Tvmen > Jun 22, 2015 02:04 PM | Report Abuse
KC, KYY is very sucessful in his share investment , is unfair for you to pick one of the stock that didn't perform in his portfolio and write a big story on it , not the question of rich or not rich.


Put aside your hero worshiping mentality and try to read what the article is trying to convey to you. I am sure you can learn a thing or two there.

Whether I use Rimbunan Sawit of JayaTiasa, or FGVB, the valuable lessons you will learn are the same.

Go through the article again thoroughly and then come back to me and say you have learned nothing.

Posted by NOBY > Jun 22, 2015 01:50 PM | Report Abuse

KC, aiya.. dont waste time responding to these type of comments, just flag them and let admin handle... you dont need to justify to these clowns...

The amount of articles and knowledge you have shared in this forum itself is worth more than all these braggers who come here flaunting their wealth like tin kosong... or telling people they bought at the lowest and sell at the highest... who cares how much money one has ? Forum is a place to exchange information and share knowledge...


Noby, when I write an article, I truly want to share something which I think it is useful and important. A writer likes to have readers and also comments, the more constructive are the comments, the better, at least for me. Hence I have never flagged a single comment in any of my 137 articles. I try to answer as much as possible, as some of the articles can be misconstrued, and they often were misinterpreted. For those meaningless posts, I just ignore them. No, I won't get emotional about them.

Posted by Good_point_ > Jun 22, 2015 01:05 PM | Report Abuse
If KC Chong always get high return as his blogs suggest why he need to ask for money from i3 forumers for his course? Why he is not as rich as KYY?

Although yours is a new id, I like to entertain your this question.

Yes, I am not as rich as KKY, that is for sure. Few people here can even come close to the wealth of KKY, as we have read from the blogs.

High return as in my blog? Yes, that is for sure, but that is in percentage term. In absolute term it is far far away from what KKY has in term of wealth. But does that mean a wealthier person is a better human being than a poor person, and must be accorded with higher standing and respect than the poor people?

So I am a poor person, and I teach people with my time and expertise. I don't cheat, and I don't steal. Do you have any problem with honest people earning a living? And why do you have a problem?

Posted by Tvmen > Jun 22, 2015 11:59 AM | Report Abuse
If KYY is not good in his investment as pointed by KC, why KYY is so rich ? It is not possible to be 100% accurate in stocks selection , just look as VS !!!

Please read what the thread is trying to share with you. You will learn something for sure.

My articles is always not about personality, but issues, and sharing of knowledge and experience.

Posted by thteh > Jun 22, 2015 09:56 AM | Report Abuse
I share your views KC as I was one of those who bought R Sawit based on that bullish recommendation of it being the cheapest plantation stock in world and got burn in the process. Have sold at loss but still holding some. I don't blame any one but take it as expensive lesson learned.

thteh, glad you share my view, but I like your last sentence more:

"I don't blame any one but take it as expensive lesson learned."


Unlike this guy below, he chooses the five stocks as shown, only two of them are in my portfolio below:

http://klse.i3investor.com/blogs/kcchongnz/78390.jsp

The two, Plenitude +21.1%, which is twice better return than the broad market return of 12%, and Pantech is the only under performer, but it is still positive return at +3.7%.

The other two company warrants, uh, he was so "lucky", i only shared how warrants are being valued, and explain what financial risk management is being used with warrants, and he went to buy those two warrants at peak prices with margin finance and got "pok Kai". And then he blamed me!

Why didn't he follow me and buy the portfolio of 10 stock and made 120% in two and a half years, but instead punt with margin finance on the two warrants which were supposed to be used as teaching purpose. This is really a six sigma event!


[Posted by bad_stocks > Jun 21, 2015 09:20 PM | Report Abuse

What will happen if my margin portfolio have stocks like BIMB-W, MRCB-W, Padini, Pantech & Plenitude? ]


He need to have another new and better id. bad_stocks really bad luck.

Posted by Why_leh > Jun 22, 2015 11:09 AM | Report Abuse

Why out of money warrants MRCB-W(14.5sen, 100% premium) & BIMB-W(34.5sen, 25% premium) should worth more than dividend paying Xinghe(7sen)?


The value of warrant is not just made up of its intrinsic value. it has a time value. The time value can be very large depending on the volatility of the underlying stock, the time to maturity, gearing etc. You need to have some knowledge of how the value of a warrant is derived.

But nobody says it is worth more than your Xinghe. There are many factors, and uncertainties.

Posted by Icon8888 > Jun 21, 2015 10:47 PM | Report Abuse
Fortunebullz u r right - if u are good, no need margin

The above statement caries weight in this thread from both forumers, icon8888 and Fortunebullz as I have arguments with both you guys before, and surprise with your agreement. Not actually surprise if we are looking at the real issue, that should we tell the general public to use margin finance?

I remember my argument with icon8888 on the same issue and he used margin finance and he did well. I had no issue on that. Who am I to tell him not to when he made it? To be truthful, I used leverage too in 2009 when I re-mortgage my house to get a loan, and I invested all in Bursa then. You know lah, we are small timer, kuching kurat, where got investment banks offer us tens of million of margin finance?

I did make very good amplified profit with that loan if you have a look at my oldest portfolio which had gained 120% in two and a half years. What about the gain from 6 years ago using OPM? But am I proud of it? No! Did I tell the public that I have made big by doing so and encourage them to do so, knowing then it could all be due to luck?

Does it matter if I invest say less than a million compared to the big timers using tens of million? Do they carry more weight and more truth in telling the public to use OPM, than us kuching kurat?

We must have an idea of what the message we are projecting to the public, especially to our younger generations, that using OPM is not good for their well being, and the society in general. The general public and the younger generation!

Have we got the bad experience before like the huge leverage in 2008 in the US sub-prime crisis, and even now in thing like 1MDB at home, even in corporate?

Charles Munger on Arrogance

On the morning of the battle of Waterloo, Napoleon Bonaparte smugly assured his generals, “I tell you Wellington is a bad general, the English are bad soldiers; we will settle this matter by lunch time.” Don’t be blinded by arrogance. A little humility can help you steer clear of disaster.

Just before the Titanic was about to embark on its maiden journey in 1912, one passenger asked a ship’s agent for extra insurance on some valuables in her luggage. The agent replied, “Ridiculous. This boat’s unsinkable.”

Captain Smith himself was asked about the safety of the Titanic. He answered – “I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.”

Then, after the ship had struck the iceberg, a passenger asked her employer if they should do something about it. He replied, “Go back to bed. This ship is unsinkable.”

In 1997, the KLSE go go years. The SBI ran up by 156% from 256 points in November 1995 to 656 points at the end of March 1997, in just 16 months.Soon after that, as a result of the Asian Financial Crisis which started in Thailand and spreading to other Asian countries, both the KLCI dropped by close to 60% in about just half a year. The markets did recover substantially by about 35% between one to three months. That was the most dangerous part, as those who thought Jaw 1 had ended without knowing the appearance of Jaw 2. The markets plummeted by another 60% in another half a year later when KLCI and SBI closed at 303 points and 77 points respectively on 28 August 1998.

http://klse.i3investor.com/blogs/kcchongnz/73675.jsp

These events repeated in the Dot Com Bubbles in 2001, and the US sub-prime housing Crisis in 2008.

Will it happen to the Shanghai Market with the euphoria going on? Of course not. This were the statement made 2 weeks ago, and Shanghai Index has dropped by 11% since then.

"You tell the investors in China now, using margin financing is very bad, I believe many investors will scold you that you are a stupid investor."

The same statement was made again yesterday.

"The Chinese investors will scold you stupid fool not to use margin account, otherwise, you will be laughing all the way to the bank."

And more statement

"I am sorry ... I repeat ... I am sorry to say that a small investor like you will not use margin account, it does not mean that big investors will not use margin account to win big. May be I had spoken to all big investors only. "

Sure, i am a small investor,and you are a big timer, no doubt about it. And you win big, congratulations!

But the issue we are debating about is

"Should one encourage the general public in a public forum like this to use margin finance in investing?"

“The best run companies do not pay a single dividend”

I have doubt on the above statement unless you can show an academic research showing the statistical significance of your statement, some kind of research showing economic value added or market value added or something, more than those dividend paying companies, and not just cite one or two examples such as Apple in its old days, or Berkshire Hathaway. Otherwise intuitively I guess of otherwise.

John Burr Williams, in his The Theory of Investment Value mentioned that the intrinsic value of a company was equal to the present value of its future dividends discounted by an appropriate rate.

The US equity market provided a compounded annual total return of 10.4% from 1900 to 2000, 5.0% in dividend yield, and 4.8% from earnings growth and just 0.6% due to change in the PE ratio (John Bogle of Vanguard). One can see that dividend yield made up the highest portion in the total return.

Hence the best run company in my mind, must be one which is able to earn a high return on its capital (ROC) consistently. This provides economic value added to shareholders. Part of the return can be distributed to shareholders, and part of it used to reinvest and earn a marginal ROC higher than its cost, and more dividend distributed to shareholders subsequently.

Take one example in Bursa. If you have bought Pintaras Jaya shares 5 or 6 years ago, you would have recouped all your capitals, just by receiving the dividends.

Many corporate managers when saw so much cash in the company, simply went on acquisition sprees on businesses outside their expertise, or spend lavishly or misappropriate all the cash. As a result, acquisition earned return way below the costs, or even losses, and result in huge shareholder value destroying, and money disappeared mysteriously.

Hence it is not a matter if a company pays dividend or not, rather clever capital allocation by the managers.

Words of wisdom.


Posted by paperplane2 > Jun 21, 2015 01:16 AM | Report Abuse

Using margin will not help you double, triple! Good stock picking skill will!

Posted by kiasutrader1 > Jun 5, 2015 05:28 PM | Report Abuse
Hence he must have used his business skills instead of static numbers to consider investing. Mr Koon also encourage others to use leverage as the rate of interest is so low and if one did choose a good fundamental stock with good future prospects, even the dividends are able to repay the loan interest. Remember the interest cover ratio? The EBIT is your earnings before interest and tax.


Did you also in your blog, disseminated his wisdom when he recommended people to use margin finance to buy RSawit, JTiasa, XingQuan and Mudajaya within the last three years?

To me, implying that you are learned person and a successful investor, and telling the general public to use margin finance to speculate in the stock market is a terrible thing to do. You can use it if you wish, but not telling people to do it, articulating your success in it when it could be due to luck, and forgot to tell any of your failure in using it. Haven't failed before? That you probably the only exception. But then you shouldn't base on on success and encourage others to do it when 70%, 80% of them failed, and failed miserably.

This is the only topic I kept on harping on, as I think it is terribly wrong, utterly irresponsible, and unethical.

Haven't I presented enough argument about leveraging? Please read these:

http://klse.i3investor.com/blogs/kcchongnz/44344.jsp
http://klse.i3investor.com/blogs/kcchongnz/61822.jsp
http://klse.i3investor.com/blogs/kcchongnz/73675.jsp

And where is your argument that using margin finance is good?

Please write one article and publish your reasons for encouraging the general public to use margin finance. I would love to discuss with you.

Yes, i would not stop talking about it, not just talking about it, but with facts and figures, just like before.



Posted by kiasutrader1 > Jun 20, 2015 01:49 AM | Report Abuse

The problem I see is that when people cannot accept other people's views and always insist they are right, that is when the problem starts.

I always believe that there is more than one view in life unless it is so black and white that you cannot argue with that. One must learn to Agree to Disagree. If you strongly believe that leveraging is bad, so be it and present your arguments and that is that and vice versa; no point to continue talking about it.

Thank you for allowing me to share. Have a good weekend

Posted by YiStock > Jun 19, 2015 08:17 PM | Report Abuse

Thank u Mr kcchong..hope to learn more from U..seriously looking for u join hand with a Mr Ooi..to organize an investor club or at least a seminar or gathering or retreat or anything that can bring all value investor together. Thank u


I think this is a great idea. I am contemplating about it. Awana will be a great place. Anyone else interested?

YiStock,

Well done in your analysis. It is really 独当一面.

One of my course participants have the same opinion as you for Frontken and he wrote a great piece of it when it was around 18 sen a couple of months ago, the same time as you first wrote about it, I think. I have made some money just basing on that.

Shanghai index plunged from 5023 to the close of 4478 today, or 11% in just two weeks when the statement below was made.

Just wondering those investors in China scold me that I am a stupid fool or not if they asked and I gave my opinion that using margin finance is no good.


Posted by Ooi Teik Bee > Jun 6, 2015 05:42 PM | Report Abuse

Dear KC Chong,

To me, it is a wrong strategy not to use margin financing if the market condition is very bullish. Opportunity hits but once, I will make full use of this good opportunity. In Shanghai stock market now, the rapid rise is because most investors use margin financing. You tell the investors in China now, using margin financing is very bad, I believe many investors will scold you that you are a stupid investor.

Posted by cpo_ > Jun 17, 2015 08:56 PM | Report Abuse
No chance for KFima to reach RM 2.50? At least FGV has gone up to RM 4 last year or even RM 5 2 years ago. Buying FGV now(RM 1.68) can make 138% gain if climb to RM 4 or 198% gain if reach RM 5.

cpo, as you are interested in FGVB, this article of mine, "How to spot a lemon" written less than a year ago to a friend of mine may interest you.

http://klse.i3investor.com/blogs/kcchongnz/66355.jsp

I always encouraged market players to consider the value of a company in investing rather than every time just looking at share price movement and guess what it would be tomorrow, next week or next month.

生平無大志 只求八巴仙
不求有大功 只求無大過

ks55,

I always like your above statement. That is my main philosophy too.

ks55,

FA and TA are the two major investment techniques, or may be the only two in investing. Strange that you asked. No, FA is much more than what you have mentioned. Although I don't know much about TA, but I think it is also much more than what you have mentioned.

Is making money every year such a great feat? In the long term, the total return of mature markets has been about 10%, maybe a little less in recent years. So just making money in the stock market doesn't seem to be that great to me.

The article here did show you some good returns as compared to the broad market in the last few years, didn't it? At least here is not pure talk, but with published records.




Posted by ks55 > Jun 15, 2015 04:48 PM | Report Abuse

What is FA? Fundamental Analysis. What constitute FA? Is it just study how good the company is? Is it just study whether it is going to make more money? Is it merely talk about FCF?

What is TA? Technical Analysis. Is it just buying when sufficient volume has build up? Is it just based on price changes? Is it just trading vide volume alert/ How about exit?

I am no sifu, but most of the time (in fact, all the time) make money over time frame of one year.........

Now is the time to check you are sifu or otherwise.
No hard feeling to all FA and TA sifu, please.........

Posted by Ng Wen Qing > Jun 14, 2015 09:27 AM | Report Abuse
Is SHL a good stock?

Don't know much of SHL too, but a look at its recent financial results, I doubt you can lose big in this company. Healthy balance sheet. Making 43 sen per share last year, a big jump from 23 sen the previous year. At RM3.32, PE is low at 7.7. PE is just a quick and dirty check. Must look closely why this jump and make sure a swallow doesn't makes the summer.

Make sure its property development projects in good locations and sell well as it has a lot of money tied up there in inventories and property development cost.

Posted by necro > Jun 12, 2015 08:02 PM | Report Abuse

Kc i need your opinion on CCMDBIO...tq in advance


Don't know much about this stock. By looking at its annual results, and at the present price of 3.70, or PE of 13.5, healthy balance sheet and good cash flow,I doubt you can lose big in this stock.

Posted by vinext > Jun 11, 2015 03:01 PM | Report Abuse
FCF, remember these 3 words if u wanna get rich in the stock mkt- warren buffett

True true true. He also said:

“Most companies define “record” earnings as a new high in earnings per share. Since businesses customarily add from year to year to their equity base, we find nothing particularly noteworthy in a management performance combining, say, a 10% increase in equity capital and a 5% increase in earnings per share. After all, even a totally dormant savings account will produce steadily rising interest earnings each year because of compounding. Except for special cases (for example, companies with unusual debt-equity ratios or those with important assets carried at unrealistic balance sheet values), we believe a more appropriate measure of managerial economic performance to be return on equity capital.” – Warren Buffett 2007 letter to shareholders

Posted by ks55 > Jun 11, 2015 04:30 PM | Report Abuse
TQVM. I have mentioned before in Lonbis thread, I bought it mostly based on TA (FA provide the basis). It is definitely not an investment grade stock. I have since exited and made 35% within 3 months.


ks55, you see you happened to made 35% from London Biscuits. It could be because you were good in some other thing like human psychology, like when you know they are giving "free" warrants and you anticipated that others would chase this share because of something given free, of which in actual case it didn't add any value to the company, but maybe a chance for those big players getting those free warrants and unloaded into the market.

Or maybe you were lucky. You know for one success story in speculating, there are scores of failures. Why do I say that? In speculating, it is a zero sum game. Whom do you think will win? The syndicates, insiders, major shareholders, investment bankers, or you? No prize for the right answer.

I am an investor, and I don't hope to be the successful one in the speculation.

Posted by NOBY > Jun 10, 2015 09:39 PM | Report Abuse
KC, when a company needs cash. Is it better to go for private placements or take on new debt assumimg tht it doesnt yet hv the free cashflows to fund a capex etc.

Noby, lets get back to your original question above and not get loss in some theoretical argument. My answer is if your listed company can get good return say 15% in the future, why not borrow instead of issuing shares to other investors as the cost of borrowings is low in relation to what the return required by other investors? Moreover interest cost is tax deductible.

Unless of course your business is already highly levered and banks won’t want to lend you anymore, then go ahead and issue more shares to whoever willing to subscribe. People will subscribe at a certain price if they think the future is good and return more than what they require, otherwise, they also won’t subscribe.

Noby,

WACC = D/(D+E) * Kd (1-Tax rate) + E / (D+E) * Ke

Consider a good company with stable earnings and cash flow, and healthy balance sheet. Cost of additional debt it can get is low, and Ke won’t change much with that additional debt. WACC is lower with the additional debt. especially because of the tax shield.

If an already high debt company with poor earnings and cash flow, Ke is higher, and Kd is also higher. When this company asks for more debts from bond investors, will the additional cost of debt still stays the same. Won’t the bond investors ask for higher return? You as the common stock investors, will you require the same Ke as before, or now you think that because the company has additional debt, it has become more risky, and hence you require a higher Ke?

Ke and Kd are not the same for different companies of different risk profiles, and they are not static.

Posted by ks55 > Jun 11, 2015 02:49 PM | Report Abuse
There must be some how to assess company's IV, in what ever method -- peers comparison, revaluation of plant/machinery/land/goodwill on brand etc..etc....
NTA according to audited account is one of the easiest way, just pay slight attention to potential creative accounting and credibility of its Directors.

ks55, let me clarify why I said "I can't use any method, no matter how much I wish to, to come up with what the IV of London Biscuits is, unless I just base on what the market is willing to pay for it, in other words, using the greater fool theory." I think is appropriate for this article here since we talk about "Don't want to lose money in Bursa".

It has no FCF. Not only that, it sucks huge amount of cash each year. It needs to keep on issuing shares to people naive enough to believe that it will turn around, and borrow from banks just to keep its door open. So without FCF for so many years, I don't know how it is going to generate FCF in the future, the same management, the same modus operandi. It still spend huge amount of capex every year, last year was another huge amount of 41m, with cash flow from operation of only 12m, despite management saying they were going to curb this. so without any hint that it can generate FCF in the future, I can’t value it, doing so will result in a negative intrinsic value.

Next I can attempt to value it basing on its liquidation value. Its net asset is 345m, and with 164m share, Net asset backing per share is 2.11. Out of this 345m, 110m is receivables, 27m inventories, and a whopping 572m is property plant and equipment, and 13m intangible assets. These made up a total of 712m. How much is this worth during a liquidation sale? If 50% of this assets are impaired, or discounted in a fire sale, it has nothing left. Its value left is zero for a liquidation if it can’t get more than 50% from those assets. Is 50% asset impairment too much for London Biscuits? I highly don’t think so.

So the only valuation method to give London Biscuit a value is based on the greater fool’s theory; the comparable ratios such as PE, P/S, P/Book with other comparable companies. Is it comparable to Hup Seng, Apollo and other profitable and high cash flow companies?

Knowing how to spot these red flags is really useful in investing. If you avoid losing, half the battle is won.

Posted by ks55 > Jun 11, 2015 12:12 PM | Report Abuse

kcchong -- I fully agree with you. Value is one thing, price you pay for is another. So there arises the following scenario:-

3. London Biscuit is a very lousy stock (Lemon if you want to put it).Every year asking money to top up its cash flow deficiency. Book value for NTA 2.03. Let say intrinsic value is 1.00 ringgit.To buy at 60 sen amounts to buying with a 40% margin of safety. Downside also very limited as it was already record low. I bought before at 57 sen, not because of its fundamental, but the price of 57 sen to get a ringgit worth of stuff.....

I would like to have your view on intrinsic value vs fair price vs price overpaid/underpaid. My purpose is not to miss any good investment opportunity just because the stock is not fundamentally good but present a value buy. Also live up to the title of your article above "Don’t want to lose big money in Bursa? kcchongnz". TQVM

How do you get the intrinsic value of London Biscuits as RM1.00? If it is so, it is a good buy at 60 sen, no question at all.

But NTA is not intrinsic value as it depends on what makes up that intrinsic value.

I can't use any method, no matter how much I wish to, to come up with what the IV of London Biscuits is, unless I just base on what the market is willing to pay for it, in other words, using the greater fool theory.

Posted by NOBY > Jun 11, 2015 11:42 AM | Report Abuse

Posted by kcchongnz > Jun 11, 2015 11:34 AM | Report Abuse

The higher the ebit,the better it is to use leverage as that amplifies return, if you still can get more loan. If the ebit is very low, interest cost burdens you, and even can go into losses. But wonder if it make sense to expand your business with low ebit.

Yes agree. My point was that private placement proceeds was being used to par down debts for a highly indebted company, not to expand the business.


I still wonder the company needs to get private placement to pay down debt if the company has stable earnings and cash flows to meet its interest payment obligations, unless the debt is so high that there are some covenants on their debts, or the risk of bankruptcy is high,or they sense that they may face some headwinds in the future.

Private placement dilute the interest of the existing shareholders.

well,maybe it is good also not to have so much debt.

Posted by YiStock > Jun 11, 2015 11:27 AM | Report Abuse

Mr KC, have thought of that but the rights issue will enlarged share based too, and with much higher discount, isn't it?


The cost of equity is theoretically the same whether it is private investors or existing investors.

If the business future is good,why not let existing shareholder maintain their stakes in the company with rights issues, rather dilute it with outsider investors through private placement?

The higher the ebit,the better it is to use leverage as that amplifies return, if you still can get more loan. If the ebit is very low, interest cost burdens you, and even can go into losses. But wonder if it make sense to expand your business with low ebit.

YiStock, That is also my answer. I agree with you. when you can't get loan, go to get ,money somewhere as you are positive about the future of your business.

another question. If yours is a public listed co. why don't you issue right issues to your existing shareholders, instead you go for private placement with a 10% discount?

If you business will yield high future return, why not let your existing shareholders enjoy it?

Let us don't go too much into academic. Just ponder about this.

You are going to a business, a very good business that you will earn say 30% return a year. You need RM1 capital but you have only 500,000. Do you

1) issues shares to me with the same price so that you will share your profit equally with me, or
2) go to the bank to borrow and pay say 5% interest?

Posted by YiStock > Jun 11, 2015 11:09 AM | Report Abuse

Mr KC, If the growth rate can support the high PE, and with much more cash flow in, the value of company will increase too?


There are many arguments about value. But eventually I think you should go back to the basics, that

"that the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate."

FCF is higher, yes, but discount rate is higher because equity investor demand higher rate than cost of debt.

After that you divide by a larger no. of shares. thus gives a lower intrinsic value per share.

I don't have numbers with me right now. But I guess that will be the result.

This is the basic essence of corporate finance for capital structure.

Noby, interesting analysis of yours.

My comment is you have included the saving of interest in your calculation, but your calculation has not factored in the cost of the extra equity.

Your calculation shows the interesting thing about increase in EPS, it will attract investors looking at that metric of P ratio.

But how do you consider the value of a company? Is it speculating on what the market will pay for it at a PE ratio?

Or do you consider the value of a company is like what John Burr Williams in his “The theory of investment value” that the value of a stock is worth all of the future cash flows expected to be generated by the firm, discounted by an appropriate risk-adjusted rate.

Posted by ks55 > Jun 11, 2015 09:03 AM | Report Abuse

FA does not just look into the good aspects of a company, it should look at the bottom line of a 'bad' or not so good company to determine the price 'to buy' or 'to exit'.
Even for good company like Public Bank, what is the 'good price' to buy? To me definitely not at 20 ringgit in the current set of investment environment.

Probably kcchong want to give comment on my view above?



Price is not value. "Price is what you pay, value is what you get."

I won't pay RM1m of a new Honda Accord, but I will pay RM10000 for a Proton Saga.

In the short term, price often diverge from value, it is a voting machine. In the long term, price will converge to value, it is a weighing machine.

Posted by bracoli > Jun 10, 2015 10:59 PM | Report Abuse
Kc, dont u wanna take the opportunity to focus on export stocks?


Exchange rate changes very fast. Today ringgit may be low, but nobody knows in a few months time. You can read all the academic research that nobody, including the most famous economists have correctly and consistently predicted all these macro thingy.

Next don't think all export companies will do well. Some will even do worse. For example, if they have foreign bank loans, and have to buy materials and equipment from overseas etc.

Moreover, it is a good practice to hedge foreign exchange if you do business overseas. In that case, change of exchange rates will not affect profit.

One more thing, almost every business is cyclic. Trees don't go to sky. If you buy something which has already gone up, the chance of mean reverting is very high in investing.

Posted by NOBY > Jun 10, 2015 09:39 PM | Report Abuse

KC, when a company needs cash. Is it better to go for private placements or take on new debt assumimg tht it doesnt yet hv the free cashflows to fund a capex etc.


Noby, good question. If you look at the theoretical aspect of cost of capital, the weighted average cost of capital, WACC. You can deduce your answer.

WACC = D/(D+E) * Kd (1-Tax rate) + E / (D+E) * Ke

where D is the total debt, E is the market cap, Ke is the cost of equity, and Kd is the cost of debt.

In the present interest environment, Kd is much lower than Ke, and it is tax deductible. Imagine if you were to invest in a business, what is your required rate of return, and compared that to the bank interest? From the equation, you can see that it is definitely better to use debt to do your business, no doubt about it. Of course this subject to some limitation. Too high in debt incurs high bankruptcy risk in time of economic downturn.

Moreover, debts give you an extra benefit as for a limited liability company, if you fail, you just declare bankrupt and the amount of money you put in the business is the maximum loss, no more. Corporate finance terms it as an option. The value of a stock is = Max(0, something else).

That is why I have never say companies should not borrow to do business. I am sure good business with steady earnings like Nestle, BAT, Maxis, Amway, GAB etc all have high debts and in fact banks flocked to the. But I don't know why people have that impression that I never like to invest in companies with debts.

If you want to know more about the theory of capital structure, go search and read about the scholar articles of Franco Modigliani and Merton Miller. They are interesting.

Let’s look at the business view about this. Let me ask you a question. If you have a good business which you think will provide you with stable earnings and cash flows, just base on this aspect, will you go and get some funding from the banks, if the banks are willing to lend to you as you have the capacity to pay the interest, or you issue some shares to me, some more offer me at 10% discount?

Dear valued readers,
“This posting is not to challenge KC Chongnz, it is also not to compete for business with KC Chongnz. If you think KC Chongnz's strategy on FA is very good, go ahead and learn from him. I want to stress that I had spent a lot of money to learn FA, at last I learn most of my FA knowledge from him. I will continue to say that he is the best FA sifu here, the best of the best FA teacher. There is no question about it honestly. Thank you.”

I have read the above statement or similar statements from OTB many times, and from very long ago too. Hence I need to say something here.

First of all, I don’t see why I won’t feel very grateful about it. It is very motivating. I am human too. Thanks you very much. However I don’t say it out loud in a public forum for many reasons.

Firstly I write many articles in i3investor, because somehow writing has become my passion, even though in my life, I consider myself a technical and left brainer. But I never think that I am a “sifu”, far from what you describe as “the best FA sifu” here. I know of many very knowledgeable FA investors in this i3investor alone. They are really good, knowledgeable, experienced investors and writers who don’t make many comment. Some of them have their own blogs and many don’t as they have their career, and a couple of them have stopped writing. I learned a lot of stuff from them, especially a few years ago, some still have their blogs going, but with less sharing now.

Secondly, I didn’t acknowledge, reciprocate or thank your kind words in the public forum because it will send the wrong signals which may not be good. But as mentioned before, when anyone asks me about quick tips and do not wish to spend time and effort to learn FA, I directed, and will still be directing them to you. A few of my FA course participants have done just that.

Next just to reiterate it is ok for us to discuss about issue, not engaging in talking about people, or mudslinging. It doesn’t matter the statement of the issue is from whom or where. It is nothing wrong for you or anybody to say “FA won’t work alone”, or “To win big, you must combine TA +FA”, or whatever. It is an issue, an issue you believe it. Similarly, it is ok someone to dispute you, that “FA works alone” and provided you with ample evidences. You have strong view about combining TA+FA, and most people seem to agree with you as you can see from the comments, and I also somehow agree with you though mine is FA, or occasionally FA+TA, but FA first. It is really good to discuss about different points of view, don’t you agree?

Next is it is really good if someone provides you with an opposite view. You can see more things which you have never consider, or have no knowledge about it. Good to deliberate your view, but do not take it as a bashing of your favourite stock. If you are still confident about your stocks, continue holding and buying. Even a true super investor says this:

“Tell Me Where I’m Going To Die, So I Won’t Go There” -Munger

One thing I have very strong and unyielding principle in is how we reflect ourselves to the next generation, for example, I never say someone cannot use margin finance. Who am I to say someone shouldn’t use margin finance in investing when he seems to make abundant wealth in the stock market when I don’t? It is just that we don’t want our own children to misunderstand or misinterpret a message or a certain action of us. The same we shouldn’t pitch it to the public, note that the majority of retail investors are not savvy investors.

Finally, yes I give lessons in FA, I enjoy it, and earn some money for the effort I put it. That is great. But it is not a business I consider, but a fun game (like my golf) which at the same time, hopeful I can help others to become good in personal finance and investing to build long-term wealth.

My wife used to say, you play golf and your neighbour Lydia Ko also plays golf but she earns USD millions, and you pay to play. How come? So now I can say I also earn a little money for occasional dinners at the few restaurants you like in the Sky City.

Anyone else thinks that earning some money honestly by the effort we put in is an immoral thing to do?

Posted by gungho92 > Jun 8, 2015 06:26 PM | Report Abuse
funny... why waste so much time debating which method is good... the idea is the market is eventually flawed. Even fools can be lucky and rich sometimes, and not all that spend hours and days studying and analyzing companies will eventually succeed. if it was so darn easy, everyone would be rich.

What is the percentage of those "fools who were lucky and rich sometimes?" Is it one out of a hundred, or 60 out of 100?

You are right. To make money in the stock market is not easy, especially if you are trading. Trading is a zero sum game, what one wins is the others losses. Imagine if you are trading against the syndicates, insiders, investment bankers. What is the chance you will win?

It is a win-lose situation.

Investing is not a zero sum game. You invest in a good company at good price. The company's business generally grow and earn more money. If you sell, you make your money from buying good company at low price.

The buyer from you will also make money next year, 5 years later, or ten years later as the company's business and earnings will grow.

It is a win-win situation.

Please go to the link here and read why value investing works and see if it makes sense to you. If it does, think about it, it can help you to build long-term wealth.If it doesn't, no need to follow. And you have nothing to lose. so you

Heads you will, tails you don't lose. that is the essence of Fundamental value investing.

http://klse.i3investor.com/blogs/kcchongnz/50988.jsp

pisanggoreng,

First of all, I have in no way mentioned that I am a sifu or what.
Secondly debating an issue is a healthy thing to do. Don’t we like to see Tan Mahathir debating with Najib on 1MDB thingy to hear both sides of the stories? Not because we want to hear them throwing mud but to understand the issue.

In use of investing strategies, some also like to debate. But in this case, though debating is good, but I think it could be futile, because there is rarely any expert who is very good in both fields in this type of public forums. If they are good, they won’t waste their time in this type of public forum. So that includes me.

When people debate, it is not a matter of egoistic or not, but just trying to put forward their point of view, which I view is not a bad thing. Why do you think it is egoistic?

However, if you read the article/s, if you read it well, is about answering the question:

"To be successful in stock market, FA alone will not work.”

This type of statement is made everywhere. I am not talking about in i3investor only, it is everywhere. So it really doesn’t matter where I copied and pasted this statement. It is just a debating issue.

I believe more than 50% of stock market retail players don’t even know nor care about what FA or TA is, left alone if FA works alone. So it really doesn’t matter who makes this statement.

So I just try to show evidences that FA can work alone, in fact it has worked very well. The gentleman below also shows some concrete result.

“Posted by JT Yeo > Jun 7, 2015 12:00 PM | Report Abuse
If you can make money in the long term while minimising permanent loss of capital using coconut, fengshui, horoscope, zodiac or tarot then go ahead. But to say FA alone doesn't work, you are saying Warren Buffett, Guy Spier, Mohnish Pabrai, Peter Lynch, Walter Schloss, Howard Marks, Joel Greenblatt, David Einhorn, Bill Ackman, Eddie Lampert, management of Sequoia Fund, Tweedy Browne, Ruane Cunniff that they are all being lucky huh?

Maybe they are, Tweedy Browne has published an empirical studies titled "What Has Worked in Investing", please do publish your empirical studies and analysis to disprove their research.”


What is the problem of me or someone else to provide our view that FA dose work alone? Seriously I think it is very good for those not-so-savvy investors to let them know that something works in investing. Come follow it! Don’t you think so? We don’t simply say it.

We provide evidences. If you wish, I can even send you a copy of empirical evidence of

“What Has Worked in Investing" Tweedy Browne

That is the purpose of the argument, and hopeful a good guidance is provided. That is all. Don’t you think most retail investors do need some guidance in FA to invest wisely in the stock market?


Posted by pisanggoreng > Jun 8, 2015 08:12 AM | Report Abuse

FA and TA are not difficult to learn and use
Self ego is more difficult to subside
Both so called Sifu KC and OTB please beware
From the recent debate or argument we common investors
had learnt nothing but seeing two super gurus slaughtering
each other.
Your behaviour has told there is not real Sifu but
there is egoistic Sifu. Shame on you. Both of you.

Posted by RonnieKimLondon > Jun 7, 2015 08:00 AM | Report Abuse
God bless you Mr Chong. You're not perfect but come close in your fundamental analysis

Thanks for the compliment. I appreciate it.

But sorry to say I differ in your opinion. I am far from perfect. Even if you say I am ok, I would be happy.

You know I am just a small time retail investors. The money I earned from investing is peanut compared with many many (I hope they don't stop me for writing just because of this).

I have a lot of limitations. I am not in the industry. I am not a financial analyst. I have no other information except publicly available information. Even that I made a lot of mistakes in my analysis.

Thanks anyway Ronnie.

Posted by Icon8888 > Jun 6, 2015 11:12 PM | Report Abuse

I am a pure fundamental based investor. Let me tell you something - everybody else's TA doesn't work, only OTB's TA works.

But you can't say FA alone won't work, can you?

Mr Ooi,

We are discussing issues, not about people (that I have a small heart). The issue is about this statement:


"To be successful in stock market, FA alone will not work.”

You know I have been posting articles in i3investor, all talking about FA. You know I have been teaching FA to cari makan because can't win big in the stock market to survive.

So we just discuss issue, nothing personal. Don't always get angry fight.

Thanks very much for your positive statement about me. If I have offended you, please accept my apology.





Posted by Ooi Teik Bee > Jun 6, 2015 10:08 PM | Report Abuse

At least I am honest and frank to say that TA alone will not work. I had said it many times here. You need TA to combine with FA.

I had also mentioned in I3, you are the best FA sifu here. The best of the best.

I learn most of my FA from you.

The sifu I learn is always my sifu for life.

I also encourage all the readers to attend your class.

At least I know you have a small heart.

Thank you.

Posted by Ooi Teik Bee > Jun 6, 2015 09:58 PM | Report Abuse

http://klse.i3investor.com/blogs/kianweiaritcles/68226.jsp

http://klse.i3investor.com/servlets/pfs/41947.jsp

Good comparison. I would like to get to Tan KW to ask him what is the purpose of putting up my portfolio. Is it to challenge you, or he just put that up for sharing purpose.

Is investment an endeavor to challenge to see who get the highest 6 months return, or is it a mean of building long term wealth?

Have I said anything like this before knowing that you are teaching TA?

"To be successful in stock market, TA alone will not work.”

And 120% in two a half year, or average 48% a year is peanuts. And should throw into longkang with this statement:


“Posted by Name deleted > Jun 5, 2015 11:29 AM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

To be successful in stock market, FA alone will not work.”

ks55, I know your philosophy. Just asking for fun. So if you won't encourage your son to use margin finance to speculate in the stock market, similarly you won't tell people to use margin finance, right?
But your son has been a trader for so many years, why can't he use margin finance, sure win one what?


Posted by ks55 > Jun 6, 2015 08:44 PM | Report Abuse
kcchongnz -- OPM or margin finance is definitely out of my dictionary. If you still can remember my posting in your other blog, I will never recommend it. So answer to your quiz is no.

Oh, so the comparison of return is based on per month? I must have missed something because all the time I see record of return is in the form of annual compounded return over a long period of time. Good to learn a new metric.