Posted by ks55 > Nov 22, 2014 08:14 PM | Report Abuse
Shortlist those fundamentally good counters, make technical analysis before you decide to buy. There is always an alternative, buy share A or share B. Opportunity cost exists. Best buy today is not always best buy tomorrow.


Great advice ks55.

Investment Strategy: Buying bargains on the move

stockoperator Ha, looks like KC is prepared to go down with me as well, ya? just testing.

Stockoperator, I am not prepared to go down with you but I do hold some similar principles as you:

The future is unknowable and unpredictable, at least it is to me.

1. We should spend our time trying to find value among the knowable, rather than based our decisions on what we expect from the less-knowable macro world of economies and broad market performance.
“Eighty percent of success in life is just showing up” Woody Allen

2. Given that we don’t know exactly which future will obtain, we have to get value on our side by having a strongly held, analytically derived opinion of it and buying for less when opportunities to do so present themselves.
“The secret to successful investing is to figure out the value of something and then-pay a lot less”
Joel Greenblatt

3. We have to practice defensive investing, since many of the outcomes are likely to go against us. It’s more important to ensure survival under negative outcomes then it is to guarantee maximum returns under favourable ones.
“Take care of the downside; the upside will take care of itself”

4. And most of all, stay high at the capital structure, and shun leverage as a plague.

I just read an article by a value investing trainer, Safal, posted by Tan KW in the link below:

http://klse.i3investor.com/servlets/forum/600064647.jsp

This is an excellent post and there are so many things similar to my this post. I would encourage you to read it.

I never promote any stock in i3investor. Now I want to promote this post by Safal posted by Tan KW here. Read it!

I have a friend who has made RM10m in the stock market recently. He told me he wants to talk to the banks and borrow another RM10m to buy stocks. I said, "Are you sure? You have already got more than RM10m, why do you want to take such risk?"

He said, "All my life I made money from borrowing money and buy on margin. That was how I made my RM10. I am very confident I am very good in picking stocks. I had been there, done that. You are not up to my standard."

As he is a good friend of mine. So I wrote him this letter. At least I have done my part, as a friend.

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

Posted by jacklintan > Nov 21, 2014 02:55 PM | Report Abuse
kcchongz: I would like to hear you elaborate on KNM please. Thank you.


jacklintan,

I am happy that you help to revive this thread. You know I consider this as one of my best posts. Self praise ah?

Haven't I loso enough on KNM? Well actually when talking about rubbish I can never have enough. Good intention mah, trying to warn newbies.

I recommend you to read this article here:

http://klse.i3investor.com/blogs/kcchongnz/62293.jsp

And I want to repeat and repeat and repeat, the riskiest thing to do is to borrow and use margins to play the stock market now.

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

Hey, I even talk about the 97/98 stock market in Malaysia here.

I am no sifu, but I seriously think newbies, or rather anybody who thinks that it is easy to make money from the stock market, must read my article above.

Posted by ks55 > Nov 21, 2014 10:30 AM | Report Abuse
I would like to add further
1. Beware of creative accounting. PE can cheat, PL can cheat, BV can cheat, growth rate can also cheat. You know what I mean.
2. Must be comfortable with Director of company you intend to invest. Too many examples happened in Malaysia. Cheat once, he may cheat second, then third time and so on.

Yes, you certainly have eaten a lot more salt than many people eating rice, having gone through the 97/98 saga and also the second board euphoria in the 90s. Thanks for your timely reminder which is good for many newbies who think they can make a lot of money in this market betting against insiders, manipulators, institutional investor, investment bankers etc. One who plays golf know what is the outcome is like if you play scratch against single handicapper like if your handicap is above 20.

More so these single handicappers intimidate you with all kind of psychological tricks, improving his lines, set his own golf rules without you knowing, etc.

That is also why my first lesson in "How to lead a comfortable retirement life through investing in the stock market?" is never telling newbies how they can make thousands and millions in the stock market, but to be aware of and how to identify lemons and avoid them. That is the first rule.

http://klse.i3investor.com/blogs/kcchongnz/62293.jsp

I still maintain the market is unknowable and unpredictable though. A seemingly high price market can go up much higher, and similarly a seemingly low market can go much lower. That is not what my theory is, but a reality and have shown again and again in history.

Posted by vinext > Nov 21, 2014 05:48 AM | Report Abuse

i've a list of -EV co, wondering if u 2 are keen to monitor them. I've 3Qs:
1) MI is added. MI is the value of holding in co, the assumption is the MV will not changed cuz u've acquired the co and then only sell of the Mi?
2) but associate co is subtracted, well u stil pocket the proceed if u sell off the stock in associate co, y subtract?
3) in ur case why u subtract CASH from current debt? just ur conservatism or own practise or?

You need to understand what enterprise value, subsidiary and associate companies and how they are dealt with in a balance sheet, including cash. This may help:

http://klse.i3investor.com/blogs/kcchongnz/49016.jsp

You can send your list of -ve EV companies to me if you wish

ckc14training2@gmail.com

Posted by donfollowblindly > Nov 20, 2014 09:29 PM | Report Abuse

Agree with jimmyfallow. How to retire comfortably if I have longkang stock like this(down 23% since his recommendation). So don't follow KC Chong tips blindly despite his sifu status in i3.


One of the best comments above. You are absolutely right, don't follow KC Chong. And never follow tips blindly. But thanks for your recognition of KC Chong's sifu status in i3 as mentioned by you.

Yes, you most likely won't reach your wealth building goal following KC Chong's tips. As a matter of fact, not only my tips (if any), also others, including your broker, remisier, analysts, financial adviser and investment bankers etc. This is because nobody will take care of your interest.

But I like to correct you a couple of points here.

1) I don't look at myself as a sifu to you, or to anyone else. I am just a small time retail investor, not an analyst, nor an investment banker. I am not even in this industry.

2) I never give tips as mentioned by you. I share knowledge if you can understand English well.

3) Jimmyfallow so far has 1 post. Even that one post he also deleted already, wondering why. And you have 5 posts, and you seem to know me so well. Are you such an admirer of me? Then you deserve not to be able to retire comfortably. It is your own fault following me.

vinext,

In academic research which is very rigorous, they don't select periods to suit their hypothesis. That would be amounting to selection bias resulting research showing one period is true and the other not.

Academic research chooses the longest period available, and not selecting any particular period.

Anyway that research was done by someone else, not my studies as mentioned by you. I have done academic research before, but I don't think I have the patience to do any more. I even doubt I can do it anymore. So when I provide some statistics of my own, they are not based on rigorous academic research, but just some observations.

The research shows Graham net net had worked in the past with statistical significance, and was still working for the period 2000 to 2012, a long enough period, not just two three years.

ks55,
"It is always when market crash that you can get good value for your money."

Very good points. Value investors always buy good stocks in loads during market crash. Late 2008 and early 2009 was one of the best times to buy stocks of good company.

However, nobody can really predict when the market will crash. And historically the stock market is always in a long term uptrend, 10% a year probably. So to build long term wealth, especially for young professionals, they have to save, and invest. Saving money in bank deposit is not a good option as the real value of the saving doesn't grow because of inflation. Here are my response to your points.

1) Good shares are defined in the strategies mentioned in the post. For example in the Magic Formula investing, good shares are defined as having high return on capitals. If they are not defined, the particular post will remind what to look for. For example for low P/E strategy, adjust for one time off ordinary gain as part of the E, etc. Appreciate your comments on them.

2) The basis of buying I always look at the price Vs Value relationship. Only buy good stocks at reasonable prices, for example, basing on Earnings yield.

3) Value investors buy stocks if they are selling at a comfortable margin of safety. Hence value investor generally make an estimation of what is the value of the company, may be using discount cash flow analysis. If the margin of safety is very high, just buy, but remember the use of diversification, and never swing at the fences.

4) Of course the best time of buying is when the stocks are selling cheap, especially during market crash like what was mentioned by you. But bear in mind that what Woody Allen said,

"Ninety percent of success is just showing up."

5) Exit plan. Here is my thought:
http://klse.i3investor.com/blogs/kcchongnz/56937.jsp

I do generally agree the investment clock is not favorable for the market now, but history has also shown that the market is generally unknowable and unpredictable. Another thing is REITs are subjected to the same systematic risks as other stocks. I still remember I invested in Axis Reit for about RM1 in 2009.

Posted by jimmyfallow > Nov 20, 2014 06:20 PM | Report Abuse
bullchett, all kcchongnz buy call masuk longkang. bought 0.66 now look at the price. sifu from longkang.

Wow, first time comment in i3investor already know all my "buy call" masuk longkang. Genius! Tell us what were you in your previous life?

Actually you got it wrong. Anyway I don't expect you to get anything right after all.

The article here talked about warrants and their pricing. Other things such as gearing, premium, intrinsic and time value, volatility, historical and implied volatility etc. You can see from the comments above that many people benefited in learning something about options and their pricing.

Posted by MG9231 > Nov 20, 2014 05:46 PM | Report Abuse
I apppeal to those shareholders who are attending the Coming Adjourned AGM to "Vote Against" Abdul Aziz Bin Tuanku Ibrahim as director of the company who are puppet of TTB.

As a shareholder of icap, I am only concern about what is my return against what the broad market as a whole can provide. Luckily I just become a shareholder again recently and my aim is also to make extra-ordinary return from the market.

To be a shareholder of icap, it is not my wish to have a board of directors paid by us, dong nothing but act as puppets listening to the fund manager, the one who is paid by us too as shareholders. It is not my wish to see my fellow shareholders ridiculed asking relevant questions.

Good value investors do hold huge amount of cash, if the market is dizzy high. But holding huge amount of cash since 5 years ago and not doing anything (I wonder the fund manager spent any time on the fund or not)? The market was too high 5 years ago? I know this is on hindsight, but does anyone really think the market was too high 5 years ago? I don't know what you think, but I remembered vividly 5 years ago all my friends were saying that was the once in a life time investing opportunity.

Granted, the market may be getting too high now. But a value fund manager couldn't find anything to invest 2 years ago, because everything is too high? Come on!

City London and Lexey are other shareholders like me. They just want to have good return of their investment. But why should they be treated badly, by the fund manager? Did icap spent huge amount of icap money in its campaign to get them out of the door?

If you care about your own well being as an investor of icap, your decision in the AGM should be very clear.

Posted by ks55 > Nov 20, 2014 01:08 AM | Report Abuse
If you are so good, why should you waste time conducting courses?
Do you want to garner big group of followers so that when you sell, they will be the one who support the counter?
So, really good sifu should make money easily and consistently. Need not ask for paltry fee from course attendees, need not waste precious rest time.
May God bless you course participants.


For some people, money is not the top priority in life.

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead." — Nelson Mandela

Read the following feedback you may understand why. This applies to other tutors/trainers and many teachers too.

"I don't think one can get this kind of training even he/she works in financial firms. I have to thank God and thank you for this opportunity."

"Hi KC,
I learnt lot more in this course than other courses which I enrolled previously. New topic for myself was an eye opener . I pleased I had the opportunity to join this course and want to thank you being patient with participants who have limited experience in finance like myself. once again, thank you for sharing your wisdom and for guiding us on the right methods to invest for long term success. I was always believed short term pain would result in long term gain."

"Hi KC , I feel that you are doing a great job so far. Its been only 1 month since we started and i felt i have learn plenty , and am more confident looking at financial reports. Coming from a non financial background ( I did not even take accounts in high school) , i am still able to follow most of your classes as your explanation are simple enough to understand ."

"Hi KC,
I think so far you have done best for all of us. I really appreciate your hard work, time, effort & patient on delivering this training even though the fee that you charge is very less or I can say nothing.
I'm really happy with my self, prior to this i don't even though a simple ratio like PE, EPS, ROE, ROIC, etc but now i can say i'm improving a lot. Many thanks Sifu, thats what I address you when I talk to my wife. :)"

"Dear KC:
I never thought that this course will end so soon, any reason for ending so soon? Hope you can consider to prolong the course, i still have a lot of things need to learn from you. Frankly speaking, i never meet a guy like you, sharing all this valuable tools with me. I'm consider that you are one of my 贵人 during my lifetime."

"Kc , I have never been so sad when my teacher tells me I am almost "graduating" . Even tho this is time consuming , I had a lot of fun learning . Studying with like -minded people and the discussions are helpful , as oppose to forums like I3 where there are many people who don't make much sense .
Let me share something with you . I started investing when I graduated about 5-6 years ago. I would arm my self with investment books and try very hard to understand them . All I knew were the basic P/E , ROE , P/B etc... but I could never put them all together . This is especially true for income statement , balance sheet . I just could not figure out their relationship together. It is no surprise I "paid" for these lessons with losses of my hard earn savings.
I remember few years ago , i was trying to learn DCF by reading books , and ultimately giving up because I just could not fully grasp it and I had no one to ask for advice. Because of that , all the "valuation" i knew was P/E and P/B and I would buy stocks based on that . Big Mistake .
I can't tell you how pleased I was when you marked my recent DCF homework and said it was ok.
Of course I know there are still big gaps in my financial knowledge and there is much more to learn. At least now , I have some foundation knowledge which I can built on in the future."

"U would be one of the giants I stand behind to improve my art of investing :)"

"Hi KC,
One of my favourite quotes is Einstein’s famous line - “The more I learn, the more I realise how much I don’t know”. This is particularly true for my learning path since I have signed up the online investment course you administer. I’m one of the lucky few that discovered this opportunity. The teaching materials you prepared are not academic at all, done in the systematic way, you frequently demonstrate to us how you apply the teaching materials in your theses on stockpicks in the i3, and I must say I have benefitted a lot from you, thanks KC.
You are absolutely right there is no other place I can get this type of investment course, let alone at only small fees. Please do keep the course running, allowing participants that include me to catch up and pose questions as I read into past materials."


Sorry, ran out of space.

Noby,

Yes, closed end fund usually traded at discount, but the high discount in icap is unjustifiable.

The catalyst for unlocking the value of icap may come again soon with City London and Lexey Partners.

Vote for some directors proposed by the activist investors. We don't want directors listen and obedient to the fund manager, my gosh!

The only way shareholders' wealth can be enhanced is to have activist investors like City London and Lexey.

The only chance for minority shareholders to have good return is not having members in the board, listening to the fund manger. It must be the other way round.

Investing in a fund is not idol worshiping. It is the responsibility of the board and the fund manager to make reasonable return for the shareholders.

Declaration: I am a shareholder of icap.

OTB,

Thanks for your kind words. I feel elated from kind comments from a respected person like you. But seriously you are good in your own field.

Just yesterday a student of mine who is a i3investor active forumer asked me how is OTB? Is he good? I told him, he got a number of multi-baggers calls as far as I know. So what do you think?

We better don't praise each other here as it creates misunderstanding.

Thanks for your kind words again. Can I use them for marketing purpose?

Posted by Frank Soweto > Nov 18, 2014 03:02 AM | Report Abuse

Frank, I would rank your above post as one of the best rebuttals. Well done!

I also like your this statement below:

"I'm still very far away in terms of knowledge of mastering the FAs n was only lucky to have spotted some good shares n taking yall advice and my friends will be the first to tell u that I'm really a lousy trader - This one the bullz got it right LOL - every time I buy (at least) initially it will drop like wise when after I sell it will rise LOL but in the longer terms I usually do well but the sad thing is I've not much interest ( not passionate enough LOL ) - juz that I forced my self to learn some basics as my portfolio was getting a little bigger n after the debacle of KNM if I were to continue to be ignorant I'll probably be homeless now LOL"

It is indisputable that you are a good investor yourself; disembarking from a dead horse and rode on a galloping stallion. Seriously you are much better investors than many of us. And most of all you don't go and brag around. You have never mentioned about your MyEg and how much you gained from it until you were so provoked.

Tell you a secrete. As you know I am a value investor, suffer the same fate as you in investing. Every time I bought something which I think is way undervalued and has a large margin of safety, It went down further, 5%, 10%. And I could never sell my winning stock even close to 20% of its peak. But one thing, I seldom, and very rarely get caught in rubbish stocks. And another thing, most of the time, even though I suffer short-term pain, I enjoy long term happiness, at least so far so good.

That is the essence of investing, lose little, I know of nobody who has never lost in some investments except some from i3investors who claimed they have never, and (hopefully) win big. Good on you.

Frank, I love your post just above. Congrats of your realization of multi Ringgit profit on Myeg, instead of just dreaming about RM1 profit margin. Golf on you next year in US.

The tribal wisdom of the Dakota Indians, passed on from one generation to the next, says that when you discover you are riding a dead horse, the best strategy is to dismount.

You have dismounted from the dead horse and riding on a galloping stallion.

I am glad you guys like this article. I appreciate all your comments. They motivate me to write more. Notice that I seldom reciprocate with gratitude when people gave me motivating comments? It is not because i don't appreciate them. I truly do. Which writer does not like people to read his writing, and provide feedback? It is just that i want to avoid unnecessary misunderstanding.

My first post in my "official" blog in i3investor starts on 31 December 20014, barely ten and a half months ago and I have written 83 articles so far of which most of them are educational in nature. There is a total readership of 404,000, and a few of my recent posts received more than 10000 read. It is truly encouraging, thanks you very much and thank also to i3investor providing this platform for me to express my opinions.

Maybe it will be more encouraging if more people can provide me with constructive feedback, as so far less than 2000 comments were made in my blog. You are most welcomed to read my articles in the link below and provide me with comments. Thank you again.

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

FS,

That is why I consider you a "big" man.

Beware of companies whose directors are more concern about how to jack up its share price, rather than focus on improving its business.

Is there any thing "free" is this warrant proposal?

“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”
― Daniel J. Boorstin, The Discoverers: A History of Man's Search to Know His World and Himself

A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them.
John C. Maxwell

Stay away from this weapon of mass destruction

Posted by joevoonhow > Nov 12, 2014 09:23 AM | Report Abuse

thanks Frank for your willingness to share with all of us. Hardly see kcchongnz around recently.


http://klse.i3investor.com/blogs/kcchongnz/63777.jsp

Posted by always_steady > Nov 11, 2014 02:29 PM | Report Abuse

@kcchong, so how to analyze the information that they share is true or not?

You have to acquire the knowledge of the language of business. Understand the business, know how to interpret its financial statements, have a sense of value, not only price.

No short cut.

When a remiser friend of mine showed me the share price chart of Perisai, it was beautiful indeed, more beautiful than Monica Bellucci, Angelina Jolie, Aishwarya Rai, Megan Fox combined. I looked at its business model, the actions of its management, and its financial statements, I gave it a pass without hesitation.

Someone asked me before in i3investor, “how is Perisai, good ah? Buy ah? Chase ah?”. I said, “I don’t know, it looks like “sai” to me”, and it really do. My remisier friend scolded me kuat kuat, “You stupid ah, look at my chart, the RSI, Stochastic, look at these report from investment banks, analysts, target price RM2.37 woh.”

That time Perisai was less than RM1.00. Its share price really went up with all those reports from those La La Troup. Within two years its share price doubles. I got scolding again, “See, people making tons of money with my recommendations, and you can only look at the sky, stupid you!” I said, “When everybody is making money and I am not (from “sai”), it is ok”

I am just a retail investor. I won’t know if a good company will remain good or not, because I have no crystal ball. But I can sense if a company is bad and not worth investing much easier. In fact, I am seldom wrong in this aspect.

I am really amazed how investment banks, seven of them, big ones gave those target prices for Perisai ranging from RM1.76 to RM2.37, for a pile of “sai”. All of them are having the title CFA at the back of their names. It is too naive to think that they are stupid too.

I don’t think the serious drop in Perisai’s share price is because the drop in crude oil price. that is too simplistic excuse.

So whom do you think retail investors can rely on, if not themselves?

funda,

No, I don't notice the right hand left hand thingy as i don't watch what they are doing. Good observation of yours.

As BIMB warrant's value is merely made up of time value with a long time to expire, if BIMB is taken over by another company and the offer price is what is now, BIMB warrant is dead. Certainly there is a risk. Tell me in investing, is there such thing as riskless?

No, I don't think they are obliged to pay extra premium to warrant holders.

Nothing is sure in investing, even in life. So that is why I never encourage people to swing for the fence. I always discouraged people to leverage in investing, never never encourage people to use margin financing.

針針見血 ，句句到肉

Posted by joevoonhow > Nov 9, 2014 04:13 PM | Report Abuse
Actually this share ok or not?


Very interesting question. As I can see, the best person to talk about KNM is Mr Frank Soweto. But there are 10, 20, 100 times more people here have opposing view as him. So you have to decide yourself whose comments make more sense.

Excellent article. This is whom I consider a super investor, a local breed some more.

Excellent points here by Cold Eye:

1) Market is unpredictable
2) It is not easy to time the market
3) Never borrow money and play on margin, especially in this market when the pendulum is no more at its ebb.
当股市处在高峰时，随时都可以出现逆转
4)Take care of the downside, and let the upside takes care itself (the second part I add in)
5)Hard to predict the macro. Even experts have totally different opinion, such as 陈鼎武 and 白文春
6) 投资者可以做足功课，使自己有战胜股市的充足条件. 战胜股市的最可靠策略，是加强自己的备战工作
yes investor must get yourselves prepare well in order to win. enrich yourself wit investment knowledge. do your own homework. There ain't tooth fairies in Bursa.

Posted by sunztzhe > Nov 2, 2014 02:33 PM | Report Abuse

"Wealth is the slave of a wise man but Wealth is the Master of a fool."

Indeed from the mouth of a wise man. It is conventional wisdom.

I know of somebody who already has immense wealth in the order of may be more than hundred million. But instead of just invest wisely, for example put half in fixed income and half in equity investing in good companies at reasonable price, and that is enough to provide a steady recurrence incomes for a few generations, give to charities and leave a legacy etc, prefers to borrow another hundred million to leverage up his investment and hope to make a lot more money. He only knows the power of leverage, but not the potential pitfall. There isn't any black swan in the world, is it?

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

That is not a very wise move in my opinion.

There are also a lot of people just work hard but not saving or invest, and whatever he saves is eroded by inflation. Or people instead of investing wisely following the proven value investing below, chose to speculate because they think that they are better than the insiders, syndicates and manipulators.

http://klse.i3investor.com/blogs/kcchongnz/59971.jsp

Posted by sunztzhe > Oct 30, 2014 11:54 AM | Report Abuse

kcchongnz, Thanks for the superb write-up. Please advise the maximum debt equity ratio which you consider as healthy under current benign interest rate invironment. If interest rate is to double, what is the max debt equity ratio that you will consider as healthy mix?

Posted by sunztzhe > Oct 30, 2014 11:44 PM | Report Abuse

kcchongnz, thanks for your good response and I appreciate it very much. I agree with you that the most important info for the owner of the business and the banker as well is whether the cashflow generated can be consistent in paying off the interest and principal sum over a certain time period.


sunztzhe,

Welcome to the gang of the art of value investing. We really short of members here.

Alphabeta,

"The reason i am asking this is because i am using the past 5 years average P/E ratio to project the future price. Using VWAP will iron-out the volatility issue if i just use the year end price to compute P/E."

Not sure how you can project future share price using PE ratio. You seem to deviate from your initial statement below:

“Intrinsic value is the present value of all cash that will be distributed from now until judgment day”.

Alphabeta,

When I look at a stock to see if it is worthwhile to invest or not, I am only concern about what it its price offered, and now. Why do you bother about whether it is VWAP or what, unless you are trying to do a research. Those PE ratio stated in my article are by the publication of Share Investment, a monthly publication sold in the book shop. Exactly which price in the month of October 2009 they base on I don't know, but it doesn't affect my conclusion.

The more important is the earnings, which earnings? Forecast earnings, ttm, historical or which one?. They all have their own merits and shortcoming as discussed in the article.

Posted by Alphabeta > Oct 31, 2014 10:13 PM | Report Abuse

There is another approach mentioned in "Intelligent Investor" for defensive investor using P/E x PBV < 22.5. The logic of this approach not to pay for P/E exceeding 15 and PBV <= 1.5.

Alphabeta, yes that is Graham number, don't pay for PE ratio and P/B more than 15 and 1.5 respectively. Good guideline for most people.

But is PE 15 and P/B 1.5 really that cheap? It depends actually. Other things may be more important, such as the difference in ROE, ROIC, enterprise value etc.

Alphabeta,

Let me repeat my opinion on your valuation method.

You are basically using a hybrid method to get your intrinsic value, or specifically more of a relative valuation like a PE ratio, EV/Ebit that sort of valuation because you are replying most part of your cash flow from the expected price of the share at certain future date. The cash flow from the annual dividends just make up a small part of your intrinsic value. This is not exactly like what your opening statement mentioning about what intrinsic value is.

This valuation method is not favoured by those investment guru such as Seth Klarman.

Alphabeta kcchongnz,
I would like to seek your view on Intrinsic Value, “Intrinsic value is the present value of all cash that will be distributed from now until judgment day”.

One of my measurement of Intrinsic Value is based on applying a discounting factor (my expected return) on total shareholder return (TSR). In order to project future cash flow on TSR, i need to ascertain over the passed 5 years the P/E ratio, sustainable growth and dividend payout %. I will get the average of these three parameters for my TSR projection and discounted with my expected return (minimum 10%)

kcchongnz, is there any flaw on this calculation? In current scenario, very difficult to select stock with the desired price using this method unless i lower expected return or increase the growth rate on positive news flow and better quarterly result.

Will appreciation your comments on room for improvement.


Alphabeta,

You are basically using a hybrid method to get your intrinsic value, or specifically more of a relative valuation like a PE ratio, EV/Ebit that sort of valuation because you are replying most part of your cash flow from the expected price of the share at certain future date. The cash flow from the annual dividends just make up a small part of your intrinsic value. This is not exactly like what your opening statement mentioning about what intrinsic value is.

This valuation method is not favoured by those investment guru such as Seth Klarman.

Posted by gohcheehoh > Oct 31, 2014 12:25 AM | Report Abuse

Gd sharing. My personal thought of picking those safe bet counter to invest.

"All this involve sizeable homework. Have fun... "


Good sharing of extra filters. I can't see how you can't succeed in your investment. Good work. And no such thing as gain without pain.

Posted by Alphabeta > Oct 30, 2014 10:14 PM | Report Abuse
kcchongnz, what is your view of using PEG (<1) as a yardstick for valuation. Growth rate is based on the average of past 5 years sustainable growth rate formula [ROE x(1-Div Payout)].
Another ratio is the incremental net earning (PATAMI)over the incremental average owner equity. This is to check on the incremental return on equity reinvested.
Is the operation cash flow over PATAMI a good indicator on earning quality?


Alphabeta, nice to hear from you again. You are a good fundamental investor yourself. But since you asked, I will try to give my two sen.
PEG popularized by Peter Lynch in his book “One Up On Wall Street”, has been a very popular investing metric before the turn of the Century. Good book to read. In general, if a stock is trading at a PEG of less than 1, it is cheap. For example a stock trading at a PE of 10, has an expected rate of growth of 10%, its PEG is 1. Go buy it.

But let us refer to this report by HLG below.

http://klse.i3investor.com/blogs/kcchongnz/62293.jsp

HLG “KNM - Too Cheap to Ignore!”

[At current share price of RM0.745, KNM is only trading at 8.8x FY15 P/E despite strong earnings growth prospect (CAGR of 55% from FY14-FY16).]

What is the PEG of KNM following the metrics given by HLG?
PEG = 8.8/55 = 0.16

HLG says KNM should worth 6.3 times more of its present price, or
fair value of KNM = 6.3* 74.5 sen = 4.65

Go buy loads of it as long as it is below RM4.00!

Ok you cap your growth rate at [ROE x(1-Div Payout)].

Then g for KNM = 4%*50% = 2%

I remember General Lee said a few years ago he will distribute 50% of the earnings

Then PEG =8.8/2 = 4.4

So KNM is 4.4 times overvalued than its present price

Fair value = 7.45/4.4 = 17 sen.

So which one is correct, 4.65 or 0.17?

Take another example of a company I wrote about, Uchi Tech.

http://klse.i3investor.com/blogs/kcchongnz/62058.jsp

It earned 10.3 sen last year and paid out all its earnings as dividend. So growth = 0, and value of Uchi = 0?

PATAMI? I don’t know about it. But reading what you wrote, it doesn’t seem to be a valuation metric.

Posted by Pika Chan > Oct 30, 2014 09:44 PM | Report Abuse
kcchongnz, your article never fails to inspire me and educate the ignorant vast majority, you are one of the truly shining sifu in i3investor .

Pika,
Thanks for your kind words, and many others too which I did not express for certain reasons in this type of forum to avoid misunderstanding. You are expert in your own field too. That is something I need to learn from you too.

Hope to meet up with you.

Posted by sunztzhe > Oct 30, 2014 11:54 AM | Report Abuse

kcchongnz, Thanks for the superb write-up. Please advise the maximum debt equity ratio which you consider as healthy under current benign interest rate invironment. If interest rate is to double, is the max debt equity ratio that you will consider as healthy mix?

sunztzhe, good question. You see for me finance and investment is an art. There is no fixed rule embedded in stone, though there are some guidelines. I am no expert in answering your question. But since you asked, I just provide my personal novice opinion here.

To me, interest environment is not that important for how much a company's maximum debt is. Imagine you are a banker and a corporation asks you to lend money. What would you think?

For me at high interest rate, take as much loan as you want as I can earn more interest from you if you borrow more. But make sure you can pay my annual or month interest. That I would judge from how stable is your income, how much do you earn and if you can cover my interest payment, and may be how much cash flow you make each year. If your operations can make more than 5 times my interest payment, take as much loan as you want.

Of course if you owe me say more what your net worth is, and your business is not doing well with not enough earnings or cash flow to pay my interest, then I will get worried.

Noby,

Thanks for the link. Yes,a simple PE investing method by Peter Lynch.

It is suitable for any good stocks with stable earnings, healthy balance sheet and good cash flow, especially in this low interest rate environment.

Posted by soojinhou > Oct 30, 2014 08:18 AM | Report Abuse

Great analysis KC. PE ratio is by far the best strategy to spot a winner. Of course, one has to do a thorough analysis on why a company is valued so cheaply. It can be due to excessive debt, a turnaround story, negative sentiment surrounding the industry, distortion due to non-recurring item or just shitty management. After identifying the cause, an investor will have to evaluate if such valuation is justifiable and if its earnings is sustainable and then invest accordingly. By doing that, one can separate out the 3 baggers from the shitty ones.

Jin Hou,
Excellent comments.

Always appreciate your input.

Posted by donfollowblindly > Oct 29, 2014 10:27 PM | Report Abuse
donfollowblindly 2 posts

If I follow buying at RM3.68, I will lose 41sen or 11%. How does market return past 7 months?


I really cannot understand your new identity, "don'tfollowblindly". Why did you follow? Followed what? Followed somebody telling you to buy at 3.68? Who asked you to buy?

If you didn't follow, why the need to write your comment here? Want to put down put me down? Finally found one stock that I wrote about which came down in price so much?

But when I talked about the net net investment strategy on Perak Corp (not asking you to buy), it was 2.82. Now it is 3.27. How come others made so much money, and you follow blindly and lost 41 sen? Read the article in the link below.

http://klse.i3investor.com/blogs/kcchongnz/62515.jsp

Unbelievable! Incredible!

Posted by donfollowblindly > Oct 29, 2014 10:29 PM | Report Abuse

donfollowblindly
2 posts

If follow this blog advise I lose money.


I like your new identity. Yes absolutely, don't follow blindly, do you always follow blindly? Really don't know why your comment is flagged. It is an excellent comment.

But your comment though excellent, may be out of point and won't get any mark in an exam. Why?

The article I wrote here is about sharing of pricing of derivative such as warrant; What is premium and discount, intrinsic value and time value of warrant, gearing, how to use option pricing to price it, the various scenarios if the underlying share goes up or down and the resulting return etc. Nothing is mentioning about asking you nor advising you to buy it.

You read all the good comments there? All are talking about those stuff I mentioned above, nothing about buying or selling. Very good discussions and learning.

Won't you like to join in this type of fruitful discussion, constructively?

Posted by sunztzhe > Oct 29, 2014 09:40 PM | Report Abuse
Kcchongnz,
You have assumed a scenario of using margin at all times and come to a conclusion which is perilous which is true for that situation. However if one uses margin ONLY after correction and after market crash, the conclusion is it is beneficial but not perilous. Assume also worst case scenario that you just invested with cash capital and the day after, market corrected or market crashed.
Assume market decline by 10% during a normal correction and 50% during a market crash. Market rebound by 10% during correction and market rebound by 80 % after a crash. U buy with margin of 60% of Equity Value invested after correction and margin of 60% of Equity Value after Crash.


sunztzhe,
You got a great point and you have great future. Your ability to forecast when a correction will come after a crash (by the way I would like to know what you define as a "crash",a "correction" etc)will take your a long way to building enormous wealth in the future.

Yes, take as much as margin financing as possible as you have shown scenarios that you will make profit, and with margin financing, 50%, 70% ets will amplify your gains many times.

Why not?

sunztzhe,

Read the article below and let me know what you think. with the scenario analysis which I have shown there and you can do it also, why not make an analysis with whatever scenarios you want and let us know your finding?

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

Posted by stockoperator > Oct 20, 2014 02:47 AM | Report Abuse

I wonder why KC should look at possibly turnaround story at this stage where as there are so many Winners in your portfolio with so much good business value.


stockoperator, you are not the only one doubtful of my pick here. Just like one big market player who thought the same. And I believe many others also think so. But you must state exactly which part of my analysis is wrong. I am sure there are many. there is only that much I know.

The company has been having negative growth in earnings and profit for the last few years an hence the dwindling of its share price. But it has a moat, a moat clearly shown in its return on invested capital. It has spent quite some money in R&D, the lifeblood of its technology business.

This is the case I used to talk about, "Head I win, tail I don't lose much"

I could be wrong, but at least for now, its share price at RM1.40 has not gone down despite the recent steep decline of the whole market.