Posted by bsngpg > 2013-09-07 12:51 | Report Abuse

BULL is not friend of Value Investor:
The generally perceived Bull will seduce value investor to sell a good company as the Bull jumps circuit the normal price growth trajectory by pushing good company to historical height out of sudden which value investor expect it to be only few years later. With that high price, some value investors like the stupid me were tempted to sell and smartly thought to buy back in the next Bear. As Bull is relative and progressive, it somehow lasts longer than expected and the good company justifies its new high price itself along the time through the natural growth. Consequently, the value investor misses the boat to buy back.
Example I bought Zhulian at PE 7x and sold out at PE 10 x which was at its historical high then. The return was very commendable and I thought I were smart. However the share price breaks one height to another height with its PE >10X now. My regret is eating my heart. Thus I conclude, Bull is not my friend as if not because of the evil Bull, Zhulian is still my darling with slow and steady growth.

Posted by kcchongnz > 2013-09-07 13:43 | Report Abuse

The problem is you are looking back at history of what Zhulian's PE ratio use to be, or a cognitive bias of anchoring. Too much emphasize on price rather than value. Or may be you are too dependent on a relative valuation to judge if a stock is expensive. For example you may say you would want to use a PE ratio of 10 to determine if a consumer stock is fairly valued. Now take the example of Zhulian and Yee LEE as two comparable consumer stocks. Should you use the same PE ratio to judge both companies? If not what would be the difference? The Table below shows the metrics for both the companies (note they may be slightly dated).

Company Zhulian Yee Lee
Growth Last Year
Revenue 26% -9%
Net profit 23% 14%

Profitability
Operating margin 20.9% 4.5%
Net profit margin 26.0% 3.1%
ROE 25.9% 7.6%
ROIC 39.1% 7.0%
FCF/IC 27.5% 16.0%

Balance sheet Net cash Heavy debt

Posted by bsngpg > 2013-09-07 14:57 | Report Abuse

Hi KC Chong: Thank you very much for your valuable comment. Let me feedback further on part of the comment. I was describing a concept that Bull is not friend of Value Investor like me.

My way of valuation on Zhulian : bright biz prospect, low PE, reasonably good growth rate, high margin, high PAT, high div, high cash, good management etc. Thus I conclude it is a value stock, buy and hold.
My intention is to join the biz to grow my wealth thru capital appreciation as well as consistent dividend for long term as long as the fundamentals are intact. Thus I follow up the biz very closely.

What I want to say here is that if there is no Bull, the valuation(PE) of Zhulian will not be 10X with reference to its historical trend, thus I would never been tempted to sell. Because the Bull brought it significantly higher than the normal trading range, it is a temptation to sell.
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Hi KCChong : may I ask you a question? Why you do not use PE in evaluating a stock ? A great stock but with high selling price = High Value ? Example Zhulian at PE 8x is high value to me but PE15x is no value.

Thank you very much in advance.

Posted by bsngpg > 2013-09-07 15:21 | Report Abuse

Example: the intrinsic value of a car is its quality, performance, fuel consumption, spec, reliability etc. In Malaysia Atis 1.8E is selling for RM110K. In my way of valuation as a buyer, RM110K is a fair value, RM100K is a high value and RM120K is a low value. The car is still the same; the selling price determines its value.


If comparing to Civic 1.8 with about same intrinsic value(assume) but selling at RM90K(assume), then Civic is high value at RM90K and Toyota is low value even at RM100K. Again, intrinsic values are same but price determines the final value.

Posted by bsngpg > 2013-09-07 15:58 | Report Abuse

Bull is not a friend to Value Investor.

I believe Value is determined by many fundamental factors and Price is the most critical one.
If there is no Bull or Bear markets, a share price of a good company will likely grows according to its biz performance in long run. Its range of PE is depended on many biz factors and it has been established by itself after a long time in the market. Example, Zhulian has been traded between 7-9X for a long time. The range of PE can be changed if there is a quantum leap in its earning power, size of biz, reputation etc. For the time being, I do not see any big change on Zhulian, therefore it should be traded in the same range. But a Bull which is a collective of emotion rather than fundamental element has changed the norm by bringing its PE out of its historical range. This equals to an evil temptation to the dormant value investor like me to sell. Therefore I said Bull is not a friend to Value Investor.

Posted by kcchongnz > 2013-09-07 17:34 | Report Abuse

bsngpg: Hi KCChong : may I ask you a question? Why you do not use PE in evaluating a stock ? A great stock but with high selling price = High Value ? Example Zhulian at PE 8x is high value to me but PE15x is no value.

Why do you say "Zhulian at PE 8x is high value to me but PE15x is no value."?

Analysts in Bursa always give fair values to a stock based on PE ratio. For example using a PE ratio of 10, Zhulian's fair value is RM2.55 (10*0.255). But I always ask, why use PE ratio of 10? Why not 5, why not 15, 20 or even 30? Oh because historically its PE ratio ranges from 5-15. But does that historical average PE ratio any meaning to you if you are a value investor?

First of all, what is the numerator E?
1) Is it the same thing as cash?
2) Is it managed?
3) does it include one off item, non-operating item etc
4) Do you treat two companies in the same industry with the same earnings the same,one with no debt and one with high debt?
5) What about different industry having same PE, but one need heavy capital expenses?
6) etc etc.

A value investor treats investing in a stock as participation in part of the business of the company. So before investing, he must know what is the value of the business he invest in.

Warren Buffet stated that the value of a company is simply the total of the net cash flows (owner earnings) expected to occur over the life of the business, discounted by an appropriate interest rate. This is the basis of how value investor value a company.

Incidentally, Tan Kian Wei has posted many articles on valuation of a company. For me these are the appropriate ways of valuing a company and hence its stock.

Posted by Micheal Teo > 2013-09-07 17:46 | Report Abuse

Dear bsnpgq in Bursa nobody can predict how high or low its share price of any counters for that matter can touch. As such, if returns that u get by investing in Bursa outmatch returns u receive fr. FDs or Bonds be happy. My individual view as a fulltime pensioner. Tq.

Posted by bsngpg > 2013-09-07 17:50 | Report Abuse

KC Chong : thank you very much for your sharing. I appreciate that.

Posted by bsngpg > 2013-09-07 17:53 | Report Abuse

Micheal : Thanks for your good words.

Posted by Micheal Teo > 2013-09-07 19:39 | Report Abuse

U r most welcome. Remember what world renowned investor WARREN BUFFET simple n cute words; "To win first you must not lose" Small consistent gains is better than loss. To put it in another way just pure coffee talk if I patronize Genting Casino daily and win rm100 everyday monthly it amounts to rm3k multiply it by 12 months its rm36k. With such annual passive income I can enjoy fun free holidays to many goody goody destinations. However, can anyone be so consistent? Again my 2 cents view as a fulltime pensioner.Thank you.

Posted by bsngpg > 2013-09-07 20:25 | Report Abuse

Micheal 大佬: NO OFFENCE, but pls reconsider your frequent in/out and consistent small win strategies. Before earning RM3K/month, your risk of losing is very much higher than that. Investing is like doing a business, there is certainly no short cut. If there is people told you that they can make it or you actually achieved it, it is because of the current Bull market and luck. In long run, frequent in/out players are most probably losers. Else why there is a long lasting saying that” 7/10 punters are losers, 2/10 merely breakeven and only 1 is a winner”.

"To win, first you must not lose" is definitely NOT equal to your consistent small gain.

Pls forgive me if my words are harsh, I force myself to write so as I am sensitive to the word “pensioner”. Sorry.

Good luck.

Posted by Micheal Teo > 2013-09-08 00:14 | Report Abuse

In Bursa or any other forms of gambling there are winners and losers..Y r u sensitive to the word pensioner?

Posted by bsngpg > 2013-09-08 08:23 | Report Abuse

Hi Micheal 大佬: may I ask you a personal question ? How do you pass your retired life besides playing shares? I would like to learn how to pass retired life ? Thank you.

Posted by kcchongnz > 2013-09-08 09:43 | Report Abuse

bsngpg, the appended website may be useful for you.

http://satisfyingretirement.blogspot.co.nz/

Posted by bsngpg > 2013-09-08 09:54 | Report Abuse

Hi KC Chong : thank you very much, you are too kind to me. I just cannot imagine what this web will be if you and KW Tan are not here.

I am trying to conribute too but always feel my knowledge and experience are so limited and shallow.
Thank you