Posted by kcchongnz > 2013-12-14 10:13 | Report Abuse

Yeah, this is exactly I am aiming for; match the general market during bull market, and outperform during the bear market.

Posted by calvintaneng > 2013-12-14 10:24 | Report Abuse

Yes. I Really Love Bear Markets. I love the bear market of Johor Properties from Year 2003 to 2009. How I love to be the Only Bidder in JB High Court.

I Also Love The Really Condemned & Overlooked Shares In Both Bull Market & Bear Market. I found plenty of Great Buys During Bear Markets & Now It Seems Very Hard To Get Bargains in This Bull Run.

I like Detroit & Spain because they are in deep recession. Problem is, they are too far away. I look forward to buy North Korean Shares If they are open for trading some day.

Posted by houseofordos > 2013-12-14 15:50 | Report Abuse

Kc, your track record has shown that you grossly outperform market in the bull run for the past 5 years. It will be interesting to see how it fares in a bear market.

Posted by kcchongnz > 2013-12-14 16:28 | Report Abuse

houseofordos, I am sure you notice my picks were not aimed to outperform the market during the bull, but more for the Bear. Reasons:

1) Those stocks selected were all value stocks. Value stocks generally underperformed during the bull market because investors always chase growth stocks which give them higher expectations during the Bull.
2) There is even Graham net net stock like Daiman, who knows and cares about his stupid net net? Everybody aiming for RM1 gain in a short time. Net net stocks will never give you that.
3)Almost all the stocks selected have no investment banks following. Who cares about them? When nobody cares about them, how to go up fast in price?
4) Yeah like somebody always laugh about it, no liquidity. So where got fun playing with them?

I tend to think those stocks selected will perform better relatively during bad times. Why?

1) They have steady earnings and good cash flows, even in bad times.
2) They have healthy balance sheet, and usually plenty of cash.
3) Even they are leveraged, they have good earnings and CFFO to easily cover interest.
4) They have good operating numbers.
5) Best of all, they are cheap in terms of PE, EV/ebit, P/B etc. Cheapest is the best form of financial risk management in investing.
6) They are not stocks based on hope, hope that major shareholders will goreng the stock, hope that it will strike oil, hope that the earnings will continue to grow at very high rates etc.

Posted by inwest88 > 2013-12-14 16:36 | Report Abuse

# kcchongnz - I like this one below. RM1 gain (you know and I know who). Anyway I always have high regards on your stock picks and the very detailed analyis.

2) There is even Graham net net stock like Daiman, who knows and cares about his stupid net net? Everybody aiming for RM1 gain in a short time. Net net stocks will never give you that.

Posted by kcchongnz > 2013-12-14 16:40 | Report Abuse

inwest88, a writer is always happy to have a good reader like you.

Posted by inwest88 > 2013-12-14 16:56 | Report Abuse

# Kcchong - like you say, a good stock will eventually find its true value. Similarly one who writes with sense, logic and facts will ultimately have his work recognized, accepted and appreciated. I am looking forward to see your stock picks for 2014 (should you decide to accept KW Tan's invitation).

Posted by kcchongnz > 2013-12-14 19:11 | Report Abuse

Of course all investments come with risks. A good company can be a bad investment if the price is high. What actually is risk in investment?

In academic, risk is measured as sigma, or the standard deviation of its return; or beta, a correlation of its return with the market. The higher the sigma or beta, the more risky is the stock.

But what actually is this "risk" in investing in the real world? It is the Probability that an actual return on an investment will be lower than the investor's expectations. All investments have some level of risk associated it due to the unpredictability of the market's direction.

How do I look at risk? Well I would rather follow Benjamin Graham's context of risk. A stock is less risky if it has the following characteristics:

1. Adequate Size of the Enterprise
In the world of investing, there is some safety attributable to the size of an enterprise. A smaller company is generally subject to wider fluctuations in earnings.

2. A Sufficiently Strong Financial Condition
According to Graham, a stock should have a current ratio of at least two. Long-term debt should not exceed working capital. This should act as a strong buffer against the possibility of bankruptcy or default.

3. Earnings Stability
The company should not have reported a loss over the past ten years. Companies that can maintain at least some level of earnings are, on the whole, more stable.

I deviate from this as I sometimes do look at turnarounds.

4. Dividend Record
The company should have a history of paying dividends on its common stock for at least the past twenty years.

I tend to deviate from this as I believe sometimes if needed, company should reinvest its cash flow rather than "forced" to pay a dividend.

5. Earnings Growth
To help ensure a company's profits keep pace with inflation, net income should have increased by one-third or greater on a per-share basis over course of the past ten years using three-year averages at the beginning and end.


6. Moderate Price to Earnings Ratio
For inclusion into a conservative portfolio, the current price of a stock should not exceed fifteen times its average earnings for the past three years. This acts as a safeguard against overpaying for a security.

The price to pay is the most important factor for me.

7. Moderate Ratio of Price to Assets
Quoting Graham, "Current price should not be more than 1 1/2 times the book value last reported. However, a multiplier of earnings below 15 could justify a correspondingly higher multiplier of assets. As a rule of thumb we suggest that the product of the multiplier times the ratio of price to book value should not exceed 22.5 (this figure corresponds to 15 times earnings and 1 1/2 times book value. It would admit an issue selling at only 9 times earnings and 2.5 times asset value, etc.)"

This can be translated to a formula used by some people here, the Graham Number.

Posted by houseofordos > 2013-12-14 19:13 | Report Abuse

kc, all your points are valid.... limiting the downside is always the best strategy... But one point I would like to make is that value stocks with small market cap sometimes suffer from limited liquidity. In such situation if there is no institutional support or support of the share price from the major shareholders, these counters could be subject to forced selling and may drop very fast in a bear market.... just my 2 cents view

Posted by kcchongnz > 2013-12-14 19:35 | Report Abuse

houseofordos, you got a valid point. But again you are talking about short term trading kind of stuff then, aren't you?

Yes, I also wary about small company. That is covered by Ben Graham above too in point number one. It is related to its business durability, not about its share price.

Posted by houseofordos > 2013-12-14 20:59 | Report Abuse

KC , yes liquidity is a concern in a short term investment horizon. In especially long bear markets, it would really take a lot of conviction and patience to stay invested in these value stocks...