“Price is what you pay; Value is what you get”
Time flies. Without noticing it, I have been dwelling in i3investor for more than 5 years already. As a retired engineer with some academic training in finance and investing, and a ferocious reader of investing books and articles on fundamental value investing (FVI), and a retail investor and practitioner, I do have time and some knowledge and experience in investing. I have so far shared a total of 304 articles in i3investor. These articles are mainly for sharing of investing principles, strategies and methodologies. I have also shared my analysis on a number of stocks, and put up a number of portfolios since 5 years ago. I must say I have received many favourable and motivating comments and feedback. Similarly, I also have my fair share of criticisms, like some of these below,
[Posted by Flintstones > Dec 2, 2016 11:54 AM | Report Abuse
But KC indeed has no business sense. Our beloved kc chong extrapolates past earnings into the future without assessing the industry dynamics. That is not a good investor to me.
Posted by Flintstones > Dec 2, 2016 12:00 PM | Report Abuse
Dont care about how he make money, brother. When I see somebody bringing i3 readers to holland, I must shoot.
Posted by paperplane2016 > Dec 2, 2016 12:03 PM | Report Abuse
hahahaha.,.,.,.,.,.,kc chong write fancy FA studies, but still fail to make money.
Reason: Tak ADA COMMON SENSE mah!!!!
hahahaaaaaaaaaaaaaaaa ]
Taking the opportunity of this Christmas holiday season, I will do a little reflection on what I have written and shared in i3investor specifically on the returns of the stocks I have shared to answer the questions above, if
- Is FVI no business sense?
- Is FVI no common sense?
- Does FVI extrapolate past earnings into future?
- Do I fail to make money?
- Do I, or FVI deserve that cynical “hahahaaaaaaaaaaaaaaaa” in the comment above?
- do I bring people to “Holland”, or made people lost all their money as mentioned above?
Stock Picks Criteria
The principle of my selection of the companies is based on buying good companies at cheap prices. Stocks were selected based on earnings, generally using the Magic Formula Investing principle.
First, we treat investing in a stock as investing in part of a business; how it makes money, has it been consistently making good money all the time, is the business durable, or had a future etc.
Secondly most stocks selected had steady earnings and cash flows in the past and at the present. They generally have high return on capitals, maintaining or increasing from the past to present, with return much higher than their costs of capitals. Most of them were with none, or little debts. Some of them had good future growth potential too although this was not specifically emphasized then.
Next, after a good company was selected based on the above criteria, then come this “most important thing”, what is its value versus its price. Price-Value relationship could be viewed from a number of angles; PE ratio, P/B value, P/Cash flows, Dividend yield, Enterprise value versus earnings of firm (EV/Ebit), or a wide margin of safety based on intrinsic value from discount cash flows analysis.
In general, the selections of the stocks were based on the very basic principle of what I have been propagating and imparting in i3investor all the while;
“Buying good companies at reasonable or cheap prices”, or
“Buying mediocre companies at very cheap prices”
In fact, there is a more important element in investing which many investors cannot appreciate; the risk mitigation, which the above also taking care of.
Isn’t the above common sense?
Aren’t they business sense?
If not, then what is business sense, and what is common sense?
In this auspicious Christmas, I wish to deal in more details with this allegation that I was bringing i3investor readers to “Holland”.
My stock picks sharing in i3investor the last 5 years.
In this article, I would like to summarize all the stocks I shared in i3investor since 5 years ago, using FVI strategies and methodologies described above, and their returns. With this, I also hope to prove to you again the value of FVI.
In my recent article, “Investing in Bursa for 5 years: 5 年的等待”in the link below,
https://klse.i3investor.com/blogs/kcchongnz/138098.jsp
I have shown that the portfolio of 10 stocks named “GE13 Watch” established in i3investor on 21st January 2013 returned 146% against the return of the broad market of just 20% in about 5 years.
My second portfolio of 11 stocks named “2013 2H Stock Pick Challenge” established in i3investor on 1st August 2013 and as shown in the link below, “Search for The Holy Grail in Investing: The Magic Formula” returned 175% in about four years against the return of the broad market of just 10% during the same period.
https://klse.i3investor.com/blogs/kcchongnz/127825.jsp
I have shared the above two portfolios several times in i3investor, purely for showing the importance of FVI for building long-term wealth slowly but surely.
This time, I will show you the return of other stocks subsequently shared by me in i3investor, to see if there is any consistency in the investing outcome using FVI.
Note that I have included all the stocks shared and their investment thesis, without choose and picked.
My stock selection in i3investor in year 2014 and beyond.
Table 1 in the Appendix shows the stocks selection I have shared, with detail analysis, as published in i3investor with the links for ease of reference. These stocks were again selected using the principle of “Buying good stocks at reasonable or cheap prices” as described above, specifically using the principle of “Magic Formula”, except for Kuchai, Perak Corporation and Perstima, which was based on asset-based negative enterprise value investing, risk arbitrage and privatization and dividend discount model respectively. For ease of reference, the Magic Formula metrics were tabulated in Table 2 in the Appendix.
For more information on negative enterprise value and risk arbitrage, please refer to this link below,
https://klse.i3investor.com/blogs/kcchongnz/45296.jsp
For Magic Formula,
https://klse.i3investor.com/blogs/kcchongnz/51631.jsp
For dividend discount model,
https://klse.i3investor.com/blogs/kcchongnz/85379.jsp
Table 2 in the Appendix shows 24 stocks chosen from different industries, mostly using the Magic Formula investing strategy from 22nd March 2014, returned an average of 77% compared to the generally flat market over the same 4 years period, or for an excess return of 75%.
Three quarters of the stocks made positive return, or 75% success rate. Many stocks over-performed the market by wide margins, with 8 out of 24, or one third of them returned more than 100%, with half of them more than 200%.
Prestariang’s adjusted share price went up to a peak of RM3.00 two years after its selection, or 154% return, before retreating to half, or just RM1.49 now, for just 26% gain. Similarly, Latitude Tree went up to its peak of RM7.50 one and a half year after picked, Magni-Tech to RM7.60 half a year ago, Pintaras to RM4.60 half a year after pick, Perstima to RM8.10 half a year ago, and Hevea Board to RM1.67 five months ago.
On the other hand, the share prices of Tong Herr, Uchitech and Elsoft only rose substantially recently after more than two years of selection. FVI requires patience, sometimes a lot of patience, but the rewards were fulfilling, very satisfying..
The high returns stocks were mostly with high Magic Formula scores, i.e. they were good companies selling at cheap prices, based on their latest performance then.
The substantial loser of Perak Corp was due to the faltering of its privatization plan at RM3.90 due to rejection of a major shareholder, and subsequently its shareholders’ destroying move of building the high cost theme park. Coastal Contracts lost 59% due to huge borrowings after its involvement in two high-cost offshore oil jacked-up units and subsequently the sharp drop in oil price. Plenitude faltered and lost 44% as the property market went into doldrum after its pick.
Smart investors would foresee the problems above and would have cut-loss the three stocks above, and took profit for Perstima as it showed some structural change with the sharp increase of its raw materials, as their fundamentals had clearly changed. The average return of the portfolio would be much better at over 100% return.
So, have I brought anybody to “Holland” by sharing my stock selections?
Yes, if one follows my selection and put all their bets, or “sailing” in Coastal, Perak Corporation, or Plenitude. But these were only three of a total of 24 selections, or 12% of the stocks.
No, it would be completely the opposite if they “sailing” on the nine stocks; Magni, MFCB, Padini, Scientex, Tong Herr, Uchitech, Elsoft, Padini and KESM, or 38% of the stocks. They would be looking at close to 200% gain.
Even if one were to buy all the stocks selected in equal weighting, and held them to now, he will still make very good return at 77%, while the broad market was flat during the same period.
So, the question is, did I bring anybody to “Holland”, or was it likely that I had helped many people making good returns over the last four years with my sharing of stock selection in i3investor?
Conclusions
I have shared a couple of stock portfolios using the FVI strategies and methodologies in year 2013. Here I have also showed the use of FVI in 24 specific stocks selection in 2014 until now. They are all in established public records in i3investor. They consistently provided with extra-ordinary return, in the short term, as well as the long term. More importantly, the risks involved were low. The principles, strategies and methodologies are plausible. They are simply logic. They follow established and proven successful process.
In this Christmas day, I would like to reflect what Thomas Gayner said,
"I’m always amazed that someone would say they weren’t a value investor – I wouldn’t admit it even if I wasn’t. It just seems silly to think about investing any other way." Thomas Gayner
As for the question of whether I am a good investor and “KC Chong failed to make money”, I will leave it for individuals to judge. In fact, whether one makes huge money in the stock market, with whatever means, provide no value to the society, and there is no point bragging about it, as many people just detest it.
I would be able to provide value to the community if I can convince you, and assist you to pick up the knowledge of FVI in a structured manner before you indulge in the stock market. If you are interested in this, you may contact me at,
ckc13invest@gmail.com
Why do people continue to ridicule FVI despite all the evidences that it has worked, it is still working, and that it is continuing to work?
I can borrow what Seth Klarmen has said below,
Wishing you merry Christmas and a happy new year.
KC Chong
on 2017 Christmas Eve
Appendix
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Table 1: links |
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1
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Kuchai |
http://klse.i3investor.com/blogs/kcchongnz/45296.jsp |
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2
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Prestariang |
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/42400.jsp |
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3
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Perak corp |
http://klse.i3investor.com/blogs/kcchongnz/48584.jsp |
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4
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Magni-Tech |
http://klse.i3investor.com/blogs/kcchongnz/51356.jsp |
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5
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Latitude |
http://klse.i3investor.com/blogs/kcchongnz/48173.jsp |
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6
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MFCB |
http://klse.i3investor.com/blogs/kcchongnz/47535.jsp |
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7
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Padini |
http://klse.i3investor.com/blogs/kcchongnz/45203.jsp |
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8
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Pintaras |
http://klse.i3investor.com/blogs/kcchongnz/46408.jsp |
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9
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Scientex |
http://klse.i3investor.com/blogs/kcchongnz/56316.jsp |
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10
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Tasco |
http://klse.i3investor.com/blogs/kcchongnz/57483.jsp |
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11
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Plenitude |
http://klse.i3investor.com/blogs/kcchongnz/59102.jsp |
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12
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Tong Her |
http://klse.i3investor.com/blogs/kcchongnz/59618.jsp |
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13
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UchiTech |
http://klse.i3investor.com/blogs/kcchongnz/62058.jsp |
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14
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Coastal Contracts |
https://klse.i3investor.com/blogs/kcchongnz/70035.jsp |
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15
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Elsoft Research Bhd |
https://klse.i3investor.com/blogs/kcchongnz/74663.jsp |
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16
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Kupulan Fima |
https://klse.i3investor.com/blogs/kcchongnz/78580.jsp |
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17
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Perstima |
https://klse.i3investor.com/blogs/kcchongnz/85379.jsp |
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18
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Padini |
https://klse.i3investor.com/blogs/kcchongnz/85800.jsp |
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19
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ECSICT |
https://klse.i3investor.com/blogs/kcchongnz/90072.jsp |
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20
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Hevea Board |
https://klse.i3investor.com/blogs/kcchongnz/97409.jsp |
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21
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KESM |
https://klse.i3investor.com/blogs/kcchongnz/104749.jsp |
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22
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Thong Guan Holding |
https://klse.i3investor.com/blogs/kcchongnz/104956.jsp |
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23
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FAVCO |
https://klse.i3investor.com/blogs/kcchongnz/114879.jsp |
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24
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SKP Resources |
https://klse.i3investor.com/blogs/kcchongnz/136491.jsp |
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