Monday, December 11, 2017

SOS How to Explain the Stock Markets by Benjamin Graham?


The father of value investing, Benjamin Graham, explained this concept by saying that in the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine--assessing the substance of a company. 

The message is clear: 

What matters in the long run is a company's actual underlying business performance and not the investing public's fickle opinion about its prospects in the short run.

Over the long term, when companies perform well, their shares will do so, too. And when a company's business suffers, the stock will also suffer. 


For example, Starbucks (SBUX) has had phenomenal success at turning coffee--a simple product that used to be practically given away--into a premium product that people are willing to pay up for. Over time, Starbucks has enjoyed handsome growth in number of stores, profits, and share price. Starbucks also has a respectable return on invested capital of over 20%.

Meanwhile, Sears (SHLD) has languished. It has had a difficult time competing with discount stores and strip malls, and it has not enjoyed any meaningful profit growth in years. Plus, its return on invested capital rarely tops 10%. As a result, its stock has bounced around without really going anywhere in decades.


Investment in stocks - treat stock like a piece of business.  look for stocks with sustainable moats & run by honest management.  In the long run, they will make you a lot of money.

WB always tell his student that they don't need to be a rocket scientist to invest in stock market, as it does not need a lot of brains or it takes a high IQ to do well in stock market.

On contrary, what is needed is to have emotional stability, which means, detached from fear or greed. You must be able to draw your own opinion based on relevant facts and make independent decisions.


1) Weighing machine - investor must concentrate on the company's fundamental in the long run (in terms of its sustainability of moat) instead of listening to the Voting machine, not the investing public's fickle opinion about its prospects in the short run.  

2) Emotional stability - as a value investor, i.e. understanding the concept of stock market is a weighing machine, he or she must have the right temperament, invest more if the price goes lower than the intrinsic value instead of panic or sell.

Thursday, November 23, 2017

SOS Reviews of Warren Buffet's quotes

1. "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
2. “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
3. “I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.”
4. “In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”
5. “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
6. “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
7. “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
8. “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
9. “I am a better investor because I am a businessman, and a better businessman because I am an investor.”
10. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Temprement - patience  & discipline - cannot be taught in schools

Look for sustainability of competitive advantages instead of how much the industry to the society or its growth + good management.

1.  Invest for long term, 3-5 years, 5-10 years. (it takes time)
2.  Don't over diversify (go for what you understand the most)
3.  Know how to estimate the intrinsic value (never time the market using valuation - time the market using technical analysis).

Monday, October 23, 2017

SOS Is this a good biz model?


2008 (historical low) to 24 Oct 2017

KLCI up -  100% (or up 70% in USD) - CAGR in RM - 7%, CAGR in USD - 5.5%
Dow Jones up - 230% - CAGR in USD - 13%

In USD perspective, Dow Jones outperformed KLCI 160% over the last 10 years.

US Economy - average GDP improve about 2.4% p.a. (last 10 years)

Malaysia Economy - average GDP improved about 4.5% p.a. (last 10 years)

KLCI has underperformed DJ over the last 10 years, despite better GDP growth.


1.  Cost of asset is say, RM1m for 70% only.

2.  Turnover (Lease rental) is about, RM210k. (One leasing customer)

3.  Net Cash Flow after tax (for owner's portion) is about RM124k (excludes depreciation of RM50k)

4.  Depreciation is excluded because this asset useful life is more than 50 years with minimum maintenance.  Very minimum maintenance over the first 5-10 years.  Maintenance cost included in the net cash flow, to ensure useful life exceed 50 years.

6.  Assume this asset is built and leaseback by an established customer, for 30 years.  This asset can also be lease to other 2 more customers.  That means this asset can cater for a total of 3 customers.

7.  This asset is expected to achieve in 1-2 years a tenancy ratio of 1.2x, giving its turnover increase to 1.4x.  So, maximum turnover is RM210k x 140% = about RM300k or a net cash flow after tax of about RM124k + RM33k = RM157k.

8.  What is the ROIC for this asset, progressive increase of net cash flow of RM124k to 157k, with investment cost of RM1,000k.  So, long term ROIC increases from 12.4% to 15.7%.

9.  Valuation method accepted for this asset is EV/EBITDA multiple of 10x.  So, the EV is RM1,000k and the EBITDA (effective interest is 70%), RM96k to RM140k.

10.  So the valuation for this asset is RM96k - RM140k x 10times = RM960k - RM1.4m.

11.  Replace the 'asset' with 'towerco' or 'tower for telecommunication'.

12.  'One' of the segment of OCK group is the towerco biz.  The other segment is more on maintenance, solar, engineering with PAT of about RM30m p.a., or PE of 20x, value of RM600m.

13.  Value of OCK Group (non-tower + towerco) - amended on 13 November 2017

(a) Non tower segment = RM600m

(b) (i)  Tower segment = 600 towers completed @ 1.0x tenancy 600+640 = 1,240m = RM1.42
     (ii) Tower segment = 920 towers completed @ 1.0x tenancy 600+960 = 1,560m = RM1.79
     (iii)Tower segment = 920 towers completed @ 1.2x tenancy 600+1,400 = 2,000m = RM2.30

14. Nov 13, 2017 OCK price is 88 sen, Warrants = 26.5 sen, Exercise Price = 71 sen.  Minimum upside for warrants about 250% (26 sen to 71 sen assume no premium)


1. Now about 620towers in Myanmar - to build another 500-600 by year end 2017.

2. 2000 BTS in Vietnam, to grow about 10% p.a.

3. Towerco will become core biz end of 2018.

(Figures used are estimates).

Tuesday, October 17, 2017

SOS Ms Yellen, Mr Trump & Mr Market


Yellen may well be paving the way for further delays in Fed tightening, which has been the case for years. So don’t count on another 25 basis-point rate hike in December and three more next year, as the Fed has forecast. And don’t assume big reductions in the central bank’s $4.5 trillion portfolio will occur soon


Tax cut as Merry Christmas of 2017.  Bringing back USD3.0 trillion.


Dow Jones index continue inching towards 23,000.


Second and third liners are dwindling down a sloppy hill.  The index stocks are flattish at best, for 2017, remain on the high side of the its historical PE trading band.  Thanks to the prolong low interest rate.

Many export stocks benefited last 2-3 years from the depreciation of Ringgit, 25-30%.


Some of the stocks that dropped >25% due to bad quarter:

1) Perstima
2) IQGroup
3) Superlon
4) Magni
5) Prolexus

Similarly, these stocks went up when they attain the quarterly growth as expected (other than stocks which is not in the thematic group).  

Hence, some of which the share price grow much faster than the fundamental, is like driving with a dagger on your wheel, the moment you hit a hump, you are dead.  So, be very careful when playing with quarter results, the return is superb, similarly the downside.


If you are a long term investors based on value investing method, one of the most basic tenets you must have is patient.  IF you do not have it, don't use this method.  OF COURSE, the stock must have the characteristic of a value stock (strong moat, sustainable and growing earnings, strong balance sheet), and the share price does not overshoot its value too much too soon.  Another way to play these type of stocks is using the step ladder method, when share price overshoot fundamental (assume stock PE > market PE by a big margin, and it takes 3-4 years growth to catch up) why risk it?  Sell some first, to lower your average cost per unit. 

Some good example I have in mind (only if you own the stocks) is Vitrox, Unhitech and Padini.  All are good fundamental stocks, however, their PE runs way pass their sector mean, so step ladder method is fine.  Is not full proof, but, it is COMMON SENSE.

Saturday, October 14, 2017

SOS What does Warren Buffett of Asia say about Bursa stocks?


So what is your style of investing?
We are stockpickers. We look at individual stocks. 
Investing is about common sense. Now, businesses are listed on the stock market. However, you cannot treat them just like a business, as the stock market is made up of millions of players who make illogical and emotional choices. 
So, there are many methods being used - momentum, looking at certain psychological levels, top down, bottom up .... I still go back to value investing. For this, you need to be very patient. Value always outperforms in the long term.
I don’t believe in speculating. Because it is my job to make money consistently over time. This is my career.


(Interview of Cheah Cheng Hye, the Warren Buffett of Asia)


1.  Investing is about common sense

You cannot treat stock just like a business.  Why? As the stock market is made up of millions of players who make illogical and emotional choices.  In short, in a short run, the value of the business may not be represented in the share price.  

If your method used for investing is VALUE INVESTING.  Why is this method will achieve good return in the long run?  Because, value ALWAYS outperforms in the LONG TERM.

2.  Value ALWAYS outperforms in LONG TERM?

Why? The stock markets has proven that.  So, that is PROVEN, why people still doubt this method?  It is because, they cannot reconcile their mindset of long term investment against the share price movements (in the short run).  It is not because the value of the stock has deteriorated, but, because their mindset is not able to sustain the divergence between the value and the share price.

Hence, for value investing method, the investor MUST have to be PATIENT, or a long term mindset.  Failing which, this person will be very FRUSTRATED, wondering why their stock price going down while the value of the stocks is not deteriorating.  

It is actually a mismatch of mindset vs share price expectation.  Expecting the stock they pick (value stock) to ascends in the SHORT RUN and LONG RUN.  Hence, when in the SHORT RUN when the share price is dropping, the FRUSTRATION will arise.  

Simple as that, that means, while they want to invest long term, their mindset is short term (expecting the share price to go up), without realising the stock market is made up of millions of players who make illogical and emotional choices AND value always outperforms in the long term.  Hence, Dr Cheah Cheng Hye said, investing is COMMON SENSE.

That is why WB said, focus on the game and not the score line.  WB is said one must focus of changes in the fundamental of company, not the changes of the price of the company.  If the fundamental improve, value should improve, if share price drop, he or she should be happier because he is buying into an improved fundamental company at a cheaper price, giving it a higher margin of profit or safety.


If you use value investing as your BASIS or METHOD, you must have the patience.  Because, in short value investing must be followed by a long term view (patience) to wait for the long run because value ALWAYS outperform in the long term.

Just basic common sense.  Like fishing, if you are impatient, lets not go fishing, because you are likely to get frustrated. 

Next time, a fund manager MUST be clear to his clients and said, I am using this VALUE INVESTING METHOD, which required the HOLDER to have the LONG TERM MENTALITY.  There is nothing got to do with the fundamental of the stock, more of the change in TEMPERAMENT of the holder/investor.  So, please, not mix up between VALUE and PRICE, long term and short term mindset, you will not end up like "pui" or "sui".  It is not the stock that is lousy or the stock is useless (when price did not go up), it is the holder which is lousy or useless, because, when you sign up for value investing, short run gyration of share price is IRRELEVANT.  If you are frustrated over something IRRELEVANT, I think one of to think twice whether he or she is suitable for the game, don't expect to have a baby in a month when your wife is three months pregnant, you will likely not get what you think you want.

Saturday, October 7, 2017

SOS Trading vs Long Term Holding of Stocks?

Great Quotes by Phil Fisher

Here are some awesome  quotes by Phil Fisher to get started.
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
“I don’t want a lot of good investments; I want a few outstanding ones.”
“what really counts is a management having both a determination to attain further growth and an ability to bring its plans to completion.”
“it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.”
“Doing what everybody else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.”
“Even in those earlier times, finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear.”

Trading vs Long Term Holding of Stocks
Every now and then, there will be debate on which is better.  Frankly, I find it fruitless.  Everyone is entitle to their own style of investing.  No need to proof which is better, investment is not a competition for me, at least.
So, don't waste a brain cell over it.  Just be comfortable with your own style.  Win or lose, you are responsible for your own money.

My fund manager has compiled 20 stocks that performed spectacularly in Bursa over last 20 years with CAGR of >20%, some are 30%, some are 40%.  The FM quickly claim he holds 7 of them.  Great.  However, his last 3 years performance is worst than FD rates of 4% but he claim he did better than the Emas Index.  However, can we said he is not performing? Or do we give him MORE time to make up for his weak performance?  Well, I have seen stock that doesn't move for 7 years and suddenly went up 5x over the last 3 years.  So it takes 10 years to move up 5x, is he performing?  Yes, only the last 3 years, the first 7 years, guess how many holders sold it? Easily >70%.  So, its easier said than done, long term holding can blindside you sometimes. Btw, over the last 10 years, there are 3 different CIOs. 

Similarly, some clients unable to withstand the poor performance, they sacked the FM or CIO, only to find out from another client, should he or she waited another 6 months, the portfolio turn from below 2% to more than 10% profits.  Unfortunate to him or her, that is the problem when some do not understand what investment is for long term (5-10 years) means, although he or she understand what long term investment is all about, but the mindset is not prepared for it.  Until the mindset is ready, welcome to who can "walk the talk" principle.


We can learn Fundamental Analysis and Technical Analysis, but we cannot teach an investor to be patience.  Many are unable to withstand the downturn of certain particular stocks they own while looking at other Top 10 Gainers, thinking that they have lost out so much opportunities for not investing in the Top 10 Gainers, even their own stocks fundamental have improved (more profits, more contracts, better margin) over time, while the share price is dropping.  One particular stock that I have some interest, Gadang is a good example.  

Many forumners in i3 expressed their frustration over Gadang share price performance, despite getting more contracts such as MRT2 + other major projects + an improved PBT as against previous financial years.  Yes, Gadang has very low PE, around 7x (net cash), and prospective PE of 6.2x (next one or two years) while many other construction companies has around PE of 12x.  Technically speaking, we should be happy when a fundamental of a company improve and the share price goes down, because the upside is better (margin of safety is wider now).   As a value investor, one must have a long term view (2-5 years) and believe the price will reflect the fundamental eventually.  If one disagree with this principle, then, it is wiser not to invest in stock market.  

Of course, there are many other elements involves besides its fundamentals.  Liquidity, shareholders' reputation, industry trends, fads, foreigners inflow or outflow, management reputation, etc which is not in the control of the company's management.  That is why, the only focus we can place on is the fundamental of the stock.  Eventually, someone will see their "sustainability" or "quality" of the long term earnings.

Tuesday, September 19, 2017

SOS Design your own Investment Manifesto


Investment is about common sense and must have the 3Rs

1.  Right business (business model - growth and sustainable and quality)

2.  Right people (one-third of our selection mistakes come from misjudging the management)

3.  Right price (price paid must be a lot lower than the estimated value)

EGO - will eventually makes you pay


The 5 RULES for successful stock investing

1.  Do your homework (select the right biz + right people)

2.  Find Economic Moats (select right biz that is sustainable)

3.  Have a margin of safety (right price - price must be lower than value)

4.  Hold for the Long Haul (right price - value will eventually prevail)

5.  Know When to Sell (when price exceed value significantly)


The 5 principles

1.  Make a list of Criteria to buy a Stock

2.  Invest in Industries or Companies Familiar to you

3.  Stay in Cash if necessary

4.  Monitor the stock you Hold (quarterly)

5.  Sell at the Right Time (no longer met your criteria)


1.  "You don't lose anything by not owning any successful stock, even if it is a ten bagger"  - don't worry about missing out, opportunity are aplenty.

2.  "Don't become too attached to a winner that complementary sets in and you stop monitoring the story"

3.  "Just because a company is doing poorly doesn't mean it can't do worst"


1.  Don't buy into a promotional companies - i.e. in the early development stage

2.  Don't be afraid to buy during war scare

3.  Don't be influence by what doesn't matter

4.  Don't follow the crowd

5.  Don't overstress diversification


1.  Invest in what we know or circle of competence

2.  Look out for durable moats or competitive advantages

3.  Look for management with integrity

4.  Pay for price that make sense

It is as simple as that.  University got to make it complicated, else they cannot justify their existence.


Start today!