Nowadays I like to write articles to share my thoughts in investing principle. It is fun and rewarding. Just read these recent few comments you would understand what I mean.

Posted by invest1188 > Oct 11, 2015 06:54 PM | Report Abuse

very good write up and reminds everyone again especially during the bullish mood

Posted by Probability > Oct 2, 2015 08:54 PM | Report Abuse

KC...this time your article has a lot of humor! he he..
keep it up :)
Ohh...its not easy to learn the fundamentals KC!
But all I can say is...once one learns and truly understands them.
U will never look at a stock w/o FA,
Its same like u r asked to drive your car blindfolded.

Posted by vinext > Oct 3, 2015 06:02 AM | Report Abuse

1) here is the 3words that can make u rich, rmber "free cash flow"-warren B
2) in i3, i only read kcchong's writing
3) ppl regard me as very good in finance, kc chong by far is the best in FA,and right on money almost all the time in his writing,
if u dont know how to appreaciate his writing, ur mental n inteligence level have some big defects

Posted by yfchong > Oct 3, 2015 06:24 AM | Report Abuse

I have been I3 for leatning it almost 3 years oredi up to I do find KC always give his thinking cap and his taught on excess cash, FCF n mos is the best shield in bursa malaysia.
I always take his words head I win tail I don't lose much.

I do have many criticisms too but as normal, I won’t show you here lah. I only tell you good things here and silence about those bad things. It is normal in investing, isn’t it? At least I don’t twist those bad things into good things.

Happiness for me is not about how rich you are, or how much money you make in the stock market. Making a lot of money in the stock market is not something great, in my opinion, as it doesn’t add value to the society, unlike a dedicated (not a money face one) doctor who cures many people, a teacher disseminating knowledge, educating and propagating great life principles to the next generation. Educating the younger generation in the good habit of saving and investing for the long-term wealth building safely, live within their means and not burdened with debts I think is a good deed too.

With this, I would like to share about some myths in investing in Bursa here.

There is an awful lot of myths out there when it comes to investing in stock markets. These myths are told and retold as if they were some form of Holy Grail in investing.

Some of these myths are just plain dumb, some are deceptive…but almost all are downright dangerous!

For those who are concern about investing in Bursa to build up long-term wealth, it is time to know what these dangerous myths are, so that you are in a better position to side-step them.

So let’s get started right here, right now!

1. You must make money fast in the stock market, otherwise you are a failure.

Investing is a long term process. You just can’t make a baby in one month by making 9 women pregnant at the same time (Warren Buffett). You will get all sorts of trouble, incurring all kinds of risks by trying to do that.

Haven’t you heard of Genneva Gold, Swiss Cash etc.? So let us follow some good maxims:

“Investing should be more like watching paint dry or watching grass grows. If you want excitement, take $800 and go to Las Vegas.”– Paul Samuelson

“Time is your friend; impulse is your enemy.”- John Bogle

2. You can make money fast. I teach you here; use margin finance. If you do that when the market goes up by 50%, you can double your return if you borrow 50% to invest

Sure you can if the market goes up by 50%. But what if the market goes down by 50%? Do you know that you will lose everything?

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

Let us look at an example here. If you have RM100m worth of shares last three years of which RM50m is on margin, and say unfortunately you were so bullish about plantation stocks and you placed all your money there. You found out that you were wrong in your assessment that plantation stocks would provide you with huge return, and instead, palm oil price were dropping. You were smart enough to cut loss and managed to savage 60% of your investment, or RM60m. What is belong to you now is only RM10m. Somehow you managed to convince the banks to lend you another RM10m, and with the RM20m you have, you were very lucky to invest in a couple of furniture stocks which gives you a return of 200% the last one year. Your RM20m invested becomes RM60m, of which RM10m belongs to the bank. Hence your equity has increased from RM10m to RM50m now. You have just managed to recoup your original capital, ignoring all costs, even though you were very lucky to make 200% last year. What if you were so unlucky that you have instead invested the money in say a construction company which have lost more than 50% of its value in the last one year?

Don’t forget that your “gain” now is on paper only. Whether you can get the price you get when you need to sell off in big quantity is another question.

3. I teach you the way to invest. It is sure to make money, I never lose money. I am very confident that my return is much more than the margin finance setup fee, and the annual interest payment of 4.5%. I make amplified return all the time using margin finance.

Really? Sure? I think you have found the Holy Grail in investing, which no one has claimed to have found it yet, even though there are so many super investors who have made more than 20% return for extended period of decades. But what is the Holy Grail?

In the link below, the alternate histories is a very good read for you. Please read, and re-read. For those few generals and warriors who have won big battles consistently in history, thousands more were left in the dust.

http://klse.i3investor.com/blogs/kianweiaritcles/84022.jsp

4. Forget about looking at the company annual report and financial statements to get too worried about its past performance, like some accountants or those financial professionals do. Those are of no use. Those accountants who use these jargons almost all lose money in the stock market, what diversification lah, ROE lah, ROIC lah, cash flow blah blah blah. Those are useless theories. As businessman, what for bothers about all those useless things?

Is that right? No wonder I have constantly criticized about using those things. I didn’t know that when you do business, you don’t have to bother about if the company can make return higher than the cost of capital, whether the company has any cash earned from the operations in order to survive etc. I know many of the top executives in public listed companies are accountants. There must be a good reason why a business needs senior accountants. Sigh, regret that I didn't take an accountancy course and accounting as my career.

But I did do quite well as shown in my record in i3investors. These are established records which I have been referring again and again when confronted with this accusation that those accounting stuff won’t work, and not just talk only.

Or are you talking about investing or speculating? Are you encouraging investing or speculating?

“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operation not meeting these requirements are speculative” Benjamin Graham

And also referring back to point (2) above, studying the financial in details and using the principle of diversification and all the fundamental value investing methods would avoid the pitfalls as mentioned, as fundamental investing looks at the downside more than the upside potential first. You would have built up much more than the RM50m you have now, by not losing all the RM40m in the plantation stocks in the first place.

5. You can’t do that kind of fundamental value investing in Malaysia. They are not applicable here. You can’t earn good long-term return in Bursa. Bursa is different.

Some years ago, I read about if you were to invest in Public Bank, yes a bank, you would have a compounded annual return of 23% for 20-30 years. RM10000 invested in PBB for 25 years would become RM1.77m, or a total return of 177 times.

Just randomly taking those stocks which I have invested and published in i3investor on 23^rd January 2013,

http://klse.i3investor.com/servlets/pfs/13147.jsp

and assumed they have been invested for the last 10 years as shown in the Table 1 below:

Table 1: GE13 Watch

Six out of the ten stocks, or 60% have CAGR of more than 15% a year for the last 10 years, when the broad market returned 9.5%. Pintaras Jaya, a construction company, SKP Resources, and Prestariang, and including Jobstreet which I could not find the data from Yahoo Finance, returned a CAGR of more than 30%.

I am very sure there were many more companies, yes, small companies, which have similar return, or even better over the last 10 years.

I seldom read about businessmen who don’t care about the language of business and boasting about their great success in investing in i3investor and other forums, do you?

6. Malaysian companies are small. Don’t buy small companies. They are risky, no potential to grow.

Big company safe stock? MAS at RM8.00, anyone? What about FGVB when it was first listed at RM4?

What size do you think those companies listed in point (5) above? What are the market capitalization of those furniture stocks, Latitude, Lii Hen, Homeritz which I have been discussing and have gone up in price many folds just two to three years ago?

http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/40360.jsp

The broad index return a CAGR of 9.5%, which is not bad compared with the fixed income of about 3% during the same period. But it is the small companies, because of their size, grew their income much faster than those bigger companies which make up the index.

7. Don’t buy undervalued stocks in Bursa for long-term. Malaysia is different from the rest of the developed and developing countries. Buy stocks which have gone up in price with momentum.

In the long term, everyone is dead. That’s true, but if you play for the short term, you can die of shock even earlier. 

Just have no more comment for this statement. I feel very tired of keep on repeating and making others feel bored of my repetitions.

8. Buy those stocks which their share prices have been performing so well and have gone up in prices by so much. Their share price will continue to go up.

Sure, this is the momentum theory which does work. Share price goes up because of demand and supply; the persistent higher price is because of may be improved fundamentals and hence increase in its intrinsic value.

But do not forget that share price can also continue to go up when investors keep on buying, which is normally good as something good must be coming. It can also because share prices can be easily manipulated, especially there are syndicate and insider plays which I won’t say is uncommon in Bursa, playing on especially those illiquid shares. Look at the number and sizes of lots traded for those shares.

Of course one can make a lot of money too following those plays. I would think many investors have achieved that. But bear in mind that things can changed abruptly too. Don’t forget that it is easy to jack up the share price of an illiquid stock, it is also very easy for its share price to plunge abruptly when someone starts to sell in a big way.

I believe, overall small investors, especially those late comers, are the ones left holding the hot potatoes.

9. Buy only those companies with increased profit this quarter, and next quarter. Sell when the profit starts to drop for just a quarter. Sure make money one.

Sure this strategy have worked well and many investors have done very well too. However, I have never seen a company can continue to make increased profit every quarter, except for one particular company, Enron Corporation, or Lucent in the late 1990s which earnings were fraudulently managed. Enron remains the biggest fraud in corporate America.

Show me one company with real growth in profit every quarter please!

Increased profit every quarter is also not possible because of seasonality, economic cycles, etc. A long term profit increase, yes, but with some up and down through the years.

Although the stock market is not 100% efficient, it is generally quite so as information is normally have incorporated in the share price now. If the market opines that a company will have its profit increased for this quarter, even before the quarterly result is announced, insiders have already known about it and the share price has generally have taken that into account.  

Speculating or investing? Well, I have never said speculating won’t make money and making money is a sinful thing. But I do advocate investing to the public and our younger generation; we share the fruits of the success of the business of corporations, rather than indulge in a zero sum game.

10. The recommendations to buy this stock is all over the Media, The Edge Magazine, Focus Magazine, Nanyang Business, Sing Chew Business, from insiders etc. If it’s on BFM S&M radio show, and from this Super Investor in Bursa, it must be right.

You think their main aim is to help you make money? Did you make money from all their recommendations? I have been following one very popular local investment blog before but I have stopped doing so for a long time already. I recalled most stocks recommended went to big losses even though KLCI has been in the uptrend for the last few years.

Always do your homework first before buying. Don’t know how to do? Take some time and effort to learn it. Isn’t your financial wellbeing important?

Now what to do?

You see, success in a free country like ours is simple. Get an education, work hard, and learn to save and invest wisely, and avoid all these myths above. What you really need to succeed as an investor is your own independent thinking, and willingness to learn. 

Remember, you and you alone are the most capable and reliable person alive to manage your money. It’s high time you start believing this. It’s high time you start making your own investment decisions, and take control of your financial destiny.

Tis goeth down to a fundamental aspect that “An investment in knowledge pays the best interest”- Benjamin Franklin

What else to say?

“I have nothing to add.”- Charlie Munger

Happy and safe investing!

K C Chong (14^th October 2015)