“The secret to successful investing is to figure out the value of something and then-pay a lot less”         Joel Greenblatt

I have just posted an article discussing on the core principles and methodologies of investing of the true super investors in the United States in the link below.

http://klse.i3investor.com/blogs/kcchongnz/88007.jsp

These core principles and methodologies are summarised as below:

1. Investing in a stock should be viewed as investing in a part business.
2. Focus on return on capitals
3. Have estimates of the value of a company using a variety of methods and compare with its price
4. Buy at a wide margin of safety
5. Cash flows, and especially free cash flows is king
6. Buy good companies with high return on invested capital at cheap price as measured by high earnings yield (Ebit/Enterprise value) of the Magic Formula.
7. Focus on the downside and let the upside takes care of itself. Invert, always invert.
8. Be a second-level thinker. If something is easy to compute and understand, it is extremely unlikely that the market will misinterpret it. Therefore, such information will not, by itself, provide evidence of mispricing.
9. Avoid leverage investing using margin finance like a plague as the market is highly unpredictable.

How else should investing be like if not following the above principles with logics and common sense?

We know these principles expounded by those super investors work for the long term as they are all multi-billionaires and well known figures in the investing community.

But do these principles work in Bursa?

I have received comments numerous times that fundamental investing does not work in Bursa because our companies won’t survive for long term, that we do not have companies such as Coca Cola or whatnot.

But fundamental investing is not about holding a particular stock long term, but investing following the core principles expounded by the well-known super investors in the world as discussed above.

I have shown that fundamental investing following the above principles and methodologies do work for me the mid-term,

http://klse.i3investor.com/blogs/kcchongnz/86153.jsp

http://klse.i3investor.com/blogs/kcchongnz/84923.jsp

These core principles also worked in the short term, and in a down market

http://klse.i3investor.com/blogs/kcchongnz/86047.jsp

These are established and published records in i3investor.

What other experience I have to show that these principles and methodologies in fundamental investing work also in Bursa? For this, I will show you how some of my course participants have utilize these principles and methodologies in their stock selection and if they work.

Stocks selected by course participants

Appended Table 1 below is a list of stocks selected and shared by a few of my course participants for the past one year which were published in our private blog. They were selected following the principles taught throughout the course and come with detail analysis and reports. Most of them follow the principle of buying good companies at cheap or reasonable prices. Some are ordinary companies but sold at very cheap price such as KESM and Weida. A couple were turnaround stocks such as LCTH and Thong Guan. There are also growth stocks such as SAM and Fronkten. As you can see there is a variety of investing strategies used by them.

Table 1: Stocks selected by course participants and their returns

Below are the salient features of the returns of the stocks:

1. The seven stocks shared return an average of 33.5% within an average of six months’ period, compared to the loss of the broad market of 8.6% during the same period.
2. The excess return, or alpha is a commendable 42.1%.
3. The median return is even higher at 42.1%.
4. There is only one loser and under-performer (14%), APM at a loss of 11%. The negative alpha is minimal at just 2.4%.
5. The risks of those stocks selected were generally low as most of them are with steady earnings and cash flows and healthy balance sheets.

“Heads I win (big); Tails I don’t lose much” The Dhandho Principle

One participant also compiled a list of Magic Formula stocks and assessed the portfolio return from 25^th June 2014 to 24^th June 2015 as shown in the Appendix. The return of the portfolio was 21.7%, while the broad market declined 8.4% during the same period. This means the positive alpha is a respectable 30%.

Many course participants actively continue to share their analysis and thoughts on investing, in overseas markets and at home, personal finance etc. in our Facebook group of alumni.

Conclusions

Despite what others say, the core principles of fundamental value investing do work in Bursa. It works for the long-term, the mid-term, and also the short term, and it works very well on its own. The short-term excellent performance is a little surprise to me as fundamental value investing is more of a safe investing strategy, and users do not expect short-term fantastic outperformance of less than one year as it has done.

More importantly, utilizing the core principles of fundamental value investing will avoid losing big in the stock market until “want to cry also no tears” 欲哭無淚

And don’t forget, “In Bursa, there ain’t no tooth fairy”. The only person you can depend on is none other than yourself.

For those who are keen to learn the core principles and methodologies in fundamental value investing to build long-term wealth and more importantly, able to sleep well, please contact me for an online course with a relative small fee at

Ckc14training2@gmail.com

Perhaps after the course, I can get some good tips from you to invest, like what I got from my other course participants. I have done pretty well in investing following my course participants.

K C Chong

Appendix