I have just read with interest on some comments on my investment principles and strategies in i3investor. Let us first start with this one first:

Posted by koonbee6 > Dec 25, 2015 09:19 PM | Report Abuse

“Kcchong like teacher in school just teach u the theory but in fact he also dunno works or not, like book worm”

I have written an article on my core principles and methodologies in investing in the link below:

http://klse.i3investor.com/blogs/kcchongnz/88504.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, and hence the intrinsic value of its stock 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.

Looking at the above, I do not know which principle is just theoretical, and the implication of not practical.

If investing in a stock is not investing in a part business, then what is it? Are we talking about the same thing, i.e. investing?

Or is investing for you is following what others tell you to buy, and following the greater fool’s theory?

What is so theoretical about one should focus on return on capital when investing? Aren’t you concern about what would be your return if you invest a capital of say RM1m in a business? Wouldn’t it make a difference if the return is 30% versus 5%?

Just read the link below what Warren Buffett says about the importance of return on capital in the link below.

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

Is it so theoretical that investing is eventually how much cash you can extract out from the business as propagated by Warren Buffett?

As you know, Warren Buffett is not a theoretician. He is the richest fundamental investor in the world.

What is so “theoretical” or “bookworm”, and not practical that when you buy something, you should know its estimated value and that you try to buy it cheap, or at a wide margin of safety, if possible?

Don’t you wish to buy a good company at cheap price and in turn take care of the downside? Or you just pay any amount because others tell you to do so?

Do you really think making money is so easy just by following a simple rule of thumb? There are so many people trying to do so with simple rules, and you think you will be the chosen one?

Here is another comment

Posted by tc88 > Dec 25, 2015 09:06 PM | Report Abuse

“kcchong use complex math formula”

I wonder which formula mentioned above is a complex maths.

I have done my first analysis on return on capital and what I termed “Simple valuation techniques” for some furniture companies more than 2 years ago and published by someone in i3investor here:

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

Tell me which part of the analysis and valuation is so complex. For your information, when I was talking about these furniture companies, the adjusted price of Latitude, LiiHen and Homeritz was at about 75 sen, 35 sen and 20 sen respectively.

Let us look at another comment.

Posted by Desa20201956 > Dec 28, 2015 04:32 PM | Report Abuse

“I will say you actually have very little predictive power by just looking at ratios.”

What evidence do you have in your comment?

Let us look at one of the ratios used by the Magic Formula of Joel Greenblatt;

Return on invested capital, ROIC = Ebit/Invested capital

Earnings yield = Ebit / Enterprise value

I have written an article about it here:

http://klse.i3investor.com/blogs/kcchongnz/51631.jsp

This is what was concluded on the results of investing using these ratios:

“The Magic formula outperformed S&P 17 out of the 22 years and achieved a compounded annual growth of 23.8% as compared to the 9.6% of S&P. $10000 invested 22 years ago in 1988 has grown to 1.09m by the end of 2009, even after the US sublime crisis in 2008-2009. This is by no means a small feat.”

Let us go back to this statement again:

Posted by koonbee6 > Dec 25, 2015 09:19 PM | Report Abuse

“Kcchong like teacher in school just teach u the theory but in fact he also dunno works or not, like book worm”

Few people bragging about their returns in investing in the stock market have published a portfolio of stock in i3investor before the facts and could track their actual performance. I have published so far, rather someone have published two portfolios about three years ago, and I have compiled another two shared in i3investor in the last two years, and the actual performance of those portfolios can be tracked as described in the link below:

http://klse.i3investor.com/blogs/kcchongnz/88504.jsp

The first portfolio results as below:

“All 10 stocks in the portfolio have positive total returns which varies from 0% for Pantech to 517% for Prestariang. There is not a single stock which loses money, absolutely none. Pantech is the only stock which under-performed the market, by just a small margin. The average return of the portfolio is 134%, beating the broad market by a whopping 128%!”

For the second portfolio,

“During this period, the broad market is practically flat as shown. However, eight out of eleven stocks, or 73% of the stocks in the portfolio have positive total returns which varies from a minimum of 20% for Tienwah to 565% for Datasonic. The average return of the portfolio is a whopping triple digit of 120%, beating the broad market by the same magnitude.”

For the third portfolio,

“Eight out of thirteen stocks, or 62% of the stocks in the portfolio have positive total returns which varies from 5.1% for Kuchai to 188% for Latitude Tree. The average return of the portfolio is 46.3%, beating the broad market by another wide margin of 54%.”

For the fourth portfolio which was selected by my online course participants,

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.

So does the principles work? Or is it just theory, complex formula, and “bookworm”? Or you still “Dunno”?

If you are convinced with all the facts mentioned above that fundamental investing indeed works around the world and it works in Bursa, and they are not just theory and complex mathematics, and you wish to learn about it to build up long-term wealth, you can contact me at

ckc13invest@gmail.com

K C Chong