kcchongnz blog
Fundamental Value Investing in Bursa kcchongnz
I have written an article on “What is fundamental value investing?” yesterday in the link here:
http://klse.i3investor.com/blogs/kcchongnz/89477.jsp
Fundamental value investing can be summarized by the quotes of Warren Buffett’s deputy in Berkshire Hathaway, Charles Munger which are printed here again:
“All intelligent investing is value investing - acquiring more than you are paying for. You must value the business in order to value the stock.”
“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”
More importantly, does value investing worked? Does it still work? Does it work on its own?
Fundamental value investing has worked all around the world
Ample proofs have been given that fundamental value investing work in US and all around the world.
In its booklet, “What Has Worked in Investing: Studies of Investment Approaches and Characteristics Associated with Exceptional Returns”, 2009 Edition by Tweedy, Browne Company LLC, it describes over 50 studies, approximately half of which relate to non-U.S. stocks. Interestingly, geography had no influence on the basic conclusion that stocks possessing the fundamental value characteristics provided the best returns over long periods of time. It provides solid empirical evidence that Benjamin Graham’s principles of value investing continue to serve investors well.
I have also written an article, “Picking stocks. Does It Work?” describing the paper titled “The Super Investors of Graham and Doddsville”, where Warren Buffet showed the track records of each of nine disciples of Benjamin Graham showing that they all generated annual compounded returns of between 18% and 29% over track records lasting between 14 to 30 years in the link below:
http://klse.i3investor.com/blogs/kcchongnz/75910.jsp
In the above same link, I have also described the Fundamental value investing of the Magic Formula by Joel Greenblatt, and how the it outperformed the S&P500 by a wide margin for the 22 years from 1988 to 2009, achieving a compounded annual growth of 23.8% as compared to the 9.6% of S&P.
Note that returning 200% or 300% in two years or three years is very common, but a return of 20% a year over a long period of 20-30 years is not a small feat, and few, very few investors managed to achieve that.
More importantly, does fundamental value investing work in Bursa?
Does Fundamental value investing work in Bursa?
We have read many times that investing in Bursa using value investing doesn’t work, or won’t work alone, haven’t we? Why is Bursa so unique that value investing works everywhere in the world but not in Bursa? And where are the evidences that it doesn’t work in Bursa?
None, no evidence at all, just plain talk. Tidak ada, 没有, कोई नहीं.
There is little or none academic research in this respect in Bursa. Instead I will base on some simplistic non-academic findings to show that value investing does work in Bursa. Well, sorry, those are all I got.
High Dividend Yield Value Investing Strategy
This value investing strategy is favoured by Dr. Neoh Soon Kean as I have written here:
http://klse.i3investor.com/blogs/kcchongnz/88424.jsp
I have used the Issue 20 from 5/10/2009-08/11/2009 from the booklet of Share Investment, a total of 35 high dividend yield stocks from various industries with a DY of more than 7% were selected to buy-and-hold for 5 years.
The total CAR of the 35 stocks was 16% a year with a median of 12.2%. Both are higher than the return of the broad market of 10.8% over the same 5-year period.
The details of the study are shown in the following link:
http://klse.i3investor.com/blogs/kcchongnz/62033.jsp
Low Price-to-earnings ratio
In the following link
http://klse.i3investor.com/blogs/kcchongnz/62822.jsp
I selected a total of 104 stocks with the lowest PE ratios from different sectors were selected from the Issue 20 from 5/10/2009-08/11/2009 from the booklet of Share Investment.
The broad KLCI index has increased from 1260 to 1819 at the close on 24/10/2014. The average total return of the portfolio was 181%, out-performing the broad index of 51% by 3.5 times.
This means you would have done very well investing in boring low PE stocks for the 5 years’ period.
The ColdEye five yardsticks in investing
In the link below, we look at the value investing strategy of ColdEye basing on the 5 metrics listed below:
http://klse.i3investor.com/blogs/kcchongnz/88651.jsp
1. Return on equity, ROE,
2. Cash flows
3. PE ratio
4. Dividend yield and
5. Net tangible asset backing per share, NTA
The strategy suggests to invest in good companies as presented by its high return on equity and good cash flows and at cheap prices versus values in the later three metrics.
The 9 stocks chosen using this value investing strategy yields an average return of 281% in about two years and nine months, with the median return of 61.3%. This return way out-performed the total return of 8.5% of KLCI over the same period by an extreme wide margin.
The above simplistic studies show that value investing have worked very well too in Bursa.
What about my own experience?
Yes, I am going to repeat things again here talking about the performance of my portfolios. I have only two established portfolios in i3investor which are not-so-short periods of up to three years. Actually value investing is about longer investing horizon, but I do not have any portfolio set up long enough. Let just treat this as mid-term return.
Return of value investing, my personal experience
My value investing methodologies generally follow the principles of the Magic Formula Investing; investing in good companies, augmented with good cash flows, and the asset-based deep value investing, primary using the Graham net net current asset valuations.
My most recent link below summarized the return of the two portfolios; namely “GE13 Watch” and “Stock Pick Challenge 2013 Second Half”.
http://klse.i3investor.com/blogs/kcchongnz/88504.jsp
The “GE13 Watch” portfolio of 10 stocks returned 134%, beating the total return of the broad market of 5.7% by a whopping 128% for the three year investing period. All 10 stocks in the portfolio have positive total returns, none has lost money, showing the low risk value investing strategy.
The average return of the second portfolio, “Stock Pick Challenge, 2H” of eleven stocks with slightly shorter period is a whopping triple digit of 120%, beating the flattish broad market by the same magnitude.
There are only two stocks which under-performed the market by just, again signifying that this value investing strategy which not only can yield superb return, but also at very low risk.
Conclusions
It has shown in the above that fundamental value investing which can yield extra-ordinary return with low risks, not only work in the US and all around the world, it also works very well in Bursa.
I have always believed that fundamental value investing is inherently sound, workable, and profitable. I am always amazed that someone scorns at value investing. It just seems silly to think about investing any other way.
And I also feel I am doing a disservice to the investing community if I do not continue to propagate the wonderful thing about value investing.
For those who wish to learn the proven successful fundamental value investing for your investment to build long-term wealth, please contact me for an online investment course which has just started for a small fee.
The train is moving. Jump on while you still can.
K C Chong
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Discussions
6 people like this. Showing 34 of 34 comments
KC, if you don't mind, I always had a question regarding Magic Formula that I wanted to ask you. May I?
I would like to ask what are the "minimum" and "standard" benchmark for EV/EBIT and EY for companies that you buy. Because I've noticed that you've never really mention them in your articles. Many thanks KC.
2016-01-18 00:18
I like to buy a good company with EV/Ebit of not more than 8.
Ebit is historical. If there is clear growth potential, I may pay higher price for it.
2016-01-18 02:33
I see, what about your benchmark for EY then KC?
Still remain as 15% as per your previous articles?
2016-01-18 04:56
Posted by Desa20201956 > Jan 18, 2016 04:56 AM | Report Abuse
In research departments, it is always about projections and earnings visibility ( how reliable are the projections ). ...never about historical figures.
--------------------------------------------
"History doesn’t repeat itself but it often rhymes,” - Mark Twain.
Understanding the historical figures helps understanding the company's past history.
A serious investor will not only look at the future of the company, he/she will also look into the past of the company.
2016-01-18 05:01
Ezra_Investor, please subscribe to ckcI3invest@gmail.com, sifu KC email to learn about magic formula, you would not regret.
2016-01-18 06:31
@nokenzo - Yes you are right. I actually do intend to relearn all my Fundamental Analysis knowledge again from scratch from KC in the near future.
I've stopped investing for so long, that most of my investing knowledge are now rusty. Recently found passion in investing again, hence been re-reading all my investing books - The Intelligent Investor, Common Stocks and Uncommon Profits, etc and of course also KC's articles.
The reason why I'm asking KC bout the Magic Formula is because I'm currently reading "The Little Book That Still Beats The Market."
2016-01-18 08:31
Posted by Desa20201956 > Jan 18, 2016 03:00 AM | Report Abuse
actually if it is EV/EBIT without much growth, 8 is way too high a price to pay already.
There are tonnes and tonnes of blue chips in Malaysia and NYSE with EV/EBIT below 8.....possibly around 5 would be fair value for blue chips.
is an earnings yield before interest and tax of 12.5% for blue chips an attractive proposition?
There are tonnes and tonnes of blue chips whose PE is in the range of 8 to 12.
Tonnes and tons of blue chips in Malaysia with EV/Ebit below 8?
Tonnes and tonnes of blue chips in the range of 8-12?
Most of all would like to know which are those blue chips, tonnes and tonnes of them. Please share so that we can just invest in a few.
2016-01-18 11:09
Sure or not. Can show your calculations ?
Posted by Desa20201956 > Jan 18, 2016 11:16 AM | Report Abuse
simply pick one....Maybank is at TTM PE of 11 times....TNB 12 X,
if PE is 12 times....we can expect EV / EBIT once you go through the calculations to be around 5 or 6.
2016-01-18 11:25
Posted by Desa20201956 > Jan 18, 2016 11:16 AM | Report Abuse
simply pick one....Maybank is at TTM PE of 11 times....TNB 12 X,
if PE is 12 times....we can expect EV / EBIT once you go through the calculations to be around 5 or 6.
Show us how do you arrive a EV/Ebit of TNB and Maybank to be around 5 or 6. Please.
Posted by Desa20201956 > Jan 18, 2016 03:00 AM | Report Abuse
actually if it is EV/EBIT without much growth, 8 is way too high a price to pay already.
There are tonnes and tonnes of blue chips in Malaysia and NYSE with EV/EBIT below 8.....possibly around 5 would be fair value for blue chips.
2016-01-18 11:48
Posted by kcchongnz > Jan 18, 2016 12:05 PM | Report Abuse X
Posted by Desa20201956 > Jan 18, 2016 11:55 AM | Report Abuse
you are the guru...you do it.
I never claim that I am the guru. I am an engineer. You are an accountant, and you claim that you can find tonnes and tonnes of blue chips in Malaysia with EV/Ebit around 5 and 6. Remember?
2016-01-18 12:07
Those still new with KC Chong he only invest in call warrants(Maybank C6) not Maybank as he highlighted in attached blog. Hence you see his so many blogs ask people to join his course for a "fee".
http://klse.i3investor.com/blogs/kcchongnz/58905.jsp
2016-01-18 12:10
Posted by donfollowblindly > Jan 18, 2016 12:08 PM | Report Abuse
Those still new with KC Chong he only invest in call warrants(Maybank C6) not Maybank as he highlighted in his blogs. Hence you see so many blogs he ask people to join his course for a "fee".
Sorry to disappoint you here, donfollowblindly. Just a few percent of similar comments below. You are not qualified to join even if you have millions.
Posted by Intelligent Investor > Dec 21, 2015 08:24 PM | Report Abuse
An investment in Mr. Chong course provide me the ever best return.
Posted by coolio > Oct 22, 2015 11:58 AM | Report Abuse
I just want to take this opportunity to say thank you again because recently I have achieved 7 figure in my investing journey...hehehe.. Thanks for your investing methods, no 8 wonders in the world is really amazing!
Posted by joe2703 > Dec 21, 2015 10:22 PM | Report Abuse
An investment in knowledge pays the best interest.... I've learned so much from your online course and I made quite some good profit with the knowledge that you taught me, thank you very much and Merry X'mas!
Ch Loong27 November 2015 at 17:59
This is one of the most real life useful course i ever join!
2016-01-18 12:14
Posted by Desa20201956 > Jan 18, 2016 01:03 PM | Report Abuse
KC....just for curiosity, you should finish the calculations. ...and prove me wrong. only half an hour if you are slow.
I too lazy.
Price 12
no. of shares 5643600
MC 67723200
Total debts 24698800
Cash 8909500
Ignore small MI
Ebit 8627600
EV 83512500
EV/Ebit 9.7
Now your turn to give me your tonnes and tonnes of bluechips with EV/Ebit around 5 or 6.
2016-01-18 13:07
Price 13
no. of shares 5643600
MC 73366800
Total debts 24698800
Cash 8909500
Ebit 8627600
EV 89156100
EV/Ebit 10.3
2016-01-18 13:10
True or not Desa2020, this not selling proton spare parts wor. I rather trust kcchong nz.
2016-01-18 13:45
Posted by Desa20201956 > Jan 18, 2016 01:47 PM | Report Abuse
go ask Chong when he comes back.
It appears there is certain respect from you. I have decided to respect you too.
Just a minor comment here. There are tonnes and tonnes of resources in the internet. For example you can find what is enterprise value, what it means and its significance in valuation easily.
One link you can look at is here:
http://klse.i3investor.com/blogs/kcchongnz/84689.jsp
2016-01-18 13:57
KC, stay away from this Desa girl, he is a trouble maker. Patronaizing and like to twist truths. The kind of people that brings negative energy everywhere he goes. According to him, only rich man KYY's words are correct, everybody else is nobody. He said that yesterday.
2016-01-18 14:02
sifu Desa knows corporate finance inside out, everybody please stand aside...
2016-01-18 14:12
Since when do we minus debts and ignore cash when calculating EV. I think you better get the formula right first before making anymore posts.
Posted by Desa20201956 > Jan 18, 2016 01:41 PM | Report Abuse
Tenaga...
MC 73366 less debts 24698 =48668 EV
EBIT (8/2015) 7796
48668 / 7796 = 6.2 I am spot on.
cash, ignore because it is difficult to say what is excess cash.
2016-01-18 14:21
Desa I agree with you JHM is a dog... doesn't matter, ha ha ha
But we are now in KC thread... lets talk about your profound knowledge of corporate finance and how you can give us a lecture... LOL
2016-01-18 14:22
market will not a fall yet....
I still got plenty of export shares for me to make money before the market falls.......
2016-01-18 14:38
Your method of calculating EV is clearly flawed... I rest my case. You can continue calculating the way you want
2016-01-18 16:15
Yoo huu, Desa2020 girl girl got Proton brand super glue or not ? Dont use Ev to show off here lar, u cant even bit me with your Proton TA .Wor , come in Jhm thread lar , Uncle k waiting for u till his saliva drop to d floor liaw wer....
2016-01-18 20:01
Don't waste your time here la, come Jhm thread ; help me mit hua sang. Uncle k will pay u with lolipop.
2016-01-18 20:07
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