kcchongnz blog
The Art of Successful Investing in the Stock Market kcchongnz
I read a good article when the author describes on hindsight in the link below that investors could have avoided losing big money in Globetronics if they were aware of the cognitive behaviour of confirmation bias and have done some detail business analysis.
http://klse.i3investor.com/blogs/JTYeo/102530.jsp
Frankly, readers would benefit much more by reading this type of sharing, rather than those boasting how much they have made in the share market, and encouraging you to take excessive risk such following the greater fool theory and using margin finance to boast your return and to become multi-millionaire overnight.
Here, I would like to share what I had seen for the same stock, Globetronics, how investors could have avoided some heavy losses, and for a couple more stocks, Focus Lumber and Latitude Tree, if they know and care to carry out some quantitative analysis and valuations.
Globetronics Technology Bhd
Globetronics, a great company which I will describe later, had its share price plunged by 55% in less than 8 months from RM6.50 at end of year 2015 to RM2.90 at the close on 20th August 2016 as shown in Figure 1 of its share price movement below.
Anyone who has bet big on it with margin finance would have lost everything in just than 8 months. Why not bet on it? There are numerous reasons why an investor would “sailing”, or bet all on it.
Figure 1:
When Globetronics announced its fantastic result for year ending 31st December 2015 on 23rd February 2016, I did take a good look at Globetronics with the intention to invest in it.
Earnings per share improved (again) by about 15% to 25.3 sen per share from the previous year. Return on capitals were again great at more than 20%, more than twice its costs of capitals. Cash flows were great too. There had been profit growth every year since many years ago. This is what I would classify as a great company.
However, bear in mind a great company is not necessary a good investment, provided that it is selling at a reasonable price. So was Globetronics selling at a reasonable price at RM5.95 at that time?
PE ratio was at 22.3, not really expensive as the company has excellent growth in the past and beautiful operating numbers. However, Enterprise value was 17 times earnings before interest and tax (Ebit). This is definitely on the high side for me as it is two and half times more than what I would pay for an ordinary company. Oh yeah, I like growth, but I am cheap skate as I won’t pay much for it.
I did a discount cash flow analysis from the fundamental aspect assuming growth is internally generated through return on capitals, assuming a bold 15% growth for the next 5 years and 5% subsequently. I was only able to get an intrinsic value of RM4.15, way below its price of RM5.95 at that time.
With that market price, investors were expecting Globetronics would continue to growth at very high rate of more than 20% as before, and with margin expansion and higher return on capitals, and hence willing to pay a high price.
I gave up the idea of investing in it as I think it was overvalued at that price.
Shortly after that, the growth expectation did not materialize, and profit plummeted the last two quarters. With the high price paid by many investors, it was a double whammy, and the rest is history.
“Wonderful companies become risky when people overpay for them.” Peter Lynch
Focus Lumber
I have written about Focus Lumber before in the link below:
http://klse.i3investor.com/blogs/kcchongnz/97079.jsp
Focus Lumber is another great company. Just before it announced its third quarter results for period ended 30th September 2015 somewhere on 17th November 2015, its share price jumped by 70% within 3 months from RM1.84 to a high of RM3.09 on January 12 2016 as shown in Figure 2 below.
The results show the vast improvement for the third quarter 2015 with net profit increased by more than 200% from RM3.3m to RM9.6m for the corresponding period in 2014. EPS, as a result, also increased by more than 200% from a EPS of 3.2 sen to 9.4 sen for the quarter.
Figure 2
Some investors who purely base on a single metric of “Profit growth”, without considering where this “growth” comes from, saw a great opportunity and annualized the EPS by multiplying by 4 to the single quarter exceptional result and obtained an expected EPS of 37.6 sen for the next 12 months, and chased the share price up to more than RM3.00 in early January 2016.
However, many do not care about its financial statements and failed to see that the greatly improved result for the third quarter of 2015 was in a major part, due to the gain in foreign currency as a result of rising USD against Ringgit from the beginning to the end of the period, a one-off item.
When the next quarter showed a reduced profit from the preceding quarter due to some recovery of Ringgit against USD, investors dumped its share, resulting its share price dropped more than 30% to less than RM2.00, in less than two months. It closed at RM1.72 on 19th August 2016. They would have lost a total of 44% in less than 8 months.
Again paying too much to chase the illusive growth story, without understand where the “growth” comes from, is hazardous to one’s financial health.
At RM1.72 now, I think Focus Lumber is a great value stock to invest for long term. But why is there no interest in this stock? Once bitten twice shy?
Latitude Tree
Latitude Tree was and still is a great company in my opinion with high return on capitals, excellent cash flows and a good growth story. I personally have written a number of articles discussing about it, including a number of other furniture companies.
Latitude Tree was heavily promoted in i3investor when it was about RM6.00 sometime in November 2015. I was a contrarian then and I have written my last article on it discussing about the cyclical and the power of mean reversion in investing in the link below, and hence put forth my opinion that at RM6.00, it wasn’t cheap any more.
http://klse.i3investor.com/blogs/kcchongnz/80034.jsp
Latitude Tree’s share price continued to climb to above RM8.00, pushing its PE ratio, based on the latest and historical highest earnings per share, to about 12, way above its historical PE of single digit number.
I did hear some investors making hundreds of million investing in this share when its share price climbed from RM6.00 to above RM8.00. But how many retail investors lost big when they bought at about RM8.00 and now the share price is lingering at RM5.15?
At this price, PE ratio is only 6.4, considerably below its historical PE ratio, but nobody talks about it at all.
Figure 3:
Conclusion
Most investors chase the growth story, buying stock without having an idea the value of a stock. They usually follow some rumours and hypes, taking the road where the greater fools go. They buy stocks when they are selling at high prices, hoping someone else will buy from them at even higher prices. They paid too high a price for some growth expectation, expecting trees to grow to sky. The end result is, most of them lost money when there is a double whammy; that they pay too high a price for something which eventually did not materialized.
The only way to have a higher probability of success for retail investors in the jungle out there is to have some knowledge of the business, and know the language of the business, that is the ability to read and interpret financial statements, and have a feel of the value of a business, i.e. to know how to carry out at least some simple valuations.
If you know how to do the above, you would be able to buy some great companies selling cheap.
Sure, everyone makes mistakes in his judgment. I have my share of those too. Investors must realize that the stock market is unknowable and unpredictable. One must know what he may not know, especially about the future. Even Charles Munger said this,
"IInvesting is not easy; anyone thinks it is easy is stupid".
Know and understand the relationship between price and value. Understand risk, recognize it and control it.
And that is what I try to teach you. And if you are interested to learn about them for a small fee, because you want to have a higher chance of getting satisfactory return of your investment in the long run, please contact me at
ckc15training2@gmail.com
KC Chong
Related Stocks
| Chart | Stock Name | Last | Change | Volume |
|---|
More articles on kcchongnz blog
Insas Warrants WC and Its Valuation kcchongnz
Created by kcchongnz | Jan 22, 2024
Which to buy, Insas or Insas WC?
Isn’t this the most undervalued stock in Bursa?: Insas Berhad by Kcchongnz
Created by kcchongnz | Jan 15, 2024
2024 New Year Reflection Investing in the Stock Market: Timing the Market
Created by kcchongnz | Jan 01, 2024
2023 Christmas reflection on pitfalls of investing in the Malaysian stock market kcchongnz
Created by kcchongnz | Dec 25, 2023
Introduction: The Complete Dividend Investing Guide That Works by K C Chong
Created by kcchongnz | Oct 02, 2022
Discussions
9 people like this. Showing 44 of 44 comments
hi kc,how about chinwell?the metric valuation for chinwell is good but the company future prospect is bleak due to brexit and the pollution case in its vietnam plant?but then again metric valuation is useless when we dont know about the future pospect?
2016-08-21 05:21
Tq and appreciate so much to both Sifu KC and Ricky for sharing such wonderful articles in helping us from dropping into pitfalls.
Noted Sifu KC cautioned don't only look into the wonderful profit growth story and beautiful operating numbers but also considering not to overpay the share even from a good company. From the DCFA Sifu also worked out the intrinsic value of RM4.15.
Now taking into consideration of latest Gtronics share price of 2.90 on 20 Aug 2016, we now hv a MOS in the reg of 30%. Does Sifu think this is an opportunity to pick up Gtronics after recent share price dived down?
Aso from Sifu Ricky deep dived analysis the reason for Gtronics financial predicament was due to smartphone market probably has approached its saturation stage. So should we now considered there is fundamental changes in Gtronics and we should not invest in this company further until new set of positive fundamentals come up.?
On one hand we seem to hv good MOS and on the other hand we hv alarm bell calling get the hell out! How to handle contradicting inputs? Appreciate both Sifus further calrification and guidance.
2016-08-21 10:14
EPF and director buy in latest Bursa announcement. I believe those against Gtronics must be having 0 EPF saving.
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5171413
http://www.bursamalaysia.com/market/listed-companies/company-announcements/5180873
2016-08-21 10:54
Those with strength to Led & Automotive Tech will prevail from slowing down from Smart & Portable device components.
2016-08-21 11:24
Buy good share cheap.
Don't over pay for 'future earning'.
Growth stock always associated with higher risk -- high risk high gain.
How can revenue and profit keep on growing at double digit (or more)?
Organic growth?
Acquisition?
New business ventures?
Increasing borrowings?
Cyclic in nature?
Creative accounting?
Once the factor contributing to the 'fantastic growth rate' removed, how would you expect the share price to remain high?
One good lesson learnt from the meow-meow.
See how Parkson growth in revenue and profit when it first listed.
See how Parkson dooms when all the 'growth factors' are gone.
Many sifu got severely burnt by Parkson, that include Warren Buffet of Malaysia.
2016-08-21 12:28
Posted by ks55 > Aug 21, 2016 01:14 PM | Report Abuse
Anybody wish to add further comment on Parkson apart from my comments below?
Last month I ordered some furniture, fittings, water heater, aircond through Lazada. The delivery was fast and efficient. I saved 20% to 40%.
The driver of the delivery truck told me that he has over 59 articles for delivery that same day just in one housing estate. This phenomenal boom is repeated everywhere in Malaysia.
Parkson is doomed!!
Only way out is to sell off all Parkson assets - distribute to shareholders and cease operation. Or else find alternative investment.
Online shopping will kill off Parkson for good.
2016-08-21 13:21
Calvin, Tan Teng Boo suggests to buy Parkson on weakness, how you think his view?
2016-08-21 14:23
Kcchongnz what do u think of the share accumulation by Mr. Lin last week?
http://klse.i3investor.com/blogs/Goodstocks/102563.jsp
2016-08-21 14:43
Posted by Blacksails > Aug 21, 2016 04:18 AM | Report Abuse
How about PBBank? Is it too high price to pay for this stock that many retail investors love? Is it a bad investment considering its high price compare to Maybank?
Most people look at price only and disregard value totally.
Look at things like ROE and P/B to make a judgment.
2016-08-21 22:29
Posted by iamsoonoob > Aug 21, 2016 05:21 AM | Report Abuse
hi kc,how about chinwell?the metric valuation for chinwell is good but the company future prospect is bleak due to brexit and the pollution case in its vietnam plant?but then again metric valuation is useless when we dont know about the future pospect?
Yes, investing is about the future, though the past may be used as a guide. The future of some companies may change drastically if there is a policy change too.
2016-08-21 22:31
KC Chong sifu.
DANCO got kangtao Bo after your screening?
Terima kasih.
Come to Aus we meet up. I buy u Teh Tarik n we bla bla bla
2016-08-21 22:33
Posted by Bizfuneng > Aug 21, 2016 10:14 AM | Report Abuse
Noted Sifu KC cautioned don't only look into the wonderful profit growth story and beautiful operating numbers but also considering not to overpay the share even from a good company. From the DCFA Sifu also worked out the intrinsic value of RM4.15.
Now taking into consideration of latest Gtronics share price of 2.90 on 20 Aug 2016, we now hv a MOS in the reg of 30%. Does Sifu think this is an opportunity to pick up Gtronics after recent share price dived down?
Aso from Sifu Ricky deep dived analysis the reason for Gtronics financial predicament was due to smartphone market probably has approached its saturation stage. So should we now considered there is fundamental changes in Gtronics and we should not invest in this company further until new set of positive fundamentals come up.?
On one hand we seem to hv good MOS and on the other hand we hv alarm bell calling get the hell out! How to handle contradicting inputs? Appreciate both Sifus further calrification and guidance.
The intrinsic value worked out by me at RM4.15 was based on its best operating numbers and earnings that was in 2015, and earnings growing 15% for the next 5 years, with the same operating efficiency. With the possible change in fundamentals, that IV is no longer valid, in my opinion.
2016-08-21 22:35
Posted by benjamin2013 > Aug 21, 2016 12:13 PM | Report Abuse
Kcchongnz: At RM1.72 now, I think Focus Lumber is a great value stock to invest for long term. But why is there no interest in this stock? Once bitten twice shy?
Couldn't agree more KC. Its a great value stock to invest for the long term. Net cash of 86 sen per share is enough to pay 15 sen dividends for the next 5 years. Plus cash yield is >10%, which is twice your requirement. A NO-BRAINER INVESTMENT INDEED!
Its a good sign that major shareholder and executive director Lin has begun to acquire shares in Focus Lumber. Thanks for your sharing.
I think Focus Lumber is good for long term.
But bear in mind that if the next quarter result comes out and if its profit drops, some short-term players will sell relentlessly without bordering anything else, and with that margin calls can happen too.
But investing should always be long-term.
2016-08-21 22:45
Posted by chongkc1957 > Aug 21, 2016 02:43 PM | Report Abuse
Kcchongnz what do u think of the share accumulation by Mr. Lin last week?
http://klse.i3investor.com/blogs/Goodstocks/102563.jsp
Major shareholder accumulating is always a good sign. But don't forget another major shareholder will sell if the next quarter result drops by just 1% in profit.
2016-08-21 22:47
Reading Peter Lynch's Beating the Street now and love this statement:
The only way to have a higher probability of success for retail investors in the jungle out there is to have some knowledge of the business, and know the language of the business, that is the ability to read and interpret financial statements, and have a feel of the value of a business, i.e. to know how to carry out at least some simple valuations.
2016-08-22 02:48
Reason of reading other books is to calm down myself to see what would have been missed & overlooked.
i3 is good place to share ideas/news & know latest information about certain companies or developments.
But lately I feel i3 is making me thinking too narrowly & it made me feel nervous & scary, sometimes.
2016-08-22 03:06
I started to come into stock market again when Airasia was pressed to below RM0.80, with now price goes to more than RM3, any hints?
2016-08-22 03:07
Dear master Chong, you have in the past wrote an analysis on Elsoft , the latest Q2 result was just released last Friday , it was quite a significant set of result compare to correspondent period . Would appreciate your guidance , opinion and views on the company financial strength and the current share price valuation . I am your ardent follower , this is because your views are always modest with good fundamental and financial insight . Thank you for all the advice and sharing master Chong .
2016-08-22 08:06
Kcchongnz I still do not think Koon Yew Yin will be sostupid to sell because the fair value is easily RM2.80++. Unless his advisors are useless or he lost his mind!
2016-08-22 20:39
Posted by tianjin > Aug 22, 2016 08:06 AM | Report Abuse
Dear master Chong, you have in the past wrote an analysis on Elsoft , the latest Q2 result was just released last Friday , it was quite a significant set of result compare to correspondent period . Would appreciate your guidance , opinion and views on the company financial strength and the current share price valuation . I am your ardent follower , this is because your views are always modest with good fundamental and financial insight . Thank you for all the advice and sharing master Chong .
Last quarter result was excellent. But bear in mind that the earnings of small companies are always very volatile. And take note that never overpay for too much for some growth expectation as I have discussed in the post here.
Happy investing.
2016-08-22 20:52
Posted by danielng > Aug 22, 2016 08:56 PM | Report Abuse
Any advice on property companies sifu? For instance IGB and IJM.
These two companies are great companies.
Just a sweeping statement here,
IJM is probably the best construction companies. Property not very good prospect right now, unless at good locations.
IGB has a lot of hidden assets. It is a matter of unlocking and catalysts. For some, or most people, they do not like to wait.
Eventually everything boils down to price versus value.
Learn how to value a business.
2016-08-22 21:05
Posted by chongkc1957 > Aug 22, 2016 08:39 PM | Report Abuse
Kcchongnz I still do not think Koon Yew Yin will be sostupid to sell because the fair value is easily RM2.80++. Unless his advisors are useless or he lost his mind!
What do you mean by "fair value"? Is it cast in stone?
Have you heard of "the Golden Rule" in investing which has been repeated again and again?
2016-08-22 21:24
Posted by duitKWSPkita > Aug 21, 2016 10:33 PM | Report Abuse
KC Chong sifu.
DANCO got kangtao Bo after your screening?
Terima kasih.
Come to Aus we meet up. I buy u Teh Tarik n we bla bla bla
Duit my friend,
Sorry don't know DANCO, and tak ada "kangtao".
I like your last sentence. In October, Sydney?
2016-08-22 22:05
KC Chong..
Brisbane lagi woi.. Try to arrange bla bla bla Nasi Lemak at Sydney. Risau WA kerja lembu kerja kuda di Europe lagi... Hidup susah ma.
Cheers ya. Make sure u know how to enjoy in waterfall park ya.
2016-08-23 07:58
For Focus Lumber: A lot of people who bought earlier are stuck on high prices. If someone pushes up the share price all those who are stuck before will sell out. Who is so sostupid to advise people to buy focus lumber when they are a lot of so stupid people in that counter who bought high before are waiting to sell out their shares. Please don't promote this stock when a lot of people who bought high are already stuck inside. Use common sense, which is quite lacking this days. As for parkson, who you don't need now you will not need it later on. See whether you need it now or not, if not if you invest in parkson now which is what you don't need to do now, your investment now will become redundant in the future. You can only analyse the past and the present condition but you can not analyst the future because the future is something that has not happened. What you don't need now please don't buy now or else you will regret later. To buy parkson, see whether you need Parkson now or not? For me, I don't need Parkson now so I don't need to worry about tomorrow of what I don't need now. Investment is common sense, hah? Don't need to pay too much money to listen to people who tell you nothing.
2016-08-23 10:41
For benjamin2013: Only a no-brainer will know who is a no-brainer. please check whether you are a no-brainer or not. benjamin2013 : you don't even know when Mr. Kong is going to da-pian how do you you know whether he has brain or not. You don't even know when is someone going to da-pian but you think you know that you have brain and other people is a no-brainer. Please check whether when is Mr. Kong going to da-pian then you will know whether it is you who is the no-brainer or it is Mr. Kong who is the no-brainer. Please go and check when other people is going to da-pian before you said someone or something is a no-brainer, ok!
"benjamin2013 Kcchongnz: At RM1.72 now, I think Focus Lumber is a great value stock to invest for long term. But why is there no interest in this stock? Once bitten twice shy?
Couldn't agree more KC. Its a great value stock to invest for the long term. Net cash of 86 sen per share is enough to pay 15 sen dividends for the next 5 years. Plus cash yield is >10%, which is twice your requirement. A NO-BRAINER INVESTMENT INDEED!"
2016-08-23 11:03
"What do you mean by "fair value"? Is it cast in stone?
Have you heard of "the Golden Rule" in investing which has been repeated again and again? "
The golden rule is : Only if the company is a wonderful company then you try to buy at the fair price. The problem is when a company is very cheap or trading at a fair price of RM2.80 this does not make the company into a wonderful company.
Lion industry is net asset value easily RM3 but share price trading at very fair value of 35 cent. Does this means you should invest in Lion industry because it trading price is very fair and very cheap. This guy is bohong sifu or bohong sifat!
This kcchong is kindergarden standard only. Using kindergarten standard can take in students, this amazes me. Why are so many Malaysians so stupid that they have to listen to people who live in New Zeland.
2016-08-23 12:32
Price is not equal to value and value is not equal to price. This is the relationship of price and value. Nothing is very abstract and noting is so difficult to understand.
2016-08-23 12:48
The Art of Successful Investing in the Stock Market kcchongnz
FLB drop another 30% (I never ask you to buy but I teach you the art of successful investing in stock market) very interesting huh huh huh
2016-08-23 14:16
Lets be realistic...the expected dividend of FLB is most likely be reduce to Rm 0.06 to Rm 0.08 per share mah...!!
Even so dividend is both reasonable and sustainable if share price is rm 1.53 loh...!!
Please do not expect Rm 0.15 per share dividend mah...!!
2016-08-28 15:45
Simple analysis loh....!!
The market cap of FLB is about Rm 155m about Rm 80m consist of cash mah.....!!
Yes kyy sell....but don u think....bodoh to sell cheap now ??
Should buy mah.....!!
Operationally also generate good positive cashflow too loh...!!
Low interest environment....this FLB is a good buy bcos of its cash generation ability...go for a slightly longer term...good profit opportunity loh...!!
2016-08-28 15:48
Mr. Sostupid in my opinion talks is cheap, what u can show based on facts? principles works if u know how to apply... History repeat by itself just in different, way... Mr. Kc only shows us how to increase the probability of success, besides the ppl whom join and follows his teaching wanted to learn more and it wasn't stupid, if u think acquirer knowledge is stupid or expensive try ignorance
2016-11-09 14:48
Post a Comment
Featured Posts
Apps
Top Articles
1
2
博傻理论
3
Good Articles to Share
4
THE INVESTMENT APPROACH OF CALVIN TAN
MKHOP (5139) What Is Its Current Forward P/E and Intrinsic Value, Calvin Tan
6
7
KLSE Traders Update and Ideas
8
M+ Online Research Articles
#
Stock
Score
Daily Stocks
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Stock Name
Last
Change
Volume
Featured Advertisers / Partners
Ride The Bull Short The Bear
CS Tan
4.9 / 5.0
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Blacksails
How about PBBank? Is it too high price to pay for this stock that many retail investors love? Is it a bad investment considering its high price compare to Maybank?
2016-08-21 04:18