[Dear KC,

Thanks for the update and the continuing good performance of my stock portfolio under your able management (I could never have followed some of your moves!).

I continue to enjoy all your recent postings in our private blogs and in I3. All very well written and extremely analytical. You write really well. It is unbelievable that there are many readers out there who are still not persuaded by your teachings.

I am thinking of adding another $X to the amount under your management – when would be a good time to add on?

Meanwhile, I am continuing my learning on FA through repeated readings of all its aspects as taught by you and from the internet. It is really a jungle out there without the FA guidance.

Thank you for everything.

Best wishes to you and your family.]  From Mr. Y

Dear Mr. Y,

Thank you very much for your compliments. Everyone enjoys compliment once in a while. It gives some kind of “shiok” effect. This keeps me going to do what I am enjoy doing now about educating the public about personal finance and the “right path” of investing.

Please allow me to make use your above email to discuss a few things here in the public regarding personal finance, investing and life in general.  

Continuous learning a spice in life

First of all, I must congratulate you of being such a keen learner. For a person of your age, still with very busy work schedule and coming from a completely different professional background, and yet with such an appetite in learning about fundamental value investing (FVI), I have known very few of them. I do have many very keen learners as my online investment courses participants, a few of them are seniors too, and congratulation to them too, but most of them are much younger.

Great to hear that you are continuously learning “through repeated readings of all its aspects as taught by you (me)”. The best thing I think is after you have gone through a structured course from me, you are able to learn FVI on your own now through the internet. Do read some of the good investment books written by some real super investors, copies of eBooks I have given to you, and more if you want to.

The next time when you decide to retire, I am sure this continuous learning habit that you have acquired will keep your retirement life busy and interesting, and at the same time fruitful and productive. That is what I am experiencing now.

Value investing is either….either you get it or you don’t

The thing I admire you more is you are a super parent, besides providing your children with a head start in life, you are trying to instill this awareness of FVI to all your children, three of whom you have enrolled them in one of my courses too. I hope they have inculcated the same belief and habit in you in FVI, sooner or later. Well, as parents, we try to do what is best for our children, the rest depends on themselves. Yes, like you have said, “It is really a jungle out there without the FA guidance.” I have written many times about the peril of investing, one of the recent one is here:

http://klse.i3investor.com/blogs/kcchongnz/104168.jsp

You can see how most stock market speculators have lost huge amount of money as shown in the link above, speculating in the jungle of investing. Many of them keep on losing speculating in the stock market; 一直输,一直输,一直输........., like what one Chan sifu wrote about it of his clients in i3investor. And they never learn, and never want to change.

You said, “I continue to enjoy all your recent postings in our private blogs and in I3. All very well written and extremely analytical. You write really well. It is unbelievable that there are many readers out there who are still not persuaded by your teachings.”

I am glad you enjoy my writing. Your compliments will motivate me to keep on writing. As you can see, I am also trying hard to get people interested in learning about FVI in a structured manner. There are some enquiries about my courses after I have posted an article in i3investor, but generally you are right, “there are many readers out there who are still not persuaded by your teachings”. It is not really a surprise to me.

Penny wise pound foolish

Most people want freebies in life. When I provide the details of my course and the fee involved, most never come back again. This is one of the comments I received,

“What? Pay RMxxx to learn investing? I just lost RM5k in this stock Z, and if my wife knows that I pay another RMxxx for an investment course, she will kill me!”

It is funny out there. Many people are willing to overpay for a financial product in thousands, or tens of thousands, but when come to seeking financial advice for a fee of a few thousand, they are not willing to pay it although the advice would have save them tens of thousands. This was my personal experience working as a financial adviser a few years ago. Similarly, they are willing to lose tens of thousands, or even millions, simply buy stocks from hot tips and rumours, but they aren’t willing to spend just a thousand to learn up all the skills in investing, and at least avoid losing money, or engage someone credible to invest for them.

I was an engineer in profession, and I have many university classmates whom we meet up regularly for dinner and chat. A few of them, very few, have made very good return from investing in the stock market, a couple of them are even renowned fund managers. However, most of those who invest in the stock market were basing on news, rumours, and hot tips. Very few or hardly anyone talks about FVI stuff like ROE, cash flows and free cash flows, enterprise value etc. They are too troublesome. They think I am talking nonsense when referring to these metrics. When I explained the concept and mathematics of dividend discount model to some of them, none catch any ball. Mind you, discount cash flow analysis is like kachang putih (very easy) when compared to the engineering theories and mathematics we learned.

Yes, value investing is either….either you get it or you don’t.

If you get it, yes, you have got it, you will be far ahead of others in investing, I mean investing for a long term horizon with the power of compounding, the eighth wonder of the world. This I truly believe as it is proven again and again. More important, I hope your children who have many years behind them, get it.

Regarding your good performance in your investments with me in the last 5 months, I am happy for you too. However, you should know the way we do our investing, which I like to emphasize here again, it is for long term for compounding growth. The good short-term performance is great, but it can’t tell much. It may probably due to luck, which I think plays a more important role in this short-term performance. However, following a proper and proven process of investment, I believe you will do well in the long run.

When to sell

Regarding your mentioning about my “move”, I presume you are referring to the sales of a couple of your stocks taken by me which have appear to be still with the uptrend momentum, I would like to share with you some of my criteria of when I sell a stock here:

http://klse.i3investor.com/blogs/kcchongnz/56937.jsp

Outlined below are generally the reasons why I may sell the stock I own:

1. When I realize I am wrong in my appraisal 
2. When the price reaches my appraised intrinsic value 

3. When too many people agree with my appraisal 
4. When the fundamentals of the company have significantly changed. 
5. Change of management or deterioration of management decision. 
6. Competitions creep in and there are significant deteriorating operating numbers 
7. When we have identified better uses of our capital 

Just to remind you I am a long-term investor. That doesn’t mean I never sell a stock. There were three reasons why I have sold of a couple of your stocks, number 2, 3 and 7. The major reason is number 3, “when too many people agree with my appraisal”. There are many people talking about those stocks in public forum such as i3investor now. The more dangerous one is there are relentless promotions and touting of those stocks now in public forums. The share prices of those stocks have risen substantially and may continue to rise if the market remains bullish, as high tide raises all boats, and may be more for these stocks, especially with those giving out “freebies”. However, profit taking may start now and if the stock market turns the other way around, relentless selling and forced selling due to margin calls may occur. That would be devastating for holders of these stocks.

For me I care more about your downside (when the market crashes) than the upside though your upside rewards me but your downside doesn’t hurt me. Your interest comes before mine.

One more matter to deal with in your email about your statement, “I am thinking of adding another $X to the amount under your management – when would be a good time to add on?”

Should you stay invested?

I receive a lot of this type of question; the market seems very dangerous now with all the problems at home and abroad. Is a financial crisis looming? should we stay invested?

Of course if you can’t sleep well because of all the above worries, you might as well exit the market and stay on the side-line.

However, I really don’t know. All I know is there are always many problems in our country as well as around the world, all the time. I can’t recall there was any moment when we didn’t have any problem at all. Financial crisis will come, one day, but I don't know when, and I believe no one else knows either. Nobody has ever predicted well consistently about this thing. Often while we are too worried about this and that and avoid investing, we may lose some of the best years for investing. Think about the equity market in the mid-1990s when most people predicted a crash of the stock market as the market had been in a prolonged uptrend for a decade. The market continued to go up for the next 5 to 6 years with many stocks doubled, tripled and even ten times more before the tech bubbles came. Those who have left the market early in 1995 would have missed a huge lot.

Is everything overvalued now in Bursa? I don’t think so. If the crisis comes, what is the effect to your long term investment outcome, if you buy good stocks at reasonable prices following the very principle of FVI?

I have some back tested results showing that in this article of mine in i3investor just a few days ago.

http://klse.i3investor.com/blogs/kcchongnz/105247.jsp

Basically if you invest in the broad market in Bursa since March 2006, a couple of years before the US subprime housing crisis and when the market was quite high, the broad market is still up as it is now 10 years later by a CAGR of 6% after the devastating US sublime crisis. If you have invested in some good stocks selling cheap as shown in the link above, your return could be as high as 24.4% CAGR for the last 10 years, a very satisfying return. However, if you have invested in some hot stocks like those below in this link following the greater fool theory, you could have lost a fortune and would never recover.

http://klse.i3investor.com/blogs/kcchongnz/104168.jsp

That is the proven power of FVI, believe it or not.

Mr. X, once again thanks for your email and the trust you have in me. I hope to meet you again. Please feel free to contact me if you have any query about your study of FVI at

ckc14training@gmail.com

Till then, adios.

KC Chong