kcchongnz blog
Is “Business Sense” dead? Kcchongnz
I am a keen golfer and play golf three to four times a week, and yet I still make mistakes, plenty of mistakes. For example, when I chip near the green, I still occasionally top the ball and the ball rolls all the way out of the green. The frustrating thing is I often do not know what has gone wrong. When you are betting in the golf game say in a “cut-throat” style, no one will tell you your mistake, and you can continue making the same mistake again and again, and keep on losing money again and again. That is why when someone tells me, “stay still”, “look at the ball”, then only I realize what my mistakes are and able to correct them. I am always very happy and feel grateful when someone tells me my mistake in golf. That also applies to my investing. With that in mind, and more thoughts about it, here is the reposting of this article.
Sharing is caring. This article shares something about investing. It is a discussion about a subject. It has nothing to do with any personality. I believe great lessons can be learnt from it.
FA, TA and BS
Fundamental Analysis (FA) used to be the only investment method since decades ago. When you go to university to study a course in finance and investment, you will only learn about FA, specifically how to read annual report and financial statements, and various methods of valuations. Technical Analysis, (TA), if any, is only mentioned in passing.
That has changed as the advent of high-speed computing has made TA easier and more widely available. Many large investment firms are making their trading decisions based on computer algorithms. There has been a boom for companies that manufacture and distribute stock charts and charting software which can produce any conceivable chart one might want to see, for security firms and individuals. Remisiers are attracting more customers with their charting tools and TA and have been making recommendations of stock trading base on that.
Until lately in the last couple of years, readers in i3investor have exposed to numerous articles propagating “Business sense” (BS) in investing. Since then, there appears to have many followers.
What is “Business Sense” (BS) in investing?
I tried to Goggle what is this strategy of “business sense investing” is but to no avail. However, when I goggled the website of i3investor, there were numerous hits. Hence, it is a “revolutionary” investing strategy, specifically and first time created by Malaysians, a Holy Grail in investing in the stock market.
Just what this BS is about? Till to-date, I am still wondering what is it exactly about, but feebly.
It appears that the BS propagated is a very simple strategy with a ticket guaranteed to riches following a “Golden Rule” in stock investing; that we must look at the business (but does not describe what, where, which and how) and should invest in a stock if this quarter result is better than the last quarter (or the last corresponding quarter?), and the next quarter must be better than this quarter, and the share price would rise, and continue to rise, and if not, the share price will drop, even if it produces just a quarter or two of bad results.
Nothing is needed to know about the business itself (what an irony?), the past and present financial performance and position of the company, the durability of its business, nor the credibility of the management, and whether the stock is selling expensive.
The propagation of BS was “so successful” that accomplices started to shout for “sailing” and “margin” to invest with the BS, one of the hundreds shouts as below,
Blog: Hot Stock Jaks Resources and Margin Finance: kcchongnz
[Posted by qqq3 > Jul 28, 2018 07:20 PM | Report Abuse 
I once told XXX...my wife invests in Reits...He told me...you mad or what? You mean you accountant cannot invest and get better return than reits and bank interest of 5% p.a. for margin account?
I thought about it.....and XXX makes sense..... ]
Some of the followers even started to ridicule those others using FA and TA in investing.
[stockmanmy has left a new comment on your post "Margin Finance, Ever-Sendai: A real time case study kcchongnz":
sendai from 80 sen to 95 sen now...................
KC lousy timing, lousy business sense and lousy analysis.]
[Posted by Flintstones > Dec 2, 2016 11:54 AM | Report Abuse
But KC indeed has no business sense. Our beloved kc chong extrapolates past earnings into the future without assessing the industry dynamics. That is not a good investor to me.]
Business sense investing in Jaks and Sendai
This BS investing strategy was specially used to promote two particular shares in Bursa in i3investor for the last couple of years; Eversendai and Jaks Resources. Their share prices did go up from about RM1.00 each to the peak of RM1.80 and RM1.40 respectively with the heavy promotion. “Sailang” and “Margin” were also promoted and encouraged to buy those stocks around those prices. Those who voiced out the perils of margin and sailing were told to look at the mirror and examined their track record, and branded as people without ambition, no future, deserved to be poor, bullshit, or even outright as “stupid”.
The BS described for Jaks was it has a huge power plant development in Vietnam that it will show continuous profit growth from the construction activities from every quarter, and then the sale of electricity in the following 25 years. The construction profit is of course is just an accounting exercise where no real cash flows is involved. Hence, this from the beginning, the investment thesis is a long-term investment, for at least 5 years when the power plant is completed and cash flows from sale of electricity later.
Nothing is mentioned about Jaks other business in construction and its property development locally. Nothing is mentioned about how much earnings or cash flows is translated per share in the future. Nothing is mentioned about the management and how good and how caring they are for the minority shareholders. Nothing is described about the various risks involved. The following link describes some of them.
https://klse.i3investor.com/blogs/kcchongnz/123266.jsp
https://klse.i3investor.com/blogs/kcchongnz/167283.jsp
The BS for Sendai described about how much job (over billion Ringgit) that it has, and hundreds of million more they are securing, that it was cock sure that there would be “profit growth” quarter by quarter, despite that it made huge losses the previous year when it also had huge order book then.
Again, nothing is mentioned about what kind meagre margins it obtained, and how precarious its balance sheet and cash flows has been and it is facing now. These were all irrelevant. Investing in Sendai only with future profits as if there was a crystal ball in front, and without any risk.
I have also shared my view on Sendai when it was riding high in the link below,
https://klse.i3investor.com/blogs/kcchongnz/134621.jsp
https://klse.i3investor.com/blogs/kcchongnz/132084.jsp
https://klse.i3investor.com/blogs/kcchongnz/186378.jsp
My sharing on Sendai and Jaks attracted many criticisms, especially from those interested parties. Here were some comments.
[Posted by moneykj > Oct 8, 2017 01:56 PM | Report Abuse
How many times Kc had written articles about Sendai. Restless tries, what's his intention?
My second round for this counter avrg at 1.08. Tak takut langsung.]
[Posted by abang_misai > Jul 29, 2018 04:18 PM | Report Abuse
KC also talks cock lah.]
Does “Business Sense” work for Jaks and Eversendai
In this market environment where the small capitalized stock as represented by the FBM Small Cap Index dropped by 35% year-to-date, few, if any strategy works, whether it is FA, TA or BS. It is a matter how bad the strategy doesn’t work all the time. FA and TA all mostly lose money this year. BS is no exception. There is no “Holy Grail” in investing.
But how bad BS which was especially used for these two stocks of Jaks and Sendai perform?
Table 1 and Table 2 shows the quarterly financial performance of Jaks and Sendai respectively for the past couple of years. Is there any evidence that based on the BS previously, there were continuous “profit growth” quarterly for either of the company based on the initial investment thesis?
I can only see continuous deuteriation of their profit, almost quarter-by-quarter recently. What happened?
How come there is no profit growth every quarter when there is this huge order book in construction of the power plant for Jaks?
Did the management manipulate the account? Why did they do so? Is the management credible doing so to cheat the minority shareholder? Why is this very important management credibility not taken into account in BS?
Share price performance
How have been the share price performance of these two stocks in the last one year?
In less than a year, Jaks’ share price has lost a whopping 74% from its peak of RM1.80 to the close of 47.5 sen on 21st December 2018 due to the sell down as shown in Figure 1 below.
Having the business sense in the power plant development and that the knowledge that the gestation period is long, it needs some time for the investment thesis to play out, for at least 5 years, why did investors sold down the stocks if the return would be so great in the near future?
Is the decision to sell off all the shares and made huge losses make business sense?
Figure 1: Share price movement of Jaks
Sendai is no exception. It has lost a huge 58% from its peak of RM1.40 slightly more than a year ago to closed at 58.5 sen on 21st December 2018 as shown in Figure 2 below.
Figure 2: Share price movement of Sendai
How come there was no profit growth with the anticipated huge order book? Does it make business sense buying the shares of such a “fantastic” company above RM1.00 and sold at 50+ sen makes good business sense?
It doesn’t seem to me.
Is Business Sense a Holy Grail in Investing?
Obviously not.
No “profit growth” on Jaks and Sendai was observed for their financial performance in the first place as shown Table 1 and 2 in the Appendix. In fact, in share price movement wise, the example used specially for this BS, Jaks (-74%) and Sendai (-58%), fared much worse than the broader FBM Small Cap Index of -35%.
So, is business sense dead in i3investor?
But how bad is its adversary, the value investing strategy which has been constantly ridiculed by the BS followers?
First and foremost, value investors would not buy those stocks at those prices then. I have in fact written a number of articles about them. If those interested parties, instead of mocking me, paid attention reading them, and analysed objectively, huge amount of money could have been saved.
What would value investors have bought instead? And how bad are their performance compared with the BS strategy?
Again, in this challenging environment, few strategies and investors are spared from attacks and incur losses. That includes those practising FA. But it is certainly much better than this BS strategy. We can talk about it next.
KC Chong
Appendix
More articles on kcchongnz blog
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Isn’t this the most undervalued stock in Bursa?: Insas Berhad by Kcchongnz
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2024 New Year Reflection Investing in the Stock Market: Timing the Market
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2023 Christmas reflection on pitfalls of investing in the Malaysian stock market kcchongnz
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Introduction: The Complete Dividend Investing Guide That Works by K C Chong
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Discussions
4 people like this. Showing 50 of 153 comments
Rajachulan, to me u are just a newbie who thinks TA is yr only bible in stock mkt....
2018-12-31 09:13
Just like Ah Jon who is so proud of his FA n England level
Both of u have yet to be tested by the mkt
2018-12-31 09:13
Ops Jon has been tested for his 2-3 years training here...so far i think the actual result (in terms of dollar n cents lah) is fail
2018-12-31 09:17
I practices both FA and TA Charles...
last thing I would suggest is to invest only base on FA...
when I first invest, I follow FA... did not chase high, but bravely chase low hoping to buy at bottom...and wait...some are successful...some are not... but my capital is limited...my time is limited... how many 10 yrs you have left? or 5 yrs? or even 3 yrs? what happens if you only realise that the way of invest doesn't work 10 yrs later?
if your purpose in the market is to trade daily or weekly for the sake of fun... please do...
but my purpose is clear... i need to accumulate as much as I can, and as fast as i can to reach my financial goal to achieve financial independence...
so I adapt...learning the key of TA to integrate into my existing FA knowledge to max the money I can make from the market...
never put all eggs in a same basket...never stop learning...
2018-12-31 09:29
Posted by paperplane > Dec 31, 2018 02:06 AM | Report Abuse
Kc ,if method doesn't work all the time also. Look at your perstima! U said worth how much then??? Look at it now??If want 马后炮tons on u also
You are right also. But that is what I have been saying all the time, even in this article, I also said a few times no method works all the time. Didn't you read that?
I shared a very interesting investing strategy when I wrote about Perstima, the Cold Eye five yardsticks here,
https://klse.i3investor.com/blogs/kcchongnz/85405.jsp
Again it was purely for sharing purpose, a lot of effort from me and free of change to everyone. I did not ask anyone one to buy also.
Perstima's share price was about RM5.00 then. it went up above RM8.00. With the great dividend, anyone followed my analysis and bought it would have made very decent profit.
Later the cost of material went up and its profit fell sharply.
Again value investing is not about buy and hold for ever. Share price could overshoot its value. Macro and micro change. You may have better opportunities.
Anyone thanked me when he makes money? NO!
Anyone scorns me when the price now is RM4.66? Plenty, including you whom you have harped on it a few times already.
But again, whether if yu make money or loss money is not my responsibilities.
2018-12-31 09:30
There is nothing wrong with BS, FA, or TA. It is how good the analysts are at each of the them.
As KC has mentioned "Professional analysts who came up with a target price for Jaks without having the information of the future cash flows of the power plant (and also that of its other businesses), are simply not professional and lack credibility." So, not all FA analysts are equal.
Put it simply, if you got a right call, your method is good. Otherwise, you have to blame it on the racket as most badminton players do after they missed a shot. So, racket or skill ??
2018-12-31 09:34
and @probability is right to said this in other forum.
look around you, if you realise that you cant work as hard as today until your retirement... do learn to invest... but do your homework, find your own way... there are some good article and practices in i3 for a starts...
learn from others... but dont copy...
2018-12-31 09:36
liang..I am a trader...and I don't offer investment services.....
no need......if good why need to offer investment services?
2018-12-31 09:53
for your information zhuge_Liang is otb....
Posted by qqq3 > Dec 31, 2018 09:54 AM | Report Abuse
liang...i look at u as i look at an idiot.
2018-12-31 09:55
Posted by paperplane > Dec 31, 2018 02:00 AM | Report Abuse
But kc, u typical马后炮also lah! If jaks pull it off,u also diam diam. Come-on,be a man. No point personal attack anyone right
Personal attack?
In all my articles I shared, I have never mentioned names. They are all about subjects, philosophies, methodologies, issues etc. The stocks chosen may be related to some personality, but that was because so happened that those stocks were related to the subjects I am discussing about.
In this article, I reminded readers that there is no Holy Grail in investing, including the "business sense" coined in i3investor, with substantiated arguments, facts and figures. So be careful, do not blindly follow it and top it up with margin finance.
So why do you have to view it as personal attack?
In this new Malaysia, do we still carry on to be politically correct, anything we discuss must not be related to certain personality?
When will we ever learn?
2018-12-31 10:00
All old men are your grandfathers.
All wear skirts are your wifes.
Talk nonsense here.
2018-12-31 10:02
otb, zhuge and kcchongnz, are very respectable and good reputation sifu in i3 community. i wish to learn from them only. not interested in any BS
2018-12-31 10:59
Many of my sifu subscribers had requested my sifu OTB to compete in stock pick competition 2019 in I3.
He had agreed to compete as per the latest whatsapp message.
2018-12-31 11:08
for those who think trend investment is solely reading the chart
and bang bang bang on the way in
and bang bang bang out on the way out...
enjoy reading...
https://bigpicture.typepad.com/comments/files/turtlerules.pdf
2018-12-31 11:24
OTB is geng! ..its a little ironic knowing that he is more of a chartist than a fundamental investor
Posted by CharlesT > Dec 31, 2018 12:56 PM | Report Abuse
Wah good to see otb to participate into 2019 stock picks.....he got balls
2018-12-31 13:15
fair and nice comment from Jon...
the variables (inputs/information) to be considered is not limited for business sense
the outcomes is dependent on both the processor and the inputs considered
garbage in garbage out
a good processor (investor/analyst) can selectively ensure not to take in garbage information (inputs)....
Posted by Choivo Capital > Dec 31, 2018 02:10 AM | Report Abuse
Ah business sense, the eternal battle.
I get what kc is going at, most research reports in malaysia on malaysian companies is utterly horrible at this aspects.
Business sense is the ability to understand the economics of the business to its core.
It is the sense that enabled WB to buy GEICO and Netjets, both of which were massively loss making at the time of purchase. With netjets making losses for more than 5 years after the purchase.
It is the sense that enabled WB to buy Coca Cola at record valuations, before it went up another 20-30 times over the next few decades.
Business sense is the ability to see the potential and the ability of the company to execute over the next decade (at minimum) with a high level of confidence, determine its intrinsic value, and then buy at a discount to that.
This one, is the absolute hardest to teach. Even for WB, So many of his companies, bought with business sense (along with some number based FA), go holland.
Dexter shoes, Diversified retailing, Blue chip stamps etc. All gone to zero
This sense, can only come with constant studying about life, psychology, philosophy, the history of mankind, economic history, biology, physics, anthropology, finance, accounting etc etc.
In short, cannot finish studying. Good luck.
I would put it this way. If you think you have business sense, you probably don't.
If you think you can succeed with business sense alone, without understanding how to read accounts and extract insight from them, you probably won't.
2018-12-31 13:38
Dear KC Chong,
The greatest gift is to give people your enlightenment, to share it. It has to be the greatest- Buddha
I thank you for sharing your knowledge with the i3 community and please continues with your writing and sharing and forgive those cannot see the truth.
They blame those who remain silent, they blame those who speak much, they blame those who speak in moderation and they blame those who speak the truth. There is none in the world who is not blamed.
And remember these: The less you respond to negative people the more peaceful you will become. He who does not understand your silence will probably not understand your words.
Dear “You-Know-Who”
Please look into mirror and reflect before you write another of your venom and foolish comment:
It is easy to see the faults of others, but difficult to see one’s own faults. One shows the faults of others like chaff winnowed in the wind, but one conceals one’s own faults as a cunning gambler conceals his dice. – Buddha
The fool who knows he is a fool is that much wiser. – Buddha
Dear all,
Praise and blame, gain and loss, pleasure and sorrow come and go like the wind. To be happy, rest like a giant tree in the midst of them all. - Buddha
Do not believe in anything simply because you have heard it. Do not believe in anything simply because it is spoken and rumored by many. Do not believe in anything simply because it is found written in your religious books. Do not believe in anything merely on the authority of your teachers and elders. Do not believe in traditions because they have been handed down for many generations. But after observation and analysis, when you find that anything agrees with reason and is conducive to the good and benefit of one and all, then accept it and live up to it.- Buddha
I wish all a Happy New Year 2019.
Thank you
2018-12-31 15:53
Dear sslee
stock market not for u
I think u should go to a convent.....Buddhist temple in the mountain also can......
2018-12-31 15:56
Raider like to define what is business sense loh...!!
If u do business u must do it commercial make sense mah...!!
Criteria of business sense loh:
1. U buy business that worth say Rm 2.00 for rm 0.70 that is business sense loh...!!
2. U buy a business that worth Rm 0.70 for rm 1.00 but u see potential prospect the business can grow to rm 2.50....that is business sense loh...!!
3. U buy a stock for Rm 0.70 bcos u know people will pay rm 1.20 when the stock is short of supply loh...!! ....that is trading business sense loh....!!
U buy a stock for Rm 0.70 bcos u speculate that ahfatt is willing to pay rm 1.10 in the potential privatization of the business loh...!!
All these business sense of investment has commercial business value element ascribe to your purchase of particular stock loh...!!
2018-12-31 16:26
when liang joins forces with SSLee.....nothing good ever comes out of it....two idiots talking......
2018-12-31 16:52
if u invest, whether is business sense, TA or FA...the more indicators the better
if u just trade short term, TA and FA will do
but only applies well in dow jones...why?
because huge markets less chance to manipulate, if u sense abuse, still have time/chance to exit/cutloss
but bursa different...u know what i mean
2019-01-01 08:41
bursa is similar to pasar malam...
dow jones like hyper market...
pasar malam alot pick pockets
lol
2019-01-01 08:43
Business sense is not dead.
Those who thought they knew the businesses they invested into, may have realised their losses were due to their poor understanding of their invested business.
They should be humble they got their analysis wrong and realised their mistakes, rectifying these for their future investments.
2019-01-01 09:31
Sorry lah, ur investment method just doesn't make sense for me.. Simple as tht.
2019-01-01 10:45
Dear 3iii,
KCChong define value investor do not mean holding the share for eternality (do not fall in love with the share) but to sell when the share price had overshot its intrinsic value.
May I ask is Nestle current price already overshot its intrinsic value.
And why PETDAG is a value buy but not Petronm and Hengyuan?
Thank you
2019-01-01 11:01
mr.sslee...
refineries low profit margins...
business is about margins, not volumes
2019-01-01 11:20
Posted by Connie555 > Dec 31, 2018 11:23 AM | Report Abuse
Kc u still hv high respect from me, and i know all ur articles hv only one goal, which is to educate people so that they dont lose money in klse and i hv to admit that even me myself also benefited alot from you. just that today i come out with such comments is because at timing like this everybody might lose money, and particularly this 2 share for which the share price plunged alot might even trigger some of the feeling of those who lost money in it. Maybe educational article is more suitable to post when all the dust has settled down.
Tmr new year already, i rest my case here, tired to argue haha.
My apology if my comments offended you, and i wish everyone here included KC and ur family a Happy New Year.
Glad you understand my intention in sharing of articles here.
Happy new year to you and your family too.
2019-01-01 11:21
Dear KCChong,
Thanks for the offer. I waiting for my taxi to pick me up to KLIA 2 for my flight back to Medan.
Thank you
2019-01-01 15:35
don't be silly,“Business Sense”is just a small part of fundamental analysis.
2019-01-01 19:34
business sense is every thing.....
https://klse.i3investor.com/blogs/qqq3/188428.jsp
2019-01-01 20:51
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2019-01-16 21:12
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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....
rajachulan
@probability, not because I am a TA...
but base on real life history/experience... I believe the sequence should be the other way around...to be very honest...
the FR are done by accountant, which reviewed by finance mgr, which is then 'agreed' by cfo upon the 'approval' of ceo...and the auditor is then 'hired' to audit the report... you will not find certain word like 'accurate' in the audit report... the best auditor will put is 'true and fair', that is the 'biggest risk' the auditor will take...
----------------------------------------------------------------------
probability > Dec 30, 2018 05:06 PM | Report Abuse
TA is the one that is most vulnerable to artificial inputs (manipulation).. people can easily make the chart with low volume or even with high volume transaction without a cost..
second level would be BS...on how people convince business prospects incorporating elements which are not certain..giving high optimism
FA (purely by audited financial statements, with long historical data) may stand the least chance of manipulation...
2018-12-31 09:09