kcchongnz blog
Big Caps are Gold and Small Caps Rubbish? kcchongnz
Of late I was amazed to read someone’s comment in i3investor that 99% of the stocks listed in Bursa are rubbish stocks. I thought I even read that the figure is 99.9%. With less than a thousand stocks listed in Bursa, that would mean less than 10 stocks in Bursa are investible, and the rest are rubbish and anybody who has invested in them should prepare to burn big holes in their pockets.
I also read a comment saying that all the small capitalization stocks, which the writer classified them as less than RM500 million market cap, are mostly rubbish, pumped and dumped kind of stocks. Anyone who has invested in them would most probably lose their pants. Only investors who focus on investing in a handful of quality big caps, and hold them forever, unless something changes, will only make good money.
Are the above statements true?
I have just written an article on “Two paths of value investing” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/188915.jsp
The first path was to buy a random portfolio of 8 great quality stocks at fair prices as suggested by an i3investor forumer over the last few years which gave a CAGR of 15.4% over a 10-year period compared to the return of the broad index of just 4.1% over the same period. A great return indeed.
The second path was to buy a portfolio of good but not-so-great stocks at cheap prices, and sell them when their share prices have risen above their intrinsic values. The article provided evidence on 20 small to medium capitalization stocks compiled by the Chinese periodical The Busy Weekly which returned a CAGR between 29% to 43% over the 10 years period, compared to the return of the broad index estimated to be about 5.5% during the same period.
The above 28 multi-bagger stocks already made up about 3% of the stocks listed in Bursa. It can also be seen that those small capitalized stocks made much bigger return than those big capitalized stocks.
In the above article, I have also shown in my own experience with my three established portfolios of mostly small capitalized stocks as published in i3investor 5 years prior made extra-ordinary return, many times the return of the broad index.
There are many other investors here also do not focus on big capitalized stocks to invest in, some of them are in fact value traders, make a bet on themes, and out with extra-ordinary return when the theme changes, even in a short period.
I have also heard about short-term traders doing well too, but this is very hard to validate.
There were many other stocks, big or small caps which had made outsized returns since 10 years ago. I would say easily more than 100 of them, or more than 10% of those listed in Bursa.
We are here talking about a longer period of time, 3, 5 or 10 years of investing. Some stocks even become multi-baggers in just a matter of a few months and investors can exit with good profit without having to hold them for long time.
Just because some stocks following value investing lost money in 2018 doesn’t mean they are rubbish stocks. They are only rubbish stocks if their fundamentals suck. It is also not a matter if they are RM10b, RM5b, or RM100m market cap.
Hence, I can easily conclude that the statement that 99.9%, or 90% of the stocks listed in Bursa are rubbish stocks is rubbish.
The extra-ordinary return of those stocks above were mostly due to the phenomenal growth in their earnings, and when they were selling at fair or cheap prices. It was not because if they were small cap or big cap. They do not need a fantastic management, or must be a fantastic business too, but a credible management and a reasonably good business will do.
In my personal journey in investing, I mostly pick small and mid-cap. Why?
Big cap stocks are closely followed by institutional and fund managers. Generally, unless there is a temporary set-back, they are often already fully valued, or even overvalued because of the action of bidding up their prices by all the fund managers and institutional investors. Big business, like a big elephant, is harder to grow fast compared to a smaller business.
Think about some of the big cap stocks such as Genting, GenM, Sime Darby, TM, Tenaga, Maxis, Axiata, AMMB, IHH, RHB, MISC, etc,. How much return you can get since 10 years ago?
Hence, most value retail investors like me look at the forgotten and beaten path, trying to find values where others, i.e. the fund managers, institutional investors are not interested in because of the sheer size of their fund under management, and have no mandate to invest in.
Seth Klarmen said,
“Picking through the crumbs left by investment elephants can be rewarding.”
To get extra-ordinary return is not about if the stock is listed in the DJI, S&P 500, NASDAQ, or Russel 5000 etc. It is not about if it is listed in the Main Board, or the ACE Market of Bursa.
Rather it is about buying great companies selling at reasonable prices or good companies selling at cheap price, and sell them for profit when they are no longer at fair prices.
Is investing in small cap company riskier? Yes and no. It depends on liquidity, company fundamentals, the price you pay and a whole lot of other things. In fact, paying too much for an asset is the riskiest thing to do, even for a great company.
“The price you pay determines your return” ROGER MONTGOMERY
Happy investing.
K C Chong (ckc14invest@gmail.com)
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Discussions
6 people like this. Showing 50 of 63 comments
I think it makes sense that in America, people have given up on stock market and direct participation and instead opt for ETFs and mutual funds....it makes sense.
That is also the trend with our younger generation. It all makes sense...
kc fighting a losing battle....business not so good as before, kc? Its also a generational shift.....
2019-01-20 19:23
ss
both u and kc belong to the mad house if u keep bringing up Jaks and Sendai.....
soon, they will bring u both to mental hospital.
2019-01-20 19:36
Singapore is trying various measures to get more young people in stock market...with no sucess.
Najib tried it with stamp duty exemptions and research grants for small caps...all to horrible results for 2018.....
2019-01-20 19:59
KC, didnt your value investing picks work only for the period of 2013-2016? I remember ever since the market's tide become higher, you have a harder time finding winners.
2019-01-20 21:34
Sometimes I find a few high profile i3 theory crafters taking an opinion and beliefs too seriously. An opinion is not a truth where you need to prove it. Everybody has their own system of beliefs in approaching the stock market. Long numbers guy has his own. KC has his own. I have my own. However, the theory crafters do not have an open mind to accept that there are limitless opportunities in the market which could be reached through different ways or different mental models.
2019-01-20 21:43
Just like Renaissance Technologies in the US which is arguably the best performing hedge fund in thr history of mankind. It does not fit into any i3 members strategy. High frequency trading and complex algorithms that will even put KC extrapolation maths to shame. What if Renaissance Technologies did not use fundamental analysis at all in their investment process? Are you going to prove it is wrong? Why bother?
2019-01-20 21:46
Dear all,
My late father:
“我的爷爷，我的爸爸来自于中国福建省。那是一个政治斗争，社会动荡，民不聊生的年代。我的爷爷只好带着爸爸远离家乡，来到陌生的马来西亚找生活。
我记得小时候，我们全家大小节衣缩食，过着节俭的生活，因为爸爸要把储到的钱寄给家乡的姑姑。”
My late father is a filial piety son, a caring brother, a good/great father to his children and a responsible husband to my mum. He is our discipline master, our role model in hardworking, discipline, integrity, family value, gratefulness, love, selflessness, devotion, compassion, and sacrifice.
Throughout his adult life he had save whatever he earned and single handedly support his father opium habit, his sister in china and our education till university level. We owe so much to our late father sacrifice and luckily we were able to repay our debt by doing our part in accompanying our parent for sight-seeing around China, visiting our China aunt, touring Hong Kong, Macau, Taiwan and Korea. My late father, we miss you, grateful to you and will always remember you for your teaching and scarified in order for us to have a better life.
Thank you.
P/S: The lord of queer is zero compare to my great late father
2019-01-20 21:46
Sslee, why dont you grow up and stop the personal attacks on other i3 mrmbers? I dont agree with many statements made by qqq3 but not once I attacked his logic. The only person I attack on i3 is CP Teh. Be a wise man.
2019-01-20 21:49
everyone is entitled to their own opinions.
i respect that , it does not affect me , it does not bother me
2019-01-20 21:57
Dear Flinstones,
Your advice noted with thanks. I derive no pleasure and in fact feel sad that despite my attempt to save his soul and hitting hard at his conscious and even using reverse psychology of subjecting him to shame and turning the table on him by subjecting him to troll or fact on what damage he had done to those chasing high in JAKS and SENDAI as oppose to what he himself trolling KC and OTB with inflammatory and digressive, extraneous, or off-topic slanders.
I admit my attempt is futile and he will remain as what he is with no remorse and shame. He is now no-more my problems, as from now, I will not read any comments or blogs of “You-Know-Who”. He is in my past and I should leave the past in the past. He is now an invisible to me. I shall grow wise and move on
Thank you.
2019-01-20 22:28
Posted by Flintstones > Jan 20, 2019 09:34 PM | Report Abuse
KC, didnt your value investing picks work only for the period of 2013-2016? I remember ever since the market's tide become higher, you have a harder time finding winners.
Those were my published portfolios in i3investor. They worked very well from 2013 to 2017.
Since 2016, I never share any more stock pick in i3investor any more.
I do have my stock pick services which were private. They worked very well too in 2016 and 2017.
During the good time in 2016 and 2017, the portfolios returned many times more than those of the broad market.
In 2018, my stocks did not do well. But how many investors did well in 2018? The stock pick competition in i3investor is a good guide.
Nevertheless, the portfolio of 8 stocks I picked for 2018 as at today has turned positive now.
I have written a number of articles published in i3investor describing the above.
You started to criticize vigorously as soon as you see kcchongnz's name there, without even reading them.
2019-01-20 22:37
The above is purely for the purpose of propagating value investing, which I believe very strongly is the way to go for most people. I have never boasted how rich I am.
Value investing, if you really care to sit down, read about them, have deep thought about them, is very plausible, logical.
Investing, I mean really investing, one has to understand the business as investing in a stock is akin to invest in part of a business, and that must be through understand some simple accounting in understanding the financial reports, and some simple valuations, besides the story part of it. No other better way.
There is nothing about complex maths and logarithms and Greeks. Do you find me using any of them?
2019-01-20 22:53
I teach those interested in learning how to read, interpret and analyse financial statements and some valuation techniques. They are my passion now. I enjoy it. As I have said, this knowledge is utmost important to avoid the pitfalls in investing and getting better return over the long term from investing in the stock market.
Yes, I do charge a nominal fee, for the effort I put in.
Why do people against charging fee for acquiring something very useful in their personal finance and investing? Are those charging some fee for doing some work thieves, and robbers.
2019-01-20 22:59
only 3 ways to make money out of stock market
1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.
1...u are already a fool when u key in your order but a greater fool comes along
2...this tests all your intellectual prowess, knowledge, experience
3..for genuine long term investors, they have their own tools.
But value investors is an over glorified tool. For one, I believe markets are pretty efficient in valuing stuffs. Millions of factors involved in valuations...some known, some unknown, some knowable, some unknowable.
That is why I say for genuine long term investors, better stick with the larger caps with enough track record, reputation, public information where informed judgement can be made....the rest..more of luck, and syndicates , sentiments etc etc.
2019-01-21 10:44
Good sharing, Mr Chong.
It crossed my mind the differences between talks of fundamentals and economics.
Our differences in opinion in Favco demonstrated the idea in some way.
Also, a lot of examples, when you think its fundamentals good but eventually fail, it’s actually deteriorating economics that kills it more than often.
2019-01-21 14:11
RAIDER COMMENT IF MKT SO EFFICIENT, AS WHAT BELOW SAID, WHY WASTE TIME INVESTING LEH ??
"But value investors is an over glorified tool. For one, I believe markets are pretty efficient in valuing stuffs. Millions of factors involved in valuations...some known, some unknown, some knowable, some unknowable.
That is why I say for genuine long term investors, better stick with the larger caps with enough track record, reputation, public information where informed judgement can be made....the rest..more of luck, and syndicates , sentiments etc etc." !
ACTUALLY REAL MONIES ARE MAKE AS A SAVVY INVESTOR, WHEN U FIND POCKETS OR AREA OF MKT VALUATION WHERE IT IS OVERRLY WRONG, AND U TAKE ACTION TO CAPITALISE ON THIS OPPORTUNITY MAH...!!
2019-01-21 16:32
>>>>
Of late I was amazed to read someone’s comment in i3investor that 99% of the stocks listed in Bursa are rubbish stocks. I thought I even read that the figure is 99.9%. With less than a thousand stocks listed in Bursa, that would mean less than 10 stocks in Bursa are investible, and the rest are rubbish and anybody who has invested in them should prepare to burn big holes in their pockets.
>>>>
Actually, how you look at the stock market is also dependent on how you frame your thinking.
For example, if you only wish to invest in great companies (Buffett's definition), you will find very few in any stock markets.
In Bursa, probably less than 20.
How many companies you wish to be invested in at any time? < 10
2019-01-22 09:47
only 3 ways to make money out of stock market
1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.
value investors say they make money by arbitraging their valuations vs the market valuations......really meh? so easy one ah?
what about the history, the reputation and all the millions of other factors of the investee
what about the character, habits and practises of the practitioner?
what about the efficient market theory?
if there is a difference between their personal valuations vs the market valuations...who is right who is wrong also don't know yet, only time will tell......but I know freshies have stronger opinions than old hands.......
2019-01-22 10:27
only 3 ways to make money out of stock market
1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.
value investors say they make money by arbitraging their valuations vs the market valuations......really meh? so easy one ah?
what about the history, the reputation and all the millions of other factors of the investee
what about the character, habits and practises of the practitioner?
what about the efficient market theory?
if there is a difference between their personal valuations vs the market valuations...who is right who is wrong also don't know yet, only time will tell......but I know freshies have stronger opinions than old hands.......
and so, I support Icon's call that Wallen Bufalo is dead in the water in Malaysia., together with that Big Ben....
easier to make money from 2 and 3 above....not from 1 above.....
2019-01-22 10:32
Value investor make monies by taking advantage of fools thus cover ur point 1 to 3 mah.....!!
Posted by qqq3 > Jan 22, 2019 10:32 AM | Report Abuse
only 3 ways to make money out of stock market
1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.
value investors say they make money by arbitraging their valuations vs the market valuations......really meh? so easy one ah?
what about the history, the reputation and all the millions of other factors of the investee
what about the character, habits and practises of the practitioner?
what about the efficient market theory?
if there is a difference between their personal valuations vs the market valuations...who is right who is wrong also don't know yet, only time will tell......but I know freshies have stronger opinions than old hands.......
and so, I support Icon's call that Wallen Bufalo is dead in the water in Malaysia., together with that Big Ben....
easier to make money from 2 and 3 above....not from 1 above.....
2019-01-22 11:24
>>>>
qqq3 only 3 ways to make money out of stock market
1 greater fool theory
2 benefit from changing landscape
3 participate in the growth of excellent companies, as the Bursa is
originally intended.
>>>>
There are only 2 ways for me to make money in the market:
1. Participating in the long term growth of excellent companies.
2. BFS, STS (Greater Fool Theory).
2019-01-22 11:54
When asked how he could achieve 50% a year with small sums, Warren Buffett said,
“You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map.”
2019-01-23 22:26
for a start up, for a mesdaq, 9 out of 10 eventually failed....how should the public handle it? They can't.
For the Softbanks, the specialists, the huge funds, they have privileged assess, privileged information, even they have to play the law of averages, and better screening, and they have the fund to do it....
For the public? for your students? Its all a dream, a delusion....
2019-01-23 23:17
Rubbish comment by qqq loh....!!
Below is the result if u invest properly mah...!!
WARREN BUFFETT: Yes. Volatility is not a measure of risk.
And the problem is that the people who have written and taught about volatility do not know how to measure — or, I mean, taught about risk — do not know how to measure risk.
And the nice thing about beta, which is a measure of volatility, is that it’s nice and mathematical and wrong in terms of measuring risk. It’s a measure of volatility, but past volatility does not determine the risk of investing.
I mean, actually, take it with farmland. Here in 1980, or in the early 1980s, farms that sold for $2,000 an acre went to $600 an acre. I bought one of them when the banking and farm crash took place.
And the beta of farms shot way up. And, according to standard economic theory or market theory, I was buying a much more risky asset at $600 an acre than the same farm was at 2,000 an acre.
Now, people, because farmland doesn’t trade often and prices don’t get recorded, you know, they would regard that as nonsense, that my purchase at $600 an acre of the same farm that sold for 2,000 an acre a few years ago was riskier.
But in stocks, because the prices jiggle around every minute, and because it lets the people who teach finance use the mathematics they’ve learned, they have — in effect, they would explain this a way a little more technically — but they have, in effect, translated volatility into all kinds of — past volatility — in terms of all kinds of measures of risk.
And it’s nonsense. Risk comes from the nature of certain kinds of businesses. It can be risky to be in some businesses just by the simple economics of the type of business you’re in, and it comes from not knowing what you’re doing.
And, you know, if you understand the economics of the business in which you are engaged, and you know the people with whom you’re doing business, and you know the price you pay is sensible, you don’t run any real risk.
And I don’t think Charlie and I — certainly Berkshire — I don’t think we’ve ever had a permanent loss in marketable securities that was, what, 1 percent, maybe, half a percent of net worth.
I made a terrible mistake in buying Dexter Shoe, which cost us significantly more than 1 percent of net worth where I bought an entire business then.
But I was wrong about the business. It had nothing to do with the volatility of shoe prices or leather or anything else. It just was wrong.
But in terms of marketable securities, I cannot recall a case where we’ve lost that kind of — I mean, we’ve done a lot of things in things — in securities — that had a very high beta. We’ve dealt with a lot of things in securities that had a low beta.
It’s just the whole development of volatility as a measure of risk, it has really occurred in my lifetime. And it’s been very useful for people who wanted a career in teaching, but it is not — we’ve never found a way for it to be useful to us.
Posted by qqq3 > Jan 23, 2019 11:44 PM | Report Abuse
, even i3 OTB has never bought a single share that does not eventually collapse......and that is the classical definition of greater fool theory. What value investing u talking about? Value investing does not work. Period.
2019-01-23 23:49
stockraider > Jan 23, 2019 11:49 PM | Report Abuse
Rubbish comment by qqq loh....!!
=========
Warren Bufett play with well managed companies, u play with Insas.....big difference.....raid.
2019-01-23 23:57
Posted by qqq3 > Jan 23, 2019 11:11 PM | Report Abuse
to find those little anomalies....more likely for the freshies, they can find an endless supply of China hustles, Insas, rubbish companies, rubbish CEOs, small and mid caps in various stages of pump and dump, even i3 OTB has never bought a single share that does not eventually collapse......
I think those "freshies" are much better than you in the stock market. They won't buy those stocks with the characteristics of the companies and their CEOs as described above.
Think about Jaks and Sendai which have been described by you as having business sense, great CEOs, and you have been the greatest promoter for them in the last couple of years, with your panic moment, dynamite investing, sailang and margin finance to the public and newbies in i3investor, and nothing else except recently when you abandoned the hands which feed you.
Yes, you talked nothing else except margin and sailang on Jaks and Sendai the last two years, enticing the public to buy your "pumped and dumped" stocks, these two.
2019-01-24 08:42
Good morning icon. Sprang my shoulder last night and can't play golf this morning. Just have some fun here.
2019-01-24 08:45
Jaks and Sendai?
jaks and Sendai were good trading stocks in their time....I am a trader....What do u expect?
I am just saying , for most people, for the general public, it is not suitable to hunt among the rubbish when looking for stocks to invest....no need la....Having the attitude that 99% of the Bursa is rubbish is half of a winner already...The rest is just to actually buy some shares.
Luckily for me, Philip the Long appeared in this forum.....He is every thing I have been writing about for the last 3 years.
2019-01-24 10:35
99% of the shares are only suitable for trading....forget about your Bufulology...its just an illusion....unless and until u look for the best ......the 1%...the rest.....just trade la......
2019-01-24 10:44
Posted by qqq3 > Jan 23, 2019 11:44 PM | Report Abuse
, even i3 OTB has never bought a single share that does not eventually collapse......and that is the classical definition of greater fool theory. What value investing u talking about? Value investing does not work. Period.
Have you ever provided any evidence that value investing doesn't work? Just because value investing also lose money last year, you conclude that it doesn't work?
How did you mange to become an "accountant"?
You OTB here OTB there even though he never even respond to your personal attack for months already.
In the last couple of years, you talked about nothing else except sailang and margin jaks and Sendai, panic moment, dynamic investing and all those nonsense.
You brag about buying this stock and then them for a couple of sen profit a few days later, and encouraged people to buy high and aimed for higher price to sell. Wasn't that the greater fool theory.
How Jaks and Sendai collapsed from RM1.80+ and RM1.40+ to only 50-60sen. You better than OTB? Common, give me a break!
2019-01-24 10:48
raid...u put your money in FD sure make more money than your Insas next 3 years....good idea for u....
2019-01-24 11:02
when I say collapse, I mean really collapse not just normal ups and downs.....
2019-01-24 19:33
by Zhuge_Liang > Jan 25, 2019 01:03 AM | Report Abuse
I never see any person in I3 is so shameless like qqq3.
===========
not shameless....just being logical.......my strength....
2019-01-25 01:12
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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....
qqq3
sslee...u are just a novice I have no time for u....also...u are not my son....
2019-01-20 19:18