kcchongnz blog

What to do in this turbulent stock market kcchongnz Part 1

kcchongnz
Publish date: Fri, 27 Mar 2020, 12:25 PM
This a kcchongnz blog

Here are some questions by a purchaser of my book, “The complete guide to value investing that works!”

[Good morning Mr Chong,

I have read it reaching to the sections on financial statement analysis and interpretation, and valuations of your book. They prevented me further from accumulating those counters that do not meet the minimum criterion.

I have a few questions:

  1. It would be nice if you have any articles touching on what newbie should or shouldn't do in this depressing state of stock market and providing any tips or reference for us to read.
  2. I am ready for this round of stock crash (even to the extent of having opened a share margin account with RHB Investment Bank besides having normal "trading" account and would definitely go in and take a few counters and just wait for them to appreciate over time.
  3. Would really be good if someone could point us what counters to watch out for, well this is a wish list.

Thanks, and best regards,

Mike]

In less than a month from end of February 2020 to now, the KLCI has dropped by 11% from 1483 points to the close of 1324 points on 26th March 2020. The drop of the FBM Smallcap Index was far more severe by a whopping 30%. Many stocks have dropped by a lot more than the broad index, some even by more than 50%. Even some seemingly good companies are not spared. In fact, may be except a couple of glove companies, almost all shares dropped during this period.

The biggest culprit is none other than the Covid-19 which is a very contagious virus and causes the unprecedented lockdowns or partial lockdowns of many countries, including our 4-week Movement Control Order. This caused the plunge of crude oil price in fear of a prolong world recession and the extreme fear of the stock market. In fact, we are probably in recession already. This global fear of the covid-19 is not slowing down anytime soon. In fact, fear is soaring, and Europe is struggling to contain the virus, and the US has no solid plan to contain the pandemic. A little good news is China, the epicentre of the COVID-19 pandemic, has been able to contain the virus successfully. Wuhan is opened again for close to normal activities. Korea and Japan are doing a great job in the containment too. U.S. lawmakers have agreed on the passage of a $2 trillion stimulus bill to blunt the impacts of an economic downturn set in motion by the global coronavirus pandemic. Our government is also trying to put in place some economic stimulus packages to try to ease this hardship too.

Nobody knows how this Covid-19 thingy will finally plays out. It may go away in a month, or it may linger much longer. The optimist in us thinks that although over the next month or two things will get worse, they will then start getting better.

The viciousness of these price falls in Bursa has caused a lot of anxiety of punters, speculators and investors alike.  Bursa has entered a bear market of high volatility. Investors see the value of their portfolios plunged 10% a day, and another 10% the following day, etc. That also includes many of the stocks in my own portfolio. If you look at the screen all the time, it is painful, and stressful. Losing a lot of money (in the short time) is never a nice feeling

However, the stock market is highly unpredictable. In fact, no one has correctly predicted the direction of the market in a consistent manner. Hence, there goes the viability of market timing in investing. You would have heard that one “should have” sold off all the shares a month or two ago, and then wait for the market to go down in order to buy back. This type of argument is true, but always after the fact.

I have emphasized before that investing to build up wealth is a long-term endeavour. You are supposed to invest for a higher return than putting your money in the banks for your retirement, or university education for your kids which are usually years, or even decades away. Hence, do not unduly worry about the short-term volatility. We have to learn how to live with this volatility. Switch off from the negativity of the market, trade less and detach yourself from this short term “external” loss in this bear market. You will reduce your stress this way. Remember, the stock market has gone through numerous crisis and plunges, big, huge and humungous, it is always in the long-term uptrend. Chapter 5 of the book on Stock market plunges has a good description of this.

Also remember, the value of any asset is the present value of its cash flows, which will include good and bad quarters, economic expansions and recessions.

When asked once about whether he was worried about a big drop in the value of Berkshire Munger said in a very direct way:

Zero.  This is the third time Warren and I have seen our holdings in Berkshire Hathway go down, top tick to bottom tick, by 50%.  I think it’s in the nature of long term shareholding of the normal vicissitudes, of worldly outcomes, of markets that the long-term holder has his quoted value of his stocks go down by say 50%.  In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”

However, please remember, the stock market is unpredictable. Low price can go lower, or even much lower. If you don’t have the cash which you can leave there for a few years, or if you are uncomfortable, and can’t sleep well, it may not be advisable to invest further.

Understanding that we do not know the future is such a simple statement, but it’s so important. Investors do better where risk management is a conscious part of the process. Maximizing return is a strategy that makes sense only in very specific circumstances. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches. You should try to maximize return only if losses would not threaten your survival and if you have a compelling future need for the extra gains you might earn.”

Peter L. Bernstein, the author of investment classics “Against the Gods: The Remarkable Story of Risk”

If you have a lot of spare cash, the cash which you don’t need to touch for many years, and for those who have little exposure in the stock market at the present and are not that risk averse, it may be good to buy those RM1m businesses from others who are threatened by Mr. Market for less than RM500k now. It’s better to be too early than too late. It has been proven again and again, if you buy stocks at a big margin of safety, there is little risk and eventually market will revert to its mean. But make damn sure that you buy good companies at big discounts, and not buying lemons and overvalued companies, no matter how good they are. Avoid companies with precarious balance sheet. Now is the time to pay utmost importance of the health of the financial position of a company. Have good asset allocation and diversification practices as described in Chapter 5 of the book. You may also opt to make your positioning conservative, reserve cash so that you are able to pounce on new opportunities while others are forced to sell in the later stage.

In the meantime, during this lockdown period, and the depressed market, spend some time and improve your skill in reading the Annual Report, analysing and interpreting the financial statements, and the various business valuation techniques in the book you have purchased below. Understand the business and buy it at a margin of safety.

Tis goeth down to a fundamental aspect that “An investment in knowledge pays the best interest” - Benjamin Franklin

The above book is selling in the major bookshop, including MPH and Popular for less than a meal for a family of four. If anyone interested to get a copy to read during this lockdown period, you may write to me at the following address,

ckc15training2@gmail.com

In conclusion, at times like this, one sympathises with those have lost a lot of money and must run for the exits. But if one is investing for the long term and doesn't need short- or medium-term liquidity what's the point of second guessing the market? However, everyone has his own personal risk profile. Some are risk takers and some risk averse. There is no one-size-fit-all thing.

I will spend some time to organize and write to give you my response on your question 2 above soon.

For your third question, if you have read the Edge interview with me which is in the Personal Wealth section in the latest issue dated 29th March 2020, you would have seen this prominent phrase I used.

Do not buy stocks purely based on tips, rumours and recommendation is one of the earliest lessons I learnt.”

I never give stock tips any more in the public forum. It is a hazardous thing to do. Maybe give me some time to see if I can come out with a response to that question.

I shall sign off with the following quote.

This too shall pass” The Wisdom of King Solomon

K C Chong at ckc15training2@gmail.com

Discussions
1 person likes this. Showing 13 of 13 comments

qqq33333333

talk for what?


when the train wreck was crashing into the stock market weeks earlier, did u tell people to avoid the train wreck?

2020-03-27 12:32

enigmatic ¯\_(ツ)_/¯

I'd like to add that it was the short sellers, those IDSS players who had exacerbated the plunge of Bursa.

Bursa has been rather resilient ever since short selling was suspended until 30 Apr.

But maybe the stabilisation of the US market also had some effect on global markets

2020-03-27 12:45

Flintstones

Kcchong extrapolation method will not work well in this market. Why? Because forward earnings is screwed. He might lead you into a value trap or you end up paying more than what you wanted

2020-03-27 12:46

laychee

Stimulus plans around the world are working hard to push the market back up.

Something common since 2008.

2020-03-27 12:47

Najib Zamry

I trust that now is the best time to load your bullet in the market now. Unlimited QE and concentrated effort from all government around the world will see the flow of money to the market. My top pick are BAT, HAIO, JHM, PADINI, MAGNI,KGB, ASTR0. All of them have drop more than 50 % , High Dividend Yield and solid Balance Sheet company. Trust that stimulus package announced by PM will see some money flow to this counter.

2020-03-27 12:49

Sslee

Hahahaha
qqq3 wrote, “ the only smart ones are those who sold all several weeks ago...never look back,....do not get tempted.........

I am not among those............

In theory that is what I should have done, told my self that before the mess, even write about it. Told friends I am prepared for all eventualities...........

But 1 or 2 weeks of negligence, all the good work done in last 2 years all gone.
19/03/2020 12:04 PM”

So qqq3 you saw the train coming and anyhow you still foolishly and readily got yourself hit by the train? Until now no capital to do trading and can only look and envy what hng33 is doing.
https://klse.i3investor.com/blogs/qqq33333333/2020-03-20-story-h148557...

2020-03-27 14:07

myongcc5

Thank God tht my fren n I sold everything weeks ago!
However its so tempting to buy banking stocks days ago.
PTL.
Wait fr dust to settle, maybe in few mths time

2020-03-27 14:22

myongcc5

KC is still a good trainer.
Seldom missed his write up.
GBU KC

2020-03-27 14:24

myongcc5

Will certainly buy his book fr reference once free fm Covid-19

2020-03-27 14:25

Philip ( Dr. Fauci my Hero)

The thing is, many so called super "wannabe" investors Trainers like to talk about being like Charlie and warren etc, but fall to the wayside when push comes to shove. They like to talk about value investing, how they made 100% on this and that, and how they know how to value and buy.

But the one constant which none of them have despite all the post and comments, none have it except for Koon yew yin and ooi Tek bee,

Jonathan Choi yi kit does not have it.
Ricky yeoh does not have it.
Calvin tan eng yet does not have it.
Icon8888 does not have it.
Kcchongz does not have it. ( He however has a book, how useful I don't know).
Stockraider definitely does not have it.
Louisinvesting does not have it.
Greentrades does not have it.

What all of these people who comment so much on i3 forums is the lack transparent, trackable portfolio ( its a free simple tool that exists on i3 forum, funny how very few people use it.)

Why? They will give you excuses like how they don't want people to frontrun them ( which is silly when you really think about it, they can buy first then update), but the fact of the matter is: once keyed in they will be unable to delete the portfolio entries or replace it with fake entries, but must constantly be on the public eye to see if their blogs and writings jive with their market results.

Choivo tries to do it, buy half heartedly. He kind of tells you what he buys, buy hides it behind xx and XX stocks, and makes you guess what he holds. But he did not tell your boss positions, or when he sells.

But the thing is, what you bought is not so much as important as what you sell. More important that what you bought and sold, is your conviction and the total amounts of each stock that you bought or sold.

They like to talk the talk, but when it comes to walking the walk, they somehow fall apart.

And the first thing they dive into is the quarterly results of warrens Berkshire reports.

https://www.berkshirehathaway.com/reports.html

I find it very tiresome( because I see it all the time), but my belief is this: if you want to be a public figure and write all sorts of articles and promotionals, you need to be accredited. If I wrote a medical journal, but never having spent a day in medical school, I could convince a lot a random idiots into taking my words verbatim acting wrongly on my "advice".

Financial "education" has the same effect on that EVERYONE is suddenly an expert on the companies that they buy. EVERYONE! Trust me. Calvin tan is as expert on networking infrastructure, choivo is an expert on petroleum refineries. This has a lot of potential for destruction, especially for eager young investors out to make a quick buck.

Who do you believe? In the real world, they would not be able to publish such things without a financial advisor license, a prospectus of their 5 year results and a full disclosure on their fund size.

But here in the internet, they can hide behind blogs and write whatever they want.

Here is the real guide: you trust Warren buffet and Charles munger not because of what they say or do, but the financial reports that show their results and the acumen.

So I tell you: listen with one ear. If they don't have financials or a history of results, treat it as fantasy and do not buy anything based on simple recommendations. Instead listen to them for a few years, build their portfolio for them ( they will always tell you when they buy, but never when they sell. Period.) Then you will quickly realize what quacks they really are.

I put KYY and OTB on a different scale though ( KYY when he buys you WILL know it, but you when he sells you will ALSO know it, albeit when the stock crashes). OTB makes money from classes and subscription, so he has to maintain a transparent form of investing. I can respect that.

>>>>>>>>

If you buy stocks at a big margin of safety, there is little risk and eventually market will revert to its mean. But make damn sure that you buy good companies at big discounts, and not buying lemons and overvalued companies, no matter how good they are.

2020-03-28 08:58

Sslee

Haha,
Thinkers value ideas
Egoistic value his own opinion
Rich people value the length of his sausage
And super rich people value title
So when Philip going to get a Dato, Dato’ Sri, Tan Sri or Tun title?

2020-03-28 10:39

Philip ( Dr. Fauci my Hero)

Too bad you know nothing about me. But if you did know, you would understand that engineers love the process of doing something rather than only the results. Only businessman like you want 1 year 100% results rather than learning the art of investment.

My question is still relevant and important. I am looking for a true teacher to learn from, not a publicist.

All the great investors have a public portfolio with transparent results.

Warren has one.
Munger has one.
Howard marks has one.
Peter lunch has one.
Carl Icahn has one.
Even bill ackman has one.

Documented and tracked.

A garbage disposal guy working in New Zealand could write a book and plagiarize all of the value investing concepts out there into a book. But who would read it if that garbage disposal guy did not have results?

It's like asking a zunar to write a book about governing a nation.

Yeah right.

2020-03-28 11:19

Philip ( Dr. Fauci my Hero)

Take for example this guy. How would you rate his top picks or trust him? Thousands, millions of characters like this ( including kcchongz) around. Without a proper portfolio, how do you know his long term results? Maybe he just attended a kcchonz class last month or read his book, and now he thinks he is a hot shot professional investor.

I bet this is the first crisis he has gone through, and he doesn't even have a portfolio maintained.

>>>>>>>>>>

Posted by Najib Zamry > Mar 27, 2020 12:49 PM | Report Abuse

I trust that now is the best time to load your bullet in the market now. Unlimited QE and concentrated effort from all government around the world will see the flow of money to the market. My top pick are BAT, HAIO, JHM, PADINI, MAGNI,KGB, ASTR0. All of them have drop more than 50 % , High Dividend Yield and solid Balance Sheet company. Trust that stimulus package announced by PM will see some money flow to this counter.

2020-03-28 11:23

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