The importance of Share Price - Koon Yew Yin

Koon Yew Yin

Publish date: Sun, 13 Jul 2014, 12:26 AM

Koon Yew Yin

After having being a company director for a long time and having read hundreds of analyst and company annual reports in search for good public listed shares for investment, I think I have some knowledge and experience to share with you. I hope this article will benefit all investors and I also hope company directors can get some ideas to create more value for their shareholders.

The price of a share is indeed an interesting item. It had brought joy to many and brought tears to just as many, if not more, investors.

There is a classical saying ‘good management produces good share price and bad management produces bad share price’. When you select a share to buy, you expect to gain from the dividend and the appreciation of the share price; both of which are important catalyst to move share price.

Share price is an indicator about the health of the company. Increased profits, for example, will drive the stock price up; excessive debt, for example, will drive it down.

The share price has a profound effect on the company overall: for example, a declining share price will make it hard to secure credit, attract further investors, build partnerships, etc. Also, when employees are often holding stock options, a declining share price can severely dampen morale. In an extreme case, if the share price plummets too far, the company can be delisted from the stock market.

It is every clever businessman’s dream to list his company in the stock market to get more capital to expand his business. An initial public offering (IPO) is the way most companies get their shares traded in the stock market.

However, companies often go to market again and again to issue/sell more shares, after their IPO to raise more money to expand their operation. A clever way is to issue rights to buy the share together with bonus and free warrants which would encourage more investors to buy their shares, thus pushing the original share price higher.

Besides these secondary offerings, some smart companies issue shares to acquire land, factories or competitors to expand their operations to benefit shareholders. Unfortunately I seldom see companies making use of the advantage of their listed status which is like having a license from Bank Negara to print dud notes.

Why don’t they take advantage of this privilege of printing dud notes to acquire assets more often?

When a company goes back to the market to raise additional funds for expansion, the share price of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares.

To get the same amount of money, a company with a higher share price will require to issue less number of shares than another company with a lower share price bearing in mind that all the new issues will dilute existing shares of the company.

Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash, there is often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc .

We often see examples of many companies where corporate exercises can sometimes undermined the value of share price, especially in cases where a company's profit growth is challenged. In situation like this, it shows that management is unable to make use of the funds raised to increase future earnings vis-a-vis the value of the business, leading to a destruction in shareholders's value where the dilution outweighs any advantages.

The importance of share price will therefore be valid provided the following conditions apply:

1. The business in question must in the first place be a well run business with consistent profit growth where the increase in share price is in alignment with the increase in the value of the business.

2. Any corporate exercises undertaken by leveraging on the "share price" (underlying value of the business) will be advantageous in increasing shareholders' value provided that the potential increase in the value of the business outweighs the dilution impact of the corporate exercise. (This is where management's expertise and judgement comes in. Very often, the entrepreneurial type of management has the ability to conjure up deals that tend to increase the business value more than the dilution impact, leading to an increase in shareholders's value. This is because entrepreneurs are instinctively able to see the "wood from the tree " and are able to make decisions that effectively increase shareholders' value. Education and qualification are helpful but not a pre-requisite to be enterprising.

If these two conditions are met, all good management should, in my opinion make full use and take advantage of its share price to grow and expand the business. The ability to use the share price or value of the business to finance the growth of the business is always an option that should be explored as long as the exercise can improve shareholders' value. Failing to do so is akin to not optimizing the resources at management's disposal to act in the best interest of the company.

Bear in mind that when you select shares you should not be unduly impressed with higher educational qualification of the members of the Boards. There are some CEOs with very impressive university degrees cannot perform and yet shareholders cannot remove them because of their controlling share holdings.

Good companies invariably have good businessmen or entrepreneurs as directors. Clever businessmen do not necessarily have tertiary qualifications e.g. Tan Sri Yeoh Tiong Lay of YTL, Tan Sri Lim Goh Tong of Genting and Tan Sri Teh Hong Piow of Public Bank.

Discussions

16 people like this. Showing 50 of 179 comments

wt222

Does anyone keep track of Mr.koon investment records for the past 3 -5 years?so that we can.all see and learn from a super investor.tq

2014-07-15 21:44

wt222

He did mention earlier that he made lots of money from kulim wb few years ago...he also made a lot of money investi ng in hong Kong during 1997/98 till he managed to buy a security firm....if I m not mistaken.....

2014-07-15 21:49

aqoanxsk

tq Mr Tan KW & KC. useful

why can't the KYY do such response?

in US, major investor cannot make bold claim. must have proof. register at SEC. can track every Q filing - marketfolly.com

malaysia, just come to forum. make claim. = bible truth. *sigh*

tqvm

2014-07-15 23:31

soojinhou

Mr Koon, I have benefitted from your perspective on the Indian power plant scene. I hope that u will continue to write. If these kids bother u, please don't read their nonsense.

2014-07-16 00:03

Fat Cat Tim Buddy

If i am 'lucky' to find out whats wrong on my investment, and 'lucky' to admitted my mistake & make myself cut loss on it, then Mr Koon is indeed, one 'unlucky' person.

2014-07-16 03:33

AyamTua

nice. being respectful is key to all wealth

Posted by lohman > Jul 15, 2014 11:49 AM | Report Abuse

There is nothing wrong with differing views. Different folks, different strokes. I don't agree with all KYY's views on stocks, or politics, for that matter, notwithstanding his investing experience or his grey hairs. We can all agree to disagree amicably. But to malign him unnecessarily is beyond bad manners. Though from a less confrontational generation, he has put up with it for a while, much more than I would. The cloak of anonymity on the internet seems to bring out the worst in some people. If it was a face to face meeting, I am sure many would refrain from displaying such ill manners.

2014-07-16 03:38

lohman

Let me use fishing as an analogy on share investments. KYY wants to teach you to fish so you can be self sufficient. He even identifies some edible species and suggests you use a rod, hook, line and sinker at the nearby river. However, people learn at different rates, have different skill sets, risk perceptions and so on. Some people, instead of hooking a fish, hook themselves due to inexperience or clumsiness! Some too excited ones fall into the river. Some fish in dangerous spots where there are crocodiles. But they may blame KYY for their mishaps instead of taking responsibility for themselves. No one can teach you how and when to execute correctly on the internet even in a simple sport like fishing. You learn through repeated real life experience.

2014-07-16 09:58

Panda

I feel sad yet another sifu being bashed here until leave i3.

2014-07-16 10:07

stockoperator

Admitting mistake is Being Very Conscious about what is Not Right.

Price is a good Indicator. Anything wrong with the Price itself? Judge the mispricing more objectively. Don't jump to the conclusion that market is wrong and I am always Right.

1) Reasons behind the Down Trending, can I estimate the Forces?
2) How much effort has been put in everyday to push up prices But fail?
3) Can this time be different? Surely Nothing will change. What is the actual catalyst then?
4) Well, have i understood the Business at the first place Besides publicized figures?

TQ

2014-07-16 10:12

stockoperator

YES, before going out for fishing, we Better tell people first there might be crocodile, thunder storm, bad weather, your boat might sink and you might get nothing today and you have to come back tomorrow.

2014-07-16 10:22

chenkx

Mr Koon, i have been reading your post and notice that you seem to like plantation stocks. May i know why Dutaland , wtih a PE of 12.04 and NAB 0.98 doesn't seem to be in your recommendation yet.

2014-07-16 10:56

Jonathan Keung

prices may not reflex the actual net worth of the company. the company
may be great ( rich in assets valuations ) but the controlling shareholders are deem too conservative or the free float is limited )
the price may not moved and you need to hold on to this type of counter for a long time. there is no right or wrong in any style of investing ( as long trade you trade within your means )

the mega bank merger between CIMB-RHB- MBSB is a good case studies. with a bigger balanced sheet. the enlarged bank will have ample opportunities for more acquisition. CIMB is down but RHB is up. ?

2014-07-16 11:09

stockraider

ABOUT SHARE PRICES ? U NEED UNDERSTAND THIS THEORY LOH....!!

1) EFFICIENT MARKET
ALL FUNDAMENTAL OF THE COMPANY IS REFLECTED IN THE SHARE PRICE...IE GOOD SHARE GOOD VALUATION & BAD SHARE POOR VALUATION LOH....!!
GENERALLY MOST SHARE PRICE WILL REFLECT SOME OF EFFICIENCY MAH...!!
HOWEVER THE MARKET DUE TO PRECULIAR NATURE SOMETIME DO NOT REFLECT COMPLETE EFFICIENCY.....THERE IS HOW THE VALUE OR MARGIN OF SAFETY OR CONTRAIAN INVESTOR WILL COME IN AND PLAY A ROLE LOH....!!

2) THE THEORY OF MR MARKET
VALUE INVESTOR WILL SELL OVERVALUE & BUY UNDERVALUE STOCK LOH...!!
THEREFORE COMPANY THAT DO NOT REFLECT THE TRUE FUNDAMENTAL WILL GIVE VALUE INVESTOR TO MAKE MONIES LOH....!!
THE KEY FOR VALUE INVESTOR IS STOCK VALUATION V SHARE PRICE LOH...!!
HOW BIG IS THE MARGIN OF SAFETY LOH.....!!

2014-07-16 11:36

aqoanxsk

interesting. tq. tq. very good.

Fat Cat most right ... must admitted loss and cutt loss. or else how?

head-in-sand cannot lorrr..... as mr stockoperator say might be crocodile. maybe KYY. other sifu. care must.

tqvm

2014-07-16 21:23

ryan78

John F Kennedy father's(Joseph Kennedy) famous phrase about stock wisdom:

“You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

It was Winter time in 1928, father of President John F. Kennedy, went to the cobbler to have his shoes polished. When the shoe polisher(shoe shine boy) completed his dues he offered Kennedy a stock tip. “Go buy Hindeburg - Good one"

Kennedy quickly sold off all of his stock holdings. Within a year America saw a massive stock market crash that wiped out the life savings of millions of Americans with the Great Depression.

Lesson of the day? Noises and suggestions you hear are often late tips or traps to lure the public and independent/individual investors to pump in money. When you hear: BUY! You know the big time players are already planning for profit taking in the near future.

Shoe shine boy hints are more dangerous calls than anything else.
Today it's more complicated. The shoe shine boy could be your Hollywood star or famous celbrity with bowties, neck ribbons and PhDs paid to do PR for the invisible tycoons.

Remember someone's lost is another man's gain.The man who took profit could be in the same boat collaborating as the guy who told you to go in and fell for the trap.

2014-07-17 20:15

Fat Cat Tim Buddy

it only work if those people are stupid enough to fall into the trap. Mr koon is a businessman, and businessman is famous for their sneakiness, george soros once said : I was a human being before I became a businessman , business world is like battlefield, it is either you die or i die, most businessman knew this. why facebook is free? chicken must be thinking : why the farmer so nice to us, they feed us, they provide a safe place for us, they so nice... Remember, if you are not paying for it, you are the product. why so many 'experts' provide free analysis to all of you? some might have kind intention, but 95% is try to trick you, thats just how the world work.
brace yourself, shitstorm is coming.. kikikiki

2014-07-17 21:13

Ayoyo

Someone posts a stock recommendation, some see it as an opportunity for knowledge while others will see it as an intent with ulterior motive by the author. See the problem?

The problem is not with the author but with the interpretation of that event by the individual and this vastly divisive interpretation is the cause of all the sorrows, wars and fights in this world.

Why can't we see and appreciate that we have a very good platform and authors in i3 to share knowledge and that a good or bad posting is a lesson to be learnt in its own right? The question is, are you conscious or this lesson or simply, blinded by the follies and pains of your past trades and fear of the future losses to be oblivious to such rich education?

I trade for a living and have been trading very profitably with my momentum trading style, but this was achieved after many painful lessons of losses and more losses. But the one thing I had was persistence and perseverance and each loss was an opportunity not to make the same mistake (or even if I make the same mistake, I make sure it's smaller than before).

Look! The day one can realize that trading, like in so many other life pursuits out there is a battle between you and yourself and that YOU MUST CHANGE THE WAY YOU SEE THINGS, AND THE THINGS YOU SEE WILL THEN CHANGE

It is good to be cautious but not to the extent that negativity consumes you into submitting to its reality that everyone in this world is evil. The day that happens is the day one stops learning and leads to an undesirable outcome

To one question whether one should cut loss, whether one is trading short term or investing for the long haul, if you have confidence in your system, temporary blips in stock prices are simply events that occur within your realm of events. If the same reason why the stock the stock was purchased had not changed, you sit rock solid on your position

Bottom line, win the battle with yourself and the war is won. The outside world is simply a reflection of your own thoughts and manifestations. You want a positive outcome, manifest that in you and your thoughts

2014-07-23 21:37

chenkx

well said.

2014-07-23 21:55

klsetitan

Learning takes many forms, some focus on good points n forgives others not so successful investment or mistake n make it a reminder to him/herself while others like to find fault n keep hammering that particular point (with good or bad intention). One doesnt have to b critical of others' mistakes/ degrade others js to prove he/she is better or "has a point". I have been a side reader in i3 n I do really appreciate those who are willing to share their knowledge, trading experiences n investment notably LC, OTB (another victim of abuse in i3), Tan KW, Calvin, 糊涂, icon888 and many2 more. Pls stop chasing away others in this forum by being disrespectful to others. Whilst learning from others posts, we must appreciate others efforts n respect their views ( u don't have to agree if u do not, but don't be persistently hammering others) appreciate if you could pls respect others. Pls learn how discussions were conducted between sense maker n LC when they debated. I benefited from their discussion "so what is this enterprise value" even thou both do not agree with each other. Both are right to me js that they analise thing base on individual experience. We all know when to stop a discussion. From my observation till to date, most of OTB's pick are all correct, and those who r critical of his picks u shd learn more frm his previous posts. What a great lost to all of us when someone like him no longer share his pick n most importantly the methods he used to pick a stock!! Most of them time those who criticized the most are those who contribute none to the forum..

2014-07-24 02:31

Teoh Boon Leong

Experience talk

2014-07-25 08:23

TanDavid88

Post removed.Why?

2014-07-25 11:23

speakup

where's the Hari Raya rally?

2014-07-25 11:26

Intelligent Investor

Nobody’s perfect. Don’t expect perfection from those you are making deals with or from yourself. Be willing to make mistakes now and then. Warren said, “I make plenty of mistakes and I’ll make plenty more mistakes, too. That’s part of the game. You’ve just got to make sure that the right things overcome the wrong ones.” - Warren Buffett

2014-07-26 00:15

aqoanxsk

much trading philosophy from ayoyo .. tq tq

but KYY still talking Holland tactics. no momentum. no good.

why everyone must quote WB? make own history laaa

2014-07-26 00:19

Intelligent Investor

You don't have to think of everything. It was Isaac Newton who said, 'I've seen a little more in the world because I stood on the shoulders of giants.' There is nothing wrong with standing on other people’s shoulders.

2014-07-26 08:59

mokkam

Good thought II sometimes its who we follow that brings success n KYY has proven himself

2014-07-30 09:51

Kevin Wong

Super rich & successful investors/traders, shouldn't be too bothered by harsh opinions heap upon them. After all, they are the ones who are making tonnes of money almost every year. I'm sure the worst for them is, 'crying all the way to the bank'! While, for many of us have to struggle just to make a decent living. People like KYY, should know that there are many of us who know how to treasure whats precious - just ignore those who don't.

2014-07-30 17:05

mokkam

KYY is big hearted I follow his advice n made money I hope he will continue the good work

2014-08-03 02:35

jeff 7839

Dear KYY, do what you feel is right and ignore those out to vex you. I wish you well.

2014-08-03 11:35

mokkam

I agree your further advice on plantations is most welcome

2014-08-05 06:08

vijay

DearKYY, ignore the noise and do continue with your advice.

2014-08-08 16:19

500plus

Mr. Koon, JTiasa RM 2.30. Were you selling?

2014-08-08 16:48

aqoanxsk

Koon man of word. say no post, will no post.

believe cannot resist i3 ... maybe post?

Posted by Kevin Wong > Jul 30, 2014 05:05 PM | Report Abuse
Super rich & successful investors/traders, shouldn't be too bothered by harsh opinions heap upon them.

so why sensitive? no make sense. mybe losing shirt XQ?

2014-08-08 19:11

ycbang

Post removed.Why?

2014-08-08 23:01

lohman

Why should KYY post here anymore? I would'nt if I were he. It is a thankless task. You try to teach others to be better investors with the best of intentions but there are just too many wild juveniles, the challenged and intellectually handicapped, near basket cases, fringe elements, mild psychotics and the like expecting you to serve free meals unfailingly, rain or shine, with no effort on their part to contribute or to understand the free lessons given. Hey, KYY is no magician; he is a 80 plus year old fallible human who has feelings too.

2014-08-10 17:58

homosapien

MR KYY, i had noticed that u have bought a substantial amount of MFCB and are top 30 shareholder. May i know the reason u bought it as so far i cant get any recommendation/research by any stockbroker ..

2014-08-10 18:17

calvintaneng

MFCB

Its Salient Factors

1) High NTA as a Margin of Safety

2) Reasonable P/E. A Good Growth Stock

3) Defensive Power Projects like MUDAJAYA

4) Added Value It has Taken RCI private years back - a silica brick manufacturer - will benefit from Construction Boom & ETP

5) MFCB Is a Laggard. Ripe for Capital Exercise like Giving Bonus Issue, Share Split & Free Warrants. And Distribution of Treasury Shares Will Unlock Value For Share Holders. MFCB Is A Definite Buy!

2014-08-10 18:23

homosapien

thanks calvintenang...

2014-08-10 18:24

homosapien

i am hoping to get a reply from sifu KYY..:)

2014-08-10 18:25

Myojo

Post removed.Why?

2014-08-10 18:35

homosapien

price fluctuation is normal ...if no price fluctuation, hard to get profit...

2014-08-10 18:38

rlch

homosapien, MFCB as I know many of their directors are selling because to take profit. Most Mr Koon shares are bought at high price except Jtiasa(got take profit?) for this year.

2014-08-10 19:19

AyamTua

scanned keyword: sell. hihihi - sell others, buy esceram, ahb and tmclife kikikiii

2014-08-10 19:26

rlch

Sorry Mr Koon if you read my post. You also bought Swk Plantation and Mudajaya(RM2.40) at low price.

2014-08-10 19:27

yfchong

Everyone has it's strength n has made calculated risks or frame up its boundary of judgegemental prior to make the move, more or less they would have estimate the future results based on the current scenario to expect the desirable output.. Therefore time will tell and the passage To attainment would be painful without proper mindset n mental strength.., cheers that's my 2 cents view.

2014-08-10 23:11

vinext

i've known this webpage for a long time but only join lately because of mr koon.
Too bad i didnt know much abt other i notice the work of KC CHONG, there's a weakness in his NET NET method i spotted.
Anyway, i've met with Mr Koon be4,his return is abt 26%compounded for 30yrs.
His answer for XQ is simple,he cant sell cuz it moves the mkt, if u r smart,u shud know the answer. U can quit and find ur next 4-5baggers.
Best way to invest is to find a growth stock at below EV, no debt, low PE, with moat of cost advantage, buy at a correction, crash, or watever ,eg: last 2wks, mkt soften,
ignore it for many yrs.
1 eg is TSH, it is not cheap now but it qualifies for all the criteria except MOAT.
It's the lowest cost operator with highest FFB yield/ha, no2 is klk, no3 is ioi.
OER is 21%,also top 3. But not cheap. Last 5yrs it grew the FFB at 34% CAGR.
since 1998, it returns 30times, pbb, kulim dialog matched this return, dialog probably did much better though

2014-10-22 03:07

vinext

http://www.ijm.com/web/download/ijmstory_3.pdf
abt the companies he founded

2014-10-22 03:58

vinext

if price lag too hard behind intrinsic value, it's wrong not to buy. But not to sell but to continue hugging on a garbage is wrong,u r better off if u sell the loser and buy the tomorrow's star. If u hold on to SMI or OLYMPIA since 1998, u get $0 for holding smi now and <5% of wat u paid for. Instead if u sell them when they shot up for a few times in 2000s,and buy winner like TSH, Kulim, Hartalega, KPJ, Zhulian, Uchi Tech, Aeon Cr,Daibochi, scientex, HPi, u would hv 400-500% returns or 12,000% for Hartalega)
based on last point, u shud sell ur Xing Quan instead on harping on this issue and teasing the old man who has contributed much

2014-10-24 14:39

unityboy

Dear Mr Koon, you have my utmost admiration.

2015-03-03 18:06

Ken Lim

Mr.Koon
Regret that I am too young and doesn't have the chance to meet you for a job
I believe in you
Because Director of gamuda was one of my friend's father!

2015-08-30 14:53

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