Looking for Undervalued Stock in KLSE according to Canadian Warren Buffett.

Late last year, I got hold of this book from KinoKuniya KLCC (near my office) – 'There's Always Something To Do – The Peter Cundill Investment Approach” by the legendary Canadian Warren Buffet, Peter Cundill and it was “eureka” experience to read such a book.

Once in a while, you do come across book like this. And you do, I wud finished reading the book within days.

Who is Peter Cundill ? He’s a Value Fund manager but passed away in early 2011. Following the works of Warren Buffett and B. Graham, Cundill left his life time work of essential stock picking strategies in this great book. It is collection of his personal diaries which provides an insights view of his understanding of value investing, managing funds and this thoughts with reference to G.Soros, Templeton.

For those of us who don’t like to read, here is the take-away value I got from this insightful book of value investing were :

1) Cundill willing to pay up to 60 cents for a dollar of business – that’s his definition margin of safety.

2) His robust stock pick strategies 6x6x6 was look for companies at PE of 6 that pay 6% dividend yield and getting the shares at 60% of the book value.

3) Share price must be less than book value. Preferably it will be less than net working capital less long term debt. (Net Cash holdings is preferred)

4) The PE less than 10 (For Malaysia, I preferred less than PE multiple of 19, see my book “SuperCharge”)

5) The company must be profitable preferably increasing earnings for past 5 years and there will have been no deficits over that period.

6) This is my favourite. The company must be paying dividends. Preferably the dividend will have been increasing and paid for some time.

7) As much as possible, avoid long term debt and bank debt.

The one thing I like about Peter Cundill is to learning the characteristics and qualities necessary to a become great investor. (i.e. patience, curiosity, discipline, contrarianism, networking skills etc). In retrospect, he talks about finding what don’t work in the stock market (e.g. investing stock when their moving averages cross-over buying or cross-down selling) & avoid them totally and to the point of determining what’s work in the stock market and loading up on them.

There are other less important points such as running a mutual fund and getting the right people in your team are also in the book.

Our motto is to learn from others (both successes and failures) that have walked the path and benefit from it. It only cost me less than RM100 (price of this book) to reap the future rewards.