Posted by Intelligent Investor > 2015-06-04 21:01 | Report Abuse

Accounting is the language of business.

You need to understand basic accounting to identify good companies from the bad ones based on their past financial performance.

You have no right to invest in the stock markets if you not able to read the financial statement.


http://klse.i3investor.com/blogs/intelligent_investor_notes/53834.jsp

Posted by Icon8888 > 2015-06-04 22:02 | Report Abuse

Kc, I read in one of your earlier articles that furniture industry is cyclical. Mind to elaborate ? Thank you

Posted by kai8994 > 2015-06-04 23:03 | Report Abuse

You're welcome Kc ;) Your article is "Must Read" to me, just like how Warren would love to read Howard Marks' newsletter immediately.

Posted by kiasutrader1 > 2015-06-05 02:14 | Report Abuse

To invest properly in stocks and shares, one must have the basic understanding of financial statements, that, although is useful need not necessarily be a prerequisite as to be a skillful investor, it is one who can understand where the business of the company is going and knowing when to buy and when to sell. No point knowing when to buy and regret that you did not sell at an opportune time.

Financial statements are past results and there is no guarantee that the future will be the same. Also one must understand what industry the company is in, the intricacies of the business and so on. Hence, following financial statements and ratios blindly is the worse thing one can do. The list can go on and on and I am not about to embark on a MBA lecture here.

What I am trying to say is that, do not be blinded by what appears to be rational. The smartest people in the corporate world are "rational" but they very often are not successful Investors themselves. There is a reason to that and this is not the forum to discuss it. Suffice for me to say that in whatever you do, recognise the limitations of the system you are using and do not blindly follow it as though it is "Gospel Truth".

In addition, points of entry and exit can be ascertained with some probability if one understand Technical Analysis and use the charts skillfully and successfully. It is no point to enter a "Value Stock" (based on all the analysis from present and future cashflow to static ratios) at RMXXX price for example when it is at the top of the chart and "distribution" is happening. Entry at accumulation or support phase is better for profitability. No one wants to pay more for anything if it can be obtained cheaper later. However if you do intend to be a long term investor then entry at whatever price does not matter to you.

My point is that do not be constrained and think that there is only one way to be successful in investing, or think that only educated people who know how to read financial statements will be successful Investors. I have met many who do not understand any financial ratios at all but are far more attuned to the market and know when to enter and exit and make tons of money.

Lastly, I leave this real world finding for all to ponder :

"Researchers at three major universities - Stanford, Carnegie Mellon and the University of Iowa - published findings showing that brain-damaged individuals made better investment decisions than the rest of us.

To be precise, what they studied was the impact of injuries that prevented the brains of the injured from processing emotional stimuli and, by implication, responses to those specific inputs.

Researchers found that when they compared the findings to folks with no brain damage, the "injured" individuals made significantly better investment decisions".

Strange is it not?

I can be contacted at kiasutrader@gmail.com or thru my website at www.kiasutrader.com

Happy Trading

Posted by donfollowblindly > 2015-06-05 05:49 | Report Abuse

Agree with kiasutrader1. Furniture companies are no longer cheap to buy compare to say 1 year ago. Don't follow blindly what this article say how good is furniture companies.

One man's meat is another man's poison

Posted by bracoli > 2015-06-05 06:04 | Report Abuse

Best buy is homeritz.. 0.58 until now... Real gem ... Kikiki

Posted by kcchongnz > 2015-06-05 06:23 | Report Abuse

Posted by Icon8888 > Jun 4, 2015 10:02 PM | Report Abuse

Kc, I read in one of your earlier articles that furniture industry is cyclical. Mind to elaborate ? Thank you


Icon888, to me just about everything is cyclical. Oil price goes up and it must come down, so does palm oil price, construction industry, properties, etc. There’s little we are certain of, but cycles always prevail eventually.

Nothing goes in one direction forever. Trees don’t grow to the sky. Few things go to zero.

So do furniture stocks. Stock prices too.

Posted by Ooi Teik Bee > 2015-06-05 09:16 |

Post removed.Why?

Posted by Sunkist118 > 2015-06-05 09:40 | Report Abuse

Very good the debate....at least we learn more Fr facts presented by the FA/ TA master vs the FA King.
Aiya like that we mature to understand this type of mature argument lor.
Hope Najib can learn here to face his ex boss fact vis fact

Posted by kcchongnz > 2015-06-05 10:14 | Report Abuse

Thank you very much Ooi for your posting, and your frankness. To me you are always my good friend. We have met and we have talked about working together. I still hope I can work with you but it is not possible now as I am not in Malaysia most of the time. We do have some differences in investing. But that could make us perfect match in a collaboration, in my opinion.

Mr. Koon doesn't like the word "Sayonara"? And many too, including you? But did you read the content of the post? That was the most positive post I have written about V.S. Go read again. I have explained why I used the word "sayonara" as my last post because I have written too many posts on it. But did I really have to explain that? I would definite explain that if someone asked me why I use that word in my thread.

V.S is definitely not a useless stock. there is nowhere I have implicated that in any of my posts. but I just raised some concerns about it looking at its financial statements. To me there are real problems; look at how inventories increased in relation to revenue, and think back some information of what is happening to its major client of its coffee making machines. I am not basing on wild accusation. Well, I could be wrong, of course. In investing, it is full of uncertainties and there is no such thing as sure thing.

Actually I expect people holding V.S stocks in large quantities would thank me for putting so much effort to provide this opposite view, whether I am right or wrong, instead of taking swipe on me. It is a noble intention, isn't that?

Also remember the market is a voting machine in the short term, but a weighing machine in the long term. Many value investors have said that.

The business of Globtronics is definitely way better than V.S. There is no comparison. Globtronics's business is far ahead of V.S. There is not a single doubt in my mind. Compare their business model, return on capitals, cash flow, health of balance sheet, practically in every aspect. You have rightly quoted what I say here:

"The above is just the first level of thinking. You need a second level thinking; i.e. is the price right?

Investment is not only about buying good companies, buy buying them at the right price. The price you pay determines your return."

You have mixed up what is a good business and what is a good price. Price is not value, remember? Value is what a company is worth, but price is what one is willing to pay. Price is a total different thing than value and it is not factored into the business. A good company has good return on equity, or invested capital, good cash flow, consistent free cash flows, a healthy balance sheet. No price has incorporated there.

Price is only relevant when you decide to pay for the business, how much are you willing to pay.

I didn't go into the valuation of Globtronics because I have no interest in it too. I think it is too expensive just looking at the quick and dirty metric of PE ratio. But that doesn't make it a poor business. It is still a good business,but the price is not right at the moment. Actually it may depending on its expected growth, which I have no idea of as a small time retail investor.

By the way, PE ratio is too simplistic to use in valuation. You should know very well why I think so. There are simply too many problems with it. Analysts use that it, is not because they don't know it is not good, but they have their own agenda. I seldom read analyst reports.

Posted by kiasutrader1 > 2015-06-05 10:36 | Report Abuse

It is important that whatever you use, you use it well. To say that the PE ratio is too simplistic is not correct, KC.

Worldwide, that is the yardstick for investment decisions, including the EV/EBITDA. The latter captures the debt of a company as well. As I said earlier in one of my postings, high debt need not necessarily be a bad thing if used judiciously and also one must look at the structure of debt, is it long term debt or short term debt. Such things cannot be captured by a simplistic cashflow analysis based on past results or a DCF model. This is not to "attack" you for using the DCF model. As I said, I always wnat to "Agree to Disagree".

Suffice to say, there are loads of stuff to consider when pursuing investment opportunities; if not why are business schools like Harvard, London Business School and the like flourishing.

For your information, I was given a place in the London School of Economics to do my MA which I am very proud of but never went as I accepted a scholarship from Queen's University, Canada instead. I was also offered employment by the NUS, Singapore after my Masters. Subsequently while working, I was given the opportunity by my Employer to pursue my MBA which I completed.

After going thru all that head shrinking process, I realise that the real world is very much different from the elevated thrones of high finance and theories. Hence, I am now a more "Balanced" guy who look at investment opportunities not thru one window of "high finance" alone.

Use everything as a guide, not Gospel Truth as such is the way to go, to be successful.

That is all I want to post on this topic and thanks for allowing me to discuss this matter.

Posted by Tey Tian Foo > 2015-06-05 11:05 | Report Abuse

To be fair, we need to thanks and appreciate Mr Chong's effort for telling us potential pitfall with many companies inclusive VS. In investment world, everybody have their own viewpoint and source of information and choose to believe in. I also view positively when having different opinion. Nothing wrong to disagree. The more information and different opinion the better, after filtering these info, we are able to make better decision. Again thanks Mr Chong, KYY and OTB especially.

Posted by pputeh > 2015-06-05 11:19 | Report Abuse

Thanks guys for a very eye opening and enlightening morning. Though many of the abbreviation in the Fin reports I cant understand, I still enjoyed reading through. I am a very small time investor and with limited resources. I have to thank KC for recommending furniture stocks & after reading through his report, I picked Latitude and bought in March 2014 with a very small investment. I did like the other furniture stocks too, but capital was my problem. Anyway thanks to all of u this morning and also Mr. Koon who brought out the best here for all of us to learn in this discussion

Posted by NOBY > 2015-06-05 11:27 | Report Abuse

kiasutrader1, very sensible advice. I think most business schools today teach efficient market theory which is quite useless in the investing world today. I agree that one does not need to embark on an MBA or get a CFP to be good at investing. I think KC himself share the same experience as you. However, understanding a business does require understanding the language of accounting. Coming from a non-accounting background, I ve learnt these skills through my own study and with KC;s help and my investment results have improved greatly since I started using this approach. There is nothing high finance about the things KC talks about, for me most of these things are common sense.

Posted by Atarah > 2015-06-05 12:30 | Report Abuse

Hi All

I normally do not comment much now a day. Why because i have humbled myself and have start looking at the reality of myself. I have been trading for last 25 years
and i look at where I am today. I did not even make more than RM 5 ringit in other Is in negative stage of return -1000% . I ask myself why ?

The answers is
Failure to invest in myself in especially "investment knowledge".

Before I continue ... I must say I have high respect for both Mr Koon & KC Chong
and others who has diligently contributed to I3investor.

After I check the reality myself ... I began to focus on the guru out there whom I can learns.

But the two must respected guru I know now is Mr Koon and KC Chong

When KC Chong offers to teach us (me) for just a mamak nasi lemak and one teh price a day... I almost fall down off my chair. I have seek around and ask for the same teaching or guidance how much I will have to pay ? The price range from RM400 to RM2999 for two days course ok plus weekend just say 5 days course.

I am with him now for one month and the PDF teaching he sent us with assignment which I always fail to submit is so enriching. Every weeks I learns new thing and I will learns this for next 7 months before I graduate.

Thank i3investor that all of you have in today investment world.
Back then all we have is to hear form our remisier or friends of our friends of our friends do not know how many downline up about this shares that will go up soon.

Anything about TA or FA .... none ... the advise is just buy or else don;t ask me for tips anymore ok ?????. So we just buy and hope and love and promote the stock like every one else though mouth .... Afters 25 years ... the habit never change.
so there it is -1000% lost.

To cut the story short....

INVEST IN YOURSELF while you still can....

I am not promoting KC.. I am saying do not be like me .. naive and still searching .. I hope I can learns from a good guru here.... Now I have shown you and do not say I did not tell you.

All the best.

Atarah

Posted by Sunkist118 > 2015-06-05 12:33 | Report Abuse

Today Najib no show at his own "Tell All 1Mdb" but KCchong and sir OTB make headlines instead. At least this two champion came to talk. Mahahtir got .10minutes and police usher him off.

Posted by kiasutrader1 > 2015-06-05 17:28 | Report Abuse

Just a note about theories and applications.

1. In all business schools, MBA students are informed that gearing is efficient as more can be achieved above one's capital, provided of course you use such borrowings effectively and not to buy the latest penthouse in New York or London and get miniscule returns. Hence coming back to individual investors, one must have the knowledge and confidence to use borrowings to make more money than the interest charges.

For the companies, we can see this in the interest cover ratio which is a number to show how many times the interest is covered by the company's EBIT. the explanation is (see www.investopedia.com/university/ratios/debt/ratio5.asp) which I quote below :

"The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period".

Not many people talk about this ratio but do use it when you want to analyse the company's capability to at least pay interest.

2. Audited accounts are only a historical record and just basing on this to buy shares can be disappointing if the future operation is different from the past. But how can we tell the future? This is easier said than done as there are many market signals that one can see. For example, the apparently good profit could be from pre sold properties at much higher prices but the current market is not so bright. It will be foolish to buy property share in view of the slow sales. For your information, I get all sorts of SMS and whatsapp messages offering me good discounts to new launches. If the property market is so hot, why am I getting such great offers?

Also O & G companies are reporting huge profits, should you go and Buy, Buy and Buy now? Maybe you are a contrarian with loads of money but for me, I rather use my capital more effectively.

If one just followed the numbers without thinking, then that is not very wise indeed.

3. I have been thru many cycles of the market, up and down and I now realise that one must invest like an entrepreneur and a business man. I have been wondering how Mr Koon became the substantial shareholder of Latitude, VS Industry and Lii Hen. The 2014 annual report of Lii Hen shows that Mr Koon is the 2nd largest shareholder beside the controlling shareholder. Lii Hen just announced its 1st quarter earning of 18 sen per share and that is why share price is shooting up.

Hence he must have used his business skills instead of static numbers to consider investing. Mr Koon also encourage others to use leverage as the rate of interest is so low and if one did choose a good fundamental stock with good future prospects, even the dividends are able to repay the loan interest. Remember the interest cover ratio? The EBIT is your earnings before interest and tax.

4. There is one more point that people fail to understand about investment and I do not see it posted anywhere on i3investor. That is the people running the company. One must ask, is the majority shareholder, a real entrepreneur, shrewd businessman who cares about his reputation and company's well being or is he a corporate player and paper shuffler? Those of us who are old enough will know who these people are and one can see that the companies owned by the latter can never rise in price because the Fund Managers do not trust what they say, despite also whatever good results are posted in the financial statements.

In this regard, one must look at all the items (1) to (4) if one want to be successful as an Investor. It is not so simple as to just derive cashflows, ratios and what not from the company's financial statements and audited accounts which at best should be used as a guide only in any investment decisions. Hence never use such instruments as a conclusive factor as to invest or not to invest.

I certainly do not.

Thanks again and I have said my piece. As usual, I certainly welcome any comments to me thru my email : kiasutrader@gmail.com or you can visit my website at www.kiasutrader.com

Posted by Ooi Teik Bee > 2015-06-05 18:25 |

Post removed.Why?

Posted by murali > 2015-06-05 18:31 | Report Abuse

My condolence to you,Mr.OTB

Posted by murali > 2015-06-05 18:32 | Report Abuse

Anyway, Mr.koon will go nowhere without you....that's is fact

Posted by murali > 2015-06-05 18:36 | Report Abuse

He should admit to it by now.....n don't do the monkey biz in i3 anymore...before he became public enemy here

Posted by kcchongnz > 2015-06-05 18:38 | Report Abuse

"Mr Koon also encourage others to use leverage as the rate of interest is so low and if one did choose a good fundamental stock with good future prospects, even the dividends are able to repay the loan interest. Remember the interest cover ratio? The EBIT is your earnings before interest and tax."

So you have been his strong supporter on this encouragement of others to use margin financing in stock trading? You have you pros, any cons?

Posted by Ooi Teik Bee > 2015-06-05 18:44 | Report Abuse

I said I am using margin account when the market is very bullish. I will stop using margin account when the market is bearish.

It is ok to borrow in good time, avoid in bad time. I am still very consistent to what I said.

Thank you.

Posted by Ooi Teik Bee > 2015-06-05 18:46 |

Post removed.Why?

Posted by kcchongnz > 2015-06-05 18:49 | Report Abuse

OTB,

The statement was made by kiasu1 and the question was hence directed to kiasu1

Posted by Sunkist118 > 2015-06-05 18:50 | Report Abuse

Ha lar KC Chong very Cheong hei....Sir OTB alredi said mah how he play margin

Posted by kcchongnz > 2015-06-05 18:53 | Report Abuse

Posted by Ooi Teik Bee > Jun 5, 2015 06:46 PM | Report Abuse

I also want to add, borrowing is not always bad. Let us look at VS, the EPS is 0.491, the interest rate charged by the bank is around 6%. It is nothing wrong to borrow at the rate of 6% to generate an income of 49%. In actual fact there is a gain of 43% if you borrow. Of course you need to control your debt, it is nothing wrong in good time, you will suffer during bad time to pay interest charged.

Great comparison!

Posted by Sunkist118 > 2015-06-05 18:57 | Report Abuse

Yay Sir OTB logic prevail again

Posted by AzmiMerican > 2015-06-05 19:15 | Report Abuse

Kan before give loan bank will ask for project return, cashflow projection macam macam lagi??

Kalau bank approve the loan kan mean ok la?? Return positive cashflow cukup??

Posted by AzmiMerican > 2015-06-05 19:17 | Report Abuse

Kan banyak yang complain cannot get loan?? Jadi bukan senang dapat bank loan

Posted by Sunkist118 > 2015-06-05 19:18 | Report Abuse

Now we know who knows his stuff ..

Posted by Sunkist118 > 2015-06-05 19:19 | Report Abuse

That's why I differentiate Sir and Sifu. One stone throw many sifu but Sir very little hor

Posted by AzmiMerican > 2015-06-05 19:47 | Report Abuse

Loan tu... leverage kalau pandai guna rezeki berganda. But risk too la

Think lebih baik kalau ask OTB how he manage then say loan not good

Maybe OTB can teach a bit??

Posted by Sunkist118 > 2015-06-05 20:53 | Report Abuse

Yes SirOTB is right person

Posted by knifecatcher > 2015-06-05 21:16 | Report Abuse

Kcchong + OTB + KiasuTrader = The Avengers of Investors

Posted by pisanggoreng > 2015-06-05 21:36 | Report Abuse

KC:
"Scientex borrowed a total of RM340m, in comparison with the RM410m of V.S. Its debt is about 50% of its equity, in comparison to 64% of V.S. Not much difference and it is alright for both companies, no problem at all if the companies have enough cash flow to service their debt. Here are the differences.

In 2014, Scientex produces a net profit of RM151m and CFFO of RM153m compared to V.S net profit of RM46.6m and CFFO of RM46.4m. Scientex CFFO is 27 times and earnings 21 times its interest payment, whereas V.S CFFO is only 6 times and earnings 4 times its interest payment, taking interest for V.S as the average of the last three years. This has not taken into consideration that in the last three years, V.S has to spend 85% of their net operating profit after tax for capital expenses compared to 53% of Scientex."


OTB:

"Let us look at VS, the EPS is 0.491, the interest rate charged by the bank is around 6%. It is nothing wrong to borrow at the rate of 6% to generate an income of 49%."

base on my pisang understanding, KC did not say loan no good
he just want to tell us VS is far less efficient compare to Scientx in the employment of loan.

Right?

But I am a bit tak faham, how OTB can come out with another a set of data that looks quite good also. how about compare with scientx at the same period, may be we, mostly pisang knowledge people, can see the picture clearer.

we rather play than to invest in one future look good company but no guarantee, we better invest in scientx which is safer, as least from the data it looks safer.

Right?

thank you

Posted by pisanggoreng > 2015-06-05 21:46 | Report Abuse

kasihan KC,

people do not use data to compare which one is more efficient in generating cash, people non stop hentam you on borrowing

my good friends, kiasutader and OTB

I pisang goring people also can see you bull-shit here

Posted by pisanggoreng > 2015-06-05 22:07 | Report Abuse

KC

carry on with your good work

though I am not your student but I learnt a lot from your writing

likewise for most of the readers.

today your good works have paid you,

at least we can see KIASUTRADER and OTB are not arguing the fact you are trying hard to point out about borrowing

Posted by soojinhou > 2015-06-05 22:31 | Report Abuse

I am with KC Chong in advising against the use of margin financing. I know people who lost everything in the '97 Asian financial crisis. For those who thinks that they can time the market to pull out in time, think about Black Monday where market plunged 22% in 1 day. In an even like that, nobody can escape in time. And if you think 22% is bad, remember the stocks Uncle Koon recommends are second and third liners and therefore likely to plunge even more, maybe even 40-50%. In those catastrophic event, margin financing can destroy your entire wealth. I know people who lost their entire retirement savings in the '97 crisis. If you want to be able to recover from a catastrophic event like this, its best not to touch margin financing.

Posted by Ooi Teik Bee > 2015-06-06 00:11 |

Post removed.Why?

Posted by Atarah > 2015-06-06 06:55 | Report Abuse

This is the best discussion I ever had in this forum.
We learns so much.

In my opinion , there is no one way/one idea/one method that is 100% certain.

Every analysis / decision made is right at that point of time.

But we must be flexible enough to make decisive decision on the spot if we know our analysis/decision is no longer accurate months or years later to correct the situation based on present economic/political/current news or circumstances.

But if we take care of the downside , avoid the lemons , the upside will takes cares of itself. When we make the decision based on the these , we have a higher chances of being more correct than incorrect especially in the world of financial investment.

I wish I have learn that 25 years ago.

So teammate here ,

This discussion is healthy and not about who is right or wrong.
After digested the information , then we all make our own decision.

Atarah

Posted by kcchongnz > 2015-06-06 09:53 | Report Abuse

This is what we call humility.

From a young man in this blog

http://klse.i3investor.com/blogs/kianweiaritcles/78048.jsp

"我不會讓自己處於最危險的位置，隨時有機會回到原點。我都驚死，怕一個浪打過來無晒錢。有一部分人會覺得自己玩股票叻，就專注炒股，但我不會把所有錢投放在同一投資上。"

Posted by Ooi Teik Bee > 2015-06-06 10:01 |

Post removed.Why?

Posted by duitKWSPkita > 2015-06-06 10:09 | Report Abuse

Mr Ooi and KC chong,

Good day to you. When free can take a look on UCHITEC. I am still half way on analysis. It has several similarities like VS. Good thing is still belum "digoreng". Mean least risk to get con .

Enjor ur day gentlemen.

Posted by kcchongnz > 2015-06-06 10:34 | Report Abuse

Posted by duitKWSPkita > Jun 6, 2015 10:09 AM | Report Abuse
Mr Ooi and KC chong,
Good day to you. When free can take a look on UCHITEC. I am still half way on analysis. It has several similarities like VS. Good thing is still belum "digoreng". Mean least risk to get con .
Enjor ur day gentlemen.


duitKWSPkita,

You are welcome to read this:

http://klse.i3investor.com/blogs/kcchongnz/62058.jsp

Uchitech is a great company, in my opinion.

Chartist and short-term traders won't like it because the chart doesn't look good (or is it? not sure.), and there is not big profit growth these few years. But it is a very safe company, I think.

Take care of the downside and let the upside takes care of itself.

Posted by duitKWSPkita > 2015-06-06 10:42 | Report Abuse

Thanks for reply. Due to my job nature mostly i use FA and PA to value a stock.

Cheers.. Will read ur analysis later.

Posted by pisanggoreng > 2015-06-06 10:57 | Report Abuse

OTB,

I said you bullshiting is no doubt a bit emotional in words

proper words should be optimistic

base on the record

EPS (2014) is 29.43
EPS (2013) is 24.23

your data 49.1 is recent TTM, an estimation. are you sure it can be achieved

moreover you emphasis on the advantage of using margin financing in shares investing will do more harm than good to a common investor.
Honestly, I myself is one of the victim of this margin financing.
now you are very confident as I was before, at the peak of your luck, it is hard to see the negative side because you think it will never happen to you

Posted by Ooi Teik Bee > 2015-06-06 11:40 | Report Abuse

Dear pisanggoreng,

Ok. I accepted your clarification.

Please read the below link :
http://www.malaysiastock.biz/Corporate-Infomation.aspx?type=A&value=V&securityCode=6963

Add up last 4 trailing quarters EPS, EPS=0.491.

I had been using margin financing in last 23 years, still in good shape and 1 piece.
I said I am using margin account when the market is very bullish. I will stop using margin account when the market is bearish.

It is ok to borrow in good time, avoid in bad time. I am still very consistent to what I said.

Thank you.

Posted by kcchongnz > 2015-06-06 12:11 | Report Abuse

OTB,

When you are successful in using margin finance and some others also and made big money in your 23 years in Bursa doesn't mean the following statement by kiasu1 is good advice, does it?

"Mr Koon also encourage others to use leverage as the rate of interest is so low and if one did choose a good fundamental stock with good future prospects, even the dividends are able to repay the loan interest. Remember the interest cover ratio? The EBIT is your earnings before interest and tax."

Posted by bracoli > 2015-06-06 14:59 | Report Abuse

Mr duitkwsp, what is PA?