Posted by Ezra_Investor > 2015-11-12 13:27 | Report Abuse

Just my 2 cent opinion, actually, no need to be so complicated.
Why? Because complicated does not mean effective. Especially in investing, you'd want to be as simple as possible, otherwise you'll have hard time keeping track of the companies you buy.

I suggest just use Cold Eye's 5 yardsticks, it's a simple but effective method.

If you want, you can add an additional few stuff like DCF and EV/EBIT, and a few, but that's all.

Posted by shinado > 2015-11-12 13:33 | Report Abuse

Hi Ezra_Investor, thank you for your feedback.

I am amazed at how Cold Eye's 5 yardsticks method is simple and effective. As for my method, I know it's complicated but at least I am comfortable with it.

As your suggestion, I might consider it for future use. But first, must learn about DCF.

Posted by Ezra_Investor > Nov 12, 2015 01:27 PM | Report Abuse

Just my 2 cent opinion, actually, no need to be so complicated.
Why? Because complicated does not mean effective. Especially in investing, you'd want to be as simple as possible, otherwise you'll have hard time keeping track of the companies you buy.

I suggest just use Cold Eye's 5 yardsticks, it's a simple but effective method.

If you want, you can add an additional few stuff like DCF and EV/EBIT, and a few, but that's all.

Posted by ksng0307 > 2015-11-12 14:07 | Report Abuse

Is Benjamin's method (which was written many years ago) still workable nowadays? Also, is the method suitable in Malaysia market, Shinado, can you please share from your experience using this valuation method, anyway, thanks for your valuable write-ups

Posted by kcchongnz > 2015-11-12 14:25 | Report Abuse

shinado,

Very good investment strategies. Well done.

Your strategies are very safe. Plus they have high probability of meeting your goal of doubling your money in 5 years, or likely better as you have considered many aspects of investing like a businessman.

"Take care of the downside, and the upside will take care of itself."

That is exactly what you are doing, and investors should do, rather than following the greater fool theory.

Just a comment about your Graham growth model. In Graham's time, most stocks did not grow fast at that time. Nowadays, many stocks have high expected growth and Graham's growth model will give you very high intrinsic value with high growth, and often is not justifiable. Try do some sensitivity analysis you will understand what I mean.

Hence I used to advise that this formula is not recommended to value a stock, but merely as a check on how rational the price of a stock is. It was strictly emphasized by Graham too.

Posted by shinado > 2015-11-12 14:32 | Report Abuse

Hi ksng0307, I'm not sure if anyone is using it over an extensive period in Malaysia market. I do know that this was back-tested in US market using a paper portfolio by Old School Value:
http://www.oldschoolvalue.com/stock-screener.php

Testing period of 1999-2014 gives a total return of 576.45% or annualized return of 12.7%.

I have just been using it for over 2 years. It's not a long time frame, so who am I to say that it's effective? Anyway, I believe that valuation is useless without good fundamentals anyway. So pick a good fundamental company and go with whatever valuation method you like.

Posted by ksng0307 > Nov 12, 2015 02:07 PM | Report Abuse

Is Benjamin's method (which was written many years ago) still workable nowadays? Also, is the method suitable in Malaysia market, Shinado, can you please share from your experience using this valuation method, anyway, thanks for your valuable write-ups

Posted by shinado > 2015-11-12 14:33 | Report Abuse

For an example of using this formula, let's pick Panasonic. With this formula, I calculate the Intrinsic Value for the next 5 years at RM 19.11. Panasonic is trading at RM 22.10 now. So this means Panasonic is fully valued/over valued. But if I apply Margin of Safety 40%, this becomes RM 11.47. It is telling me that Panasonic is overvalued by a lot!

Another example, I calculated Scientex's intrinsic value for the next 5 years at RM 18.40, and price after Margin of Safety is RM 11.04. It is currently trading at Rm 7.70. It is telling me that Scientex is still undervalued at this moment.

But when I use this formula for a company with negative EPS growth over the 5 years, I get ridiculous value. Example, Fibon. It will tell me that it's valued at only 1 cent. Logically speaking, that's not going to happen.

So there are limitations to this formula. It can only be used for companies that have steady growth.

Posted by shinado > 2015-11-12 14:36 | Report Abuse

kcchongnz, thank you for comment. I realize this method is considered outdated and therefore also use EV/EBIT to cross check with this formula!

Posted by ksng0307 > 2015-11-12 14:42 | Report Abuse

Thanks, Shinado. You can try to have a look at Hayashi Noriyuki's book (Unfortunately, it was only translated to Chinese version), in his book, Hayashi is actually using the William O'Neil's method but with some modification. He stressed that a stock price will not go up if it fail to achieve historical high. And of course he has added in his own rank correlation index and selling pressure ratio which helps to know when to exit when market is moving south. Can have a look if you can understand Mandarin. FYI, Hayashi used to be a top fund manager in one of the famous investment bank at Abu Dhabi.

Posted by shinado > 2015-11-12 14:57 | Report Abuse

ksng0307 I will look into it and maybe Google translate it? Haha. Anyway thanks alot.

Posted by tony89 > 2015-11-13 02:13 | Report Abuse

William O'Neil's method- sounds like it is much more to do with TA rather than FA. i might be wrong ;)

IF a stock price will not go up if it fail to achieve historical high- maybe after formation of double top or triple top and hence the price will go down. but this is just a noise for fundamentalist. for them it is just a matter of time (to create new high) if the foundation is strong enough.

Posted by azhakha > 2015-11-13 12:11 | Report Abuse

my 2 cents:
add GDEX & MYEG
remove padini, teo seng & mikro msc

Posted by shinado > 2015-11-13 14:06 | Report Abuse

azhakha, I really like GDEX & MYEG. They are in my watchlist. However, their valuations are not attractive at this moment. Looking at EV/EBIT or PE, it seems to be expensive at this moment. I will continue to monitor both closely.

Mikro MSC was only added recently and I do not see the need to remove it from my portfolio. As for Padini & Teo Seng, they are up for debate as I have been holding for a while (I still find they have good fundamentals). Thank you.

Posted by azhakha > Nov 13, 2015 12:11 PM | Report Abuse

my 2 cents:
add GDEX & MYEG
remove padini, teo seng & mikro msc

Posted by sayakamiyuki > 2015-11-14 08:27 | Report Abuse

Hi shinado. Thanks for the sharing. May I get your telegram or wechat id. So we can create a discussion group there

Posted by shinado > 2015-11-14 10:26 | Report Abuse

sayakamiyuki you may find me in Telegram. ID: Shinado
Thanks.