Posted by qqq3 > 2019-03-30 23:17 | Report Abuse

To my untrained eyes, it looks like a random selection of small caps of average prices, average valuations, average skills, average Bufalogy , average businesses to capture returns that Bursa may offer......The portfolio will do reasonably well, better than FD, if there is a small cap rally this year.

Posted by qqq3 > 2019-03-31 01:07 | Report Abuse

a possible exceptional company in the list is Sam but its only 10%. That means if Sam doubles, your portfolio return is 10%.

Posted by (Clark GKent) Philip > 2019-04-04 05:08 | Report Abuse

Hmmm, I don't appreciate you using my name in your goal for making fun of other people. But if this is really KC chongz stock selection, let me try to give my business sense understanding.

Comfort gloves I think is an attempt to buy into the next best thing that is a small cap with the assumption that small companies will have a chance to run up higher growth than the bigger company. Sadly it doesn't with that way. The most efficient companies are TOPGLOV and HARTA and they can produce at far greater volume and cheaper price and better management. In the future next 5 years you will still enjoy many multiples of growth while comfort earnings will stagnate at the lower 30s. They don't have the size to competeb lower prices. They don't have special product that only they have (nitrile equivalent). And being put on the FDA import list to begin with is a sign of poor management tactics in cutting corners. I'd stick to buying TOPGLOV at rm8+ lows, and HARTA. It has much better growth opportunities.

Posted by (Clark GKent) Philip > 2019-04-04 05:52 | Report Abuse

FPI prosonic is an interesting company, it has a growing business ( if you start from the great decline of 2014 of 400+ million revenues and 7 million earnings) and ever since the majority shareholder of winstron, a growing dividend. In fact, if you had bought it at rm1, you would be earning 10% dividend yearly. Looking at the huge net cash position of FPI( zero debt?), I think the dividends will be sustainable as the business grows.

The issue now is growth. As it is an ODM and OEM for the cheap speaker knock-offs, it doesn't have it's own brand to build up market reputation. These need time to build up, but the rewards can be very good for revenue growth.

Having said that I don't like the speaker industry. Its a very competitive market where the revenue is high, but margins are squeezed so tight very few companies are profitable.

Even famous brands like Sonos, bang & Olufsen, creative labs, JBL, Harman kardon are all going through a cycle of boom/bust which leaves me out of investing in the speaker market.

If you really want to invest in something small cap that is revolutionary, I would look to investing in creative labs, the little Singapore company that could. It launched a new system X-FI that can play 3D sound that fools your ears, with a regular speaker. This caused its share price to jump from sg1 to sg8 in one year, causing the Singapore exchange to launch an investigation.

Posted by (Clark GKent) Philip > 2019-04-04 05:58 | Report Abuse

I don't know what gtronics does and I don't even know how to begin estimating the market and it's growth potential or even its moat, if it has any versus the local and Taiwanese and Chinese competitors which seem to be able to do the same thing at any time. So I don't even bother.

Posted by (Clark GKent) Philip > 2019-04-04 06:04 | Report Abuse

For magnitech, I simply don't like the business model of relying more than 80% of its revenue and earnings from 1 single customer, Nike. The only reason Nike buys their garments from you is because of the exchange rate, you are dirt cheap, your labour efficient and you are subservient.

Any deviation and it is very easy for Nike to just bring it business somewhere else where it is cheaper and more efficient to do business.

I would recommend you to watch the Netflix crowdfunded documentary "True Cost" to see how the garments industry works. And how fast fashion companies like h&m etc etc are taking advantage of 3rd world countries in the quest possible way.

Posted by (Clark GKent) Philip > 2019-04-04 06:10 | Report Abuse

SAM I have commented before, it's an ok company which does aerospace engineering support.... But also does hard disk parts. This seems to me a slow growing company with some niche but unfortunately in a small industry(aerospace maintenance), so the company needs to diversify into another source of revenue growth. It would have been better if they had gone into designing their own mini jet engines, but hey, what can you expect?

Posted by Icon8888 > 2019-04-04 06:23 | Report Abuse

Good morning

Posted by kcchongnz > 2019-04-04 06:28 | Report Abuse

That is the huge difference between trying to make fun of other's sharing, and constructive criticism. The earlier brings no value to anyone, except making the commentator a bloody fool of himself, while the later brings benefits to others, including the one being criticized, and it should be appreciated.

TopGlove and Hartalega were the other two companies which I tried to invite to our value investing retreat in Sepang, besides QL, as these are the 3 great companies which have created tremendous shareholder value. Unfortunately the event did not come through. Hence, there is no argument here that those companies are some of the best companies listed in Bursa.

Harta and Top Glove also have been in the right industry with a niche worldwide market. Of course their management are also superb. How everyone wishes to have started to invest in them long ago when they were selling cheap, even at PE ratio of 20s.

Yes, you are right, I am trying to catch on the potential higher growth prospect of a smaller company. Yes, a smaller company is not as efficient as bigger companies. We can clearly see that in the margins and return on capitals.

But my investing strategy is different, although we are both on FA. To me, "investing success is not from buying great companies, but buying well". And my investment in a company is not buy and hold very very long time. It can be short or long term, depending on the price versus estimated intrinsic vale of a company. This principle has served me very well for the last decade.

I can't put myself to buy Topglove or Harta end of last year when they were selling at PE ratios of close to 50, when I can buy the a still profitable company in the same niche industry with PE ratio at low teen.

The above serves me well too as from end of last year, Top Glove and harta's share price has dropped about 20%, while Comfotr's share price has in fact risen, and they have seemed to resolved their FDA problem.

But that is only short-term. In the long term a faster growing company will worth more. This we can make an educated guess, such as on the capital expenses being made, and the increment return on capitals spent, but of course it must be in percentage wise, not an absolute number.

The future is filled with uncertainties. We really know which company do better in the future, although we can make our own judgment, and often different people have different judgment.

Posted by (Clark GKent) Philip > 2019-04-04 06:28 | Report Abuse

Scgm is actually in a very interesting place. Its an old Johor company that a friend of mine works in, which history has very good margins and pays dividends consistently every quarter. It is very shareholder centric. However with the new smart factory in kulai, they are going through a very tight teething phase where they bit off slightly more than they can chew on the short term but with a return to the 20+ million earnings a year they enjoyed before once they move over to the new plant in kulai after 30th April 2019. Having said that, my good friend didn't seem so confident. So I would expect end of the year before they go full run on its plastic lunch boxes.

In terms of growth, they have more competitors today than before (6 new manufacturers at last count) but with the new plant they should be able to produce far more product at much lower prices in the future and take back market share. SCGM did have first move advantage after all.

I think until our population grows up, there will always be a good market for their products.

Below rm1 is a very good time to go in, as the business profits reduction is temporary occurrence. But why only 10% KC? I would buy more. By end of December, this will definitely got rm1.35 at least.

Posted by (Clark GKent) Philip > 2019-04-04 06:36 | Report Abuse

Skpres is another company that has majority of its revenue from 1 customer, Dyson. I really don't like that, especially since my wife made me buy that hair dryer for almost 2k. 2K!!!!

Luckily skpres is OEM manufacturing that wonderful detachable vacuum cleaner which I like a lot.

I'd prefer VS, which also has the same clientele. But they have first mover advantage, and have already foreseen the problem and expanded into making their own original design ( that coffee making machine thingy) products and more.

Posted by soojinhou > 2019-04-04 07:07 | Report Abuse

KC Chong's strategy is defensive. It performs well relative to higher risk strategies, especially in a year like last's where dumb cash yields the best return. To establish safety, most of the stocks have established a long record of attractive returns. But the fact that much of the facts are known limits the upside potential. Because they are defensive, it generally outperforms during bear market. I've confirmed this myself by comparing last year's portfolio return with those with practicing defensive strategy, I lose because I accept higher risks.

Conversely, in a bull market, I expect my portfolio to outperform theirs, and that has been sufficient monetary difference in all cases, fortunately, to justify pursuing a more aggressive strategies at this juncture in time. However, not everyone has the time, interest and resources to manage a portfolio, such as a person in full time professional employment, and a defensive strategy is most suited for the majority of the population.

Being successful in stock is not just about making money, it's about making money at the lowest risks. One can take massive risks, margin up to their neck, and see a wipe out like last year costing an arm and a leg. If I had lost as much as that fler, I'll probably commit suicide at Penang Bridge oledi.

Posted by kcchongnz > 2019-04-04 07:19 | Report Abuse

FPI's business in speakers was deteriorating for many years until year 2016. Recently, it has some good prospect with some big names in speakers.

However, the attractiveness in FPI is in another business, the musical instrument components for piano, guitars, amplifiers and drums, and with higher margins. This transformation has already yielded results with revenue almost doubled and operating margin triple in the last two years.

Return on capital is great with return of more than 20% on capital. Great balance sheet with abundant cash and zero debt. Great cash flows, and hence high and sustainable dividend.

Yet it is trading at a normal PE and EV multiple.

Posted by tm9999 > 2019-04-04 07:35 | Report Abuse

Defensive mean? 2018 to now, cam beat fd rate or nt?

Posted by kcchongnz > 2019-04-04 07:35 | Report Abuse

5 years ago I shared my first piece on Magni in i3investor here,

https://klse.i3investor.com/blogs/kcchongnz/51356.jsp

The adjusted share price of Magni was less than RM1.00.

It was the same issue; single main customer, traditional no moat business, none of its own brand etc.

Since then, its revenue has doubled, and operating and net income more than 2.5 times. Its share price went up to a peak of RM7.50 three and a half years later, for a gain of 650%.

At 4.65, magni is trading at a PE of just 8.2, enterprise value just 5.5 times operating profit, and a cash yield of 15%.

Again it has no debt and abundant cash in its balance sheet, stable and increasing earnings and cash flows. no wonder it has been paying very good dividend all these years.

Yes, single main customer is risky. But on the other side, if I am Nike and I am growing my business in such a speed, I will prefer a proven reliable and capable sub-contractor and supplier, especially his price is not much different from other new fellows. Nike's advantage comes from its brand, and not so much from the input cost.

Posted by kcchongnz > 2019-04-04 07:39 | Report Abuse

Posted by tm9999 > Apr 4, 2019 7:35 AM | Report Abuse
Defensive mean? 2018 to now, cam beat fd rate or nt?

My stock picks for a portfolio of 8 stocks for 2018 made an average of 12.7% as on 31 march 2019, compared to the loss of FBMKLCI and FBM Smallcap of 8.5% and 24.7% during the same period.

Is that bad?

Posted by kcchongnz > 2019-04-04 07:51 | Report Abuse

Posted by tm9999 > Apr 4, 2019 7:35 AM | Report Abuse
Defensive mean? 2018 to now, cam beat fd rate or nt?

In the good years, my return were shown here with all the records in i3investor,

https://klse.i3investor.com/blogs/kcchongnz/188915.jsp

Summary of 4 portfolios,

146% in 5 years versus 20% for the broad market from January 2013 to January 2018.

175% for 4 years from August 2013 to August 2018, versus 10% of the broad market

67.4% for the one and a half year from October 2015 to April 2017, versus the return of broad market of 3.8% of the broad market.

5% for the year 2017 (under-performed)


So it is bad?

Posted by tm9999 > 2019-04-04 07:54 | Report Abuse

So many portfolio...confusing....

Posted by Heavenly PUNTER > 2019-04-04 08:03 | Report Abuse

good news, this is one really defensive portfolio i can look forward to in 20 years time!

Posted by (Clark GKent) Philip > 2019-04-04 08:23 | Report Abuse

I remember the first article I read from kcchongz long long time ago, which I did not really agree with but I thought was interesting.

Understanding beta.

https://klse.i3investor.com/m/blog/kcchongnz/44336.jsp

For me, I believe understanding the concept of risk is of the utmost importance, especially investing in bursa.

Everyone who makes money thinks they are godly and great. They only know that the price is going up and things are doing well. Those like me who have been in the market for more than 20 years know that investing is about betting on probabilities.

Sometimes thing with low chance of happening happen. Just because something hasn't happened yet doesn't mean it won't happen at all.

Young investors like heavenly punter have yet to go through massive depression and shares that go down even when all the stars align. I personally have seen many cases where stocks that have no business of going up ( like hengyuan) can have crazy bull runs far beyond its historical earnings just because of market activity.

It humbles investors who think they know everything about PE, pB, ROE etc and skip looking at the overall picture, the business sense of it all.

The is a VERY fine line between defensive stocks (kcchongz), inactivity ( tan teng boo) and aggressive trading (kyy).

All I can advise is:

1. DISCIPLINE.
2. KNOWLEDGE.
3. PATIENCE.
4. CONVICTION.

Know your own investing, if you make tons of money then you are right. Everything else is a waste of time.

Posted by kcchongnz > 2019-04-04 08:34 | Report Abuse

V.S. or SKP Resources?

I have wrote a piece to compare this two companies one and a half year ago here,

https://klse.i3investor.com/blogs/kcchongnz/136491.jsp

At that time, it was the same story; VS is more established, first mover advantage, its own original design, etc.

But the above is just part of the investment thesis, the story part.

I came with the number part as in the above link. SKPR in fact has higher margins, higher turnover, in percentage wise in relation to its assets. VS employs higher operating leverage.

But yet SKPR's ROE was and is higher. Think about DuPont analysis.

And yet VS's market valuation was much higher.


Fast forward one and a year later, both share price drop because of lower demand. SKPR drops 23%, but VS share price dropped by 56%, after adjustment of the 1 for 4 bonus issue.

A story is not good enough for the success in investing. It has to compliment with some numbers; business analysis wise as well as valuation wise.

Posted by (Clark GKent) Philip > 2019-04-04 08:37 | Report Abuse

If we skip talking about my old successes, I prefer a concentrated investment portfolio.

My real investments for 2019,

1. Gkent ( rm1.12 march 2019).
2. PCHEM ( rm8.15 Feb 2019).
3. STNE: NASDAQ (usd19 Jan 2019).

I don't really know how to do defensive investing, as I believe defensive investing should be compared with fixed deposit ( which in this case I believe the comparison be made versus ASB which average 8% historically). With a guaranteed capital protection.

The higher risk from bursa stocks ( over the same period)tells me I should be averaging at least 12% returns yearly to be worth being an active investor.

Hopefully I can do well with my new 3 investments be the end of the year.

Posted by kcchongnz > 2019-04-04 08:51 | Report Abuse

An investment thesis just comes with a story without any number, is not good enough.

Similarly, a thesis just comes with the numbers, without a good story, is also not good enough.

The advantage of the later is, if you buy a diversified portfolio with good numbers, it is more likely to have better outcome overall. This is because in the earlier case, if you are wrong, you are gone case.

Investing is not that simple. When you buy, someone else is selling. So in buying just one or two stock, and if you are wrong, gone case.

Think about our super investor in sailang and margin in just two construction stocks the last two years.

Posted by (Clark GKent) Philip > 2019-04-04 08:51 | Report Abuse

V.S. or SKP Resources?

>>>>>>>>

You are most likely right, as I'm sure you have far more coverage on these manufacturing stocks in the first place.

But the reason the big share price drop in the first place is because these manufacturers have majority of their orders under so few clients.

The revenue drop was due to happen.

It is something that has a VERY high probability of happening, and it just decided to come back and roost one day. The problem now is what those companies are doing to combat the shortfall.

Will VS do better in the long run? Will skpres? I believe the ones with more capital, more forward thinking management, more talented staff will do well in the long term.

I don't know who will succeed, but I do know that both VS and SKPRES has no business advantage that would allow them to compete internationally.

If you are the one building the parts for Dyson, you won't ever be able to catch up and overtake Dyson.

Posted by kcchongnz > 2019-04-04 09:02 | Report Abuse

We are talking about Bursa, and not the world market.

When investing, I don't think we must look for the best company in the world to invest in, not even the best company in Malaysia, if the price is not right.

Nobody here can beat Dyson, HSBC, Microsoft, Walmart, Apple etc ever.

Posted by kcchongnz > 2019-04-04 09:07 | Report Abuse

George Kent in one which depended on the previous government getting ultra lucrative job. Its financial performance has been good.

But I don't think they are good in managing the contracts. They have been depending on Gamuda previously on the implementation of the jobs. All GK knows is to play golf with "Bossku", and the money just flows in.

Without the lucrative contracts from ""Bossku"", and without capable partner, I am not sure it can perform.

Posted by (Clark GKent) Philip > 2019-04-04 09:13 | Report Abuse

The point I was trying to make was to find companies in Malaysia that has the capability to compete overseas. The are many companies in Malaysia selling at fair prices that do so:

YINSON competes internationally with its FPSO business.
Gkent competes SEA with its water meters and water treatment plants.
PCHEM competes internationally with its petrochemicals and aromatics.
TOPGLOV is 25% of the world glove market.
QL exports directly to Japan and Australia.

There are some others which I follow which are along the way.

Being able to compete on the international stage brings meaning to the word long term investing, at least for me.

Qqq3 favourite manufacturer VITROX is one of them ( at least until the tax incentives run out). If ever vitrox is able to compete fairly internationally without tax incentives, I'll be one of the first to add to my portfolio.

>>>>>>>
If you are the one building the parts for Dyson, you won't ever be able to catch up and overtake Dyson.

Posted by kcchongnz > 2019-04-04 09:22 | Report Abuse

The same quack quack quack also talked non-stop how Sendai can compete all over the world for the last two years and he asked people to sailang and margin it when it was trading at RM1.40+.

Look what happened to Sendai now? And what will happen to it soon?

Posted by Choivo Capital > 2019-04-04 09:28 | Report Abuse

Phillip,

"Gkent competes SEA with its water meters and water treatment plants."

This is an extremely tiny division whose profit contribution is not worth talking about.

I'm not sure what you really see in GKENT beyond the sentiment punt to be honest. Do enlighten me.

Posted by Choivo Capital > 2019-04-04 09:31 | Report Abuse

Magnitech, is one for KC i can get behind.

Cost based business with the lowest cost base. I don't see any other countries where the cost can be lower.


The rest, well he has his reasons i have mine. KC did call dayang in mid 2018 or so, banking on increased OSV use.

Posted by kcchongnz > 2019-04-04 09:32 | Report Abuse

Does a company always have to be able to compete overseas to excel and enhance shareholder value?

Come and sell your char kue tiow and curry laksa in Auckland here.

In our investment, must we always only look for this type of company to be able to be successful? The only way?

Posted by (Clark GKent) Philip > 2019-04-04 10:28 | Report Abuse

In defensive investing it's probably not so important. But one of my main criteria in understanding growth investing in the first principle of understanding terminal value of a business.

Almost every single case of ten, twenty and thirty bagger in bursa stocks are of companies that can compete in the international market. So far I have yet to find a long term successful 10-20 bagger growing investment that only restricts itself to local markets.

I'm sure there are many ways of investing. But it depends on your risk appetite and your definition of the word successful.

Posted by kcchongnz > 2019-04-04 11:30 | Report Abuse

From 10 years ago in 2019, the adjusted share price of SKPR was about 6 sen. After ten years it is RM1.37 now. That is a 23 bagger in just 10 years. If we considered its peak price a year ago at RM2.30+, it is a 37 baggers.

Bursa got 900+ counters now. I don't think you even know a fraction of them well enough.

"I'm sure there are many ways of investing. But it depends on your risk appetite and your definition of the word successful."

I like your statement above. There is not a single human being behaving, and think exactly the same, and be successful with only one way.

Posted by (Clark GKent) Philip > 2019-04-04 11:34 | Report Abuse

I've already outlined my investment criteria and the story If the confirmed growth of the business ( the confirmed award of 11.8 billion). As I am also involved in the subcon tender negotiations, I have a clearer idea of the new margins being discussed.

As for the "tiny division", I really don't know what we are reading the same company. Its tiny division generates 133 million in revenue a year and 26 million in earnings, which I believe is half the revenuess of RCECAP, at many multiples less implied risk. This is currently 1/3rd of its business, which will include hospitals, water treatment plants and railway tracks.

I also get 6% dividends every year.

But I digress, you probably know much more about the company you have than someone who has worked with its engineering team before. In fact many of its technical team that I worked together with on the Miri water treatment plant, the biggest in East Malaysia at the time, are still with the company today.

But even if I said that the project was open tender, and a good number of the work was done competitively and handed over on time and in good condition, and Penang was very happy with its WTP projects, many would not believe me.

But I guess time will tell on all the investments to see what works and what doesn't.

>>>>>>>

Phillip,

"Gkent competes SEA with its water meters and water treatment plants."

This is an extremely tiny division whose profit contribution is not worth talking about.

I'm not sure what you really see in GKENT beyond the sentiment punt to be honest. Do enlighten me.

Posted by qqq3 > 2019-04-04 11:42 | Report Abuse

kcchongnz Sendai
==============


Sendai? I do well with Sendai......I am a trader, remember?

when I am not trading, I like people who talks quality first. I like Philips and 3iii.

Its as always good business, good people, good numbers in this order for genuine investors. The definition of a genuine investor is one who participates in the growth of excellent companies.

That is ultimately an easier path to success compared to the ones who wants "to buy well" and ultimately lands up with a handful of average companies waiting for the market to reward them.


Business sense.........yes...too bad developing business sense is a talent and hard work and cannot be taught., unlike the maths formulas.


Its S = Q r

No Q, no grit, no use.

KYY may not be an analyst but KYY is a guy with grit. Whatever he has is the best in the world, whatever he just sold is the worse in the world. At least, that is his opinion. With grit, he has travel far..................no grit, all the maths formulas no use.


of course, a cari makan sifu preys on people's fears. They say fear is a more powerful emotion than greed. But no grit, no one has ever succeeded meaningfully.

No focus concentrated approach , no retailer has ever succeeded meaningfully. Take it from Philips..............Philips approach perfectly fits what I like.

Posted by qqq3 > 2019-04-04 12:18 | Report Abuse

Keep it simple but not too simple.
KYY approach to stock market, keep it simple but some times too simple.

This PhD professor KC too complex, way too complex. Would do well to earn slightly better than Professor returns which is not much.

Scared of this, scared of that, ghost under every bed, finally ends up with a handful of average companies............

can perform meh?


Its grit and knowledge. Knowledge means the known and knowables............Last 3 months I am impressed with people with makes a lot of money from Jaks and MBM ( I have satisfactory returns from Jaks)



https://klse.i3investor.com/blogs/qqq3/200821.jsp

Posted by Choivo Capital > 2019-04-04 12:22 | Report Abuse

Scientex, Aeoncr, Pbbank. Nestle etc.

I can probably think of a few.

I never understand the term "defensive investing".

All intelligent investing is about determining the intrinsic value and paying significantly less.

What is defensive investing? Where you are more sure? Arent you supposed to be very sure to begin with?

=====
Posted by (Clark GKent) Philip > Apr 4, 2019 10:28 AM | Report Abuse

In defensive investing it's probably not so important. But one of my main criteria in understanding growth investing in the first principle of understanding terminal value of a business.

Almost every single case of ten, twenty and thirty bagger in bursa stocks are of companies that can compete in the international market. So far I have yet to find a long term successful 10-20 bagger growing investment that only restricts itself to local markets.

I'm sure there are many ways of investing. But it depends on your risk appetite and your definition of the word successful.

Posted by Choivo Capital > 2019-04-04 12:30 | Report Abuse

Well, one way to look at it, is that on a EV/EARNINGS of METER Business. You're paying roughly 22 times for the water business and and you get the construction division for free.

You must really believe in their construction division in this case.

I have no idea how competent their construction division is beyond what i can glean, from a friend who works as a quantity surveyor on most government projects.

And GKENT is widely known in the industry as not being that good in infra works, and they only got this contract due to contacts with rosmah and najib. How else would a water metering company get such fat pdp free management money contracts.

All their works are subcontracted out.

Im not experienced in this industry, and its out of my circle of competence, nor is it cheap enough for me to buy a little.

Good luck. I hope your thesis works out.

====
Posted by (Clark GKent) Philip > Apr 4, 2019 11:34 AM | Report Abuse

I've already outlined my investment criteria and the story If the confirmed growth of the business ( the confirmed award of 11.8 billion). As I am also involved in the subcon tender negotiations, I have a clearer idea of the new margins being discussed.

As for the "tiny division", I really don't know what we are reading the same company. Its tiny division generates 133 million in revenue a year and 26 million in earnings, which I believe is half the revenuess of RCECAP, at many multiples less implied risk. This is currently 1/3rd of its business, which will include hospitals, water treatment plants and railway tracks.

I also get 6% dividends every year.

But I digress, you probably know much more about the company you have than someone who has worked with its engineering team before. In fact many of its technical team that I worked together with on the Miri water treatment plant, the biggest in East Malaysia at the time, are still with the company today.

But even if I said that the project was open tender, and a good number of the work was done competitively and handed over on time and in good condition, and Penang was very happy with its WTP projects, many would not believe me.

But I guess time will tell on all the investments to see what works and what doesn't.

Posted by 3iii > 2019-04-04 12:33 | Report Abuse

>>> Posted by (Clark GKent) Philip > Apr 4, 2019 10:28 AM | Report Abuse

In defensive investing it's probably not so important. But one of my main criteria in understanding growth investing in the first principle of understanding terminal value of a business. >>>


Philip

I have seen you mentioned this terminal value of a business a few times in your post. Can you be kind to educate me on this further?

Thanks in advance.

3iii

Posted by Choivo Capital > 2019-04-04 12:37 | Report Abuse

3iii,

All investment consist of determining what is all the future cash flows from the business, discounted back to present value.

Terminal value is where you do like 10 years worth of dcf, and the terminal value, is the 10 years to infinity, where you whack in a growth rate, and discount it to Present value.

Giving you your total, which now consist of, year 1-10 and year 11 to infinity. Discounted back to present value.

Posted by stockmanmy > 2019-04-04 12:50 | Report Abuse

Posted by 3iii > Apr 4, 2019 12:33 PM | Report Abuse

this terminal value of a business
============

also known as Total Accessible Market , TAM

when TAM is huge and present market share is small, its very sexy and attracts a lot of money. Eg Lyft, Uber , Netflix

Posted by John_Lee > 2019-04-04 13:08 | Report Abuse

This thread is a rarity in i3. For once we are having intellectual value-adding discussion without (direct) insults being thrown and talking down of one another.

Posted by qqq3 > 2019-04-04 13:17 | Report Abuse

"to buy well" as per kc, and ultimately lands up with a handful of average companies waiting for the market to reward them.


ultimately no use. This is due to reinvestment problem. Bull market come, original investments make money, sell and then buy at bull market prices.........

ultimately futile compared to genuine investors who invests to participate in the growth of excellent companies.

Posted by Choivo Capital > 2019-04-04 13:20 | Report Abuse

qqq3,

Nobody is asking you to overpay for stocks in bull market. Nothing to buy in bull?

Well study harder, industries have cycles. Nothing to buy?

Sit on your ass and waiting for a fat pitch to come, and swing.

You don't need to be doing things all the time.

Posted by 3iii > 2019-04-04 13:23 |

Post removed.Why?

Posted by qqq3 > 2019-04-04 13:25 | Report Abuse

choi


valuations are relative but quality companies are absolutes.

Posted by Choivo Capital > 2019-04-04 13:26 | Report Abuse

You know, its quite a rare moment for me to do a DCF.

Its all about knowing the resilience of its current earnings, and its growth over the next 5-10 years.

And the only way to do this, is to know the company to the bones, or its just so obviously cheap.

And then, it needs to be obvious. Like the standard buffet saying, you dont need to know the weight of a woman to know if shes fat, or the age of a man to know if he's old.

If you're agonizing over whether to buy while starting at the 30th tab of your excel.

You probably don't need to buy it.

But i do recommend people do DCF's a few times, so they understand have a feel for what it consist off, its nature and its weaknesses.

Posted by John_Lee > 2019-04-04 13:27 | Report Abuse

Jon's definition of terminal value is based upon the perpetuity method. There is another method called the exit multiple. Neither I am in favour of.

Personally, a decent DCF goes up to 5 years. 10 years is pushing it. Anything after 10 years is a cari makan valuation i.e. low reliability. Terminal value involves forecasting into the infinite. Too many variables, too much uncertainties - basically a bullshit valuation prepared by paid professionals engaged by corporates who are trying to cook their valuations.

Posted by Choivo Capital > 2019-04-04 13:28 | Report Abuse

The same people said the same about SEARS, KODAK, GE, PARKSON etc.

Companies these days spend less than 10 years in the S&P500.

Moat does not mean you don't get destroyed, moat means its harder to destroy you, and you have more time to respond.

====
Posted by qqq3 > Apr 4, 2019 1:25 PM | Report Abuse

choi


valuations are relative but quality companies are absolutes.

Posted by Choivo Capital > 2019-04-04 13:30 | Report Abuse

Yeah, which is why i recommend people do one themselves, and see how big the numbers shift with just one small difference.

Its like a telescope, move it one inch and you're looking at a different galaxy,


===
Posted by John_Lee > Apr 4, 2019 1:27 PM | Report Abuse

Jon's definition of terminal value is based upon the perpetuity method. There is another method called the exit multiple. Neither I am in favour of.

Personally, a decent DCF goes up to 5 years. 10 years is pushing it. Anything after 10 years is a cari makan valuation i.e. low reliability. Terminal value involves forecasting into the infinite. Too many variables, too much uncertainties - basically a bullshit valuation prepared by paid professionals engaged by corporates who are trying to cook their valuations.