Posted by peggy8229 > 2013-10-16 17:37 | Report Abuse

Dear KC,

Oh... I understand already, is it after add in all the risk factor the PE increase from 8 to 15.3.? If base on PE 15.3 then the fair value is 15.3*0.05=RM0.76 where 0.05 is EPS for FIBON. Am I right?

Posted by kcchongnz > 2013-10-16 17:44 | Report Abuse

peggy, you pick up very fast. Anyway, this is just one of the numerous methods of valuing a share. It starts with a base PE of 8, or an earnings yield of about 12%.

the earnings yield can be comparable with your interest rate.

Posted by peggy8229 > 2013-10-17 22:01 | Report Abuse

Dear kc,
Thank you, can you advice other methods to calculate fair value of a stock? Thank in advance

Posted by kcchongnz > 2013-10-18 06:28 | Report Abuse

Peggy,
Valuation is an art rather than a science. I have said this scores of times here. Go goggle and you will find many valuation methods used.

Basically the method is either earnings based, or asset based. You got to use the right one for different company, or I prefer to use a variety of them to check.

Tan Kian Wei has posted many useful articles in valuation in i3. You can goggle them and read and study them. I have used a variety of valuation methods in i3 here to value many stocks. You are also welcomed to goggle them in i3.

In earnings based valuation, the “correct” way of valuation is the present value, or the discount cash flow (DCF) method to find the intrinsic value of the company. This method is mathematically correct. However the often-not-correct thingy here are the assumptions of future cash flows and the appropriate discount rates. Even in DCF, there are different ways of doing; a pure discount cash flow for a firm or equity holder, a hybrid method for equity holders, Earnings Power Valuation, dividend reinvested assumptions, macham macham.

In earnings based method, I personally prefer to use the private market comparables such as how many times the earnings before interest and tax the enterprise value is selling (EV/Ebit), or if you reverse it, it becomes earnings yield (Ebit/EV), one you can compared the return from alternative investment.

The other principle method of asset based, I like the Graham net-net cigar butt investing. You can find Tan KW’s postings and my valuation using this method in i3 too if you are interested.

Oh yeah, there is a book by Seth Klarman on “Margin of Safety”. This is one of the good books to learn about business valuation. The other good books are “Damonaran on Valuation” by Professor Aswath Damonaran, a more comprehensive valuation book, and “The 5 Rules for Successful Stock Investing” by Pat Dorsey.

Posted by bsngpg > 2013-10-18 07:19 | Report Abuse

Hi KC Chong : Thks for the above educative posting. When come to valuation method, I would hope if you can write something very simple for beginner, i.e. something like the above (though it may not simple enough) which explains valuation concept to a layman. Example, why EV/ebit ? Why not EV/PAT ? What does EV/ebit implies ? What is EV and why not mkt cap ?

Another example is that what is cash flow? Why it is so important? I knew a bit on CF from posting by 盈利？现金流？- 夜月http://klse.i3investor.com/blogs/kianweiaritcles/38650.jsp.
CF has confused some, now come in another one, DCF, why?

Another one : what is Book Value ? What is its application? Why we value banking with BV but not so much in other industry?

Why par value ? why different companies have different par value ?

Many more …….

By recommending a book may not be effective with the reality fact that habit of reading among M’sia is low especially those come to this forum. Furthermore, 要读也无从下手呀. English book, ah yoh, quite difficult to understand. Mandarin, ah ya, while understanding the opening and introduction but do not understand the technical terms lah. As you know, most of us are product of hybrid from school, claim as multilingual expert but actually is jack of all trades.

I know it is tedious, but if you can kindly consider open one new Topic and writing one concept a week, that would help a lot.

For those who have the same need or agree with me, please throw in your vote to lobby KC Chong for the new chapter for the benefit of the larger group.

Thank you very much.
Thank you.

Posted by houseofordos > 2013-10-18 07:32 | Report Abuse

Yes..KC, that would be much appreciated... We need more of such discussion here rather than personal attacks and childish name calling I ve been seeing a lot lately in this forum.

Btw, I have read the book by Pat Dorsey on the “The 5 Rules for Successful Stock Investing". This is one of the best FA books I ve read and very comprehensive teaching basic valuation, financial statement analysis as well as examples on how to value companies in different industries...

If looking for a simpler method to find good companies, another good book that I believe KC has recommended before is the Little Book That beats the market by Joel Greenblatt. In this book, he explains 2 magic formulas to screen for superior stocks, EV/EBIT and ROIC.

I normally screen for good stocks using some fundamental scanners available online such as these
http://klse.neobie.net/quote.php
Fibon was actually discovered through screening for low PE, high ROE companies.

Also, go to Popular bookstore and look for Dynaquest book , Stock performance guide. This is a book which has all the 10 year historical information on most companies in Bursa including ROE, FCF, P/E and a background information about the company's business. Its like a bible for FA investors on Bursa...

Posted by peggy8229 > 2013-10-19 00:05 | Report Abuse

Dear all sifu,
Thank a lot. Look like I need a lot of time to study. Once I finish research and study then I lost the changes to invest already. Ai..no pain no gain I need to work hard. Hope that all the book as per mention easy to understand . Anyway, as bsngpg sifu said, if KC sifu can help us to simply the methodology it will much appreciated. Thank you.

Posted by peggy8229 > 2013-10-19 00:12 | Report Abuse

Dear kc,

Sorry, you all ready mention your methodology of investment already. I will try to understand your post slowly. Please do not mind if I ask you to explain if I can not understand. Thank in advance.

Posted by kcchongnz > 2013-10-19 12:01 | Report Abuse

Posted by houseofordos > Oct 18, 2013 07:32 AM | Report Abuse

Btw, I have read the book by Pat Dorsey on the “The 5 Rules for Successful Stock Investing". This is one of the best FA books I ve read and very comprehensive teaching basic valuation, financial statement analysis as well as examples on how to value companies in different industries...

If looking for a simpler method to find good companies, another good book that I believe KC has recommended before is the Little Book That beats the market by Joel Greenblatt. In this book, he explains 2 magic formulas to screen for superior stocks, EV/EBIT and ROIC.

Yes, investing is that simple; find good companies, and buy their stocks at a discount.

How to gauge if a company is good? Yes, from its margins, and return of equity, ROE. ROE=Net profit/Equity. If ROE is >10%, it is good because the net assets (total asset-total liabilities) the company has earn >10% return.

But Net profit can be distorted by profit from non-core business, from one-off items etc. ROE can also be distorted by company borrowing heavily and hence earn good net profit attributed to shareholders during good time; but can be very bad during down economic cycle.

Hence a better gauge of efficiency is the return of invested capital (ROIC). ROIC is the after-tax return of all capitals, equity plus debt. This measures the efficiency independent of capital structure.

Then how to consider if the price is reasonable or cheap. As you know a good company is not a good investment if you overpay for it?

A common metric is PE ratio. The lower the PE ratio the better the value. However, PE ratio disregards the capital structure and the excess cash a company has. Two companies can have the same PE ratio; but one has a lot of borrowings, and/or less excess cash which is not needed in the ordinary operations. So those two companies having the same PE are not of the same value.

A better metric would be enterprise value/Ebit. this takes into the considerations of both the capital providers, equity and debts providers, and their combined earnings.

For more of this, please refer to the Magic Formula in the following link:

http://klse.i3investor.com/servlets/forum/900285510.jsp

Yes, investing is simple; buy good companies at cheap price, as described by "the Little Book That beats the market" by Joel Greenblatt.

If you ant to learn about financial statement analysis and interpretation, and discount cash flow analysis, then go for this book Pat Dorsey on the “The 5 Rules for Successful Stock Investing"

Posted by bsngpg > 2013-10-19 19:12 | Report Abuse

Peggy:希望你懂得华語。
想要投入股市、一定必须先摆正心态。正碓心态为主、技术为輔。如果你同意此概念，........

Posted by ipomember > 2013-10-19 19:34 | Report Abuse

"My highest chinese edu is form1 n i can txt chinese characters very fast n speak beijing tone. Tq to the China movies n China girls too. Speak more n txt more then u can do well. I dont watch Spore n Msia movies. Their chinese speaking n tone are terok"

to be true, china has a very bad and wrong pronunciation and their accent and pronunciation is different from province to province. it is true that our pronunciation is way accurate than them but we are in Malaysia style..just saying,cheers :D

Posted by bsngpg > 2013-10-19 19:40 | Report Abuse

我为我的五音不全华語为傲，因为它是充满親切感的母語。

Posted by ipomember > 2013-10-19 19:51 | Report Abuse

hi bsnpgp, where do you stay? if you mind to disclose than its ok

Posted by bsngpg > 2013-10-19 20:15 | Report Abuse

明阁、大家乐。

Posted by ipomember > 2013-10-19 20:24 | Report Abuse

haha forgive me i really dono where. my fault..

Posted by peggy8229 > 2013-10-19 23:44 | Report Abuse

Dear kc and bsngpg,

Thank for your advice. For your kind information, I prefer investment rather than trade (70 % vs 30%) . May I know is it you are in the same group? Btw, I can understand Chinese well but if typing in Chinese , I need more time.

Posted by bsngpg > 2013-10-20 08:19 | Report Abuse

Dear Peggy: KC 是大師，bs是小禹。不可同日而语。

Posted by CityTrader > 2013-10-20 08:44 | Report Abuse

咱也有同感, 用华语唠嗑非常有亲却感 当你多听了北京华语 再倒回听咱所说的华语, 你会明白咱要说的话。

Posted by bsngpg > 2013-10-20 12:46 | Report Abuse

他是正道价值投资人(formal fundamental valua investor)。我是平民式价值投资人。我们都是认真的投资人。我们都知道赢之道，却须常期与自身的贪念作战。享受过程，视赢为乐。

Posted by fatinvest > 2013-10-20 13:01 | Report Abuse

bsngpg,我们的华语是广东华语，因为大部份教师是南方人。
北京话很多卷舌音是我们南方人没有的。

Posted by bsngpg > 2013-10-20 13:14 | Report Abuse

我的配有潮洲音，与李嘉誠一样。

Posted by fatinvest > 2013-10-20 13:26 | Report Abuse

哦，这个够力！
我有个潮洲籍贯嫂嫂， 她的华语是“拿网（碗）来装放（饭）。。。。”
an 尾音都变成ang音。。。
上船变上床

Posted by kcchongnz > 2013-10-20 13:34 | Report Abuse

Posted by bsngpg > Oct 20, 2013 08:19 AM | Report Abuse
Dear Peggy: KC 是大師，bs是小禹。不可同日而语。

I believe bsngpg's investment philosophies suit most people. And that is good enough to earn a little above the return of the market. But most of all, the strategy is a safe one.

Posted by kcchongnz > 2013-10-20 13:42 | Report Abuse

Posted by CityTrader > Oct 15, 2013 12:32 PM | Report Abuse
付学费呗 咱这儿有好多中国城。晚上去消费又能学习到中国话 何乐而不为呢

CityTrader, good on you, have fun. I think you are like me when I was younger. I spent six figures in those things you do. Those days the songs of 四大天王 were the most popular, and I tell you I can sing all of their new songs with passions and style. Those were the days.

However, if I were to calculate those costs and bring them to the present value now, I believe it would amount to the upper 6 digit figures.

Yes, it is a lot of money. but luckily I didn't have to come up with my own money.

So have fun when you are young, but beware of the cost and effect on your retirement planning.

Posted by kcchongnz > 2013-10-20 13:50 | Report Abuse

Posted by peggy8229 > Oct 19, 2013 11:44 PM | Report Abuse

Dear kc and bsngpg,

Thank for your advice. For your kind information, I prefer investment rather than trade (70 % vs 30%) . May I know is it you are in the same group? Btw, I can understand Chinese well but if typing in Chinese , I need more time.

I personally believe FA is the way to go for investment. Other than FA, can you consider it as "investing"?

I also believe TA helps. but I would only use it for entrance and not exit. Because for me if I have studied the company well enough and have bought its share, I won't sell it just because the market is down, or its share price is down. It is against my logic. I would in fact buy more. Of course unless the fundamentals of the company has changed.

I would sell also if its share price has exceeded its intrinsic value.

Posted by bsngpg > 2013-10-20 14:12 | Report Abuse

KC：請允许我开你个小玩笑：顶你不须，任何事都可future value, current value 一番，只怕是中了投资病吧。哈哈！玩笑而已，别生气。

Posted by bsngpg > 2013-10-20 14:27 | Report Abuse

Fatinvest: 本来是很有趣的。不过只怕你用錯例子了。嫂嫂是女性长輩，可以裝＂放＂，上船的例子就不恰当吧。不知你同意否？ 对不起，我是保守派。

Posted by bsngpg > 2013-10-20 14:58 | Report Abuse

Peggy : It is great to hear that you know Chinese well. Please read 2 books by冷眼《30年股票投资心得》& 《冷眼投资正道》which are selling in Popular Book Store now. The books were written in a very simple and layman’s way. Do not read only, but have to understand and practice. If you can follow him 100%, you are 100% winner in 10 years.
Good luck.

Posted by kcchongnz > 2013-10-20 15:50 | Report Abuse

Posted by kcchongnz > Oct 20, 2013 01:34 PM | Report Abuse X

Posted by bsngpg > Oct 20, 2013 08:19 AM | Report Abuse
Dear Peggy: KC 是大師，bs是小禹。不可同日而语。

I believe bsngpg's investment philosophies suit most people. And that is good enough to earn a little above the return of the market. But most of all, the strategy is a safe one.

Oop sorry, I forgot bsngpg's stocks like Globetronics and Zhulian etc made big money too. Not just "little over the market return".

Posted by bsngpg > 2013-10-20 16:41 | Report Abuse

Oop sorry , I have one more "LS" counter, LPI with 140% return since 2009 with significant amount of $.

Posted by bsngpg > 2013-10-20 16:43 | Report Abuse

Next weekend when I have more time, I would like to ask for your opinion on calculation method on total return. My less than saving account return must be an error.

Posted by bsngpg > 2013-10-20 17:58 | Report Abuse

“ 你猜到、大家也猜到？”
今天有个Blog理性股市： 你猜到、大家也猜到？。我很想跟你讨论这句重要的話己很久，只是不知如何开始。在等机缘。

Posted by peggy8229 > 2013-10-21 00:56 | Report Abuse

Dear kc,

Oop..may I know what FA and TA stand for?

Posted by peggy8229 > 2013-10-21 00:57 | Report Abuse

Dear bsngpg,

Thank for your advice, I will go to get the book soon. Thank you

Posted by inwest88 > 2013-10-21 16:15 | Report Abuse

hiddengem, I just cleared my last batch of Fibon at 47 sen. Can get 3 bottles of single malt whisky already !

Posted by bsngpg > 2013-10-21 16:39 | Report Abuse

Ha!Ha! Now you have one more "LS" counter. "Shiok" sungguh, isn't it? This is the fun of spot, invest and "LS".

Posted by inwest88 > 2013-10-21 16:43 | Report Abuse

@bsnpng, huh? What's LS ?

Posted by bsngpg > 2013-10-21 17:00 | Report Abuse

WB说过：投资是一种运动，也是一种娱乐。我喜欢通过尋找好的獵物來找到“捕获稀有的可快速移动的大象”的快感。
朋友、你该有这种感觉吧！

Posted by bsngpg > 2013-10-21 17:01 | Report Abuse

Sorry, "LS" is a mild bad word in Cantonese=proud, show off.

Posted by tonylim > 2013-10-21 17:04 | Report Abuse

lan si

Posted by bsngpg > 2013-10-21 17:06 | Report Abuse

Tony: 别那么直接啦。会被report的。

Posted by inwest88 > 2013-10-21 17:07 | Report Abuse

bsnpng, there's nothing great to show off - just small gains, only it gives you a bit of satisfaction. At times we also lose, but how many people are willing to share their stories of losses.

Posted by inwest88 > 2013-10-21 17:11 | Report Abuse

Do you notice that most, if not all people will tell their success stories in the share market but very rarely you see them talk about their losses. This is human nature !

Posted by CityTrader > 2013-10-21 17:19 | Report Abuse

Inwest88, Congrats u .. Told u Fibon would move upside after the formation of bullish pattern..

Posted by inwest88 > 2013-10-21 17:19 | Report Abuse

CT, you still holding Fibon !

Posted by CityTrader > 2013-10-21 17:24 | Report Abuse

Since the day i cut lost n order to switch ctr (wooo!!) i didnt buy back. No more fund..

Posted by inwest88 > 2013-10-21 17:24 | Report Abuse

CT, perhaps you may want to have a look at Infotech !

Posted by CityTrader > 2013-10-21 17:26 | Report Abuse

ok TQ bro I will look into Infotech. ,, i hamtan Hovid & now no more fund..

Posted by inwest88 > 2013-10-21 17:37 | Report Abuse

Haha CT, I think you ought me buy me a drink when you clear your Hovid (of course with profits). I hope yoour other counters like Pantech, Cuscapi, TAS and GHL will also rise soon.

Posted by CityTrader > 2013-10-21 17:41 | Report Abuse

inwest88, i sold my Cuscapi as the res is very powerful. Cuscapi & MMode are having same pattern & if i dont see them wrongly, they will start the new Wave Sequence. I monitor them closely.

Drinks!! No problem & i only drink Whisky with u + some good entertainment.. no teh tarik as too sweet, hahaha!!