Posted by kcchongnz > 2013-06-30 19:46 | Report Abuse

The Greenblatt magic formula is simple technique, buy good company at low price. Don't you think it is plausible? Don't you think it should work everywhere? Should it be limited to US market?

Posted by kcchongnz > 2013-07-04 18:53 | Report Abuse

Posted by plumberii > Jun 29, 2013 04:41 PM | Report Abuse
KC,
Hope that you won't mind sharing on these 2:
a. SOP Govt link (the Sarawak White Hair guy)does not worry you? Or you see it as an advantage? My fear is they can pull out or change things for their own benefits.

b. Jobstreet - mind sharing why you sell this as it is on my to-buy list?

Thanks.


plumberii
when I first talked about Jobstreet was less than half a year ago when its share price was just RM2.40 a piece. See link below.

http://klse.i3investor.com/servlets/pfs/13147.jsp

At today's closing, it is RM4.18. It has risen by a whopping 74%, in less than half a year! At this price, it is trading at a PE of 22.5 (20), and enterprise value 16 (>>8) times earnings before interest and tax. These are very high value.

One reason the market gives such a high valuation for Jobstreest is its high growth expectation. But even if i assume it can grow by 17% for another 5 years, like what it had achieved each year for the last 7 years, it is already fully valued at the price of 4.18. Meaning there is no more margin of safety investing in this share. furthermore, I doubt it can grow at such a high rate.

The other reason is the herd mentality. Investors were chasing the price of Jobstreet probably because of its bonus issues. Insiders would have known about this exercise long time ago. But to me bonus issues does not create value for the company and hence should not affect the share price. But that is how the market behaves.

Posted by houseofordos > 2013-07-05 00:10 | Report Abuse

How about Keladi Maju ?
Property developer with projects mainly in Kedah as well as some business in palm oil upstream activities.

Based on 2013 annual report:-
• Earnings Yield = 26%
• ROIC = 19%

Using the magic formula, the effects of the one-off gains from re-measurement of associates recently were excluded and still showing good value ?

EV/EBIT=3.2
FCF/Rev = 15%
CFFO/NI=28%
Div yield = 1.9% (kind of poor)

Cash backing of RM0.16 per share
Net asset backing of RM0.32 per share

Looks like value buy for me ? Any comments ?

KC,
Just some feedback on your spreadsheet. I believe that for example shown for KFIMA the par value is RM1 hence no of shares (B53 in Table2 BS tab) =common stock. But for some stocks where par value is less than RM1, for in the case of Keladi Maju, then the number of shares = Common Stock * Par value. Took some time to figure that out cause I got like 10x the expected NTA initially using your spreadsheet in the original condition.

Posted by houseofordos > 2013-07-05 00:11 | Report Abuse

correction no of shares = common stock / par value

Posted by kcchongnz > 2013-07-06 16:21 | Report Abuse

plumberii, used the Magic formula and ranked his stocks. Thanks plumberii for sharing his list.

The company doing plastic molding, Technic, came up top of the list. So is Technic worthy of investing according the Magic Formula? Certainly.

Just to recall the Magic Formula. The key driving formulas used by Greenblatt for his Magic Formula are:

• Earnings Yield = EBIT / Enterprise Value
• Return on Capital = EBIT / (Fixed Assets + Net Working Capital)

Basing on the last financial year ended 31/12/2012, ROIC is 17.6%, which is above my requirement of at least 10%.

With ebit of 22.8m and enterprise value of 127m, earnings yield of Technic is 18%, way above my 12% requirement.

But how is it compared with another plastic molding company, SKP Resources? the table below shows their comparisons according to the Magic formula:

SKPRes Technic
ROIC 33.9% 17.6%
ROE 20.3% 17.4%
EY 27.3% 18.0%

So which would you prefer basing on the above?

Posted by sephiroth > 2013-07-06 22:04 | Report Abuse

skpres is supreme on all fronts (high net cash=superb balance sheet, attractive valuation), just that china slowdown is making skpres investors nervous, current price is very good for long term investor like me, 1 sen div will be announce in a month or 2 and FY14 div is est at 2.6 sen = 8.25% yield at current price

Posted by kcchongnz > 2013-07-28 06:10 | Report Abuse

My personal experience.Does the magic formula useful in picking stock?


Posted by kcchongnz > Jul 27, 2013 05:20 PM | Report Abuse X

Now that each of us (OTB, Fat Cat, kcchong) claimed that his portfolio made impressive return from the stock market, let’s see whose return is the best. Before that let me just lay down some points here first.

1) The purpose here is not really trying to compare who is the best stock picker, because while the skill in stock picking cannot be ruled out, but frankly speaking, the good/bad return could have a big portion of it in lady luck too.

2) While this is not for the purpose of boasting or discrediting the prowess of anybody in stock picking skill, it also should serve the purpose of shutting up some of the people here who have been condemning others about their sharing in the stock market. I, for one, has been under vicious attacks by a couple of people here recently regarding my sharing in the forums about the business of some companies, and most of the time when asked by others. It took a lot of time to analyze and wrote my opinion in responses to those queries. However, I don’t remember I have recommended anyone to buy any share.

3) I acknowledge that there are many people out there in i3 who may have done much better than those described here.

4) Three portfolios put up in i3 here about the same time six-eight months ago and the prices then and now are all there and are transparent. No tipu-pusing-bullshit can be done.

5) For the portfolio of kcchong, the total return of each stock include dividend which the average dividend yield worked out to be about 2.2%. for OTB’s portfolio, I assume the same dividend yield . For Fat Cat’s portfolio, I put in an additional percentage point in dividend yield (3.2%)due to its large holding in Reits.

6) Kcchongnz’s investing strategy is based on fundamentals, mainly trying to buy good companies stocks at a low and reasonable price. OTB’s strategy is based more on technical analysis couple with some basic fundamentals. Fat Cat appears to be fundamental but more interested in high dividend yields.

7) KLSE started at the beginning of the year at 1637. As at 26/7/13, it closed at 1808, or a gain of 10.4%. With an estimate dividend yield of 1.6%, the total return so far is 12%.

Fat Cat total return so far is 29.6%. Well done Fat Cat. You outperformed the KLSE by a whopping 18% for this nine months. I think you easily beat many fund managers with this return.

Kcchong’s portfolio returned 38.0% in the seven months, it is even better than Fat Cat fabulous return. Who said kcchong recommended ( I never recommend anything) losing stocks? Who said my fundamental approach in investing is hopeless, useless? Who who who?

However, OTB’s portfolio return 55%, way above the two portfolios above. So how? Can you say OTB recommended lap sap stocks. OTB was under attack by more , many more people than I encountered. What I can say is “well done OTB”.

Now I want to reiterate here again, the out-performance of all the above could have been a big portion due to luck factor while of course their skill could also be a big factor. If not how could they out-performed the market by such a wide margin?

One thing I notice that OTB has the most number of big winners (>50% return), Prestariang, Naim, Huayang, Alam and KHSB. Kcchong has a number of big winners too in Pintaras, Jobstreet, Kimlun and Prestariang. Fat Cat has the biggest winner in Poweroot (108%).

My conclusion is as OTB is a technician, trading stocks basing on momentum could yield better return in a bull market.

So is technical analysis always better than fundamental analysis? Yes, in this particular six-eight months when the stock market is on the rise, a good run indeed. Is technical analysis always a better approach is investing. No, I don’t agree. Bear in mind that OTB is a good technician compared to many novice ones. Well I know many people would not agree with me. I expect that. But we can always discuss sometime later if anyone wish to.

Posted by hsong > 2013-07-28 17:38 | Report Abuse

AS the GE is over and market is more stable, what would be the recommended counters for the next 6 months as some of them may have appreciated substantially?

Pls share & Thanks

Posted by kcchongnz > 2013-07-28 17:58 | Report Abuse

You have any company which meets the magic formula as described above,one with high ROIC and earnings yield? please share.

Earnings Yield = EBIT / Enterprise Value
Return on Capital = EBIT / (Fixed Assets + Net Working Capital)

Posted by ipomember > 2013-07-28 18:05 | Report Abuse

I wanna talk something about SKP resources, in which i happened to hold for some time and lastly i decide to realise my losses. Why?? Alright, first i need to admit until now i also not really understand the business for SKP, i do not know its competitive advantage as well. All that i know is it is very highly dependent on DYSON and its financial for the past few years is really good after i conducted my analysis through my own spreadsheet. If we look into the valuation, SKP P/E ratio is always trading at single digit even it posted double digits growth YOY,net cash,good OCF and etc. Does anyone wonder? Now the market is all time high and we can simply find any good stocks trading with high valuation,what makes you think that SKP is still trading at low valuation if it is so good? Do you think that you are the only few who found this "hidden gem"? IF we look into furniture industry, there are a lot of stocks which is financially sound but also trading in low valuation? I would think that maybe this is because of their cyclical business(i take this industry merely for illustration purpose). As for SKP, i believe there is still some reasons that the market do not fancy on it, maybe because of its main customer, DYSON is venturing into CHINA market as CHINA market is huge but not easy to success. Retailers like wal mart, tesco or parkson is not doing well there. So in picking stock, it is important to find a fundamentally sound company, but the business itself is rather important too. I would think that SKP business will remain stagnant unless DYSON can do well in China, which is highly doubtful as for now. Oh ya, the latest financial result showed marginal growth only. Just my worthless 2cents

Posted by kcchongnz > 2013-07-29 10:30 | Report Abuse

"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger

ipomember, you have your point. But if you are using Greenblatt's magic formula to evaluate if SKPRes is worth investing or not based on its recent past performance, it is hard to argue that it is doesn't qualify. It has wonderful growth, operating efficiencies and selling at attractive earnings yield. Btw, it doesn't mean that 100% of the stocks meeting the criteria of the magic formula will go up. Nobody can get even closed to 70% of his stocks up in a long-term.

Why is it that its share price has been stagnant when the market has been up? How the hell I know? I don't know the motive of that Datuk Gan keep on selling. I don't know if its business in China is doing well. Only the insiders will know. If you have the additional information of how SKPRes is doing in the near future, you then only have the advantage.

Posted by samchew1950 > 2014-05-19 09:48 | Report Abuse

Hi KC !! I am new to 3i & trying to learn the above skills from you. At 64, my learning is slow but I have plenty of time since I am retired !!! May I take this opportunity to congratulate you for being such a wonderful analyst !!! Sam

Posted by samchew1950 > 2014-05-20 09:29 | Report Abuse

KC, Tried to email to ckci3invest@gmail.com but received failure notes a few times in return. Do you have another email address ? thks

Posted by AyamTua > 2014-07-01 19:23 | Report Abuse

i love magic formula .. kikiki