I have written many articles in i3investor in the last 3 years ago, a total of 257 articles with 3.2m views, and 8604 comments as at today on 28th December 2016. I only talk about investment issues, and deliberate issues with reasoning, logics. I don’t talk about personality, even though I have, I am talking about their philosophies, principles and methodologies such as those of Warren Buffett, Walter Schloss, Joel Greenblatt, Howard Marks, Mohnish Pabarai, Seth Klarman etc. I don’t expect everyone to agree with me, the same as I am against many issues raised by others. I have covered a wide range of investing issues as shown in my last article here, “2016 Christmas Reflection in i3investor”.
I was very happy when I saw this comment in the thread from a senior of mine in MU Engineering Faculty, and my senior in Drainage and Irrigation Department about 20+ years ago, and also an active member of Institution of Engineers, Malaysia, whom I haven’t met for decades.
[Posted by ccmeow > Dec 26, 2016 03:20 AM | Report Abuse
Thanks kc for your great effort in the compilation of articles related to investment. I came across your blog a month ago,and was very impressed by your articles. I will take my time, slowly, to read through all the articles you have posted in i3 and also your own blog. I wish you a very happy and prosperous, Christmas and 2017 New Year. From: Ir. Chong Chin Meow 26/12/2016 03.19am.]
So, what is this blah blah blah about finding good companies selling at cheap prices, ROE, ROIC, PE, EY, DY, Coldeye, Magic Formula, dividend yield, Graham net net investing strategies, avoiding margin finance, retirement planning etc.? No use, too academic, jargons, can’t make money? Show me the money!
Okay, I am going to show documented proof, proof that the fundamental value investing (FVI) works. Let’s forget about all those educational mumbo jumbos and get down to the real stuff.
I have shown numerous time, that FVI works, that it works overseas as shown in the link here, which shows the phenomenon long-term returns of the disciples of FVI of Benjamin Graham.
I am going to show you again that it also works in Bursa, with my own experience.
First, I must clarify that in my context, showing proof that a certain investing strategy works is a proven, clear process of investing which is logical and plausible, backed by research and traceable with published records showing returns of portfolio of stocks chosen in advance and compared with the outcomes, which anyone can check if he wishes to. Otherwise, it is pure speculating and here-say. Again, I do not expect you to agree with me. That is okay with me.
I started visiting i3investor about four years ago. I did talk a lot about individual stocks then, using the FVI principles, well before I started my own blog within i3investor at the end of 2013, but more of giving my opinion if certain stocks were good for investment. One such link before I have my own blog within i3investor was, “Stocks less than 50 sen but not bad as investments” which was posted on 23 December 2012 as appended here,
I am proud to say that most of those stocks mentioned which were considered as good investments in the thread, are no longer 50 sen and below, but more than RM1.00, or even many of them, their adjusted prices are a few Ringgit now.
Cold Eye 5 yardsticks investing strategy
My next writeup was about this topic, “The 5 Rules of Investing of Coldeye” written on 17th March 2013 in the link as appended here,
Scores of comments and questions were posed to me whether which company fit the Coldeye 5 yardsticks for investment. I spent hours trying to comb through the financial reports and compute some FVI metrics to make decisions and form opinions. The results of stocks passing my requirement were compiled by a third party, Tan Kian Wei, a regular contributor in i3investor as shown in the link below,
The portfolio of 9 stocks meeting the 5 yardsticks returned an average and median of 278.6% and 108% respectively, including dividends, in less than four years as at end of 2016, beating the return of the broad market of just 9.8% by a tremendous wide margin as shown in Table 1 in the Appendix. The excess return, alpha, was a whopping 290%. The portfolio has a compounded annual return (CAR) of 43.3%.
There was only one loser, and the sole under-performer in APM at a negative return of just 18.6%. The success rate was 90%. There were 5 multi-baggers of more than 100% in Lii Hen (+1225%), Latitude Tree (+583%), Prolexus (+379%), Willow (+132.8%) and Johor Tin (+108%).
“Heads I win big; Tails I don’t lose much”. That is the very first principle of FVI.
In Search of Excellence; Investing in good companies
Shortly after that in 25th May 2013, I wrote another thread, “In Search of Excellence: Investing in good companies” in the thread here:
Again, many stocks were discussed. I used some simple FVI metrics such as return on capitals, ROE and ROIC, to identify good companies, and some simple P/E and P/B to estimate their values. Again, Tan KW, compiled a list of my stocks meeting those criteria in the link below,
As on 28th December 2016, the portfolio of stocks meeting the criteria of good companies returned an average of 102% in 3 and a half years, with a median return of 64.2%, compared to the return of the broad market of just 4.8%, including dividends, as shown in Table 2 in the Appendix. The excess return, Alpha, is 97%. This return is equivalent of a CAR of 22.2%.
There are 13 winners and 3 losers, or a success rate of 80%. The losses were tolerable with the highest for the plantation stocks in SOP (-31.7%), and TDM (-11.3%). Perak Corp, a failed privatization candidate, has a negative return of 13.5%. There were 5 multi-baggers; Thong Guan (+301%), HLI (+184%), Magni (+295%), Gadang (+271.5%), and EForce (+271%).
Again, this outcome of FVI strategy meets the basic principle of,
“Heads I win big; Tails I don’t lose much”.
Although I did not buy every one of them, and hold them until now, I did buy some when I saw value, just a few, some of them I still keep, but some I have sold off. One of the aims of that thread was to get some ideas of investing too. However, those who asked me about those stocks and had investing in them would have made good return.
I do acknowledge that some people in i3investors have made better return, or much better returns. I also acknowledge there may be other better methods of investing. The point is that I am happy of my way of investing, and as I have said, I have no issue if you do not agree with me.
Avoiding lemons in Bursa
In investing, avoiding losses is equally important, if not more important than trying to make big.
“Investing is not easy; anyone thinks it is easy is stupid” Charles Munger
4 years ago, some people in i3investors asked me if some stocks were worth investing, or rather punting. I have documented them and have written a few articles on them and here is one.
Table 3 in the Appendix shows that the portfolio lost a whopping 57% over the years. The median return was even worse at a negative return of 79%! All the nine lemon stocks, except one which managed to make a small gain, lost money like crazy! The stock, Smartrack, was even suspended now.
If one had invested in such a portfolio, it will require him to make a return of more than 100% in the future to make back his money, notwithstanding the opportunity costs.
“Take care of the downside, and the upside will take care of itself” Mark Sellers
The above is my guiding principle in FVI.
“But that is not what your investment that you made money”. I hear that.
Well, that is true. Whatever principles, methodologies, and process in investing, there is no point talking about it if one can’t make some extra-ordinary return from it, in the long-term.
I will share with you more evidences that FVI works in Bursa later. It works very well too.
Any investing strategy which claims to work must be logical, plausible, backed by research, and traceable with documented evidences. Otherwise, it is just here-say, and spurious at best.
Also, bear in mind that positive return is just part of the equation of an outcome. Avoiding losses is equally, if not, more important.
Happy New Year, and happy investing.
Table 1: Return of Coldeye 5 yardsticks investing strategy
Table 2: Return of good companies
Table 3: Return of Lemons