Summary of my investment talk
by Koon Yew Yin
I was
invited to give a talk about my share investment method in Johor Baru, Penang
and KL recently. Here is the summary of my talk especially for those who did
not attend.
Out of about
1,000 listed companies in Malaysia, I only own shares in 5 companies. I am a
substantial shareholder of VS Industry, Latitude Tree and Lii Hen. I also have
some shares in Poh Huat and Xingquan.
The price charts
show that Latitude has gone up from Rm 1.00 to above Rm 7.00 within the last 26
months. Lii Hen and VS have gone up more than 300% in the last 18 months. You
can verify these from the company announcements in Bursa Malaysia.
The theory
of the “efficient market” hinges on two beliefs:
1. People
make rational decisions
2. People
are unbiased in their predictions about the future.
If this was
true then every stock would be trading at its fundamental market value and you
cannot find underpriced shares to buy. As regular investors, we know this is not
the case.
There are
three layers to the human brain-
1. Handles
automatic functions, like breathing and heart beat
2. Controls
emotion
3. Controls
logic and higher level thinking.
With most
major decisions in life, emotion overtakes logical thinking. As a result, most
investors including professionals cannot perform. They are called “irrational
investors”.
How did I select them?
To be a
successful investor, you must overcome your emotion and be able to think
logically. You must have the guts to go against the crowd and be a contrarian
investor. You must dare to buy while others are selling desperately and you must
dare to sell when others are eager to buy aggressively.
As you know,
in the last one year or so, our KLCI has been falling due to our political instability.
Most investors including local and foreign institutional investors are selling
their holdings. They are afraid the political situation and the stock market
will get worse.
In view of
these factors, our ringgit is now at a 17 year low and I concentrate on
companies that export their products in US$. That is how and why I bought those
shares I mentioned above.
Most important share selection
criteria:
There are
many stock selection criteria such as NTA, dividend yield, cash flow etc. The
most important is profit growth prospect. Earning per share, EPS growth is the
most powerful catalyst to move share price. The reason for the prices of my
selected shares to go up so rapidly is because they have very good profit
growth prospect.
Why I did not sell?
Many
attendees wanted to know why I did not sell some of my holdings since all of
them have gone up more than 100%. I would not sell because they have been
showing increasing profit every quarter and I am sure they will make more
profit this year than last year. They are still very cheap in terms of P/E
ratio, less than 10. For example: Latitude’s EPS for 3 quarters is 65 sens and
Lii Hen’s EPS for 1st Quarter is 18 sens which indicate that they
will surely make more profit in this year than last year. Why should I sell ?
My Golden Rule:
I will not
buy or own any share if I am not sure that the company can make more profit this
year than last year because when the annual accounts show reduced profit, the
share price will drop. Now you must check all your shares to make sure that
they can make more profit this year than last year. Otherwise, you sell them.
Price Fluctuation:
Finally, the
most important and rarest quality of all, is the ability to live through
volatility without changing your investment thought process. This is almost
impossible for most people to do. When the chips are down they find it hard to
sell their stocks at a loss. They find it difficult to average down or to even put
any money into stocks at all when the market is going down. People don’t like
short term pain even if it would result in better long-term gain. Very few
investors can handle the volatility required for high portfolio returns. They
equate short-term volatility with risk. This is irrational. Risk means that if
you are wrong about a bet you make, you lose money. A swing up or down over a
relatively short time period is not a loss and therefore not risk, unless you are
prone to panicking at the bottom and locking in the loss. But most people just
can’t see it that way. Their brains won’t let them. Their panic instinct steps
in and shuts down the normal brain function. Their emotion controls their
logical thinking process.
Learn from past mistakes:
To be a
super investor, you must be able to recognize and admit your past mistakes so
that you can improve. For example, if you have bought Latitude at say Rm 2.00
and sold it at Rm 4.00. After you have sold, the price continues to go up because
its quarterly profit keeps increasing. Its 3rd Q. EPS is 65 sens and
its 4th Q. ending 30th June will be announced before the
end of August which should be about 85sens.
What do you
do? Are you willing to admit your mistake and buy back the shares at a higher
price?
Now you know
why I have not sold and remained a substantial shareholder of Latitude, Lii Hen
and VS.
How to use margin finance to leverage
your profit?
Buying
shares with margin finance is not meant for novice. Unless you have the
necessary experience, it is more risky to buy with borrowed funds. If you are confident
of making more than the interest rate of 4.8% pa, you can increase your profit
by using margin finance.
When do I sell?
I will sell
some of my holdings as soon as I see the company’s quarterly profit is reduced so
that I can reduce my margin loan. I will sell more aggressively if the company
shows reduced profit for 2 consecutive quarters.
NOTE: I am not asking you to buy the shares
I mentioned above. But if you decide to buy, you are doing it at your own risk
and I am not responsible for your profit or loss.