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Value Investing Principles

hi music....i was trying to share with all...the finer point of investing....when to be in the mkt and when to hold the cash and wait for the right opportunity...but anyway ...the misread has its benefits...like the chinese saying...hurl the tile to lure the jade...nice meeting u.

 

Sohguanh,



Yes, sorry I did miss out the fact that I invest in an insurance cum savings plan as well which pays out a minimum guaranteed dividend every year. I also have another policy which covers me for life, term, critical illness and accidents. I guess insurance acts as a form of assurance !



So it's not totally 50:50 cash/shares but since I don't intend to take out the cash portion it's effectively locked in for long-term.

 

I margin lend.

So i not only do not have FD but owe the bank.

 

Are all you all monies into shares ALONE only? Not a single FD, insurance or other financial instruments at all? That is hardly diversification at all.

For me I diversify among different financial instruments. I know my overall returns is lower but it works for me especially for this current correction, my shares and UT are seeing red everyday BUT my FD and insurance savings are giving me guaranteed positive returns so I think my strategies of diversification works.

I have SGX stock/shares, UT, FD, insurance savings and spare cash for emergency purposes. The proportion would be 25:25:25:10:15 respectively.

 

Hi firstlady,



I wish to offer a counter-argument to that logic. While I agree that money in hand is "safer", sometimes we might out on good investment opportunities to grow our money at a faster rate than the current bank deposit rate, should we choose to invest in the right companies. Yes, you are not exposed to risk being in the markets, but neither can you stop inflation from eating into your bank deposits every year.



Ultimately, to each his own, but I tend to allocate 50:50 cash/shares at any point in time. Hope the rest can share their views on this too.

 

dear all....read all your valuable pointers during my lunch break...just like to share one personal point....money in the packet is always safer than in those scriptless counters...especially now...those who missed the MRT ...the next train will arrive soon...those on board...dont laugh before you reach your planned destination...many impossible things could just happen after you hear "NEXT Stop...."

 

Thanks Beidou,



Your example reminds me of my own experience too. I bought Ezra when it was at $1.295 (bonus-adjusted) and have held on to it until the current price (it closed at $4.70 today). Along the way, I was told by many friends to sell and take profit. At each point along the rise, at $2.00, $2.50, $3.00 etc people kept telling me to take profit. Luckily I didn't listen and trusted my convicton by observing the company's growth and expansion and their earnings potential.



Since then the price has hit a high of $5.45 (which is over-valued) and pulled back to current levels after the crash. Still, it's more than a 300% profit and I am thankful for value investing principles which helped me to pick a good company and hold on to it.



More on my mistakes in my next post :)

 

I also have something to share.

Picking a good business and company to invest is number one requirement under value investing approach. But in order to enjoy a huge compound returns from the good pick, one must have the confidence and faith to hold on to it until the share price has really appreciated. I bought about 14 lots of Keppel Corp at an average price of $4 each. I sold them between 6 and 8 dollars thinking that it has risen enough and was hoping to buy back when the share price has corrected. The rest is now history - the share price has hit $18.

 

Sorry for the delay. I was busy these past 4-5 days because of work and thus could not make a meaningful posting.



With the market crash of 9.9% (as at Monday) and the subsequent receovery, it only goes to show how important it is to pick good companies at good prices. As I said previously, good companies bought at high prices will also result in much sadness for the buyer, because he did not buy below the intrinsic value of the company. Similarly, do NOT buy a bad company at a good price, because grow prospects may not be there and earnings visibility is absent.



I shall highlight in this posting and subsequent ones, the mistakes I have made so far in my investing life. Each mistake shall be followed up by an explanation and learning point so that others may avoid the same pitfalls too.



Mistake No. 1 - Purchasing based on cum-dividend (CD). Case - Purchase of MCL Land on 22 Feb 2005 at $1.97, sold 12 May, 2005 at $1.37. Loss was offset by a gross dividend of 68 cents per share (net is 54.4 cents/share). Thus, net loss is about 5.6 cents/share, though the difference was covered back during my income tax filing for YA 2006. The lesson here is that do not buy a company just solely for a high dividend yield. Sometimes, on XD the price may crash greater than the dividend amount. Worse still if the company has not much growth prospects, the share price will be hanging around the same level for ages with no +ve newsflow or contracts to provide a boost. In my case, I should have followed value investing and waited as the property boom began in August 2006 and lifted MCL land to greater heights...haha.



Lesson learnt - Buy a company for growth and earnings prospects, not purely on dividend. An exception might be REITs, but even then, any yield <5% is not considered a good buy by me, and REITs are more suitable for people with a shorter investment horizon (e.g. older people).

 

Musicwhiz5, good advice on 2-Mar!

Keep the good advice flowing, I'm sure many people will benefit from it and will also contribute good comments too...

 

This is a good thread which I would like to  participate in discussion but I think there is another thread which is also talking about value investing. My post dated 2Mar in this thread actually was meant for the other thread (but end up here by mistake). Technically, is it possible for these two threads to be combined so that we do not have to toggle between them. It is difficult to monitor postings in two different threats. If not possible, may I suggest to stick to one thread (perhaps this one as the subject heading (topic) is more concise) and the owners of the postings in the other thread, copy over their postings here.

 

Very sorry guys, have posted a very big item.

Have repost the prospect below.

As computed in 2006

Market Cap (M)	147.852
ROE	22.609%
EPS TREND / EPS GROWTH RATE ( 00-05 )	NO TREND
TOTAL DIVIDEND PAYOUT (CENTS)	$0.06750
DEBTS RATIOS	LONG TERM
	0.011794971
ROTC (net profit/net capital)	13.930%
RIGHT OPERATIONAL COSTS
total per share earnings ( 01 - 05 )	$0.19659
of which divedends total ( 01 - 05 )	$0.06750
retained by company	$0.12909
per share increase ( 01 -05 )	$0.04085
company retained $0.2588 & allocated it
and per share earning increased by $0.14996
return on retained capital	31.645%
MARKET VALUE
book value (assets -liabilities) 2000	27,955
book value (assets -liabilities) 2005	99,727
% increase by	356.741%
trading value 4 May 00	$0.145
trading value 4 May 05	$0.360
% increase by	248.276%
AUNNAL COMPOUNDING RETURN
EPS earning rate	27.89%
EPS est. earning on 2011	$0.232
AVERAGE P/E ( 00 -05 )	9.622666667
MARKET PRICE IN 2011	$2.23
COMPOUNDED TRADING PRICE	34.30%

 

Hi Musicwhiz5

I had posted this earlier on the other thread and would like to repost it here. I have input the data in the buffettolgy way of finding undervalue companies.

I invested this last yr after this report @$0.50.

Pls help to see if there is any areas which I lack out.

Thanks and best regards

FoodEmpire FOOD EMPIRE HOLDINGS LIMITED
Profit & Loss (SGD '000)
Period	Dec-05	Dec-04	Dec-03	Dec-02	Dec-01	Dec-00
Revenue	184,011	160,389	139,590	112,090	84,223	59,160
Operating Profit	21,220	21,904	13,563	20,152	16,231	9,035
Exceptional Items	-	-	-	-	-	-
Share Of Profit of Associates	3,196	-144	-120	-231	-154	-
Profit Before Tax (Include Exceptional Items)	24,416	21,760	13,443	19,921	16,077	9,035
Profit After Tax	22,310	18,090	11,643	16,338	12,411	5,563
Minority Interests	-1,708	-2,843	-1,480	-1,544	-1,435	-854
Net Earnings	20,602	15,247	10,163	14,794	10,976	4,709
Extraordinary Items	-	-	-	-	-	-
Profit Attributable To Shareholders	20,602	15,247	10,163	14,794	10,976	4,709
Historical EPS (cents)	5.6	4.39	2.95	4.3	3.19	1.37
Gross Dividend Rate (%)	10	10	10	10	10	10
Gross Dividend Per Share (cents)	0.5	0.5	0.5	0.5	0.5	0.5
Special Dividend Per Share (cents)	1	1	0.75	0.75	0.25	-
				Bitmap Bitmap		Bitmap
Balance Sheet (SGD '000)
Period	Dec-05	Dec-04	Dec-03	Dec-02	Dec-01	Dec-00
No. Of Ordinary Shares Issued ('000)	389,085	349,140	344,000	344,000	344,000	344,000
Par Value	SGD 0.0500	SGD 0.0500	SGD 0.0500	SGD 0.0500	SGD 0.0500	SGD 0.0500
Ordinary Share Capital	19,454	17,457	17,200	17,200	17,200	17,200
Other Share Capital	-	-	-	-	-	-
Reserves	80,273	51,872	39,802	33,142	20,720	10,755
Shareholder's Equity	99,727	69,329	57,002	50,342	37,920	27,955
Minority Interests	2,171	4,414	3,277	2,495	2,208	1,353
Long Term Liabilities	243	256	509	334	803	315
Current Liabilities	26,994	23,847	13,381	17,602	12,800	12,992
Total Liabilities	29,408	28,517	17,167	20,431	15,811	14,660
Fixed Assets	15,802	13,436	13,459	11,994	9,253	8,439
Intangible Assets	11,115	-	39	59	79	19

 

Well Beidou I can share some past experiences which have turned out to be good investments, as well as some recent buys based on value investing principles. But these have to wait over the coming days as the posts will be lengthy and I need to compose it properly first.



As for Stamford Land, I have not done much research on it. HOw are the financials, growth prospects and industry ?

 

Thks to Musicwhiz5 and Victorian for their response and advice. But could someone who have practised value investing priciples share with us a few examples of good companies worth looking. Does Stamford Land whose NTA (if I remember correctly is 48 cents/share) is higher than the current share price (39 cents) qualify as a good stock to buy? Anything esle that we need to consider before putting our money in this counter?

 

One more critical requirement, the person must be a stayer, not a job hopper, ie. prepared to do NS for the company he serves:)

 

Buffett's requirements for hiring his chief investment officer: "We need someone genetically programmed," he specifies, "to avoid serious risks, including those never before encountered." Other talents he will be looking for, he says, are "independent thinking, emotional stability, and a keen understanding of both human and institutional behavior."

 

Hi Ipunter,

Ok, got your point:)

 

Livermore...

Of course as an experienced investor like yourself, you won't be thinking like a novice does... :)

What I meant is generally, investors do tend to judge a stock by it's price first before anything else.

eg. will you buy Keppel Corp at $19.00 when you analyse it's fundamentals and see that it is a 'solid' blue chip company'?

 

Hi Ipunter,

But I feel that is not the first question that should be asked. I buy a stock NOT based on what is its 52 week high or 52 week low price. When I just started in the stock market, that is first question I asked. But not anymore....:)