As I am 83 years old, I have more than 30 years of experience in buying and selling of public listed shares. In the process, I have learned from my mistakes and now I have accumulated a lot of knowledge which I wish to share with you before I die.
I will have to write a few lessons to cover all I know. This is the first one.
I retired as a founder director of IJM Corporation Bhd. in 1983 when the Hong Kong stock market crashed because China gave notice to the British Government to take back sovereignty of Hong Kong.
In a situation like this, I knew that in every crisis, there was opportunity to make money. I just got to be brave to take some risk like any entrepreneur.
I started investing in the Hong Kong stock market as there were so many cheap underpriced stocks. Among several other stocks, Hong Realty & Trust was my largest investment. It was selling at HK $3.60 per share. It was selling at HK$ 13.60 per share before the crash. The net asset value of each share was HK$ 10 cash and HK$ 4 in real estate.
Anyone could have made money if he was not afraid to buy HK Shares when the market crashed. As soon as China agreed to give 50 years lease extension, the stock market rebounded immediately. HK Realty & Trust rebounded back to HK$13.60. Within one year, I made so money that I bought 46% of a small broking firm called Kaiser Stock & Share Co. Ltd.
After my H K experience, I decided to concentrate on share investment because all my profit is tax free and I have no management problem.
I started reading the methods preached by investment gurus, like Warren Buffet, Peter Lynch, Benjamin Graham and others. They all recommend you to buy undervalued stocks.
I started to buy undervalued stocks but I found out that I have to wait for a long time to make money.
For example, currently there are many really undervalued property counters. But if you buy them now, you will have to wait many years to see the companies showing increasing profit for the share prices to go up.
There are many selection criteria such as NTA, healthy account, discounted cash flow, EPS, etc. I consider earning per share growth is the most powerful catalyst to move share prices. Always look for companies that can make increasing profit and with good profit growth prospect.
My share selection golden rule:
After several years of trial and error, I have now simplified my formula for selecting shares.
Before I start to buy, I must make sure that the company can make more money in the current year than last year by looking at the EPS growth for the last few quarters. To prevent some unforeseen business challenges, I will not buy it if its projected P/E ratio is above 10.
Using this golden rule, I bought so much and became the substantial shareholders of Latitude Tree, VS industry, Lii Hen and others. Latitude has gone up 800% within 2 years. VS has gone up 550% within 18 months and its 2015 annual report shows that I was holding 102 million shares. Lii Hen also gone up a few hundred percent within 2 years.
In the stock market investors always overreact on good or bad news. Due to the recent strengthening of our Ringgit, most investors just dumped their export company shares as if the companies will lose money which is not true.
Lii Hen announced record profit on 20th May 2016.