Investing

Summary of my investment talk

The Charity for refugees event is organized by Malaysian Finance Blogspot at Bentley Music Auditorium, Mutiara Damansara, Kuala Lumpur, on 9th May 2015. I was invited to give a keynote address on equity investment.

After having read the investment philosophies of Gurus like Warren Buffet, Benjamin Graham, Charles Munger, Peter Lynch and a few others, I would like to recommend you to read one book which covers all the famous Gurus called “Valuegrowth Investing’ by Professor Glen Arnold.

Most of the investment philosophies of these famous Gurus are not applicable in Malaysia because we do not have companies like Berkshire Hathaway, Coco Cola or McDonald which have long term competitive business advantage for long term investment, which we can buy to keep for our children and grand children. We have to select Malaysian listed companies stocks based on shorter term prospective.

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As you know there are so many selection criteria such as P/E ratio, NTA, Cash flow, Company’s amount of Bank loan etc. From my long experience, I consider the most important selection criterion is profit growth prospect. As we have limited funds and there are about 1,200 listed companies, we can carefully pick and choose the few really good shares with exceptional qualities to invest.

My one golden rule for share selection

The company I choose must be able to make more profit in this current year than last year because when it announces a reduced profit in its annual accounts, the share price will most likely drop. If the annual profit is better than the previous year, the share will most likely go up. Of course the share price will continue to rise if it can continue to make increasingly more profit and reassuring investors that the company has very good profit growth prospect.

My largest holding is VS Industry:

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I selected this electronics manufacturing company because it is so cheap in terms of P/E ratio, ROE and other criteria in comparison with the 2 famous leading electronics manufacturers in Malaysia as shown below:

Name                   Half Year EPS           Half Year Revenue     Share price       P/E ratio

Globtronics         13 sen                       Rm 180 million           Rm 6.10             23

MPI                    23 sen                       Rm 670 million           Rm 7.00             15

VS Industry       27 sen                       Rm 1,010 million       Rm 3.96             8

VS has a total of 9 factories in Johore, China, Vietnam and Indonesia. VS employs 15,000 workers which is more than the total number employed by MPI and Globtronics.

Their largest customers are Keurig. Dyson, Sony, Sumsung, Panasonic etc. They have been in this business for 30 years.

My 2nd largest holding is Latitude Tree:

I selected this furniture manufacturing company because it is so cheap in terms of P/E ratio, ROE and other criteria in comparison with all the listed company shares I know.

Latitude Tree is the largest Malaysian listed furniture manufacturer. It has 3 factories in Johore, 2 factories in Vietnam and one factory in Thailand. 100% of its products are exported to about 20 countries for US $. Due to our Ringgit weakness, it has additional profit growth advantage as shown below.

Its 1st Quarter EPS is 17 sen and 2nd Quarter EPS is 28 sen totaling 45 sen for 1st half year. It has very strong cash flow without any bank borrowing. We can expect to see a better EPS for the 2nd half year. The total EPS for the year will be about Rm 1.00 while its EPS for last year was 56 sen.

On 13th Dec 2014, about 6 months ago, I gave a similar investment talk at Calgary Hall, Kuala Lumpur. Latitude was selling at Rm 3.50 and VS was selling around the about same current level. Many of the attendees who have bought Latitude wrote to thank me for helping them to make some money.

The share price of Latitude has been going up from Rm 1.00 to the current level of Rm 6.00 in the last 24 months.

What would be the reasonable price for Latitude if its annual EPS is Rm 1.00?

Our famous Mr Ooi Teik Bee agrees with me and he would show on the screen with his financial and technical analysis of VS and Latitude Tree to support my selection.

How to use Margin finance to improve your profit?

CIMB is offering loan for share investment at 4.8% pa interest. At that low interest rate, most of you should be able to pick stocks that give you a higher return. To use margin effectively is to use up to about 75% of loan limit to avoid margin call in case of serious market correction.

As you know all shares will not go up or down indefinitely for whatever reason. You must sell some of the shares you bought with margin loan when they have gone up more than 10% so that you have funds to buy during market correction. In this way, you will be able to improve your profit.

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