As you know I have been trying to teach people how to make money from the stock market for a long time. I hope many of you have bought VS which has gone up from Rm 1.60 to above Rm 4.70 in the last 12 months.
If you look at Bursa company announcement, you will see that on 15th June 2015, I submitted Form 29A as a substantial shareholder. VS is my largest investment. Those who have followed my advice would have bought and they should be happy.
Statistics shows that majority of Fund managers, CFA and accountants cannot beat the stock index. The reason is that they rely too much on audited accounts which is a historical record. For example they would not buy VS because it has increased borrowing and it has poor cash flow.
As a business man, I can understand the necessity to borrow more money to do more business. As a result, cash flow will automatically be poor because of the increased shipment of goods. Moreover, almost all buyers would want delayed payment terms of 90 or more days.
I am not an accountant. I select stocks like a businessman who is looking at the future business of the company. This is an extract from Bursa showing VS’s 3rd quarter result. Please note that Its profit has increased from Rm 17.135 million for 3 quarters of last year to Rm 80.036 million for 3 quarters of the current year.
Please note that earning per share is the most essential catalyst to move share prices. NTA or companies without borrowing will not move share prices.
Share placement: As announced, the company has recently placed out 20,580,000 shares, equivalent to 10% of total issued shares at Rm 3.85 per share. As a result, the company has made an extra ordinary cash profit of 20,580,000 X Rm 2.85 = Rm 58.65 million. Share placement is a smart and easy way to expand the company and also to reduce its borrowings.
My golden rule for share selection: I will only buy a stock when I am sure the company can make more money in the current year than in the last financial year because I have not seen any share going up in price when it announces reduced profit.
How did I pick VS? As soon as I see a sudden increase in profit and revenue, I started to investigate more thoroughly before I buy the share. I will continue to accumulate patiently, buy more during price correction as no share can go up or down indefinitely for whatever reason. Sell some when it has gone up too much to reduce my margin loan so that I have funds available to buy during correction.
How to use margin loan? Some accountants would discourage you to use margin finance to buy shares. I have always used margin finance to leverage my profit. I am confident of making more money than the interest I need to pay. All business men borrow money to do business. In all business schools, students are told to make use of bank loan to do more business. It is considered inefficient if they use only their own capital.
The following comment is from the professional chartist who sent me the chart below:
Some syndicate action had entered the stock 2 days ago, as evident by the large volume.
The price is likely to reach 5.30 , only to retrace, perhaps back to 5.00 or slightly below.
If it reaches there (5.30), and at the first sign of weakness, I would sell some shares with the expectation to buy back on the cheap.
If the price shoots past 5.30 strongly, do nothing as its next target is 6.25. But this is unlikely as a healthy UP move must also be accompanied with some degree of retracement along the way.
MY OPINION: Basing on the profit growth prospect as shown by its quarterly profit announcements, I believe the price of VS will continue to climb. I have visited their Johor factories and reassured myself that its new product supply to the American Keurig Coffee is sustainable. In view of the weakness of our Ringgit at a 9 year low, I believe VS’ profit will continue to climb and its share price will also climb in tandem.
