Willingness to learn from past mistakes

I refer to my previous posting under the title “Can You Become A Super Investor?” and I wish to elaborate Trait 3, quote ‘The willingness to learn from past mistakes. It is hard to acknowledge your own mistake. But you need to learn from your own mistake. Most people would much rather just move on and gloss over the dumb things they have done in the past. I believe the term for this is repression.” But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your life’.

About 2 years ago I selected Jaya Tiasa and Mudajaya when the conditions were different. In retrospective I realise my mistake. Let me explain why I bought them.

Jaya Tiasa: I was so bullish on plantation counters at that time when crude palm oil price was increasing rapidly and I believe they had very good profit growth prospect. Moreover, Jaya Tiasa was and is so undervalued.

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Jaya Tiasa has planted about 70, 000 ha which is worth at say Rm 25,000 per ha = RM 1.75 billion. The whole market capitalization is 973 million issued shares X Rm 1.50= Rm 1.45 billion only.

In addition the company has several palm oil mills and some vacant land suitable for planting more oil palm. They also have the right to extract timber from about one million acres of forest which can supply all the logs needed for their own plywood factories. They also export their logs to India, Taiwan and other countries. They are one of the largest if not the largest plywood producer in Malaysia. How can the share be selling so cheap?

The above demonstrates my costly mistake of selecting shares just based on net tangible asset value. Jaya Tiasa share price did not go up despite its actual net worth. You must remember that the company will not be selling some of its assets to distribute the sale proceeds to the shareholders.

Mudajaya: In the case of selecting Mudajaya, I was attracted by its good profit growth prospect in its shareholding of the Indian Joint Venture for generating electric power for sale to the Indian Authorities. The total cost for the coal fired power station was so huge that the Government had to arrange funding from a consortium of international banks. The banks must make sure that the contractor could produce the required electricity with a reasonable profit, otherwise, the banks would not be able to get back their money. The banks must be sure that the selling price of the electricity was profitable to the contractor.

I was so sure that Mudajaya would be able to make profit. But for some unforeseen reason, Mudajaya lost money instead of making money.

I realise that I cannot be 100% sure to make money in buying any stock. There is always some risk in share investment. When I posted my article about Jaya Tiasa and Mudajaya, I thought they were sure bets. Unfortunately I was wrong.

I always state at the end of my article that I am not responsible for your profit or loss. If you decide to buy or sell, you are doing at your own risk. Readers must always bear in mind that there is always some risk in buying any share.

Warren Buffet’s value investing principle cannot apply in Malaysia because we do not have well established companies like Coco Cola, McDonalds or Gillette Razor which have the competitive market advantage. As a result, they can produce consistently more profit and give out increasingly more dividend to the shareholders.

In Malaysia all our listed companies are young and they cannot afford to give out good dividend because they always need more money for expansion. As you know, there are several stock selection criteria such as NTA, EPS, Net Cash holding, profit reserve etc. You should not buy any share basing on its net tangible assets or it is undervalued because the company will not be selling its assets to give all the proceeds to the shareholders.

From my past mistakes, I learn that the most important stock selection criterion is profit growth prospect and EPS (Earning per share) is the most important catalyst for moving share price. That is why I bought VS, Latitude, Lii Hen and Poh Huat.

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