Hengyuan: How to react?
Koon Yew Yin 8 January 2018 (Revised)
The Hengyuan price chart shows that it had gone up from about Rm 2.50 to close at above Rm 17, a rise of about 700 percent within 12 months. It has created a new record in the Malaysian stock market that no one has seen this new situation before.
How can you react, if you have seen this new situation before?
All the so called expert chartists believe that no share can go up or come down indefinitely for whatever reason. After sometime, the price must correct. As a result, many have reacted so foolishly. They have sold earlier to take profit because they believed profit is not a bad word.
What are they going to do when they see the price continues to shoot like missile?
Many egoistic investors will not eat a humble pie to buy back at a higher price than what they sold.
Only very few humble investors who can control their emotion of fear to think logically, would dare to admit their mistake and buy back at higher prices.
As I said many a time, I am not good in day trading, sell high and buy back at lower prices. To do this style, I have to watch the price movement very closely and decide quickly. Since I am not good in day trading, I have formulated my selling principle. I will only sell when I see the company reports a reduced profit.
In the case of Hengyuan, it has not reported a reduced profit yet and I have not sold any of my holdings.
Value investing:
I have read most of the investment books by famous gurus, namely Benjamin Graham, Warren Buffet, Peter Lynch and others. All of them preached value investing. Yes, if you buy really an undervalued stock, below its net tangible asset (NTA), you will not lose money. But you may have to wait a long time to make money. For example, currently there is an oversupply of properties in every town and city in Malaysia, you can buy many property companies’ shares at prices below their NTA. But you have to wait many years for property prices to rise again.
My share selection golden rule:
If you use my golden rule, you can make money faster.
Among all the selection criteria such as NTA, return of equities, good cash flow, healthy accounts with net cash in fix deposit etc, the most important is profit growth prospect which is the most powerful catalyst to move share price.
I will start to buy when I see the company reports a sudden increased profit in one quarter. I will continue to buy more shares if the company continues to report increasing profit by using margin finance.
In fact, based on the better crack spread in the 4th quarter, Hengyuan will most likely report increased profit. I will continue to buy today even at above Rm 17.00 per share because I believe the price will continue to rise until the 4th quarter result is announced before end of February 2018.
I have used the same method to buy and sell Latitude, VS Industry and Lii Hen, each of them went up a few hundred percent within a couple of years. I am proud to say that I was the 2nd largest shareholder of each of the 3 companies.
I trust this article will help investors improve their technique to make more money.