Investment lecture notes

Today RHB Investment Ipoh has invited Mr Ooi Teik Bee and I to speak about our methods of share investment. The following is my prepared notes:

Introduction: Easiest way to make money if you know how to do. No worries about all the obstacles in doing business, cash flow etc. Profit is not taxable. Fastest way to lose if you don’t how to invest. There are more losers than winners in the stock market.

1 How I started? In 1983 I started with Rm 200K capital after heart operation in 1983 when HK crashed. At that time I only need bravery – no skill. There were so many cheap sales. Within 3 years I made so much money that bought 46% of Kaiser Stock and Shares Co Ltd. HK.

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2 After enjoying huge profit from the HK crash, making money was not so easy. I read about Warren Buffet, Peter Lynch and Benjamin Graham. They all preached value investing. This method was too slow eg currently most property shares are undervalued due to oversupply in Malaysia. If you buy these shares, you have to wait many years for the share price to go higher than your cost.

3 My golden rule: Among all the criteria, such as NTA, Cash flow, dividend yield etc, the most powerful catalyst to move share price is profit growth prospect. My golden rule is the company must have reported 2 consecutive quarter increasing profit and the projected P/E must be below 10. I choose P/E 10 to avoid unforeseen risk. To be really successful, you need practise, confidence and patience to buy and hold for fruits to ripen.

4 Kind of business: I must also know what kind of business the company is doing. I will not buy GLC, oil and gas, Banks, plantation and property shares. You must now check your holdings to see that they comply with my golden rule.

5 My Track Record: I have been using my golden rule to become the 2nd largest shareholder in Latitude and Lii Hen both went up 800% and I was 2nd largest shareholder of VS went up 550%, owning 102 million shares as shown in 2015 annual report. As I said I stared with Rm 200k and now my net worth exceeds Rm 200 million in 35 years, every Rm 1 to Rm 1,000.

6 When to sell: No share can go up or down indefinitely for whatever reason. Don’t sell if it continues to show increasing profit. Sell as soon it shows reduced profit.

7 How to maximise profit? Three persons buy same share at same price and same time can get 3 different result. A day trader will sell when its price has gone up 20 or 30%, a normal investor, would be happy to sell if the price has gone up 100%. But a super investor will not sell as long as the company continues to show increasing profit. That is how I managed to buy so much of Latitude, Lii Hen and VS Ind.

8 Emotion: Our brain has 3 basic function Auto, Emotional and logical. The auto function is to control your breathing and blood circulation. If everyone can control his emotion and think logically, all shares will be fully valued. But that is not the case. That is why you can always find undervalued cheap shares to buy.

9 Beside FA and TA, you must have some business sense to be a good investor. Do not buy or sell blindly. Sometime, even though the FA is not good, but if you know the business you dare to buy. For example: JAKS’ Independent Power Producer business which I shall explain in greater detail. Even though its annual accounts shows a loss, I bought so much shares to become the largest shareholder.

10 Trend – never buy down trend because you don’t know when the price will go higher than your cost for you to sell to make profit.

11 Always buy up trend because you know the price will continue to go higher and you can sell to make money.

12 The smart way to buy and sell. If too many sellers, offer lower price to buy. If you see that there is aggressive buying, you just take the sellers. If you want to sell you offer a higher price if many buyers. If there are too many sellers, you offer a lower price to sell.

13 Use margin finance if you have the experience. Margin finance can help you double your profit. Remember it is a double edge sword. The current interest rate is only 4.8% pa. With the knowledge you have learned today, you should be able to make money than the interest you need to pay.

14 Gadang: I started buying Gadang recently when I see it has been dropping from Rm 1.28 in the last 8/9 months to the current level of 67 sen as shown on the above chart. I believe it has bottom out and beginning its up trend. In any case, the downside risk is limited. It is so cheap, selling P/E 4.

KLCI has been falling ever since Tun Dr Mahathir said that he must look at all the mega projects especially those that were awarded without open competitive tender. On last Wednesday KLCI dropped 60 points, the biggest drop in the last 10 years. When the market sentiment improves Gadang should go higher.

15 Eversendai: I have been accumulating it and now I am the 2nd largest shareholder. It has been reporting increasing profit in the last few quarters- thus in compliance with my share selection golden rule. I am very sure the price will go higher when the overall market sentiment improves.

15 You must remember that I help you today when you are poor and when you have made a lot of money you must help other poor people especially poor students. Remember when you die you cannot take any money with you. You must spend your money before you die. The best way is to do charity.

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