Koon Yew Yin 14 Dec 2019
Many investors who have read my article “My fastest speed record of making money” wanted to know how I did it. In fact, many of my friends advised me to sell some of my Dayangand laugh all the way to the bank. Why should I sell Dayang if the company can continue to produce increasing profit? As long as there is oil, Petronas will continue to pump because Petronas has already paid for the cost of all the oil rigs and Dayang will continue to get more and more maintenance contracts because Dayang is the biggest and most efficient maintenance contractor in this region.
Google will tell you that the average price of an off-shore oil rig cost US$ 600 million. That is why Petronas spends Billions of Ringgit for maintenance.
All investors must know the following factors:
1 My share selection golden rule
The company must report increasing profit for 2 consecutive quarters and its projected P/E must be less than 10. If you are very sure that the company can continue to produce more and more
profit, you can buy the share at higher P/E ratio.
2 Long term profit growth prospects
The company must have a special skill or a product that is not so easy for competitors to copy. You can find out from Google that the average price of an off shore oil rig is US$ 600 million. As long as there is oil Petronas will continue to pump oil because Petronas has already paid for the costly oil rigs and Dayang will be awarded more and more maintenance contracts for the oil rigs.
3 Believe in price charts
An old English saying “a picture is worth a thousand words”. I say a price chart is worth a thousand words. All investors must believe in charts. They never lie. In the case of Dayang, many expert chartists sold Dayang at lower prices and not humble enough to admit their mistake to buy back at higher prices.
4 Long term up-trending stock
No stock can go up continuously for whatever reason. After some time, its trend will change or will make some corrections. Based on this fact, short term traders buy and sell to make money. Studies have shown that day traders cannot make much money. In fact, a significant number lose money. If the corrections are always small, investors who sold their holdings must be humble enough to admit their mistake to buy back at higher prices to avoid missing the opportunity of owning a good growth stock.
5 Never buy a down trending stock
If you buy a down trending stock, it can continue to go down cheaper and cheaper. Investors must realise that its price is dropping because it is not reporting increasing profit. Some stupid investors would buy it in anticipation that the company will make more profit soon. When is soon?
6 The daily traded volume must be liquid
Institutional investors must be interested and the daily traded volume must be several million shares so that no individual can easily push it up or down. Be careful with illiquid stock because controlling shareholders can easily push the price up or down to trick investors. In the case of Dayang, the daily average volume is more than 10 million shares which indicates many institutional investors are buying and selling. The share price has been going up higher and higher indicates that there are more buyer than sellers.
7 All investors must examine their track record
If your track record shows that you have not been making much money, you must realise your own mistake. You must change your method of selecting shares to buy or sell. Once you have found a really good stock, you must not sell it so quickly to take profit. You must not be in a hurry to take profit. Let the pricego up higher and higher. Don’t be afraid to buy more shares even if the price has gone up significantly. Just like what I did in the case of Dayang. Don’t be afraid to buy it at a high price because you can always sell at much higher prices.
8 When to sell?
Never sell any stock if the company continuesto report increasing profit. Investors must bear in mind that some products are seasonal. For example, chocolate products enjoy better sale during Christmas and new year season. In the case of Dayang, it may be affected by the monsoon rain and it has reported lesser profit in 1st quarter which was EPS – 0.45 sen, 2ndquarter EPS was 5.7 sen and 3rd quarter was 11.1 sen. It is most likely its 4th quarter ending December will be more than the 3rd quarter. Investors must realise that it has been continuously raining in the last few monthswhich has not affected Dayang’s profit growth. It has been reporting increasing profit. It looks like the weather patent has changed.
I will only sell Dayang if it reports 2 consecutive quarters of reducing profit. If it reports reduced profit for 1 quarter, I will not sell although weak holders will sell and affect the price.
I may sell some of my holdings, if I can find another stock which has similarly good profit growth as Dayang to diversify my risk. Unfortunately, I have been searching in the last few months in vain. I cannot find one!!!