Share Overview

8/3/2019 Share Overview

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How to beat the market and become a super investor

By Koon Yew Yin

Risks in doing business:

It is important to stress that all businesses involve risk; hence the selection of shares is also a risky

business. This is not the same order of risk as may be involved in going to the casino or betting on

the four digits which in 90-99 % or even more of the cases, results in the patron losing his money, if

not his pants.

Picking winning stocks means that we pick the companies that can meet the constant challenges of

competition, supply and demand, change of fashion and style design, obsolete stocks write off, etc.

There are also unforeseen factors such as variation in interest rates, import and export restriction,

foreign exchange variation, change in Government regulations, etc. Inclement weather such as

flooding affects production as we have seen in Bangkok so that even the most well run of companies

such as Toyata and Honda cannot escape it.

Best form of investment

In my view, stocks are the best form of investment. They are tax free, have no management

problem, and you can reduce or liquidate all your holdings at any time. There is a classical saying in

the market - You can buy the winning horse after the race. This means that you can still buy a good

share after the company has announced its profit. This does not mean that stocks are entirely risk-

free

Fundamentals of Stock Selection

The basic fundamentals for share selection are P/E ratio, NTA, Revenue, cash flow etc. How important

are these factors?

The most important criterion is profit growth prospect. Never buy any share if the company cannot

make increasing profits. You must buy shares that Fund managers are interested. They are the

movers and shakers. Do not buy too much of illiquid shares because it is cheap. It is cheap for some

reasons which may keep it at basement prices.

The main reasons why share prices go up include the following:

a. Exceptionally good profit growth prospectb. Fund managers must be interested, liquidity, publicity etc.

c. Dividends are an important catalyst for moving share prices up

d. Unexpected good news of profit, bonus issues etc. will push up share prices.


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When to Sell

When to sell? Do not worry about the daily share price fluctuation if you have a target price. Quite

often the share you hold can move up rapidly and continues to go up. You must remember that no

share can go up indefinitely for whatever reason. Sell when you are not willing to buy at the price or

the reason to buy is no longer valid. Remember you must sell so that you can have funds to buy back

during correction. If the fundamentals have not changed, the share price will go up again.

What to Buy

After having seen so many unexpected surprises in the stock market, I consider the safest shares to

invest are undervalued oil palm shares. The reasons are:-

a. The production cost for CPO is about Rm 1,300 per ton and the average selling price has been more

than double the production cost in the last 10 years or more. The average CPO price for 2011 is more

than Rm 3,000 per ton. Which business can offer such big profit margins?

b. The demand and profit are sustainable due to population increase. Moreover, both China and India

who are our buyers have been improving their economy. The financial problem in Eurozone and US

has little or no effect on our palm oil market.

c. A palm tree will start fruiting after 3 years. It will continue to bear more fruits until it is about 16

years old after that age it will begin to bear less fruits. Only after about 22 years a palm tree needs

replanting.

d. The land always appreciates in value.

e. There is good profit growth prospect and sustainable profit

I am obliged to tell you that plantation shares form the major part of my investment portfolio. If you

decide to buy, I am not responsible for your profit or your loss.

How to become a super investor?

I started serious investing in public listed shares when I retired from executive work at 50 years old. I

was not an accountant nor have I a MBA degree. I was just a civil engineer and I hardly knew how to

read a balance sheet at that time.

I started by reading to understand the basic fundamental principles of share selection as practiced by

Warren Buffet, Peter Lynch and other great investment gurus. These are the key traits to being a

super investor that I picked up.

Trait 1: Be a contrarian investor, that is, the ability to buy stocks while others are panicking and sell

stocks while others are euphoric. In 1983 when China declared that they wanted to take back Hong

Kong, the people were selling as if there was no tomorrow because the Communists were coming. The

Hang Seng Index plunged to about 700. Currently it is around 18,500.

In such a situation at that time, would you buy Hong Kong shares? I did.


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Trait 2: Obsession in playing the game and wanting to win. Winning investors dont just enjoy

investing; they live it. They wake up in the morning and the first thing they think about, while they

are still half asleep, is a stock they have been researching. They are thinking about selling, or what

the greatest risk to their portfolio is and how they are going to neutralize that risk.

They are obsessed in enhancing the value of their holdings. I am that way.

Trait 3: The willingness to learn from past mistakes. Most people would much rather just move on and

ignore the dumb things theyve 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 career.

Trait 4: An inherent sense of risk based on common sense. Most people believe analysts reports

which are often a buy recommendation. It is very seldom they recommend a sell because they

would lose the business from the company he has recommended a sell. You must always take any

analyst report with a pinch of salt.

I believe the greatest risk control is common sense which is not so common sometimes.

Trait 5: Confidence: Great investors must have confidence in their own convictions and stick with

them, even when facing criticism. Buffett never got into the dot-com mania though he was being

criticized publicly for ignoring technology stocks. He stuck to his guns when everyone else was

abandoning the value investing ship. He was proven right when the dot com bubble bust.

Trait 6: Clear thinking. When considering a share, you must try to understand the nature of the

companys business and its inherent difficulties so that you can evaluate your risk exposure. There are

a lot of people who have genius IQs who cannot think clearly, though they can figure out bond oroption pricing in their heads.

Trait 7: And finally the most important, and rarest, trait of all is the ability to live through volatility

without changing your investment thought process. This is almost impossible for most people to do.

When the market makes a severe correction, most people dare not buy more shares to average down

or to put any money into stocks at all when the market is plunging. They would begin to doubt their

own judgement.

Wishing you a season of happy and profitable investing!

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Share Overview