Sunday, November 29, 2015

The Most Essential Lesson for all Investors - Koon Yew Yin

The Most Essential Lesson for all Investors - Koon Yew Yin 
Author: Koon Yew Yin | Publish date: Sat, 21 Nov 2015, 11:02 AM

Many of my close friends and my family members want to know how I dare to buy so much of VS Industry shares. As I have announced on 15th June 2015, I have 20,445,600 shares, nearly 10% of the total issued shares before one share is split into 5 shares. I am also a substantial shareholder of Latitude and Lii Hen. The price charts show that every one of the 3 shares has gone up a few hundred per cent per year.

A super investor must have the following 7 traits or characteristic features:

Trait 1. Be a contrarian investor, the ability to go against the crowd in investing. You must not be afraid to buy when most people want to sell and sell when most people want to buy as if tomorrow is too late to sell.

Trait 2. A great investor is one who is obsessive about playing the game and wanting to win. These people do not 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, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they are going to neutralize that risk.

Trait 3. A good investor is the willingness to learn from past mistakes or to admit that he or she has bought the wrong share. It is so hard for people to recognize their own mistakes and sell the bad share which they bought at a higher price. Most people would much rather just move on and ignore the dumb things they have done in the past. But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your career. In fact, even if you do analyze them it is not easy to avoid repeating the same mistakes.

Trait 4. A good investor must have an inherent sense of risk based on common sense. You must have the common sense to realize the risk of buying any share which has gone up a lot and when all the analysts are recommending buy. No share can go up indefinitely for whatever reason. Quite often you might be tempted to fall in love with your purchase because it has been going up and up. You are so proud of your pick and refuse to sell it. Remember your ego can skew your judgment.

Trait 5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. Buffett never get into the dot-com mania and he was being criticized publicly for ignoring technology stocks. Eventually he was proven right. Unlike Buffet, we small investors can get in and out quickly and make some profit.

Besides confidence, you must have patience to wait to buy when it is has established a base and not buy when it has shot up due to some exciting hot news.

Trait 6. It is the ability to think clearly. Our brain has 3 basic functions. One is to circulate your blood and control your breathing. The second is your emotion and the third is logical thinking. All normal investors allow their emotion to control their logical thinking process. All successful investors can think clearly when faced with a problem.

Trait 7. Finally the most important, and rarest, trait of all is the ability to live through price volatility and fluctuation without changing your logical thinking process. This is almost impossible for most people to do when the share goes through a price correction. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss. But most people just cannot see it that way; their brains would not let them. Their panic instinct steps in and shuts down the normal brain function.

Most investors believe that no share can continuously go up or come down indefinitely for whatever reason. They will sell to take profit and buy back during price correction. But quite often, the correction is mild especially if the share has fantastic profit growth prospect. They would not buy back at a price higher than the price they sold.

As you know VS Industry share price went up from Rm 2.5 to above Rm 8 in the last 15 months. I know of a foreign professional investor who sold VS at about Rm 4.50 because his chart indicated an unavoidable price correction. When the price continued to climb, he did not buy back because he has not mastered the above 7 traits.

If you want to improve your technic in investing you have to look at the 7 traits frequently until you have mastered them. You have to absolve them into your brain so that you can react automatically like a reflect action.

Basing on the last few quarterly earnings, I believe the company of VS Industry will be able to make more profit this year than last year which complies with my golden rule for selecting shares. But I am obliged to tell you that I am a substantial shareholder of VS. If you decide to buy, you are doing it at your own risk.

Saturday, November 21, 2015

How can you perform better than Warren Buffet? Koon Yew Yin

Learn more from the master, Koon Yew Yin

How can you perform better than Warren Buffet? Koon Yew Yin 
Author: Koon Yew Yin | Publish date: Sun, 11 Oct 2015, 09:22 PM

Although this title may give you the impression that I want to boast of my achievement but my real intention is to teach people how to make more money from the local stock market. 
I have prepared these notes for discussion on 5th Oct 2015 with Mr. George Leong, a Lecturer of Taylors College, who has written 3 investment books. One of the 3 books is about the famous investment guru, Warren Buffet.
Mr. Warren Buffet’s track record of earning 22% pa for more than 20 years has not been broken by anyone, I know.
As an individual investor, I think you can perform better than Warren Buffet if you follow my way:
  1. I am much smaller, like a small ship, I can move around quickly. I can buy and sell quickly. But W B cannot.
  2. Malaysian companies are young and small. Moreover, our political system and economy keep changing. As a result business challenges change frequently. I do not invest for long term. I just look at companies with profit growth for this year and next year.
  3. I cannot follow W. Buffet’s principle of buying undervalued stocks for long term because we do not have companies like Coco Cola, MacDonald, Washington Post etc with an established brand and market competitive advantage.
  4. I also do not buy undervalued stocks eg Jaya Tiasa which is selling at 5 year low price. Its 180,000 acres of oil palm plantation is worth more than twice its market capitalization. Moreover it has the largest forest timber extraction rights and the largest plywood company in Malaysia.  Remember they will not sell some of their assets to distribute the sale proceeds.
  5. I am not an accountant. I do not use charts and I do not know how to analyze using accounting method. I invest like a businessman. I look at the business to see if it has good profit growth prospect.
  6. Statistics shows that accountants and MBA managing financial institutions cannot perform. Less than 10% can beat the market index. They rely too much on the audited accounts. They are concerned if a company has too much borrowing and poor cash flow. As a businessman, I can understand why the company needs additional borrowing to do more business. For example, VS Industry has increased its borrowing because it has new orders from Kuerig Coffee USA. It will have poor cash flow because it takes time to manufacture the products, time for shipping and time to receive payment, probably 90 days payment terms.
  7. KLCI has been falling for a long time because of 1MDB and other political problems. Foreign funds and general investors are selling aggressively. But I consider this is a good buying opportunity. Buy when everybody wants to sell and sell when everybody wants to buy. I am a contrarian investor.  
  8. As you know our Ringgit is 17 year low. Most investors are afraid to invest. But as a businessman, I look for export manufacturers which sell their products in US$. For example VS Ind. The largest computer Chip manufacturer, Latitude and Lii Hen, the 2 largest furniture manufacturers which export 90% of their product in US$.
  9. How did I find these 3 export manufacturers out of about 1000 listed companies?
I do not buy GLC, plantation, oil and gas, banks, contracting and real estate companies and small companies.
When I see any company announced a sudden jump in profit in Bursa, I start to look at its business and its profit growth prospect. I will start buying. When I see the company makes more profit in the next quarter, I will buy more aggressively.
  1. Many inexperienced investors sell too early. For example Latitude has gone up from Rm one to above Rm 7.00 in the last 24 months. After you have sold, you found out that it is still making increasing profit, what do you do? Most people will not buy back because of shame. Admitting mistakes is one of the key to be a successful investor. I will not sell if the company continues to make increasing profit.
  2. When do I sell? I will sell some of my holdings when the company announces a reduced profit in one quarter. When the company reports reduced profit in 2 consecutive quarters, I will sell more aggressively.
  3. Our brain has 3 basic functions. One is automatic system that controls your breathing and blood circulation. The other controls your emotion and the 3rd controls your logical thinking. To be a successful you must not allow your emotion to control your logical thinking. That is how to be a contrarian investor.
  4. If everybody can control their logical thinking properly, then all shares will be fully and adequately priced. You will not be able find cheap shares to buy.  
  5. Why do I use margin finance? Warren Buffet always has lots of cash but I always use margin finance to leverage my profit. I am confident that I can earn more than the borrowing interest rate of 4.8% pa. I dare to use margin to the limit because I am confident that all my selected shares will not come down.
  6. My golden rule for selecting shares is that I only buy shares that can make more profit this year than last year provided it is selling P/E less than 12. I have not seen any share drops in price when it announces increased profit. When the company announces increased profit, the share price will surely go up. I cannot lose money if I strictly follow my golden rule to buy shares.
Conclusion: I have been practicing what I mentioned above for 32 years to make all my money which I am giving away to help poor students. I trust some readers will follow my footsteps. 

Saturday, October 10, 2015

How can I make so much money from the stock market? Koon Yew Yin

Another valuable advise by KYY on investing in share market.

How can I make so much money from the stock market? Koon Yew Yin
Author: Koon Yew Yin | Publish date: Wed, 7 Oct 2015, 12:03 PM

Since the publication of my Rm 50 million donation to the Penang State Government to build student hostels to help the poor students, many people wrote or telephoned to ask for financial help and many wanted to know how I managed to make so much money from the stock market to help the poor students. They all want to know my secret formula.

After I read investment books by Warren Buffet, Benjamin Graham, Peter Lynch and other investment gurus and with my 32 years of experience, I have formulated a simple way to select shares that I am sure of making money. I cannot lose money if I buy shares following my simple golden rule.

My golden rule for share selection:

It is that the company whose share I want to buy must be able to make more profit this year than last year because when it announces its annual increased profit, the share price will surely go up. By looking at the last few quarterly results, I can estimate whether the company can make more profit this year than last year.

I am only willing to buy the share if it is selling at a P/E of less than 10. I may buy it at a higher P/E if the company is the famous or leader of its industrial group and many financial institutions are holding the share.

There are many share selection criteria such as NTA, Cash flow, return of equity etc. I consider the earning per share (EPS) is the most important. It is the most powerful catalyst to move share price. When its EPS goes up the share price will also go up.

For a start, you must think like a businessman. Since the value of our Ringgit is dropping, I want to find export manufacturers that sell their products in US$. I do not think like an accountant, worrying about cash flow, too much borrowing etc. As a businessman, I know you need more loan to do more business and it takes time to manufacture the products and it takes time to deliver the products. Moreover, most buyers will not pay cash. They want delay payment of 60-90 days. As a result, the company account will show increased borrowing and poor cash flow.

How to use margin finance?

I also use margin finance to buy more shares to make more profit. As my shares go up in price, I can increase my borrowing to buy more shares. I dare to use margin finance because I am confident that I can make more than the interest of 4.8% pa I need to pay.

When to sell?

I will only sell any of my holdings when I am not sure that it can make more profit this year than last year. If I am sure it can make more profit this year than last year, I will not sell because I am sure its price will go up when it announces increased profit.

NOTE: Readers must check all their holdings to make sure that the companies can make more profit this year than last year.
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