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 5^th 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.

10. 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.
11. 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.
12. 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.
13. 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.  
14. 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.
15. 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.