Benjamin Graham’s Number

Any value investor should have heard of Benjamin Graham. He was the teacher of Warren Buffett at Columbia University and was known as the ‘Father of Value Investing’. Graham is famous for his stringent stock criteria to pick the undervalued stocks. His idea was to buy the liquid assets such as cash and its equivalent of a company at a discount which is known as the Net Current Asset Value (NCAV).

Here’s the calculation: Take the total current assets of a company, minus the total short term and long term debt of the company, the value times two-third.

Formula = (Current asset – Total Debt) x 2/3

This means that Graham is only willing to pay 2/3 of the net current assets of the company!

In layman term, you are actually looking for a campany with solid financial position that can pay off all its short term and long term debt in a short period of time.

To give you an idea how stringent the criteria is I have calculated some cash rich companies in our Bursa Malaysia. Many stocks are in negatives with this NCAV formula, however I managed to scout for a few that are with positive NCAV per share:

Genting Malaysia RM0.73
Maybulk RM1.01
Petronas Gas RM0.47

And Graham was only willing to pay 2/3 of the above values! You may say
that’s impossible! However, in modern days, we may improvise the formula and work out one that is suitable for your risk profile and your investment plan.


Happy investing,

Pauline Yong

Pauline Yong Investment Seminar @ CIMB

How To Be A Long Term Winner in the Stock Market

There are 3 sessions

Date &Time
1. 20th November 2010 (Saturday)
10.30 am - 12.30 pm
(Registration starts at 10.00am)

2. 20th November 2010 (Saturday)
2.00pm - 4.00pm
(Registration starts at 1.30pm)

3. 3rd December 2010 (Friday)
12.30 pm – 2.00 pm
(Registration starts at 10.30pm)
(Registration closed for 3rd Dec as it was fully booked)

Venue
CIMB Securities Tropicana City Branch
Level G
Tropicana City Office Tower
3 Jalan SS20/27
47400 Petaling Jaya
Selangor

Topics:
1. Personal Financial Planning
2. About value investing
3. Fundamental Analysis
- Annual reports
- Financial ratios
- Analyst reports
4. Technical Analysis
- Price volume analysis
- Price charts
- Technical indicator
5. Market Psychology


See you there!

At 1526 KLCI, Where Do We Go From Here?

No body can predict the market. Even Warren Buffett said: “Don’t try to time the market.” However, we can always make our decisions based on facts and probabilities. Take a look at our KLCI chart, at 1526 it’s our all time high now, is there room for growth?

All the technical indicators and analyst reports are bullish about our stock market, mostly based on the favourable news from US that the US Federal Reserve announced they are going to pump in more liquidity in the market (its called the Quantitative Easing) and the possibility that our Malaysia general election might be coming soon, hence, many analysts predicted our KLCI will reach 1800 in 2 years time!

In order not to be crowded by all the noises in the market, we must be firmed with our own investment plan. In your investment plan, ask yourself these:
• What is your investment horizon? 2 years, 5 years or longer?
• What are my stocks? Dividend stocks, blue chips, or tech-stocks?
• Do I have the holding power if my investment portfolio reduced by 50%?

If you intend to hold a longer investment horizon for your retirement or your children education fund, most likely you will be holding dividend and blue chip stocks in your portfolio. In addition, you must have the holding power should the economy turns bad, then by all means invest in the stock market regularly because in any stock market there is only one trend in the long run – that’s UP!

Personally, I did not sell my Maybank and Public Bank shares during the recent financial crisis, however, I did buy more when Maybank was at RM3 and Public Bank was at RM8.65. Hence, I was able to lower the average cost of my portfolio during the financial crisis. Moreover, I do invest in the stock market regularly but now I’m investing at a slower pace now.

However, if you just want to make quick bucks out the stock market, then my advice is: make sure you have the right tips and to take profits in time. Lastly, I want to leave you with a piece of advice from the popular investment guru, Warren Buffett:

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.”


Happy investing,

Pauline Yong

Get Organised With An Investment Form

Last week I mentioned about the importance of reading the analyst reports, however, just sitting down with a pile of financial statements isn't a very efficient or effective way of determining whether or not a company is a good investment decision. You've got to organize your thoughts - otherwise you're just going to be spinning your wheels. That's why creating your own investment analysis form can be one of the most valuable investment tools in your arsenal. An investment analysis form is a tool that you can use to help gather numbers and essential information needed to make an investment decision in one easy-to-use format.

An investment analysis form allows you to better interpret your data systematically, as all of the information is collected into a standardized format. Because information is plugged in uniformly, you're guaranteed not to miss anything that you have deemed important.

Moreover, an investment analysis form also allows an investor to simplify his or her research by only looking at information that is relevant to the investment decision.

The first step of creating an analysis form is to decide what you want to include in it. For example, you may want to include the PRINCED rule as your stock investment criteria, together with the 52-wk high/low, and some technical indicators information.

Once you're all set up with a form of your own, you'll probably find that collecting your thoughts is a lot easier than it used to be. It just simplifies the process of investment analysis.

What I like about the investment analysis form is that when you're trying to browse through the various companies in the analyst reports, your mind stays active while you jot down the key figures. This helps you to analyse your investment better. Just don't forget that an investment analysis form is just an aide. It won't tell you whether a particular stock is a smart investment, but it can help you organize your thoughts and data so that you can make an informed decision yourself based on facts and figures.




Happy investing,

Pauline Yong

Is Stock Investment A Passive Income or Active Income ?

Many people say property and share investments are sources of passive income. Well, yes and no! No doubt, if you are a value investor that practices long term hold strategy, you may not sell your share until 5 or 10 years later. Hence, you get dividends and capital appreciation during the holding period, and yes that’s passive income. However, as an investor, before we buy any investment, be it properties or shares, we need to “actively” searching for the relevant information available to us, and to scan for any fundamental problem for the particular investment that we are buying, as there must be a reason why a certain investment is too cheap.

There are many sources of information available in the stock investing business. One good source is the analyst report. Just two months ago in August, it was the Chinese “Hungry Ghost Festival”, traditionally, investors would think that it is not a good month for investment, however, when I read the analyst reports from various brokerage firms, most of them recommend overweight on the banking sector. Not long after the reports, I saw the banking stocks jumping 10sen, 20 sen per day!

Our stock market is very much driven by so called “investment themes”. Besides the above banking sector theme, other examples are: Iskandar Development Region (IDR), Economic Transform Program (ETP), and The Budget that will have impact on the stock market. Hence, we must breathe the same air as other market participants, but don’t follow the trend blindly. Stay objective and try to make decisions based on probabilities and reasons.

Hence, from today onwards, give yourself some time to read the analyst reports every week, it doesn’t matter how much you can absorbed, at least by browsing through them will give you some investment ideas.


Happy investing,

Pauline Yong

Investment Lessons

In February 2010, Personal Money, one of the leading financial magazine in Malaysia interviewed me on how to be a better investor. In order to help more young investors to know more about share investing, here, I would like to share with you part of the interview contents.

Personal Money: "Personally, how did you learnt to be a better investor? What are the experiences that you went through (mistakes you made) that taught you the “better” ways?"

Pauline Yong: I had some rough rides before but I’m glad that I started young as those experiences help me to become a better investor now.

The first lesson that I learned was back in my high school. One of my school teachers was an ex-broker in stocks, so he liked to talk about shares in our class. Under his influence I bought the first stock under my relative’s account. I had no idea what the company was doing and I didn’t bother to find out either. Then I went to overseas for my education and when I came back the value became less than a third.

So lesson No.1: Never listen to rumours. We should do our due diligent.

Subsequently the 1997 Asian financial crisis was another great lesson in my life. It was in 1996 that I just graduated from university and I received RM10,000 from my father as a gift. As a young and eager finance graduate I opened a trading account and started investing.

I invested all my money into three counters, all construction related as they were enjoying the economic boom during the “Four Tigers Era”. And soon the Asian financial crisis struck, there goes my investment. At present, one of them was de-listed, one was sold at break-even and I’m still holding the third counter at paper loss.

Hence, lesson No.2: Never invest all your money at once. We should invest in stages; and

Lesson No.3: Never invest all the money in one sector. We should practice diversification.

After all those hiccups, I was not discouraged at all. In 1998, I kept buying and I have learned the most valuable lesson in the stock market.

Lesson No. 4: It’s a cycle – what goes down will come up; and what goes up will come down!

I bought Public Bank at RM1 and sold at RM3, I bought Public Bank again at RM2 and sold at RM4, I did that to other stocks too - “buy low, sell high”. This strategy works very well when the stock market is on an uptrend.

As I was getting “hooked” on the “buy low, sell high” game I discovered the next lesson:

Lesson No.5: Do not over-trade as it will turn us into highly emotional.

I realised I was very emotional, I suffered from heart palpitation and nervousness as I was always guessing the next move of the market. That was not investing, that was speculating! Emotional investing will turn us into a loser in the long run.

It all boils down of being a better person. That means that you should improve your attitude because it does reflect or influence your performance in share investing. Don’t be afraid of making mistakes, mistakes make us grow. What is more important is to foster a positive attitude which makes you decide things objectively and to control your negative emotions better.

China - The Next Super Power?

In Goldman Sachs's 2007 update on the BRIC's report, by 2027 China will overtake US to be the world no. 1, if this is true will it surprise you?

For those who know the ancient China history, China was once a very powerful nation interms of military and prosperity during the beginning of the Qing dynasty, under the guidance of Kang Xi (reigned 1662-1722), Yong Zheng (reigned 1723-1735) and Qian Long (reigned 1736-1795) emperors.

The divergence between China and the western countries started during the 1800's where the European countries led by Britain were gaining power through the industrial revolution. Since then the divergence became bigger and bigger until 1978 when Deng Xiao Ping decided to open up its door to the world.

From 1978 - 2000, China's economy was rising due to its capitalism. Later when China joined the World Trade Organisation (WTO), it's growth has been accelerated and now, China has become the world 3rd largest economy in terms of GDP (lagging behind USA and Japan).

After hundreds of years of lagging behind the western world, China is now closing this gap in less than 50 years. There are a lot of hard work behind. Let me share with you my personal thaughts.

All these boil down to a simple word - "Vision". In the 1950's they shared a vision with Russia to have their countries run in the communism way whereby they believe socialism and communism will benefit their people most. Indeed, they will able to eliminate the internal wars within their own country and bring peace. However the prices these communists have to pay were huge. As everything was state owned, there were lack of initiative, labour productivity was low and the people were having low levels of standard of living.

The death of Mao Tze Tung in 1976 signifies the end of communism in China. After Mao Tze Tung era, it was Deng Xiao Ping who had contributed China the most. Have you heard of the Deng's cat theory - "whether its a black cat or white cat, as long as the cat catches mice, its a good cat". So China has a vision, the vision of an "efficient" country which lead to prosperity in China now.

There is also a little story about Deng. In the 1990's he once said that Singapore was a role model for China. He admired Singapore, a country that is so rich and efficient and yet there are law and order in placed. So China developed its Guang Dong province to be like Singapore.

Another reason for China's success is education! They realised the main driver for economic growth is really its people - the human resource. Look at Singapore, its world class education sector has successfully transformed Singapore from a manufacturing based economy to high skill service based economy. Likewise, over the years, China's education sector has been developing steadily with primary school children equiped with computer knowledge.

Having look at how others become so successful, we should also look at ourselves. Why aren't the foreign investors coming to Malaysia? Not only the foreign talents not coming, the local talents are leaving, why? Our politicians should know the answers!

Happy investing,

Pauline Yong