Back in the 1910’s, basically late 19th century and 20th century. John D Rockerfella was considered to be one of richest and most powerful man in the country, via his ownership of most of the petroleum refinery in the United States.
However, oddly enough, his official net worth only really shot up, when Congress demanded he split up his flagship company “Standard Oil” into various companies and list them publicly. Valued separately, the prices shot up, and his status of cemented as the richest in the world. Adjusted for inflation, he was worth USD400 billion at his peak.
However, imagine this, his business, his wealth and power was really the same before the split and after the split with no major change. The only thing that changed is people’s perception of how rich he is. Which has no relation with how much he is intrinsically worth.
Wealth for the most part, is an illusion.
Jeff Bezos is the richest man in the world. However, till today amazon has barely made USD10 billion total in profit, however, the company is valued at almost USD800 billion. Imagine that. A relatively strong case can be made for Amazon to be worth half or 25% of what its worth today. Though to be fair, there’s a very deep moat surrounding Amazon.
I think when investing, one needs to have a relatively strong focus on what you are intrinsically worth, instead of what Mr Market tells you what you’re worth.
Putting it into practice.
Now, using local examples. INSAS and PLENITUDE.
They are currently selling at RM0.88 (intrinsic is about RM2.2), and RM1.52 (intrinsic is about RM5-6 if they unlock properly)
If one were to offer RM1.6 or RM2.5 to the current owners, they would be laughed out of the room.
Why? Because they know what the company is really worth and thus by extension what they are really worth. Now to be fair this is because they have control.
But more importantly, it’s because they look at shares as fractional ownership of a company, not pieces of paper with fluctuating values that can be easily liquidated. In their case, they are too rich to be easily liquidated anyway. Most people do not see shares this way.
What happens when you see shares as fractional shares of a business, better yet, a Sdn Bhd business (long term)?
The impossible becomes possible.
One can now make money the moment you purchase a share! To better see it, create your own apportioned consolidated financial statements and use that as your scorecard.
When I buy one share of Plenitude, i assume already made a profit of at least RM2 instantly!
When I buy one share of Insas, I assume I already made a profit of at least RM1 instantly!
Now, this works particularly well for buying high NTA companies for prices far below book value, as long as management is honest and relatively competent.
For companies one would value based on earnings, it wouldn’t be as easy to determine your instant profit, without seeming instantly delusional. However, it helps immensely in avoiding severely overpriced stocks, and making the unnecessary profit, ie profit from a bubble.
If I were to pay the previous price of RM2.8 for one share of MYEG, I would assume that I instantly lost RM1 at least and thus would never touch it.
On the converse, it would mean I would also not have earned the speculative paper profit during its run up from say RM1.5 to RM2.8.
To avoid speculative loss due to bubbles, one must avoid speculative profit from bubbles. And that is something I’m perfectly comfortable with. As I don’t need people to tell me what I’m worth, I know what I’m worth.
By using long term money only, with very little to no margin, as well as looking at shares as fractional ownership of a business, and using your own consolidated financial statements (instead of what random people tell you) as a measure of results, like how a businessman would. One is able to make instant profit the moment one buys a stock!
As Graham says, “Investing is most intelligent when its most business-like”. I would add that its very profitable as well! On the basis of my consolidated financial statement, im doing fantastically well this year.
Whenever price drops, instead of lamenting like everyone. I just get more and more excited!
As always, let me know if you disagree, or have a completely different perspective. Id like to know if im coming at it wrongly.