Does “value investing” work in Bursa? kcchongnz




My first article on value investing recently, “What is Value Investing” in the link below attempts to dismiss the myth that most people have, the misconception that value investing is about buying stock with low price-to-earnings, or price-to-book value, etc.
https://klse.i3investor.com/blogs/kcchongnz/173926.jsp
Hence a comment as below is just naïve, ignorant and uninformed.
[Posted by qqq3 > Sep 14, 2018 02:15 AM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
value investor? go and buy up all the dead shares la....a Lot of the dead shares have discounts of up to 70% from the "revaluations"/valuations of assets.]
It also dispelled the notion that value investing is about buying big companies’ stocks, companies listed as the component stocks of KLCI. Value investing is also not about holding it for decades without looking at it after buying.
Following it, I wrote an article to explain some “Key principles of Value Investing”, in the link below,
https://klse.i3investor.com/blogs/kcchongnz/174104.jsp
The key principles describing why value investing works are summarised as below,
1.      Price is not value
2.      Mr. Market is a crazy guy
3.      Every stock has an intrinsic value
4.      Only buy with a margin of safety
5.      Diversification is the only free lunch
The key principles of value investing are plausible. Value investing follows a process. It works most of the time and over a long period of time. However, it doesn’t mean it works all the time. At least, it works better than all the alternatives I can think of.
It is extremely hard to instil value investing to old dogs and “lazy controllers” like the ones below, and make them understand what value investing is and its simple concepts, despite after doing it repeatedly. If so, pig can fly.
[Posted by qqq3 > Sep 14, 2018 11:01 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
kc
allow me to expose your fraud....the margin of safety of a stock lies in its history and the charts....not in your maths formulas, not PE, not NTA.

Posted by qqq3 > Sep 14, 2018 06:00 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
kc....margin of safety should refer to what is worse case scenario.....
buy mutual fund la....most mutual funds in Malaysia are well managed and will not suddenly lose 50 sen on the dollar......]
Well, this is a democratic society, of free speech. Everybody is free to expressed himself, including making a fool of himself, repeatedly.

In the most recent article, “Does value investing work and what are the evidences” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/174215.jsp
I have shown the phenomenal track records of each of nine disciples of Benjamin Graham with annual compounded returns of between 18% and 29% lasting between 14 to 30 years, using various and different strategies of value investing.
In the above article, it also shows value investing has been shown to work in almost all established markets in the world, including that in Bursa in the past.
However, we have seen many arguments that, even some believe value investing works in US, they just plainly dispute that it works in Bursa, without any substantiations, and that our market is different.
One persistent argument against value investing in Malaysia is that there is no stock in Bursa worth to hold long-term as no stock in Bursa can continue to go up in prices, not even for a couple of years.
Is that so, or is it just a wild allegation? Let us examine some facts.
The best way to prove or whether value investing works or not is to examine some academic research in Bursa. However, I could not find any credible research for Bursa to rely on, unlike those of the US and other matured overseas market. Here, we just have to rely on some records of some stocks held for 10 years, just for illustration purpose.
Just to reiterate that value investing is not about holding a stock long-term, but basing on price-value relationship to make buy or sell decision. The long holding period of these stocks is used just as an illustration.

Value investing in Bursa

I will provide some evidence that value investing works in Bursa for both the big cap stocks as well as the small and mid-cap stocks here.
Big cap stock
I found a comment in i3investor as below recently, and I will choose this portfolio randomly for illustration. The stocks and their returns after 10 years are shown in Table 1 in the Appendix.
[Posted by stockraider > Aug 21, 2018 10:26 PM | Report Abuse
Raider Having spare with 3iii for 10 yrs ....raider understand 3iii loh....!!
In fact raider can list out 3iii stocks loh;
1. Petdag
2. Nestle
3. Pbb
4. Dutch Lady
5. Heim
6. LPI
7. Aeoncr
8. Carlsberg]
This portfolio above consists of big-caps stocks which are followed closely by fund managers and institutional investors. The first three are component stocks of FBMKLSE. The stocks above meet the requirement of value investing in one form or another such as high dividend yield, stability of earnings and cash flows, high return on capitals, growth etc. It returned an average of 379% over the last 10 years as on 22nd August 2018. In compounded annual return (CAGR), it is a whopping 16.5%, more than 3 times the 5.2% of the broad index during the same period.
In comparison with the performance of the fund managers investing in Bursa for the last 10 years, only 6 funds out of about 100 returned more than a CAGR of 8%, with the maximum of 10.7%.

Small and medium cap stocks
I refer here an article in a Chinese Investing periodical, The Bust Weekly sometime in September 2017.

In the above article, it mentions that for the last 10 years from the year 2007, just before the subprime housing crisis in the US, which also adversely affected the stock markets all over the world, and up till September 2017, 70% of the stocks in Bursa had positive returns.
My estimation shows that the broad KLCI increased by about 52% for the last 10 years from 1414 points to 1784 points as on 18th September 2017. Together with dividends, the compounded annual rate of return (CAGR) was about 5.5%.
The Busy Weekly also compiled a list of 20 “bull” stocks which returned over 1000% over the 10 years. They were mostly small and mid-cap stocks listed in Bursa. The best performer, MYEG, returned 3443%, and the last in the list, Poh Huat, 1147%. Those numbers are equivalent to a CAGR of 43% and 29% respectively, more than 10 times the return of fixed deposit a year, for each of the 10 years.
This shows that if one could identify some good companies with good prospects at that time using the principles of value investing, would be able to obtain fantastic extra-ordinary return leveraging on the power of compounding, and invest in them for long-term, even after the steep corrections during the subprime housing crisis which affected Bursa badly in 2008 and 2009.
This forgotten and least travelled tracks of the small and medium cap stocks is also where I like to dwell in as it is where I could find value in investing.
 

Conclusions
Value investing has been shown to work in almost all matured as well as emerging markets in the past everywhere in the world. I have also just shown that it works in Bursa.
The principles of value investing are logical and plausible, control your emotion of fear and greed, be contrarian and right about it. It may not work all the time, and sometimes not in the short-term, but it will certainly work for most of the time, and in the long-term.
In the next article, I will show you my own personal experience that value investing works for me very well investing in Bursa.
For those who wish to know more and learn about value investing, or wish to follow some stock picks in Bursa following the principle of value investing may contact me at,
ckc14invest@gmail.com
I do this as a great service by educating the “poor investors” on the right path of investing in the stock market so they avoid making heavy losses, which happened to most of them, and have higher chance of earning satisfactory return. I sincerely think so.

KC Chong
Appendix
Table 1: Return of portfolio
No
Company
Code
Ref price
22/8/2018
Cum return
CAGR
1
Petdag
5681
8.20
26.64
225%
12.5%
2
Nestle
4707
27.00
146.4
442%
18.4%
3
PBBank
1295
9.05
24.68
173%
10.6%
4
Dutch Lady
3026
11.90
66.9
462%
18.8%
5
Heim
3255
5.35
22.34
318%
15.4%
6
LPI
8621
4.62
17.04
269%
13.9%
7
Aeoncr
5139
1.82
15.12
731%
23.6%
8
Carlsberg
2836
3.88
19.9
413%
17.8%
             
 
Average
     
379%
16.4%
             
 
FBMKLSE
 
1101
1823
66%
5.2%

https://klse.i3investor.com/blogs/kcchongnz/175060.jsp