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I am a keen golfer and play golf three to four times a week, and yet I still make mistakes, plenty of mistakes. For example, when I chip near the green, I still occasionally top the ball and the ball rolls all the way out of the green. The frustrating thing is I often do not know what has gone wrong. When you are betting in the golf game say in a “cut-throat” style, no one will tell you your mistake, and you can continue making the same mistake again and again, and keep on losing money again and again. That is why when someone tells me, “stay still”, “look at the ball”, then only I realize what my mistakes are and able to correct them. I am always very happy and feel grateful when someone tells me my mistake in golf. That also applies to my investing. With that in mind, and more thoughts about it, here is the reposting of this article.
Sharing is caring. This article shares something about investing. It is a discussion about a subject. It has nothing to do with any personality. I believe great lessons can be learnt from it.
Image result for is it dead? images
FA, TA and BS
Fundamental Analysis (FA) used to be the only investment method since decades ago. When you go to university to study a course in finance and investment, you will only learn about FA, specifically how to read annual report and financial statements, and various methods of valuations. Technical Analysis, (TA), if any, is only mentioned in passing.
That has changed as the advent of high-speed computing has made TA easier and more widely available. Many large investment firms are making their trading decisions based on computer algorithms. There has been a boom for companies that manufacture and distribute stock charts and charting software which can produce any conceivable chart one might want to see, for security firms and individuals. Remisiers are attracting more customers with their charting tools and TA and have been making recommendations of stock trading base on that.
Until lately in the last couple of years, readers in i3investor have exposed to numerous articles propagating “Business sense” (BS) in investing. Since then, there appears to have many followers.

What is “Business Sense” (BS) in investing?

I tried to Goggle what is this strategy of “business sense investing” is but to no avail. However, when I goggled the website of i3investor, there were numerous hits. Hence, it is a “revolutionary” investing strategy, specifically and first time created by Malaysians, a Holy Grail in investing in the stock market.
Just what this BS is about? Till to-date, I am still wondering what is it exactly about, but feebly.
It appears that the BS propagated is a very simple strategy with a ticket guaranteed to riches following a “Golden Rule” in stock investing; that we must look at the business (but does not describe what, where, which and how) and should invest in a stock if this quarter result is better than the last quarter (or the last corresponding quarter?), and the next quarter must be better than this quarter, and the share price would rise, and continue to rise, and if not, the share price will drop, even if it produces just a quarter or two of bad results.
Nothing is needed to know about the business itself (what an irony?), the past and present financial performance and position of the company, the durability of its business, nor the credibility of the management, and whether the stock is selling expensive.
The propagation of BS was “so successful” that accomplices started to shout for “sailing” and “margin” to invest with the BS, one of the hundreds shouts as below,
Blog: Hot Stock Jaks Resources and Margin Finance: kcchongnz
[Posted by qqq3 > Jul 28, 2018 07:20 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
I once told XXX...my wife invests in Reits...He told me...you mad or what? You mean you accountant cannot invest and get better return than reits and bank interest of 5% p.a. for margin account?
I thought about it.....and XXX makes sense.....
]

Some of the followers even started to ridicule those others using FA and TA in investing.
[stockmanmy has left a new comment on your post "Margin Finance, Ever-Sendai: A real time case study kcchongnz":
sendai from 80 sen to 95 sen now...................
KC lousy timing, lousy business sense and lousy analysis.]


[Posted by Flintstones > Dec 2, 2016 11:54 AM | Report Abuse
But KC indeed has no business sense. Our beloved kc chong extrapolates past earnings into the future without assessing the industry dynamics. That is not a good investor to me.]

Business sense investing in Jaks and Sendai
This BS investing strategy was specially used to promote two particular shares in Bursa in i3investor for the last couple of years; Eversendai and Jaks Resources. Their share prices did go up from about RM1.00 each to the peak of RM1.80 and RM1.40 respectively with the heavy promotion. “Sailang” and “Margin” were also promoted and encouraged to buy those stocks around those prices. Those who voiced out the perils of margin and sailing were told to look at the mirror and examined their track record, and branded as people without ambition, no future, deserved to be poor, bullshit, or even outright as “stupid”.
The BS described for Jaks was it has a huge power plant development in Vietnam that it will show continuous profit growth from the construction activities from every quarter, and then the sale of electricity in the following 25 years. The construction profit is of course is just an accounting exercise where no real cash flows is involved. Hence, this from the beginning, the investment thesis is a long-term investment, for at least 5 years when the power plant is completed and cash flows from sale of electricity later.
Nothing is mentioned about Jaks other business in construction and its property development locally. Nothing is mentioned about how much earnings or cash flows is translated per share in the future. Nothing is mentioned about the management and how good and how caring they are for the minority shareholders. Nothing is described about the various risks involved. The following link describes some of them.
https://klse.i3investor.com/blogs/kcchongnz/123266.jsp
https://klse.i3investor.com/blogs/kcchongnz/167283.jsp
The BS for Sendai described about how much job (over billion Ringgit) that it has, and hundreds of million more they are securing, that it was cock sure that there would be “profit growth” quarter by quarter, despite that it made huge losses the previous year when it also had huge order book then.
Again, nothing is mentioned about what kind meagre margins it obtained, and how precarious its balance sheet and cash flows has been and it is facing now. These were all irrelevant. Investing in Sendai only with future profits as if there was a crystal ball in front, and without any risk.
I have also shared my view on Sendai when it was riding high in the link below,
https://klse.i3investor.com/blogs/kcchongnz/134621.jsp
https://klse.i3investor.com/blogs/kcchongnz/132084.jsp
https://klse.i3investor.com/blogs/kcchongnz/186378.jsp

My sharing on Sendai and Jaks attracted many criticisms, especially from those interested parties. Here were some comments.
[Posted by moneykj > Oct 8, 2017 01:56 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
How many times Kc had written articles about Sendai. Restless tries, what's his intention?
My second round for this counter avrg at 1.08. Tak takut langsung.]
[Posted by abang_misai > Jul 29, 2018 04:18 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif
KC also talks cock lah.]

Does “Business Sense” work for Jaks and Eversendai
In this market environment where the small capitalized stock as represented by the FBM Small Cap Index dropped by 35% year-to-date, few, if any strategy works, whether it is FA, TA or BS. It is a matter how bad the strategy doesn’t work all the time. FA and TA all mostly lose money this year. BS is no exception. There is no “Holy Grail” in investing.
But how bad BS which was especially used for these two stocks of Jaks and Sendai perform?
Table 1 and Table 2 shows the quarterly financial performance of Jaks and Sendai respectively for the past couple of years. Is there any evidence that based on the BS previously, there were continuous “profit growth” quarterly for either of the company based on the initial investment thesis?
I can only see continuous deuteriation of their profit, almost quarter-by-quarter recently. What happened?
How come there is no profit growth every quarter when there is this huge order book in construction of the power plant for Jaks?
Did the management manipulate the account? Why did they do so? Is the management credible doing so to cheat the minority shareholder? Why is this very important management credibility not taken into account in BS?
 

Share price performance
How have been the share price performance of these two stocks in the last one year?
In less than a year, Jaks’ share price has lost a whopping 74% from its peak of RM1.80 to the close of 47.5 sen on 21st December 2018 due to the sell down as shown in Figure 1 below.
Having the business sense in the power plant development and that the knowledge that the gestation period is long, it needs some time for the investment thesis to play out, for at least 5 years, why did investors sold down the stocks if the return would be so great in the near future?
Is the decision to sell off all the shares and made huge losses make business sense?
Figure 1: Share price movement of Jaks

Sendai is no exception. It has lost a huge 58% from its peak of RM1.40 slightly more than a year ago to closed at 58.5 sen on 21st December 2018 as shown in Figure 2 below.
Figure 2: Share price movement of Sendai

How come there was no profit growth with the anticipated huge order book? Does it make business sense buying the shares of such a “fantastic” company above RM1.00 and sold at 50+ sen makes good business sense?
It doesn’t seem to me.

Is Business Sense a Holy Grail in Investing?
Obviously not.
No “profit growth” on Jaks and Sendai was observed for their financial performance in the first place as shown Table 1 and 2 in the Appendix. In fact, in share price movement wise, the example used specially for this BS, Jaks (-74%) and Sendai (-58%), fared much worse than the broader FBM Small Cap Index of -35%.
So, is business sense dead in i3investor?
But how bad is its adversary, the value investing strategy which has been constantly ridiculed by the BS followers?
First and foremost, value investors would not buy those stocks at those prices then. I have in fact written a number of articles about them. If those interested parties, instead of mocking me, paid attention reading them, and analysed objectively, huge amount of money could have been saved.
What would value investors have bought instead? And how bad are their performance compared with the BS strategy?
Again, in this challenging environment, few strategies and investors are spared from attacks and incur losses. That includes those practising FA. But it is certainly much better than this BS strategy. We can talk about it next.

KC Chong
ckc14invest@gmail.com

Appendix





https://klse.i3investor.com/blogs/kcchongnz/188218.jsp
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