How to pick stock (Part 17)

Rule #2: Buy a stock that worth to be hold for long term

Based on the passed 3-4 years investment experience, there is about minority of stocks which is worth to be hold for long term given the several reasons:

1) The company is currently in the growing stage 

The company is actually in the growing industry where the peers are actually also enjoying the benefit of growth. The profit margin is increasing, and they achieve a better asset turnover give n the increase of revenue over the asset that they employed. 

2) The company has a good management

The company has a good management where they do some homeworks on: 

- Research & Developement => innovation and creativity is a competitive advantage over a smaller size company where they cannot achieve the economy of scale as compared with other bigger size company. What they did was actually very simple, to engage with the research and development activities, such as to create a new product / services so that they can enjoy the growth in another new area, or they can actually go and do some researches on how to reduce the man cost on the business process, such as to streamline the business process by reducing the unneccesary recurring costs. 

3) The company is in a good industry

- The company is in a good (meaning is in a sustainable growth) industry. The industry analysis that we normally do is to try to find out a less competitor environment. For example, there are only three main telco players in both Malaysia and Singapore countries. What the peers can do were to actually concentrate on keeping the existing cutomers. This is a less competitive environment, where they normally can achieve a higher profit margin. The more higher margin a company has, the more the company can survive during the downside of the eonomy circle.

To be continued...

How to pick stock (part 16)

Rules that I set

Summary of the rules that I set here is:

1. Never buy a company that you never know.

No matter how good you listen from your friends or other people. From the lesson that I learned from the past, the more you understand the company you invest, the more you are confident to hold a large portion on it.

The first and second stock that I invested was based on the other's recommendation, the result was bad. I do not know what really the

There is a way to understand your business. We can follow the porter five rules. Actually if we think about the Ecosystem, there is a value chain from top until the bottom. The more value added to the customer, the more profit margin we can capture from the business.

Take for example, for the retail product such as macdonald, coca cola, those are the number one of the industry, they enjoy the bargain power to their customer and supplier. In this industry where they actually stand a chance to work for it. Some example like medical machine, high end machine etc. They have some sustainable competitve advantage to stay alive with the current Eco system.

I did invest in one company - psci, where it is the only company who has the monopoly on the ship building. Its balance sheet has a very high intangible asset, which derived from the contract given by the government. However, with the lousy management and lack of the latest technology, this company delayed the ship deliverment.

Based on my experience, the company with more than 10% and above net profit margin, they have some bargain power over their client or supplier. If one company which profit margin is higher than its peers, meaning its strategy of being differentation works.

I can give you a lot of example of high profit margin company, they might have some strengh on its currey business, but if you really talk about the future, you might also think of the reseach and development of the products as well as how efficient of the company which can streamline the current business process.

Sometime, when we talk about the business, we should always make ourself be very clear or stable before we start venturing to another new market which provides potential higher return compared with the current business.

The staffs must follow the rules set by the company. Without smart person intervention, we can act accordingly to the rules.

To be continued...

How to pick stock ( part 15 )

Plenitude

I bought plenitude two years ago and hold it for less than a year. The reason why I would buy it is because of the low pe and low price to book value ratio. This gave me a very good margin of safety when I purchased it.

The reason I purchased was because of its venture in iskandar region. I foresee it can provide a very good return with the limited risk involved- bankruptcy is not possible as it was cash cow company.

The reason I sold was because I wanted to pick the best stock in property market, which was mah sing for me for that point of time.

Lesson learned:
1. I knew that with limited resource, I should concentrate on less stock instead of diversifying the stock.
2. I knew that a good investment must consists of two factor:
- good buy price
- good sell price / grow power along holding it.

How to pick stock (part 14）

OYL

I bought oyl was because of its roe. The pe was moderate and I could only buy one hundred unit at that point of time.

Oyl was not a good investment for me even though it was a good stock later on privatized by daikin, japan second largest air cond company.

Lesson learned:

1. We must be patient to wait for the price to rise until the intrinsic value.
2. We must be study in depth before we made a major decision on the investment.
3. We must always be alert with the company which public share is low. It could be bought over by another company.

How to pick stock (part 13)

YTL

YTL was the first company I invested based on two reasons: good mgmt and good cash flow mgmt. This gave me a lot of experience on dealing with this kind of investment.

I was saying YTL was my long term holding company, I really not much about the stock price, in stead, I would buy it when it dropped below my purchased price - 5.20 on year 2006.

Let me explain how to determine how the good mgmt was and how the dividend policy changed the other's opinion on it.

I started to search for blue chip stock after I failed on small cap stock, in other word, I tried to be balance by set aside some portion into blue chip stock against small cap stock, history proved me half correct and half wrong.

Due to the long working hour, I can't really be a trader, hence I am more towards long term investor. By doing some asset allocation (at that point of time, I was about 30k to 40k, hence I was able to put a little bit percentage on it. After a while, ytl issued ytlpowr, and I started accumulate ytlpowr by execute the right to purchase on the cost of about rm1 per share.

Ok, back to the point. I picked ytl is because it has a proven track, and it had some problem on that time. The pe was less than 10, which for me was considered as low. It has some good cash flow generating asset, such as utility - electricity and water, cement, infrastructure construction, and so on.

The ambition of ytl boss was to keep 20% grow in trm of asset base each year until year 2020.

The corporate finance was done very excellent by the company. They always borrow at low rate and invest in low risk asset to get better return.

Actually during this period, I had passed cfa level 1, hence I would be more familiar with the finance term that I learnt from it.

So, with this two reasons, I strongly believe ytl can perform even better during the bottom of the economy circle.