Fonics was my bad investment.
I bought since late 2005. I was fooled by the annual report written by the management. Their business relies on four main categories, but the biggest categories only gave a very low margin, reason being was it bargain power against customer was low.
Lesson learned
- don't invest in just listed company. Risk was too high.
- when you see the profit margin was dropping, most probably is caused by inefficiency of the company or caused by the tighter competition in that industry.
- when you see asset turnover is getting lower, it can be because of the company just started to invest more and revenue can't catch the apes or because of current business model cannot handle the current situation. Management need to do something
- when bargain power against customer was low, this became a bad thing for us, this was because what I wanted to invest in was the good company with good business prospect and good management. This was the only company that I wanted to hold for long term.
Wednesday, November 26, 2008
Tuesday, November 25, 2008
How to pick stock (part 11)
The second good investment I made successfully was mah sing. I was using cagr indicator and pe and roe to find out this stock.
First of all, it started to change its business model from developing middle end to become developing middle end to high end. I belive its investment strategy was quite good, means it was demand driven business.
With limited land bank and high asset turnover strategy, it started different strategy with other developer. Because of that now it become top 5 developer in malaysia in term of revenue.
Mah sing always develope the land with higher speed. Because of this, it can avoid the current hyper inflation on the construction cost by lock in the price.
Mah sing has a good management. And I believe with bigger shareholder based few years later, it can attract more institutional investors and obtain better credit rating, so that it can get a lowe interest rate loan.
First of all, it started to change its business model from developing middle end to become developing middle end to high end. I belive its investment strategy was quite good, means it was demand driven business.
With limited land bank and high asset turnover strategy, it started different strategy with other developer. Because of that now it become top 5 developer in malaysia in term of revenue.
Mah sing always develope the land with higher speed. Because of this, it can avoid the current hyper inflation on the construction cost by lock in the price.
Mah sing has a good management. And I believe with bigger shareholder based few years later, it can attract more institutional investors and obtain better credit rating, so that it can get a lowe interest rate loan.
Monday, November 24, 2008
How to pick stock (part 10)
The first time that I made a very good return on imvestmet was when I started learning investment on year 2005. With the small amount (few thousand), I started not to diversify my portfolio but focus only on less than three stocks at the same time.
I started to use roe, pe, cagr to find out the business that I thought was in high grow trend (actually this is so called momentum investing), and I did some sort of so called statistic analysis, I found out that if we could buy a company in growing stage and with low pe, we could actually earn money in bull market.
Since then, I filtered out with my searching criteria, and I had some lists. I tried to do some asset allocation.
On year 2005, with harimau's introduction, I bought topglove at very high price, which was rm5.00. Anyway, at that point of time, I didn't realized what the risk was. Fortunately, I sold it at higher price, at that point of time, the pe reaches more than pe, which I thought was a little bit crazy.
Why I chooses topglove at that time?
- the management wanted to be the top glove maker
- it started to expand the business to down stream, which means it can control the cost by itself.
- the big player in the market is getting lesser, it gives topglove bargain power to control the selling price
- it has a better efficiency system compared with other players.
Why I sold out?
I change target to mah sing, which was considered low pe, high grow.
I never regret on this investment because it teached me that a good investment not only because of the business itself, but also the price that I bought.
Always remember - price is what you pay, value is what you get.
I started to use roe, pe, cagr to find out the business that I thought was in high grow trend (actually this is so called momentum investing), and I did some sort of so called statistic analysis, I found out that if we could buy a company in growing stage and with low pe, we could actually earn money in bull market.
Since then, I filtered out with my searching criteria, and I had some lists. I tried to do some asset allocation.
On year 2005, with harimau's introduction, I bought topglove at very high price, which was rm5.00. Anyway, at that point of time, I didn't realized what the risk was. Fortunately, I sold it at higher price, at that point of time, the pe reaches more than pe, which I thought was a little bit crazy.
Why I chooses topglove at that time?
- the management wanted to be the top glove maker
- it started to expand the business to down stream, which means it can control the cost by itself.
- the big player in the market is getting lesser, it gives topglove bargain power to control the selling price
- it has a better efficiency system compared with other players.
Why I sold out?
I change target to mah sing, which was considered low pe, high grow.
I never regret on this investment because it teached me that a good investment not only because of the business itself, but also the price that I bought.
Always remember - price is what you pay, value is what you get.
Thursday, November 20, 2008
How to pick stock （part 9)
ROE in detail
Why i want to have a blog to concentrate on roe is because roe means how efficient on the management manage to earn more money with the capital given. It is a guideline for some investors including me to pick the stocks when I was start leaning.
Ok, now let me explain a little bit details on ROE. It is the combination of 3 elements
1. Net profit margin (net income / revenue)
It is a way to measure what is the bargain power or monopoly power for that company to sell a product in higher profit margin. In other word it could also due to the cost control by the company.
The trend on profit margin can tell us in which stage the products/services sold by the company. If the trend is going higher then we are to tell that the company is getting better in term of the business. Some reasons: economy of scales, cost control, bargain power.
So this is actually a very important factor for me when I choose a company. I would like to have a higher profit margin stock given the similar financial situation or same book size.
2. Asset turnover (revenue / asset )
Asset turnover is a tool to measure how efficient is the company to generate the revenue given the current asset. Normally this kind of company (higher asset turnover) would be a net cash flow company because they don't need a too big asset base to generate the business. This is second factor which I myself would like to focus on.
3. Equity multiplier( asset / equity)
This is leverage ratio, means how aggresive the company is to provide the asset for company to generate the revenue, and hence get get the profit from there.
I always think that this ratio should be between 0 to 0.50 in order to get a better credit rating as well as the business control, it doesn't mean that a bigger market cap company but how special is the company to aim a correct target and beat the rest competitors.
To be continued...
Why i want to have a blog to concentrate on roe is because roe means how efficient on the management manage to earn more money with the capital given. It is a guideline for some investors including me to pick the stocks when I was start leaning.
Ok, now let me explain a little bit details on ROE. It is the combination of 3 elements
1. Net profit margin (net income / revenue)
It is a way to measure what is the bargain power or monopoly power for that company to sell a product in higher profit margin. In other word it could also due to the cost control by the company.
The trend on profit margin can tell us in which stage the products/services sold by the company. If the trend is going higher then we are to tell that the company is getting better in term of the business. Some reasons: economy of scales, cost control, bargain power.
So this is actually a very important factor for me when I choose a company. I would like to have a higher profit margin stock given the similar financial situation or same book size.
2. Asset turnover (revenue / asset )
Asset turnover is a tool to measure how efficient is the company to generate the revenue given the current asset. Normally this kind of company (higher asset turnover) would be a net cash flow company because they don't need a too big asset base to generate the business. This is second factor which I myself would like to focus on.
3. Equity multiplier( asset / equity)
This is leverage ratio, means how aggresive the company is to provide the asset for company to generate the revenue, and hence get get the profit from there.
I always think that this ratio should be between 0 to 0.50 in order to get a better credit rating as well as the business control, it doesn't mean that a bigger market cap company but how special is the company to aim a correct target and beat the rest competitors.
To be continued...
How to pick stock (part 8)
Cash flow statement
Cash flow statement is increasinly important when you come to do the analysis. Basically it is divided by three elements,
CFO - operating cash flow
CFI - investing cash flow
CFF - financial cash flow
Of course, with these three elements, we are able to tell which stages is the company now. For a company which CFO minus CFI equal positive means that it has a very strong cash flow to support it, and it has some certain competetive advantage so that other competitor cannot overtake it.
With the positive cash flow, the management can decide whether to invest in bigger project or return back the excess cash to the shareholders.
So far from what I observe, cash flow statement is the most accurate part in the financial statement. I would strongly recommend you to focus more on this part.
Cash flow statement is increasinly important when you come to do the analysis. Basically it is divided by three elements,
CFO - operating cash flow
CFI - investing cash flow
CFF - financial cash flow
Of course, with these three elements, we are able to tell which stages is the company now. For a company which CFO minus CFI equal positive means that it has a very strong cash flow to support it, and it has some certain competetive advantage so that other competitor cannot overtake it.
With the positive cash flow, the management can decide whether to invest in bigger project or return back the excess cash to the shareholders.
So far from what I observe, cash flow statement is the most accurate part in the financial statement. I would strongly recommend you to focus more on this part.
Subscribe to:
Posts (Atom)
Posts
