Cold Eye Sharing - Part 3

Speaker: Cold Eye.
Date: 16th June 2013

1. The best businesses are not the fanciful businesses, they are merely normal enterprises.
2. Malaysia - banking (Public Bank). If it is managed well, it is a good business.
3. Do not go and find weird things, the big money is in normal business/theories.
4. If you do not listen to Cold Eye, you will go through the same failures he did when he was younger.
5. Why do we buy stocks? If the company does not make profit, Cold Eye will not buy.
6. Whether we like it or not, we have to have a view on the stock market.
7. He believed after the GE 2013, Malaysia's CI will have a new high. 
8. He was asked if he was afraid there would be a market crash after 2013.He answered yes, but maintained that if the share market bust, everyone would be bust too.
9. Nevertheless it is too difficult to avoid an undervalued/discounted stock! Imagine an RM1.00 product sold at 30 sen, it is difficult not to buy!
10. He looks from the macro-economy, and then zooms into the micro-economy.
• Eurozone will not collapse although the problem was created long time ago , as long as it does not go bust, it will be alright. Europe's current problem is not big.
• China's economy is huge. It could withstand an economic slowdown because of its strong and wise leadership and huge market size. The slower growth of China is controlled so that the economy does not overheat.
• Malaysian market - Many fear the GE 13 and its impact on Bursa, therefore sold their holdings prior to the election.
11. He opined that it was wrong for investors to exit the Malaysian market due to GE; unless the economic fundamentals risk being changed with the change of the government.
• Will oil continue to be produced and sold? Yes.So why sell your stocks?
• Will houses continue to be built and sold? Yes.So why sell your stocks?
12. Be brave during market correction/crash. 
13. He is not afraid of a stock market crash. Rather, he is afraid of a negative change in the company's fundamentals. In this scenario, it is difficult to decide whether one should sell or continue to hold on to the stocks.
14. Compare stocks and properties. It is uncommon for the price of properties to drop to 1/3 of its original price, but this can happen in the stock market. Look for stock(gems) in the enterprise.
15. Why are there undervalued stocks in the market? Because, 99 out of 100 investors are lazy and do not do their own research/homework. Most would rather spend their spare time doing unproductive things such as watching TV, rather than doing their homework diligently.
16. A man's lifetime income is easily predictable if he is a salaried employee. However, his lifetime earnings from a correct investment is unlimited , many more times over than his lifetime income. Then, why does a man not invest his time in doing his homework or improve his knowledge??? Why does he think it is not important to look into his investments affairs, but have a "care-less attitude"???
17. I think all of you must have made losses, because those who have made money will not be attending my seminar.
18. I have been investing in stock market for 40 years(since 1974) 
19. Some people wish to earn 200% profits in a year, but he only earns 10% in a year.
20. Please understand that business is difficult to conduct. 
• For example, in property sector: A land needs to be purchased, converted, sub-divided,  developed, then sold, and finally collect the payment for a profit be earned in 5 years' time. 
• Compare this to a banking stock that you might have purchased 3-4 years ago. You would have made several times over.
• Therefore,  a good business needs a lot of patience and perseverance for it to be maintained.
21.  There are really big discounts in the stock market!
22. You should be always asking these questions before buying a stock - 
• Is there business? Is it profitable? 
• If you cannot decide , then ask these 3 important questions: Was it profitable in the past? Is it profitable currently? Will it be profitable in the future? If the first and third question are positive, then you may consider buying it.
23. Always look at business' 5 years' financial statements to evaluate its soundness. If the business still does not make a profit after 5 years, there should be a good reason for your consideration, otherwise, do not buy the stock. 
24. Avoid stocks with low Return on Equity(ROE).
• Example : RM 1 million  equity for 1 million shares. Earnings RM 100K. ROE = 10%.
• However Retained Earnings = 20%. Therefore, ROE is reduced.
• New equity = RM 1 million + RM 2 million = RM 3 million. Earnings is still RM 100K. ROE = 3%. 
• The company is inefficient in turning the equity to a higher return. Management is inefficient.
25. Traditional businesses such as flour manufacturing, hotel management, oil production , food manufacturing perform well because the management is strict.
26. Cold Eye's personal preference: To invest in companies with 20% ROE.
27. Investors in the Western world seldom mention Earning Per Share (EPS) because ROE is more important.
28. Cash flow - How to judge the cash flow of a company?
1. Cash flow : Liquidity is the company's most important factor in determining its survival. Not profit nor loss.
2. Importance of Cash Flow: With a good cash flow management, the company can still perform dividends payouts from its past retained earnings.
29. Investment is a habit. 
1. Only participate (invest) in a business that you understand.
2. A stock is a representation of an asset, its goodwill/brand of a business.
3. The intelligent investor has to have the patience to wait for the business to profit.
30. The most difficult thing for an investor to do is to do nothing! (Think : Teh Hiong Piow)
31. The next difficult thing for an investor to do is to have a contrarion mindset: buy when everyone else is selling.
32. Differentiate what is an opinion and a fact.
33. Sometimes there are news release into the market.
34. Cold Eye's opinion: Blue-chip stocks are fully valued - e.g. Nestle, F&N, BAT, Carlsberg, Dutch Lady. Their P/E Ratios are above 10x. These are very matured businesses that will not increase nor drop tremendously.
• Caution: If the P/E ratios of a certain stock is above 10x, it does not mean that an investor cannot purchase the stock. It only means that the investor should consider its future growth and make a judgement himself. If the stock promises great growth, then P/E ratio of 10x should not be a hindrance.
• Avoid buying fully-valued or overvalued  stocks as there are no longer any opportunities there.
35. The intelligent investor is to purchase second-liner or third-liner companies. Not every penny stock company is a bad investment ; they are cheap only because they are undervalued. Example of good second-liners:
1. Price between RM 2 to RM 5: PPB (linked to Wilmar International - Robert Kuok), Oriental (good assets)
2. Price between RM 1 to RM 2: Canone, Scientex(plastic for packaging, property development), Hartalega(glove manufacturing - cost is lowest, good plans, has good growth prospect), Leong Huat(spare part), QL(normal business), Jobstreet (Lin See Yan held its stocks), Suria(Sabah port), ECS (Msia's biggest IT company,good management, cash-rich, no debt), Multi-Co(cash-rich, although it was involved in a litigation, CAPEX not high), Faber(GLC, RM 300mil cash, can give dividend, many things can be done with the cash in future), FACP, GCB (management is good),Costco, Gtronic(in the past 3 years it has invested in, , it wants to be billion-ringgit company so it has to be a RM3- RM 4 per share-company), Huayang (a successful affordable housing property developer), Prestariang(computer business, University of Malaysia of Computing & Engineering), P&O,Unimech, UOA(a lot of cash in hand, sells building and makes a lot of profit), Maybulk (Robert Kuok's company, cyclical stock for a few years, but currently global shipping supply/delivery is high, trading of ships, during the peak time, the ships were sold very well and made a lot of money)
3. Fitters(construction & property, no debts,the major shareholder has 900mil warrants), Dayang(started from producing plastic for cable, currently it is an O&G company), L&G(Sri Damansara land to be turned in condominiums, cash-rich company, can go up to RM 1.40)
4. E&O,Harrison, Perisai, PowerRoot, OldTown (Bad food, but the sale of their white coffee is fantastic,good prospect), MyEG(very good stock), SP Setia, MKH(good stock),TDM, PJD(good stock but slow growth, very conservative),Guocoland(good company,need to wait for the price to go down), Inari(good company), DDM( good company, good prospects), Keck Seng(good stock), FAC
36. Do not buy these stocks :
1. Astro  (growth prospect isn't great in the next 2-3 years),
2. Perwaja
3. KESM
4. Glomac (Average company- don't buy)
5. AEON (Great company but too expensive)
6. Axiata (Good company but expensive, but didn't divide the dividend)
7. CSL (Chinese company, don't buy)
8. DKSH (fully valued, don't buy)
37. Oil and Gas business is a cyclical business. The long-term growth is good, but in the short term it is not a buy call yet. Buy once all the bad news have been factored into the prices.
38. Dutaland - no comment.
39. General Election results - anyone becoming the government is the same.