Author:kcchongnz | Publish date: Wed, 23 Dec 2015, 08:29 PM
In the previous article in the link appended below, I have written on the principles of Dr. Neoh Soon Kean, one of the pioneers in fundamental investing in the stock market of Singapore and Malaysia. http://klse.i3investor.com/blogs/kcchongnz/88424.jsp
In this article, I would like to discuss on the principles of another more well-known super investor, ColdEye.
Fong Siling 冯时能 (冷眼) requires no introduction here as he is very well-known in the investing circle. He has worked as a journalist for many years before involving in investing in the share market. His initial investing experience was not good as he had been losing money following other discipline of investing before using the fundamental approach, according what he has written in his book, 冷眼分享集.
He has written a number of books with many fundamental investing principles. I have provided the above eBook and made it a point for my course participants who understand Mandarin to read his book. There are many good philosophies and principles 心得 which investors should enumerate. Here, I am just sharing a few of them with you.
Principles of ColdEye 冷眼心得
ColdEye reverberates the basic principle of Benjamin Graham that Individual investors must have the mind set of investing, rather than speculating. Investing in a stock should be viewed as investing in a part business, and this should be the “right path” to follow. He said,
The first thing an individual investor should learn is not how to make profit, but how not to lose money. Using the “right path” of investing.
Although you may not yield fantastic results from the “right path” of investing, at least it won’t make you bankrupt, causing the livelihood of your family in deep hot soup, but lead you to a more care-free life.
On the other hand, speculating is the “left path”, the opposite of the “right path”.
Speculating on and guessing share prices movement is difficult. It is like trying to catch a slippery eel. He admitted that he can’t do it right most of the time, and he believes nobody can.
In order to follow the “right path”, one must do homework, and by doing your own homework, it is more likely you can produce good investing results.
What kind of homework? In this respect, ColdEye has a few articles on these as below.
The homework includes company announcements, quarterly and annually financial reports, income statements, balance sheet and cash flows statements, and annual reports. These are the most basic and most important information about a listed company.
If you investing in a company, do not tell me you have no time to do this homework which is important for the outcome of your investment.
ColdEye has also have cited the importance of investing for the long-term to build wealth. He has given examples of investing in a few stocks; Maybank, Public Bank, Hong Leong Credit, OYL and Oriental Holding; and if an investor has held them for 30 years, RM10000 would have become RM1 million.
Why are most investors so impatient to invest for long-term? A business will generally take a few years to bear fruits, a house needs 3 years to complete, why can’t an investor invest in a share and wait for 3 years, or 5 years?
ColdEye, like those super investors in the US which I have discussed in my link below, also discourages the use of borrowed money to invest, because interest payment of the loan is fixed, but income from the investment is unpredictable. http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
The Five Investing Metrics of ColdEye
In one of his presentations given to the public on 16th March 2013, ColdEye listed his investing strategy using 5 metrics that investors should look out for before he invests in that stock:
1. Return on equity, ROE,
2. Cash flows
3. PE ratio
4. Dividend yield and
5. Net tangible asset backing per share, NTA
If you have some basic knowledge in analysing and interpretation of financial statements, these metrics are simple metrics which can be easily extracted from the financial reports.
The strategy suggests to invest in good companies as presented by its high return on equity and good cash flows. These two metrics are also propagated by the super investors in the US as shown in the link below: http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
The later three metrics measured the price versus value of the companies to invest in. Good companies may not be good investments if the price is not right.
The price-to-earnings ratio, or PE, measure how cheap or expensive a share is selling with respect to its earnings.it is the most common metric used in the investing circles everywhere in the world.
Dividends are tangible cash flows returning to shareholders and important to the overall returns. Besides, it gives a positive signal if a company distribute consistent increasing dividends. http://klse.i3investor.com/blogs/kcchongnz/85100.jsp
Obviously a higher dividend yield is a better investment. If a company consistently and has the capability to give dividend with a yield of higher than the fixed deposit, it will be a no-brainer investment to me.
The ColdEye investment strategy is reinforced further if the company has good quality net tangible assets, compared to its price.
In this article below, I have attempted to explain each of the metrics mentioned above. http://klse.i3investor.com/blogs/kcchongnz/75946.jsp
We can see that the 5 metrics of investing of ColdEye cover almost every aspects of sound investing; good companies with the right measurements are found, and selling cheap in every angle. How intuitive is it!
Below I will use some experience of mine using the investment strategy of ColdEye.
Return of stocks using the ColdEye 5 yardsticks
I first posted an article in i3investor regarding the ColdEye 5 metrics of investing after his presentation in a public forum in the link below:
After my above post was published in i3investors, it received good response and constructive comments from many forumers. Many of them asked me about if their stocks meet the Cold Eye 5 yardsticks. These are all well documented in this thread in i3investor below.
Table 1 in the Appendix shows 9 stocks met the criteria above and were chosen as good investing candidates at about the time on 17th March 2013 basing on the 5 metrics. The return of these stocks were compared to the broad KLCI after two years and nine months as at to date.
As on 23rd December 2015, the average total return of the 9 stocks chosen is 281% in about two years and nine months, with the median return of 61.3%. This return way out-performed the total return of 8.5% of KLCI over the same period.
There are only two stocks, MBL and APM, making negative return, but with relatively small negative return of about 10%. These are also the only under-performers, or 78% of them over-performed the market.
A number of stocks over-performed the market by wide margins. Latitude returned 883%, Prolexus 786%, Liihen 652%, Willow 121% and ECS ICT 61.3%.
The characteristics of the return of this portfolio basing on the ColdEye investing strategy are summarized as below:
Most stocks, seven out of nine, or 78% outperformed the broad index.
Those stocks which outperformed the broad index outperformed it by a very wide margins; three digit returns against 8.5%.
The underperformers underperformed marginally against the market; maximum underperformance is 20%.
The average total return outperformed the broad KLCI index by very wide margin; 281% Vs 8.5%. Similarly, the Median return of the portfolio of 61.3% also way above the return of the broad market.
ColdEye, through his writing shares with us his valuable fundamental investing principles and strategies. The ColdEye 5 metrics in investing appears to be an attractive investing strategy which can provide potential high return with limited downside. The metrics are easy to use and can be quite easily extracted from the three basic financial statements.
For those who are keen to learn about fundamental value investing so that he can do your own homework when investing for long-term wealth building as suggested by ColdEye can contact me for an online investment course for a small fee at