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,
“正道”就是从商业的角度，依据基本面进行投资。
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.
股票投资者，最先要学的，不是怎样赚钱，而是怎样不亏本
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.
循正道投资，也许收获不如你预想的那麽大，但最低限度不会使你倾家荡产，使你的家人的生
活陷入水深火热之中，使你的人生之路走得更自在。
On the other hand, speculating is the “left path”, the opposite of the “right path”.
“左道”就是在股市投机。
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.
猜股市如抓黄鳝
我确实不知道明天，下个月或明年股市会怎样，我也不认为有谁有这样的本领。
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.
勤做功课必有收获
What kind of homework? In this respect, ColdEye has a few articles on these as below.
数字数字我爱你！
账里乾坤知多少？
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.
勤做功课，就是勤於阅读资料，而最重要的资料，就是公司发表的文告，每季财报和常年报告
书。这些文告、季报和年报，是研究上市公司的最基本和最重要的素材.
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.
不要说“没有时间”
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?
为什么不能等三年？
股票投资，是许许多多投资管道之一，为什么投资者不能接受以上的两项事实。做事业，你可
以等三、五年，股票投资为什么不能等三、五年？
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
不过，切忌借钱买股票，理由是利息是固定的，收入却难以预测，故借不得。
The Five Investing Metrics of ColdEye
In one of his presentations given to the public on 16
th 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:
http://klse.i3investor.com/servlets/forum/900214344.jsp
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.
http://klse.i3investor.com/servlets/pfs/19817.jsp
Table 1 in the Appendix shows 9 stocks met the criteria above and were chosen as good investing candidates at about the time on 17
th 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 23
rd 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.
Conclusions
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
ckc13invest@gmail.com
Remember what ColdEye said not to use the excuse of not having time to learn and do your homework if you want to have good outcome in your investment.
With that I wish everyone Merry Christmas and Happy New Year
