Saturday, August 25, 2018

Business Valuation

What is Business Valuation and How do i value the business that i am holding?

The fluctuation of my portfolio value from one month to the other has been forcing me to think hard and thoroughly about my valuation method in valuing businesses.

Sunningdale's share price had reached its peak of about $2.40 per share a few months ago and has dropped down to $1.40 per share as per current price (my paper profit has also dropped down by $60k).

AEM'share price had reached its peak of about $1.90 per share a few months ago and has dropped down to $0.83 per share as per current price (my paper profit has also dropped down by $50k).

Have i been wrong in valuing the businesses i am holding so that i have missed out the opportunity to take profit earlier? 

Have my portfolio management and allocation been wrong so that i have less cash to add more to those businesses that their shares price have been hit down tremendously while the business fundamental remains strong?

Have i selected the wrong businesses which are not suitable to my personality and i do not understand them?

Have i been not knowing enough that i do not know a lot of thing about the businesses i am investing in so i have failed to act correctly?

Is my current strategy correct and i just need to make some adjustments to it?

These questions have been running around in my head for minutes....hours.....
days.....nights.....weeks.....months..........still .....I do not have the answer yet.

I am still searching......trying to fix the puzzles.............

I think only time will be able to tell. 

Investing is a journey, it is a process. 

Investing is Not a destination. 

I have to keep thinking, improving my investment system with on-going experiences in many business cycles.

In this post, I will only talk about Business Valuation which is related to my First Question above.

Have i been wrong in valuing the business i am holding so that i have missed out the opportunity to take profit earlier? 

Recently i read an article about the Interview between Forbes with Prof Aswath Damodaran about business valuation. 

The link of the article is here:

Below are few important points i have noted them down:

What is Valuation?

1. Digging through a business,

2. Understand the business,

3. Understand its cash flow,

4. Growth,

5. Risk.

And try to attach a number to the business.

Risk is a very important part in valuing a business.

In today's market, we have to think the Risk of:

1. Risk premium of the market we are in,

2. Risk premium of the rest of the world,

3. Risk currencies and how we use them in valuation,

4. Risk in business life cycle which has shortened in today market, e.g. Yahoo has started from a small startup to a successful company and to no company in 25 years.

In investing:

(1) Philosophy is more important than technique,

(2) Self introspection,

(3) Build our own investment philosophy,

(4) Think through what we think about the market,

(5) Try to figure out why companies are doing what they are doing rather than what other people think about companies or what other people think about investing.

To always keep our eyes on economic growth, as long as the economic growth is solid and able to backup the valuation of US or market equities, the valuation is still ok.

I also have signed up Investment Quadrant with TheFifthPerson recently, and i noted them down a few Valuation Models from TheFifthPerson:

(1) Fast Grower (Unstable Cash Flow): PEG (PE to Growth rate)

(2) Predictable Earnings: PE

(3) Asset Heavy: PB (Price to Book)

(4) Cyclical Industry: Price to Sales

(5) Predictable Cash Flow: Discounted Cash Flow

(6) Earnings Distorted by Depreciation/Amortization: Price to Cash Flow

To be continued..............................................................

Wednesday, July 25, 2018

My Investment System Reflection - 2

What kind of Selling Strategy should i implement in my BSPA?

Before buying into a company, i should do my homework to read the company's quarterly & Annual reports to derive my Intrinsic Value of the company for 4 years ahead.

How do i do that?

(1) I am buying this company for it falls into which category of my Investing?
1. Value Growth?
2. Deep Value?
3. Dividend?

(2) Which industry does this company falls into?
1. Food & Beverages?
2. Consumer Products?
3. Manufacturing?
4. Semi-conductor?
5. Information Technology?
6. etc

(3) What is the industrial PE for the past 10 years?

(4) What is the average PE for her peers?

(5) How is the historical Revenue and the projected growth going 3 - 4 years forward?

(6) How is the historical Profit and Profit Margin and the projected growth going 3 - 4 years forward?

(7) How is the historical Cash Flow and the projected growth going 3 - 4 years forward?

(8) How is the historical Dividend yield and how many % of the Net Profit be converted into dividend and growth, and the projected growth going 3 - 4 years forward?

(9) What is historical ROE for the past 5 years and the projected ROE growth going 3 -4 years forward?

(10) What is the intrinsic value of the company going 3 -4 years forward? 

One of the way to calculate the intrinsic value is to use Buffet Intrinsic Calculator from:

(11) At how many % discounted Intrinsic Value should i divest my shares?

(12) Divest partially or fully?

(13) Different category of Investing will have different Assessment of Selling Strategy.

(14) Will i buy back the share once divested?

(15) Will i average down when it drops to certain %?

(16) How many will i average down and how much cash i am holding?

Monday, July 23, 2018

My Investment System Reflection - 1

My portfolio value had reached its peak at about $530k mid of April and fell all the way down to about $380k mid of June. It was just 2 months away, my portfolio value had been up and down in 30% variation.

This tells that investing in stock market will never be easy. It involves human emotion: greed, fearful, daring, worry, eagerness, willing and unwilling, and all macro issues around us.

As for me, i am doing my best to create a System for my Investment - will call it BSPA.
A system that is able to work well and make me sleep well at anytime in the market: bull or bear.

How does BSPA work?

BSPA stands for Buying Selling Portfolio Allocation.

These 3 things are very important in order to create and maintain a Sustainable Portfolio.
I just want to focus on BSPA - the things i can control.

(1) Buying Strategy:

I should allocate a specified percentage of my portfolio to every counter. 

Case Study (example):
I am 35 years old and holding 500k in cash.
I wish to buy Tat Seng Packaging as it meets my Buying Criteria from the System.
(1) List down all the criteria in buying Tat Seng
(2) Set an intrinsic value for Tat Seng: e.g $1.20 per share.
(3) Will allocate 10% of my cash into this company.
(4) First time i will buy 50% of my allocation: (50% X $50,000 = $25,000 ) = 31,500 shares at $0.80 per share.
(5) If the share price continues to go up to $1.00 - do nothing.
(6) If the share price falls about 10% ($0.72) from my initial cost, i will add 10% of my remaining (10% X $25,000 = $2,500 ) = 3,500 shares at $0.72 per share.
(7) If the share price falls another 20% ($0.56), will add another 40%: (40% X $22,500 = $9,000)  = 16,000 shares at $0.56 per share.
(8) If the share price falls another 20% ($0.40), will add another 40% : (40% X 13,500 = $5,400) = 13,500 shares at $0.40 per share.
(9) If the share price falls another 20% ($0.24), will add all the remaining amount ($8,100) = 33,750 shares at $0.24 per share.

(2) Selling Strategy:
Before buying the company, i should set a target selling price based on the last FY reports, quarterly reports to derive:

(1) I am buying for which category? ValueGrowth? Deep Value? or Dividend?
(2) Intrinsic Value of company based on all the numbers including dividend.
(3) Maybe i am more comfortable with intrinsic value of 4 years going forward.
(4) PE, Sales Growth, ROE, Free Cash Flow, and Dividend are major components in deciding when to sell.
(5) How should i partially/fully divest the shares? --- will cover more on this in my next post.

(3) Portfolio Allocation:
1. How many % of portfolio in every company?
2. How many % of cash to deploy at 1st time buying?
3. How many % of cash to deploy to average down? 
4. How many % of cash during bull market? when the valuation of my companies reach high market value? - cash holding should be high here.
5. How many % of cash during bear market? when the valuation of my companies are undervalued? - cash holding should be low here.

My Sytem Modification 1

1. Investing is a PROCESS, a Journey and it is NOT a destination.

2. NEVER add/average UP a company with ROE lower than 15% (low ROE)!

3. Do NOT let GREED taking over our calculation based on data.

Buying a Company:

The 1st thesis of investment:

(1) Value Growth? - good balance sheet, good business model, good management, ROE > 15%

(2) Deep Value? - good balance sheet, good management, stability of business/revenue, ROE < 10%.

(3) Asset Value? - good balance sheet with undervalued price to asset value.

(4) Dividend? - good balance sheet, good business model, good management, ROE is very low .

When the share price has been up tremendously, i should periodically check back with my 1st thesis in purchasing this company:

(1) Am i buying for value growth? deep value? asset value? (this is not my criteria) or dividend?

(2) When i invest for value growth, i should hold longer term.

(3) When investing for deep value, should tabulate the numbers in terms of ROE in a systematic model year by year based on the past 5 years to derive the historical ROE, comparing the PE with historical PE in the industry, and its peers' PE.

(4) I should always set a target price every year after financial reports are out.

Friday, July 20, 2018

Portfolio Value as per July 2018

No of Shares
Market Price
per Share
Total Value
3Best World50,000$1.310$65,500.00
Tat Seng



(1) Bought back Chasen after some considerations.

(2) I have been doing some self reflection for these past few weeks to restructure my strategy again. My buying - selling - buying Chasen acts have not been really pleasing to my Investment Strategy.

- Reading "Rich Dad's Prophecy - Why The Biggest Stock Market Crash In History Is Still Coming" by Robert Kiyosaki.

- Listening to Webinar of TheFifthPerson.

(3) Going forward i really need to improve the following areas:

1. Portfolio Management - portfolio allocation (including % in certain sector, cash portion).

2. How to value a company and to divest partially when the business is in discounted valuation (maybe 80% from my target valuation?)

3. To read more in detail of company Annual Report.

4. To explore more in my analysis, found out from TheFifthPerson's webinar to use to know more on the peers comparison, etc.