Tea with Solace: A review of Saturday with Victor Chng.

This is a guest blog by Solace who spent last Saturday morning attending a talk by Victor Chng and friends.

Review on "Level Up Your Investment Profits"

I first knew about Victor Chng and Rusmin Ang when I came across the book "Value Investing in Growth Companies". I was impressed with their results in many of the local stocks and how they used scuttlebutt effectively.

They are in similar age group as me and when I know that they are hosting a talk at SPH on a Saturday morning which is near my house, I did not want to miss the opportunity to hear them speak. Solace is always curious to know how some people in his age group can be so good in investing. We must always case study successful investors, see what they have in common and model their techniques to suit our own style.

One recurrent advice that Victor gave was to invest within our "circle of competence". This is something that all investors have heard of but very seldom practiced. Their approach is primarily based on fundamental analysis. It involves lots of research and hard work. It does not involve looking at numbers in the annual reports alone but also encompasses looking at business model, industry macro factors, quality of management and finally valuation. It formed a nice little frame work.

 

Number	Business
Valuation	Management

My Personal Opinion:
If a person does not have sufficient knowledge in the four factors, one cannot say he is investing within his "circle of competence".

The speakers went on to spend some time explaining about common valuation methods, identifying good management, picking up important numbers in annual reports etc. I shall not go into details and bore everybody. I presume most readers of AK’s blog already have some kind of knowledge of investing.

For people who want to know more, just pick up any Pat Dorsey, Peter Lynch or Warren Buffett books to read. Ask AK for recommendations. (AK says: Food for thought found in the right sidebar.)

Victor also spoke about the differences between a good company and a fair company. Even if it is a fair company, we can still profit from it if we buy undervalued. He then went on to explain about distressed industry, where we can actually profit by buying into fundamentally strong company when the price has hit rock bottom. "Fallen Angels" was also mentioned; we need to able to deduce if it is a temporary setback or a permanent decline.

My Personal opinion:
There is a fine line between fallen angels that are value stocks and those that are headed straight towards bankruptcy. Needs experience and good judgment.

Several case studies were shared. Many are stocks that the speakers have invested in before. One of them is LMA international and why it has a unique economic moat. Cerebos, the company behind Brands and how it was so profitable. The comparison between Hanwell Holding (Product: Beautex Tissue) and NTPM (Product: Premier Tissue). A look at the financial numbers would tell us a lot why one is superior to the other.

There was a question from an audience which I thought was excellent. Cerebos, the company behind Brands can potentially be hard hit by a massive outbreak of birds’ flu or a change in consumer preferences, leading to a worse case scenario where no one wants to drink chicken essence any more.

My Personal opinion:
This is a very valid concern and highlights the importance of safety margins in investing, even for stocks which seems invincible. Anyway, Cerebos has already delisted from the Singapore Stock Exchange.

Finally, Victor touched on one sector of the industry which is in distress. The Baltic Dry Index (BDI) has fallen to records low in recent times and value can potentially be found in the Dry Bulk Shipping Sector. Weaker players are out of the game and the search is on for companies with competitive advantages can lead the recovery which may be taking place.

As strong iron ore demand from China drives up price of ship charters, the worst could be over for the shipping sector. Using the framework that Victor has explained, he has identified 2 companies in the region that appeal to him,

This is a cyclical industry which has gone through multiple boom and bust cycles before and this time is no different. Some of the big names and billionaire are believed to have already invested in this sector. Based on the information provided, retail investors can potentially ride on recovery in this sector by carefully investing in fundamentally good stocks in the sector.

My personal Opinion:
I generally agree with the findings of the speaker on this sector. I am monitoring it myself. But as a prudent investor, we should still do our homework to verify the facts and macro industry situation before leaping in. As mentioned before, always invest in your "circle of competence" and with a margin of safety.

Victor will be organizing a roundtable discussion forum where he will be sharing his findings of the sectors in details. He will also show how the methods could be replicated to find opportunities elsewhere. If you are interested to learn more, you can contact Victor and friends for more details on the discussion forum.  Email: Contact@fifthperson.com

Conclusion
I agree with the investing methods that the speakers have touched on. Many successful investors succeed based on hard work, fact finding and many hours of learning and research. I always believe that is no short cut to riches in investing. I believe the investment methods shared by Victor and Rusmin are very relevant and should be studied carefully.

Finally, I just want to add, if one comes across marketing gimmicks that promise instant riches and instant success by attending courses which charge ridiculous prices in the thousands of dollars, one should open one's eyes to see clearly and think carefully. At that kind of prices, one might actually get better value for money by investing in an ETF or reading some good investment books.

Related posts:
1. Saturday morning with Victor Chng: Level up!
2. Saturday with Victor Chng: Becoming a better investor.