Over the weekend (19-20 January 2019), I attended Value Investing Summit (VIS) in Kuala Lumpur with my investor friends. This is my second time attending VIS (do check out my last year’s post here, if you haven’t), albeit on a sponsored media pass this time and at a place that required much travelling (I am based in Singapore).
This year’s learnings are more about simple time-old wisdom, but these are the ones that are true wisdom that stand the time, and I will be sharing just the key lessons here.
The summary is that:
- figure our your investment philosophy and strategy, and have a good process (which I think most should have done so, if you have been investing and learning seriously for a few years); and
- more importantly, execute that strategy and process with DISCIPLINE, ROBUSTNESS (don’t slack and ignore things that you know you should be thinking or finding out, but don’t due to indolence), a RATIONAL MIND and PATIENCE, bearing in mind the cognitive biases that human are prone to and always staying HUMBLE and ACT accordingly.
Investing is simple, but not easy. So remember to adopt a simple process and execute it seriously.
Take a simple idea and take it seriously – Charlie Munger
Now, let me turn to some of my learnings in more detail (by speakers), which probably might shed more colour on what I mean.
Vishal Khandelwal (Safal Niveshak)
First, the one year challenge! (I am looking older, but he is the same LOL)
Vishal is a fan of reading and re-reading and re-reading the supertext, instead of reading more and more new things. And hence the lessons that I got reminded from him are those simple time-old wisdoms, which despite simple are very important and impactful.
The points that struck me this year mainly relates to:
- the importance of having that margin of safety ALWAYS;
- thinking more about and focusing on the risks (that can lead to capital loss) than chasing for upsides (if you take care of your downside SERIOUSLY, the upside will come) – Remember: Getting to the top is optional. Getting down is mandatory;
- not taking risks that can wipe you out, like the Russian roulette game;
- not losing money (the other speaker, which I discuss later, have just 3 down years out of 22 years, which allowed him to keep compounding well); and
- always being conscious and truthful about you own circles of competence and the boundaries of them, and being humble enough to stay within those circles (that’s a higher probability way of having your thesis right, which in turn hopefully leads to higher chances of earning money).
I know we hear this often enough, but there’s a reason why it is constantly repeated by the Oracle of Omaha. So it’s worth reminding ourselves again until we have it fully imprinted like a tattoo for life (just kidding).
Rule #1 – Never lose money. Rule #2 – Never forget rule #1. (And don’t be a swelled head!)
Dr Niwes Hemvachiravarakorn (The Warren Buffett of Thailand)
This is my first time meeting and hearing from Dr Niwes – a very funny and down-to-earth guy indeed, despite having over USD 200 million, after compounding it accidentally from USD 600k for 22 years at a CAGR of 31%. Impressive track records, regardless of whether luck played a role (as he claimed)!
Dr Niwes’ strategy and process are very simple and clear, which I think those who have read intensively in the investing field would have already come across very similar things multiple times.
What makes him successful in my opinion is his ability to execute it well, sticking to the stock selection process with discipline and RIGOUR, and sticking with his SUPERSTOCK companies for long enough with PATIENCE and CALMNESS, which are simple but not easy things to do, requiring a very strong control over temperament and having a rational and dedicated mind.
His strategy and points are very simple, and largely similar to mine.
- Investing and getting rich is simple and can be simple;
- ONLY invest in Super Stocks (hold more than 5 years, aiming for 10 baggers in 10 years), or Super Cheap Stocks (but not in dying industry or with declining profits);
- Less than 20%-30% average annual turnover (note: remember punchcard investing, or Mohnish Pabrai’s rule of a strict 3-year lock in upon purchase of a stock);
- Look for Mega Trend industry, and the leaders in it, with (i) durable competitive advantages, (ii) virtuous cycles, (iii) good finance, and (iv) good price (P/E less than 30, and low market cap relative to total addressable market (TAM));
- And let me repeat, ONLY invest in those, and stick to them strictly and ruthlessly (once you have defined and set up your process and criteria, STICK to them!); and
- Just continue living and you will get rich (if you have bought the right companies).
And let me add on – The patience to hold these Super Stock companies through cycles, and give the benefit of doubt to the management (whom you have evaluated to have the ability to know what’s best for the company, in terms of strategy and capital allocation, based on their past track records for decades (and write down these points in black and white, so you know whether the points are really valid or not, and you can’t deceive yourself)) for them to strategise and execute in times of challenges (else you would miss out recoveries and continuous compounding of those companies).
So, please go into buying a company with the expectations that you are not aiming to sell it at the peak before its fundamentals deteriorate for long, but with the expectations of being able to sell it at maybe 70% of its top performance after allowing the company and the management some time to execute to navigate and emerge from the tough times (as no business would have smooth sailings all the time). In other words, before you sell, remember to give the management whom you have identified as excellent executives and capital allocators, and whom you trusted upon your purchase of their companies, some time to correct and execute in overcoming those tough times and crisis, just like what they have done successfully in the past (for multiple times).
Overall, Dr Niwes’ presentation makes me believe, and remember, that a good simple strategy and process, when well executed by a dedicated value investor with discipline, can produce tremendous results and wealth over time!
So let us be those dedicated value investors. And do the hard work of executing with discipline and rigour! (Focus on the process, and the outcome will come)
These thoughts of mine that occurred to me then made me think hard about the quality of the companies that I own, on whether they are Super Companies (I would prefer to call them so, then Super Stocks which probably are more catchy) and whether they have the top of the cream qualities on all aspects. So that I don’t sacrifice quality and the opportunities to hold only the real good companies on almost all aspects – if they don’t make the top tier, cut them, and keep turning the stones until you find the top.
I managed to catch Dr Niwes for a question that I had before he left, where I asked him, what are the challenges he faced throughout his journey of applying such a strategy. His answer was, not much (he had only 3 down years out of his 22 years journey – impressive! which I believe is achievable if you focus on and remember margin of safety, eyeing on the risks (not the upside), circle of competence and good balance sheets and business models), but probably the challenges were like what he had said, selling too early. And hence his advice, “Keep Calm!”
(For record and reference only) Examples of Dr Niwes’ (past) Super Stocks:
- CP All – He held since 2009 and would sell when it becomes the largest company in that industry
- HM Pro – Sold few years ago, as he saw competition
- BH – Best private hospital, with medical/ageing tailwind
- BDMS – Same as BH
- AOT (Airports of Thailand) – Sold
- CPN – Biggest shopping mall
- MINT – Hotel group
Charlie Tien, the founder of Guru Focus, read and re-read Buffett’s letters from 1950s to now for multiple times, which changed his life. He also made reference to Wilshire 5000 Total Market Index, to GDP ratio, as an indicator to look out for market cycles. Some of his ideas/companies include Church & Dwight (dealing with household products in the US) (note: seem to be a compounder and have reduced share count over the last few years), and Kweichow Moutai (bought first in 2014 at 8x P/E, when Xi Jinping became the leader and started on anti-corruption campaign).
Some interesting case studies are:
- HIK Vision – it has been in my list of companies to study for quite some time, and at this point I am still conscious of its overseas growth (due to sensitivity of security products) and wouldn’t include much of it in performing a valuation of the company for margin of safety.
- Fast Retailing – Story sounds good, growth in international markets could be there, with moat (on use and advancement of technology and intangible assets), but ROE is not showing up as well.
- Yihai – Interesting to learn about 张勇. Might have issues with payables and receivables.
So that sums up my key learnings for this year’s VIS~ Hope you have enjoyed the event and this post. And thank you to the organisers for extending the media pass to me!
Next year’s VIS would be in Kuala Lumpur again on 11-12 January 2020, so do check it out if you are interested~
P.S. And do feel free to discuss with me (by sending a message to Nomad Investor, or at my email at email@example.com) if you have any ideas to go into my Super Companies list 🙂
P.S. And do check out another great article on VIS 2019 from MoneyWiseSmart here if you haven’t.