"There is no such thing as the right formula for investing. There is, however, the right mindset for better investing. In the search for Asian value stocks, Ang and Chng lay out some fundamental guidelines and observations for successful stock picking. Investors who are eager to gain exposure to the Asian market should read this book."
—Ronald W. Chan, CIO of Chartwell Capital Ltd, author of The Value Investors: Lessons from the World's Top Fund Managers
"Bottom-up investing is all about discovering value early, getting into the stock well before the crowds and exiting as mainstream investors move in and push up the valuation. The techniques outlined herein are timeless and can be referred to over and over again as you progress in your investment journey. This is is an enlightening read and thoroughly enjoyable for those interested in learning about value investing and starting their investing journey."
—Digby Falkiner, former Indonesian research director at Deutsche Bank, former regional research operations head at Societe Generale, private investor and lead trainer for MIP Advanced
"Rusmin and Victor have broken down the complex and arcane art of stock picking through fundamental analysis into easy-to-understand concepts and examples. Most of the examples used were of Asian companies and that made it easy for me to relate to them. I highly recommend this informative book to everyone who wants to learn more about value investing."
—Lim Dau Hee, Group IT Director of ShareInvestor Pte Ltd
"Value Investing in Growth Companies is a solid piece of work where you will find real-life tried-and-tested strategies to help you become a successful value investor if you're looking into high-growth, small-cap companies. Rusmin and Victor have unleashed everything they know about picking companies that will multiply in value many times over. The book is easy to read and keeps things simple to understand for the everyman—you can only find golden nuggets of investing wisdom between its covers."
—Adam Wong, coauthor of the national bestseller Lucky Bastard!
Rusmin Ang and Victor Chng are the Chief Investment Analysts at 8 Investment Pte Ltd. Together they specialize in unearthing high-growth, small-cap companies. 8 Investment was founded in 2008 with the founders' intention of inspiring investors through the sharing of successful learning experiences in business and investing. Driven by the values of integrity, responsibility, mastery and growth, the company has achieved excellent financial results with an average 139% growth in revenue annually over the last three years. Subscribing to its FASS business model (Feasibility, Adaptability, Sustainability and Scalability), 8 Investment has built one of the largest networks of value investors in Asia and developed a comprehensive range of investing books, CDs and digital learning programmes to cater to this growing audience. Their seminars and courses have been attended by over 70,000 people throughout Asia in the last six years.
Foreword xi
Preface xiii
Rusmin Ang’s Journey xiv
Victor Chng’s Journey xvi
How We Met xvii
Overview of the Contents xix
Acknowledgments xxi
Chapter 1 The Making of a Value-Growth Investor 1
The Common Journey of New Investors 1
Short-Term Trading to Long-Term Investing 2
Growth Investors 4
Value Investors 6
Value Investors versus Growth Investors 7
Value-Growth Investors 9
Warren Buffett’s Journey 10
Value-Growth Investors 12
Definition of Growth Companies 13
Common Misconceptions about Growth Companies 14
Myth 1: The Higher the Growth Rate, the Better the Company 15
Myth 2: Fast Growers Are Companies in Fast-Growing Industries 16
Myth 3: You Cannot Buy Growth Companies at Bargain Prices 16
Myth 4: Fast Growers Are Companies That Have Small Market Capitalization 17
Myth 5: Small and Fast-Growing Companies Are Not Covered by Analysts and Institutions 18
Myth 6: Growth Companies Pay Very Little Dividend 18
Why Value-Growth Investing? 19
Capital Appreciation or Intrinsic Value Appreciation 20
Dividend Growth and Passive Incomes 23
Summary 26
Chapter 2 The Secrets of Successful Value-Growth Investors 29
Healthy Thoughts Lead to Sustainable Results 29
Mindset 1: Understand the Power of Compound Interest 29
Mindset 2: Start Young! 33
Mindset 3: Be a Long-Term Investor! 35
Mindset 4: Never Leverage to Invest in the Long Run! 36
Mindset 5: Exercise Independent Thinking 38
Mindset 6: Be Emotionally Stable 39
Mindset 7: Think Contrarian When Investing 41
Mindset 8: Understand Mr. Market (Effi cient Market Theory versus Mr. Market) 43
Summary 46
Chapter 3 The Jigzaw Puzzle--Four Pieces to Value-Growth Investing 47
The Jigsaw Puzzle Model 47
The Art and Science of Investing 49
Looking for the Right Information 53
Information Released by the Company 53
Information from Outsiders 57
Summary 58
Chapter 4 Business--The First Piece of the Puzzle 61
Understand a Company’s Business Model 61
Simple Business 63
Circle of Competence 65
Going Beyond the Limit 67
Competitive Advantage 70
Knowing the Competitors 73
Think Like a Customer through the Scuttle-Butting Process 74
Finding Future Growth Drivers 76
Understanding Risks--What Can Go Wrong? 78
Summary 79
Chapter 5 Management--The Second Piece of the Puzzle 81
Management Forms the Cornerstone of a Business 81
Criterion 1: Trustworthiness 83
Criterion 2: Candid in Reporting 86
Criterion 3: Aligned with Shareholders’ Interests 88
Criterion 4: Track Record/Experience 90
Criterion 5: Visionary Managers 92
Summary 96
Chapter 6 Numbers--The Third Piece of the Puzzle 97
Numbers Do Not Lie 97
Numbers to Look at When Reading the Income Statement 98
Revenue 98
Cost of Goods Sold 100
Gross Profit 100
Expenses 102
Net Profit 103
Earnings per Share (EPS) 106
Numbers to Look at When Reading the Balance Sheet 109
Noncurrent Assets 110
Current Assets 112
Noncurrent Liabilities 114
Current Liabilities 115
Shareholders’ Equity 116
Current Ratio 117
Return on Equity 118
Debt-to-Equity Ratio 120
Numbers to Look at When Reading the Cash-Flow Statement 122
Cash Flow from Operations 123
Cash Flow from Investment 124
Cash Flow from Finance 127
Summary 129
Chapter 7 Valuation--The Fourth Piece of the Puzzle 131
The Valuation of a Stock 131
Price-to-Earnings Ratio 133
Types of PE Ratio 136
Price-to-Earnings-to-Growth Ratio 137
Discounted Earnings Model 141
Intrinsic Value 141
Margin of Safety 148
Undervalued 149
Fair Value 149
Overvalued 150
Summary 154
Chapter 8 Screening--Buy--Monitor--Sell 155
Screening (Using Numbers against Competitors) 155
Stage 1: Consistency in Key Performance Indicators 156
Stage 2: Comparing the Compound Annual Growth Rate 157
Stage 3: Finding Consistency or Increases In Margins 158
Stage 4: Digging Further into a Company’s Debt and Cash Position 159
Stage 5: Digging Further into Other Numbers to Confi rm Your Pick 159
Conclusion 161
Buy, Monitor, and Sell 162
Buy, Buy, and Buy 163
Monitor, Monitor, and Monitor 166
Online Monitoring 169
Offl ine Process 170
Sell, Sell, and Sell 171
Summary 177
Chapter 9 Portfolio Management for Growth Companies 179
Understanding Your Portfolio 179
Types of Diversifi cation 180
Personal Diversifi cation 181
Company Diversifi cation 182
Industry Diversifi cation 183
The Sky Is the Limit 184
Summary 185
Chapter 10 Avoid Common Mistakes 187
The Dos and Don’ts of Investing 187
Mistake 1: You Think You Are a Long-Term Investor but You Are Really a Speculator 187
Mistake 2: Timing the Market 189
Mistake 3: Investing in High-Technology and IPO Companies 190
Mistake 4: Investing in Companies that Are Not Consistent 192
Mistake 5: Buying a Growth Trap (Not Focusing on the Quantitative Side) 194
Mistake 6: Buying a Value Trap (Not Focusing on the Qualitative Side) 195
Mistake 7: Sell Your Winners; Keep Your Losers 198
Mistake 8: Diversification Mistakes 199
Summary 200
Chapter 11 Case Studies and Conclusion 201
Bibliography 205
About the Authors 207
Index 209
