Hi all,

I agree with Victorian on his points. Value investing is truly about looking at the value of the company and its investment merits, and whether this will translate into higher earnings and higher margins in time. Short-term price patterns are irrelevant as the market can throw us a different price every day base on sentiment, but if we are not sellers then why bother about the price ? I believe it is the business we should focus on, and I always tell my friends that. Friends love to ask me what the price of my shares are, I always rebut by asking them back: ?why don?t you ask me how?s the business doing instead ??.

With regards to the posting made by l_tan888, my point is that one should follow the business and the company?s industry rather than watching the day by day price. By right, as a value investor, at most you take a look at weekly closing prices or once per fortnight. However, I still advocate checking SGX announcements daily, as well as keeping up with business news from ST, BT, Reuters, Dow Jones and Forbes. Furthermore, one should keep up with news pertaining to the industry or business climate of one?s vested company (e.g. I keep up with news on the oil and gas sector as I hold 2 companies in this sector).

As for how to review and select good companies, below is a brief list:-

1. Earnings growth of at least 20-25% year-on-year. Quarterly growth may be misleading as some companies? businesses are cyclical. There should also be EPS growth of about 20-25%. Top line increase is seldom as important as bottom line increases, though for some queer reason many companies like to trumpet their top line growth !

2. Margin improvement over the period, which shows efforts by management to reduce costs. If margin decreased, read the MD&A to find out why. If Management failed to comment on it at all, then something might be wrong (see point 3).

3. Quality of management ? this would represent the strategic vision, integrity, honest, transparency and overall competency and capability of Management to grow the business and enhance shareholder?s value. This is a qualitative aspect of value investing which involves reading the annual report?s CEO statement, operations review, press release information, attending the AGM/EGM and even calling the company if need be.

4. Balance sheet analysis ? Make sure the company does not have too much liability (gearing) and compute the cash conversion cycle of the company. This should decrease as much as possible and the receivables turnover ratio should not be greater than the payables turnover ratio. Stock turnover is also a good sign of slowing sales and stockpiling of obsolete inventory. Also, check for large discrepancies in line items which may indicate that a major transaction had occurred. If possible, find out WHY.

5. Cash Flow Statement ? Operating Cash flows should be positive as far as possible, or it would signal a serious deficiency in the company to raise enough cash for normal operations. Look out also for constant financing through bank loans or equity fund raising; some companies are forever doing a cash call or rights issue to generate cash which they burn off as soon as they get it !

6. Annual Report ? Look out for strange notes to the accounts (examples include large capital commitments, contingent liabilities such as lawsuits and ?Events After Balance Sheet Date?). These can help to explain certain aspects of the company which may make it a good or bad investment.

7. Industry Conditions ? Study the industry the company is in to see if it is a market leader, follower or laggard. This will help estimate the P/E range it should trade at. Leaders usually trade at a higher multiple than laggards within the same industry. Look out too for trends in the industry and whether conditions are volatile. Examples are the clampdown in the China pharmaceutical industry which impacted C&O Pharma, Asiapharm, Reyoung and other China pharma companies. Another example is the capital appreciation tax levied on property in China which affected companies like Yanlord Group.

If anyone else has anything else to contribute, please feel free to do so. In my next posting, I will elaborate on my personal investment mistakes, what I learnt from it and how I will strive not to repeat the error.