Bursaking.com.my. Published by Ian Tai Wealth Publications. Copyright 2016 by Ian Tai Wealth Publications

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2 Published by Ian Tai Wealth Publications Copyright 2016 by Ian Tai Wealth Publications All rights reserved. No part of this publication may be reproduced in any form or by any means, electronic, photocopying, recording or otherwise without prior permission of Ian Tai Wealth Publications Disclaimer: This book contains the ideas & opinions of the author. It is intended for education & illustration purposes. It is not intended to be a recommendation to buy, hold or sell any securities discussed herein. The author and publisher are not stockbrokers, registered investment advisors, or substantial shareholders of any securities mentioned in the digital book. Although we have made the best efforts to provide the most accurate & up-to-date information, no warranty or guarantee is given for the the accuracy, reliability, or completeness of the information provided. The author and publisher disclaim any rewards and responsibilities for any gains and losses, which may arise as a consequence, directly or indirectly, from the application of any ideas, strategies, techniques and case studies mentioned in the digital book. The author and publisher do not guarantee any results or investment returns based on the information contained herein. We suggest the consultation of the relevant investment professional prior to embarking on any investment plan.

3 Table of Contents Introduction - Embracing the Simple Truths Truth #1 - What s a Cheap Stock? Truth #2 - Profits or Price? Which one do I look at First? Truth #3 - Is Cash Flow Only for the Dividend Guys? Truth #4 - How to look at Financial Reports? Truth #5 - Do you invest based on Facts or Opinions? Conclusion - A Shift in Mindset to Build Long-Term Sustainable Wealth through Stock Investing

4 Introduction: Embracing the Simple Truths First of all, I would like to thank you for your registration & attendance of the 80-Minute Live Webinar on Simple Truths with KCLau.com. Clearly, it shows that you have a sincere desire to enhance your skills to make money and build sustainable wealth through stock investing. Honestly speaking, this webinar is inspired by you. As I run, I have the privilege to serve a community of over 2,800+ retail investors nationwide. It s an honor to be able to communicate with different individuals of different walks of life, providing them the necessary support, tools and materials as they journeyed towards becoming profitable investors. From feedbacks received, I ve realized that many sincere & well-meaning investors failed to build a stock portfolio that yields consistent returns. This is despite having abundance of information, seminars, workshops, trading softwares, tools and materials in the market today. So, what is the ingredient that is missing? The answer is the mindset. It stems from wrong believing about what stock investing is. Wrong believing causes many to perceive stock information wrongly and ultimately, leading to making wrong investment decisions which are costly.

5 The good news is, if you have right believing, it is a lot easier to make money in the stock market without taking unnecessary risks. It s no rocket science. And, it s definitely not High Risk to get High Returns. This book is dedicated to those who intend to minimize risks and to get maximum profits from their stock investments. You ll find great wisdoms that can be easily applied to reduce your risk of investing significantly and definitely, boost your chance of investment success. However, I would like to give you a caution. The truths presented in this book is unbelievably way too simple. It is so simple that some would just dismiss them for their simplicity. That itself is a wrong mindset. Stock investing is easy. People tend to complicate it. Some think that stock investing is catered only to the so-called professionals. I don t blame them. After all, there are many financial jargons written in stock reports which are meaningless to most living on the Main Street. If you re new to stock investing, I m sure you ll find how easy stock investing can be. If you ve prior experiences in investing, may I encourage you to, at least, read the whole book before coming to a conclusion? Sincerely, I hope it is not difficult for you to embrace these simple truths. Of course, if you have more questions or need clarifications, I m more than happy to share materials with you. If you re into trading, this book is about value investing who are seeking to build long-term wealth through ownership of fundamentally good stocks. It s not about interpreting stock charts with a myriad of technical analytical tools. That s not the focus of this book. Without further ado, let s just begin with Truth #1.

6 Truth #1: What s a Cheap Stock? Let s start with a question. Stock A is trading at RM 1 a share. Stock B is trading at RM 10 a share. Which of the two stocks is cheaper? Is it Stock A? Do you believe that Stock A is cheaper than Stock B? What if, I m here to share with you that Stock B can be cheaper than Stock A? Really? Am I serious? It s an absolute yes. It is quite possible for Stock B to be cheaper than Stock A. Here s an example. Stock Dialog Group Bhd LPI Capital Bhd Price (RM) EPS (RM) P/E Ratio EPS = Earnings per Share P/E Ratio = Price-to-Earnings Ratio

7 Observations: 1. The stock price of LPI is 10 times of Dialog. 2. This means, Dialog is more affordable than LPI as 1 LPI share is equivalent to the price of 10 Dialog shares. 3. Dialog has P/E Ratio of This means, the offer price for Dialog is RM for every RM 1 earned by the company. 4. LPI has P/E Ratio of This means, the offer price for LPI is RM for every RM 1 earned by the company. 5. LPI is cheaper than Dialog as investors would pay lesser for LPI for every RM 1 earned. Truth #1: 1. Price is about affordability of a stock. 2. Value is about determining whether a stock is cheap or expensive. As simple as it is, there are many sincere investors who have overlooked this simple truth. Many looked at stock prices without considering stock earnings. As a result, 1. They bought stocks that are expensive believing that these stocks are cheap. 2. Worse, they may buy stocks that made little or no earnings. 3. In most cases, this led to many disappointments as investors fail to achieve their desired investment results consistently.

8 How to Avoid Bad Investments? Personally, I use P/E Ratio as it is a simple tool that anyone can use to boost chances of investment success. It helps me to focus on stocks that are profitable and cheap. In addition, P/E Ratio helps me to avoid: a. Stocks that are unprofitable / incur losses. (P/E Ratio will not be available) b. Stocks that have inconsistent profits. (There will be high fluctuations in their P/E Ratio) c. Stocks that are profitable but Expensive. (P/E Ratio is high or well-above its average) So, if you ask me this question, ABC Bhd has increased / decreased in stock price over a certain period of time. Should I buy this stock? Most likely, I would reply by asking, How much earnings is it making a year? That leads us to Truth #2.

9 Truth #2: Profits or Price. Which one do I look at first? This is about priority. Which of the two comes first? Is it stock prices? Or, is it stock earnings? If you are looking at stock prices, everyone including myself does, when do you buy stocks? Is it when stock prices go up? Or, is it when stock prices come down? These two simple questions would reveal a simple truth about how you intend to make money in the stock market. Basically, depending on how you ve answered the two questions above, you should fall under one of the four types of stock market participants mentioned below. 1. Speculator 2. Grahamites 3. Perfectionist 4. Investor

10 Type #1 - Speculator You are a speculator if a. Stock Prices is a priority over Stock Earnings. b. You ll buy Stocks when their Prices go up. Observations: 1. When a stock is low / doesn t move much, speculators tend to ignore these them. 2. Unless, of course, the stock started to move upwards. It may attract attention from the media and the market. This may caught the eyes of a speculator.

11 3. As stock price increases, speculators buy more shares as their confidence in the share increases and believe that they would miss the bandwagon if they fail to Buy Now. 4. This is why speculators would always pay a premium for their stock purchases. It s a disadvantage by itself. 5. In summary, they are not buying low to sell high. Instead, they are buying higher in attempt to sell even higher. This is also known as the Greater Fool Theory. 6. It works when: a. There are other Fools buying shares at a higher price than your purchasing price. b. You are able to get out before other Fools get out of the market. 7. Thus, speculators always say, You can t be greedy when Playing the stock market. The word Playing is added deliberately as the stock market is a game to speculators. 8. In most cases, the increase in stock price will end, giving way to a fall in stock price. 9. Initially, speculators may hope for a revival in stock prices. However, often, speculators would usually become gradually disinterested about their stock purchases as the decline in stock price prolongs as time goes by. 10. If you are a lousy speculator, most likely, you ll end up buying high only to sell low (to cut losses).

12 Type #2 - Grahamite You are a Grahamite if a. Stock Prices is a priority over Stock Earnings. b. You ll buy Stocks when their Prices come down. Observations: 1. Who s a Grahamite? 2. A Grahamite is a person who adopts the investing philosophy of Benjamin Graham. He is commonly known as a mentor to Warren Buffett, acclaimed to be the world s greatest stock investor today.

13 3. The primary focus of a Grahamite is to find stocks that are selling at a very cheap price. 4. However, these stocks may vary in terms of quality. The portfolio may consists of stocks that are profitable and stocks that are not profitable. 5. So, why would a Grahamite buy a stock that is not profitable? 6. A unprofitable stock may have valuable assets (cash, property, plant, equipment and the list goes on). The value of these assets (netting off liabilities) may surpass the current price of the stock. 7. A Grahamite may buy the unprofitable stock with an expectation that its stock price would eventually increase, reflecting on the actual value of assets owned by the stock. 8. You may ask, Will it materialize? When would I reap the big reward? 9. My answer, I don t know. Some does. Some doesn t. 10. After all, there is no guarantee that these stocks would eventually appreciate in price. 11. More importantly, the question is, How long are you willing to hold onto these stocks? Can you wait for one year? How about 2 years or 5 years? 12. Often, it is a waiting game. If you are a Grahamite, you may not see a big reward from your investment over the short-term. Thus, it s too boring for a speculator.

14 Type #3 - Perfectionists You are a Perfectionists if a. Stock Earnings is a priority over Stock Prices. b. You ll buy Stocks when their Prices go up. Observations: 1. Who s a Perfectionist? 2. First, Perfectionists are people who focus on stocks that are financially solid. Perhaps, they have read books written by Warren Buffett.

15 3. That s a good start by itself as you ll have a habit of avoiding bad stocks in your portfolio. 4. However, perfectionists are often people buy stocks that have already experienced an increase in stock price. They may avoid good stocks that are experiencing a decline in share price. 5. Also, perfectionists are people who may buy stocks in good times (economic booms) and avoid investing in them in bad times (economic busts). 6. This may arise as a result of lacking in confidence. They would only invest if everything (from the financials down to the stock price) is perfect. That s why they are known as Perfectionists. 7. Similar to speculators, they would always pay a premium for their stock investments. 8. Instead of lowering their average cost per share, they would increase it as their confidence in their stocks grow as their prices go up. 9. As a result, higher stock prices lead to lower dividend yields and lesser capital gains. That would be a handicap to achieve good investment results consistently over the long run.

16 Type #4 - Investors You are an investor if: a. Stock Earnings is a priority over Stock Prices. b. You ll buy Stocks when their Prices go up. Truth #2: How Investors Make Money Investing in Stocks? Now, I ll reveal a simple plan that anyone can follow to achieve consistent profits from investing in the stock market. 1. First, an investor would assess whether a stock is financially good or bad. Initially, it is the same as the Perfectionists.

17 2. The difference is, an investor would buy a good stock if it is selling at reasonably low price. There are two things that would happen after his purchase. 3. Firstly, the price of his stock increases. If the increase is dramatic, the investor would not continue to add more shares into his portfolio. (Remember: High Price, Low Yield) 4. Secondly, the price of his stock decreases. In this case, the investor would continue to add more shares into his portfolio. (Remember: Low Price, High Yield). 5. The investor may continue to accumulate more shares as long as the stock price is still beneath his first purchase price. That s the accumulation phase. 6. During the accumulation phase, the investor would receive dividend income regularly as a reward for holding onto his stock. These dividends may be used to accumulate more shares as long as the price remains reasonably low. 7. The accumulation would continue until the stock begins to increase, moving beyond his first purchase price. The investor would hold onto his stock, riding on the upward trend. 8. The investor would sell his stock once the price is unreasonably high. An unreasonably high price is a price where, in general, new investors cannot possibly make much gains (dividend / capital appreciation) from his stock purchase. 9. Often, you may find investors selling stocks to speculators at unreasonably high prices. That s how investors reap their biggest reward from their stock investment. If that doesn t happen, they would continue to enjoy passive income from their investments. Thus, investors would make consistent profits regardless of market ups and downs.

18 Truth #3: Is Cash Flow only for the Dividend Guys? If you are into capital gains, this is written for you. I m going to explain how anyone can achieve capital appreciation from their stock investment without taking unnecessarily high risk. High risks, high returns does not apply here. This is for you if you are sincerely and truly a conservative person. Let s begin. Why do stock prices go up? a. Is it because there are more buyers than sellers of the stock in the market? b. Or, is it because there are more sellers than buyers of the stock in the market? I believe, it is the former over the latter. Okay. If so, what kind of stocks do you think buyers want to buy? a. Stocks that Grow Profits Consistently. b. Stocks that Profits Decline Consistently. c. Stocks with Inconsistent Profits. d. Stocks that are not Profitable.

19 The answer is obvious. I believe, most would choose the one that grows profits consistently. In both good & bad market conditions, there ll always be more demand for stocks that are increasingly profitable. So, how do stocks grow profits consistently? From the slide below, there are many ways a stock can grow profits. All of these methods have one common denominator. Don t they need money to invest in them? Thus, here comes the next question. Where do they get the money to invest? How do they secure financing? Basically, there are 3 methods. They include:

20 a. Customers b. Bank Borrowings c. Raise Equity (Sell a stake of your company) Which do you prefer? Most likely, you would choose Customers. This is because it is the cheapest and regular form of financing compared to bank borrowings and raising equities. Why? a. Stocks incur interest costs from bank borrowings. b. If a stock decides to undertake rights issue, most likely, the new shares would be offered to existing investors at a cheaper price. This means, the stock needs to be sold at a discount to attract existing shareholders to buy the new stocks. Truth #3: Cash Flow Leads to Capital Gains By now, you can see a pattern forming on how capital gains are achieved. 1. Stocks have Positive Cash Flows from its Operations. 2. They have money to Invest to Expand their sources of income. 3. Stocks record Higher Profits as a result of their investments.

21 4. There is an Increase in Demand for stocks that grow profits consistently. 5. This would Drive Up its Share Price as there are more buyers than sellers of the stock in the market.

22 Truth #4: How to look at Financial Reports? Recently, I ve received a question on stock investing from a friend of mine. The question is as followed: I saw, ABC Bhd has achieved profit growth on Year-to-Year, but, profit decline on Quarter-to-Quarter. So, is this a good stock to buy? Screenshot from Bursamalaysia.com

23 Often, this question arises as a result of investors looking at the table above. This table is the usual format presented in the official website of Bursa Malaysia. As you can see, 1. Year-to-Year (Cumulative Period), the stock has increased its earnings from RM Million in 2015 to RM Million in Quarter-to-Quarter (Individual Period), the stock has reported decline in earnings from RM Million in 4th quarter of 2015 to RM Million in 4th quarter of Thus, some investors began confused (at least, my friend was). They could not conclude whether the stock is financially good or bad. Truth #4: The Recommended Approach to Financial Reports Instead of making decisions based on the table above, here s a recommended approach to assess the fundamental strength of a stock. No. Period Documents Purposes 1 5-Years Annual Reports Past Records 2 12-Months Quarterly Reports Present Performance 3 Chairman s Chairman s Statement Future Outlook Now, I ll explain in greater length on my purposes of looking at annual reports, quarterly reports and chairman s statement when assessing stocks for investment.

24 5-Years Why do I look at the financials of a stock over the last 5 years? This is because, I want to find stocks that have proven track record of growing profits consistently. The key word is consistency. What is consistency? Consistency refers to a stock that grow profits when: a. Oil price is US$ 50 a barrel or Oil price is US$ 150 a barrel b. Ringgit is RM 3.00 a Dollar or RM 4.50 a Dollar c. The Fed Rates Increases or Decreases d. Economic Booms or Busts e. Season Good or Season Bad f. Ruling Party or Opposition Party running our country g. The List goes on. It is a test to determine which stocks are resilient in all weathers / business climates, making profits in both good and bad times. I m not here to chase stocks that have increased in profits for one year (good season) only to report low profits in another year (bad season). Thus, this is why I would recommend looking 5 years to the past. You may look at 10 years. It s also recommended.

25 12-Months Once I ve established the stock s track record, then, I would check its present performance. Take note of the order. It s the annual reports first. The quarter reports come later. Why? This is because, if a stock has a poor track record of making profits in the past, chances are, the stock will remain poor in making profits in the future. Of course, there are exceptions. But, it is, once again, a test for the stock to sustain its improved financial results in future years. A stock that is more likely to deliver solid financial results presently if it has a good track record of making profits in the past. Is it true? That is why we need to look at the quarterly reports to make sure that the stock remains on track to sustain growth in profits in the present. Chairman s Some of you may argue that past performance does not necessarily equate to future performance. To some extent, I agree. On one hand, a stock that is profitable in the past & present has the ability to remain profitable in the future. However, to be safe, I would like to find out whether a stock has tangible plans to sustain profits in the immediate future. How are they going to make more money? Are they expanding? Are they buying new businesses? These information are often found in several places: a. Chairman s Statement (Annual Reports)

26 b. CEO s Statement (Annual Reports) c. Prospects (Quarterly Reports) d. Press Releases (Usually Filed Together with Quarterly Reports) e. Investors Presentations (Company s Website) Stocks that provide a good discussion on their future prospects are usually preferred. This is because, they give potential investors an idea about what they intend to do in the present for the future. Stocks that don t may score lesser points with investors. Conclusion: So, should we look at the short-term or the long-term? My answer is simple. We should be looking at both to have a more comprehensive picture to the stock s investment potential.

27 Truth #5: Do You Invest based on Facts or Opinions? Here is the list of questions that I often received from my readers and subscribers. a. Is ABC Bhd a good stock to buy? b. Do you think it is a good time to buy ABC Bhd? c. The analyst report has put a Buy recommendation on ABC Bhd. Should I buy? d. The analyst report has set the target price of ABC Bhd at RM 2.00 a share. Now, it is trading at RM 1.50 a share. Should I buy? e. Where do you think share price of ABC Bhd would go? Usually, my replies are: a. Why do you want to invest in ABC Bhd? b. Is ABC Bhd a stock that grows profits consistently? c. How did the broker come out with his Target Price for ABC Bhd? d. I m not sure why the broker thinks that ABC Bhd is a good stock to buy. e. Personally, I don t do price predictions. I use the SMA-Crossover Method as a tool to determine its current share price to make my own personal investment decision.

28 Why is this important? This is because, today, we live in the information age when information is in abundant. The key for us is to have the wisdom to classify and prioritize information. It s like being in the war zone. Battles can be won or lost based on how effective relevant information is received, processed and utilized upon. The same goes with information on stock investing. Here s a golden nugget. When I receive information on stock investing, the first thing to do is to classify them. Is it a fact or an opinion? As simple as it is, many investors often make bad investment mistakes as they do not differentiate information which is factual or opinionated. They are confused and misled as they have both facts and opinions mixed up. So, let s make it clear. What is a fact? And, what s an opinion?

29 Obviously, Statement A is a fact while Statement B is an opinion. Clearly, there are quite a number of differences between facts and opinions. No. Facts Opinions 1 Proven Information Information yet to be Proven 2 Credible Sources No Backing 3 Documented May not have Documents 4 Happened Already May or may not Happen 5 Undisputable Can be Disputed Let me be more direct. When you buy shares, are your decisions made based on Proven Information or Information yet to be Proven? Can the information be proven with proper & relevant documentations such as annual reports, quarter reports, or other official documents available? In other words, if you buy shares as you believe that it will go up, then, it is very likely that you are making a decision based on your opinion. Truth #5: Investors Want Facts With that said, am I saying that investing based on opinions is wrong? Nope. But, I ve discovered that real investors know the difference between facts and opinions. They want facts first. Then, they may form their own conclusion or their opinions on the stock.

30 What I m advocating is for you to gather some facts first before investing. This is especially if you ve been buying shares based on purely people s opinions and comments. Bursaking vs Brokers When I started, I was asked how is the website different from analyst s reports available by major banks. What is my differentiating factor? Here s mine. focuses on presenting facts. Brokers often publish a mixture of both facts & opinions. Item Bursaking Brokers Target Price Nope, It s not given. Yes, It s Given. Information Facts Only Facts & Opinions Recommendations Nope, It s not given. Buy / Sell / Hold Financial Data Reports Only Estimates Given. Investment Advice Nope, It s not given. They may give. Personally, I ve been quite intentional of not providing any specific investment advices and recommendations to any individuals. This includes the data compilation of over 900+ stocks, case studies, and other educational materials of. This is because, I m a strong advocate towards making investment decisions based on facts that can be backed by documents over

31 people s opinions. After all, people s opinions (including mine) are subject to human error, faults, and flaws. How does it Bring Profits to My Stock Portfolio? Do you remember Truth #4 where I wrote about Consistency? Now, I m going to illustrate how a real investor make investment decisions differently from a speculator. For instance, as I write (March 23, 2017), crude oil is trading at US$ a barrel. Speculators: I think, oil price has already hit its lowest. It can t go any lower than that. There s a good chance of it going up. So, I m going to find stocks in the oil & gas sector. Mindset: He s betting on the potential recovery of the oil & gas sector. Investors: Is the stock profitable when oil is US$ 48 a barrel? Has it been profitable when oil was US$ 100 a barrel? I would consider buying the stock if it is cheap and it has remained profitable in both times when oil is up and when oil is down. Mindset: He wants stocks that is profitable at all times. Who do you think has a better chance of profiting from the stock market consistently? I ll rest my case.

32 Conclusion: A Shift in Mindset to Build Long-Term Sustainable Wealth through Stock Investing Here s a recap of the 5 simple truths mentioned in this book. Truth #1: Price is Affordability. Value is about Cheap or Expensive. Truth #2: Look at Profits first. Then, check out the Price. Truth #3: Positive Cash Flow Leads to Capital Gains Truth #4: 5 Years + 12 Months + Chairman s = To Check Quality of a Stock Truth #5: Investors make decisions based on Facts. Ultimately, it s a shift in mindset from what most people think about stock investing to what real investors do to make consistent profits from the stock market.

33 If you are starting with zero knowledge, I believe the materials presented are helpful to start building a stock portfolio that grows in value. More importantly, it will help you to avoid costly investment mistakes arising from investing in mediocre stocks. As I write, there are 934 stocks listed in Bursa Malaysia, spanning across 10 major sectors. The question is which one of these 934 stocks are the ones that grow in value. Hence, we have designed and built a filter to shortlist the top 1 2% of these companies so that we are save huge amount of time and just focus our attention in the ones that grow value. These are also known as Prime Assets. From which, we built a watch list to keep these Prime Assets under our radar so that we can monitor their financial progress. This is to serve value investors who seek to build a customized stock portfolio according to their investment needs within minutes. If you are interested to build wealth investing in Malaysian stocks, please do find join us as a member of It would be my honour to serve you on your endeavours to become a financial success. I wish you all the very best and thank you for taking the time to read this book! Be Blessed, Ian Tai Founder of The Simplest Stock Filter in Malaysia

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