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Investment Wisdom of Dr. Tan Chong Koay

Investing Wisdom of Dr. Tan Chong Koay, Founder & Chief Strategist, Pheim Asset Management Sdn Bhd

Pheim investment philosophy for equity investment is “NEVER FULLY INVEST AT ALL TIMES” in a volatile market environment.

Although Pheim investment philosophy of “NEVER FULLY INVEST AT ALL TIMES” is not a perfect formula, it has proven to be able to outperform the index in the long run after weathering through many major crises.

Pheim asset management Sdn Bhd has followed its own value-investing investment philosophy of “NEVER FULLY INVEST AT ALL TIMES” since it started operation in January 1994. It now has established a long term track record. The philosophy has worked for the past 25 years and will remain relevant for many more years to come.

Value investing is one of the most widely practised investment approach for centuries. The main reason being it is a relatively simple approach that can be executed with a good chance of success.

An equity fund should be fully invested near the bottom of the market and trimmed near the peak. But it should never be fully invested at all times.

An investor who has the skills and wisdom to take advantage of the market’s peak and trough is a true value investor.

During boom times, investors are generally over-optimistic. When the trend reverses, investors usually are ultra-pessimistic.

One of the biggest problems during prolonged periods of a declining market is no one likes to buy and temporarily underperform, even though the market is grossly under-valued.

Very few, if not none, knows the lowest point. Buying near the lows is the best you can do.

The major benefit of buying during a crisis period is: good shares are selling at bad prices. Emotions overtake rationalities.

If you have long-term funds and can withstand volatility and the market is at its extreme lows, you should increase your exposures and go towards being fully invested.

Keeping cash when the equity market is at the extreme low is not a good alternative, as chances of equities outperforming cash improve significantly.

If you want to make money, you need to take calculated risks, and you do not want the market to function efficiently and perfectly.

Think long term when the market is, in your opinion, low.

After careful share analysis, investors need the patience to wait for the companies to prove themselves.

Winners are those who buy undervalued shares which eventually gain popularity.

The economy’s performance and market performance may not be the same. Many times, when the economic growth is near the peak, the market crashes.

Never hesitate to sell share when you think it is grossly overvalued.

If you follow a proven philosophy, your chances of winning improve.

Trying to buy a share at the lowest price and sell at the highest is unrealistic.

Studying the cycles of industries well will help investors to profit from the fluctuations.

Consider increasing your equity exposure when the market is near the lowest.

If you believe the equity market is efficient, you will never be a star.

Establishing an excellent long-term track record must be the goal of every fund manager.

The key is to sell the shares when they are grossly overvalued. Most people do not know how to sell shares even when the prices are abnormally high.

Value is in the eyes of the beholder.

As a value investor, you should not buy a share just because it has dropped more than 80% but because the stock meets your investment criteria and it is undervalued.

History is important, but it does not guarantee success.

You must buy or sell your shares if they are trading at ridiculous prices.

It is wrong to invest in share just because you have the money. It should be because the markets/shares are attractive and undervalued.

Knowledge, experience and research allow one to mitigate and benefit from volatility.

The economy’s performance and market performance may not be the same. Many times, when the economic growth is near the peak, the market crashes.

Investors should buy and sell a share which everyone will eventually want to buy and sell, but ahead of everyone else.

Small to medium-size companies are not necessarily higher risks. Many of them are dark horses and can become big winners.

Company visits do not guarantee good returns. You need hard work, analysis, experience and wisdom.

When analysing a company, it is important to single out the significant factors that can enable the business to grow with a competitive edge.

A contrarian near the peak or the bottom of a cycle benefits most.

Selling a share at a loss is not tantamount to making a mistake. You may make more losses by holding on.

During the crisis period, buy a share that corrects sharply with low gearing, price earnings ratio and has earnings growth.

It is satisfying to have founded Pheim Asset Management Sdn Bhd, Malaysia with the investment philosophy of “NEVER FULLY INVEST AT ALL TIMES”. It has produced superior long-term performance and at the same time creating jobs adding value to the society and the industry.

Most investors know how to buy but not how to sell. Falling in love with a stock near its peak is not wisdom. Failing to buy one that has corrected sharply but run by a good management team in industries that can grow is considered a weakness.

It is not difficult to assemble a 5-man investment team comprising highly qualified professionals. It is much more difficult to build an investment team sharing a common investment philosophy and culture.

Reading the major trends right is critical for outperformance and it is more difficult than most realise.

Which investor gets rich by putting all his / her monies in savings accounts?

Fund management is like running a marathon. You need patience, perseverance and hard work.

A portfolio that deviates from the benchmark components will have a higher tracking error and very often rated as a high-risk portfolio. Therefore, an investor who takes advantage of the market’s ups & downs and outperforms the benchmark index will have a higher tracking error; he cannot be rated as a high-risk investor by reading the market right.

Investing with knowledge often generates the best result.

Crises is the time to take a long term view in the stock market.

When the long term trend is expected to be down, the best and hardest thing to do is to do nothing.

Investing in long term bonds in a rising interest rate environment is riskier than you may realise.

Your chances of winning are higher if you put your long term funds in equities when the market is depressed.

It is not advisable to put your short term funds in equities, especially when the market is high.

Many investors do not like to sell shares near the peak even though they are grossly overvalued for fear of temporary underperformance.

When you sell stocks on the way up and approach the peak, you are likely to underperform temporarily but you will be the winner when the market crashes.

Buying low P/E stocks could be dangerous when earnings are near their peak.

No investment guideline will work all the time.

Pheim prefers to invest in companies that have low gearing, a healthy balance sheet, quality management and rising earnings potential.

Talk to intelligent investors who have a long-term track record and are better than you.

Many investors do not want to buy in a declining market because they do not like to temporarily underperform even though the market is grossly undervalued.

A good investor makes more in good times than he had lost in bad times.

The stock market is not efficient most of the time if not all the time especially during the crisis periods, why don’t you take advantage of such inefficiencies?

If you can pick a good fund manager who can outperform in the long run, why put your money in an index fund?

Analysts can estimate the intrinsic value of a share but its market price is determined by the forces of demand and supply. The complication is that the same share can be valued differently by different investors even at the same time.

Successful investing needs to take into consideration the expectations of others.

Remembering the mistakes you made is good preparation to survive through a major crisis.

Stock markets do not always outperform fixed deposits but will usually outperform fixed deposits in the long run.

A good investment philosophy works most of the time in the long run.