A common problem for many budding investors is that of short-listing. There are so many listed companies and available investments around, which ones should we be looking at? We can’t possibly look at all. And yet we need a proper system to select investments for analysis. Warren Buffett said that when faced with this problem, we should probably begin with those starting with the letter ‘A’.
Of course, Buffett was a professional investor and many of us would not have the time to go through every company so closely. Personally, I prefer what I call the ‘Rolling-Five’ strategy. Using this strategy, our short-list will always consist of five counters. These will be the ones we analyze and study at any one given moment. How they get onto the short-list, we will leave to providence. It could be something that caught your eye in the news, or some promotion a company was doing at the shopping mall. Maybe you have a friend working for a listed company and she said some positive things about it. It doesn’t matter how they got onto the list. The important thing is that there should always be five. (Why five? No reason in particular… because we have five fingers on each hand perhaps…)
Once a stock gets onto this list, there are only two ways to get off it. One is if you reject it after analysis. Two is if you actually buy some of it after evaluation. Once a stock goes off, you scout for another one to take its place. Of course, those you have bought will go to another “Bought-List” which you have to follow up on, but that is another story.
Using this rolling-five system, we would find our investment analysis more manageable and less overwhelming. If your list is already full, don’t take on anymore until there is room. Otherwise your mind will be flooded with too many investment possibilities.
For example, right now my roiling-five consists of the following five; with some brief information on the evaluation of each one:-
Maybank. The biggest bank in Malaysia and a heavyweight on the KLCI index. The question now of course is whether it has been over sold during the recent fears over the European Debt Crisis. It last traded at Rm7.510 per share on 26 September 2011.
Earnings Yield (FY 2011 earnings): 8.18%
Dividend Yield (FY 2011 dividends): 7.99%
CIMB. Malaysia’s second largest bank has been under heavy selling pressure lately. Similar to Maybank, we want to know if the recent sell-down means there is now value to be found. It last traded at Rm6.700 per share on 26 September 2011.
Earnings Yield (FY 2010 earnings): 7.31%
Dividend Yield (FY 2010 dividends): 5.46%
Amway. A ‘Dividend Aristocrat’ on the mainboard of Bursa Malaysia. How much is the dividend yield now after the recent correction? Direct-selling companies are known to be resilient in hard economic times. It last traded at Rm8.500 per share on 26 September 2011.
Earnings Yield (FY 2010 earnings): 5.60%
Dividend Yield (FY 2010 dividends): 7.76% (includes distribution from retained earnings)
Padini. We featured this company a while ago on this website for its powerful market position in the middle-higher class apparel market and rising earnings trend. Will retail spending be curbed by any coming recession? What value does the company offer now? It last traded at Rm0.825 per share on 26 September 2011.
Earnings Yield (FY 2010 earnings): 11.23%
Dividend Yield (FY 2010 dividends): 5.45%
Sunreit. Another attractive Dividend Aristocrat, it distributes almost all its rental income to unit holders. It last traded at Rm1.060 per share on 26 September 2011.
Earnings Yield (FY 2011 earnings): 24.97% (includes unrealized gain on increase in value of properties)
Dividend Yield (FY 2011 distributions): 6.32%
For each of the companies on your list, you should at the very least have a copy of their latest annual report and maybe even some analyst reports which may yield additional useful information. You should give each one the attention you would give a potential husband or wife. Learn as much about them as you can; live and breathe these companies, get beneath their skin, understand their business models, and think of yourself as the owner… Because if they pass your test, that’s what you will become.
Andrew Chua
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