One of the most commonly said phrase in this forum is how the Malaysian Market is different from everywhere else, and how value investing cannot be implemented here.
By definition, all intelligent investing is value investing. Anybody with a brain will want to buy one ringgit for fifty cents. We just have different ways of identifying value, which can give rise to very different figures.
The one overpricing on growth says “I know its damn expensive, but..”.
The one overpricing on cheapness says “I know it’s a shit business, but…”
Having said that. There are some things that are very unique to the Malaysian market, due to certain structural factors. I will first list them out, and explain a little, before combining all of them to show how they really affected things.
Malaysian Market is small.
The total market capitalisation of the KLSE is roughly RM1.5 trillion. Or about USD 0.34 trillion, with about 900 companies. In contrast, the US stock market is roughly USD40 trillion, with about 25,000 companies.
The only markets smaller than us are a few in the African nations and undeveloped Asean countries. Singapore just over took us if I’m not mistaken. And in terms of individual market participants, it actually isn’t that high here.
This website, I3investor.
Most, if not all markets, does not have one single online forum such as this one, where every single market participant congregates. And is formatted in such a way that makes it such a convenient aggregator of information.
The US market is far too big, and have so many different outlets. Alphaseeker, Gurufocus, etc etc. To be a sifu there, you need billions of dollars. And even then, you are nothing.
Here, every single market participant is in one single forum.
The third factor is this website. None of the other markets, literally none, have one where you would be able to see quarter results, and in such an intuitive way and impactful way.
You literally see it via green or red arrows, the instant the results come out, and can compare it right away to the previous quarter and the previous year’s quarter.
In addition, you get to see 5 years’ worth of profit and revenue, instantly, and have the key information such as PE, ROE etc in the same page.
Make no mistake, one can get this service in other markets, for a price. Because most exchanges charge a relatively hefty price for API access.
But most people do not pay for such services.
The Loolapoalooza Effect
Charlie Munger, used to have a phrase called “The Loolapalooza Effect”. Where a confluence of different factors, merge together and create an incredible effect.
With the small market size and low number of market participants, as well as a single forum where all the market participants come together, it creates an effect, where it becomes easy for pretty much anyone, assuming they are interesting enough, or have persuasive enough arguments, to grab the spotlight in front of every single market participant.
This is not even close to the case in the US or even Singapore. In the US, billionaires only move the stock a few percent once their purchase is known. Here, just knowing OTB or Coldeye (both of whom are really just small ciku when it comes to their size relative to capital markets) is in it, can shoot up prices by tens of percents. In Singapore, they don’t really have a forum as influential market wise as i3investor. Or as easy to peruse and get new inspiration.
And then we have the incredible, malaysiastock.biz. With the sheer impact shown by the little green or red arrows. Along with the quick analysis one can immediately do once you click the pages, along with summaries of announcements, splits, and news.
This created an incredible focus on companies with beautiful revenue and profit charts, and most importantly, an incredibly intense focus for the prediction of next quarters.
Combine small markets, low number of participants, a single source where all market participants get their ideas from, and information from websites structured (purposefully or accidentally) in such a way as to place a high focus on next quarter results.
And we have today. A gigantic group of IYI’s, intellectual yet idiots, going around predicting quarters and playing market dynamics.
Where, as Koon Yew Yin puts, he does not care if the company is good or not, he just wants to see pretty quarters.
It’s incredible really, the power of incentives.
Yes, most markets are focused on quarterly, but not to the extent of Malaysian markets. I would say Malaysian markets are far more efficient that say China markets, but it is much less accurate.
The Opportunity for Investors
As previously said, this creates a situation where it really rewards shrewd traders, who read sentiment well, as well as market predictors who can write convincing arguments, and pump and dumpers.
However, this also creates a lot more opportunities for value investors.
As the market is so focused on next quarter results, that fantastic companies or good companies with near term results that may not be as pretty, become severely undervalued. And if by accident, they get an unexpected fantastic results, they shoot up like a rocket.
People are so focus on evenly increasing profits, that good companies that grow, but have lumpy results, due to one off profits or losses, or change in year ends, become basically ignored.
Wonderful net asset companies, whose assets are actually worth something, and often more than book, and is often also growing, becomes woefully undervalued. In most countries, NTA plays are rubbish frozen corporations. Here, we have dividend paying companies with good and conservative management, and deep hidden assets selling for a song.
The key to success in fishing, is to fish where the fishes are. And the key to success in investing, is to go where the great value investments are.
The average investment manager in the US is much smarter than the ones in Malaysia, and much larger in number. And the paradox of skill says that when the outcome of an activity combines skill and luck, as skill improves, luck becomes more important in shaping results. As people get better, the variation between the highs and lows become much smaller.
Considering the lack of skill here, where even someone like me can appear outstanding, and the sheer amounts of mispricing thrown up by an inefficient markets. Its like shooting fish in a barrel.
God I love Malaysian stock markets.
In investing and to a large extent life, where to best apply our focus and skills depends partially on where others are applying theirs.
Everyone else, please predict quarters more, play TA etc with each other, looking at chart and computer screen all day long and focus on winning in the zero sum game. Please go find out where steel, currency, and palm oil price are. Whether it is making HBI or KNN.
Leave the rest to me!
Value investing does not work in Malaysia! Let me be the only sorchai following it!
And unlike other people, i dont need anyone supporting the price of my investments!