Opinion: My Share Selection Golden Rule 

by Koon Yew Yin 

Disclaimer: The views, thoughts, and opinions expressed here belong solely to the author, and not to Ipoh Echo Sdn Bhd.

The COVID-19 pandemic is affecting most company’s businesses. Due to city lockdown and restricted movement of people, many companies are struggling to survive. For example, in Ipoh alone, Riverside Hotel, Syuen Hotel and Tower Regency have closed down. Under the circumstances, investors especially Investment Banks would have difficulties in finding really good growth stocks from the stock market for investment. Most of the stocks held by Investment Banks would have dropped in price and they are selling to cut loss. 

Due to COVID-19, the demand for medical gloves far exceeds supply. As a result, the price for gloves continues to rise, which is being reflected on their share prices. Coincidently, we have two glove manufacturers in Perak, namely Comfort Gloves and Rubberex. Each of their share prices have shot up more than 400% within the last 2 months. 

When an investor buys a share, he expects to make profits from dividend yield and share price increase. All the listed companies in Malaysia give out less than 6% dividend per year. Investors always expect to make more money from the share price increase, provided they know how to select shares that can go up in price.   

Among all the criteria such as NTA, cash flow, yield, debts, net cash etc the most important is EPS growth which is the most powerful catalyst to push up share price. Never buy based on NTA or net cash of the company because it will not simply give out some of its assets or cash to the shareholders.  

I have formulated my share selection golden rule. Never buy any share if it cannot report two quarters of increasing profit. The following companies namely, Mah Sing, Teo Seng and Jaks Resources do not comply with my share selection golden rule which you should not buy

Never buy any shares if the company has not been able to report increasing profit for the last two quarters. This shows the company’s future is quite bleak. 

Never buy any shares that have been dropping for a long time and hope it will soon rebound. For example, all property counters will continue to drop for a long time because of oversupply. Property prices will continue to drop for a long time. 

Never buy any shares in anticipation that the company will soon make more profit. I am ashamed to admit my most expensive mistake was in buying Jaks in anticipation of its future profit from its power generation plant in Vietnam and ignoring its huge property investment holdings which is like a terminal cancer. Until the company can report that its profit from its power generation in Vietnam can cover the losses from its huge property investment, investors should not take the risk of buying Jaks.   

All investors should check their holdings to see if they comply with my golden rule. You can see the name of the company followed by its results for 4 quarters.

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