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Showing posts from June, 2020

An Effective Way to Screen for Value Traps

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Case Notes 02: Value trap and other Pointers from Ekson's case study.  Revision date: 20 Sep 2020 Can you screen for value traps? First thing first.   If you have not read the Eskons case study ( Part 1 and 2 ), I suggest that you do so in order to maximize the value from this post.   Investopedia defined a value trap as “… investment that appears to be cheaply priced because it has been trading at low valuation metrics…The danger of a value trap presents itself when the stock continues to languish or drop further after an investor buys into the company.” Value trap is a common search for phrase as the Google Trend report below shows. The chart indicates that there is some interest in value traps over the past 5 years.  It is not surprising to note that during the current pandemic, there has been a slight increase in interest in value traps.  You would have thought with the sustained interest, there would be a common understanding of what the phrase meant. However, a survey of

Is Eksons a value trap? (Part 2 of 2)

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Value Investing Case Study 01-2: Valuation and Risk Assessment of the Group Eksons is cheap with a market price of RM 0.57 per share on 1st June 2020 compared to its Graham Net-Net value (a proxy for liquidation value) of RM 2.28 per share based on its Balance Sheet at 31st Dec 2019.  But how can you tell that it is not a value trap? Many will say that for Eksons to be a value trap either one of the following must happen: The Group is not able to turnaround the Timber segment and as such the market will continue to view it negatively. The cash and securities are wasted away causing a substantial decline in its Asset-based value. Is this the correct way to assess a value trap? By the end of  Part 1  I hoped that you have got a good picture of what Eksons do, the problems it faced and its outlook.   In Part 2, I will complete my case on why Eksons is not a value trap.  Now as to whether you should go and buy Eksons - see my Disclaimer. Contents Did Top Management Seize Opportunities? Is

Can we learn anything from investment case studies?

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Case Notes 01: Pointers from Ekson Case Study 01-1 and Case Study tips.   This post has been updated to cover what you need to learn in the context of value investing and the role of case studies. Note that there is a PowerPoint presentation of this article under " Learn how to invest using investment case studies ". Revision date: 18 Oct 2020 If you have come to this blog hoping to get weekly tips on which stocks to buy – sorry, you have the wrong blog. OK, the case studies do provide you with a pretty good idea of whether the featured companies should be high in your buying list. But I hope that is not the main reason you are here because, with one case study per month, I will probably be featuring only 12 companies per year.    What can you get from this blog? If you are new to investing, I hope to shorten your learning time by helping you develop the 3 skills required to be a successful value investor How to analyze companies How to value them  How to mitigate risk If yo

Is Eksons a value trap? (Part 1 of 2)

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Value Investing Case Study 01-1: A fundamental analysis of the Group What is a value trap?   It is an investment that is trading at a low price relative to its value that while appearing to be cheap, is misleading.  With a market price of RM 0.57 per share on 1st June 2020 and with cash and marketable securities of RM 1.27 per share (based on the Balance Sheet on 31st Dec 2019), Eksons looks like a bargain.  But is there a catalyst for the price to go up? Or will there be some impending impairment that will wipe out a significant portion of its value? In other words, is Ekson a value trap?  In this 2-parter I will lay out my case why Eksons is not a value trap.   Now as to whether you should go and buy Eksons - see my Disclaimer. I present Part 1 here while   Part 2  was published on 21 June 2020.  Contents Is there Anything Special about the Group's Expertise? Is there Concern about how it Uses its Funds?  Is the Current Performance Outstanding? Tracing the Group's Rich and