MASTEEL

[i4value]

The Malaysian steel sector is a tough one as illustrated by the following chart on the Bursa Malaysia steel sector ROE taken from my article A tough 12 years for Bursa Malaysia steel companies



You can see that there were many years with negative ROE. Over the past 14 years, the mean ROE averaged a negative 1%.

So when you are a fundamental investor and you come across a company like MASTEEL with an average ROE of positive 2% over the same period, you should be having this company in your shortlist for further investigation.

[weijian]

The Malaysian steel sector is a tough one as illustrated by the following chart on the Bursa Malaysia steel sector ROE taken from my article A tough 12 years for Bursa Malaysia steel companies



You can see that there were many years with negative ROE. Over the past 14 years, the mean ROE averaged a negative 1%.

So when you are a fundamental investor and you come across a company like MASTEEL with an average ROE of positive 2% over the same period, you should be having this company in your shortlist for further investigation.

An excellent company producing 2% avg ROE compared to its peers at -1% (outperform by 3% ROE) is not going to be better than an underperforming company that produces 5% avg ROE while its peers are at 10% ROE.

I understand that success sometimes share similar traits across industries and it is interesting for study. But time is the most valuable asset for any investor and if time is a premium, would it be better to pick our battles by investing our most valuable asset on 10% ROE industries than the -1% ones?

But of course, every dog will have its day. For example, coal assets finally had their payday (after almost a decade?) in the last 2 years. So the question is, what are the catalysts for the Malaysian steel industry to have its heyday? Mega projects? More kleptocracy?

[i4value]

I differentiate between a good company (ie fundamental sound eg with ROE > 10%) and a good investment (ie one that enables you to make money as an investor). These 2 aspects are not the same. The first is driven by economic factors while the second is driven by market sentiments.

The ideal situation is to have a good company and a good investment. But over the past 20 years of value investing, I found the it is tough to find a good company that is also a good investment. In most cases, good companies tend to be overpriced as every one wants them.

So most of the stocks that I made money are those that are not so good companies (at the time of my entry) but are good investments because they are underpriced. This then depends on valuation and how you see the business prospects.

I do a lot of base rate analysis (ie data about the sector) because it gives me a sense of whether a company doing badly currently can have a chance to turn around. Secondly, I like cyclical companies because its cyclical nature gives me greater confidence about where the sector will be in the future.

It is sad but to be a successful value investor, you have to invest in companies that nobody wants. How do you go against the crowd. Surely you must have a better basis than the crowd. I rely on my base rate analysis as the first cut.