Value Investing: A Provocative Guide (Sebastian Chong) 0 comments

This is a very useful book for the Singapore SGX investor, whether old or new, because it talks directly about stocks on the SGX, and is recently written (published in 2003). As such readers can relate directly to the Singapore-listed stocks the author is talking about, stocks like Sincere Watch, Jardine Cycle and Carriage, HTL, Raffles Lasalle etc. Those who had read this book early might even have got some good stock tips off it, such as the abovementioned.

The author Sebastian Chong is a former member of the academia, an Associate Professor in Finance and Accounting no less. So that lends weight to his views on investing in the Singapore stock market. He himself has been investing locally and globally for the past 30 years, and now operates a financial website www.shareowl.com which I believe was just set up. Readers of the local papers (Sunday Times I believe) might have read about the man in the Investing section.

As expected for one trained in Accounting, Assoc. Professor Chong is a fundamentals investor at heart, and his book is a study in this subject. He doesn't exactly discuss stock-picking in a systematic manner, so those newbies who're looking for a step-by-step guide or checklists a la Peter Lynch's One Up On Wall Street would be disappointed. Nor does he engage in any overview of the dynamics of the various industries/sectors in the Singapore context, a subject which I think would have been invaluable to any local investor. Rather, the book is more a collection of articles which, though not exactly well-integrated as a coherent whole, are nevertheless well-written enough to be worth reading individually. That is how I would approach the book --- no need to read from front to back in chronological order.

There are a few main threads running through the book which are each covered by a few chapters. One is the reading of financial statements and annual reports (why am I not surprised?). Another is stock valuation, which provides a few useful insights (eg. his view is that PE is simple and yet effective if used with good judgment: "it is like a scalpel in the hands of a skilful surgeon, still better than lasers used without care or proper diagnosis"). A third main thread, covered in the last few chapters, and which appears particularly relevant in the wake of local corporate scandals that have erupted since the book was published, is the issue of corporate governance, a pet topic of academics.

In between, there are miscellaneous chapters discussing various random topics such as "units trusts vs own stock-picking", "tech stocks or basic stocks","analysing business strategy" (that's a long chapter), which though interesting, somehow seem separate from the rest. There is a short chapter on "listening to the market" where the author comes close to talking about technical analysis but stops short: he just mentions that price patterns should also be watched, and that there are opportunity costs for holding "dead stocks" that don't move.

A glaring omission in the book, of course, would be a discussion of the Efficient Market Hypothesis. I would have loved to read the professor express his views about the validity of the EMH in the Singapore context. Most finance academics seem to be under peer pressure to profess their absolute belief in the EMH; I can almost imagine the author squirm and dodge this topic to avoid expressing views to the contrary.

All in all, the most useful aspect of this book is that it does provide some quantitative rules of thumb and "fair" valuations for SGX stocks, using several popular stocks for illustration. I find that when foreign books try to illustrate their discussions with examples from their home markets I tend to lose interest and skip that section, as I'm not well-acquainted with the stock. However, since this book adopts all local examples that I'm familiar with, the examples have been easier to relate to; it was instead refreshing to read the author dissect the earnings trends, price trends and historical valuations of stocks like Seksun, Metro, Sincere to make his point.