Q&A with Southeast Asia’s Small-Cap King, Dr Tan Chong Koay

In his 43 years of investment experience, Dr Tan Chong Koay has earned many titles, including "Second Board King of Malaysia" (1998), "Southeast Asia’s Small-Cap King" (2006) and "Warren Buffett of Asia" (2017) [1].

He has devoted 18 years to helping others to build their businesses and his Asset Management firms, Pheim Asset Management Sdn Bhd in Malaysia [2] and Pheim Asset Management (Asia) Pte Ltd in Singapore [3] have won multiple awards. During his prime, his assets under management (AUM) once hit US$1.8billion [3].

DrTanChongKoay chinadaily Dr Tan Chong Koay (who is 70 this year) received the China Top 10 Financial Intelligent Persons Special Award 2010.
Source: China Daily [4]In 2010, Dr Tan was awarded “China Top 10 Financial Intelligent Persons Special Award 2010” by People’s Republic of China.

In 2012, he was awarded “Most Respected Chinese Entrepreneurship Award in Asia Pacific” by China Economic Trading Promotion Agency, People’s Republic of China. In 2014, Dr Tan was named one of the 80 Global Chinese Eminent Business Leaders by Beijing-based The China Daily. Many other accolades can be found here [6].

His book “Rising Above Financial Storms” has sold more than 14,000 copies.

2 years ago I submitted my CV by post and email to him as I sought a job in his company. I didn't hear from him for a while , then one day he texted me.

Since then I have had the privilege of meeting up with him for coffee several times. I have benefited amply from his generous sharing of his investment philosophy. I regard him with much respect as a friend and mentor.

Special thanks to Dr Tan for agreeing to share his thoughts on the 6 questions most commonly asked by new investors, and I am happy to share them here on EngineerInvest.com.

Qn 1: What are the typical returns I should expect from investing in stocks?

Answer:

Definitely higher than fixed deposit. A simple average of 6% to 12% if you were to invest wisely. As an indication, our star fund, Dana Makmur Pheim, a Balanced Islamic Fund had a simple average of slightly more than 22% per annum and an annualized return of 9.26% since its inception on 28th January 2002 until 30th June 2020.

(Fact sheet of Dana Makmur Pheim).

Qn 2: What are your main criteria in identifying winning stocks?

Answer:

Pheim prefers a company that has a healthy growth rate with low gearing and good management, and is trading at well below its intrinsic value.

Qn 3: At what debt levels (e.g. debt to equity, total debt/total assets, current ratio) would make you uncomfortable to invest in a company? It could be industry specific for example insurance, tech, developers, etc.

Answer:

Investing is an art not a science. There’s no fix formula that covers all aspects. It really also depends on the type of industry we are talking about. For example, say for manufacturing/property companies, in general a gearing below 0.5 will be good. For banks we also need to look at other parameters such as loan to deposit ratios, non-performing loan and deposit growth. Whereas for insurance companies, it is more complex than to just look at debt to equity; you need to look into their market strategies and investment portfolio as well.

Lastly, we also need to be a little flexible here. If we see a company with slightly higher gearing but with good potential business growth and excellent management, and is trading at an attractive price, we will also consider it.

Qn 4: Profits are quite important to a business. However, we often see stock recommendations for companies with potential but are still loss-making. How should we analyse such companies?

Answer:

For these companies, it is necessary to really understand the company well, and have a good grasp of how the company would turn around. If the management is good and presents a good growth story with low gearing, then we can consider these companies. The key lies in extensive research, specialized knowledge in these companies, identifying what are the significant trigger factor that will cause the stock to rise. Sometimes for these companies, they might be just losing money temporarily. A good example is that the company has already secured a sizable contract or project which will contribute to the bottom line.

Qn 5: If there’s a single most important advice for a young investor, what would that be?
Answer:

There is no single factor but in fact there are many attributes that an investor should have to be successful. Having high IQ and doing well in school will help but is never a pre-requisite.

"Prior to even start to invest, you must first have money accumulated through saving and controlling your expenses. Try not to cultivate expensive habits in order to maximize your saving to multiply your wealth. It’s just like a company that will do well eventually with consistent growing cashflow. We like companies with increasing net income but with low and controlled expense."

-- Dr Tan Chong Koay

A young investor should learn from successful investors and fund managers about how to identify winning stocks from a business/entrepreneur perspective, and about successful investment strategy and about how to exercise investment discipline. Read widely on current affairs/political/economical events. Next, is to build your experience by investing with real money and going through the cyclical bull and bear run.

Lastly, all the above can only be achieved through research, knowledge and following a proven investment philosophy and criteria.

Qn 6: What’s your outlook for the current market with COVID-19, US-China tensions and rising uncertainty?

Answer:

Crisis creates problems but also opportunities. I will recommend to practice value investing. I also advocate ‘Never Fully Invest At All Times’. You should increase exposure near market troughs and trim exposure near market peaks. Disciplined and diligent practice of these investment strategy and philosophy would enable you to benefit from major market swings.

Watch this video interview by Mr Chng Huck Leong with Dr Tan (recorded on 21st April 2020): Rising above Financial Storms 在动荡时期的投资