Value Investing in Growth Companies: How to Spot High Growth Businesses and Generate 40% to 400% Investment Returns

"There is no such thing as the right formula for investing. There is, however, the right mindset for better investing. In the search for Asian value stocks, Ang and Chng lay out some fundamental guidelines and observations for successful stock picking. Investors who are eager to gain exposure to the Asian market should read this book." —Ronald W. Chan, CIO of Chartwell Capital Ltd, author of The Value Investors: Lessons from the World's Top Fund Managers "Bottom-up investing is all about discovering value early, getting into the stock well before the crowds and exiting as mainstream investors move in and push up the valuation. The techniques outlined herein are timeless and can be referred to over and over again as you progress in your investment journey. This is is an enlightening read and thoroughly enjoyable for those interested in learning about value investing and starting their investing journey." —Digby Falkiner, former Indonesian research director at Deutsche Bank, former regional research operations head at Societe Generale, private investor and lead trainer for MIP Advanced "Rusmin and Victor have broken down the complex and arcane art of stock picking through fundamental analysis into easy-to-understand concepts and examples. Most of the examples used were of Asian companies and that made it easy for me to relate to them. I highly recommend this informative book to everyone who wants to learn more about value investing." —Lim Dau Hee, Group IT Director of ShareInvestor Pte Ltd "Value Investing in Growth Companies is a solid piece of work where you will find real-life tried-and-tested strategies to help you become a successful value investor if you're looking into high-growth, small-cap companies. Rusmin and Victor have unleashed everything they know about picking companies that will multiply in value many times over. The book is easy to read and keeps things simple to understand for the everyman—you can only find golden nuggets of investing wisdom between its covers." —Adam Wong, coauthor of the national bestseller Lucky Bastard!

Foreword xi Preface xiii Rusmin Ang’s Journey xiv Victor Chng’s Journey xvi How We Met xvii Overview of the Contents xix Acknowledgments xxi Chapter 1 The Making of a Value–Growth Investor 1 The Common Journey of New Investors 1 Short–Term Trading to Long–Term Investing 2 Growth Investors 4 Value Investors 6 Value Investors versus Growth Investors 7 Value–Growth Investors 9 Warren Buffett’s Journey 10 Value–Growth Investors 12 Definition of Growth Companies 13 Common Misconceptions about Growth Companies 14 Myth 1: The Higher the Growth Rate, the Better the Company 15 Myth 2: Fast Growers Are Companies in Fast–Growing Industries 16 Myth 3: You Cannot Buy Growth Companies at Bargain Prices 16 Myth 4: Fast Growers Are Companies That Have Small Market Capitalization 17 Myth 5: Small and Fast–Growing Companies Are Not Covered by Analysts and Institutions 18 Myth 6: Growth Companies Pay Very Little Dividend 18 Why Value–Growth Investing? 19 Capital Appreciation or Intrinsic Value Appreciation 20 Dividend Growth and Passive Incomes 23 Summary 26 Chapter 2 The Secrets of Successful Value–Growth Investors 29 Healthy Thoughts Lead to Sustainable Results 29 Mindset 1: Understand the Power of Compound Interest 29 Mindset 2: Start Young! 33 Mindset 3: Be a Long–Term Investor! 35 Mindset 4: Never Leverage to Invest in the Long Run! 36 Mindset 5: Exercise Independent Thinking 38 Mindset 6: Be Emotionally Stable 39 Mindset 7: Think Contrarian When Investing 41 Mindset 8: Understand Mr. Market (Effi cient Market Theory versus Mr. Market) 43 Summary 46 Chapter 3 The Jigzaw Puzzle—Four Pieces to Value–Growth Investing 47 The Jigsaw Puzzle Model 47 The Art and Science of Investing 49 Looking for the Right Information 53 Information Released by the Company 53 Information from Outsiders 57 Summary 58 Chapter 4 Business—The First Piece of the Puzzle 61 Understand a Company’s Business Model 61 Simple Business 63 Circle of Competence 65 Going Beyond the Limit 67 Competitive Advantage 70 Knowing the Competitors 73 Think Like a Customer through the Scuttle–Butting Process 74 Finding Future Growth Drivers 76 Understanding Risks—What Can Go Wrong? 78 Summary 79 Chapter 5 Management—The Second Piece of the Puzzle 81 Management Forms the Cornerstone of a Business 81 Criterion 1: Trustworthiness 83 Criterion 2: Candid in Reporting 86 Criterion 3: Aligned with Shareholders’ Interests 88 Criterion 4: Track Record/Experience 90 Criterion 5: Visionary Managers 92 Summary 96 Chapter 6 Numbers—The Third Piece of the Puzzle 97 Numbers Do Not Lie 97 Numbers to Look at When Reading the Income Statement 98 Revenue 98 Cost of Goods Sold 100 Gross Profit 100 Expenses 102 Net Profit 103 Earnings per Share (EPS) 106 Numbers to Look at When Reading the Balance Sheet 109 Noncurrent Assets 110 Current Assets 112 Noncurrent Liabilities 114 Current Liabilities 115 Shareholders’ Equity 116 Current Ratio 117 Return on Equity 118 Debt–to–Equity Ratio 120 Numbers to Look at When Reading the Cash–Flow Statement 122 Cash Flow from Operations 123 Cash Flow from Investment 124 Cash Flow from Finance 127 Summary 129 Chapter 7 Valuation—The Fourth Piece of the Puzzle 131 The Valuation of a Stock 131 Price–to–Earnings Ratio 133 Types of PE Ratio 136 Price–to–Earnings–to–Growth Ratio 137 Discounted Earnings Model 141 Intrinsic Value 141 Margin of Safety 148 Undervalued 149 Fair Value 149 Overvalued 150 Summary 154 Chapter 8 Screening—Buy—Monitor—Sell 155 Screening (Using Numbers against Competitors) 155 Stage 1: Consistency in Key Performance Indicators 156 Stage 2: Comparing the Compound Annual Growth Rate 157 Stage 3: Finding Consistency or Increases In Margins 158 Stage 4: Digging Further into a Company’s Debt and Cash Position 159 Stage 5: Digging Further into Other Numbers to Confi rm Your Pick 159 Conclusion 161 Buy, Monitor, and Sell 162 Buy, Buy, and Buy 163 Monitor, Monitor, and Monitor 166 Online Monitoring 169 Offl ine Process 170 Sell, Sell, and Sell 171 Summary 177 Chapter 9 Portfolio Management for Growth Companies 179 Understanding Your Portfolio 179 Types of Diversifi cation 180 Personal Diversifi cation 181 Company Diversifi cation 182 Industry Diversifi cation 183 The Sky Is the Limit 184 Summary 185 Chapter 10 Avoid Common Mistakes 187 The Dos and Don’ts of Investing 187 Mistake 1: You Think You Are a Long–Term Investor but You Are Really a Speculator 187 Mistake 2: Timing the Market 189 Mistake 3: Investing in High–Technology and IPO Companies 190 Mistake 4: Investing in Companies that Are Not Consistent 192 Mistake 5: Buying a Growth Trap (Not Focusing on the Quantitative Side) 194 Mistake 6: Buying a Value Trap (Not Focusing on the Qualitative Side) 195 Mistake 7: Sell Your Winners; Keep Your Losers 198 Mistake 8: Diversification Mistakes 199 Summary 200 Chapter 11 Case Studies and Conclusion 201 Bibliography 205 About the Authors 207 Index 209 

Rusmin Ang and Victor Chng are the Chief Investment Analysts at 8 Investment Pte Ltd. Together they specialize in unearthing high-growth, small-cap companies. 8 Investment was founded in 2008 with the founders' intention of inspiring investors through the sharing of successful learning experiences in business and investing. Driven by the values of integrity, responsibility, mastery and growth, the company has achieved excellent financial results with an average 139% growth in revenue annually over the last three years. Subscribing to its FASS business model (Feasibility, Adaptability, Sustainability and Scalability), 8 Investment has built one of the largest networks of value investors in Asia and developed a comprehensive range of investing books, CDs and digital learning programmes to cater to this growing audience. Their seminars and courses have been attended by over 70,000 people throughout Asia in the last six years.