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The art of investment


CHEAH places high importance on learning. He always seeks to reinvent himself by trying to master and learn new things. Having carved out a name for himself in the area of investment, Cheah shares some of his investment philosophies. He concedes that he does not know everything but have suggestions. Find below some excerpts when Ng Bei Shan and David Tan caught up with Cheah who was in Penang for vacation:

On emotions in the stock market

Fear is a good idea for the stock market. When people are very fearful, they’re not buying stocks. But when there’s a catalyst, everyone will rush back to buy stocks. That’s precisely what happened in mainland China last year.

Worries are necessary to create more buying, to take the market higher.

Sell when people are very optimistic and buy when people are very pessimistic.

On investing

I try to buy based on three Rs. The right business run by the right people at the right price.

The best way to buy is when there is a lot of pessimism when people are throwing away value. That’s when you should come in buy but it’s easier to be said than done.

When people throw away value, something bad has happened.

During the Severe Acute Respiratory Syndrome (SARS) crisis in Hong Kong, I bought into real estate and stocks at a big discount to the true value.

Many people died and thought the economy would collapse. So if you’re contrarian at that time, you might have told yourself that human beings have survived for many thousands of years. Many epidemic events occurred but they’ve never wiped us out.

On buying small, mid-cap stocks using value investing

It doesn’t seem like a big deal now but I can assure you that the concept was very unusual in 1990s. Because institutional fund managers won’t go near small cap stocks and value investing is something they talk about over lunch but don’t really practise. I challenged that because I didn’t want to buy the index-linked stocks. Judge me based on my absolute performance.

It’s a level playing field. The Hong Kong government will not do anything to help the locals succeed. From day one, Value Partners had been competing directly with the big foreign brands.

On Malaysian policies

Although I left Malaysia decades ago, it is my country of birth, and I will always love the country and its people, who are among the most kind-hearted and friendliest on earth. As an investor based in Hong Kong, looking in, Malaysia is in a middle-income trap that’s hard to get out of.

The way ahead for Malaysia, I believe, is to impose a clear separation between the political and business affairs of the country. Since 1957, politics and economics in Malaysia have become so intertwined that a political system based on cronyism and patronage has emerged, resulting in the country being left behind by others. The country needs to be a more competitive economy.

We need to greatly reduce the government’s role in the economy and abolish as much as possible the permits and approvals required to do business. While building a safety net to assist those in genuine need, the focus should shift to giving private enterprise and the free market the leading role in the Malaysian economy.

Enforcement of anti-corruption measures need to be stepped up, possibly after an amnesty has been declared for past misdeeds.

Importantly, Malaysia needs to reverse the brain drain from the country, and a huge capital flight that has seen wealthy Malaysians taking their capital to other countries.

Malaysia s pool of talent and highly educated people is the country's most precious asset, and a maximum effort must be taken to reverse the drain, before it’s too late.

Having said that, we must recognize that there was an understanding in 1957 that the Malay community in Malaysia must have the biggest voice in the country’s affairs, and adequate safeguards can be built into the Malaysian political system to ensure this.

My suggestions are all within the scope of the Malaysian Constitution and a leadership elected by the people.

Malaysia should also go back to the “Look East” policy but this time, the emphasis should be on closer ties with China and India, rather than Japan.

Malaysia’s strength lies in the historical, cultural and economic ties with these two countries.

China and India that offer the most promising markets for exports of Malaysian products and ideas, and we mustn’t miss the chance to maximise the benefits we can obtain from closer ties with China and India.

Malaysia deserves a truly great future.

On what he likes in Malaysia

I’m very interested in palm oil sector especially those Malaysian companies with significant palm oil holdings in Indonesia because it’s much more competitive.

The decline in crude palm oil is only temporary.

On the ringgit

The wealthier Malaysians had been sending money out of the country. They send it to Singapore, Hong Kong and even London. It’s still under pressure. I’m looking at two things: crude oil prices and crude palm oil prices. If these can recover, I think the ringgit will strengthen again.

On asset allocation srategy

The single leading source of my asset allocation is stocks and equities related to China. Because I remain bullish on China’s outlook. That’s also because it’s something I know well. I’m a big believer in diversification so I actually have stocks in the whole world, including in the US, Europe, Russia and Southeast Asia.

Although commodities like gold, palm oil, copper and crude oil are going through a time of price weakness, taking a three, five ten years view, they’ll bounce back and become very valuable again. So I have pretty good exposure to that. At some point, we’ll realise that having real things is more important that having paper things.

Always have part of your money in cash. At some point, this turbeluent market will go through very sharp corrections anywhere in the world. No matter how low interest rates are, try to keep some of your money in cash. It’s a defensive weapon.

On crude oil

Crude oil prices at current levels is hardly sustainable, you need Brent crude oil price to be at US$70 per barrel to be viable.

For this reason, I believe in the next 12 to 18 months, we should be able to see oil restore back to above US$70.

Many marginal oil fields and shale oil fields should be reducing production or they have no more incentives to set up new fields. That will create a natural reduction in supply. The long–term forecast I see from experts range from US$85 to US$100 per barrel. It can go back up to the US$100 per barrel level sooner than we think. Even Saudi Arabia will need oil price to go back to US$100 because they have huge spending on social welfare, services and defence. We’re looking at a horizon of two to three years.

We’re quite bullish on oil. Like I said, the best time to buy is when people are pessimistic.

On his success

We just do our work. There’s no magic formula. I think part of it is just luck.

People in my generation in the financial sector became rich very quickly. We’re not very used to being rich. It may surprise (people) but this is how I feel. I was a poor guy most of my life then I became a middle class guy. It’s only until recent years suddenly you see on the paper that my net worth has gone up a lot. But I don’t feel it, I don’t understand the implications.

You are what you’re excited about and I’m excited about my job. I think being the chairman of Value Partners, having a team of young people working for me is a great thing and the opening up of China gave me one new opportunity after another and the best is yet to come.

   

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