The Investment Secret of Santa (Anonymous)

Recently I became interested in investment and took my first step by picking up this book. It introduces basic methods in selecting potential companies and tells personal experiences of the author in his long years of investing.

Chapter 1: Self Conviction

There are three conditions to be successful – not simply in finance but in any field. That is sincerity, desperation, and firm will. Negative mindset only hinders one from pursuing his goals and picture yourself that achieved what you wanted. Follow successful models as they are already verified and ACT, not speak.

Chapter 2: Increase Your Capacity

Every person has their own capacity to handle money. Even if one earned money that exceeds the capacity, it is only temporary and will soon decrease to reach its maximum. As a result, one’s capacity must be increased to handle more wealth, and the way to do it is through having altruism and humility. The basic attitude towards investment is not trying to make more fortune, but rather to not lose money. So when investing towards a company, one should act as if his whole family depends on it, as if his future solely depends on it. Act as if, you can invest only 10 times in your life, and one is being used right now.

Chapter 3: Look Beyond the Market

Do not expect swift fortune, and do not swiftly change routes. Invest in the company you have conviction towards and wait, even in short-term losses. We generally try to buy assets when it is undervalued and sell when overvalued; the majority look for valuation or investment indexes like PER, PBR, PSR, EV/EBITDA. And yes, they can be helpful in determining purchase and sale, but it does not perfectly tell whether an asset is undervalued or not. It is affected by many external factors including the industry conditions. As a result, observing whether a particular industry has a bright future is much more significant than these stats. Finding a good company in good industry prospects before others – this is the most essential part in investment. Good investment opportunities begin before information spreads.

      -       The current situation, size, and prospect of the industry

      -       The company’s place within the industry (market share, technology, overall evaluation)

      -       The company’s competitors

      -       The company’s profit model (will it steadily generate cash?)

      -       The CEO’s share in the company (at least over 30 percent)

      -       News and policies

      -       Much, much analysis

Chapter 4: Find the Company You Want to Buy

Find companies that will become rich as they will make you rich as well. Raise insight within the world and find the industry that will become profitable. Even if a company is super great but the industry it is belonged to sucks, it’s no use. (No matter how good an umbrella is, you don’t need it on a clear day) Again, finding the will-be-rich industry comes first and then the specific company. It is also important to focus on B2C companies. Rather than investing companies that invent new technology, invest to the ones that utilizes it. For instance, touch panel companies do not make much money nowadays, but it is the smartphone industry that utilized the panel to create massive profit. And do not invest to companies that is unidentifiable or hard to know. Lastly, be sensitive to the movement of money – There is business where money is collected. Tenbagger companies have the following common features.

      -       It maintains top rank of technology or market share in its industry

      -       It focused on one field for many years, which enables the infrastructure to match industry changes

      -       It is in a greatly developing industry

Chapter 5: Timing

Divide the market capitalization with cash flow for operation. For instance, if company A has market price of 200 billion and cash flow of 30 billion, it will take 7 years on withdraw the capital. The quicker the better, and about 5 years would be quite okay. Always imagine you are buying this company and looking at the net profit will be unsuitable as it can be affected by excessive expense and deprecation. There are many companies where net profit seems high but cash flow is terrible. The best timing is when the market changes. Observe what happens to the market and what industry will take profit from it. When determining whether an asset is undervalued, do not blindly trust PER and PBR – they only show a fragment of the whole. Also the net asset, used in PBR, should also be cautioned. Inventory assets or real estate in the suburbs are almost useless and only cash and good real estates are really what matters. Again, rely on the cash flow for operation and see its relationship with market capitalization and compare the ratio with other companies in the same industry.

Chapter 6: Know-how

      -       Looking for industries that would grow

      -       List the related stocks

      -       Select a company to buy (analysis for each listed stock)

      -       Buy it when it is appropriate

      -       Relax and wait!

Chapter 7: The Future

The US leads the world trend, and the top company in the US is also the top in the world. Don’t just stare at Korea’s stock market but look around and catch the opportunities that lies ahead!