THE cover of Tan Chong Koay’s book says he is Asia’s No. 1 investment guru.
A bold and brash statement to make, but 65-year old Tan, who is Pheim Asset Management Sdn Bhd’s founder and chief strategist, has the track record to trumpet this glory.
With a cumulative return of 497.37% in US dollar term, Tan’s Pheim Asean Fund has taken the top position for all the 1- to 20-year periods among all Equity Asean funds in the Lipper Global classification under the International Offshore Universe on its 20th anniversary as of Feb 3, 2015.
At US$60mil, some may say the Pheim Asean fund is small compared to other mainstream funds. Nonetheless, a return of more than 450% over 20 years is quite unprecedented.
Today, Pheim Asset Management manages close to RM1bil in funds. This consists of five retail unit trust funds, two Luxembourg funds, one Japan unit trust and less than 15 private and institutional managed accounts, which includes the Employees Provident Fund since 1997. More than half of Pheim’s Asean Fund are Swiss and European investors.
Tan started Pheim on Jan 4, 1994 with the simple investment philoposhy of being: “Not fully invested at all times”.
It is with this discipline that Tan has chalked up immense investing success for himself.
In the nineties and early twenties he was dubbed ‘The King of Small Caps’ in Malaysia and Asean when he made a killing with stock picks in the Second Board in 1995/96 and during Asian Financial Crisis in 1998/99 in Asean. Some shares bought during the Asian Finanacial Crisis, such as PT Tempo Scan, Dialog and Unisem were sold at more than 13, 11 and 8 times the costs in late 1999 and early 2000 respectively.
When asked what the secret to successful investing is, Tan says simply: “The key is to sell the shares when they are grossly overvalued. Most people do not know how to sell shares even when the price is abnormally high.”
On average, Tan holds a stock between 9 and 18 months and prefers medium sized stocks for their less bureaucratic profiles and faster earnings.
“I don’t fancy Warren Buffett’s style of investing in the volatile environment. On the average, holding a stock for more than five years is too long.” he laments.
Investing philosophy
Tan says the two most important things to remember is not to be invested at all times, as well as to understand the volatility of the market.
“You should never be fully invested in the market because markets have volatility. Volatility creates opportunities to buy more. If you are fully invested at the maximum point, you are going to get very hurt when the market corrects. You should only be fully invested near the lowest point of the market though few will ever know when the exact lowest point is,” he says.
He adds that when one is in the process of buying, one must be prepared to accept underperformance during the portfolio accumulation phase.
Knowing when to buy also depends on market timing.
In timing the market, Tan uses a few key indicators to guide him. Among other things, he looks at the market’s price earnings ratio (PER) and its dividend yield. When a market PER starts to get high, the dividend yield will drop.
So for example, if a market trades between a PE range of 10 and 30 times, Tan will start trimming his position when the market trades closer to 30 times.
Tan says it is also very important to read the major trends well.
“You should never fight against the major trends. In 2008/9, the trend was against the American banks. Citibank which used to be US$50, crashed to US$1. Investors who bought at US$25 after dropping 50% from the peak and averaged all the way down will still lose a lot of money.” he says.
He adds that crisis brings opportunity, but you can only capitalise on it if you have the research and knowledge.
It is also with this reasoning, that Pheim has consistently outperformed the market one year after market crashes.
“If there are no market crashes, how can investors buy at discounted prices?” asks Tan.
For example, in 2007, Pheim Asean fund was 53% in cash. Then when the market crashed in 2008, the fund was less than 10% in cash.
“We sold nearly all our tech stocks before February 2000, which was when the tech bubble happened. Our outperformance was good but not that great, because the tech sector formed only part of the portfolio, whereas in 1987, 1998 to 99 and 2009 to10, the entire market was affected. The years 1998 and 1999 were fantastic for us. We outperformed by a huge margin,” he says.
Meanwhile, Pheim currently has some 10 fund managers, which Tan says is too many for a RM1bil fund, but in its case, the company is looking to expand.
When choosing a good fund manager, Tan says it is important that the fund manager does not have an ego.
“I prefer to pick those that are B- in their academic schools and qualifications and are team players. I also don’t pick fund managers with expensive habits,” he says
Tan feels Malaysia, Indonesia and Thailand are starting to look cheap. He particularly likes the reforms taking place in Indonesia under its President Jokowi Widodo.
“I think if you have a three-year view, now is a good time to buy. Don’t buy now with a 3-month outlook. If you buy now, I think there is good opportunity to make money in the next 9 months to one year,” he says.
He emphasises that a stock cannot just be undervalued, it must be undervalued with rising profit.
He likes stocks with market leadership because when “you are a hero, you can run for more years,”
Tan says palm oil stocks are starting to look attractive. Palm oil is still undeniably the world’s biggest vegetable oil and the weather is increasingly unpredictable.
The other sector he likes is the semiconductor sector, especially for companies that are involved in handphone manufacturing.
In the long run, Tan feels that property stocks are starting to look good. He is not bullish on banks, believing they may face some slowdown, as many have grown for so many years.
On oil and gas, Tan says his funds outperformed last year simply because they had sold off most of their oil and gas stocks and kept the tech stocks.
“We saw that even small service support companies were trading at PEs of above 25 times. We knew it was time to sell.”
On that note, he is of the opinion that oil prices will not recover anytime soon.
“I think its quite clear there is possibly a long period of excess in supply. For this reason, I do not see oil prices going up anytime soon.”
When asked how long he thinks it will last, Tan says most cycles last between 2 and 3 years.
On China, he says it is good that there is a willingness for the Chinese leadership to slow down its economy.
“This correction in China is good. Free enterprise is good and self correcting. With the correction, this provides further opportunities for investors to buy stocks cheap. Some of the pharmaceuticals and banking stocks are not expensive,” he says.
On the US, he admits that the Dow Jones at its present level is not cheap. However, the US is also the only country with solid check and balances
