The timeless value of value investing

Goola Warden
Goola Warden3/3/2022 06:26 PM GMT+08  • 4 min read
The timeless value of value investing
Tong's Portfolio explains how our Global Portfolio outperforms MSCI World Net Return Index
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With its 580 pages, Tong’s Portfolio is not a run-of-the-mill book on investing. That it is a book at all, is a testament to the timelessness of the topics in the columns, which started in 2014. The book’s genesis is a regular weekly column by Tong Kooi Ong, chairman of The Edge Media Group, and Asia Analytica.

Initially with stocks listed on Bursa and then global stocks from 2018, Tong’s Portfolio proves the thesis stated in the book’s subtitle — that investing can be fun and profitable. Both portfolios have outperformed the two indices they have been regularly measured against. Since inception, the Malaysian portfolio is up some 140%. The Global Portfolio is almost 70% higher since inception, representing a CAGR of 11.6%.

The Malaysian portfolio weathered the 1MDB scandal, the defeat of Barisan Nasional in an election, and a pandemic. Since the inception of the Malaysian portfolio, the country has had four prime ministers and three changes of government. Yet the portfolio continues to outperform both the FBM KLCI Index and the total return of the FBM KLCI Index.

The Global Portfolio — which is a more challenging endeavour — had, before the start of the Russo-Ukraine War, outperformed the MSCI World Net Return Index.

In writing the column, Tong and Asia Analytica hoped to show the value of value investing. In the book’s Author’s Note, Tong says: “We wanted to share our views to help the public invest better, especially at a time when most people are investing through funds, which are market-weighted or index-linked. This means there are opportunities to beat the market.” The premise of the early columns is that value investing, “provided it is done diligently and correctly… can work for the average man-inthe-street investor”.

The first few chapters focus on Malaysian stocks, the Malaysian market and its economy. The Malaysian portfolio, based on research done by Asia Analytica, was started in part to help readers discover undervalued companies in an overvalued equity market.

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For the Malaysian portfolio, the authors preferred to invest in stocks — not necessarily small caps — with less of a following than the big caps. In the initial portfolio, according to the early columns, the authors viewed Malaysian big cap stocks as overvalued following years of quantitative easing and low global interest rates. The Malaysian portfolio very quickly started to outperform the FMB KLCI from the onset, and it remains way ahead of the index to this day.

The Global Portfolio started in 2018. It was and remains a more challenging endeavour than investing in Malaysian stocks where Asia Analytica has home ground advantage. The Global Portfolio is based on value investing methodologies, and publicly available data.

In fact, the Global Portfolio underperformed the MSCI World Net Return Index for almost a year, but it appeared to hit its stride during the pandemic. Since inception the Global Portfolio is up almost 70%. It was higher, but has obviously since been impacted by the Russo-Ukraine War.

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The book is divided into five main chapters. Chapter 1 is all about value investing. Chapter 2 examines investing in the time of Covid — we’ve been in a pandemic for more than half the time period since the inception of the Global Portfolio. In Chapter 3, “Thoughts on some valuation methodologies, challenges and myths”, the authors take a look at new economy stocks, some of which have risen to stratospheric heights in terms of traditional valuation methods.

Chapter 4 delves into digital technologies. A good place to start the book could be Chapter 5, “A collection of random thoughts”. Some of the musings highlight — for want of a better word — financial engineering.

The best way to read this book is to use it as a reference, or to look for areas of interest. For instance, dividend-focused investors could head to Chapter 1.27, “A basic guide when investing for yield”, or novice investors could head to Chapter 1.3, “Value investing requires conviction”, which describes how the portfolio weathered volatility. There is nothing wrong in having a spring-cleaning of the portfolio, and buying new stocks.

For those of us involved in the publishing of Tong’s Portfolio on a weekly basis, reading the book brings back memories, including late nights at our Cecil Street office. The pandemic has changed the way we work, and that too is an investment theme.

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