Sunday, November 19, 2017

Factor Based Investing Course (by Dr. Wealth) - Review

I had the opportunity to attend Dr. Wealth 2.5 days course which spans across the weekend thanks to the invitation by the team.

This was my second time attending their courses and it is a very much expanded and improvised course than the first one I attended, which touches only on the CNAV (Conservative Net Asset Value) concept. You may want to read my earlier review on the course here.

I'll try to cover as much as I can without detailing too much of what they teach because I believe if you want to become a successful investor, you've got to put an effort to it, not a spoonfeeding and that's what this course is all about.

The course is divided into 3 broad strategies in general, namely the CNAV concept, the GPAD concept and lastly the momentum concept.

Day 1

On day 1, we were taught on how to value a company using a CNAV concept.

This is basically using book value as a core to identify companies who has assets and are trading lower than their book value, which implies as undervalued.

What is different with this CNAV concept is that they teach you on how to pick the good and better assets from the other assets. For example, cash is a better asset than receivables and hence have to be valued a bit more differently because receivables can turn into bad debt in a likely scenario.

Once the list of companies has passed the CNAV criteria, they are being further checked for their other factors, which they named it in house as their POF score. The POF score is basically standing for the Profitability, Operating Efficiency Cashflow and Financial Leverage. The idea of doing this is to ensure that we are buying a legitimate company who is not making losses after losses which are burning cash. If they do, that'll only be a value trap, not a value buy.

The course teaches the students a clear signal of when to enter (buy) and to exit (sell). So they've made it into a system that's easy for the students to follow.

Personally, I like the strategy of the CNAV concept and I have used a bit of the same strategy in general to mostly my developer companies, with the caveat difference that I am looking for a bit of extra catalyst or events driven news before I enter. One such example is Ho Bee Land which I am currently vested.

For the exit strategy, it is always more of an art than science.

Personally, I have different strategy myself but so does everyone and I understand how difficult it can be to design a system where it signals you when to exactly sell at an optimum price.

Day 2

On day 2, we were taught a new strategy in the form of GPAD.

I do not want to delve too much into the detail but this is rather new to me and I've hardly heard about combining the two ratios together between Gross Profit and Dividend. 

Apparently, this was backed by a research study by Novy Marx who's done a quantitative research based on past data in search for ratios which would synergized into a value metrics.

There are several reasons on why the Gross Profit was used instead and they are not much different from what I had written in the past about Bruce Greenwald's EPV (Earnings Power Valuation) method which adds back certain "good" expenses such as marketing and R&D because it takes into account future benefits.

Alvin further teaches the class on how to read companies that are able to sustain their dividend through the free cash flow and payout ratio which adds more value in the form of education.

While it is great to know, I'm just not sure how much these students can absorb because it's a bit more abstract and relative, not as direct as the CNAV concept taught on the first day. I get the feel that the students are taking the 2nd day a lot tougher than the first.

The class also played an investing game which touches on real life example of companies using the CNAV and GPAD concept, which I think everyone enjoyed it.

Day 3

While I'm not able to join the third day due to other appointments, I understand that there is another form of strategy in the momentum concept.

I'm still not sure why they introduce the momentum concept after a rather heavy two strategies which  think it's sufficient for the students to succeed. The momentum concept is relatively short term and hinges much on momentum flow hot money is flowing. In my opinion, this can be seen a bit more speculative rather than investing, and I personally would avoid this altogether if I know nuts about it.

What I like is they have also touched on risk management, portfolio allocation as well on how to mitigate risk using stop loss and orders.

Final Thoughts

I think overall it's a very fruitful 2.5 days if you would like to learn about the different strategies and what value investing is all about.

Personally, I learned a great deal of information myself which would surely be helpful in my future assessment of the companies I prospect.

The class is also conducted in a fun way as Alvin and Louis were both expert in their field of studies and have many real life stories to share. For one, I particularly liked the part where Alvin touches on the vertical and horizontal expansion, using simple example like chicken rice stall where everyone would understand.

If you'd like to explore, you may want to attend their free preview course which you can find over here and signed up in the eventbrite link.

They are free to attend for the preview upon which you can then decide if you'd like to sign up for their extensive 2.5 days course.

Thanks for reading.

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