This article will be reproduced at TTTI as a guest post as well.
Firstly, I like to thank TTTI for giving me the privilege to write a guest post for his blog. After deciding for a long time, I decided to write on my creation – Triple S Scorecard – which is also unique to how I invest. In addition, this comes as a good time as I am reviewing on this scorecard as well.
When I started investing in 2009/10, I had my fair share of mistakes. It was only after reading the book, Value Investing: Tools and Technique for Intelligent Investment by James Moniter, in 2011 that I realize the need for a more consistent value-focus strategy. After reading more books, I came up with a checklist.
So in November 2015, Triple S Scorecard was created. Most of the criteria were heavily influence by the teaching of Benjamin Graham, the father of value investing, as well as the books, Value Investing Tools and Technique by James Montier and Show Me The Money Book 2 by Teh Hooi Ling (Read here for a detailed write up on the Criteria of Triple S Scorecard and its initial research).
A review of the stocks (that was bought because it passed the predecessor checklist or Triple S Scorecard) showed that 5 out of 9 of them will have produced capital gains. If dividend is taken into account, 7 out of 9 of them will have produce positive gains. However, I believe the scorecard has the potential to be greater with some enhancement and simplification.
Thus, I made the following changes:
- Current Ratio was removed as a Criteria – Most stocks that I target in the initial stage will have already have a high Current Ratio. In fact, if its Current Asset is already higher than its Total Liabilities, this criteria will be almost irrelevant.
- Total Liabilities to Equity as well as Total Debt to Equity Criteria are combined – This is to emphasize the focus on the balance sheet to ensure it is not highly leveraged or geared.
- Dividend Yield was increased to 3.5% - Just preferred a stock that provide more dividends to its shareholders.
- Dividend Yield to Price to Book Value was amended to 8.8 – This criteria was a direct “pluck and use” from the book, Show Me The Money Book 2 by Teh Hooi Ling. She researched that if a stock gives high dividend with low Price to Book Value, while not being highly leverage, it will have the higher probability of a gain.
- Earning Yield was removed as a Criteria – Earning Yield is actually the opposite of Price to Earning Ratio. Thus, this may be a duplicate of the criteria.
- Price to Average 5 year Earning was removed and replaced with Price to Average 5 year Free Cash Flow – I read up on free cash flow and was enticed by the meaning behind it. It took away/add back the non-cash item from net profit and calculate the amount that is left over by a company to use to pay down debt, distribute as dividends, or reinvest to grow the business.
- Current Price to Earning Ratio to reduce to 7 – This is another criteria that is "pluck and use" from the book, Show Me The Money Book 2 by Teh Hooi Ling. Similarly, she researched that if a stock has very low Price to Earnings Ratio, it will have a higher probability of a gain.
Triple S Scorecard
Enhanced Triple S Scorecard
Then, I went back to the 9 stocks and did an analysis on each stock, using the financials I used at the point of time to input in the initial Triple S Scorecard, to input in this new Enhanced Triple S Scorecard.
This is the result – only 4 out of those 9 stocks that passed this Enhanced Triple S Scorecard (Based on the financials at that point in time).
The 4 stocks are:
1) PNE Industries Ltd, which has a Total Gain of 39.9% during this period of investment.
2) TTJ Holding Ltd, which has a Total Gain of 12.6% during this period of investment.
3) Ellipsiz Ltd, which has a Total Gain of 24.1% during this period of investment.
4) Fischer Tech Ltd, which has a Total Gain of 29.3% during this period of investment.
This also meant that if I only invested in these 4 stocks that pass the Enhanced Triple S Scorecard at that point in time, I will have 100% gain.
BUT… please note that this is only based on a small sample size. Only time will tell if the Enhanced Triple S Scorecard will continue to produce positive results for my portfolio.
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