What is a Good Stock?

Good company

When laypersons talk about a good stock, they generally have in mind a good company, with good management and good business. Unfortunately, the primary determinant of one’s investment return is driven by the purchase price and cash flow (via dividends received or subsequent sale) derived from the investment. In some cases, a good stock investment has the accompanying characteristic of a good company, etc, but in almost all cases, the initial purchase price drives much of the subsequent investment return. Sellers rarely let go of good companies at a good price.

Un-original investment criteria

As much as we’d like to promote ourselves as having a secret formula to investing, that doesn’t pay the bills. Investment performance is how we get paid. Accordingly, DCG is highly pragmatic in adopting what others (in particular, Benjamin Graham and Warren Buffett) have shown to work. Our investment criteria generally falls into the following flavours of stock investing:

  • Low price to asset;
  • Low price to earnings or cashflow;
  • Focus on unwanted stocks (small market capitalisation/forgotten/ignored/turn-around/’disgusting’ companies; and
  • Short-term disappointment.

Low Price to Asset

This is not low PB (price to book) – book value is a quick, and dirty.

What is a value investor?

Value investing is a highly over-used term that captures a huge spectrum of investment behavior. DCG is a value investor only in the sense that the price we pay must be significantly below the value we see. We diverge from some more dogmatic value investors who believe that a low price to book, or the final puff of a wet cigar butt-type, investing is the only way.

What else works?

Much of what we’ve adopted owes a lot to the insight shared by Benjamin Graham in Security Analysis and the Intelligent Investor. Aside from these two wonderful books, the interested reader may consider Tweedy Browne’s outstanding 60-page study on ‘What has worked in investing’ for further insights on the other tools that DCG uses.

Melvin Tan

Melvin joined DCG Capital in 2011 and is a portfolio manager with more than 13 years of experience in investment management.

Previous experience: Lion Global Investors, Technology and Telecommunications; Straits Lion Asset Management, information technology portfolio implementation; Avanade Asia, software engineer.

Academic and post-graduate qualifications: Bachelor of Engineering (Honours), National University of Singapore; CFA® charterholder.

Teck Jin Tan (“TJ”)

TJ joined DCG Capital in 2014 as an investment analyst with more than 8 years of experience in investment management.

Previous experience: Target Asset Management, Greater China equity; Deutsche Bank, Hong Kong, macroeconomics and equity strategy; Singapore Police Force, securities fraud.

Academic and post-graduate qualifications: Bachelor of Engineering (Honours), Master of Engineering, Cambridge University; MBA, Columbia University; CFA® charterholder.

William Toh

William joined DCG Capital in January 2019. He has more than 25 years of investment experience.

From 2007 to 2018, he was the Chief Investment Officer of New Harbour Capital Partners and Lead Portfolio Manager of the New Harbour Asia Fund. Prior to that William was the Chief Investment Officer of Asia General Holdings responsible for managing the insurance funds of Asia Life Assurance and Asia Insurance (2001-2006). He started his investment career at GIC in 1981.

William is an Independent Non-Executive Director of Mapletree Industrial Trust Management Ltd and also serves on the investment committees of several Mapletree property funds. He is Chairman of the investment committee of the Methodist Church of Singapore (since 2013) and a member of the investment committee of Singapore Bible College (since 2008).

William studied at the University of Tasmania, Australia on a Colombo Plan Scholarship and graduated with a First Class Honours degree in Mathematical Economics. He also attended the CFA Investment Management Workshop presented jointly by CFA Institute and Harvard Business School.