My investment philosophy and strategy

Investing is about laying cash out today for more cash in the future. Plus, 6 setups I use

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. Do not rely on this for your investment decisions.

In my first take on Chagee Holdings Limited (CHA; CHA US), I wrote:

“Clearly, liking a company’s product is different from making a good investment. Investing is about laying out cash today for more cash in the future. Besides the product, there are many other important factors to consider in an investment strategy.

In a future Substack post, I will discuss my investment philosophy and strategies that have helped me achieve reasonable returns within acceptable risks across the market cycle.”

In this Substack post, I will do that.

Hold on, hold on. Investment strategies are aplenty. Why should I bother listening to you?

That’s a fair question. I must first establish my credentials.

Since I started investing in Mar 2021, my personal account returned ~13.3% p.a. with ~13% annual standard deviation¹.

Over the same period, the S&P 500 returned 11.6% p.a. with ~17.3% annual standard deviation.

Even though it’s been almost 5 years, I try to keep in mind that this may simply be luck.

That’s not too bad.

What gives me confidence in my philosophy and strategy is that the performance has held up across a full market cycle, not just in a bull market.

It’s easy to outperform when everything is going up; just load up on risk and enjoy the ride.

The real test comes in a bear market. So far, my portfolio has been resilient during bear markets.

Alright, I think it should be worthwhile to listen to your investment philosophy.

Investing is laying out cash now for more cash in the future.

If I promise to pay you $110 one year from today, and you want to earn 10%, how much should you pay me now?

I’ll pay you $100

That’s right. How did you get that?

$110 / 1.1

You’re right again. Take the cash you will receive in the future ($110), divide/discount them by one plus your required rate of return (10%).

The result you get is $100. This is how much my promise is worth to you.

Ok, what does this have to do with your investment philosophy?

Shares are partial ownership of a business. When you buy a share, you are fundamentally buying a claim to the business’ future profits.

How much is a share worth to you? Just do what we did before.

Take all the cash you will receive from the business and discount them by your required rate of return.

The result is how much the share is worth to you, and how much you should pay for the share if you want to earn your required rate of return.

In my investment strategy, I estimate how much cash a business will generate over its lifetime and discount them back with an appropriate rate of return.

When the share price is significantly below my estimate of what the share is worth, I buy.

Why do you only buy when the share price is significantly below your estimate?

In reality, there is huge uncertainty over how much cash a business can generate over its lifetime. Often, the business will generate much lower cash than I expect.

To protect myself, I will only buy the shares when they are selling significantly below my estimate of what they are worth.

This is called a margin of safety. A margin of safety helps protect me when my estimates turn out to be wrong.

Ok. Sounds like the typical value investing stuff.

Yes, but ‘value investing’ is widely misunderstood today, so I generally avoid describing myself as a ‘value investor’. This is a story for another day.

To recap, my philosophy is to buy businesses that can produce more cash than how much I am paying for the shares today.

First, I estimate how much cash a business can produce.

Next, I discount these cash by my required rate of return. This will give me the price I should pay today to earn my required rate of return.

Finally, I buy the shares only when I have a significant margin of safety.

Sounds good. But I see a problem. Your philosophy is so broad. There are ~44,000 companies listed around the world. If you were to estimate the cash flow for each of them, it’ll take you forever

To help implement my philosophy, I have identified 6 setups:

First, under-recognised growth. There are two categories:

(1) a business whose under‑penetration or pricing power is not fully recognised, and

(2) a business in a flat or shrinking market whose ability to continue taking market share is not fully recognised.

Any example?

Converge Information and Communications Technology Solutions, Inc. (CNVRG; CNVRG PM).

Around early 2024, its share price had fallen almost 80% from its peak in 2021. The consensus was focused on the deceleration in its revenue growth after COVID-19. However, they did not fully recognise CNVRG’s growth potential.

Internet penetration rate is only ~74% in the Philippines. The penetration rate is increasing and there is still more room for it to increase further.

Philippines’ internet penetration rate is still lower than other developing ASEAN countries like Vietnam (~80%), Thailand (~90%) and Malaysia (~97%).

Fiber broadband is the best way to access the internet. That’s what CNVRG offers. When CNVRG’s revenue growth eventually re-accelerated in 2024, the market recognised its growth potential and re-rated CNVRG’s valuation.

Cool. What are your other setups?

The second setup is hidden assets.

This can be in the form of a business holding valuable but hidden assets (e.g. investment properties reported at cost less accumulated depreciation).

In this setup, what’s important is a reasonable prospect of receiving the cash from the hidden asset.

Another category within this setup is a good business whose performance is obscured by weaker businesses in the same group.

Third, a good business with temporary headwinds such as macroeconomic weakness. The key is determining whether the headwinds are temporary or permanent.

For example, HRnetGroup Limited (CHZ; HRNET SP). After its 2025 H2 earnings release, I see a higher probability that CHZ is approaching an inflection point.

In 2025 H2, gross profit grew 4.2% YoY. This is the first time gross profit grew since it started declining in 2022 H2.

Other payables and accruals, which includes contract liabilities, increased 3%.

In the first 8 weeks of 2026, CHZ already has visibility of the pipeline for 2026 H1, and the pipeline quality has improved compared to last year.

CHZ continues to display characteristics of a good business. It achieved good return on equity (ROE) ~13%, even with significant net cash (~46% of market cap.).

In a future post, I will publish my complete thesis and valuation model of CHZ. To receive these updates, click on the button below and subscribe to my Substack.

That’s a shameless plug.

I can’t help it. Every new subscriber encourages me to continue sharing my investment decisions here.

In any case, let’s move on to the fourth setup: cyclicals. These are companies suffering from overcapacity and the market has priced them like they will shrink forever.

The key is to identify before the consensus the point at which the balance between supply and demand starts to be restored.

This is usually difficult because it means keeping track of shifts in inventory, capex, demand trends, pricing, etc. But if you get it right, the payoff can be tremendous.

An example would be Micro-Mechanics (Holdings) Ltd. (5DD; MMH SP). In late Jan 2026, I completed my thesis and bought shares, but I haven’t had the chance to prepare my thesis for publication. I hope to do so soon.

Fifth, capital returns. Basically, any business that can and will return more cash to shareholders than what the consensus expects.

CNVRG is an example here too. At its IPO, management indicated they plan to initiate dividends by 2025 but they did not make any firm commitments.

With the deceleration in revenue growth, the consensus underestimated the potential for capital returns.

I believed the probability of capital returns is high because CNVRG has passed the peak of its capex cycle and has guided for lower capex.

With capex declining and low financial leverage, I believed capital returns will come eventually.

Soon afterwards in 2024, CNVRG declared its first dividend, ahead of its 2025 target. This drove the market to re-rate CNVRG’s valuation.

Finally, others. This is a catch-all for any other company that can produce much more cash than what the company is selling for today.

For example, a small cap that is trading at a sustainable high free cash flow yield, but its small size prevents other funds from buying. Choo Chiang Holdings Ltd. (42E; CCHL SP) is a potential candidate.

You’ve talked about all the great stuff in your strategy. How about weaknesses?

My strategy tends to be resilient in bear markets.

I suspect this is because my strategy focuses on businesses whose cash flow I can predict with reasonable confidence and I buy them only when there’s significant margin of safety.

As a result, my portfolio is less sensitive when market sentiment shifts violently from optimism to pessimism.

This brings me to a key weakness of this strategy.

In the early stages of a bull market, I can usually keep pace with the broader market. But as the cycle matures and exuberance sets in, I often lag badly.

When almost everything seems to be going up, focusing on cash flows and valuation can look unnecessarily cautious.

This is precisely when it becomes most important to keep your head.

The biggest risk is abandoning discipline in the late stages of a bull market to chase popular shares at elevated valuation.

Buying at this point often means entering near the peak and absorbing the full pain when the cycle turns.

Since I began managing my personal account in Mar 2021, I have lived through a full market cycle, including the bear market in 2022. This has been my experience so far.

1. I am using money-weighted return because I control the timing of the cash flows.