What is the probability of experiencing the KOSPI index at the 1,400 level and then at the 2,400 level within a year, or more precisely, within five months? As the 'Corona Panic Sell-off' fades and the 'KOSPI 3000 theory' resurfaces, the stock investment craze is sweeping through bookstores.
Among the many stock books, there is one that has received impressive reviews. “I bought this book on the recommendation of a senior working at an asset management company, and I think it is the best-written practical investment book I have read in recent years.”, “Certainly, this book speaks from the perspective of someone who has already experienced the unknown territory beyond.”
Jang Ji-woong, the author of the book called the disclosure manual ‘No Reason for Stock Price Surge,’ is an investment veteran with over 15 years of experience in corporate mergers and acquisitions (M&A). We met him in Yeouido, where he currently serves as the CEO of the comprehensive media commerce platform, Isang Media Lab.
?It is quite refreshing that you addressed the stock price surge patterns of major investors known as ‘forces.’ You also cover exactly when individual investors should buy and sell stocks. What motivated you to write such a book?
▲This book was written to answer the fundamental question: ‘When I practically invest 1 million won in stocks, what exactly should I look at in a listed company?’ The book organizes buy and sell signals so that individual investors can follow them and play a game they won’t lose. I don’t like vague ideas. I provide solutions like, ‘Do this in this situation, do that in that situation.’
There are many books with vague impressions. Many experts argue that you should evaluate values like PER and PBR of companies. But does a high operating profit margin on a company’s financial statements necessarily mean the stock price will rise? Then why does Tesla, with a negative operating profit margin, see its stock price soar?
Let me give an example from domestic listed companies. Currently, the stock price of ‘Seegene’ has surpassed 300,000 won. However, ‘Alpha Holdings,’ under similar conditions, has dropped to one-third of last year’s price. Why does Alpha Holdings not rise while Seegene does? This book reveals the difference.
From the perspective of someone who has done listed company M&A, when I pursue a corporate acquisition, I don’t care if the company’s operating profit margin is -100% or if it is 100% capital impaired. I look at whether the market capitalization can be increased.
?Your perspective on financial statements is very different from that of the general public. Could you elaborate on the criteria for selecting companies? I’m curious about the standards for corporate value judgment from an M&A expert’s point of view.
▲I first look at ‘What is the merit this company has?’ When that merit is maximized, the stock price naturally rises.
For example, making a 1,000-won stock into a 1,500-won stock is a completely different story from turning a company with a market capitalization of 10 billion won into one worth 15 billion won. You can do the former with basic trading volume. But to increase a 10 billion won market cap to 15 billion won, liquidity must circulate. By liquidity here, I mean liquidity related to the company itself, not just trading liquidity. When that money circulates, the stock price rises. The book’s content is about capturing liquidity. Even the M&A side looks solely at whether the company can be revived through liquidity.
?Liquidity related to the company itself?
▲Yes. It refers to the speed at which the company can raise funds when it needs money. Having a lot of sales and surplus cash means good liquidity. Even if sales are low, if the company owns substantial tangible assets and can issue exchangeable bonds to raise money, that is good liquidity. If neither sales nor tangible assets are good but someone comes in to boost the stock price, that is also good liquidity. Moreover, using other people’s money to start a new business is also considered money generating money. From the perspective of the entire market, the real economy is not important; it should be viewed as whether an asset bubble can occur.
In the Korean stock market, you must look at liquidity. Companies far from liquidity, so-called ‘quiet companies,’ sometimes suddenly see their stock prices rise. That ‘rise’ is also liquidity. It improved from having no liquidity. You can see the flow of liquidity in disclosures.
?What is the difference between looking at charts and looking at disclosures? In other words, why should stock investors look at DART (the electronic disclosure system)?
▲You can only know the situation of listed companies through disclosures. Charts are phenomena that appear after disclosures have occurred. They are a kind of record saying, ‘This chart appeared because the company did this.’ They do not mean, ‘Because the chart looks like this, the company will do this in the future.’
Of course, you can make profits by short-term or swing trading based on charts. For example, buying when a hammer-shaped candlestick appears and earning 6% profit. But can that be called ‘skill’? With that method, you can just go to the Naver Finance portal, search conditions under the ‘Golden Cross’ category, and buy stocks that have risen more than 3% to make a 2% profit.
What I mean is, analyze things like ‘Why hasn’t the CEO changed even though the largest shareholder changed?’, ‘Why is there a third-party allotment capital increase after the largest shareholder and CEO changed?’, ‘Why is the company issuing anonymous, non-guaranteed private convertible bonds?’ Understand these to know exactly when to buy and sell stocks and the company’s purpose. I teach individual investors how to interpret the signals of the forces and buy at the start of their stock price boost and sell at the peak to make money.
I believe true stock investment is buying stocks showing signs of a price surge rather than regularly buying Samsung Electronics stocks like a savings plan or entering bio stocks just because they are doing well. What if the company makes paper cups or fabric? If there are signs of a surge, you should invest. Even if I dislike pizza, if I think opening a pizza shop here will be a hit, I should open one. Conversely, opening a hamburger shop where elderly people who always eat lunch gather instead of a traditional Korean meal restaurant would be reckless.
?Then, what exactly do the forces buy? Could you give a representative example of buy and sell signals that individual investors should notice?
▲Forces can be broadly divided into those who enter to increase market capitalization and those who enter to boost the stock price. The former intend to operate the company well and hold it long-term, while the latter want to sell the company when the stock price peaks. But both reasons result in the stock price jumping from 1,000 won to 3,000 won, so individual investors can enter by watching the forces’ signals.
The easiest example is buy and sell signals seen in conversion price adjustments, called ‘refixing.’ For instance, suppose a stock was priced at 1,200 won. At that time, CBs (convertible bonds) or BWs (bonds with warrants) with a conversion price of 1,200 won were issued. Then, when the stock price dropped to 1,000 won, another issuance occurred, and again at 800 won, until finally today, when the stock price has fallen to 600 won. If someone who bought the 1,200 won CB or BW converts it to stock now, how many shares will they get?
The answer is two shares. Since they bought a 1,200 won bond and are converting it to stock at 600 won, they must be given shares equivalent to the 600 won loss. In other words, the conversion price is adjusted downward, increasing the number of shares that can be converted corresponding to the total issuance amount.
Moreover, suppose someone takes all the adjusted shares by issuing anonymous, non-guaranteed private convertible bonds. This is not done by buying stocks and becoming a major shareholder and then disclosing it, but by taking all the adjusted shares through conversion price adjustment. This increases the number of shares held by the difference between the lowered conversion price and the original price, increasing their stake. Later, when the stock price rises, they can realize higher selling profits.
The signals individual investors should notice are roughly like this: ‘Oh? Conversion price adjustment happened three times in three months?’, ‘Oh? Anonymous, non-guaranteed private convertible bonds were issued?’ These issues indicate that the forces intend to boost the stock price, so investors should be alert and watch the stock price from then on.
So, what action should individual investors take? They should interpret the third conversion price adjustment event as a buy signal and the issuance of anonymous, non-guaranteed private convertible bonds as an additional buy signal and enter accordingly. After entering, they should use technical analysis to sell when the stock price peaks to realize profits.
?I heard that the book entered the top 30 in the economic management category less than a month after publication. Lastly, do you have any message for your readers?
▲Beyond the good response, I hope many people read it and take the opportunity to reorganize their concept of stock investment. Ranking is not important. Even if you borrow this book, I hope at least one person gets closer to the perspective of how to view listed companies.
The M&A I did was not just about picking items from the Korea Development Bank or selecting preferred negotiation candidates. I directly managed mezzanine financing and other aspects and completed M&A of seven listed companies in a short period of eight years. That’s why I judged that I am the only person in Korea who could write this book.
Personally, I plan to publish the next book on how to truly read financial statements and how to truly evaluate the value of specific companies. Thank you.
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