Monday, December 27, 2010

Prediction of 2011

2010 is coming to the end.  Not doing so well this year. The prediction is quite accurate but the timing is totally out for me this year. These things are flying in my head these few days.

1. QE2 effect is felt through out the region especially in US which will balloon the equity market for a while.
2. Economy is getting better than expected. But unemployment will come down a bit but still remain high.
3. Inflation would be edging up higher in China. Instead of raising the interest rate, the China would opt for higher target of  Yuan appreciation especially against USD.
4. Indonesia will fair much better than Malaysia again.
5. Latex price will remain high. Users are switching more to nitrile gloves from rubber glove.
6. Properties will increase in US.
7. Interest rate would remain low in US as inflation doesn't impose a threat.
8. Commodities price would come down after hitting another historical high.
9. Gold price would come down.
10. European debt issue still remain an issue. But market would like get " used to that "
11. North Korea is still stubborn as before. There would be NO WAR with south Korea.
12. KLSE would touch 1650. DOW reaches 1300  13000 S&P 500 touches 1350.
13.BDI will still under pressure because of the flood of new fleets.
14. To be added if something comes up before the new year eve
14. General election would be held. Pakatan will have tough fight.
15. More Malaysian are migrating out of Malaysia.
16. Still a way to go for me to hit the "pop"
17. Bank Negara would be dilemma to increase the interest rate to fight inflation for that would encourage more hot money inflow. Hence, properties would remain high floated.
18. To be added if something comes up before the new year eve
18. US munibond would not default. If it does, it would be trouble again.

Guess I would stop here. 18 is a good  number. Happy New Year. May next year would be a bull for you all. Happy Trading.

Thursday, December 16, 2010

This is an very exciting news for me ...

 At last CIMB ITRADE allow me to trade via iphone .. that is pretty cool... I am kind of pleased with the launch and too excited not to post it here. Have look . :)

BY the way you can trade Thailand and Indonesia market with CIMB cross border trading facilities.. This is exciting .. In total hmmm HK, US,Malaysia, Singapore, Thailand and Indonesia..... pretty cool huh .... Adios Happy Trading !!!!

Wednesday, December 15, 2010

Of Nitrile and Rubber

Top Glove just released its the 1Q (1st September to 30 November 2010) of the financial year ending August 31, 2011. Below are the extracts from the CEO words :

" The 3 months to 30 Nov 2010 has been a challenging quarter for the Group due to
headwinds such as persistently high latex prices and the continued weakening of the
US dollar coupled with the time lag in passing on the higher costs to its customers,
which have affected the Group’s profit margins. Average latex prices rose by 57%
from RM4.58 per kg in 1Q2010 to RM7.20 per kg in 1Q2011 while the average US
dollar weakened against the ringgit by 9.3% (RM3.43 in 1Q2010 versus RM3.11 in
1Q2011). "

So now we are at this cross road. Is the worst is over for rubber glove maker ? The current latex price is roughly RM9.50 per Kg. I can't see the price would be go down soon. If we look at the revenue generated by Top Glove, we would find that it is actually pretty strong. Revenue of RM 491.5 mil in comparison to compare to last year RM 472.3 mil do tell us that the demand of the glove is pretty strong generally. What does this tell us ? The way I look at it, it mean the demand of glove will be switching to Nitrile glove from rubber glove. That in fact is recognized by Top Glove.

" The Group is also dedicating more production lines to produce nitrile gloves, which
command better margins and not subjected to the volatility in latex prices."
This in fact could be a good for Hartalega which 85% of its revenues is from the nitrile glove. Will this create a crowding problem for the nitrile glove producers ? I bet Hartalega will be positioned well to this challenge. After all they are the lowest cost producer. It is just to hard to launch a price war with them. Hartalega also has the state of art technology to position themselves among the top of its competitors. Looking at the prospects of the 2 companies Hartalega ( RM4.95 ) is deemed much cheaper than Top Glove ( RM 5.45 ). Long Hartalega.

Friday, November 19, 2010

Is buying property ( for capital gain ) an invesment ting or Speculation ?

For me this is interesting. I bet the property investors would give me the finger if I say yes. It is speculative to me. ( I am ruling out the properties which produce rental yield ). I am not saying that it is wrong. In fact I would like to invest in it. I won't care it is speculative or not as long as it bring me " moolah " legally. I miss the boat. Congratulation to the ones who profits a handsome return for the past 2 years.

In wiki it defines speculation as followed :

"In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.[1] Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.[1] "


My personal opinion, an investment is a purchase of an asset which would or could produce an product. The purchase could lead us to a loss or gain. But it is still an investment. If the said asset produce lousy product  which nobody wants, that is an bad investment. On the contrary if the product is good, it is a good investment.

If I am buying SP Setia stoks for instance, I am buying a little piece of the companies which builds houses and sell it for profit. I assume I am making an investment in that company. I consider I am speculating if f I am signing an S&P with SP Setia in anticipation to sell the house after it gets its CF for a profit after 2 or 3 years. My reasoning :
1. An house is an house, if I am not renting it out it produce nothing.
2. I am just wishing or hoping another buyer to pay me higher price for it.

An investment could be a good  or bad. The same goes to speculation. Buying Megan or Transmile is a very bad investment. Speculating properties at Desa Park City is a good speculation. I am just trying and learning to be a good investor. its learning path is long and sometime painful. Happy weekend.

Thursday, November 18, 2010

I will rather pronuce Buy & Hold is Dead..

If I have to choose to between YES or NO, I would choose YES to issue death certificate to "Buy & Hold". Honestly, I am writing this after I read the post of 2nd Brother. Here. Seriously, how many of us could buy and hold for 20 to 30 years like WB. Before I go further, we should define how long is the time horizon for " Buy and Hold " . 2 years ? 5 years ?  10 years ? Forever ? I could say I would "buy and hold" for a month which could be termed as a " trade " by others.
I believe this scenario would happen :
Miss A would say : " Look if you buy and hold Berkshire 45 year ago and hold it until now, you are now a multi-millionaire. The same case goes to Public Bank as well "
Mr. B would argue that : " If you buy Citibank at the 50++ 10 year ago, you are still making more than 90% loss now."
This would only lead us to no where for discussion sake. It would be more conclusive if you take the index as a reference. I would prefer to take S&P 500 as it is one of the world leading index.

Nov 18 2010       S&P 500 = 1196.69       Holding period = 40 years  Gain = 14.29x  Comp rate = 6.9%
Nov  21 2005      S&P 500 = 1254.85      Holding period = 35 years  Gain = 14.99x   Comp rate =8.0%
Nov 19 2000       S&P 500 = 1342.62       Holding period = 30 years  Gain = 16.04x  Comp rate =9.7%
Nov 20 1995       S&P 500 =  596.85        Holding period = 25 years  Gain = 7.13x    Comp rate =8.2%
Nov 20 1990       S&P 500 = 315.31         Holding period = 20 years  Gain = 3.77x    Comp rate =6.8%
Nov 20 1985       S&P 500 = 198.99         Holding period = 15 years  Gain = 2.38x    Comp rate =5.9%
Nov 20 1980       S&P 500 =140.40          Holding period = 10 years  Gain =1.68x     Com rate =5.4%
Nov 20 1975       S&P 500 = 89.64           Holding period = 05 years  Gain = 1.07x    Comp rate =1.4%
Nov 20 1970       S&P 500 = 83.72           Holding period = 00 years

There is what we get if we bought the index 40 years ago. We have a compounding return of 6.9% excluding the inflation rate. If we take a 3 % inflation rate the real return would be merely 3.9%. ( Correct me if I am wrong ). If we are not so lucky and bought the index on   Nov 19 2000, we are still at a loss after 10 years. That is why I say I would rather pronounce dead for "Buy and Bold" generally.
BUY AND HOLD would only work on SPECIAL OR SUPERIOR COMPANIES. But that is not the " Buy and Hold " which is "framed" or refer to a certain time frame.We should buy when the market sentiment punished the price to dirt cheap/discount to Intrinsic Value and hold it until the there is a structural change to the said company or the company reaches to a stagnant/saturated growth. There should NOT be a time frame to that. We are living a a rapid changing world. The whole scenario could change in matter of quarters or months or even weeks sometimes. Hence it is our job to be vigilant and catch the arisen opportunities.  That is why I will rather pronuce "Buy and Hold" ( with time frame ) is dead. That is the reason why I sold Top Glove and take position in Hartalega. Could I be wrong on this decision? The answer is yes. But that is the best option and decision that I could think of.
Happy trading.

Tuesday, November 9, 2010

Dimming Rubber Glove Vs Shining Nitrile Glove

Guess not many are interested in the previous post. I should better carry on with the latest result by Hartalega. I am a lazy person so I am going to paste the profit summary which I borrow from Alex : Nextrade.


As shown, Hartalega is delivering another impressive result. In fact current quarter is the record profit by the group. I am surely impressed by the management of their ability to adopt and adjust in this challenging quarter. If we look at the quarter to quarter profit by the others rubber glove players which are experiencing the margin squeeze( profit drop ), Hartalega is actually catching a q to q profit increase. Not only that, the cash flow is eye poping as well. And most of all, the peggy bank ( Cash & cash equivalents ) is added to 134 millions. The debt level is merely 32 mil which is manageable if fact it is negligible if we compare to its cash and its earning power.
It looks like it s gaining the earning momentum at the expense of the rubber glove player. Just goolge the selling price of glove, one could easily find that nitrile glove is actually cheaper than the rubber glove currently. Nitilre glove is always a premium product in comparison to rubber glove. It is like a BMW is selling cheaper than  Proton. With the current stubbornly high latex price ( which I can't see it to drop anytime soon ) I smell trouble for other rubber glove player even Top Glove.
Going forward,  I believe the Group’s continuous expansion in production capacity, increase in demand and
improvement in production processes will carry it to another level.
I am still waiting for the change of appraisal to elevate the PE on par to Top Glove. I can't see why it doesn't deserve that. Happy trading and wish me luck. Eat my own cooking . Long Hartalega big time. 

P/S : Going to post after this line. Lazy to check the grammar and spelling... :P ... Adios

Friday, November 5, 2010

The QE Effect

Here we are at the juncture of the QE2. (Quantity Easing 2 a.k.a money printing). One has to be clear about what is actually quantity easing. If is not like Federal Reserve has a printing machine at the back of the office that works 24/7 printing the green back per se. The mechanism should be clearly understood in the process of decision making of an investment. It is too straight forward to go " Well, QE2, more fiat money, rush for gold or properties as as inflation hedge ". Bt that is what the media told u and will tell you the days followings.
The mechanism could be simplied  as followed :
1. Fed prints the money. But he money is not directly given to the bank or to the US Govt or injected to the market.
2  Instead, the Fed buys the government bonds and or treasury bill ( goverment debt) which of course is issued by the Treasury. But who is the Treasury bill holder and the bond holder ? It could be anyone. The public, the pension fund,the China Goverment, The Japan Goverment or Joe the plumbers or maybe even your uncle or relative.
3. So Fed got the government debt  ( which would be an asset in the Fed balance sheet ). You must be saying that Fed just can't simply print the money and buy the asset. Yeap you are right. So the money which was given to the government debt holder  is the liability to the Fed. ( It is just like your deposit in the bank is the liability of the bank to you).
4. Now Joe the plumber is holding the US dollar was given by the Fed in exchange for the Treasury Bill/government bond. Where do you think he will keep the money ? Of course he won't put under the pillow. He would instead deposit it in the bank.
5. Now the bank has more money to lend. At the same time Joe the Plumber feel more financial comfortable because he has extra cash in his deposit/saving account.
6. It is by the mechanism that Fed wish to push the bank to lend more and the public to spend more in order to push the economy.
7. That is QE as my understanding.

Does it work? Some said it won't some said yes. Paul Krugman said that should be the way ( Keynesian way ). Jim Roger/Mark Faber said it won't. But I am totally agree with Mark Faber that the QE would create a situation which people are looking for a better return when the rate are virtually 0%. It is obvious that the 1 QE has some how push the equity. I am in the opinion that the further QE would push the equity higher. This will lead to make people feel more wealthy and spend more to give the economy a boost. Just like Alan Greenspan said " "While ordinarily we're seeing the stock market driven by economic events, I think it's more the reverse. What we do know is stock prices are a leading indicator."

Longing the stock is a better option from the others for me.

P/S : I will go further in the next post should there be a respond on this post. If not, no point talking to the wall lah brader. Save some energy to think of some other thing to write better lahhh .. :)



" I listen to my heart "    ~ ( Selma ( Dancer In Tthe Dark ( 2000 ))
   

Wednesday, October 27, 2010

Inflationary Properties Vs Property Driven Inflation

So now which camp are you in ? It is chicken or egg first question.
It is a common believe that property could acts as an inflation hedge. But how true does that hold ? Honestly I have no idea. In an expected  ( anticipated ) inflation environment, I believe house price would be driven up by the buyer who are anticipating the rise of the house price in near future. This would certainly drive the demand even higher. As long as the supply doesn't outstrip the demand the house price will keep on rising. When inflation gets to the point that the general public can no longer afford to buy a house or anything else they need to survive, then the housing prices start to come down.
As high inflation force the house price to go down, even investor are hesitate to buy. That is when the buyer are expecting the price to go down even more as they expect ( anticipate ) the inflation would go down when the Central Banks try to increase the rate to suck up the liquidity.
Hence, the best time to buy a property is when you can see the inflation happening and sell the house when the inflation is heading the boiling point. So with all the talk about the QE and money printing, what would you expect ? This is inflationary. This should drive the house price up. But the house price in the sate is still dropping even though it is at the slower pace. Guess the the QE is working or big enough to create the demand. I am still buying the QE story for deflaction is just too ugly to handle. I would prefer the less ugly " inflation".

P/S :  Close position on Top Glove and Long even more Haralega. Wish me luck :) 

WAYNE: To some the fastest distance between point A and point B. To others a beautiful stretch to the American landscape. But to Mickey and Mallory Know, it was a candy land of murder and mayhem."  
                                                                   ~ Wayne  ( Natural Born Killer ( 1994 ) )

Monday, October 18, 2010

For the Gold Bug Out There ...


I have been reading the about the fractional reserve banking system and a whole bunch of stuff about econ. Well the author talked lengthly about inflation, deflation, gold, capacity utilization blah blah blah.... Something catched my attention. I have been betting a small amount of my capital on gold 2 years back when the Federal Reserve start the money printing machine. Well it pays off so far. So now everyone is betting of the QE2 ( Quantity Easing 2 ). The dollar drops and the gold sky rocket again to so far 1369.90 USD/oz  now. ( I just check the bloomberg ).
If we look back to 1980's with all the headwinds about inflation, the gold price at that moment ( inflation adjusted was USD 2400 / oz ). So now, 2 years after the so call money printing the inflation is still low ( at least that was what have been officially released, don't ask me to go to the street and check around the good price because that leads us no where ).
The anticipation of the inflation have driven up the gold price so far. Would inflation it go higher ? Probably if the capacity utilization is running at up to 80% and more ( Currently at 74.1 %. I just check Federal Reserved website ). It would take some time probably a few years. To achieve 80% capacity utilization, unemployment has to go down. People need to have job to spend, to consume more in order to drive up the price. ( Inflation ).
What if when the inflation hit, there is another Paul Volcker appears and acts super fast to suck up all the liquidity to drive the price down ? People would say " Hei look, Gold at 1369.90 now. But back in 1980's the gold is 2400 ( inflation adjusted ). Hence there is still more room for gold price to go up " . But the flip side of the coin is " If you were buying gold in the 1980's you would be still loosing out if you hold it till now ".
So is gold a good choice of investment ? What like to know your opinion.

" Give it up, Frank! Death ain't no way to make a living!" ( Judge ( The Frighteners ( 1996 ) )

Wednesday, October 6, 2010

Top Glove - Not so shining !!


Top glove just released its 4th Q result which to me is a surprise negatively. I am not expecting the result should be flying colour with the headwind of the appreciating US dollar and the higher latex cost. But net profit of 45 mil is totally out. Margin is squeezing from Q to Q. Sale is dropping from Q to Q... Looks like I am betting the wrong bet. Yes.. Top Glove will has a lag time to pass the increasing cost to its customer. I am not totally bearish about it future. But I can't see the result will improve in the coming 2 quarters or so. I am closing  my Top Glove position. Will load up Hartalega if the price is encouraging. After all Hartalega will not have to face the increasing latex price for its production consists of 75 % nitrite glove and 25 % nitrite glove. Damn ... a wrong bet again.... Happy Trading....


" Traitors are defined not by themselves, 
but by the people they betray. " 
~ Adolf Hitler ( Hitler : Rise of Evil (2003))

Sunday, October 3, 2010

What Can I say .... Always too early or too late

Just came back from a trip to Japan. What can I say about Japan ? Fantastic country. By the way there isn't much to say about the market. Have been doing nothing about my portfolio. Said it before and I am going to stress it again .... Long Top Glove and Hartalega big time. Happy Trading. There is not much to say actually except properties have gone ballastic. Miss the boat. It is long gone. Still looking for a reason to be in the same boat as others. It is simply too crowded in the boat marked " property ". I just can't squeeze in. Happy Trading....

P/S : Watch this movie on the plane. Quite nice...

" First, I seal your mouth, then left eyes, then right eye .... ( Monk said to the captured while holding a super glue ) "

                      ~ Monk ( Mongga (2010) )

Wednesday, August 18, 2010

Not So Hot ( Hard ) Anymore

Allow me to define SDD ( Solid State Drive ). From Wiki :

A solid-state drive (SSD) is a data storage device that uses solid-state memory to store persistent data. SSDs are distinguished from traditional hard disk drives (HDDs), which are electromechanical devices containing spinning disks and movable read/write heads. SSDs, in contrast, use microchips, and contain no moving parts. Compared to traditional HDDs, SSDs are typically less susceptible to physical shock, quieter, and have lower access time and latency. SSDs use the same interface as hard disk drives, thus easily replacing them in most applications.[1]

I am not a tech savvy guy. But one of my " gang" is. It is simply too long and too boring to explain how SDD is more superior than normal hard disk. In short, SDD is better than normal hard disk and it could easily replacing them in most applications. As usual any good stuff come with a higher price tag. But that is not the point here.
A few years ago, we would never thought that Iphone could beat Nokia. I mean, a computer maker vs a leading phone maker. It was like fighting a 800 pound gorilla with bare fists. Obviously Steve Job won the battle. In fact, he changes the whole phone industry. He is basically " telling us " how to use a phone. I am not sure about you but I myself is not a tech savvy guy like I said before. But once I got myself an Iphone few months ago, I told everyone " no regret, worth every single cent, and I don't think I am going to change my phone again " ....
So now, now would Ipad change the whole PC industry ? I am not sure. The chance is fairly good that Apple is going to " doing it again ". Beware the others PC maker. If it does change the industry, it would be a structural change for this ( hard disk ) industry.  If it is you better get out now than later .....
Ohhh yeah .... SDD doesn't need a cover. .... My tech savvy friend just told me that SDD still need a casting but it is a plastic type not the one that IT is producing.... I don't have to tell you which company will be affected in the long run if it happens. Figure it out your self ... As usual Happy trading....


" You see the world through John Malkovich's eyes. Then after about 15 minutes, you're spit out into a ditch on the side of the New Jersey Turnpike! "     ~ Craig Schwartz ( Being John Malkovish's ( 1999 ) )

Sunday, August 15, 2010

And The Oscar Goes To ....

The nominations for the risk take are : The banker and the player.
And theOscar goes to : )  Result :

Will you go ahead with the 100k bet on the dice game at The One Eye Jack Casino :

  _______________________  Yes  _________________ No__________
2nd brother ----------------  Are you the banker ?
Ivan ----------------------- Where is The Casino ?
Tiger -------------------------------------------  Not an interesting game.
Peng -------------------------------------------------------  X
Johnson  ---------------------------------------------------  X
Theng  ------------------------------------------100k Too much. If 10k Go
Frog     ----------------------------------------- Paying Ratio too low
Paoh ----------------------- 0.67 chance to win.
EP  -----------------------  X
KK ----------------------   X

I guess the Oscar goes to no one for the result is 5 vs 5.  It is just a simple question to test how would you react against risk. I will ask how many times I can bet if someone post me the same question. The deal is too good to be true. :). I always believe equity investing is actually matter of risk management. People tend to be risk averse when it involves big chunk of money. Mind is skew to " what if I loose ".... I have the bad habit of  If I win I could double it.... " when the odd is obviously on my side.

By the way, say it is a fair game. You bet 6 times. You win 4 times. and you loose 2 times. Lets us assume that the paying ration is 0.5.  You win = 0.5x4x100 = 200k. You loose = 100k x 2 = 200k. So the paying ration of 0.9 is actually fantastic to me..... Happy Trading.. Ciao ....


" Even with my eyes wide open I can't see a thing. " ~ 座頭市 ( Zaitoichi ( 2003))

Wednesday, August 11, 2010

Your Risk Appetite

This is something interesting. I hope you could spare some time to post your answer in the comment box. Just for the sake of fun.
Imagine you enter a very weird casino. You come to a very weird game. In short in looks like this :
1. Minimum bet : 100 k
2. Paying ration is Buy 100 pay 90. Ration of 0.9
3. You can bet 4 numbers of a dice. If any number you choose strikes, the banker pay 90k to the 100k you bet. Hence, the chance of winning is 2/3.

Post the question to 2 friends of mine so far. Would post the result in the next post. Happy trading.

P/S : Ohhh yeah I like this animation so much that I go and learn Japanese Mahjong. You know what !!! Japanese Mahjong is crazy exciting. Ron Ron Ron Ron Ronnnnnnnnnnn !!!!!

"A meaningless death is the essence of a gamble" ~ ( Akagi ( 2005 ) )

Monday, August 9, 2010

The So Called Professional Analyst

Read an article in The Star today talking about glove industry. Again typical blanket comment about over capacity, demand normalizing and etc. Sigh ...  so the share price was going down. This is really bothering me. If you ( so called professional analyst ) wants to say something, please come out with deeper analysis. Give us the figure. Give us your reason of assumption. Oh..... that is so easy to say, over supply, demand would drop, and come up with a underperformed recommendation. That is plain easy... and you are being paid for that kind of rubbish comment ? ... sigh.... I want to be an analyst as well......
If you want to comment something, at least come up with something like this lah brader Mr. Analyst ( from Hwang ) .....be a bit pro lah ..... Here is something that you can learn .... Glove Industry

Whether the story can sell or not is another story. It is up to me to judge. But not something as plain as you have said to The Star reporter. Again eat my own cooking. Long Hartalega and Top Glove. Happy Trading

p/s : For the one like animation. You must watch Totoro ( 1998 ).

          " "I'm not afraid of dust bunnies."--Mei ( Totoro ( 1988 ) )

Monday, August 2, 2010

Infaltion Vs Equity

With the money printing machines working 24/7 these days, we are going to pay for it in the future. For me it is just a matter of time. Friends around me are talking about how to hedge against the inflation. Some said buy gold some said buy properties ( especially ). I am not saying anything wrong with this asset class. I just can't see con of holding it to beat inflation. Lets separate these 3 asset classes.

1. Gold - It is a plain vanilla and pretty straight forward. Gold has been treated as a " value keeper " for the past 2 thousand years. When the inflation hit, gold price will go up. Instead of keeping the fiat money that is circling around the world, gold is always the better choice to hedge against inflation. But again, in this wired world one could actually make a real profit ( profit excluding inflation ) when there is a supply - demand imbalance. The price of gold could very well exceed its value should everyone is chasing for it. But generally, gold is always traded a " value keeper "

2. Properties - This is the asset class with I am not familiar with and not really  fond of it because of its liquidity. It is hard to buy and it is troublesome and take time to sell. But the beauty of this asset class is you could actually leverage it. Down payment 50k and borrow 500k to buy the property at 550k and sell it at 650k to make a 200% gain( excluding fee ) in months. You could even rent it out to enhance the cash flow. Excellent !!! But leverage is a double edge sword. Should the property goes down by 100k the return would be -200%. So it takes a lot of insight to be in the game. Yeah, I know some people making millions in this game. Will like to learn it of course. Anyway, it is not what I want to say here. To say that buying property as the inflation hedge is really perplexing me. The logic of when the inflation hit, all the construction material would goes up hence the selling price will rise accordingly. I just can't see the logic. All I see is when the inflation hit, interest rate would go up, demand would decline, the developer's margin will be squeezed, the price will fall. Again, it is also a supply and demand thing. Certain location would command better demand than others. Hence certain property at certain area will always fetch a better selling price. But to say, generally property is an asset to  hedge against inflation. Sorry I have to disagree.

3. Equity - Equity to beat inflation. Why not !!! I would like to keep it simple. Buying a company which pay you 4 % yield and with a earning growth rate of 5 % could easily beat the inflation of say... 7 %, 8%. The problem is the price fluctuation that always keep us out of focus. Buying Public Bank, Tanjong, IOI or even Maybank could beat the inflation all these years. One could easily make a fortune if he/she buys and sells at the right time.   

So to hedge/ beat against inflation in longer term ( 5-10 years ) the choice I would put would be 3, 1 and 2. How about you ? :P. Happy Trading.

P/S : You must see this movie

" What's the most resilient parasite? An Idea. A single idea from the human mind can build cities. An idea can transform the world and rewrite all the rules. Which is why I have to steal it."
                                                                                  ~ Cobb ( Inception (2010 ) )

Saturday, July 17, 2010

Interesting Quote

I have been " blowing water " with a friend of mine last night. I bragged about the share market and so on. Told him that I have not been updating my blog recently for I do not have any idea what to share here. He joking said " Go and talk about World Cup and all these bookies " .... I brushed him off smilingly said " Hei brader , my blog is talking about financial related matters lah .... fren ... "  He fight back and saying ( not exact sayings, " tambah tambah to make it dramatic a bit :P ) :

" Let me tell you this. Investing in share market is actually like betting in English Premier League. Look around and ask around your friend who is a betting on their favourite team. Man U lah, Liverpool kah whatever.... Have any of them won big ? Most of the time they lose. So all you need to do is bet against them. Just check the paying rate provided by the bookie you could roughly know which team is the generally preferred team of the match. Go bet against them. If all the preferred teams score, all these bookies " makan tahi " liao.... All this while the bookie is prospering like hell man.... All the matches are fixed lah .... Just like investing in share market lah... when everyone is loosing money, it is time to get in lah... When everyone is making money... run lah ...but if you ask me how to choose share.... I will have to ask you lah " .....

An very interesting contrarian indeed. Is this a behavior financing ? Bravo Brother... Well said....


" Louis, I think this is the beginning of a beautiful friendship."
                                                             ~ Rick Blaine ( Casablanca (1942))

Thursday, July 1, 2010

Diversification Vs Concentration

They are several ways to reduce the risks. Diversification, hedge, insurance and etc. The professionals have all the options they want but general public like me. Diversification should not be treated  as buying the top 30  market capital companies. In fact, it is easier to buy the index  than buying 30 companies with the pro-rated weight on each counter. Text book told us that after 30 counters, additional counter would not reduce the risk much further.


So basically the term diversification is measured with the index as a reference. If the DOW is going down hill, there is no point of being proud because we beat the DOW but lost an arm. Putting eggs in several basket would not actually reduce the risk. We may loose our focus for watching too many  baskets at the same time. I would certainly feel safer to buy only Public Bank than buying Affin, AFG and RHB bank combine. It would be safer to put eggs into a basket and watch it with the eagle eyes.

Hence concentration would be a better risk aversion method. Great guru like WB or Bill Ackman prefer concentration investing. Certainly do I. The question is how many counters should we hold ? In my opinion, that depends on the inital capital. Spreading 5K over 10couters is totally different from spreading 500K over 10 counters. Here is my to cents.

1. < 50K  = 1 counter
2. 50K<100K = 3 counters
3. 100k<150K = 5 counters
4. 150<300K = 7 counters
5. 300k<500k = 9 counters
6.500k<1 mil  = 11~ 15 counters
7. > 1 mil = ????

The reason being for only 1 counter at Level 1 is to get to higher level soonest possible. No fun lah to be at Level 1 for 5 years right ? That is why it is very important to strike big at the beginning. Imagine you bought 50K worth of Hartalega 12 months ago. You would be at least at Level 4 now. But what if we couln't make it right at the beginning ? ... Well, that is NO what if ... If too many " what if " susah lah ... apa pun tak boleh jadi. I beleieve as long as one put real effort and study hard on it, he would strike eventually. Study, study and keep on study.... and put guts .... real guts into it when the chance is there. Take action... cakap saja only no point......

Of course this is a double edge sword method. When you strike you strike big. If you don't, it would probably bring to to Holan... Imagine you bought Transmile at 0.90 and now at 0.36.... You could only hope or prabably pray for it to go back to 0.90 again.... So the beginning is extremely important.... If we are thinking to strike big in a matter of new months by buying hot stocks without checking the back ground of the companiesit like worse than playing Poonton/Black Jack at Genting Highland. At the very least you would get a close to 50/50 odd. ... get what I mean ? Remember Kenmark, Iris, ... ohhh yes you could be very lucky and strike it big.... I won't rule out that possibility.... You could bet 50K on Holland over Brazil later tonight to get a 100% return in matter of 90 minutes ...;) ....

Once we reach Level 4, the aim should be skewed  to capital protection. No sane man would like to go back to Level 1 again. If you strike 100% return at Level 1, you have a return of 50K. But if you have a 25% return at Level 4 and Level 5, you reruen would be 75K and 12K. You can do the math for the higher level and get what I mean. Icapital return of 30% is nothing compare to a 15% return of Bershire. The higer the capital higher the difficulty to manage.

As I said before and again I eat my own cooking. Long Big Time Hartalega & Top Glove for I see the potential to strike again by holding these 2. Happy Trading..:).. ANother lousy posting... Everyone knows that :p



P/S : This is a very funny Japanese Anime Series...

" Go To DMC, Go To DMC, Go To DMC, Go To DMC.... "

                                           ~      DMC Fans  ( Detroit Metal City )

Friday, June 18, 2010

Top Glove Result

Top Glove just released its result couple of days ago. So it is time to re-access the result again and check how good/bad it scores. I am keen to further check it out with some key points of  previous post to make it sound more relevant and interesting.


1. 管理层的素质 (competency of the management):
Let's check the growth from year to year. Net Profit for 9 months ended 3Q10 at RM204.2 mil, UP 81% from 9 months ended 3Q09, and more than 12 months of FY09 of RM168.1 million. That is very impressive. Let look at the profit margin. Ending 3Q09 is 200218/1538046 = 13%. Ending 3Q08 is 112323/1104563 = 10%. The Profit margin improve by 30%. Does the improvement due to the price collapse of the raw material ( latex ). I don't think so. In fact the latex price was increasing through the past 9 months. Does the growth rides on the debt ? Let's see. 7596+3259 ( Long T + Short T ) = 10.85 mil with the net profit of 204.0 mil. Wont go any further about this because it is not an issue at all. The management has scored A++ .

2. 营利的素质 (quality of profit)

A glimpse at P&L tells me that the profit is all from operating profit. No foreign exchange gain. In fact for the past 3 months the appreciation of RM against USD did affect its overall profit. Lets check the most important part, the cash flow. CF ( Operating ) = 185 mil. CF ( Investing ) = -55 mil ( excluding treasury share sale of 17.28 mil ) CF ( Financing ) = -75.75 mil ( excluding share capital increase of 26.55mil ). So it meant out of 185 mil generated from the company operation, 55 mil is used for expansion and 75.5 mil is used to pay debt and dividend. Hence without  the ( 26.55mil + 17.28 mil ), the company add 185-55-75.75 = 54.25 mil. Or 98 mil if inclusive of 26.55 mil + 17.28 mil. In short 98 mil was add in the peggy bank. Another A for Top Glove.

3. Pricing Power.
This could be reflected in its profit margin. It was said in bullet 1. Another A for Top Glove. There would be a lag time of passing the cost to the customer. Hence, I believe the increase of 24% of raw material price would not be a big issue here. We could actually tie back this with the decrease of profit from previous quarter. The revenue is increaseing by about 10% but the net profit decrease by 10% from the previous quarter. It is not a big issue here.

4. 成长的行业
About 3 months back an analyst doubted the global demand of glove would increase with the absent of H1N1. I blogged about it. I also bragged about how we could listen to the captain of the ship ( Top Glove CEO ) and not the passanger who is a total stranger to us. Again the CEO proved that he is right. Look at the revenue. Still growing. We shall check others love maker to further confirm it.

5&6. Innovation & Efficient 的管理
3Q ROE = 204186/1039987 = 19% ( consider only accumulative of 3 quarter result )  D/E = 10.85/1040 = 1.0% . 3 Q ROA = 204186/1341883 ( total asset ) = 15.2 %. Flying colour.



7. 保守的 company policy

Read the words from the CEO. The management set a very clear company direction and walked the talk. Talk is cheap unless you walk it. Interim dividend also be increased 100% t o 14 sen. Another thub up for the management.

Overall, 2 thumb up for the company. Am I too late to discover this company. A bit late yes. Late is better than nothing. Going forward, walk my talk, eat my own cooking....long TopGlove big time kawan... Adio...

P/S : Prediction : World Cup 2010 Champion : Japan ( No choice have to choose Japan hahhahaha )


"Could the Mob change the parade route, Bill, or eliminate the protection for the President? Could the Mob send Oswald to Russia and get him back? Could the Mob get the FBI the CIA, and the Dallas Police to make a mess of the investigation? Could the Mob appoint the Warren Commission to cover it up? could the Mob wreck the autopsy? Could the Mob influence the national media to go to sleep? And since when has the Mob used anything but .38s for hits, up close. The Mob wouldnt have the guts or the power for something of this magnitude. Assassins need payrolls, orders, times, schedules. This was a military-style ambush from start to finish... a coup detat with Lyndon Johnson waiting in the wings."   ~ Jim Garison ( JFK ( 1991 )

Tuesday, June 15, 2010

( Risk and Quality ) ~( From 2nd brother ) 风险和质量

Well said 2nd brother. Yes I do agree with 2nd brothers his statement :

 " 风险,简单来说所有的数字包括 PE,NTA,Discounted Cashflow, margin of safety,Dividend yeild, balance sheets,cash flow statement,income statement 都不能有效的减低风险 "

No doubt about that. But I would like to add that all the numbers could tell you something about the company. I am not talking about a quarter or 2 results. Generally, we should actually dig to 3 or 4 years results  to tell you how good the company is. 3 or 4 years is just a guide line. Sometimes a great company could be just listed. For instance Hartalega, Master Card and etc. But that are special cases. I have blogged about risk before. It is kind of long which are separated in 3 parts. HERE

Even though I do agree with 2nd brothers, I must humbly emphasis that numbers and figures are important figure which could be used as the basic for decision making. It could give us some idea how good the company is. I do not know how to elaborate so I would like to borrow several 2nd brother's key points and several simple examples :

1. 管理层的素质 (competency of the management):

How competence a company is could be reflected in, for instance, company growth rate and its debt level. Look at Top Glove and Hartalega. The managements have been able to grow the company at double digit grow rate with visibly no debt at all. And there is no M & A as well. 

 2. 营利的素质 (quality of profit)

Does the company profit surge because of an one off item or because of selling off their assets ? It could be seen in the Profit and Loss statement. Does the company profit come from mostly foreign exchange gain as Tenaga's and Air Asia's ? This could be shown in the cash flow statement and its cash and cash equivalent in Balance Sheet. Does the profit come from the accounting fraud ? The prime example is Megan. Look at the increase of receivables in Megan before the matters came to the full blown. These are the numbers which tell you the risks and the quality of the profit. The figure " cash balance " in the cash flow statement could tell you the quality of the profit. For instance, a good quality profit should show the "cash balance" in cash flow statement  keep on increasing from quarter to quarter.

3. Pricing Power.

How good the company pricing power is could be indirectly reflected in its profit margin. A rise or a maintained profit margin without the the presence of cost cutting is telling us the the company could pass the raising cost to its customer. This is telling us that the said company has the pricing power over its product. Look at Top Glove and Hartalega profit margin. It is telling us something.

4. 成长的行业

This is more to a top down approach. But this could still be indicated and compared. Check the CARG for ceratin company and compare it to the industry. Somehow we could get a bigger picture of the industry. We could also trace its profit margin, ROE, ROA and to gauge its prospect.

5. Innovation

We could roughly tell how tell how innovative a company is by reading its financial result. A low capex ( Cash Flow for Investing ) with a high return ( Profit and Loss ) could mean how innovative the company is.  A high Return of Equity ( ROE ) means the management is good in managing the company money. But a financial innovative company could push the ROE to higher level by adding more debt or doing some off balance sheet tircks. All these could be traced by reading the number and figures.

6. Efficient 的管理

Efficiency is important and could be told indirectly in the figure too. A high ROE mean the management is good or superb in managing the company financial resource. A high Return of Asset ( ROA ) could mean the same thing too. Do not confuse with the NTA ( Net Tangible asset ). A stock with high P/B doesn't mean the stock is expensive if is has very high ROA. It is merely an account entry. Let say a stock price is selling at P/B = 2 but has a ROA of 30%. If the Book ( NTA ) is at 2 then the P = 4. An  ROA of 30 % meaning the earning is = 0.6 and selling at 4 which translate into an PE of 6.7. Could it be still expensive ?  This is the number and figure that could explain. A improving profit margin and high sales also show us how efficient the  is management.

7. 保守的 company policy

I don't think this could be traced in BS, P&L,Cash Flow nor ES. But, I must say that, we should read the chairman, or the CEO statement in the company financial report. It could give us some idea what s the company heading to. We could gauge the expected dividends should the company has a dividends policy.  With a clear and sound company policy and vision ( I mean the management really meant it, not the one just to beautify the company annual report, at least we could gauge the future of the invested money. For instance read the what the CEO of Top Glove, Public Bank or CIMB said in their annual report.

" You better bury Ned right!... Better not cut up, nor otherwise harm no whores... or I'll come back and kill every one of you sons of bitches."   ~ ( Will Munny ( Unforgiven (1992) )

Thursday, June 10, 2010

List of Don'ts

The list is meant as a reminder to me. You are welcome to post your comment and I would add it to the list if deemed suitable.

DON'TS

1. Do not listen to the media especially the analysts. They would tell the public what they want to hear. Take others opinions at the face value. Dig into the provided information  and studied before decision making. For the ones who read the Cari Forum ( Chinese Version ), I bet you guys remember the case Megan and LB Aluminium.

2. Do not think low PE is good all the time. You rarely find good company with low PE. But, if there is a change of appraisal, there would be appraisal of the PE as well. PE should be treated as a function of risk not value.

3. Do not follow the crowd. Most of the time general public are wrong.


4. Do not average down. When the stock you bought keep on going down, it must be a reason. Remember Megan ? The one who average down is probably not in the game forever.

5. Do not bitch whenever we missed out something. I SHOULD HAVE = I DIN'T. Period.

6. Do not overpay a counter. Beware, it could be trapped with high PE counter. There must be a reason for the high PE. Is the prospect of the companies fo rosy that it command a PE of 30, 40 or even 50 ? Evaluate whether the market is too optimistic about it ?

7. Do not buying something you don't know.

8. Do not think " what if ". There is not such thing. Admit our mistake. George Soros said " I am rich because I know when I am wrong "
9. Depending on the fund size. Do not over diversified. There is no point to invest 20k in 20 different stock. There is a huge mistake to put 500k in a single counter. A single mistake on that would wipe you out.
10. Do not lose the capital. Once it is lost, we are out of the game.
11. Do not chase the past performance. Past performance is a reference not a guide. An industry would not grow forever. In case of stock performance wise, the same applies. Iris was 1.00++ 2 years back. So do  not expect it would go back to that price level.
12. Do not average up as well unless you are really 100% convicted and sure about it. The thing is it is hard to be 100%.
13. Do not borrow money for investing. Do not margin it.
14. Do not eat untill you are 110 % full. In other words do not be too greedy. Market would not go up forever. 
15.Do not be too pessimistic. Market won't go down forever.
16.... to be filled up in future ...



" Sandy Claws - in person. What a pleasure to meet you."
                                   ~ Jack Skellington ( The Nightmare Before Christmas ( 1993 )) 

Friday, June 4, 2010

Market Timing At Upper Level

Market timing playing an important part in investing. especially for the technical analysts. They are betting on the trend of the market hence it is probably the most important for them. They have to time it accurately in order to meet their goal. On the other hand, the value investor do not pay much attention to market timing. In my opinion, I think market timing would help to achieve out goal faster. Of course, we couldn't be 100% sure that our timing is 100% accurate, but achieving 75% is good enough . Hence, they are a lot of people of us who try to buy in stages. But, the accuracy of buying is also very much depend on how to digest the situation. You got it wrongly, it would kill.

The prime example is Bill Miller ( the guy who beat S & P 500  15 years straight ) in 2008 when he bought Countrywide and Bank Of America heavily because he judge the Lehman Brother collapse too likely. Well, who did expect the collapse would bring the whole financial system down anyway. The year of 2008 losses was amounting all his gain for the past 15 years before that. I check in the bandwagon too fast. It was roughly before or after the LB collapse. I wasn't so lucky that I put most of my capital at the beginning. But I was lucky to log in some profit in between and went for stage by stage until Mach 2009. It worked for me at last. But I consider myself lucky. It was hard  and mentally challenging. Indeed, at the moment, nobody knew what would be the outcome and it was really hard to judge the whole situation. A great legacy of Bill Miller was destroyed like that. So, the wisdom of the great teacher of Ken Hebner was right " you just need to take care of the downside, the upside would take care by itself "
So, we are now have pretty idea what to do when the downside was coming. Dubai crisis is a small fish. But the EU crisis looks like a 400 pound gorilla ( compare to the 2008 crisis = 800 pound ). Of course I am just guessing. But precaution is my priority now since my market capital is getting bigger. Yes, when the market capital is gettign bigger, it is a diffrent ball game. The bigger it is the more difficult it would be. That is why WB's job is tougher nowadays compare to 30 years ago.

Sighh.. I am derailing from the purpose of  this post. Instead of only taking the downside, I think we should be taking care of the upside as well.  The tricky question is when should we sell ? I always cought in this situaition. Keep on adjusting myself to accomodate the market situiation. I came up with a cash-equity ratio of 20:80 which I would monitor from time to timr. It worked very well. Too bad I started to reduce more cash and incease the equity when the market start to move. Kan na sai, it backs fire. Instead of increse the equity when the market is up I should have reduce it. "Sekilang bagus lah." I should have = I didn't. Damn I was so reluctant to sell when the crisis started to surface, but was caught up with so call "hope". No point bitching here :).. Hmmm  I said in my previous post, I have reduced the equity and raise the cash to 37 : 67 now. It might be a mistake. But, I think this would work just find. Time will tell me that.

Dow tanked 323 points last night. Do I feel happy with that ? Not really. It means some of my buddies's stock would have a very volatile session next week. I am more prepared this time than the 2008 which cought be by surprise. I hope you do as well. For the ones who has gone through teh bull in 2007 and burst in 2008, I think you guys could sense what I really mean. Again Happy Trading.


P/S : For the ones who like Japanese movie. This is a very dense and shocking movie. If you can't satnd the blood scence ( I mean a lot of blood ) this is not for you. Check its sequel Noriko's Dinner Table. I find this movie disturbing but somehow poetic, dark, ... really something.


"  Let's get enough people to beat 54! 100! Let's get 100! "



~ School boy 1 ( Suiside Club ( 2001 )
 

Thursday, June 3, 2010

Beh Tahan This Guy

My colleague told me about this guy  several years back. I have never seen or read such an arrogant, self indulge, shiok sendiri, and hate inflicting financial blog. By all mean, I congratulate him and would like to learn from  him if all the calls he made were true. I consider myself a value investing follower. But, do I say anything wrong about Technical Analysis ?  Is there anything wrong with technical analysis that he has to say that all these technical analyst are fools an he is the god ? Does him sleep better when the TA lose their money is the market ? Hei, sometimes we win sometimes we lose ok. Even the greatest investor on earth WB made mistakes and lost money ? Does it make him happier or sleep better at night when he saw the others lost their saving or money ? They ( TA ) have family to feed as well. If the TA doesn't suit him, then by all mean leave the TA alone. I believe some of them made tons of money with technical analysis. As far as I am concern, the infamous BNF ( ( Japanese stock trader, his net name), has increased his own fund from 1.6 million yen to 18 billion yen in 8 years. And yes, he is a stock trader. He day trade and he even minutes trade. Is he a fool ?  You don't have to call the TA fools just because they do not want to follow your way. What is the problem with him keep on praising himself how good is him ? I don't believe that one could have 100% winning steak all the time. Why posting only the profit and not the lost ? Never made a single mistake at all ?

Seriously, I am sincerely want to learn something from him. Admire his return in fact. It is a very impressive  return ( if it is true ). But, it is just not right to call others fool. If you come across this Samgross, please do share with us your insight so we could learn from you. Do not be angry with this post, I am just telling you that it is rude to call the the TA fools. And it is not right to laugh at the others when they were losing money while you were making.I wonder will he read this while he is indulging himself.

It took me sometime to think whether to post this or not. it is a very riude post.Curse me if you like. Say I am rude as him as well. I just " beh tahan " when I read his post accidentally just now ( Feel bored so browse his blog because I have nothing to read after lunch ). I apologize to his fans if they are offended.

Hmmm, who would read this unpopular blog anyway. Maybe I just want to shiok sendiri here. :)


P/S : This is a very interesting movie. Alanis Morissette is the God . :)


" Rufus: You know what the dead do with most of their time? They watch
the living. Especially in the shower.
Jay: I cant wait to die. "  ( Jay and Rufus ( Dogma (1999))

Monday, May 31, 2010

Properties Investment

Some friends of mine are talking about properties recently. It is not my cup of tea to talk about it. All I know is the price is keep on going up and up these few years. The double terrace house in Klang Valley area are fetching at the price between 400k to half millions. I am perplexed with the trend. Obviously, the price is not running concurrent with the raise of my salary. But, almost every single property launch by the developer is selling like hot cakes. I wonder where the hell is the demand coming from. Could it be a buble ? I do not know. My friends said it is not. They said as long as the demand is still there, it is not a buble. I just can't find a answer to this question : " Isn't it the demand which blow the bubble ? ". Would the price keep on going up for the " luxury " properties ( I consider 400k price tag  house as luxury house ). Here are my understanding why the properties price would go north :

1) Liquidity. As long as the interest is low, they would be demands out there. Low interest, easy housing scheme, easy loan and etc. An monthly income of 6k nowadays could afford a half million properties.
2) Anticipation of high inflation in future. People are hedging the inflation with properties.
3) Easier policy for foreign investor.
4) Rising population.
5) Rising of payroll or monthly income.

Yes, no doubt, the luxury house is still rising. Maybe it is the trend.Yes, the demand is still there, otherwise, the price tag won't go up. I am just perturbed by the demand. I can't see any of the above mentioned reasons become a catalyst  to drive the price higher. My reason being :


1) Liquidity. I don't think Bank Negara would keep the interest low. It is time to increase the interest rate to avoid the run away inflation in future.
2) Anticipation of higher inflation. Hmm I am no comment on this because it is very subjective. With the rising interest rate, inflation might be kept contained. But we all knows that the official inflation rate and the " real inflation" is totally 2 different stories.
3) Easier policy for foreigner investor. The property gain tax  is back even though it is not as high as before. If I am not mistaken, the minimum buying price of house has been raised to RM500k. Correct me on this if I am wrong.
4) Rising population. I just don't think Malaysia population is huge enough to propel the demand. It is not like Indonesia or Thailand.
5) Rising of payroll or monthly income. I can't see it base on my personal income. Maybe it is just me. My circle of friends doesn't enjoy the raise as well.

The worst I heard and read is that Kuala Lumpur properties price still have room to grow should one compare the price to the regional market like in Jakarta, Bangkok or Singapore. I can't see the the links here. After all, the same thing have been said for years, the property price in KLCC or KL is no way close to Singapore's. It is the same thing like the KLian average payroll would increase because the difference between the  KL and Singapore is too far. I just do not buy that. A household income of RM 6 k for a property at the price tag of RM500k ? I just could not believe that would last. I am out of the game anyway. Can't afford it. Leverage is not my game as well. 

I am not sure it is a bubble or not. My friend said it is not. Some said even though it is a bubble, the price won't drop much when it bursts. For the record, in 1997 crisis, the average house price drop 39%. Of course we can't expect another 1997. But, he is quite accurate most of the time. I hope he is right this time. As for me, it is not my game.

 “It’s mercy, compassion, and forgiveness I lack—not rationality.” 
                                          ~ The Bride ( Kill Bill Vol. 1 ( 2003 ) )

Tuesday, May 25, 2010

Fear Management

If someone is telling you that he never encounter fear while he is full gear into the market, he is probably " talk cock". I just don't buy that kind of story. I am always "chicken", which I consider a plus points rather than a disadvantage.
Fear is always a sword that cut 2 ways depend on how you look at it. As long as you are in the game, that is the element you should not ignore. After all , it is one of the element which helping us hitting home run. Fear could lead one losses to their pant down or one could reap the benefit out of others' fear. After all, this is a zero sum game.

1. Know what are you doing.  If you do not know what are doing, then you deserve to be scared. It is okey to be scared. After all, we are human. Recognize your action. If you are trading on some counter admit it. If you are speculating some stocks admit that you are. If you are value picker, then tell yourself you are. Once we recognize what are we doing, we should be able to take action once the situation turns sour against. Once we are prepared, we would not be caught off guarded.

2. Keep some cash when during the good time. By how much ? That is up to personel risk appetite. Always remember, ther eis no clock on the wall which would tell you when would it strike 12.00 midnight and the party is over.

3. Do not be too pessimistic all the time. Ohhhhh Roubini... Ever wander why he is always on CNBC or Blooerberg ? Probably, because people want to listen to bad news when things turns sour. Do you think CNBC or Bloomberg would want someone tell you it is not the time to panic ? Who doesn't want to listen to Dr. Doom to scream : " It is time to panic now.... not tomorrow but now ..... ". To avoid that, best way is to do not switch on the TV or internet which is kind of impossible nowadays. So, better way is keep your mind open about their view. Dr. Doom might be right about the sub prime crisis in 2006. But he was deadly wrong to call the stock to drop further in March 2009 which DOW and S & P 500 propel a strong rally after March 2009 low. The same apply if event turns the other way around.

4. Just buy the company that you understand well like WB do. Just forget about the rest.

5. Remember you are always alone to be a contrarian . Do you a favor by telling  telling yourself that most of the time only contrarian makes money.

6. Do not ever try to margin if you do not want fear to engulf you in critical time.

7. Don't assume anyone's opinion (including mine) is truth of a predestined outcome. In other word don't assume that because something might happen it will. These are merely opinions to consume. Consume it with balance prespective. Invest on the assumption that anything may occur and you might avoid becoming overly pessimistic or overly optimistic. And remember; conditions change and you must be flexible as the world morphs.Bear that in mind we, should be able to avoid be too fearful or too dreadful.

8. Tell yourself it is not the end of the world.Read more constructive view from the guru Mark Faber, Mobius, Ah Jim Koko, Jeremy Grathman. Google it you will surely find their words. During war time, who should be fearfull ? The citizen, for they are the vulnerable ones. Be a soldier. Prepared yourself with the rifle and bullet. ( Knowledge + Cash ). Then you won't be so scared.

9. Always remember, your a supposed to capitalize on others fool's fear. It is your own fear make you lose money.

10. Do not be idiotically brave. There is a thin fine line to define a foolish brave and a smart gutsy investment. Of course by definition as long as you make big money that is a smart investment lah. Who cares how you make it. Who cares if it is by pure luck. A carefully calculated risk investment should be term as smart investment. If it doesn't turn out making money, then it is too bad. But I still think that is the way we should head. No matter how careful and how good you are, we still can't guarantee it is going to make money right brader ... If that happens, then no luck looor. You can't strike TOTO every single weeks anyway :).  

P/S : If someone out there saying that they are not afraid at all all this while please drop me a few lines. I will like to learn from you.

" Every man... every man has to go through hell to reach paradise "

                                                  ~ Max Cady ( Cape Fear ( 1991))

P/S : This is a lazy and lousy post. Happy reading.

Friday, May 21, 2010

Why Fall In Love

First of all, in order for us to fall in love, we need to have a " romantic atmosphere " . Second, the candidate must be attractive. Only then, we would try to approach the candidate. And of course, after a few dates and a better understanding of her/his background,  we would feel whether or not she/it is Ms Right / Mr. Right. At at last, we fall madly in love with them.

1. Romantic Atmosphere : Have been following glove industry for years. Have been a follower of  Top Glove. Bought it and sold it before " migrating " all the fund to NYSE and HKSE market in 2008. What a year !!! Have been looking at this industry as a whole. The demand has been increasing year after year. The demand is from all over the world. Previous reports from several local analyst used to say the demand was going to slow years ago. I admit I did listen to them and never really get into the band wagon. Kan ni nah... Now, Why should I listen to the so call " analysts blowing water talk" but not listening to the top man in the industry.  Top Glove CEO and Hartalega CEO have been singing the same tune about the demand. According to the captain, the demand will still increase for next year. They are still in the middle of their capacity expansion plan. Why Should I listen to a passengers ( The Analysts ) who may not understand the industry well enough, but not listening to the Captain. I believe it is a capacity game, the more you increase your capacity, the more the revenue would be. It is kind of straight forward thingy. The "atmosphere" is good enough to fall in love with.

2. The Candidate ( Hartalega ) : No point to say how good looking the candidate here with all the details figure. Google it, we should be about to find the figure or number in detail. After all, we should do some homework and not just listening only. Debt = Not an issue at all. ROE = 40%. Impressive. Net margin of 25% very good. Free Cash Flow  = 0.15  OK. Most important part = Look like the cash in the peggy bank is going to increase substantially in the coming quarters. PE < 10, ( at current price of 7.7 with the annualized earning of 0.80 per share ). Earning looks like going to increase in the coming quarters as well. Capacity is still in the progress of expansion. Management sounds like eating what are they cooking. ( Check the lastet Burasa Anoucement. The captain is keep on increasing his holding ). The management is keep on figuring out ways to cut down the cost. Sound like a recession prove industry. The demand is inelastic in nature. Don't look at the PB ratio. It means nothing. It you have to look into it, look at the positive side.  The ROA is high. Candidate sound pretty gorgeous at current PE. I am not surprise should there be a change of apprisal and revert the PE to 15. Is there a chance ? I believe there is. 

3. The back ground. Hmmmm this part is kind of long to brag about. I want to keep this post short. Want to know the candidate background or performance history go HERE.  I posted the link before. Just repeat it here.

Can't find a reason I should not fall in love with it. Eat my own cooking. Long big time.


"He won't come after me. He won't. I can't explain it. He would consider that...rude."
- CLARICE STARLING~  The Silence of The Lambs ( 1991 )

         

Wednesday, May 19, 2010

Risk Part III ( Last Part )

Maximizing the profit and minimizing the risk. " Cakap " is always easier than do. I would be wrong on this but no one should stop trying until he gets to his goal. Instead of talking about the said issue, I think it is better for me to share some of my experiences.

1. Year 2007 to early 2008. Come out with this crazy idea of concentrating investing. Putting all eggs into a basket and really watch it carefully. Make a killing in by buying into Maybulk. BDI was soaring from 4000++ to 12000++ point. Maybulk
Come to think of it, it is better to list down what do I think about it.

1. Diversification doesn't really mean  risk reducing. It is better to be vigilant about the companies that you bought than diversified into too many companies and lost your track about the companies development. If you are US market, I believe you may agree with me  that buying Berkshire is safer than buying several companies. After all, Berkshire's holding companies are doing all kind of business, and it is kind of " diversified" in a way. To put it another way, it is safer to buy only Public Bank than buying several banks like RHB Bank + Alliance Bank + Hong Leong Bank + Bank Utama combines. Get what I mean. If you ask me how many companies should one hold, I would say it is much depend of the capital. There is no point of  buying into 10 companies with a capital of  20k. The bigger the capital the more the companies one could hold. They are people said for capital > 100k, a single counter should not represent > 15% of the total capital. I am  a more adventurous type. I am more to concentrating to 5-6 counters   and watch it with a eagle eyes. Experience told me that I just couldn't make a killing if the portfolio is too much diversified. This issue have been told so many times. I myself get bored with it until I personally experience it. Try it, see whether you would come to the same conclusion or not. 

2. Market always fluctuates. Always keep some cash in hand. Ha ha ha .. I have never been able to do that. I just can't help it.  Still learn how to control it emotionally. Controling the behavior is vital. Human being is emotional. I know I am the extreme type. Either all in or all out. Still in the path of learning. Believe me or not, you would feel more comfortable if you have some cash in hand. Always remember market always goes down much much faster than it goes up. Do not compare the maximum gain you have during the good time with the current situation. There is no such thing as if I wait a bit longer, I will get to the level during the good time. You just can't have it all, admit it and move forward.

3. Always review your portfolio and adjust to it accordingly. Never mind what the analyst said. They are not better than you anyway. And I don't see how are they better than you besides they have the advantage of having a degree in finance or something. Do your homework and trust yourself. When the market crushes, build up your confidence. Don't put your balls in the fridge, go to the front line and and get your gut to buy. If you are too chicken, your probably miss out the last year long rally.

4. Investing in Bursa Malaysia or whatever market you are in is like playing a zero sum game. Your gains is some one else losses. Hence, it is very disadvantage if you do not have some " account skill " as your defense. Going to the battle field with a pant and beach sandal is definitely disadvantage to the one going with a riffle on the shoulder kawan ..... Like it or not you have to study it....

5. Low PE or Low PB ration doesn't guarantee lower risk. Read the previous entries if you don't get what I mean. But  I personally prefer low PE counter, not because of lower risk per se, but it is more to better chance to hit jackpot with lower PE counter. I did brag about it. HERE is the reasoning. NTA give you no meaning if the asset could not generate free cash-flow and make little earning. There is no point of having a 100 million asset which produce 5 millon cash annually.

6. Know yourself. If you can't take it emotionally, then go for the very conservative way or always keep some cash. A 35% cash would make you sleep very well. A another crisis of 2008 would create sleepless nights. Believe me, if I would prefer a sound sleep to go through another crisis like 2008.

7. Only during crisis time, you would find big bargain. If there is a " true good to be true"  during normal time, you better get your ass to dig what is going on with the company. If you are pretty comforatble with your commitment with the associated risk, get your gut to buy in stages.

8. I am more to value investing than technical analysis. What I can say is value investor  make big money most of the time in comparison to technical analysis. Ever heard of Techinical Analyst become a Billionaire ? Furthermore, technical analysis kind of susah for me. Reading chart is not my cup of kopi man....

9. Understanding management is paramount. Value could make you rich, but growth will make you a fortune. Only good management could take you higher. Good management could grow the companies bad one sucks the companies for personal  gains. There are a lot in Bursa Malaysia. Good one privatized it lah....  then repackage and sell it back to public later. Really good one .. walap it and keep it to themselves. Normally a family controlled company won't get you much as a minority share holder.  How to get to know good management ? It is through what they did not what they talked. Talk is cheap, like what am I doing now here...

10. I am actually struggling to come to the point no 10. You probably won't get what am I trying to say here. But what the heck, I have to come to a conclusion for these Back To Future series.... I want to close this topic... it has been too long .... I will leave with a video clip here by Li Lu..... This video probably worth much more than you pay to attend a seminar on investing.... It is an hour ++ video.... Go ahead.


" Young Doc: No wonder this circuit failed. It says "Made in Japan".
Marty McFly: What do you mean, Doc? All the best stuff is made in Japan.
Young Doc: Unbelievable."  ~ Back To The Future III ( 1990)

Monday, May 17, 2010

Risk Part II

So I was " kopitiaming" about the " Quality " element. Again that was very subjective. Could I say low P/E and low P/B a good quality stock ? Well, some agree with that. I don't. A good quality company should be about to general enough cash flow which is sustainable for dividend payment and future expansion. A good quality company doesn't need to raise capital in the debt market for its expansion. Or at the very least a good quality company should be able to produce better yield that the fixed deposit. A good quality stock should be able to retain its earning which would translate into its stock price. That is kind of WB dollar to dollar rule which could be translated into the saying goes " a dollar made is a dollar plus into the stock price".

There must be a reason explains why certain good quality counter are priced at a premium to its pier. Look at Public Bank. It command a much higher P/B ration to its pier. Look at Top Glove, its share  priced are always quoted at the higher premium to its pier. ( Check their P/E ration and P/B then you would see ). So, we know there is a premium which we need to pay for good quality stock. The question is how much are you willing to pay ? That is very subjective as well. It is like how much are you going to pay for certain risk that you are going to inherit. Lower risk, higher premium, very straight forward. Since how much is the premium is very subjective, ( most of the time it is the market force that decides the premium ), it is rather difficult to discuss it here. So let's drop the premium issue out. Everyone has their own set of measurement to gauge the premium.

How do we determine the quality ? It could be forward looking or it could be backward  looking. It is easier for backward looking, for you wee need is a set of understanding for how good a company is performing.  Of course a company performance would be reflected in its financial report. So, like it or not, we have to have a sense of accounting knowledge. Is " accounting thingy " so important that we have to...... Come on, no soldier goes go battlefield without a rifle.   It is kind of ironic if you are investing your hard earn money without the basic accounting knowledge. It is like going to battlefield with only your pants and beach sandal. Getting a copy of " Account for Dummies " will do the trick.. If you don't agree with me, you better stop reading this blog for it is just wasting your time. The so call " backward looking " is nothing much special but base on, beside the the more common, P/E ratio, NTA, current ratio, etc there are much more information which could be dug out in the financial report. The profit margin, the debt, the ROE, The ROA, the receivable to detect the financial shenanigan, the business review by the boards, the ESOS, the right issue, the business forecast of the boards, etc are all the elements which could be judged and reviewed from time to time to determine its quality. The good thing about backward looking is, one doesn't need to guess but purely base on one's company track record to make a investment decision. The forward looking is the much more challenging and tricky part.

If you have a crystal ball, forward looking is not a problem for you. The thing is the crystal ball that I bought at " pasar malam" doesn't tell me the future. It is more like a guessing game. WB is extremely good at it. Of course no one will get it 100% correct. That is why WB goes " " I will rather roughly right than precisely wrong". ( Another famous quote about how the guru views about " the risk".). If you ask me how to forward looking, I could only tell you it is by experience. Read more financial report, read business section not entertainment or sports, observe the surroundings, even a trip to Mid-Valley could give one some ideas. At least one could have a feeling what is the consumer favorite product in town. But for me, nothing is more important than reading the guru opinions.  Opinions given by gurus  like WB, Jeremy Grathman, Geroge Soros, Mark Faber, Jim Roger, Kent Hebner, Mark Mobius  should be in your reading list for they are the ones who always give good foresight. Most of the analysts gives us craps. Analysis by local investment banks or brokers are bed time readings at best. People who follow Mollah shall know what I mean.

I think I have been talking like I am an expert. The fact is I am not. It is just my 2 cents and I am not good in putting it into words. Will be bragging about how and what did I do I try to minimize the risk and maximize the return. Adios...

" Dr. Emmett Brown: Then tell me, "Future Boy", who's President in the United States in 1985?
Marty McFly: Rona
ld Reagan.
Dr. Emmett Brown: Ronald Reagan? The actor? "  ~ ( Back To The Future II ( 1989 ) )

Thursday, May 13, 2010

Risk Part I

Define risk. This is what I have got from Wiki :

" RISK : Financial risk is normally any risk associated with any form of financing. Risk is probability of unfavorable condition; in financial sector it is the probability of actual return being less than expected return. There will be uncertainty in every business; the level of uncertainty present is called risk. "

For the ones who study finance or econ, I am sure they are familiar with the term risk. I am not a financial planer nor I do I have a degree in econ or finance. I don't even study " Perdaganan " when I was in Form 5. But, generally what do I understand about finaicial risk could be summed up as explained above. Of course we could catagorize the risk into more specifically such as interest rate risk, default risk, liquilidy risk, solvency risk and so on. But that is not the issue here. Since we care talking about investing, just let us lump it into more general term as investing risk ( just call it risk from here on ).

Everyone is scared  to lose big. And I personally treat the risk of not making $$ as investing risk as well. There is no point to feel lucky for not losing money comparing to the one who loses. So, not making a profit should be a function of of risk as long as you are in the market. Even though that is the least "lost" we are going to encounter, it is still a risk. And I have heard zillions of time about " paper loss" .... wtf, a lost is a lost there is not such thing as paper lost. Back to the risk that I am talking about.

So basically, for me, investing shall be a thing of managing risk than managing profit. Of course the best thing is the combination of minimizing the risk and maximizing the profit at the same time. The quote " the higher the risk, the higher its return " should be viewed as extremely dangerous and flaw statement. It leads people blindly.  After all, our objective is to get the maximum return at the lowest risk possible, isn't it ? So what is this shit about " the greater the risk the higher the return" which is totally contradic to our investment objective ? That is beside the point anyway. The point is how to reduce the risk that we presume.

Everyone of us has own own set of risk measurement. Your risk could be different from mine. I am only referring to mine. The risk that you are going to burden is non of my concern. I am not going to get a single sen poorer if you lose your money, nor do I get a single sen richer if you strike big. To put it another way, there is no way I could manage your risk. You have to eat your own cooking just like me. You buy it, that is the risk that you are going to take.

For me , the very basic idea of managing the risk is never lose your capital. It is just like the the old WB rules. 1st. Do not loose your money 2nd. Do not forget the 1st rule. Hence, it is pretty obvious that the old WB is actually managing the risk as well. Otherwise, his great teacher Ben Graham would not be coming out with the idea of Margin Of Safety. With that in mind, it leads to the understanding of under-valuation would command of bigger margin of safety ( which translate to less risky in other words). The idea that a bigger safety margin is better than a smaller one, that cheaper is better than more expensive, that more cash is better than less cash always hold true for obvious reason. However, undervaluation caused by neglect or prejudice may persist for an inconveniently long time. ( I treat waiting as risk for there would be opputurnity cost which we need to bear while waiting for a long time). I believe they are Ben Graham followers who plainly ignore the possible future development because they thought dealing with it is simply speculative. They are much preferred to stick to how much is your assets your in your piggy bank now. What much your assets yield today. The thing that really matters could be summed up as Keynes said below :

" It’s all quite irrational because they are prisoners of the future just like anybody else. However many assets you have in the corporation, including cash, can all be eroded long before you can get your hands on them. "

With the above mentioned quote in mind it is rather pointless to use low price -to-book ratio (P/B) as a yard stick in stock picking is weak approach. Look at Transmile. Should you picked it up with P/B ratio at 0.5 at the price of 0.90 a piece ( at this case mmargin of safety of 50% ), you jaw would be dropped to floor when you read the NTA = 0.08 in its financial report early this year. Exactly illustrated by Keynes stated above.

Jerymy Grantham put is nicely as followed :

"Low P/B ratios are, after all, the market’s way of saying “these are the assets in which I have the least trust.” It should not be surprising, therefore, that when you have a depression, or nearly have one, that more of these “cheap” companies go bust than is the case for the “expensive” Coca-Colas."

" To cut to the chase, P/B does not represent intrinsic value. Nor do P/E ratios or yields. To make this point I regularly pose a question to investment audiences: “I give you Coca-Cola at 1.2 times book or General Motors at 1.0 times book. Hands up, who wants General Motors?” No one ever puts up their hand, and I say, “Therefore, Q.E.D., P/B is not value.”

So, if we buy a stock which has surplus asset, a good yield or a great safety of margin, we are actually putting a bet on regression to the mean. In other words, we are betting that the current unpopularity of the stock ( due to irrational human behavior) would fade. Eventually, price would turn toward it mean. From their investor would profit from it.  Unfortunately, for many times the theory doesn't always hold true. Some of the Low P/E low P/B value stock vanished just like that during the 1998 crisis. Asked around the coffee shop, I believe, they are some " ah pek" to name you a new examples of them. In short P/E, P/B and Q.E.D as sated by Jeremy Grantham are not a function of Value. For me, it make things easier if we treat them as a function or factor of risk.

What do I mean by that ? Plainly, it means instead of treating low P/B or low P/E or low whatever it is as high value, it is more functional if it is treated as low risk. It is a stark contrast if you read the line carefully. High value sounds like it would make money for you for sure. But low risk carry the meaning of casing you loose you pant at the end. After all, low risk is still a risk. But low P/E or low P/B doesn't mean low risk per se. It is just generally accpeted as  Ben Graham followers  do. Higher Safety margin/ low risk base of low P/B or low P/E just lack the " Quality" which I would try to share (my opinion)  in next post. It takes me quite sometime to put my thought into words in this post. Kind of tiring actually. Happy Reading. :) Adio..
P/S : Saw this movie 2 times in a row at the same theatre same day with eldest sister in 1985. Thanks sis for the treat :)

" The way I see it, if you're gonna build a time machine into a car, why not do it with some style? "
                                ~ Dr. Emmett Brown ( Back To The Future ( 1985))