Tuesday, March 30, 2010
If you knew how Warren built the Berkshire empire and be impressed by it, you would be probably fascinated by Prem Watsa. The " boss " who run Fairfax Financial is 20++ younger than Buffet.
Since Warren took over control in 1964, Berkshire Hathaway has seen its book value growing at an average rate of 20.3% per annum, or 434,057% accumulatively. That send Warren to the top 3 in the chart of the richest in Forbe. ( He used to be the richest before Bill & Slim ). Thanks to the power of compounding growth!
They are thousands or maybe millions of Buffett fans out there. Among the followers, Prem Watsa, Chairman and CEO of Canada’s Fairfax Financial Holding Ltd. is one of the more successful ones. In 1985, Prem Watsa took over Fairfax. The firm had $30 million in assets and $7.6 million in common equity. At the end of 2009, 24 years later, the firm claims $28 billion in assets and $7.4 billion in equity. Firm grew about 1000 fold during the period. Book value per share has compounded 26% per year.
In early Berkshire years, Buffett grew his wealth and that of his shareholders by milking the textile company and used the cash earned to invest in other areas. He kept on looking for and finding his next cow to milk until he found insurance companies such as GEICO in which he found cash cows that never die. To the contrary, insurance provides Buffett with money that of little or negative costs, and Buffett was able to use that float to grow a franchise now we know as “Berkshire Hathaway”.
Watsa, on the other hand, cut to the cheese right way – Fairfax owns insurance operation from the very beginning of when he took over.
I bet on WB by buying Bershire B share. ( Cant afford to buy its A share, if I could afford to buy 100 unit of Bershire A share, I won't be writing this here but enjoying my cigar and wine at a private beach :) ). Anyway, sometimes we just need to bet on " the boss " in charge like what Warren did when he bought BYD. It is fairly good bet on this fealla Watsa. But could only buy Fairfax at the US OTC because it is listed in Canada sock exchange. Anyone who know how to get the access to it please don't be too stingy to share. Drop a line at the comment please .... :)
Cerita punya cerita kat sini, it remind me of a common thing the 2 great minds share. When the bet, the move quickly and never be bother by the fluctuation of the price over time. Easy cakap, difficult to do thingy. Again, it remind me of Hartalega which I was intended to buy at RM2.50 about a year ago. With the DOW at 6700 ++, who cared about Bursa man.... shooting all bullet at NYSE lah what else.... Pikir sini, pikir sana, just couldn't let go the counters I had in US to get Hartalega.... Was struggling with it again when it was RM6.70 weeks or maybe months ago ( when revalued it at RM8.50 )...aiii... sometime you just can't have it all. At RM 8.32 .... niah mah ... bolat liao ....no eye see .... This is the mistake which I would likely to repeat in future. Be firm, Be quick and Be confidence are 3 important elements in decision making. ( Told myself so many times ... cakap senang .. tapi .... you tahu lah.... ). But one thing I know for sure is .... I should have = I didn't .... So no regret at all in this trading world man ... Cheers :)
P/S : The best TV series ever.
" Curahee "
~ Easy Company (Band Of Brothers (2001))
Monday, March 29, 2010
I mean, sometime is is just so plain easy to follow the smart money. If you are buying America right after WB published his Op-Ed in the New York Time, you were probably beating WB in these 2 years. They are thousands of stories filling the air every single day. It is the matter whether you have the gut to buy the story or not. Of course one has to have the skill to pick up the story. For instant the GGP story. If you have the gut and studied Bill Ackman brilliant work on it, you are probably laughing now for you probably bought the share at below USD 1.00 and still holding on it at USD 16.49 as on 26 march 2010. Here now in Malaysia, we might have this brilliant trading idea here. This is a very good piece done by Dali, http://malaysiafinance.blogspot.com/search?q=transmile. Again, I eat my own cooking, bought 100,000 Transmile at RM 0.40. Betting on the management that it would come out from PN17 pretty soon. Playing with Fire !!! YES INDEED I AM ... damn how many time I told myself not to play with it again ......
P/S : You must watch this movie at least 3 times.....
" The greatest trick the devil ever pulled was convincing the world he didn't exist." ~ Verbal ( The Usual Suspect 1995 )
Tuesday, March 23, 2010
I have a big fan of WB. Since The collapse of Lehman and the open letter of WB ( his infamous op=ed in nytimes ), NYSE became the primary market :). A friend warned me that because of the USA is working overtime at their " Printing " department, the US dollar is doomed. Hence, I better be careful of my investment in US. For the coming 2-3 years ( in near term ), I can't see the greenback to fall of the cliff. The normal logic is with the flood of easy money and credit the end result will be " crazy " inflation.
In other words, if a nation greatly expands its money supply without expanding its production of goods and services, then all that surplus money ends up chasing scarce goods and services, and you get inflation: the same sum of currency buys less and less goods and services.
So now, would the world economy especial US economy expand at the rate which is exceeding the the money supply ? Would the consumption of American back to the pre crisis level ? If we are all still in the deleveraging process, I doubt it would come to the pre crisis anytime soon.
Historically, the equity and the greenback have a positive correlation. Only in the recent years that the relation charted into the negative territory. I am betting on the believe that the correlation would turn positive again when the economy start to expand " normally ". Shall it happen, we would witness the capital and currency appreciation concurrently. That would be the Chinese saying " Double Happiness ". However, in longer term, I do believe that holding US dollar is still not a wise choice unless the US could manage their deficit effectively. However, If one looks at how our government handle our deficit, I can't see how the Ringgit could appreciate against the US dollar. The verdict : Holding the greenback is better of holding the RM. It back to square one, Buying America is better Buying Malaysia...
BY the way 2 good reading here :
1. By WB : http://www.nytimes.com/2009/08/19/opinion/19buffett.html
2. By Charles Hugh Smith ( One of the best reading this year ): http://seekingalpha.com/article/194926-contrarian-trade-of-the-decade-the-u-s-dollar?source=hp_wc
" Seize The Day. Gather Ye Rosebuds While Ye May"
~ Mr. Keating ( Dead Poets Soceity 1989 )
P/S : A MUST WATCH MOVIE
Monday, March 22, 2010
I was reading one of the celebrity financial blogger in Malaysia. I must say that I am a frequent reader of his blog. He did write some good stuff. but his post crack a smile on me ( http://malaysiafinance.blogspot.com/2010/03/state-of-play-march-april.html )... BUY IN MAY AND GO AWAY ? THE ALMANAC ? .... If that holds truth, then we should engage a Feng Shui Master wouls mushroom Wall Street.
Yes, historically it was proven that THE ALMANAC spoke. If that is the case, we should " BUY IN MAY And SELL IN JAN " ..... Will this new Almanac make you rich ? Will you buy the idea of the 2nd Almanac? Probally not. Why ? Because it is coming out from a "nobody". So how ?
This is something irrelevant to the Almanac I want to say here. I still believe generally there are only 2 major thing which will lead the "equity bull" to charge higher 1. Interest Rate 2. Interest Rate. If there is another force to drive it higher it is still Interest Rate. So at the end it is still much depend on the individual stock picking. Shit !!!! That is the most tricky thingy .... I hate that ... That is the thing which making " molla " ... Niah Mah !!!
"You shoot me in a dream, you better wake up and apologize."
~ Mr. Brown ( Reservoir Dogs 1992 )
Sunday, March 21, 2010
I have been wondering whether I should join jump into the property bandwagon or not. I hate "illiquidity".
Neil McCauley ( Robert De Niro) in HEAT SAID :" A guy once told me, "Do not have any attachments, do not have anything in your life you are not willing to walk out on in 30 seconds flat if you spot the heat around the corner. When I feel the heat, I walk." That is super cool. Very Macho... Feel like to be a professional robber right after watching the movie. :)
However, one should not give up any opportunity to make " molla " right ?. SO I decided to drove around KLCC area personally during day time and night time. To my surprise, when I asked, it sound like most the the units were taken, but not majority of the units were not with the light on at night? So what should I conclude here ? The price has been raising around RM900/ft^2 to nowadays RM1300/ft^2 in 3 years. 13% compounding rate. Wow ... that is huge for property as far as I am concern.
Could the appreciation due to the low rate that the banks offer ? It is competitive business noways in banking industry. This bank offers free moving cost lah ... that bank offers BLR -1.9 lah, BLR - 2.2 lah.. free interest during construction period ... Could the appreciation due to the easy, I wonder ? Ohh yeah ... nearly forget that some of the units are actually service apartment which guarantee 6-8% yield which is very attractive to make is a green light " go ahead ".... That is the beauty of condo unit... It just fetch better rental than landed property. The only thing that we can look for in landed property is the house price appreciation. The cash flow would be a big issue in landed properties... Maybe I should make a filed trip to several landed property hot spot. :).... When I found out that DesaParak City double stories are fetching RM1.2 mil and the Sieera 16 ( Puchong by IOI ) double stories lease hold house have been sold out at the price tag of averagely 480K.. half millions !!! I have to make a walk ... like Robert said " When I feel the heat, I walk " ... MAYBE PROPERTY ( LEVERAGING GAME )IS JUST NOT FOR ME ......
~ I am double the worst trouble you ever thought of ~
- Neil McCauley ( Heat 1995 )
Friday, March 19, 2010
After 2008 crash, I becomes a chicken espcially dealing with " Walan ". So my personal prefer blog title is ( " 5161CA ~ This is for the one with balls ). But after 2nd thought, it is rather too long for a blog title.
Code : JCY-CA
Underlying Shares : JCY
Instrument : Cash-settled call warrants, exercisable European style
Exercise Ratio : 2 JCY CW : 1 JCY Share
Exercise Price : RM1.35
Settlement : Cash settlement only
Expiry Date : 10 March 2011 ( another 11.5 months to go )
Current JCY ( At time of writing ) : RM 1.60
Current JCY-CA ( At time of writing ) : RM 0.23
Premium ( ( 0.23x2 + 1.35 ) / 1.6 ) : RM 13.125 %
Gearing ( 1.6 / ( 0.23 x 2 ) : 3.48
Now Valuation of the stock :
1 ) Latest Quarter net profit= 4 sen per share RM 77.5 mil ( 4 sen per share )
Anualized the number = 4 x 4 = ( RM0.16 ) ( It will be a long story if want to look into why using the anulaized no. JCY main customer ( 80% of JCY sale come from Western Digital)... look into WD prospect ... well go and google it .. bla bla bla damn to long )
Change of appraisal make the PE shoot up to 15
Valued it at = 15 x 0.16 = RM 2.4 ....
Valuation too high for peaking the PE at 15 ? :) How about this :
2 ) Latest Quarter net profit = 4 sen per share RM 77.5 mil ( 4 sen per share )
Anualized the number = 4 x 4 = ( RM0.16 )
Company said dividen payout ratio at 50 % = 0.5 x RM0.16 = RM 0.08
Say dividen yild it at 3.5 %, hence
Value it at = RM 0.08 / 0.035 = RM 2.29
So now how, we have 2 set of valuation, the common sense says .... take the middle looor.... so average valuation of JCY = ( 2.29+2.4 ) / 2 = RM 2.34
Now backward calculate JCY-CA with EP at RM1.35, shall worth = ( 2.34-1.35 ) / 2
wooolaaa, you have a profit of 0.495 / 0.24 = 106 % ... if JCY hit RM2.34
So Valuation is a funny thingy.... AM I too optimistic ? ha ha ha.. I am just " blowinf water here " who knows. People get optimistic when the market is hot. My balls always grow bigger when the bull is charging. It is not right. It is a bad habit. I know that. But just can't help myself.
Just want to write this here as a record. I eat my own cooking. Bought 100,000 unit JCY-CA at RM 0.24.
P/S : It is a simple valuation of warrant. Life shall be simple isn't it. More details calculation could be found here. http://www.numa.com/derivs/ref/calculat/warrant/calc-wtb.htm
"...You've got to ask yourself one question: 'Do I feel lucky?' Well, do ya, punk?"
- Dirty Harry (1971)
The thing is PE does matter. For the new comer, it is the ultimate measure. For the veteran, that is rubbish. Newbie would scream at the top of their lung " Look, low PE, under value, let's rush for it, if not now then it is never... ". The veteran would goes : " Low PE .. huh... I am not impressed at all, the PE is low because no one wants it .... it is not undervalue at all " It is the glass is halt empty or half full situation.
So now, why I like to hunt among the low PE counters ? Because that is one of the way to hit Multi Baggar my friend. When there is a change of appraisal, naturally the PE ratio should raise accordingly. Lets illustrate the 3 scenario below :
Company Ah Kau is doing extremely well for the pass 3 years. And the current price is RM 1.6 with the current annualized earning at 16 sen. Hence :
1. RM1.60/0.16 = 10 ( which is not too high and too low )
and it is expecting to grow at the pace of 20% annually for the coming years... simple " crystal ball " calculation tell me next year earning should be RM0.192. Shall there be no change of appraisal, logically the Company AH Kau should be valued at RM1.92 which is by all mean an impressive return in a year ( after all Uncle Waren is only looking for a 15% return )
2. RM 0.192 X 10 = RM1.92 ( Assuming PE remain same 10 for there is no change of appraisal)
However let imagine that there is a change of appraisal for Ah Kau Company, and Mr. Market judge it at the PE of 15. The bloody AH Kau Company would be value at RM2.88.
3. RM0.192 X 15 = RM2.88 ( With change of appraisal hence PE shoot up to 15 )
So now, how do we know there is a change of appraisal for certain counter ? Don't ask me. If I know it I would be laying on the beach with 2 bikini girls serving me great cheese and wines :). It takes a lot of skill to sniff out the Multi Baggar. Do I have the skill ? I am not even sure whether I have it or not. Nevertheless, one shall improve themselves be better "equipped" to increase our probability to hit the jackpot !!!! Speaking of high probability ..... hmmm we shall have a read on this fellow http://2ndbrother2.blogspot.com ........ Sounds like my AH Kau company is 5161 that he is blogging about ....... he hehe .....
" I hope the Pacific is as blue as it has been in my dreams "
- Red ( Shawsank Redemption )