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 ))