Sunday, January 30, 2011
Being bullish is not a bad thing. Being foolishly bullish is another thing. This could be a beginning for the next super bull. Ride it cautiously. Adios .. Happy Trading. and Happy New Year ....
Friday, January 28, 2011
Insurance and bank are Balance Sheet oriented business. It is rather no point to put emphasis on the cash flow of these companies. Commercial banks are making money by taking deposit from the public and lend it out. They are making money by the spread of the interest they charge and the interest they give. The inflow and out flow cash doesn't tell us much about the companies. Instead, how good is the bank is very much depending on how they manage their asset. The banks have huge piles of loan that they lent out which its quality will determine how much the banks will be making. Look at Public Bank, they have the highest Return of Asset among its competitors. Of course, evaluating a bank is not as straight forward as this. It involves a lot more than its Return Of Asset. But most of the issues ( For instance Tier I capital ratio, loan loass provision, Non Perfoming Loan and etc) would be concentrated on its balance sheet.
Insurance companies are making money by investing the premium they received from its clients. Hence the core issue here is how good is its investment. They are either in stock, corporate bond, government bond, annuities and etc. Again it is more to a Balance Sheet oriented business. Most of the time insurance companies are busying managing its Balance Sheet.
If you bought a 10 mil dollar machine and generate 1 mil cash annually, it will take you 10 years to get you initial capital back ( assuming you buy the machine in cash and there is no other additonal cost to run the machine ). Will take be a good business ? How much will the machine worth after 10 years ? How much will someone pay you to buy the company ? 10 mil ? You will be screaming " I machine worth at least 10 mil !!!! " if someone is ready to offer you 7 mil only.
On the contrary, a 1 mil-machine-can-generate-1 mil-cash-annually business is totally different story. How much do you want to sell the company ? 1 mil ? I will be willing to pay 4 mil or even more eventhough the machine only worth maximum 1 mil in the book. One good example of this kind of business is BTOTO. its NTA is merely RM 0.27 as on Q2 2010.
Most of the public listed companies in Malaysia is Cash Flow oriented. Warrent Buffet's term "owner earning" is more meaningful than the figure we get from The Profit and Loss statement. ( I am referring cash flow oriented companies ). Owner earning = Reported Earning + depreciation, depletion, amortization and certain other non-cash item - annual capital expenditure for plant and equipment. Very similar to Free Cash Flow.
(Since we only look into companies with no debt or very less debt, the financing cash out flow concern could be ruled out. )
That is my 2 cent. Damn free today ... nothing much to do in the office. Gong Xi Fat Chai to you all .... Huattttttttt ahhhhhhhhhhhhhhhhhhhhhhh .. Happy Trading....
Some people will suggest books by guru like Peter Lynch, books about Warren Buffet, books by George Soros, articles and interview by Jim Roger and etc. But seriously, will it create your interest in it ? I doubt it. Most of the time it will bore the beginners to death because the contents of the aforesaid books will be too technical and it rarely induce any interest to go further.
If one is seriously about it. I will suggest to take the CFA Level I course. Take the exams as well. I did that. Honestly, the few thousands spent is worth more than any 3-4 days course conducted by the so called "professionals" in the 5 start hotel.
For the ones who do not know what would be covered in CFA Level I listed below is what you can get after the course.
1. A basic understanding about the financial report. You would know what are the Balance Sheet, Equity Statement, Profit and Lost & Cash Flow about. Without a basic understanding about it, I find it hard for you to understand a business and how it works for a company. Most of the time, the CEO of the companies are with the accounting background.
2. A basic understanding about economy. An understanding about how it works will certainly help us to gauge the market generally. Shall we sell the share during the recession and buy when the economy starts to pick up ? How the fiscal policy affect the market ?
3. An insight about finance. How a company finances it's expansion ? What is the cheapest cost structure ? ROE, ROA, financial ratio and etc which are important to gauge the health of a company. You can in fact learn about how certain companies try to cook their book. It is related to item 1.
4. Several things about bond. A bit about properties investment.
The descriptions look brief but it covers a lot of stuff. If I am n ot mistaken there are about six sections for the Level 1. It certainly opened my eyes. It only take you about 6 months. If you are interested I will suggest go Kasturi and make sure you attend David Meow's class. It will certainly save you a lot of time trying to figure out where to start. In fact it will save you some $$$ which you may loose by following the crowd like a blind fly.
I am not saying that I am good. But if I have taken up the course earlier, I could have save me a lot of $$$, time and hustles. It was probably my best investment.
Tuesday, January 25, 2011
Let us be honest with ourselves in what circumstances the market will tank ? Recession ? Political issue ? Policy Issue ?
I personally don't think the bear market will come anytime soon. A correction maybe, but a bear market unlikely.
Here are the reasons :
1. Malaysia economy is expected to expand by 5.0++ % accoring to MIER.
2. Bank Negara is still maintaining a sound fiscal policy.
3. There should not be any super hike of interest rate.
4. Politically I don't think it is a big issue even PR win the next general election. tell me who wants the chaos ?
5. Compare to other countries in the region like Thailand and Indonesia, we are still lag behind.
6. They are still mega project in the pipe line by the government. MRT, the 100 storeys, Islamic financial, bullet train etc. ( I am not a big fan of this mega spending but I would not discount the impact of it even though I don't like it ).
7. I look around and ask around and find that the restaurants, shopping mall, properties market etc which doesn't show any kind of contraction.
If all these materialse, we might be able to see the economy cuercircle for the years to come.
If you are not convinced and still want to be in the market, go for the industry which is not much influenced much by the market condition. Buying a nitrile glove producer is a very good bet. I blog about it before so I am not going to discuss further about it here. Otherwise people will think I am such a " syndicater ". For the record I long Hartalega big time. Happy trading adios...
P/S : This is a lousy post.
Friday, January 14, 2011
Let see who has the incentive to see the stock market keep on going up.
1. The Brokers. Broker companies are making money by charging fee. The higher the trading volume, the more money the make. So, of course they are in this camp. That is why we have prudence of financial analysis tossed freely by the brokers. Most of the rumors or tips are from the brokers anyway.
2. Financial press. The more people participate in the market the higher number of readers, which translate more advertisement. Hence more money to be made. They are more people in the market during bull market tahn bear market.
3. Investment bank. I don't think I have to explain this.
4. Banks. Even though it is more indirectly, we couldn't rule out that more loan would be taken by the people who make money in the stock market. Generally, bullish market would spur more consumption which is good for the bank as well. So far, I haven't seen banks loose money in the bull market.
5. The government. Of course the government want the stock price to go up. That would make them to leass weary. Given a choice who will like to have a general election during bear market ?
6. The company managements. Most of the compensation given to the managements is tied up with the share price performance. Worse still, most of them are holding majority share of the company. I can't see anyone in the management wants to the the share price plunge. The worst is sometimes the management team up with the brokers to spread rumors to jack up the share price.
7. The syndicates. Without stock price skyrocket how are they going to make money. They make money in the bull market.
So it seems that everyone wants the stock to goes up. Who wants it down ? Of course the one at the otherside of the boat. The Short Seller. They are the ones with the incentive to say : " Look, the Transmile book is not as rosy as it should be. The price should not worth RM10." They would also goes : " After going through all the numbers, I find that Megan is actually in deep shit. We should bet it goes bankrupt ". The same to companies like Fountain View, LCL and etc. They are actually the " invisible polices " who pick up the rotten apples in the market. It should somehow limit the stock " goreng " fancy. They are just merely creating the market volatility and piecing the bubbles sometimes.
Would I short if it is allowed in Bursa Malaysia ?
You bet I will. Happy Trading.
Wednesday, January 12, 2011
|ASSET ( 50 K )||LOAN ( 0 K )|
|E ( 50K )|
|ASSET ( 500 K )||LOAN ( 450 K )|
|E ( 50K )|
|ASSET ( 400 K )||LOAN ( 450 K )|
|E ( -50K )|
I must agree that leverage is an very exciting game. It could make you ton of $$$ if you play it well. There are not many forms of leverage game to play in our market ( Malaysia market ). There are 2 that I could think of while I am writing this. 1st is share margin financing the 2nd is commonly known properties investment.For me 1st option is out for I would never borrow money to buy stock. As for the 2nd option, I am always 15/16 ( as contonese said ). Let me elaborate a bit about what I think. ( It is a very simple straight forward elaboration )
Let say I have 50k of cash and nothing else. As shown in Balance Sheet 1 ( BS 1 ), it is pretty strait forward with nothing else to elaborate further. Say I have decided to leverage it up by 10x by buying a house worth 500k. I take a 450k loan with 50k down payment. So my balance sheet will look like BS2. One fine day, for whatsoever reason, I find out that the house price drops to 400k. How will my balance sheet look like ? It would be look like BS3 which is not pretty at all. With a -ve equity, I would be served a PN note if it is a public listed company. In this kind of situation, I am practically " insolvent ". However, as long as I am able to serve the 450k loan, I can still breath even though it is barely. If I ever loose my job and unable to serve the loan, I will be coerced to foreclosure. At that time, not only I lost the 50K that I put it as down, I would still have to pay the -50k ( -ve equity ) that I owe to the bank. A 25% depreciation of the house price would not wipe out my entire equity ( 50k ) but also send me to the debt land. Certainly I would be happy if the house price jump to 600k. Then whole scenario would be in reverse for BS3. That is the power of leverage.
Of course this is a simple example. Leverage of 10 is still ok for me. We need something big to force the house price to go down by 25%. But what if I leverage it up to 20x by taking 1 million loan ? A 5% down of the house price will wipe out my equity of 50k.
As I said earlier we need something big to force the house price down by 25%. What push the the house price by 35-50 % in some cases 100% the past few year. Cheap credit ? Vast liquidity ? Better economy ? Increase of house whole income ? I really hope that the worse or worst won't happen.
Of course I am not ruling out the properties investment option. It is just a matter of risk management. I find that I can handle the risk in stock better than properties. Still need a lot to learn. Anyone who has vast experiences in properties investment please don't feel shy share.
Adios Happy trading
Tuesday, January 11, 2011
But I like reading. Reading builds character. I read something about this great philosopher. Immanuel Kant. Click here to find out who he is. I like his idea of moral. According to him we human being is different from an object or animal. That is because we have the faculty or ability of reasoning. To my understanding, he said moral and justice has to been carried out because it is categorical imperative ( unconditional absolute necessary ) and that should be the ends. For example, we must treat human being with respect and dignity because it is categorical imperative ( unconditional absolute necessary ). Not other reason. We treat our friends, colleagues family members with respect not because we want them to respect us as well. We help them not because we are expecting something in return. We treat others well because we are human being and human being should be respected.
The same reason tell us we should not lie to others. We should not kill others. We should not prostitute. We should not badmouth about others. We should not commit suicide and etc. All the aforesaid imply that we treat others or ourselves ( in the case of committing suicide ) as an object or animal. When we treat others as an object or animal, that implies that we are not respecting others or ourselves with dignity. Consequently, that implies we are nothing but an object or animal.
Just now I read this comment on my blog :
neno said :
see how my sifu sam shames alexlu from nexttrade >
dare to blog this up ? u got guts to blog up ? ha ha..I dont think so .
Bot in 45 lots of Pantech -wa @ 0.285 last Friday ( see d attachment ) , within a week, it is now 0.41cts , >82% $$$$$ return from it ^_- do I need tak ada akal method 2 tell my entry ?
Same goes 2 Citi , bot in citi @ avg cost of 3.65+ 4 months ago , citi is now closed @ 4.95 , once again, do I need tak ada akal ta method 2 tell my entry ?
Now take a look at Alex lu lu, he was calling buy on citi @ 4.95 today , read d below n see d attachment :-
Citigroup has broken above its triangle at USD4.80
For those who set their sight far & wide, you may take a look at Citigroup, which has just broken above its symmetrical triangle at USD4.80. I do not have a target for this stock but I believe the long-term prospect of Citigroup is fairly good. For a closer look at how far this stock has dropped since its heydays, go to Yahoo Finance (here).
Chart: Citigroup's daily cahrt as at Jan 5, 2011 (Source: Stockcharts)
Posted by Alex Lu at 1/06/2011 05:39:00 PM
Ha ha... first , y cant his ta tell him 2 buy citi @ 3.65 ?
? y ? ta not workable ?
Second, we hv already made about usd 1,300 per lot in pocket then only ta loser called 2 buy citi @ 4.95 , dont u think it is "STUPID" ???
Is that what u called ta can times d entry ? ha ha
now u shld know y ta losers got themselves burnt !! do I need 2 say more ?
By now, u should know y I said ta is tak ada akal method ?
Yah lulu, Evergreen closed @ 1.51 today , is Evergreen still a sell ? Alex lulu's call 2 sell Evergreen @ 1.45 >
Calling 1, calling 2 lulu, is Evergreen still a sell ? or u need 2 wait until Evegreen break above 1.80 then only u call buy ? "
What can I say ? The only thing I can think of is, he wrongly pasted his comment on my blog. But that is unlikely. I do not know the reason why he wants to say his Sifu is so great here. Publicity ? I do not know. One thing is for sure is THAT IS IMMORAL to discerning others shortfall to boost how good they are. Furthermore, we can't justify Alex's call is wrong or right. That is no such thing as right or wrong in investing strategy. It is either good or bad. A bad call doesn't tell us he is a good person or bad person. But to laugh at someone's bad call is IMMORAL. Only bad person does that.
Friday, January 7, 2011
On the other hand investing could be an art. You do not rely on the financial result or chart but base on the basic logic and be extremely sensitive to the current trend or issue. For instance you heard the news about the terrible flood in Australia recently and come to a conclusion that the basic material will get a sudden spike on the upper stream of the supply chain. Base on that, you come to a conclusion to buy basic metal material in anticipation of the price roar. Jim Roger is extremely good on that. He was buying heavily on sugar to see the price to soar to all time high recently. John Paulson uses his art skill is to anticipate the sub-prime crisis and shorting heavily on all sort of financial instrument. These are the people who are extremely superior on their skill to predict. It is an form of art to me. Behavior financial which I think you all are familiar with is an art as well.
The question is not which method one is better but which one is more suitable to you.
This make me recall the car driving analogy by WB.
When we are behind the wheel you are at the present. The back is the past and obviously the front is the future. Looking at the back mirror is like scrutinizing the past. ( Using the scientific method should be the way). Looking through the windshield is forecasting the future. ( Using the art method should be the way ) . Then how about present ? At present we use the gut my friends :).... Gut is like the imperative net in order to catch the big fish.
As we are driving down the road, the future will become the past some days. then we use the " Scientific Method" to justify the " Art Method ". Only by this way we could improve our scientific and art skill to achieve our goal.
As I always blog about Hartalega, I find this method extremely useful to justify my position. How about you ? As usual adios and happy trading.