Friday, February 29, 2008
Why I bought MUI?
The answer is very simple, the reasons were published prior to my purchase. It happened that yesterday financial results were far better than I expected. Interest expense was down, operating units are making good profit, even the black sheep in the family (food division) was making money. In short, he did what he said he was going to do.
The key question still why today, not tomorrow, day after tomorrow? Why don't I wait for what Fed does next March 18? Why don't I figure out about interest rate conundrum (US and China)? The question of time in the market and timing the market has been a mystery to me since I started to have interest to make money from stock markets. I still have not found an answer until today.
The next question is will stock price go up? The answer is I don't know, we will have let the crowd to decide. Ben said, stock market, in short term is a voting machine but long-term is a weighing machine. I have determined the value of the company, putting down money; the rest is up to the company. I will sell it if my original objectives buying into this business are no longer valid.
I have my good reasons why I buy; other people don't have to agree with me, even though I look like an idiot if my portfolio goes down in value. This is what I call mental toughness.
I am setting up a real life example how people operate in the stock market and not preaching from textbook. Stock market is almost like war and street fight, it is very real - so we have to do what ever is appropriate in a given situation.
By documenting this journey publicly will keep me honest and hopefully, I am giving back a bit of what I have received from other great minds. Stock market game is great but focus too much on short term, picking a long-term business will make the player look like an idiot. So I am setting up a reality show now. Cheers!
P.S. Why you spend almost all the money you have? OK, Let's wait until weekend to write the details.
Thursday, February 28, 2008
What can Tiger Woods teach us(amateurs) about investing?
Woods was a child prodigy who began to play golf at the age of two. In 1978, he putted against comedian Bob Hope in a television appearance on The Mike Douglas Show. At age three, Woods shot a 48 over nine holes at the Navy Golf Club in Cypress, California, and at age five, he appeared in Golf Digest and on ABC's That's Incredible.[16] In 1984 at the age of eight he won the 9–10 boys' event, the youngest age group available, at the Junior World Golf Championships.[17] Woods went on to win the Junior World Championships six times, including four consecutive wins from 1988 to 1991.[18][19][20][21][22] While attending Western High School in Anaheim, CA, at the age of 15, he became the youngest ever U.S. Junior Amateur Champion, was voted Southern California Amateur Player of the Year for the second consecutive year, and Golf Digest Junior Amateur Player of the Year 1991.[23] He successfully defended his title at the U.S. Junior Amateur Championship, becoming the first multiple winner, competed in his first PGA Tour event, the Nissan Los Angeles Open and was named Golf Digest Amateur Player of the Year, Golf World Player of the Year and Golfweek National Amateur of the Year in 1992.[24][25]
The following year, he won his third consecutive U.S. Junior Amateur Championship, and remains the event's youngest-ever and only multiple winner.[26] In 1994, Woods became the youngest ever winner of the U.S. Amateur Championship. He was a member of the American team at the 1994 Eisenhower Trophy World Amateur Golf Team Championships and 1995 Walker Cup.[27][28] Later that year, he enrolled at Stanford University, and won his first collegiate event, the William Tucker Invitational. He declared a major in Economics and was nicknamed "Urkel" by his college teammates.[29] In 1995, Woods defended his U.S. Amateur title, and was voted Pac-10 Player of the Year, NCAA First Team All-American, and Stanford's Male Freshman of the Year (an award that encompasses all sports).[30][31] He participated in his first PGA Tour major, The Masters, and tied for 41st as the only amateur to make the cut. At age 20 in 1996, Woods became the first golfer to win three consecutive U.S. Amateur titles and won the NCAA individual golf championship.[32] In winning the Silver Medal as leading amateur at The Open Championship, Woods tied the record for an amateur aggregate score of 281.[33] He left college after two years and turned professional.
Source : Wikipedia
Tiger Woods has inspired me a lot about Winning Psychology. He is no doubt a very talented player, however, he has put himself to win enough tournaments in Amateurs category before playing with the big boys. He said rallying to win three consecutive US Juniors and as many US Amateurs taught him the value of never-give-up attitude. This has helped to build mental toughness.
Sensations hit golf world when a very talented teenager Michelle Wie at 15 year old wanted to play men's professional events. She got what she asked but she suffered defeat after defeat, set back after set back, missing cut after cut and finally gave up. Luckily, those bad experiences did not damage her soul and spirit. She goes back to her LPGA circle - realizing one needs to crawl before walk, walk before run, run before fly and not in reverse sequence.
A word of caution to big boys, stay humble, over-confidence is the begining of reverse sequence.
The following year, he won his third consecutive U.S. Junior Amateur Championship, and remains the event's youngest-ever and only multiple winner.[26] In 1994, Woods became the youngest ever winner of the U.S. Amateur Championship. He was a member of the American team at the 1994 Eisenhower Trophy World Amateur Golf Team Championships and 1995 Walker Cup.[27][28] Later that year, he enrolled at Stanford University, and won his first collegiate event, the William Tucker Invitational. He declared a major in Economics and was nicknamed "Urkel" by his college teammates.[29] In 1995, Woods defended his U.S. Amateur title, and was voted Pac-10 Player of the Year, NCAA First Team All-American, and Stanford's Male Freshman of the Year (an award that encompasses all sports).[30][31] He participated in his first PGA Tour major, The Masters, and tied for 41st as the only amateur to make the cut. At age 20 in 1996, Woods became the first golfer to win three consecutive U.S. Amateur titles and won the NCAA individual golf championship.[32] In winning the Silver Medal as leading amateur at The Open Championship, Woods tied the record for an amateur aggregate score of 281.[33] He left college after two years and turned professional.
Source : Wikipedia
Tiger Woods has inspired me a lot about Winning Psychology. He is no doubt a very talented player, however, he has put himself to win enough tournaments in Amateurs category before playing with the big boys. He said rallying to win three consecutive US Juniors and as many US Amateurs taught him the value of never-give-up attitude. This has helped to build mental toughness.
Sensations hit golf world when a very talented teenager Michelle Wie at 15 year old wanted to play men's professional events. She got what she asked but she suffered defeat after defeat, set back after set back, missing cut after cut and finally gave up. Luckily, those bad experiences did not damage her soul and spirit. She goes back to her LPGA circle - realizing one needs to crawl before walk, walk before run, run before fly and not in reverse sequence.
A word of caution to big boys, stay humble, over-confidence is the begining of reverse sequence.
Wednesday, February 27, 2008
Malayan United Industries(MUI)
Since the traffic flow on my blog is not heavy, I can share more freely on my recent study on MUI. If my readers like the idea, they need do further research. On timing and crowd sentiment, I cannot help them.
The story of MUI's turnaround plan was published frequently in megazine and newspaper lately. At first glance, most people will run away because it is very complicated, me too! However, I crawl back again trying to understand how much this company worth. iCapital closed end fund made a very handsome gained from William Cheng restructuring of Lion Diversified. Now they rated MUI a long term buy, so I took interest in it, esspecially Khoo is also buying the company shares very regularly.
The key catalysts of unlocking value of this company will depend on:(analysis based on 30 Sept 07 financial results)
1. Make the company less complicated and make it easy for people to understand and value the company
2. Get rid of debt
There is 873 mln debt on its balance sheet, however, it also has 884 mln of cash and near cash. So, theretically speaking, the company is in net cash position.
3. The company incurred losses of 700,000, however if you remove the finance charges of 27 mln, it would have net income of 28 mln. Annualized EPS will be 0.058/share, tagging at PER 9, the company worth 0.52/share, provided item 2 is done.
4. The hidden values of the company are in its property and Laura Ashley . The property on its balance sheet carried on cost, never revalue since they bought these properties and land. The estimated value of the propety today is about 1.1 billion, 0.57/share Value unlocking realization is only possible provided they continue to dispose. They have been disposing their hotel properties like nobody business to cut debts from 5 Billion to what it is today.
5. Market capitalization of Laura Ashley based on its 34% controlling interest worth about 368 mln or 0.19/share. Will they sell it or let the unit contibuting earnings?
If Khoo has personal interest, what is the probability the five points mentioned above will happen?
The story of MUI's turnaround plan was published frequently in megazine and newspaper lately. At first glance, most people will run away because it is very complicated, me too! However, I crawl back again trying to understand how much this company worth. iCapital closed end fund made a very handsome gained from William Cheng restructuring of Lion Diversified. Now they rated MUI a long term buy, so I took interest in it, esspecially Khoo is also buying the company shares very regularly.
The key catalysts of unlocking value of this company will depend on:(analysis based on 30 Sept 07 financial results)
1. Make the company less complicated and make it easy for people to understand and value the company
2. Get rid of debt
There is 873 mln debt on its balance sheet, however, it also has 884 mln of cash and near cash. So, theretically speaking, the company is in net cash position.
3. The company incurred losses of 700,000, however if you remove the finance charges of 27 mln, it would have net income of 28 mln. Annualized EPS will be 0.058/share, tagging at PER 9, the company worth 0.52/share, provided item 2 is done.
4. The hidden values of the company are in its property and Laura Ashley . The property on its balance sheet carried on cost, never revalue since they bought these properties and land. The estimated value of the propety today is about 1.1 billion, 0.57/share Value unlocking realization is only possible provided they continue to dispose. They have been disposing their hotel properties like nobody business to cut debts from 5 Billion to what it is today.
5. Market capitalization of Laura Ashley based on its 34% controlling interest worth about 368 mln or 0.19/share. Will they sell it or let the unit contibuting earnings?
If Khoo has personal interest, what is the probability the five points mentioned above will happen?
Jeet Kune Do Investing
"There is no BULL side or BEAR side, only the RIGHT side." JL
Jeet Kune Do Investing is down to three simple principles:
1. Right idea, Right timing, Crowd agree with you ---> BIG MONEY
2. Right idea, Wrong timing, Crowd agree with you ----> SOME MONEY
3. Wrong idea, Wrong timing, Crowd disagree with you -----> I AM TOAST!
Jeet Kune Do Investing is down to three simple principles:
1. Right idea, Right timing, Crowd agree with you ---> BIG MONEY
2. Right idea, Wrong timing, Crowd agree with you ----> SOME MONEY
3. Wrong idea, Wrong timing, Crowd disagree with you -----> I AM TOAST!
Tuesday, February 26, 2008
Seek you shall find, ask you shall be given
I have been publishing my thoughts over last two weeks exposing the subconscious minds by punching my notebook keyboard. I can see clearly selective perception will influence we want see and we want to hear. If I am bearish, I will ask bearish questions and I will find enough data for a bearish case. If I am bullish, I will ask bullish questions, I can find enough data to support a bullish case. If you ask bullish and bearish questions at the same time, the result is uncertainty. Be careful what you wish, bull, bear or uncertainty?
That's what the market is today. There are tugs of war between bulls and bears on the global front. On the local front, we are facing uncertainty of coming election results. For me, it is uncertainty of Malaysian future itself.
I have been feeling very uneasy about my country for sometime, we always take the path of least resistance. I have seen my colleagues’ children are not coming back to Malaysia - brain drain? I am delighted with government generosity to subsidize our petrol prices, holding off electricity hike when coal prices are skyrocket, cooking oil remains cheap, etc, suppressing the true inflation rate. This will push us into complacency zone, industry will not innovate to cope with true cost and ordinary folks will never understand true hardship.
My readers probably thought I was crazy or producing half-baked analysis in my last week entry saying stock market will go down because they were disappointed with no interest hike last week. The inflation below estimate mean we are not living in the real world, inflation suppression by government means they keep it artificially low, thus there is no need to fight inflation either by rate hike or currency appreciation. Path of least resistance?
Corporate earnings have been so so. Brokerage houses do a bit of cheer leading but it will not last long. Translation: market will be flat unless serious efforts to reform.
Gamuda sell down pushing the construction sector into red zone today is interesting. This show how fragile is the confidence of local and foreign investors. Some may interpret downturn is coming, which I do not think so. We went through hell when Pak Lah tightened the belt when he took over the office. Many have diversified earnings from overseas. That lead to usual suspect, the industry is politically linked. For this very reason, I never touch Malaysian construction stocks, even though some have reached world-class standard.
That's what the market is today. There are tugs of war between bulls and bears on the global front. On the local front, we are facing uncertainty of coming election results. For me, it is uncertainty of Malaysian future itself.
I have been feeling very uneasy about my country for sometime, we always take the path of least resistance. I have seen my colleagues’ children are not coming back to Malaysia - brain drain? I am delighted with government generosity to subsidize our petrol prices, holding off electricity hike when coal prices are skyrocket, cooking oil remains cheap, etc, suppressing the true inflation rate. This will push us into complacency zone, industry will not innovate to cope with true cost and ordinary folks will never understand true hardship.
My readers probably thought I was crazy or producing half-baked analysis in my last week entry saying stock market will go down because they were disappointed with no interest hike last week. The inflation below estimate mean we are not living in the real world, inflation suppression by government means they keep it artificially low, thus there is no need to fight inflation either by rate hike or currency appreciation. Path of least resistance?
Corporate earnings have been so so. Brokerage houses do a bit of cheer leading but it will not last long. Translation: market will be flat unless serious efforts to reform.
Gamuda sell down pushing the construction sector into red zone today is interesting. This show how fragile is the confidence of local and foreign investors. Some may interpret downturn is coming, which I do not think so. We went through hell when Pak Lah tightened the belt when he took over the office. Many have diversified earnings from overseas. That lead to usual suspect, the industry is politically linked. For this very reason, I never touch Malaysian construction stocks, even though some have reached world-class standard.
A Bullish Case for Equity Market
In life, one need to have open minds, listen to both sides of the stories. Then ask for Solomon wisdom to weigh and make a final decision. We can always view a glass either half full or half empty .
By now, enough has been said about bearish case, let's listen to a bullish case:-
1) The short-sell zone is getting more and more congested, the trading ratio of put option exceeded call volume on rising scale, taking a contrarian view, don't continue to follow the crowd.
2) If things are so bad, why insiders are buying? Insiders buying vs selling, exceeded 1.44 times which was the highest in 13 years.
3) The worldwide economy growth has not tanked even with persistent high crude oil price for a while. This reflects the fundamental of world economy is strong, impliying decoupling theory is holding up well.
4) US Mutual funds redemptions have not been persisted after the sold-off in October 2007. November equities fund outflow was 9.9 B but there was a + 1.2B inflows in December 2007. This suggest, downside could be limited.
5) Warren Buffet has been buying stocks gradually like Wells Fargo,Kraft, etc strengthening the argument of downside is limited. Some say Buffet buying into food inflation sensitive stocks signal soft commodity boom is almost peak. Inflation threat will ease. This will spark growth down the road.
6) S & P stock yield is 6% beating short and long-term bonds yield.
7) Months of persistent selling should have already discounted almost all bad news and US recession.
A word of caution, many of the views are from people plan for long term holding, sitting on big pile of cash. Short term for them is 1 -2 years, long-term is 5 - 10 years. This may not be applicable to day-trader or short-term trader. Short-term is less than 8 hours, long term is less than 1 month?
By now, enough has been said about bearish case, let's listen to a bullish case:-
1) The short-sell zone is getting more and more congested, the trading ratio of put option exceeded call volume on rising scale, taking a contrarian view, don't continue to follow the crowd.
2) If things are so bad, why insiders are buying? Insiders buying vs selling, exceeded 1.44 times which was the highest in 13 years.
3) The worldwide economy growth has not tanked even with persistent high crude oil price for a while. This reflects the fundamental of world economy is strong, impliying decoupling theory is holding up well.
4) US Mutual funds redemptions have not been persisted after the sold-off in October 2007. November equities fund outflow was 9.9 B but there was a + 1.2B inflows in December 2007. This suggest, downside could be limited.
5) Warren Buffet has been buying stocks gradually like Wells Fargo,Kraft, etc strengthening the argument of downside is limited. Some say Buffet buying into food inflation sensitive stocks signal soft commodity boom is almost peak. Inflation threat will ease. This will spark growth down the road.
6) S & P stock yield is 6% beating short and long-term bonds yield.
7) Months of persistent selling should have already discounted almost all bad news and US recession.
A word of caution, many of the views are from people plan for long term holding, sitting on big pile of cash. Short term for them is 1 -2 years, long-term is 5 - 10 years. This may not be applicable to day-trader or short-term trader. Short-term is less than 8 hours, long term is less than 1 month?
Saturday, February 23, 2008
Is American Business Worth More Dead Than Alive?
Managed to get a copy of a very rare publication going back all the way to 1932, written by Benjamin Graham in Forbes three years after 1929 stock market bubble crashed. I am now understood what is being said in the book of Security Analysis. If you look at the table above, many of those companies were really selling below cash, paying 50 cents for a dollar. It was really insane. This was what Ben really means by Mr. Market that suffers emotional problems.
Most investors fear that the company will not survive the great depression, potential accumulation of losses will wipe out all the cash, so the only answer was to sell, sell and damn it, sell!!!!!!!!!!!!!!!!!!!!!!!!!! If you have no confidence why not just close down the company and distribute the cash? They were really silly!
I do not think we can find many occasions like this post great depression. I found only one company in 2006, which was Oriental holding sold below its net current asset.
Nonetheless, there are some lessons to take home, watch out for fear of recession assuming the earning will decelerate significantly, causing significant mispricing.
For those of us subscribed to value investing, especially love buying into great bargains based on book value, from personal investing experience, buying at low book value, i.e. NTA/share rarely provide great returns even in the event of the companies we to be taken to private or acquired.
I remembered Courts Mammoth was taken private significantly lower than its NTA, 1.20 for 1.65 - 1.80, account receivables was big part of that asset. Great for those want to buy the whole company but not so great to minority shareholders. There is another case recently where Scientex Inc taking over Scientex Packaging via share swap, 1.30 for NTA of 1.95.
However, if we can find companies selling for 2/3 of their Net Cash Assets value, that will be a great bargain, I will definitely will pound it. Sooner or later, the market will recognize it, adjust to at least to its net current asset/share.
Friday, February 22, 2008
The law of path of least resistance
The path of least resistance is something I learn during Secondary School Physics. Things tend to take short cut, taking the path of least resistance. Back to the business of speculation, money flow is the same thing too - upward trend will continue to climb until the bubble is burst or vice versa.
With developed and emerging equities either entered or about entering bear's cage, busted US property, wobbling European property and bonds all gone South, money managers either keep their clients money under the mattress(like me) or going for the obvious, one last safe haven i.e. soft commodity. Hence the path of least resitance is pointing towards soft commodity.
Back to Malaysian market, CPO price will continue to climb until parabilic curve is formed that so obvious that a 3 years old kid could recognize it. US money manager will like this double plays of Ringgit and CPO price appreciation.
Opportunity and risk ? CPO chapter is concluded for now.
Thursday, February 21, 2008
Commodity prices to peak? The Star 21 Feb 08
Upward trend seen in major commodity prices
By Hanim Adnan
PETALING JAYA: Prices of major commodities will continue to head north – at least in the first half this year – on strong global demand amidst tight supply, while they closely track the price of crude oil.
Yesterday, most major commodities closed on a higher note or near record levels following the overnight crude oil, which hit US$100 per barrel for the third time this year.
Gold on Nymex trade little changed at US$928.21 from its three-week high of US$930.50 a day earlier. Early this month, gold rose to a record US$936.92 an ounce on concerns that the US dollar would weaken further while investors are buying the precious metal as an alternative asset.
Platinum reached US$2,174 an ounce on Nymex, the highest ever before easing to US$2,153.10, while copper rose to a four-month high of US$3.74 a pound on the Comex division of Nymex.
Soybean on the overnight Chicago Board of Trade for May delivery reached a new record of US$14.28 per bushel. The commodity has increased about 85% over the past 12 months.
Wheat, which tracks soybean, also rose to US$10.47 per bushel on speculation that record soybean prices might encourage US farmers to switch to oilseeds from grain, when planting begins in May and June.
On the local front, crude palm oil (CPO) futures for May delivery eased RM1 to RM3,624 per tonne, tin remained unchanged at US$17,000 per tonne while tyre grade Standard Malaysian Rubber SMR 20 added 7 sen to RM8.72 per kg.
A trader told StarBiz that investors were looking at strong returns from food-based commodities, given the rising demand driven by China and India as well as anticipation of tightness in major crop production this year.
In addition, the higher crude oil price will trigger higher usage of wheat, sugar and palm oil as feedstock for biofuel production.
Aseambankers in its latest plantation report, however, cautioned investors of a potential price bubble, especially in the second half this year.
As predicted, the two interest rate cuts by the US Federal Reserve so far this year had weakened the dollar, which in turn pushed commodity prices higher.
Soybean rose 6.6% over the past one month while CPO rose 3.1% in US dollar terms.
“We caution that commodity prices will hit their peaks soon if the health of the US economy and global markets lead to a sell-down in the equities market. This can put off speculative buying in the commodity market,” the brokerage said.
--------------------------------------
KLCI did went into red zone yesterday(21/02/080). Loss of 1.44% was a little steeper than I thought. Aseambankers cautioned potential price bubble...What's next? Ask the law of path of least resistance.
By Hanim Adnan
PETALING JAYA: Prices of major commodities will continue to head north – at least in the first half this year – on strong global demand amidst tight supply, while they closely track the price of crude oil.
Yesterday, most major commodities closed on a higher note or near record levels following the overnight crude oil, which hit US$100 per barrel for the third time this year.
Gold on Nymex trade little changed at US$928.21 from its three-week high of US$930.50 a day earlier. Early this month, gold rose to a record US$936.92 an ounce on concerns that the US dollar would weaken further while investors are buying the precious metal as an alternative asset.
Platinum reached US$2,174 an ounce on Nymex, the highest ever before easing to US$2,153.10, while copper rose to a four-month high of US$3.74 a pound on the Comex division of Nymex.
Soybean on the overnight Chicago Board of Trade for May delivery reached a new record of US$14.28 per bushel. The commodity has increased about 85% over the past 12 months.
Wheat, which tracks soybean, also rose to US$10.47 per bushel on speculation that record soybean prices might encourage US farmers to switch to oilseeds from grain, when planting begins in May and June.
On the local front, crude palm oil (CPO) futures for May delivery eased RM1 to RM3,624 per tonne, tin remained unchanged at US$17,000 per tonne while tyre grade Standard Malaysian Rubber SMR 20 added 7 sen to RM8.72 per kg.
A trader told StarBiz that investors were looking at strong returns from food-based commodities, given the rising demand driven by China and India as well as anticipation of tightness in major crop production this year.
In addition, the higher crude oil price will trigger higher usage of wheat, sugar and palm oil as feedstock for biofuel production.
Aseambankers in its latest plantation report, however, cautioned investors of a potential price bubble, especially in the second half this year.
As predicted, the two interest rate cuts by the US Federal Reserve so far this year had weakened the dollar, which in turn pushed commodity prices higher.
Soybean rose 6.6% over the past one month while CPO rose 3.1% in US dollar terms.
“We caution that commodity prices will hit their peaks soon if the health of the US economy and global markets lead to a sell-down in the equities market. This can put off speculative buying in the commodity market,” the brokerage said.
--------------------------------------
KLCI did went into red zone yesterday(21/02/080). Loss of 1.44% was a little steeper than I thought. Aseambankers cautioned potential price bubble...What's next? Ask the law of path of least resistance.
Wednesday, February 20, 2008
KKR Financial delayed debt re-payment
We probably have forgotten the excitements of multibillion PE buyout in the last 2 years(Buffet called it dumb money). They have helped to end misery of shareholders trapped with depressed valuation, beaten down by the bear for long three years. The two charts will help to refresh our memories.
By now, for those who are following the credit implosion closely will finally seeing more confirmations of a bust cycle. Inability of KKR Financial to repay loan is suggesting the business they bought out is unable to generate sufficient cash either due to business contraction or unrealistic growth has been build into the acquisition model. During the period of buying frenzies, if you want IRR or ROI of 15%, your team will come back to you with 15.1%, beating your target by 0.1%. These smart people can do thousands and one trick to achieve that(top line growth, cost cutting, cost of capital, potential upsides, etc). What happen in the 80s is going to be replayed again, except on a bigger scale.
Foreign investors have more troubles at home, so don't expect them come and invest for now(Wait a minute, are you sure?). We should feel lucky if they don't unwind emerging market aggressively. Wall Street rallied yesterday, bought by computers because program says it was way oversold already. Great, finally we are not talking about emotions.
Good news to us may not be good news to foreign fund managers. Malaysian January inflation rate of 2.3% that left interest rate unchanged by Bank Negara may slow down Ringgit depreciation against USD. Those disappointed with no interest increase may decide to take some money off the table.
Tuesday, February 19, 2008
Plantation play - Earning Bubble
European banks announced a lot of bad news: multibillions write-down and losses due to mispricing(nice cover up word for greed??) in bonds. How can all these smart people made mistakes like that? Anyway, leave it to others to comment.
The fever of soft commodities play is on! Crude Palm Oil closed at another new record of RM 3,630.
Plantation stocks in KLSE and SGX were pleasantly green. Sime Darby, IOI Corp, KLK up 2.52%, 1.9% and 1.6%. Wilmar and Golden Agri closed even more impressively, up 4.6% and 5.4%.
I definitely feel the bullishness of the sector. CIMB recommended underweight IOI Corp with price target of $ 6.90 on 14 February but changed their mind, revised the target to $ 9.40 on 15 February, in less than 24 hours apart! The justification was fantastic, increase forward PE from 20X to 24X. (Why don’t you just increase it to 50X!!!!) Justifications for that? Strong earning prospect(as if they have a good crystal ball for two to three years ahead); and potential MA activities. Share buy back has removed share overhang.
Wilmar sell down was due to concerns of the Chinese government price hike control hurt earnings. But that fear seems to disappear and buying appetite is back! Crowds say CPO earnings will exceed margin deterioration of cooking oil. I remembered I read an article in Wall Street Journal on the plane, many analysts tagged this stock to S $ 7.
Commodity play is all about demand and supply. I have been having a hard time trying to figure out what causes price rally since late of 2007. Some blamed it on Ben flushed the market with too much liquidity - his rates cut-lah!. Some argued that turning soft commodities into alternative fuels is the culprit, you need a lot of acres to give you energy. The result was fight of acre between grains and oilseeds because supply will take a long time to come. Jim Rogers said world food production in the last 30s has been on the declining, the world will have to pay for it now!
The most important variable in plantation stocks earning equation(short and medium terms) is CPO price. It is very difficult to judge fair value of crude palm oil, it is all depend on what others willing to pay for it. It can goes up to RM 5,000 tomorrow, sky is the limit. The earning bubble is developing.
I don't know enough how long the up cycle will last, thus difficult to set exit price. Shall I get out from the sector if price drops more than 10% or 20% after peak? How much should I allocate, if I ever decided to play. How to set margin of safety, Professor Ben Graham? Should I walk away or play? Still undecided why the party is still on? No wonder you call yourself turtle.
The fever of soft commodities play is on! Crude Palm Oil closed at another new record of RM 3,630.
Plantation stocks in KLSE and SGX were pleasantly green. Sime Darby, IOI Corp, KLK up 2.52%, 1.9% and 1.6%. Wilmar and Golden Agri closed even more impressively, up 4.6% and 5.4%.
I definitely feel the bullishness of the sector. CIMB recommended underweight IOI Corp with price target of $ 6.90 on 14 February but changed their mind, revised the target to $ 9.40 on 15 February, in less than 24 hours apart! The justification was fantastic, increase forward PE from 20X to 24X. (Why don’t you just increase it to 50X!!!!) Justifications for that? Strong earning prospect(as if they have a good crystal ball for two to three years ahead); and potential MA activities. Share buy back has removed share overhang.
Wilmar sell down was due to concerns of the Chinese government price hike control hurt earnings. But that fear seems to disappear and buying appetite is back! Crowds say CPO earnings will exceed margin deterioration of cooking oil. I remembered I read an article in Wall Street Journal on the plane, many analysts tagged this stock to S $ 7.
Commodity play is all about demand and supply. I have been having a hard time trying to figure out what causes price rally since late of 2007. Some blamed it on Ben flushed the market with too much liquidity - his rates cut-lah!. Some argued that turning soft commodities into alternative fuels is the culprit, you need a lot of acres to give you energy. The result was fight of acre between grains and oilseeds because supply will take a long time to come. Jim Rogers said world food production in the last 30s has been on the declining, the world will have to pay for it now!
The most important variable in plantation stocks earning equation(short and medium terms) is CPO price. It is very difficult to judge fair value of crude palm oil, it is all depend on what others willing to pay for it. It can goes up to RM 5,000 tomorrow, sky is the limit. The earning bubble is developing.
I don't know enough how long the up cycle will last, thus difficult to set exit price. Shall I get out from the sector if price drops more than 10% or 20% after peak? How much should I allocate, if I ever decided to play. How to set margin of safety, Professor Ben Graham? Should I walk away or play? Still undecided why the party is still on? No wonder you call yourself turtle.
Monday, February 18, 2008
The only thing we have to fear is fear itself.....
Some says, listening to what American Presidents said can give you clues of the market future. It is a more scientific approach comparing to consulting Fung Jui master.
"To build a prosperous future, we must trust people with their own money and empower them to grow our economy. As we meet tonight, our economy is undergoing a period of uncertainty. America has added jobs for a record 52 straight months, but jobs are now growing at a slower pace. Wages are up, but so are prices for food and gas. Exports are rising, but the housing market has declined. At kitchen tables across our country, there is a concern about our economic future.
In the long run, Americans can be confident about our economic growth. But in the short run, we can all see that that growth is slowing. So last week, my administration reached agreement with Speaker Pelosi and Republican Leader Boehner on a robust growth package that includes tax relief for individuals and families and incentives for business investment. The temptation will be to load up the bill. That would delay it or derail it, and neither option is acceptable. (Applause.) This is a good agreement that will keep our economy growing and our people working. And this Congress must pass it as soon as possible. (Applause.)" George W Bush State Union 2008
What do I think ? Hmmmmmmm...........Not depress enough !
"To build a prosperous future, we must trust people with their own money and empower them to grow our economy. As we meet tonight, our economy is undergoing a period of uncertainty. America has added jobs for a record 52 straight months, but jobs are now growing at a slower pace. Wages are up, but so are prices for food and gas. Exports are rising, but the housing market has declined. At kitchen tables across our country, there is a concern about our economic future.
In the long run, Americans can be confident about our economic growth. But in the short run, we can all see that that growth is slowing. So last week, my administration reached agreement with Speaker Pelosi and Republican Leader Boehner on a robust growth package that includes tax relief for individuals and families and incentives for business investment. The temptation will be to load up the bill. That would delay it or derail it, and neither option is acceptable. (Applause.) This is a good agreement that will keep our economy growing and our people working. And this Congress must pass it as soon as possible. (Applause.)" George W Bush State Union 2008
What do I think ? Hmmmmmmm...........Not depress enough !
Sunday, February 17, 2008
The Study of US Bear Markets
Deja Vu, here we go again.
There were 9 bear markets since 1950 with various durations, some as short as 101 days but some as a long as 929 days. For 67% of the times, bear market coincided with recessions. When bear markets coincided with recessions, bear market arrived first. The bad news is there were incidences bear markets persisted even though the recessions were over.
The S & P 500 index declined as mild as 21% to the extreme of 49% when bear markets exceeded 300 days durations.
Many of the bear markets coincided with the housing recessions. I cannot find data prior to 70s, based available data, I observed severe housing corrections also coincided with long dark bear markets in 1968, 1973 and 1980(see SAAR chart). In year 2000, we have different problem that was the Technology Bubble burst. The steep fall on SAAR since 2006 but global stock markets keep breaking new highs, is a bit unusual, because we are still talking whether bears are hugging everyone ---- scarieeeeeee! OR calm before the storm OR this time is different(the most expensive 4 letters word)!
Only 33% of the bear markets happened without a recession, the durations were short, in the range of 104 to 240 days.
No wonders, most of the investors and speculators are running for hiding. 3 months Treasury bill yield has been plunging like shit.
The market peaked on 31 October 2007, we are now 109 days from that peak. With credit implosion and housing recession, how much more to fall?
Some says this could be as bad as 1929! Well I will have to wait until next weekend to spend more time thinking, is this going to be as bad as they thought. Can I listen to a BULISH case???????
God, I hate Monday. Oh no, I am excited, big sales are coming!
There were 9 bear markets since 1950 with various durations, some as short as 101 days but some as a long as 929 days. For 67% of the times, bear market coincided with recessions. When bear markets coincided with recessions, bear market arrived first. The bad news is there were incidences bear markets persisted even though the recessions were over.
The S & P 500 index declined as mild as 21% to the extreme of 49% when bear markets exceeded 300 days durations.
Many of the bear markets coincided with the housing recessions. I cannot find data prior to 70s, based available data, I observed severe housing corrections also coincided with long dark bear markets in 1968, 1973 and 1980(see SAAR chart). In year 2000, we have different problem that was the Technology Bubble burst. The steep fall on SAAR since 2006 but global stock markets keep breaking new highs, is a bit unusual, because we are still talking whether bears are hugging everyone ---- scarieeeeeee! OR calm before the storm OR this time is different(the most expensive 4 letters word)!
Only 33% of the bear markets happened without a recession, the durations were short, in the range of 104 to 240 days.
No wonders, most of the investors and speculators are running for hiding. 3 months Treasury bill yield has been plunging like shit.
The market peaked on 31 October 2007, we are now 109 days from that peak. With credit implosion and housing recession, how much more to fall?
Some says this could be as bad as 1929! Well I will have to wait until next weekend to spend more time thinking, is this going to be as bad as they thought. Can I listen to a BULISH case???????
God, I hate Monday. Oh no, I am excited, big sales are coming!
Trading Ideas: FBM30etf, Myetf DJIM25, iCapital closed-end fund.
Enough of investing philosophy, it is time to generate some ideas to make money. Since this is Jeet Kune Do investing, I have full freedom to achieve my objectives. I can hire brightest fund managers(open or closed end funds), copy the master, use leverage (warrants or margin), picking stocks, ETF, local equity or foreign equity exposure, commodities, REIT, different kind of weightage, etc. The combination is just endless. I can afford to have lumpy returns as long as I achieve my target over the long term.
This is a big contrast to fund managers restricted by the fund objectives, stay fully invested and force to deliver short term results relative to an index. The fund holders will punish the fund manager by redemptions if they are not happy over the short term results. Irony?
For a start, it will make sense to invest in ETFs and closed-end fund.
There are two ETFs listed on KLSE namely FBM30etf mimicking 30 largest listed companies based on market capitalization and MyETF Dow Jones Islamic Market Malaysia Titan 25(MyETF-DJIM25).
MyETF-DJIM25 is much more focussed. Plantation, energy and construction sector account for almost 80% of the fund’s NAV. Finance and gaming sectors are not included which carry an important weight in KLCI index. FBM30etf is better diversified, should track well on Malaysia economy.
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Since MyETF-DJIM25 is skewed(focussed) towards three sectors, one better get big picture right!!! (i) How sustainable is the crude palm oil price? (ii) Are the current stock prices already priced in the future expectation of CPO prices? (iii) Will the energy related companies deliver the earnings? (iv) Are we sure the 9MP projects impact will flow through to these big capitalized construction stocks? Further research is required! Anyone care to comment?
iCapital.biz is the only listed closed end fund. The fund manager has long track records of beating the KLCI performance, his portfolio CAGR on his other portfolios generating between 17 to 23% CAGR more than 10 years. Chance of the fund doing well over the long time for is high, beating my 10% target? No sweat, the only issue now is price traded at 19% premium NAV. For now, NAV needs to catch up with price and how fast(implication: opportunity cost)?
This is a big contrast to fund managers restricted by the fund objectives, stay fully invested and force to deliver short term results relative to an index. The fund holders will punish the fund manager by redemptions if they are not happy over the short term results. Irony?
For a start, it will make sense to invest in ETFs and closed-end fund.
There are two ETFs listed on KLSE namely FBM30etf mimicking 30 largest listed companies based on market capitalization and MyETF Dow Jones Islamic Market Malaysia Titan 25(MyETF-DJIM25).
MyETF-DJIM25 is much more focussed. Plantation, energy and construction sector account for almost 80% of the fund’s NAV. Finance and gaming sectors are not included which carry an important weight in KLCI index. FBM30etf is better diversified, should track well on Malaysia economy.
.jpg)
Since MyETF-DJIM25 is skewed(focussed) towards three sectors, one better get big picture right!!! (i) How sustainable is the crude palm oil price? (ii) Are the current stock prices already priced in the future expectation of CPO prices? (iii) Will the energy related companies deliver the earnings? (iv) Are we sure the 9MP projects impact will flow through to these big capitalized construction stocks? Further research is required! Anyone care to comment?
iCapital.biz is the only listed closed end fund. The fund manager has long track records of beating the KLCI performance, his portfolio CAGR on his other portfolios generating between 17 to 23% CAGR more than 10 years. Chance of the fund doing well over the long time for is high, beating my 10% target? No sweat, the only issue now is price traded at 19% premium NAV. For now, NAV needs to catch up with price and how fast(implication: opportunity cost)?
Saturday, February 16, 2008
From Turtle, Value, Trend, Technical, XXX Investing to Jeet Kune Do Investing!
One of my favorite blog writers Salvador Dali wrote about Paths of Investing in the Star newspaper recently. He started off and ended his article very interestingly.
“EVERYONE who starts investing will try to understand the stock markets by talking to those who have invested. Then, we move on to reading books by the Grahams, Lynchs, Buffets of the investing world.
Then probably after losing more money, we will gravitate towards the technicals and charting gurus: the waves, oscillators, fibonaccis, RSI, momentum, etc.
And then what do we end up with?”
He concluded “ ……As Soros rightly put it “ More importantly, it is how much money you make when you’ re right about the market and how much you lose when you’re wrong.”…………….. To do that: we need to get the big picture right; we need to get the exit, entry, and cut losses right; we need to pick the right stocks with corresponding valuation and growth implied, and note them when the variables start to deteriorate.”
To me, that conclusion is almost sounded like Bruce Lee "Be formless... shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle; it becomes the bottle. You put it into a teapot; it becomes the teapot. Water can flow, and it can crash. Be like water, my friend..."
The result of that thinking is Jeet Kune Do!
Quote "Simply put, it's English translation is "way of the intercepting fist." Bruce studies all types of fighting from American Boxing to Thai Kickboxing. His simple philosophy was rather than block a punch and hit back with two distinct motions, why not intercept and hit in one, fluid stroke. Fluidity was the ideal. "Try and obtain a nicely-tied package of water," Bruce would taunt. "Just like water, we must keep moving on," Inosanto reitterates. "For once water stops, it becomes stagnant." Water, Bruce would always give as an example, is the toughest thing on Earth. It is virtually indestructable; it is soft, yet it can tear rocks apart. Move like water. Bruce dissected rigid classical disciplines and rebuilt them with fluid, po-mo improvements. "It's good but it needs restructuring," he would say. Classical techniques did not take into account the reality of street fighting. Jeet Kune Do did. It was pragmatic, reality-based, empirical- not a bunch of stances, postures and mumbo jumbo handed down from antiquity. Bruce utilized all ways but was bound by none. "Efficiency is anything that scores."unquote
Will I find Jeet Kune Do of Investing?
“EVERYONE who starts investing will try to understand the stock markets by talking to those who have invested. Then, we move on to reading books by the Grahams, Lynchs, Buffets of the investing world.
Then probably after losing more money, we will gravitate towards the technicals and charting gurus: the waves, oscillators, fibonaccis, RSI, momentum, etc.
And then what do we end up with?”
He concluded “ ……As Soros rightly put it “ More importantly, it is how much money you make when you’ re right about the market and how much you lose when you’re wrong.”…………….. To do that: we need to get the big picture right; we need to get the exit, entry, and cut losses right; we need to pick the right stocks with corresponding valuation and growth implied, and note them when the variables start to deteriorate.”
To me, that conclusion is almost sounded like Bruce Lee "Be formless... shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle; it becomes the bottle. You put it into a teapot; it becomes the teapot. Water can flow, and it can crash. Be like water, my friend..."
The result of that thinking is Jeet Kune Do!
Quote "Simply put, it's English translation is "way of the intercepting fist." Bruce studies all types of fighting from American Boxing to Thai Kickboxing. His simple philosophy was rather than block a punch and hit back with two distinct motions, why not intercept and hit in one, fluid stroke. Fluidity was the ideal. "Try and obtain a nicely-tied package of water," Bruce would taunt. "Just like water, we must keep moving on," Inosanto reitterates. "For once water stops, it becomes stagnant." Water, Bruce would always give as an example, is the toughest thing on Earth. It is virtually indestructable; it is soft, yet it can tear rocks apart. Move like water. Bruce dissected rigid classical disciplines and rebuilt them with fluid, po-mo improvements. "It's good but it needs restructuring," he would say. Classical techniques did not take into account the reality of street fighting. Jeet Kune Do did. It was pragmatic, reality-based, empirical- not a bunch of stances, postures and mumbo jumbo handed down from antiquity. Bruce utilized all ways but was bound by none. "Efficiency is anything that scores."unquote
Will I find Jeet Kune Do of Investing?
Friday, February 15, 2008
Global Economy Decoupling: Myth or Reality?
If you look at the above chart, whenever US sneezes the whole world catches colds. However, of late especially since 2004, when US growth is slowing down, the rest of the world seems to hold up well? Why?
Developed countries still contributing significantly to the world economy though the contribution has been going down from 80% in the 70s to 70% in 2007. In other word, the developing countries have been catching up very fast. What is really fascinating is the growth of China, from less than 1% contribution to about 6% to the world economy growth. This happened only during the last three decades plus. India is another striking example. No wonder every Tom, Dick and Harry want Chidia in their portfolio. Everybody talks about Emerging Market.
OK, the argument is so far so good but is the global economy decoupling? The honest answer is I don't know but 2008 will be an acid test. If the rest of the world economy still can hold up well, this will be a significant turning point for a trend change. It will rock the rest of the investment community. More money will be pouring into emerging market.
Part of the emerging market sell-off recently, in my opinion, people are scaling back their bets as doubts begin to creep in: safe haven of emerging market is a myth? If the big boys from Goldman Sach, Morgan Stanley and Harvard professors murdered the decoupling story, sell-off is inevitable.
The question still linger in my mind, is it the best time to invest? Let me think over this subject over the weekend. Should I do Top down or Bottom Up investing?
Thursday, February 14, 2008
War and Investment
Worldwide major stock markets jumped sharply following overnight Wall Street rally. Tokyo shares jumped 4%, Hong Kong market rebounded 3% and KLSE closed 0.90% up today. Why am I still not buying?
Sun Tzu said "The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected."
Buffet said " Rule No. 1: Never Lose Money. Rule No. 2, don't forget rule No 1"
Sun Tzu said "He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated"
Jesse L Livermore said "Do you wish to gamble blindly in the hope of getting a great profit or do you wish to speculate intelligently and get a smaller but much probable profit?......You know, a professional gambler is not looking for long shorts, but for sure money. ......As I think I also said before, this describes what I call system for placing bets. It is simple arithmetic to prove that it is a wise thing to have big bet down only when you win, and when you lose to lose only a small exploratory bet."
Having recalls these reminders, it will be only wise for me to think through my war plan carefully. This war is from within, the greatest enemy is myself. It can be won with thorough research, careful analysis and controlling my emotions.
Sun Tzu said "The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected."
Buffet said " Rule No. 1: Never Lose Money. Rule No. 2, don't forget rule No 1"
Sun Tzu said "He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated"
Jesse L Livermore said "Do you wish to gamble blindly in the hope of getting a great profit or do you wish to speculate intelligently and get a smaller but much probable profit?......You know, a professional gambler is not looking for long shorts, but for sure money. ......As I think I also said before, this describes what I call system for placing bets. It is simple arithmetic to prove that it is a wise thing to have big bet down only when you win, and when you lose to lose only a small exploratory bet."
Having recalls these reminders, it will be only wise for me to think through my war plan carefully. This war is from within, the greatest enemy is myself. It can be won with thorough research, careful analysis and controlling my emotions.
Wednesday, February 13, 2008
Performance pressure
My andrelina rushed the moment I declare publicly to grow my money at 10% annual compounding rate. There are all sort of ideas come to my minds. I am tempted with all kind of fantasies. The most obvious one, I keep telling myself: I can, I will, I must get rich fast - more than 10% return every week and not 10% every year.
If I buy something for $ 0.30/ share, sell something for $ 0.40/share, pocket a tidy sum of 33.3% return a week, annualized return will be 1,731% per year. I will become a millionaire in two years time. God, I love capitalism.
I must not procrastinate, I must take action now, I opened my newspaper to look up at penny stocks, foreign and local warrants. Good Lord, there are so many of them, which one should I pick? My minds got so confused now, I have only $ 3,000, how should I go about picking one to two stocks that will make me a millionaire in two years?
My enthusiasm quickly turns into frustration. I suddenly realized that I am falling into the trap of performance rat race. I pressure myself to perform, I am falling exactly into money managers' trap - performance is determine by price. I am feeling pressured because I am still sitting on $3,000 cash. Time is money, the longer I am sitting on cash, the higher the return needs to be generated later on!
I am suddenly realized that I am not ready to buy any stock(s) but clock is ticking. Will I miss my 10% target? What should I do?
If I buy something for $ 0.30/ share, sell something for $ 0.40/share, pocket a tidy sum of 33.3% return a week, annualized return will be 1,731% per year. I will become a millionaire in two years time. God, I love capitalism.
I must not procrastinate, I must take action now, I opened my newspaper to look up at penny stocks, foreign and local warrants. Good Lord, there are so many of them, which one should I pick? My minds got so confused now, I have only $ 3,000, how should I go about picking one to two stocks that will make me a millionaire in two years?
My enthusiasm quickly turns into frustration. I suddenly realized that I am falling into the trap of performance rat race. I pressure myself to perform, I am falling exactly into money managers' trap - performance is determine by price. I am feeling pressured because I am still sitting on $3,000 cash. Time is money, the longer I am sitting on cash, the higher the return needs to be generated later on!
I am suddenly realized that I am not ready to buy any stock(s) but clock is ticking. Will I miss my 10% target? What should I do?
Tuesday, February 12, 2008
Turtle investing: By Amateur for Amateur
Can amateurs beat professionals? Honestly, I don’t know the answer. But, I want to take up the challenge. Let’s start this virtual journey of investing with $ 3,000 as the seed money with additional $888/month saving from my day job.
Studies after studies show that most professional money managers could not beat the market for a long time, so what is the definition of a long time? Bill Miller has outperformed the S & P Index 15 years in a row. Peter Lynch has beaten the market for 13 years. Do I need to mention about Warren Buffet and George Soros? With that, I think 15 years will be a fair number.
So, this portfolio will start from today, 12 February 2008 and will end by 12 February 2023. I should have at least $ 350,000 based on annual compounding return of 10%, a very rough benchmark of most indexes.
What are my strategies to achieve this? As a turtle investor, I will think and move very slowly because I am a kia-si and kia-su type of person. I will post,in real-time, my struggles on how I grow my money slowly as an amateur.
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