Monday, March 31, 2008

Maybank acquires Bank Internasional Indonesia

Maybank acquisition of Bank Internasional Indonesia(BII) is a classic case of peer pressures or institutional imperatives in Buffet's term. Given its size, they did a good job delivering ROE 15-16% by returning cash to shareholders in the last few years. Now they paid 4.6 times book value for BII, spending RM 3.8 Billion to acquire 55% interest from Sorak Financial Holdings Pte Ltd. They may spend RM 8.3 billion to acquire the whole company.

At the height of 1997/1998 before Asian stock markets tanked, a well managed with proven records like Public Bank was trading around 3 - 4 times book value, did Maybank get a good deal for its shareholder?

Foreign research house like Citigroup thrashed the deal to death, downgrade to RM 8 + while local research houses maintain outperform rating with target price of RM $ 10 - RM 11. Who is right and who is wrong?

By looking at the financial results of BII, the results were very uninspiring, very uninspiring. Net profit drop by half, comparing FY 2007 to FY 2004. The culprit was due to high Loan Loss Provision despite of impressive average loan growth of 35%. Lending standards, in my opinion are sub-par standards. In comparison to DBS, their Indonesian operations Net Profit grew by 27% comparing 2005 to 2006, I did not manage to get a copy of DBS 2007 Annual Report yet, just give you a feel though not exactly apple-to-apple comparison.

Looking at macro-level, GDP has been growing at 6% for the last few years, not too good not too bad. Now, Indonesian economy is on the shaky ground. Inflation is getting higher, potential trigger for further interest rate hike. At some point, the economy will slow down, as usual, financial sector will be the loser. Unwinding by the foreign investors will make things worse. Stock market has been rallying fantastically, even better than China market. It has been correcting, should more unfavorable external developments take place, chances of brutal corrections will pull the market down even higher. Thus I could not understand the meaning of scarce premium if one also needs to consider the flip-flop regulatory policies.

Many people will still hope to bank on Indonesian commodities like plantations, coal and petroleum to support economic activities. Agree but .......

Sad to see Maybank to compete with Chinese Bank that flushes with cash. My feet growing cold, I would rather to be a turtle than err buying at this price level, though some may argue, the worst is over for BII. Well, the jury is still out there. As usual there is no right or wrong. I have done my homework, it is OK if I am wrong,

Saturday, March 29, 2008

Politics and investing

The recent post-election aftermath caused KLSE plunged 10% within one day got me thinking, are politics and investing inseparable, especially in Malaysia? Can one do 100% bottom up investing? iCapital recently said something interesting "For KLSE, we must not allow political paralysis to develop and become embedded. Political paralysis leads to economic paralysis. Economic paralysis leads to market paralysis." Answer to my questions is NO.

I went back to The Alchemy of Finance written by George Soros. He lost money on Japan market during 1987 market crash. See chart.

He misread the values of the society. He knew that the Japanese market was more over-valued than the US market. He thought the crash would start from Japan market. He made a big loss during the crash. He bet on the wrong direction, Nikkei 225 escaped death, it was a shallow dropped and recovered at much faster rate. Why? One phone call from the government to institutional investors and brokerage houses, the sell orders disappeared. Interestingly, retail investors absorbed foreign investors sell orders . To them, it was a patriotic thing to do. Soros got it technically right but politically wrong.

Moral of the story? Don't just read business section, read nation, read politics also.

Friday, March 28, 2008

Investing: 60% Interpretation, 40% Information

I will leave it to my readers to interpret, it is all depends they look at it with half-full or half-empty glasses. The only thing matter is whether there are more people look at it half-full or half empty. The numbers have spoken. Good luck to all.

Thursday, March 27, 2008

My comments: Bursa boards to be unified

"KUALA LUMPUR: Prime Minister Datuk Seri Abdullah Ahmad Badawi yesterday announced a streamlining of Bursa Malaysia’s main and second boards, as well as the structure of Mesdaq market.

He said the two boards would be combined into a unified board for more established companies with strong financial track records.

Abdullah, who is also Finance Minister, said the Mesdaq market would be revamped under the proposed streamlining process to allow smaller companies to access the equity market at an earlier stage of their lifecycle.

“The unified board will have uniform listing requirements and comprehensive disclosure based regulations with easy entry and fast removal access.

“For Mesdaq, the listing of emerging companies will be sponsor-driven whereby advisers will play a greater role in bringing listings to the market and maintain on-going supervision by reducing the number of boards and the number of listing requirements,” he said in his keynote address at Invest Malaysia 2008."

Adapted from The Star 26 March 2008

My Country, My Opinions
No wonder Lim Keng Yaik earlier called Pak Lah to sack his advisers, if he cares to retain his leadership. If he is sharp, he should demand higher quality of programs from his ministry and SC. This show how weak his standards are, always never mind.

To progress, you need to be a tough boss, demand high standards - no compromise. You must be capable to sift through good and bad programs, not just rubber stamp. Is this the way to announce to hundreds of fund managers why Invest Malaysia 2008? You will get quality companies by just removing the Main board, Second board, Mesday board? headings from newspaper stocks quote. Then you can get more people to buy Malaysian stocks. Hello, I don't get it at all. Malu, manyak Malu-lah!!! Feel like we all still live on the coconut trees. I am sure our intelligence and civilization have evolved much further than that!

Shut up, Turtle, shut up. Control your emotions. OK, I am cool, I am cool. But.............

Second point, there is a serious mistake in their diagnosis-lack of liquidity. They apply the wrong medicines - you cannot cure lack of liquidity by finding market makers and merging a few companies. Company market capitalization defines how valuable is your company. Value depends on performance. Performance depends on quality of people. Quality of people will depend how they attract and retain talents.

There are structural problems, we need to get down to the root, find it and fix it. Keep giving out incentives is the wrong way to go, no wonder we did so badly.

Talking about attracting foreign money? If they continue to do this, they can't even retain my money from going out from Malaysia.

Shut Up, Turtle, Shut Up! Geez ................ I am running out of breath !

Wednesday, March 26, 2008

US still dominates?

Do you find life is a bit unfair? Indeed it is! When the US got into troubles: loose lending standards, John, Mike and Harry borrow a lot more than they can handle, the Fed will come in and rescue whenever the party is over, the world too, too big to fail?

Borrow US $ 3 to generate US $ 1 GDP growth? The worst thing is corporate sector is the one that keep leveraging, yours and mine money are funding them.

Look at the financial assets as a percentage of GDP!

The whole world keeps saying they cannot continue to cut rate to inflate assets. In recession periods, the stock market will not response, some will take more than 12 months. Mean while, there is another unknown bubble is in the making. How about US $ trade carry?

But the funny thing was, European and Asian were the one pouring money into US market in Q4, it was almost US $ 60 B?

If I was your fund manager yesterday, you would be willing to give me a lot of money to invest. However, you may change your mind again today, how about fire me? If you look at the economic indicator, most forecast Q4 GDP grew 0.6%, I was wondering how the market is going to react when they see red color on March 27 ( March 28 ours)? Big sell-off? OK, you are right, don't give me the money. I was suspecting the last few sessions rally more of fund managers window dressing to prop up their portfolio, Quater end-ma!

Tuesday, March 25, 2008

Charlie's Role Model : Benjamin Franklin

Franklin sought to cultivate his character by a plan of thirteen virtues, which he developed at age 20 (in 1726) and continued to practice in some form for the rest of his life. His autobiography lists his thirteen virtues as:

"TEMPERANCE. Eat not to dullness; drink not to elevation."

"SILENCE. Speak not but what may benefit others or yourself; avoid trifling conversation."

"ORDER. Let all your things have their places; let each part of your business have its time."

"RESOLUTION. Resolve to perform what you ought; perform without fail what you resolve."

"FRUGALITY. Make no expense but to do good to others or yourself; i.e., waste nothing."

"INDUSTRY. Lose no time; be always employ'd in something useful; cut off all unnecessary actions."

"SINCERITY. Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly."

"JUSTICE. Wrong none by doing injuries, or omitting the benefits that are your duty."

"MODERATION. Avoid extremes; forbear resenting injuries so much as you think they deserve."

"CLEANLINESS. Tolerate no uncleanliness in body, cloaths, or habitation."

"TRANQUILLITY. Be not disturbed at trifles, or at accidents common or unavoidable."

"CHASTITY. Rarely use venery but for health or offspring, never to dullness, weakness, or the injury of your own or another's
peace or reputation."

"HUMILITY. Imitate Jesus and Socrates."

Adapted from Wikipedia

Monday, March 24, 2008

Sunday, March 23, 2008

Hong Kong is China? Taiwan soon?

Our good friend Salvatore Dali did it again, he spotted a good money making opportunity. Is Hong Kong dollar undervalued? Yes. Why? Hong Kong has gone through some structural change with the rise of China as economic powerhouse. Based on 2006 figures, the major export destinations for Hong Kong are China ( 46% ), USA ( 14%) and Japan ( 5% ). The export destination to China has been growing at the rate of 10 - 30 % since 2002. Many have pointed out rightly China was the savior that pulled Hong Kong out of recessions when property and stock market went bust. You won't believe that Hong Kong is in full employment today.

Hong Kong will soon is China. Just look at HSI Index, almost 30-40% of them are H Shares ( China Mobile, Petrochina, China Life Insurance, China Construction Bank, ICBC, etc). Earnings in HKD term will expand as Yuan is strengthening against USD.

With Hong Kong Monetary Authority(HKMA) mimicking US monetary policy, i.e. keeping interest rate low, this will eventually spur property speculations and attract hot money. If the deposit rate is so low, it is a matter of time, the savers will pour money in stock market, very soon!. Coupled with foreign hot money, HKMA will not be able to sterilize the hot money fast enough, the assets buble will grow furiosly.

Putting the negative aside on potential inflation that will erode the quality of growth, I am keeping a sharp eye on potential rally on Hong Kong stock market. The recent tanking of Hong Kong market is a bit complicated, torn apart between two giants: China and the US. The Chinese inflation of 8.7% in February is very scary, the fear of further tightening may slow down Chinese economy eventually. As many still could not decouple their minds that Hong Kong is still the old Hong Kong, when the US sneeze, Hong Kong should catch cold. Not anymore Dude!

With the US banking stocks bashed down to almost 60 - 85%, the US stock market is almost bottom out(further bashing will have minimum weightage impact). However, there could some volatilities as many will look for negative news of US economy. Hong Kong may still could be dragged into this. As usual, I don't know when the rally will happen but I just know it will.

ETF Lyxor Hang Seng 10US $ can bought in SGX will be an effective vehicle to accomplish this.

PS, Jim Roger is betting on Taiwan market for the same reason, with both of the President candidates want to promote closer economy ties with China, this will bring about growth. Since Taiwan dollar is not pegged to USD, with a bit of tail wind, there will be faster gains from currency and stock market rally. Lyxor Taiwan 10 US $ can bought in SGX too. ( Will follow up with a write up when I can find more time)

Saturday, March 22, 2008

Hello, are feeling dizzy?

Hello, are you feeling dizzy? Are you feeling not going anywhere? Every investment safe haven myth is busted -- the latest was commodities. Oil, gold, agriculture commodities, etc suddenly fell from the top on March 17. 0.25% lesser than expected Fed rate cut temporary stem sliding dollar?, time to take profit?, deleveraging, etc? Something has changed, yesterday assumptions have changed, it will affect the way people allocate money again.

Closer at home, most will ask what happened to their plantation stocks. I called it plantation bubble when I started blogging about one month back. Why? Office staffs suddenly talking like experts about plantations stuffs: FFB, yield, maturity etc. I was jokingly telling them CPO price will hit RM 5,000, guess what they believed it. The next day, I saw price soared to RM 4,000, then headlines flashed RM 4,500. Guys from Singapore, Taiwan and the US were asking about plantation stocks tip. The signs were too glaring.

Now, the CPO price has corrected somewhat, is the story dead? Not quite, another 15-20% downward corrections will worth some considerations. I think the long term food inflation is quite real(see pictures). Stocks are dwindling(see wheat example), food production acres are shrinking, emerging markets economy are growing, etc

Friday, March 21, 2008

Developing feel for worldwide capital markets

We need to have a feel of "terrains". I try my best to internalize the numbers, for me to have a feel of the money flow and behavior of institutional money.

According to Wikipedia, Worldwide 'stock market' is estimated about US $ 51 trillions. Bond market is estimated around 45 trillions. The world derivatives market is estimated around US $ 480 trillions.

In terms of stock market share based on 2006 figures, North America captured about 41%, followed by Asia Pacific of 28%, Europe 27% and Latin America, Middle East and Africa 4%.

Worldwide mutual fund industry is estimated about 25 trillions.

Hedge fund industry has been growing very rapidly, it was estimated around US $ 1 trillion in 2005, probably even higher today.

Is there such a thing called value investing? II

What causes stock price to go up and down? I have been searching for an answer for years. Stock market is a very complex animal, hence finding an answer is not so straight forward. However, being a person like simple thing, I like simple answer.

The simplest answer in plain English that I can find is this:

Stock market return = fundamental return + speculative return = (earnings growth + dividend yield + change in PE ratio)

Consider the below written by one of the brokerage houses on Petronas Dagangan. This is a simple business, it has steady expansion, the price is governed by APM, etc. You feel good about it? Suddenly, you are wondering why the target price got hammered down by 20%? Going back to the equation, fundamental return has not changed but the speculative component has changed, they have just revised down on the PE ratio as they see the world is less rosy. A few months ago, if you believe what they valued the company at $ 12.80, you might be willing to pay up to $ 10.88 for a hope of 15% return, suddenly you got whacked!

Still scratching your head? Get used to it. I read in newspaper yesterday, Credit Suisse said that emerging markets need to correct between 20-25% down based on valuation. Does that mean the stock markets have been out of valuation for a while? I do not like use four letters word on these guys. This is the main reason I stay away from brokerage report, they can poison your minds unconsciously. I will start reading their reports now because I think chances of value being derived fairly is better.

The love for China, India, commodities suddenly evaporate? Hong Kong market got whacked now, there are people calling for 18,000 for Hang Seng Index, tested below 20,000 at the time I am writing this. Some of the S chips traded in Singapore suddenly contracted to 3 - 4 PE multiples.

Cyclical stocks should be avoided at this time because you need to do it right twice ( entry and exit ). If the fundamental of the sector is in your favor now, the depressed market sentiments will continue to depress the stock price. When the sentiments recovered, the fundamental of the sector could be on the downtrend, hence, stock price remain depressed again.

Wednesday, March 19, 2008

A Contrarian view

It is not fun to be a contrarian. It can cost you a lot of emotional stress because you are going against the grains. The whole world will mock at you. It is a very cold, dark and lonely journey. Most elected to conform than to revolt. Today's dedication goes to bloggers that still have not given up pounding keyboards to tell the world they are wrong because the facts say so. Mr. Tan Teng Boo, just to let you know there are people going against the grains except they are traveling in the different wilderness.

He recently said he has been buying stocks gradually on behalf of his clients . He is willing to look beyond the valley of sub-prime, beyond 6 to 9 months, foregoing catching the precise bottom. He will absolutely stick to his gun saying the world economy has decoupled but financial markets are more synchronized, hence not decoupled. (see above two pictures taken from the Economist and below newspaper cutting from the Star)

I am not suggesting we spend all our money tomorrow, I am saying do not be afraid to buy high quality stocks on cheap. Is the time near? I hope my readers will not think I am the Mr. Market that keep changing minds all the time, I am saying good bargains begin to emerge but precise bottom is not yet known.

This was drafted over the last weekend when the whole world was very gloomy. This will look awkward today on worldwide stock markets rebound. I guess it does not matter because people will change their minds again.

Investing: 90% What you do next, 10% what you did

Tiger is in trouble but he will get himself out of trouble and get to the green in two, investing is the same thing too, don't give up if we got ourselves into trouble. Don't be discouraged if you cannot get yourself on green in two, three or four are still pretty good.

I finally managed to take some time off today for a round of golf, very luxury for me. Making money and enjoying life is equally important. The below picture was my last hole, try to guess, which path was I taking? Tee it over the water or aim on the left side of the green? Just go and refresh ourselves, get ready for the next battle. Cheers!

Tuesday, March 18, 2008

What is Luck?

Luck is preparation meets opportunity.

I released one of my personal investment research Parkson Holding Berhad yesterday just to demonstrate what is luck. There are two aspects of preparation, one is idea and the other is money. I am prepared on the idea side but still have to wait for money side.

It is also about making decision of which one is the most undervalued? The other point: I need to plan ahead of what to buy. I announced prior to purchase because it does not matter under such a pessimistic and fearful environment.

I did not buy today because transaction cost prevented me to do so, RM 31 of transaction costs over RM 1,000 is about 3.1%. So I still need to wait until April, hopefully the window of buying opportunity is still open. Whether tomorrow price will be cheaper than today does not bother me much because I am not really concern about the precise bottom. What if the price appreciation goes beyond transaction costs? Between disciplines and potential gains – disciplines should be upheld even though foregoing potential gains.

MUI is still hold up well, under stress test, especially it is a penny stock. Fundamental matter, especially buying under such brutal bearish conditions. The fundamentals have not change but sentiments have changed, that’s all.

Monday, March 17, 2008

Parkson Holding Berhad

Parkson Holding Berhad owned department stores in PRC, Malaysia and Vietnam. The jewel at the moment is 55% controlling interest in Parkson Retail Group Limited(PRGL) listed in Hong Kong Stock Exchange. PRGL is the largest and among the most profitable department stores in PRC, which they owned 41 stores in 26 cities. ROE has been consistently at the mid 20 plus for the last few years though with some leverage.

Big Picture
The PRC retail market is a RMB 8.90 trillion (US $ 1.3 trillions) market and expected to be top 5 retail market in the world.

What they impressed me the most is the company has been growing much faster than the industry. In 2007, though same store sales growth was in line with the industry but their rapid expansions driving operating revenue growth of about 46%, 3 times faster than the retail industry.

The company targets at least 15% floor space growth.

At least 5 new stores are confirmed to be open in 2008.

PRGL has been acquiring minority interests in the department stores. The acquisitions will contribute earnings to the group immediately.

Though the earning is not significant yet, with the growing of middle class, spending power surely to rise and contribute to future earnings (3 to 5 years).

New store like the Parkson Pavillion which will double the floor space of Malaysian operations, more earnings will flow through soon.

With such a bright growth prospect of implied 40-50% earnings growth for RPGL for the next few years, the company is really undervalued: selling at RM 6/share with trailing PE of 20+ times. Assuming Malaysia and Vietnam earnings are free, we are buying into PRGL at a discount of 30% at the price of HKD 65/share. If the current pessimisms were to continue to push down the PE multiple, selling growth stock like mature one? This is for sure is a steal. I am sure this is an irresistible once a lifetime opportunity to double or triple my money!

Sunday, March 16, 2008

The Chinese will always be spending

Wanted to write this piece for a while, US still dominates, No!. By looking harder at the picture, you will notice that the Chinese economy was around US $ 100 B in 1973, since then, it has grown by leaps and bounds to US $ 1,7 trillions in 2005. No, that is also not my point, look harder! Consumption was around 53% of the Chinese economy in 1973 and it was around 41% of GDP in 2005. Now you we are talking, the Chinese will always be spending. If you look at the two pictures below, export has not really the main driver of the Chinese economy, there are two engines that firing pretty rapidly: investment and consumption. The retail industry is even more exciting, it has been growing at a very rapid pace, almost touching 20% in 2007.

I know most people are growing colder each day when Chinese stock market is sinking for a while. Not only that, talk of inflation may pave the way to Chinese economy hard landing as a result of tightening of monetary and fiscal policies. This will have great impact to world economy growth if China and US are heading for hard landing at the same time.

However, I am maximum bullish on China, not for short term but long term. Don't get me wrong, I might buy something tomorrow or next year, it is all depend how cheap some of the stocks are being sold in relation to their intrinsic value. Most of my readers will know how long is long term for me, 5 to 20 years.

Friday, March 14, 2008

Stuck in the airport

This is one of the things that I hate during traveling, stuck in the airport due to flight delayed.......will have to figure out what to do for next 4 hours.

I have been wondering how I manage to stay as a part time investor, a part time blogger and a full time job to run. Being a part time investor, I really could not monitor my investment activities at all, if the markets were to crash today, I will not be able react either on the sell or buy side. How will one survive managing own money without picked pocket by the pros?

For example, I thought Hong Kong market was about to rally in my previous post, the market tanked instead, possibly selling by US pros to cover shorts when Ben pumped $ 200 B into financial systems, followed by Flu scare and Shanghai Index dipped below 4,000 points.

Thinking back, it will not be that hard after all. Just sit and wait for the big boys to screw up, screw up big time. Wait for them to defeat themselves. Wait for their boss(clients) fire them. Wait for everyone to redeem their funds. Looking back, lack of time, lack of resources, lack of everything is an advantage after all.

The market has a few more unfinished agenda. Think about what will strong Yen do to trade carry. Ask ourselves what if the Chinese need to raise interest again 2-3%to fight inflation - what if China GDP growth drop to 6 - 8% instead of 9 - 10%. Have we ever imagine, what if US inflation rate running into 10%? Credit crunch is still on going. US recession has not been declared. 2009 is the first year of a new president term, money pumping will slow down. Olympic game is over in 2009, will the Chinese infrastrucure spending slow down? What if copper and aluminium price collapse? I can keep firing million of questions, can you build a model to discount all possibilities and forecast future for me?

The most important of all, actually, I am still waiting for front page newspaper to declare the death of equities. Sound depressing? No, I am waiting to strike and go for a home run!

When I need to get out from a market or stock, I need to sell first and ask question later. However, if I need to buy, I need to ask a lot of questions. Sleep over those questions a few days, months, may be years ( Just kidding on the last part)

Thank you for listening, this help me to kill some time.

Thursday, March 13, 2008

Ben Bernanke's dilemma

Managed to squeeze out some time out during this business trip to write down my thoughts before it is disappears.

Ben Bernanke is panic - pumped $ 200 B into the financial system again, is he afraid that the US economy will enter into a very long recession like Japan when the twin bubbles busted in the early 90s? When Japanese twin bubble busted - equity and property - they were stuck in more than decades of recessions and deflations. Many argued that the market forces taken too long to work out the excesses, free market did not work! Japanese should have loosened their monetary policy right after the party was over.

So, it is a choice of long deflation or ignition of super inflation? Looks like they have chosen the later and hoping raise interest rate to kill it off down the road. They are afraid of liquidity trap just like the era of great depression where John Maynard Keynes was proposing to put so much liquidity in people's hands: to set them free. Will it work? I would say I pity him, it is not a choice of good or better but worse and worst, uglier and the ugliest. Greedy bankers have screwed up big time, Ben is doing the s*** cleaning now, is that his job?

I would stay put for a while to see how things are going. Don't try to get hands itchy even though I have a little bit of money in hands. More US and European banking write-downs are coming!

Wednesday, March 12, 2008

Post Election: The Return of Sanity

Yesterday selling was as if the whole country was overtaken by a new government(as if socialist or Islamic one OK!). Many anxious about new public and economic policies. Never underestimate fear and confusion. Today's price actions tell us, many believe this country is still rule by Barisan Nasional. The sanity is coming back. There may be some projects delay here and there, some scandals exposure here and there, some resignations here and there, otherwise get use to it. Many should know my edge is not trading, therefore I will not want to write much about KLCI target, valuation of the market is OK, if we still retain the safe haven status.

This kind of rebound based on past experience is not completely unexpected, technical camp will come in for some quick trade, since they cannot short - they might as well push it up, just common sense. Many of the construction, infrastructure and possibly building materials stocks will soon falling off from everyone's radar, you will see prices to deteriorate over time. Buy and Hold buyers: Beware!, if you do not have an exit plan.

Beaten down stocks with domestic driven consumption, significant overseas operations and soft commodities driven will eventually recover. If you wish to get some names, wait till I have around $ 3,000 - you will see the next stock I plan to buy.

Question on everyone's minds, was yesterday the bottom? The 80 Billion Ringgit market capitalization loss yesterday will be answered in 100 days from yesterday. Why 100 days? If things do not shake up by oppositions within 100 days, chances of status quo is quite high, just common sense speculation - just in case my readers still need some scientific answers and predictions. The next write up will be Post Election : 100 Days. What is your wish? Shake-up or no shake up?

BTW, while we got distracted, Hang Seng is testing 23,000 again, just in case we are interested in global investing. I will be away for next few days, catch up soon.

Tuesday, March 11, 2008

Post-Election: Sell Down - Day 1

Most get their predictions right today, losing 80-100 points. Looking at top volume price actions, one can see clearly it is repricing of risks(some are real, some are not) and not stock market collapse. It can be categorized into the following if we like to break into more systematic themes.

(i) suspected politically linked construction stocks (Gamuda, MRCB, etc,)

(ii) inflation sensitive stocks that losing pricing power like Tenaga,

(ii) foreign investors exposure reduction like IOI Corp, Sime Darby, AirAsia, SP Setia, SupuraCrest, Commerce, Public Bank, Bursa, etc,

(iv) so call non-compliance to Islamic practice stocks like Genting, Resort, Magnum, etc

(v) sympathy selling

The market are scratching their heads whether Malaysia business environment will be as stable as before. Will the market losing the premium factor? They are not sure whether the environment will still be pro-business.

Since liquidity is not an issue for us ( meaning we do not need to buy in a big block), do not rush to buy yet, take a step back and relax. Clear our heads to find out who have wrongly sold their stocks. We want to sell back to them when they found that they were wrong.

Important question to ask ourselves, have the fundamentals changed? Has CPO price collapsed? Will they impose unfavorable gambling taxes? Will they close down casinos? Is PAS ruling the country? Will lesser houses be build? Just shut the world, lock ourself in a quiet room, we will find the answer what to buy. Good luck.

Monday, March 10, 2008

Is there such a thing called value investing? (I)

I am about to write a controversial area that divided the world of investing. Sometimes it is like we have to take side when the father and mother are quarrelling-accusing one another speculator, gambler, etc. Does it have to be that way?

Buffet's fans will always insist he is closely linked to Ben Graham. Fair enough, he has attended his classes and worked for him. Buffet always says he is 80% Graham and 20% Fisher. For those who are open minded, upon closer examination he is truly a controversial man. He will not hesitate to break conventional rules when there is money to be made. Let's see some his transactions:

(1) He paid 3 times book value for See's Candy in 1972. They also paid 1.2 price/sales, 20 millions for 30 millions sales. The sales growth has been unspectacular of 2%. The earnings were less than 5 millions and required 8 millions capital to run the business. How would you define margin of safety while he is paying for hefty premiums in this case?

(2) He bought metal commodity stocks like Kaiser Aluminium & Chemical Co. and Cleveland Cliffs Iron, Aluminum Company of America and etc in the late seventies to early eighties to combat stagflation.

(3) He is constantly looking for opportunities for arbitraging such as merger, recapitalization, reorganization, liquidation, etc. He was pretty active during the 80s merger manias. He is constantly evaluating probability to profit from likelihood of an event that is going to happen. He was even willing to average up beyond the announced acquisition price in Arcata Corp take-over by KKR in 1988. Do you know he played arbitraging game on soft commodity like cocoa while working for Ben at the age of 24 year old? Do you also aware that Ben himself involve in arbitraging?

(4) The disciples of Buffet will continue to advocate to buy simple businesses. He has publicly confessed that he does not understand how to value technology companies. However, he bought Amazon junk bonds at 57% par value for Euro 130 million in 2001 and 2002 after the technology bubble bust. How did he manage to estimate future cash flows of a tech company? Was he not speculating and betting US $ depreciation like Soros?

(5) Buffet is also betting on emerging markets like buying Brazilian real, he asked us to hold our breath while reading his annual letter to shareholders. Many probably know he made $ 3.5 B profit by selling off Petro China which he bought the stock a few years back. He also bought Posco and Iscar for example.

(6)He wrote 92 derivatives contracts involving high yield bonds default indices and also put options on stock indices. The swing of profits and losses could be in $ 1 billion range in any quarter.

(7)He is of course famed for buying simple yet great businesses like Coca-Cola, Gillette, American Express and etc.

(8)He has been buying a lot of main street businesses for a while when he find no great values in Wall Streets. His latest large purchase was Marmon group for $ 4.5 billions.

(9)Contrary to popular belief he does not leverage, his greatest leverage is coming from floats. If one trace his early partnership, he has made use of floats from Blue Stamps and Geico. He and Charlie will even take controlling stakes in closed-end funds to take control of investment decisions.

His insurance floats could be in the range of $ 40 to 50 billions. This is almost like taking loan at 0% interest as he collected the money in the form of premiums and payout later when ever there are claims. As long as he underwriting conservatively, he makes profits and grow his wealth incredibly.

By now some readers will wonder what are the points that I am trying to make. I feel most people have over-emphasized Buffet is closely associated with buying simple businesses and Benjamin Graham. Most have largely overlooked that he is such a versatile investor that put the money where the mouth is. To borrow from Deng Xiao Peng, “seek truths from facts and it doesn't matter if a cat is black or white, so long as it catches mice. “ This has many implications for those who want to improve our investing skills. As usual, I will expand this when ever I can find time. By just a preview, I agree with him : Intelligent Investing.

Malaysian General Election : 8 March 2008

My readers may noticed that I have spent time analyzing foreign stock markets, posting Singaporean newspaper cutting and etc. The message was not only foreign investors have the choice not to invest in mediocre Malaysian companies, we as retail investors have this choice to flee as well. We can fund great foreign companies. If Singapore market is really selling at 10 times forward earnings vs. KLCI forward earnings of 13 times, don't you think it is a rational decision to put money in Singapore Index ETF than KLCI Index Fund? I am glad that Malaysian have spoken, let's hope for the better Malaysia.

Sunday, March 9, 2008

The sky is falling(TBT 4 March 08)

I shouldn't have wasted my time doing big picture analysis for the last six months and just wait for the big picture to arrive. I am still waiting for newspaper to publish something like the death of equities or the end of the that point, I will sell my house and buy equities! (Just kidding but I hope my point will be well taken).

Saturday, March 8, 2008

Simon Cowell ..... American Idol ... Bashing Time

I will shut up today, let him speak.

Thursday, March 6, 2008

Common Sense About Dollar Averaging

I wrote this when I was totally disconnected from the world. I have no idea what was happening for the last few days except I saw some nice green board a few hours ago. I feel good to be able to get back on-line(again).

Are you feeling of regrets not buying or buying on 5 March? The truth is hindsight is always 20-20. The truth is we cannot know what is tomorrow going to be. Speaking of tomorrow, tomorrow will never come because we will always have tomorrow. Trying to guess what is tomorrow like is like what Hokkien says Liak Bo Qiu (Cannot catch the ball......pardon my Malaysian English).

OK, back to business, every solution to a problem is developed to address a unique problem. One should never copy blindly without spending time to examine the relevancy and understanding of the background. Anyone wish to plug and play is as good as plug and pray. So is Dollar Averaging. Don't get angry if God don't answer your prayer.

I have posted in my previous blog saying one should consider dollar averaging to cope with current volatilities. The first question one needs to ask is how much(current and future cash inflows) am I planning to invest? Then what is the time span I am planning to invest this sum of money? You heard this before, right? I know many of my readers are sophisticated, so don't try insult their intelligence, let's make things a bit more complex.

Let's start with the second part of my question. How low do you think KLSE will go from 1310? 1250? 1200? 1150? 1100? 1000? 950? Hmmmmm...........hello are you there? I hear dead silence.

For argument sake, let's say KLCI is selling at 15 times earning at 1310, the rest of the price and PE will be 1250 at 14.3 PE, 1200 at 13.7 PE, 1150 at 13.2 PE, 1100 at 12.6 PE, 1000 at 11.5 PE and 950 at 10.9 PE, now do you think KLCI will ever be selling at 9 times PE or 6 times PE?

Aha, in the world of investing anything can happen but selling at 950 is likely…. but….. but....... you said.... probability will be quite low unless 1997/1998 history is repeating again. So we are talking about KLCI fall by 27% from 1310 to 950 in the worse case scenario. Why don’t we do ZERO dollar averaging? Meaning wait for 950 to come, but it may not come my dear. Zero dollar averaging can be done by Master Yoda, if you are not, stick to dollar averaging.

So dollar averaging will be useful because we know it is about to bottom but we don’t know enough where is the bottom. Dollar averaging strategy may not be a disaster if we are paying for something that is reasonably valued. This will take volatilities out of the equation.

I shall never ever dollar averaging on China market now is selling at 40-50 times earning! It can fall very hard when PE going to 15X, if earnings cannot catch up fast enough or sudden liquidity is available.

Don't do dollar averaging in a bubbly market, please, please, please, don’t do it! Don’t call my name ($%^&^%%!!!!**8) when you got toast ( don’t turn yourself into Char Siu – BBQ Pork – but GOLD is OK!).

Now let's get back to question 1, how much am I planning to spend? Let's say $ 10,000 in 12 months, why 12 months? Pluck from the air, assuming US recession to end in 12 months, if we are in one already. So, I plan to spend 4 installments with $ 2,500 each within 1 year with interval of 3 months. There is pretty good chance I can make average 15% return in 5 years to ride out this storm with very little risk! (see table) This is my simple prescription for investing, take two Panadols(actifast if you wish) and go to bed - no X-ray, no blood test, no Greek(Alpha, Beta, Gamma ……… Theta), no calculus, no rocket science required! Just common sense plus a peanut size of guts.

Geeez ……. I am out of job because I have no more investing secrets to blog! Hang on!!!!! For those who are wondering what happened to MUI, stay tuned, I have some points to make. So come back regularly. Thank God I still have a job! You find it funny? This what the professional investment business is all about….selling stories. BTW, I am absolutely an Amateur, just like Bobby Jones, don’t doubt that OK? You find that I am offensive? Come back tomorrow, I will show you something.

Tuesday, March 4, 2008

Templeton Fund refused to sell stocks at unreasonable price

How are you feeling today after seeing so much bloods on the street? Everyone wish to buy during "Lelong", big bargains, but they got terrified when they got what they wished. What else can I comment?

Wrong question, instead of asking feeling, I should be asking thinking! What should I be thinking to take advantage of today sell-off? Investing must be head over heart, not the other way round.

One of the very respected value fund managers like Templeton refused to sell down their holdings because they think it is absolutely undervalued. They have taken an unconventional measure by borrowing money in order to meet redemptions. This will deliver better value to fund holders in the long run, good thinking I would say.

I don't feel good about the external volatilities but I feel good about great value every where. Dollar averaging on great companies could be a good strategy.......Listen, dollar averaging on great companies OK!, NOT dollar averaging on BAD companies.

I am freezing down here 1 deg C(don't try to guess where I am). I will continue to post on Friday after I get back to Malaysia. Good luck to all. BTW, I miss nasi lemak and Teh Tarik.

Monday, March 3, 2008

Capital Allocation Decision III

Why fully invested within 2 weeks? Why not keeping cash while waiting for bigger opportunity especially KLSE is in correction moods? True, if one has bigger sum to invest. However, in this case, I see good opportunity and not buying on impulse, put down a big bet was the right thing to do. Don’t procrastinate.

When one started with such a small amount, there are very limited options to maneuver. Transaction cost is a big problem for small investors. Minimum brokerage of $ 28 plus stamp duty and etc will workout around 2% for $1,500/transaction, a round trip of buying and selling will cost around 4%. This is almost same like putting money in mutual funds with loading fees between 5.5% to 6.5%. To achieve a better economies of scale, $3,000/transaction will keep trading fees more reasonable of around 1%.

Since I have $ 888/month coming, workout to be $ 10,656 a year. With that kind of money, I can only buy stocks 3 times/year. You see, very limited bullets, two more shots left only for 2008.

I need to be very sharp – must be a first class sharp shooter but at the same time I am only human. I must avoid making mistake on both new and reinvestment decisions at all costs in the first 3 -5 years. I must compound on successes and not failures.

Most people at this stage will be tempted to create high turnover hoping to build base as fast they can. I am totally disagree with this approach because the higher the turnover, the higher the probability you will make mistakes. You can win 9/10 times but 1/10 could destroy your capital base. Black Swan theory they call it. Let's take covered warrant for example, based on casual conversation with my broker, those entered in late December and January are in this situation, still licking wounds painfully and silently.

Next week, I will illustrate why the first 5 years is so important in building wealth.

Sunday, March 2, 2008

The Economist: The tigers that lost their roar

Came across an article in the Economist condeming South East Asian companies. For those who are interested to read the full article, please visit

The key points are being summed up in the following three charts:

(i) GDP growth is lagging behind China, India. Post 1998 growth is terrible.

(ii) Hardly any global brands and companies. Even China, India, Brazil are doing much better than us, wake up!

(iii) Productvity growth lagging behind

How do you feel about these remarks?

"These companies don't have strategies, they do deals" Micheal Porter

"Hard to find Malaysian companies with business plans that will last 10 years" Gerry Ambrose of Aberdeen Asset Management. I am surprised by his remark since he always talk nicely of us in local newspapers.

More importantly, how do you feel about your future investment returns from South East Asia market in general, Malaysia in specific?