Thursday, December 31, 2009

Wrapping Up 2009

I have been struggling deciding on how to measure progress of Turtle Portfolio as I've been adding $888/month to the portfolio. If I measure strictly based on net worth, it has jumped by 99%, measuring against KLCI 45% gain. This is not a fair comparison because the net worth increase mainly due to saving. So I decided a very simple measurement that is measuring to a target of 10% annual compounded gain.

This portfolio started with $3,000 with about $ 888/month saving, the net worth as at 31 December 2009 has grown to $23,848. Annual compounded return is 5.22%. I could be happier if I can meet the 10% CAGR but coming out from a great crisis with 5.22% is something I feel that I need to be realistic.

Going into 2010 is going to be even more challenging as stock picking, timing plus a little bit of luck are absolutely critical, in order not to fall too far behind of 10% CAGR target.

See you in 2010.

Tuesday, December 29, 2009

Favorite gurus predict more stock gains

Most of the people mis-understood Marc Faber and labeling him as Dr. Doom. I have been reading his newsletter for a while find that he is a great trader. What I like about him is his ability to read the crowd psychology. He is also a very pragmatic person, he knows when to be bearish and when to turn bullish on certain asset class. He has been screaming that bond is overbought and equities have been oversold--but--economy is screwed!. He has been also calling for a rebound in US dollar even though he has been criticizing Ben Bernanke without mercy.

He also said most of the retail investors lost money because they bought at the precise top and sell at the precise bottom, which is precisely a disaster recipe for investing. They lost money even in what many perceived as save investment class such as bond because buying when everybody is buying!

Faber and Biggs predict there will be another 10% stock & US dollar gain in 2010.

Dec. 29 (Bloomberg) -- Barton Biggs and Marc Faber, who recommended buying stocks in March when investors were dumping them, are again united as they predict gains for U.S. equities and the dollar.

Shares in the largest equity market and the U.S. currency may add 10 percent as economies improve around the world, Biggs of New York-based hedge-fund firm Traxis Partners LP said in a Bloomberg Television interview yesterday. Faber, publisher of the “Gloom Boom & Doom” newsletter, told Bloomberg TV that the dollar may rise 5 percent to 10 percent against the euro while stocks gain, reversing the inverse relationship that existed between March and November.

“History would suggest that after such a severe economic shock like we’ve just had that the odds are that we’re going to have a pretty good burst of growth in 2010, 2011,” Biggs said. “I don’t see any reason why we can’t have a further rally in the dollar and a further rally in stocks. And my guess is that the next move in both could be on the order of 10 percent.”

Biggs, the chief global strategist for Morgan Stanley until 2003, said in a Bloomberg interview on Feb. 18 that the S&P 500 was poised to rise because economic indicators were starting to improve. Biggs reiterated his optimism in the March issue of Newsweek. His bullish bets during the worst of the credit crisis are giving his six-year-old firm its best returns ever.

Faber advised investors to buy U.S. stocks on March 9 when the S&P 500 was at a 12-year low.

Stocks may rise as Federal Reserve Chairman Ben S. Bernanke is forced to inject more liquidity into the financial system, spurring inflation that prompts investors to shift assets to equities from Treasuries and cash, Hong Kong-based Faber said.

The yield on Treasury 10-year notes has increased 0.64 percentage point this month to 3.84 percent, approaching the seven-month high of 3.95 percent reached in June. The 100 largest taxable U.S. funds returned an annualized 0.06 percent during the past week, according to data compiled by Westborough, Massachusetts-based Crane Data LLC.

“The worst investment will be U.S. Treasuries and cash, which has no return at present,” Faber said. “That money will shift into other assets, and this is the one reason that I am moderately positive about equities.”

Pertamina shares distribution rights with Petronas, AKR

My liking for Indonesia has been growing due to their seriousness about reforms. You can see that these guys really got the ba**s to end the monopoly of Pertamia, while it's not a big deal to many but the message behind this is quite powerful - perform or you are out. This country has overtaken Malaysia as no 1 palm oil plantation in the world. They are also rich with commodity like coal, will do well with China continue to consume huge amount of comodity. The huge population of 250 million, we can make a case of internal consumption thesis as many of their poor will be lifted out from poverty to join the middle class. As we all know that their stock market has been performing remarkably well in 2009 and I think it will continue to do well in 2010.

JAKARTA: Indonesia's state oil firm Pertamina has lost its exclusive rights to distribute subsidised oil products in 2010 after a unit of Malaysia's Petronas and a local firm won supply tenders, a regulator said yesterday.

Petronas has won the rights to distribute 20,440 kilolitres of subsidised low-octane petrol in the city of Medan, Sumatra, next year, the head of Indonesia's downstream oil regulator BPH-MIGAS said.

Indonesia's PT Aneka Kimia Raya (AKR) Corporindo will also distribute 56,500 kilolitres barrels of subsidised diesel oil in Lampung province, in south Sumatra and in the cities of Banjarmasin and Pontianak in Kalimantan, Borneo island.

"By law, Petronas and PT AKR Corporindo are allowed to supply subsidised fuel. After we evaluated their capabilities in providing fuel, we selected them," Tubagus Haryono, head of BPH-MIGAS, said.

The remaining subsidised fuel will be supplied by Pertamina in 2010.

Monday, December 28, 2009

Goldilocks Investing Environment

The way I see the current environment is what I called Goldilocks investing environment. It's neither too hot for bubble to build up nor too cold for everyone to hide under a pile of cash. It's a good environment to climb wall of worries.

Market players know when to take profit when the government is getting concern with potential property bubble build up. For example:

(TheEdgeMalaysia)HONG KONG: A second plot of land in Hong Kong received an open bid of HK$3.6 billion (RM1.59 billion) on Monday, after the government sold another in its first major government land auction in about two years.

Just minutes earlier, the government sold a plot of land at HK$5.15 billion, more than 40% above the open bid of HK$3.6 billion, but below the market consensus of HK$5.45 billion. — Reuters

The hope on much stronger China economy, on the other hand, will continue to lead the world - economically and pyschologically.

Dec. 28 (Bloomberg) -- European stocks rose to a 14-month high and Asian shares advanced after China said its economy grew faster than estimated so far this year. Emerging-market currencies strengthened and U.S. Treasuries fell.

Friday, December 25, 2009

Merry Christmas

Wishing all readers and friends Merry Christmas.

Reflect on your present blessings of which every man has many, not on your past misfortunes, of which all men have some.

~ Charles Dickens

Sunday, December 20, 2009

Stock commentary: Pelikan

(Business Times) PELIKAN International Corp Bhd (5231), a stationery maker, says group revenue this year will be slightly lower than the RM1.28 billion made a year ago but will more than double in 2010.

This will be buoyed by the gradual recovery of the global economy and inclusion of results from newly-acquired Germany’s Herlitz AG.

“Herlitz is bigger than us with revenue of some RM1.6 billion. In 2010, the combined group revenue should be about RM3 billion,” Pelikan president and chief executive officer Loo Hooi Keat said.

Demand for Pelikan products was affected by the economic downturn this year, he added.
Pelikan should bounce back next year with a 10-15 per cent growth, Loo said after Pelikan’s extraordinary general meeting (EGM) in Subang Jaya, Selangor, yesterday. By 2013, the Pelikan group with Herlitz were targeted at raking in a RM5 billion revenue, he added.

Pelikan, a 117-year-old German stationary brand company, received shareholders’ nod for the purchase of a 66 per cent stake in Herlitz at the EGM.
The acquisition was made together with the Falkensee Logistics Centre and other related assets for about RM227 million or ?45 million cash.

This stock has fallen 76% after peaked out at $ 5.8. The stock sold as high as 40 times forward PE and now close to about 14 times. Still has a lot of earning growth expectations. Is it safe to jump in? OSK upgraded the stock price target to $ 2.57 while CIMB has a target of $ 1.58? Why such a big difference?

The last five years top line growth has been impressive but quality of earning is quite poor.

Any sharp eyes will spot the earning deterioration in 2008. Analysts like to blame it to soft economy and etc but the real culprit is higher material cost that eating into its margin. Material used/revenue ratio in 2008 was 43% vs 33% in 2007. Very little efforts to recover margin - a sign of a great brand but poor pricing power.

The sexy story being sold to public now is merger will double its revenue. OSK believes the merger will boost their net profit by $ 123 mln. If you look into Herlitz, the company has been struggling. Even I'm trying to be kind to just look at the EBITDA level but that's hardly impressive, 1 to 2% plus. No wonder sold for 50% of its net assets. I think you can do the math, OSK is definitely heading for disaster.

They bought out Advent International's 66% stake. Advent is a global private equity company. If Advent International has 140 investment professionals and raised cumulative of US $ 24 billion, why Advent did not manage to turnaround this company? What Pelikan can do differently to reap its "synergy"? (I think CIMB is quite sharp to raise this point). Pelikan has initiated plants relocation/consolidation to Eastern Europe to take advantage of lower production costs, setting up International Procurement Centre and Suppy Chain Management(which is nothing new to a lot efficient players). Buying revenue is not a smart way go. I certainly could not see very clearly of their strategic reasons.

If OSK take whatever numbers given by the company management without much critical thinking. I think CIMB's analyst is clearly out-thinking OSK's.

When you have merger of almost same size, integration is big headache. Countless studies found that almost 80% acquisition failed due to integration issues. Just pick up any business book if you are not convinced. So I'm going to skip the common issues especially this post if already longer than usual.

Looking what the CEO said, this company is clearly interested to drive its top line but not paying much attention to earning quality. They want to achieve RM 5 Billion revenue in 5 year time? More acquisitions? Or Sales, Sales, Sales?

Assuming Pelikan has great leadership to turnaround Herlitz, I don't think the benefits can flow through in less than 1 year. Hello 2010 is just 12 days away. This certainly reflects OSK's analyst has zero experience in running a real business.

The verdict, CIMB assessment is more accurate.

Friday, December 18, 2009

My 2010 KLCI target

When things are slowing down at this time of the year, I'm in much more contemplative mood, attempting to look forward what 2010 might bring. I looked at two strategy reports, one from OSK(pessimistic) and the other one from CIMB(optimistic). OSK has a target of 1345 while CIMB has a target of 1450.

Before I summarized my thoughts, this is a good chart to start with -- giving us a long term perspective.

The next critical variable is GDP growth assumption. Financial sector a weightage of 35% in FBMKLCI, thus getting GDP growth is critical, most think it should be coming in around 3.5%.

The third variable is ex-change rate assumption. Volatile exchange rate will create a havoc in earning estimates -- top line or gain/loss provision related to forex. I'm assuming we are staying around 3.30-3.40 range.

The forth variable is how much growth the market is pricing in for 2011. I believe at current KLCI level, we have pretty much pricing in 2010 growth. People tend to be cautious in the early stage of recovery(below trend SD) and a lot more aggressive when earning is peaking(above trend SD).

The fifth variable is commodity outlook. 20% of the weightage in FBM-KLCI hinges on plantation stocks. My average price target is about RM 2,400 MT(closer to CIMB but higher than OSK RM 1,900).

Most people wold agree that 2009 EPS is about RM $ 73/share. There is not much difference in growth expectation between pessismist(16%) and optimist(18%). Since the gap is small, derriving the target is more or less depending on PE multiple - if we pick a long term PE average of 16.5, KLCI fair valuea are between 1,397 - 1,421.

The flow of the argument seems to be logical but there is only one problem, do I believe in 16-18% earning growth? Believing in the numbers mean the earning will have to recover back to the same level of 2007, $ 85 / share especially with quite a bit of earning dilution from right issues in some of the big caps(Maybank, TM, Axiata, IOI, etc).

I believe the analysts could get it right this time. Looking at companies in the FBM-KLCI components, banking stocks like CIMB, PBBank, AMMB should be able to drive earnings improvement even though contribution from Maybank could be muted. The catalysts are mainly driven by (i) general economic recovery (ii) regional expansion to bear fruits (iii) stronger corporate finance activities.

The expectations on the conglomerate like Sime Darby are Genting not that high. With little bit help of stronger commodity price and global economy, cyclical stocks like IOI, MISC, KL Kepong, PPB should have no problem of going back to 2007 level.

Bottom line, I'm eyeing KLCI between 1,275 - 1,450. There is one big negative catalyst that I'm watching very carefully -- exit strategy of central bankers/governments. If they withdraw accomodative monetary policy and stimulus too early, all bets are off.

I love these guys

"Bring it on, the sexier the better." That was the response from Tony Fernandes to Sir Richard Branson's challenge over the loser in the Formula 1 stakes having to dress up as an airline stewardess on the winner's airline - AirAsia or Virgin Atlantic.

The Lotus F1 Racing team, of which Fernandes is Team Principal, has even taken the liberty of picking out a lovely crew uniform for Branson.

"It's quite fitting, don't you think? Our passengers will be delighted to be served by a Knight of the Realm. But, knowing Richard, the real challenge will be to prevent him from asking our guests 'coffee, tea or me?' That would be scary," said Fernandes, who is a founder and Group CEO of AirAsia, Asia's largest low-cost carrier.

I really love both of these guys. Both of them are really funny(or shall I say Sexy now?), adventurous and extremely driven. Above all, both them are masters of branding. I'm quite sure that many will follow Lotus F1 and Virgin outcomes. Plenty of publicity at no charge. Clever, clever.

Wednesday, December 16, 2009

My comments on strategists' S & P 500 target

I have posted top strategiests that got S & P 500 right this year and theirs outlook for 2010. I did not however make many comments on my take whether I'm subscribing to their targets.

Most strategist has not changed much of their earning per share estimates for the last 2 quarters. Estimated 2009 EPS is around US $ 56 and 2010 is US $ 74, a 32% improvement. 32% is quite a big jump. The normalized quarterly earning of Q2(US $ 13.81), Q3 ( US $ 15.56) and Q4 ( US $ 16.73) will make the upgrade look less dramatic. Through November, analysts cut earning growth in consumer discretionary and materials sectors but made a big adjustment to financials. In June 09, ananlysts predicting 2010 earning growth in financial stocks will be around 85% but upgraded them in September to 132%. They think the write down is coming to tail end and they do not think consumer spending is going to be that strong.

As we all know that many of the items on the banks balance sheets are no longer mark to market. If they decided to find out their value again, the sharp improvement in home prices will have less severe impacts compared to 9 - 12 months ago. I have not seen many bearish analysts talk a lot about housing price declines anymore. So the US government asset inflation programs seem to be working.

Many of the banks are able to raise money from private sector again. We have been seeing many headlines of Bank of America, Citigroup, Wells Fargo and etc were raising billion of dollars without much problem and returning TARP money to their government.

I will vote that we will see S & P 500 to hit 1,250 - 1,300 in 2010. I'm however is waiting for a pull back of more than 10% between January 2010 - March 2010. Basing on the sharp gains that we are seeing in 2009 and past bull market data, there is only about 50% chance that the First phase of bull run can complete their year 1. I might be frustrated if the pull back is not materialized in Q1 '10 but my weariness certainly will grow going into May. O yea, Sell In May and Go Away!.

Monday, December 14, 2009

Strategists 2010 forecast for S&P 500

What is your 2010 S & P 500 target? I know many(myself included) condemn the strategists for getting it so wrong in 2007/2008 bear market. Fortunately they also got it right that S&P 500 will hit about 1,000 by end of 2009. Shall we say we are even now? Here are their 2010 forecasts, about 10% upside from 1,106. Their main assumptions are strong corporate earning recovery and M&A activities will fuel this rally.

(Bloomberg)The following table presents estimates from strategists at
brokerages for where the S&P 500 will finish 2010 and the
implied percentage change from last week’s close of 1,106.41.

Looks like none of them are thinking the current rally is a bear market rally. Interesting indeed.

PS, the European research outfits appear to be more conservative than American.

The study of post crisis bull markets

Many people has been issuing warning that correction is coming. Is that a real concern? I picked two bull market periods(post Asian Financial crisis and post tech bubble) just to let us have a better feel. The first period is right after the market bottomed out sometime in Aug 1998, the first phase of bounce was fierce, 95% over a period of 5 months but subsequently followed by a correction - 15%, then followed by sharp upturn and then followed by another 16% correction before it finally peaked out, gave way to tech bubble bear market.

When the market emerged out from the tech bubble bear market in May 2001, it went through a period of ups and downs with a cycle of 4-6 months ups(no rocket up though) and followed by 1-7 months downs. However, after the market got out from the second bear market decisively, instead of very sharp upturn, it went into stewing mode(sideways) - lasted 16 months with 43% gains before registered a brief correction of 12%. The bull market continued to charge multi years gains without corrections over 10%.

Deciphering the market can be tricky because we can't just look the duration and percentage of market ups and downs and follow by a market call. There must be reasons of why the numbers behaving the way it did.

Post 1997-1998 Asian crisis, we reformed and market liked that and were confident of a V-shape recovery. The market was right then.

Tech bubble was not really our problem but the rally was influenced by the external markets. The single biggest factor in my mind was the Fed kept the real interest rate in negative territory for too long. This has fueled all kind of asset inflation and bubbles around the world, we benefited from that too.

This bull run is approaching 9 months old of which is also one of the longest without any significant pull back. Are we repeating cycles of 2002-2008. It does look very familiar -- the Fed wants to continue to keep the real interest in negative territory for an extended time.

My many years of watching the markets suggest corrections normally come unexpectedly. My sense is we need to see 1300 before a correction kicks in.

Saturday, December 12, 2009

Trading Idea : BJToto-CD

I would like to close my 2009 trading idea with BJ Toto-CD. What? Call Warrant? Yes call warrant.

Why? Limited downside. When I look at that chart, the stock is only trading above 5% of the darkest moment - either we are referring to last November or March. Is this justified? Hell no.

Since this is a simple business with relatively stable growth, most analysts will get it right easily. I will just use CIMB numbers on the basis of valuation.

The company is still sound fundamentally. With coming Chinese New Year, many will try their luck to win big money, I would expect better results . From the long term cash flow generation point of view, CIMB thinks the company worth about $ 5.55(I agree), there is a potential upside of 32% from here. In terms of multiple earning, the company has been selling at the low of 12X(depressed) to 18X(optimistic) historically. I think the weak consumer spending thesis is over-exxagerated by a lot of analysts. I am willing to bet on reversion to mean. It may not be as optimistic as 18X but just 15X will lift the share price to around $ 4.7 - $ 4.8 which is about 11-12% from $ 4.2. This may be good enough for a conservative investors. However if one has stronger appetite for risk, a 20 times gearing to magnify this 10-12% gain will be very fun.

First the warrant has 212 days before it expires. This will give us a reasonable time frame to bet the share price will reach our $ 4.70 target.

A large enough gearing of 20 x, 10-12% rise in mother share will give us at least 100% rise in call warrant(of which I have provided a very conservative expectation, theoretically should be 200-240%).

As we are paying only 9.33% premium, I would think the penalty is relatively small to bet for a potential 100% return.

Disclosure: The author has long position in BJ Toto and BJToto-CD.

A BIG WARNING!!!! : A wrong position sizing can damage or cripple your financial wealth. Please consult your investment adviser before taking any position. Derivative product is very risky and not suitable for buy and hold strategy.

Friday, December 11, 2009

Santa Rally -- A Myth or Fact?

Good things normally happen during Christmas because Santa will be in town, a myth or truth? My curiousity led me to dig through the numbers all the way back to 1993 of KLCI value comparing the 1st trading day of December to mid of December and last day of December. Here are the numbers:

A couple of obervations:

If you buy on the 1st day of December, you must be discouraged because you have been waiting for Santa, yet he is not here. 38% of the time, your investment will go down in value when you held through middle of the month. If you feel discourage and feeling like throwing in a towel. Don't.

That is because if you have the courage to hold till end of the year, 94% of the time, the value of your investment will go up by an average of 3.4%. I think to buy around this time frame is a high probability event.

Assuming you have bought at the wrong time, i.e. beginning of the month, you still have 81% of the chance to make 4.74%.

Just hang in there, Santa is coming to town.

Wednesday, December 9, 2009

Vincent Van Gogh's Starry Night

It's only Thursday, why am I talking about weekend topic - art ? Just because man shall not live by bread alone, we should not talk about money all the time. Sometimes we need to talk a bit about more abstract side of life - art, music, health, cooking, gardening, etc. Investing a bit of time in some of these activities will benefit our souls.

Impresionism art movement is one of my favorites. We may take the style for granted as the objects are simple, child-like or the icons are simply become too popular. I still cannot forget the images of the real works, especially Van Gogh's works, when I saw them in Amsterdam, Paris and New York. The images were so fresh even though I saw them quite a number of years back. When you see the "real things", you will be amazed with the "brush marks" of which they created practically by squezing the paint fresh out from the tube. The movement of the short lines that they created will really evoke your senses. I can stare at it for hours.

In those days, around late 18 to early 19 century, the world was dominated by the elites. In France, they gathered in places called salons - basically a gathering of intellectual, social, political, and cultural elites. In those days, all the artistic productions in France was controlled by formal academies which organized official exhibitions called art salons. They have a lot of rigid rules to determine how a good painting should look like. What they have done basically producing whole bunch of ass-kissing artists a.k.a. conformists. Here is an example(Liberty Leading the People), you can see the triangle composition that creating a very strong composition impact. Even though the message of the painting was quite radical as they used women as a hero but the method they employed was still pretty much an ass-kissing style.

Back to the triangle that I was talking about, it can be traced way back to Leornado Da Vinci on the Golden ratio of 1:1.618.

Is the 0.618 ratio familiar to you? O yea, remind me of the Fibo but we are not talking about stock market today.

When you got some instituitions or mainstream dominating and dictating how things should be done, this will surely create discontent. A growing discontent finally led to revolution. A group of painters began to organize themselves to exhibit their works because they were sick of being rejected by the art establishments. The word impresionist was used as an insult to the salons. They broke all the rules of academic painting. No more indoor works - still life or potraits, they went outdoor -landscape, building etc. They don't mixed color very well and brushed freely, a lot of short lines.

Everytime I look at impresionists' paintings, they remind me of how radical were theirs works at that time.

My next gold price watch

One of the very critical points to watch is 1,000. This is the line in the sand -- 1,000 was a strong resistance but now could be a strong support. There is no need to do the guess work, just watch, if it breaks down, then wait a little longer before start buying -- it will take a least 3 months to shake off the weak hands. One of the important things that I learned -- bullish does not mean you have to buy outright.

Tuesday, December 8, 2009

Where are we?

Where are we? Undecided. Undecided for a number of reasons. Just to state the obvious, the stock markets have gone up a lot with some tiny better than expected corporate results and economic data, but not strong enough to fuel speculation things will improve a lot more from here.

The dollars has been extremely oversold and already showing some signs of squeezing the bears out there. Gold bugs though unfazed with the "death threat note" but it has been almost a mainstream investment idea over the last few years. The weak hands are unsure of themselves, it will take a bit of time to shake them off.

Econmic data merely confirming the worst is behind us but no one is sure of what tomorrow will hold. It's very difficult to quantify tomorrow. Not sure whether the US economic growth going to be 1%, 2% or 3-5%. Optimists and pessimists are equally divided.

Central bankers are behaving, well, chicken little. It is better to fan inflation rather than losing their jobs. They will keep singing The West central bankers are concern with weak economy while the East central bankers are concern with asset-bubble. The finger pointing match is on but neither one of them want to take concrete actions. No wonder we are all so confused.

Well, under this kind of environment, some will turn to astrology -- reading moons and stars. More scientic one will turn to charts. Well, it's confusing because it's appear that we are moving out from the the trend channel but moving sideway -- equal number of buyers and sellers. Not enough bad sentiments/news to push it down, not enough good news to push it up either.

Well liquidity is still a plenty on the sideline but is still very unsure of what to do with it. Are we at (1) the basebuilding phase --- taking the steam out of the system very gently over a longer period of time or (2) in the making of violent correction to chase away non-bull believers? Sorry, sadly, madly, your Turtle is unsure whether it is (1) or (2). Take care.

Sunday, December 6, 2009

Big boy's toy, III -- numbers crunching

Going back to psychology 101 - Maslow's hierarchy of needs.

Based on personal experience, the itch and temptation are the strongest when we navigating through love/belonging and esteem stages. Materially, we are neither too poor nor too rich. I constantly getting peer pressures when they upgrade their house or car. In a modern society, the instant gratification will be granted the moment we produce our annual tax filling to a banker. They love our business.

I constantly getting questions why I don't upgrade my car. My constant reply to them was NO MONEY and they will just laugh. However, my real reason is this. Let's say, I woke up in a morning in extreme good mood and decided to reward myself and also to put all the nagging to rest, I decided to get a Lancer Evolution 2008. Look at this, what a beauty.

Then I walk into a showroom and they produced me this quote, a price tag of $ 323,888, insurance inclusive. Don't be concern with the insurance cost of $8,451, you can afford it. After all, a decision has been made!

I put down a deposit of $ 73,888 and take a loan of $250,000 ($323,888). To save you all the troubles, here's a link of a calculator on how much you should pay monthly for the next 9 years with 3% p.a. interest(I'm sure we all can get a better bargain than this but for the purpose of this exercise, just accept it). My monthly instalment will be $ 2,939.81.

Congratulations. I'm now a proud owner of my dream car but then........... I feel a little concern now. What?!! Why?%#@

For the next 9 years, based on 10% return p.a., my $ 73,888 will turn into $174,224.04. If I invest my monthly $2,939.81, it will turn into $ 518,888.70. If I add both of them together, this beauty cost me $ 693,112.74 and not $391,387.48($73,888+12x9x2,939.81). And definitely not $ 323,888. This trick works all the time, the flame of my passion will just extinguish everytime I run this exercise. Everytime.

........and the bond between my "legend" and I will just get stronger each time.

Saturday, December 5, 2009

Big boy's toy, II

Nowsaday, it's more beneficial to talk about car rather than ended up with some other unhealthy activities, err the one that got TW into troubles. I learned a bit more about car as I'm spending more time in workshops fixing my old car over the last few years. Don't get me wrong though, my "legend" has beaten hell of a lot expensive cars when they provoked me. One of the things that certainly will turn me off when someone flashing me from behind or tailing me very closely when I'm maintaining a reasonable speed. I would say, most of those guys were embarrassed and I think their egos were bruised when I authorized my "legend" to reciprocate rudeness. If you want to know a character of a person, give them power and see how they handle it. I would say, most of the guys in the expensive cars will not take it well when you start to rev and they will definitely trying to beat you. Well, that's not my main intention of posting how to start a pissing contest. After all, a misfiring on an open street race can cause casualties. What is the point of racing when you are just trying to prove a point that you are faster than the other guy(a line from the Fast and Furious: Tokyo drift)?

Honestly speaking, one of the cars that I like and better engineered is Proton Satria GTi 1.8-litre(not my "legend"). They don't produce this line anymore and replaced with Satria Neo 1.6-litre. The original Satria GTi engine was 4G93p originated from Mitsubishi Lancer GTi. If you asked kaki motor, most of them will give you a thumb up on this car. One of our family old mechanics who has been very stingy on praises about Proton's car was impressed by this car too. I think a used Satria GTi would cost around slightly on the higher end of $ 20 k. One got to exercise cautiousness as most of these cars have been modified heavily - could be done rightly or wrongly - you may inherit with gold or shit. I was trying to get one of these but I've not been able to get approval from "minister of domestic affair" a.k.a. Mrs. Turtle.

You will be amazed by the power generated by this little tiny machine that matching a 2-litre Perdana V6. With some tuning, they claim the car can generate about 225 hp, power that's matching those bigger capacity cars. You will definitely can smoke those of lower end of Mercedes or BMWs. I'm not trying to start car class war here but demonstrating a point of what you can get by putting another $ 20 k plus to get the similar power that those guys paying through their nose for engineering, branding and marketing activities. However, we also need to be humble to accept the fact that there is a limit we can push - it will be pretty hard to beat a Lamboghini, Porshe, Nissan Skyline GT-R or Lancer Evolution. Don't waste your money, time and energy to chase after the mirage.

I found one of the old magazines for your reference.

A word of caution, car modification "hobby" can be highly addictive - just like smoking and or gambling. Once you start, kicking this "bad" habit can be very difficult. You will normally start with some very basic stuffs like face-lift, making a few noises by modifying your exhaust systems or adding K&N high-flow filter or cold air induction. As you get thrilled with the power of your 'beast", you want more. You definitely want more. Welcome to the wonderful world of horsepower thirst junkie -- you will want to rebuild your engine, adding ECU, upgrading brakes, suspension, turbo-charged your engine, and the list can goes on. You may ended up looking for bigger capacity engine. Most of the guys that I know normally ended up selling their cars at a discount because of law of marginal diminishing return is working against them. Just two weeks ago, one my regular mechanics asked me whether I'm interested to buy from one of his customers a modified MIVEC turbo-charged V6 engine come with very nicely painted car plus body kits, 17" sport rims, adjustable suspension, etc ....... at a ridiculous bargain price. The owner basically just wants to recover some of his modification cost only.

It's getting late now, will continue the story another day. Good night.

A big day -- unemployment down, dollar up, gold down

It was a big day yesterday, I watched the US markets till mid-night before I switched off. Unemployment trend is peaking and there is an obvious sign of turning down. Good news on the US economic data translated to stronger dollar. You can see from the obvious hockey stick chart. The dollar bears got squeezed hard yesterday. I have closed out my gold related shares yesterday and looking to re-enter later on.

Dow Jones Transportation index which has been stubornly lagging behind the Dow Jones Industrial index started to move strongly. Banking, small caps, semiconductor, and etc started to move. Commodity producing countries like Brazil, Canada, Australia got hit. Export oriented countries like Japan, Taiwan, Hong Kong(China linked) got a boost. However, I would accumulate on weakness on commodity stocks after the guys exited their dollar hedging trades. At some point, the market will change their mind saying, hey stronger US economy = stronger global economy = stronger demand for commodity, let's start buying commodity again. Let's see how people going to react on Monday. Plantation stocks and defensive/dividend yield stocks may come under a bit of pressure. Will keep an eye on finance, small cap, consumer, semiconductor, O & G, airline and even automotive related stocks.

Friday, December 4, 2009

Big boy's toy, I

Just a weekend topic diversion. I saw very nice tag line on Astro the other day, don't ask the price, you can't afford it. Most of us would dream to drive in a Lamborghini, Porsche or cheaper versions Mercedes SLK or at least a Nissan Z350. We would love to have that feel of going from 0 to 100 in 4.3 seconds or at least 6 seconds to leave your "competitors" in dust. To do that, power is definitely a big factor, the muscle cars can do it in 4 seconds are in the range of 500 hp plus while the "babies" like Mercedes SLK 350 or Nissan Z350 have only 230 hp @ 6000 rpm ranges.

I always wanted to ask those guys in these cars what is their net worth, not to insult them, but at least inspire me to work hard for it. Since I have no friends like that to ask I would have rely on my estimate: at what level of my net worth, I would buy a toy like that. At the back of the envelope calculation revealed to me it has to be between 20-30 million to own a supercar or 5-10 million to own one of those "babies".

Since average working man or women will find it very difficult to achieve those numbers, do we have other alternatives? Before I posting more opinions, let me qualify myself first, I'm not an expert in this area nor as a personal finance consultant. I'm sure that I'm a lot more "senior"(not "older") than most of my readers, coming out to share about this topic. This is one of the areas that can leave a hole in your pocket if you are not careful. Just skip if you don't like what I post OK? just come back another day on stock market topics. Jangan mareh. Got to get back to my desk and work now, see you over the weekend. TGIF.

Thursday, December 3, 2009

Bursa rejects request to cancel error trade for Ge-Shen at 4c each

Long time ago, when I first learned about the law, one very important principle of law that I will never forget: Ignorantia legis neminem excusat . Nope I don't speak Latin, just pretend. That phrase simply means ignorance of the law is no excuse. You can't say I don't know about content of a contract that you have just signed on the dotted line or you don't know Singapore government is going to rotan you when you are vandalizing their public property.

When I first learned to play chess, the first rule my teacher taught me was touch-move, you must make a move on the piece of chess that you touch. No if, no I'm sorry, a decision is made live by its consequences.

When I first learned to gamble, I locked my last $ 100 in my room. What the hell is that for? In case you lose all your money, you still have enough money to take a bus to go home.

What's my point you begin to wonder. What Bursa did to reject a request to cancel an erroneous transaction was a right one.

(TheedgeMalaysia)KUALA LUMPUR: Bursa Malaysia rejected a request on Thursday, Dec 3 to cancel an erroneous transaction involving 200,000 shares of Ge-Shen Corp Bhd as the shares were transacted at four sen each.

The transaction was executed at 9am.

At 11.42am, Ge-Shen share price was down six sen to 27 sen with 301,000 units done.

If we want to execute a trade via online, so be very careful. It's an important lesson for all. Alternatively, just call up the broker to do it for you -- if it is involving a large transaction.

Speaking of living by consequence caused by own doings, Tiger Woods made a big mess out of his life. We are in no position to judge him, but he handled this much better than Bill Clinton. Hope he can do what he does best, get on the green in two -- from five foot tall grass, though I was wondering why got ourselves landed in tall grass in the first place?

Dec. 2 (Bloomberg) -- Tiger Woods, the world’s top-ranked golfer, said he let his family down with “transgressions” and hasn’t been true to his “family values” amid reports of extramarital affairs involving him.

Woods, 33, made the comments in a statement posted on his Web site today, less than a week after a single-car accident outside of his home led to scrutiny of his private life.

“I have let my family down, and I regret those transgressions with all of my heart,” Woods said. “I have not been true to my values and the behavior my family deserves. I am not without faults and I am far short of perfect. I am dealing with my behavior and personal failings behind closed doors with my family. Those feelings should be shared by us alone.”

Wednesday, December 2, 2009

Dubai scare -- an opportunity or a threat ?

(FinanceAsia)Everyone thought Dubai was past its debt problems after Abu Dhabi bailed out the leveraged emirate last February. Everyone was wrong.

Last Wednesday, the government of Dubai asked Dubai World's creditors for a standstill agreement on interest payments on the company's $59 billion in debt. Government-owned Dubai World controls many of the emirate's corporations, including DP World (the world's fourth largest port operator), Emaar (developer of the 160-storey Burj Dubai) and Nakheel (developer of the Palms).

"Dubai, with sparse oil reserves, built its fortunes on real estate and financial services in recent years, borrowing heavily to finance mega projects, including three man-made islands shaped as palm fronds," said John Sfakianakis, chief economist at Banque Saudi Fransi. "Dubai was above all an interesting real estate play that benefited the early entrants, but which turned out to be a bubble that burst."

This latest development is in sharp contrast to what analysts said in February after the central bank of the United Arab Emirates (UAE) stepped in to underwrite the first $10 billion tranche of a $20 billion bond programme to shore up Dubai's debt. Back then, analysts said the worst of Dubai's problems had past and that the support by the central government was "unequivocal".

When I made a small highlight about Vietnam stock market was down and in a bear market territory, it's a signal of beginning of corrections for emerging markets. Dubai scare should not come as a surprise since they have been on top of the world, building tallest building to tell the world that they are the greatest. They feel they are invincible as they got a lot of wealth(ass-u-me government will bail them out). Everytime you think like that, just like the person build the Petronas Twin tower, the mighty will be grounded. Dush!, falling hard.

Now the global lumping effects will spread, label anything to do with emerging-property assets as high risk unjustifiedly: look at property counters like UEM Land, SP Setia, etc...... I see an opportunity to pick up a few of them for short term trade, do you?

Tuesday, December 1, 2009

Turtle Portfolio Update - December 2009

Added $888 saving for the month of December '09. Capital stands at $21,732, Return on Capital = 9.35%.

We are moving into favorable months after getting through October, bailing out is not something on my mind at all. On very short term outlook, this week should be very favorable statistically. After holidays break senior traders should be back at their pits, we should see some actions soon.

Saturday, November 28, 2009

Boustead Holdings Berhad - Under Appreciated Conglomerate

Historically conglomerate generate poor returns due to lack of focus and also difficult to evaluate. One of the most popular valuation methods is Sum-Of-Parts: valuing a company by determining what its divisions would be worth if it was broken up and spun off or acquired by another company(Investopedia). However, I like simple PE approach because of its simplicity and something that man on the street will try to have a feel of how much a company worth and they are willing to pay for it. ROE of 10-20% for a conglomerate plus LTAT and other institutional funds as major shareholders attracted me to this company.

As you can see in the picture, Boustead engages in plantation, heavy industries(mostly ships building), property development and investment, finance, trading and manufacturing.

What is striking from that table is most(80%+) of the earning drivers are coming from plantation and heavy industries and property development segments.

Some of the important information regarding its subsidiaries and associates are as follow:
(i) Boustead Plantation 100%
(ii) Boustead Properties 100%
(iii) BHIC 65%
(iv) UAC 65%
(v) Affin Bank 20%

It has closed to about 75,000 hectares planted area and most of them are in the prime time. They can reap the benefits if the CPO is on the uptrend. I would expect the CPO to be around RM 2,200 - 2,400 throughout 2010. This should bump up the division profit to be around 200 mln.

After BHIC came out from its restructuring, this quiet division profit contribution has been significant for the last 3 years and not many pros discover this yet. Orders booking have been relatively resilient especially on Naval side. Commercial ship building especially on dry bulk related has been very ugly globally but BHIC is relatively resiliet because of its revenue stream is coming from off-shore oil and gas industry. RM 150 mln profit should be quite sustainable through 2010.

Property recovery is should delivery stable earnings. I normally don't quite like hotel segment because of its large investment and incurring a lot of debts. They seems to have high confident their 5-star Royale Chulan Hotel and Royale Bintang Seremban Hotel will enhance their earnings together with Mutiara Damansara and Mutiara Rini town together with its stable commercial and retail properties. Let's assign about 50 mln contribution from this division.

Affin Bank has been performing well by bringing down its bad debts and coming out with some innovative products. Boustead should have benefited from Bank of East Asia as one of the major shareholders and tap on its management experience. They can easily booked about 80 mln profit from its 20% stake but their other division of finance is bleeding which I hope their either fix it or close it. They should get the hell out of the insurance business in my opinion. My expectation is 50 mln earning contribution from this unit.

Trading revenue is huge but profit margin is very bad. Let's they are earning 1% on revenue, their earning could be around 30 mln.

On their manufacturing side, the major contribution is coming from UAC which involves in manufacturing of fibre cement. 20 mln should not be a problem.

Adding up all of them, I think Boustead should deliver a min of about 500 mln profit. They incurred close to about 140 mln interest due to its 2 billion plus debts. If they continue to dispose non-core business that they estimated to be around 600 million plus recent rights issues, this should pare down their debts to about 1.8 billion saving interest rate of 60-70 mln/year which I did not take into the account in my 500 mln estimate. Taking the dilution effects of the rights issues, I think they can easily deliver earning of 0.53 - 0.60/share. I would think at $ 3.43, selling for 5 - 6 times earning, investing community is not doing any justice to this company. A company has been paying dividend consistently around 35 sen during so so years and 60 sen during very good years translating to dividend yield of 10-17% gross dividend yield, I will take a bet like this at any given day.

Disclosure : the author has long position in Affin Bank and Boustead Holdings Berhad.