Thursday, March 22, 2018

SOS Are you flawless or hopeless in KLSE?


When the stock goes up, and recommended by someone, people will worship this chap like his selection of stock is FLAWLESS.

Of course, like any politician, some will take credit for "their" selection.  This "someone" will look very smart and whatever he said seems to be the holy grail.

But when the same share tanked due to "overplay", everyone will curse and said, this "someone" is HOPELESS.  All the negatives will comes about.

Remember! The stock market does not recognize the participants.  They just moves up and down according to the participants (all types of investors) sentiment.  When the participant sees DJIA dropped 2%, they will naturally follow.

So, you are neither flawless nor hopeless when the share price goes up or down, you are at the right place at the right time or wrong place at the wrong time.  That's about it.  Of course, in Bursa, some people can "influence" the certain stock, but not the entire market, unlike DJIA.  The entire market reflect the "majority participants" sentiment at that point of time.


Funny thing about sentiment, it can change overnight. Or it can continue to be bullish or bearish for a period of time.  That is why we call it SENTIMENT.

One of my Fund Manager, trying to justify why certain stocks (in certain sector) dropped more than others during a bearish sentiment.  He came out with a brilliant financial metrics, which was never being used during the bullish sentiment.  So, I asked him, during bullish sentiment, does this financial metrics worked? He hesitated, it might not.  In reality, it does not.  During a bullish sentiment, many positive news on the counter, but never heard about this financial metrics before.  So, in reality, we have to use "bullish metrics" during the bull and "bearish metrics" during the bear market.

So, the goal post will always change. We will have another metrics when prices goes sideways.  I believe this is a fruitless process, trying to reconcile "financial metrics" with "sentiment" of the share market.  Just like during the major crash, Maybank was down to RM2.60 per share, all sort of "negative" financial metrics will be out there to point out why it should be traded so low.  This is what we call the end justifying the means.

At least he was right.  He found the what he called the "correct" metrics to justify which stocks goes down.  He came out with a new metrics for construction sector, it's called Order Book/Market Cap.  Well, I have nothing against it, but I will have a problem justifying it using this metrics when the stock is going up.  Perhaps, there is another metrics called PATMI/SF on the success of execution of order book.  I said, some stocks may have high Order Book, but the execution is bad, you may end up with a rotten stocks.


At the end of the day,  what shall we do, to avoid being a net loser to the share market over a long term.  How do we identify (on hindsight), stocks like DIGI, Genting Plantation, IJM Corp, PBB, Nestle 10 or 20 years ago.

The only "solution" to what we invested to differentiate the said stocks move based on substance or sentiment is actually TIME.  Isn't it?  Look at Maybank, it recovered, with its earnings regaining to its norm.

So, the next time we invest, make sure "time" can proof your theory "metrics" right.  It's easier said than done, we also has to avoid those "many traps" in the equity market in Malaysia.  Failing which, we also get trapped thinking that the substance will be reflected into the share price.


The eventual question is how to choose the right horse that can "outrun" the sentiment and can proof its substance is reflected by its share price.

Its like you wouldn't want to breed "wahyu beef" if the price of this beef does not justify the cost you put in.

In KLSE, there are many so called "traps" we must avoid.  So, our learning will never end.  Choosing stocks, was never a linear game.  There are few variables not within our control, but is significant to the long term "health" of a company.

My take, get the strong set of measurements to choose a stock, at the rest Que Sera Sera...............
But never stop to learn, because, human evolve, so will the market.  At different time, it is influence by different variables.


Put in a "good effort" to do research (on the business) and the financial aspects, as if you are the owner, let the time tell the story.

If we are wrong, try to learn the mistakes, and avoid it in future (if there is one).  Also, don't forget to enjoy the game, not just the result.

If the stock market makes you more stress, forget about it.  Just go for FD or buy the CI.


1)  Casino
2)  Cryptocurrency
3)  JJPTR, MBI etc
4)  Trading currency
5)  Bet on horse race/soccer
6)  Online betting

I know a Malaysia billionaire (owns a big bank) GAMBLE a lot In Las Vegas.  Perhaps he plays within his means, to get the kick.  Please, please, don't follow.


To quote Marks, “One of the most notable behavioural traits among investors is the tendency to overlook negatives or understate the significance for a while and then eventually to capitulate and overreact to them on the downside.”
For example, the NPA problem and the slowdown in economy - both these issues are known to everyone on the street, and that too from last year. Till December, we choose to ignore it and suddenly in January, we are now overreacting to such an extent that the market cap of all public sector banks is equal to HDFC Bank’s market cap or Kotak Mahindra’s market cap. We are seeing a huge divergence in valuations.
We have reached a stage in which the Sensex and Nifty are back to May 2014 levels. In 2014, when Modi ascended as the Prime Minister of the country, people had become very optimistic. They believed he had a magic wand, and that a knight in shining armour has come who will solve all India’s problems, and that too in a second. Two years later, the market seems to have concluded that Prime Minister Modi is not doing anything, he is not good enough and that we are doomed. Both the extremes are wrong and the truth is somewhere in between.
Again to quote from Mark’s note, “But in the world of investing, perception often swings from flawless to hopeless.”
He has concluded beautifully that “Thus while this may be the time to buy, I'm far from suggesting that this may be the time”.
My advice to investors is, first and foremost, buying at 7500 Nifty level makes more sense than buying at 9000. Second, only invest that amount of money which you can afford to lock in for almost say 5-10 years without worrying. Lastly, do not lose your sleep over daily newspaper headlines or flashing business news tickers on TV channels.
Many years ago, while I was an IIT aspirant, I had the privilege to meet one of the high rankers of JEE. All of us were milling around him, thinking that a mere touch will ignite our brain cells and make us worthy of getting into IIT. I have never forgotten his advice, which is summarised as follows – To do well academically and to get into IIT, you do not need a strong brain but a strong bum. You have to sit on your bum on a chair and solve problems day and night.
Similarly, to make money in stock markets, you do not need a strong brain but a strong stomach so you can handle volatility so as to not overeat or puke out your portfolio at the wrong time.

Sunday, March 18, 2018

SOS Myths and Truths in Bursa Malaysia



1.  Stocks too illiquid

2.  Management reputation issues

3.  Suspects leakages

4.  Management undermine the minorities

5.  Cornered stocks

6.  Asset trapped

7.  Mainland China companies listed in Malaysia

8.  Some (not all) Taiwanese companies (leakages)

9.  Some local companies (fraud, misappropriate)

Therefore, we have to avoid these traps.  Else, hard earned money may get trapped, for long term (3, 5, 10 years).  That is why, we cannot take all principles squarely by WB or other experts, they are explaining their own stock markets (largest, most advanced, longest and matured, not too controlled by single largest, etc).  So we cannot fully equate our Petaling Street with Wall Street.

Therefore, the risk in Malaysia is higher than in USA for the same dollar invested.  It is call, equity risk premium.

TO BE CONTINUED................LATER


1.  CI 30 stocks is stable over last few years but second liners already crash.

2.  Participants likes rotational theme play, constructions, logistics, steel, gloves, oil and gas, technology, refinery etc.

3.  Guessing the right theme in advance is very profitable, but must not stay too long in the game.

Tuesday, March 13, 2018

SOS CM again?

Charlie Munger Again?

These 10 best Charlie Munger quotes include some of these pithy Mungerisms, as well as some longer quotes from his various speeches.
The 10 Best Charlie Munger Quotes Vintage Value Investing

Monday, March 5, 2018

SOS Can PE used as a yardstick for Valuation?


Warren Buffett ( 2000 Annual Report) wrote “Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business.”


He also said replace EBITDA with BS.  EBITDA is a tool for comparison with other companies cross border, with different tax, and capital structure.


Is a present value of future cash flow.


Accounting is the language for Finance.

Finance is the language for Business.

TO BE a good BUSINESS ANALYST (not FINANCIAL ANALYST), one has to know how to read the languages.  Business analyst also should know the 5 Principles by Porter.


Price to Value = should be less than 0.5x.


Price is driven by sentiment/popularity.

Value is driven by business substances (profits and cash flow)


Sentiment changes quite often, like emotions.

There is only one way to bridge it (Value & Price), through time.


Depreciation is a real cost.  Is an allocation of cost for replacement in of fixed asset in future.

Cash flow is more critical.  Timing and amount of cash flow of real cost (depreciation) is different.


Different from depreciation.  It is more vague, can last very long if business continue to generate cash flow with a strong moat.


Normally important for project that is capital intensive and takes time to complete and generate income.  Most of the time interest is capitalised (not seen in P&L, but is important for cash flow estimates)


Contingent liabilities (not recorded like legal suits), capital commitment, etc.  There are other off balance sheet which are more sophisticated like derivatives.


Honest, conservative, ethical and trustworthy.  No cheating or fraud, many smaller capital companies less than RM1b or RM500m.


Please do not follow blindly.  It is fine to follow, after you have done your own business research and financial research, the one who recommends is not responsible for your loss or gain.  He or she does not owe you anything, he can sell without letting you know.  His strategy (holding power) may be totally different from you.


When share price is good (above the purchase price), you will receive compliments like, "sui" "flawless" "best sifu in town" "great pick" "selfless contributor" "noble intent person - hard to find" "best method"

When share price is bad (below the shared stock price), you will see comments like "pui" "hopeless" "lousiest sifu in town" "lousy pick" "selfish intent" "selfish fella" "stupid method".


The stocks do not recognise its participants.  Hence, commentators or participants yell and curse in a forum, be it on the stocks, recommenders, management, operators, analysts only shows the behavior of the person who curse or yell or critic.

Many will curse at each other, or, the sifus, analysts, or management, when the share price dropped below their purchase price.  Not many will blame themselves.

Instead of wasting time complaining, cursing, criticising another person/the management or the stock, use the time to learn more about how business work.  Focus on the issue (business) of the company.


Some, claims credits for their picks (remember, stocks do not know its participants, or do not belong to anyone specifically) and how great their methods to lure participants, and those newbies may have to pay the price for following.  We called it tuition fees.  You pay tuition for learning from your action (experience) and then hopefully later in years, you use your experience to learn how to make money from the market.


Individual wants to achieve 30% or more p.a. for long term (i.e. 20-30 years)

But reality bites.  Fund Management companies 5 years (Top 3 average) = 20-25%, 10  years - 15-20%, 20 years - 10% - 15%, more than 30 years, if lucky 5-10%.

Any ideas what is EPF average return?


If an individual can do 30% CAGR for say 30 years, you will turn RM1 into RM2,620.  Just say you invest RM10,000 your return is equal to RM26,200,000.  (Warren Buffett only did about 20%)

So, I have taught my 3 year old son how to invest and given RM10,000 for him to start, so, in 30 years time, say I am 63, and he will be RM26 million rich when he is 33 years old.


Let just say, I had invested RM10,000 into IJM Corp for my son since he was born (assuming 30 years ago), today, he will be about RM1,680,000 richer today.  It listed at RM66m, and now 2018 (about 30 years), it is about RM11.1b.  (turn RM1 into RM168)

How many can achieve IJM's 30 years performance? 1%? Any guess?

So, lets be real (like it or not) and align your long term expectation with reality.   Follow the flow of nature, if it is yours, it will eventually be yours.  Que Sera Sera..........

Saturday, February 17, 2018

SOS Laozi's Quotes

Quote 1

True words aren't eloquent; eloquent words aren't true. Wise men don't need to prove their point; men who need to prove their point aren't wise. The Master has no possessions. The more he does for others, the happier he is. The more he gives to others, the wealthier he is. The Tao nourishes by not forcing. By not dominating, the Master leads.

Quote 2

Success is as dangerous as failure.
Hope is as hollow as fear.

What does it mean that success is a dangerous as failure?
Whether you go up the ladder or down it,
your position is shaky.
When you stand with your two feet on the ground,
you will always keep your balance.

What does it mean that hope is as hollow as fear?
Hope and fear are both phantoms
that arise from thinking of the self.
When we don't see the self as self,
what do we have to fear?

See the world as your self.
Have faith in the way things are.
Love the world as your self;
then you can care for all things.

Quote 3

Because one believes in oneself, one doesn't try to convince. Because one is content with oneself, one doesn't need others' approval. Because one accepts oneself, the whole world accepts him or her.

Wednesday, January 31, 2018

SOS Little wisdom for investing


Recently, I was at a money manager roundtable dinner where everyone was talking about “my stock this” and “my stock that”. Their attitude was that it doesn’t matter what is going to happen in the world because their favorite stock is generating free cash flow, buying back shares, and doing XYZ. 

People always forget that 50% of a stock’s move is the overall market, 30% is the industry group, and then maybe 20% is the extra alpha from stock picking. And stock picking is full of macro bets. When an equity guy is playing airlines, he’s making an embedded macro call on oil.


I was also lucky to travel across asset classes. So I traded commodities, currencies, bonds, and equities and it gave me the discipline. If I didn’t have a good idea in equities. I was happy to have no equities. Or the same thing with bonds. So when you have a quiver with a bunch of arrows in it you can usually find something to put a lot of money into.
The only other thing I’d say is that too many investors look at the present. The present is already in the price. You have to think out of the box and sort of visualize eighteen to twenty four months from now what the world is going to be and what securities might trade at.
What a company’s been earning doesn’t mean anything. What you have to look at is what people think it’s going to earn. If you can see something in two years is going to be entirely different than the conventional wisdom, that’s how you make money.
My first boss used to say the obvious is obviously wrong. If you invest in conventional wisdom you’re going to lose your butt.
(Please take it with a pinch of salt.  It is just an opinion from a Great Trader's own experience)


Most of the word of wisdom from USA such as WB, CM, PF, SD, PL, etc, are based on their own experience (mostly tested wisdom in the US market).

Of course, word of wisdom have no boundaries. It can be applied in other countries, but with a pinch of salt because the depth of their market and structure is different from our Bursa, majority of listed companies are held by family members, Government (GLC) and GLIC, and mutual funds.

That means, the rule of game is different, and rightly so, it is in a different environment.  So, we have to take the word of wisdom with a pinch of salt.

Some of the differences of Malaysia listed companies vs USA

1.  Malaysia big listed companies (top 100) are mainly GLC, or held by GLIC and some Chinese Families.

2.  Float in Bursa is low, minimum is 25% and illiquid.  Hence, more easily influenced.  Especially, smaller companies.

3.  Large big cap. companies are mainly local monopolies or oligopoly and substantially held by GLIC, state funds, large pension or investment trust.  Not many succeed penetrating into GLOBAL.

4.  Investors, especially retailers are less sophisticated and easily influenced and follow the crowd mentality.


Of course some concepts or word of wisdom are time tested.   Always invest in a wonderful business at a reasonable price that is managed by an honest and competent management.  In Malaysia's smaller companies, mainly are family controlled.  Must keep check how they treat Minority Shareholders.


Wednesday, January 17, 2018

SOS Is PERs only valuation available?


Valuation was and always will be the discounted cash flows of the future. An investment is made on the basis of future payback, appropriately discounted for risks and inflation.

Then why are some companies valued at 229 times while others are valued at 9 times net earnings? Is the company trading at 229 times excessively valued against the other at nine times? Or is the market simply silly and inefficient?

Obviously, stocks can be overvalued or undervalued and investors who successfully make such analyses stand to profit from it. But valuations have nothing to do with just the PERs.

PERs are useless in themselves, how then can we make useful comparisons between companies in terms of fundamental valuations? It is all about trade-offs. Price to growth, to liquidity, to volatility, to leverage and others. 

It is, in reality, a multi-dimensional exercise. Of course, this is on top of understanding the business model of each company and the structure of the industry.

But here is a useful tool I will share with you to begin your journey in making comparisons between companies, as a first step in understanding relative valuations. This chart is illuminating. We have listed well-known, huge, publicly listed companies on two axes — one, enterprise value to Ebitda (EV/Ebitda) and the other, Ebitda growth. We choose EV/Ebitda rather than PER because some companies have huge amounts of cash while others may be highly leveraged.

As expected, there is a clear positive relationship between EV/Ebitda and Ebitda growth. Or between PER and earnings growth. Companies with strong prospects of high growth in future earnings accrue higher PE or ­EV/Ebitda multiples.


1. Towerco biz -  requires high capital with assets' useful life of more than 25 years, therefore requires certain about of debt to grow at different stage/size

2. Market has accepted EBITDA MULTIPLE method on Towerco.

3. Last transacted in Malaysia, is edotco, trading its towerco with Private Equity at EBITDA MULTPLE of 12.5x.



2016   67
2017   90
2018   113
2019   134

Market Cap = 780m @ 90 sen per share (18 Jan 2018)

EV = Market Cap + Net Debt = 780 + 345 = 1129

EBITDA = CAGR (2016-19) = 24% p.a.

EBITDA MULTIPLE of 2018 = EV(based on 30 Sep 2017)/EBITDA = 1129/113 = 10X

EBITDA MULTIPLE for 2019 = 1129/134 = 8.4X

Assuming EBITDA of 11x for 2019, share price should have upside of 31%.

Based on today's share price, 90 sen, upside = RM1.18 per share

OCK WA will be around 58 sen, vs today's price (18 Jan 2018) of 26 sen.

(After all, the turnover estimates for 2018 and 2019 is 580 and 640 respectively, selling at 780/640, price over sale of 1.2X only)

(A better reflection of estimating the intrinsic value of OCK, it should be separated into two segments, the non-tower biz and the tower biz, using PERs and EBITDA Multiple respectively)

So, don't be over alarmed if you see OCK is traded at PE of 29X.  The tower biz, eventually, will become the main contributor segment.  SOP method used by UOB, tower biz is about 70% of the equity value.  EBITDA of 8.4X appears to have upside to the market of 12.5X.

MOST biz model that requires high capital are mainly infrastructure works like TOLL HIGHWAYS, IPPs, WATER CONCESSIONAIRES, TELCO, TOWERCO etc.  

Initial years, their PE is either negative (during construction, no revenue) or very high.  Even when they start commissioning, they will start with very high PE because initial years, before revenue picks up, they will have high interest costs and depreciation costs).  Therefore, PERs method may not be accurate to estimates its value.  EBITDA multiple may be more appropriate.


1.  I am aware that Warren Buffett and his sidekick Charlie Munger ridicule the "financial community" for inventing EBITDA for valuation, and ignoring that depreciation is a "real cost" of doing business.

2.  Yes, that is why, we must use EBITDA valuation with a pinch of salt.  I normally will include the depreciation.  In this case, it will be a lot lower, because, in reality, the useful life of the towers can exceed 30 years, but is force to used under the accounting standards of 20 years.  So, be mindful of that.

3.  EBITDA can also be manipulated by the SELLER, to bring up the valuation.