Sunday, July 22, 2018

SOS The illusion of control in investment by Vishal

MY PERSONAL VIEW ON INVESTOR PERFORMANCE

CONVENTIONAL - CAN BE USED LONG TERM

SCIENCE :  40%
ART          :  40%
LUCK       :  20%

UNCONVENTIONAL - once in a blue moon

SCIENCE & ART : 10%
LUCK                    : 90%

The above statistic is used as reference.  As you can see, for long term investors (3-5 years for Bursa, occasionally 6-8 years), he has no choice but to chose the conventional method, i.e. use science as a tool (40%) as its reference for investing.  Science refers to factual valuation estimates (also rely partly based on future assumption, some can be more accurate than others).  Art part is rely on more of psychology or behaviorable science, which at times predictable and also unpredictable (that means it follows emotions more than logic).

As for LUCK, this is your own karmic retribution.  It is neither science nor art.  Science can estimates, even art can estimate to a certain extend (but not measured in absolute form).  I tell you how I earned 600% on a stock by luck.  See, I have 3 difference remisiers in the earlier years.  Sometimes I use A, sometimes B and sometimes C.  I bought Equine at about 50 sen (during Abdullah Badawi era as PM) on in all 3 difference remisiers.  So, being a disorganised person, I normally think that I have good memories.  When the share price went up, I sold some here and sold some there, for about 20% gain, thinking I am a great investor.  So,  I thought I have sold all my Equine shares, not aware that there are still about 10,000 shares.

Lo and behold, after a couple of weeks past, I was kicking myself for selling too early.  And the price went up to RM3 +.  An one fine day, I was asking one of the remisier about stock balances, he told me you still have 10,000 shares of Equine available.  I quickly told him to sell at about RM3 ++.  So, in this particular instance, it is 90% LUCK.  For what I know, I only knew briefly Equine was in property and is close to Badawi. Here you go, that is what LUCK is all about.  But, to be fair, that did not repeat for the next 10 years.  (How can I forget this, it's like once in 10 years or more).

Illusion of Control - by Vishal

1.  No amount of analysis or valuation estimates will improve your performance of the results.  You may gain more confidence on the stock fundamental, that's about it.  As for the share price, it works with different variables (at least in the short run - less than one year, sometime 2 years, sometime 3 years).

2.  Not everyone can think logically and behave logically as well.  As much as we like the stock market to behave like what we think, sometimes it may not.  However, given enough time (2-3 years), the market price may gradually pick up (which you thought it was your great investment skill - but actually it is not, its because liquidity and optimism is back to the sector you selected earlier based on your own logic).

3.  Is Valuation (Science) is useless - not entire, and not absolute either.  Because there are other elements involve in the share price (emotion, trends, confident, optimisms, sometimes rumours etc).  Valuation for me is used as a tool of reference and makes you stand out like a lemmings with a parachute.

Monday, July 16, 2018

SOS Investment Principles of WB is not a Bible

WB classic investment advice

Buffett argues, "Forming macro opinions or listening to the macro or market predictions of others is a waste of time."

WB investment principles should be applied wisely

WB's principles on investing is not like a Bible.  His early investment can be said almost 100% in USA.  Only in the later years he invested in other stock exchanges.  Most of his principles, can be safely said, is most suitable for the US stock exchange because he derives his principles from "tested" experience and judgement, which formed his wisdom in the principles.

If we used it blindly in Bursa Stock Exchange, we are asking for trouble because, our dynamics of the stock market is very much different from NYSE.  It's like we try to adopt "the liberal social ethics of NY" to a "small village in Kelantan", we are asking for trouble.

For a start, in Malaysia, the 30 CI stocks in Malaysia represent 70% of the GDP.  The CI stocks are substantially owned by EPF, KWAP, PNB, Khazanah, Unit Trusts, LTAT and other statutory bodies.  As for stocks lower than RM5 billion - majority (>50%) of the stocks are held by family members or the founder.  Comparing with NYSE stocks, they are not substantially held by statutory bodies or founders, as they are spread through the institutional investors.

WB will look funny in Bursa investment

If he has invested in Insas, BJCorp, TA, Bkawan, IWCity, KSL and many undervalued stocks, his return will be worst than FD.  Most of these stocks are highly undervalued, and stagnant for many years, may be due to liquidity issue and "controlled"


Conclusion

Yes, some principles that WB adviced can be applied, like, don't borrow and invest, only buy what you can understand the risk and reward, be patient (it may take years), focus on business with moats etc.

In Bursa, institutional investors normally focus on the top 30-100 CI stocks, because of their size and also the liquidity of the stock.  However, it is good news as we can see recently, more institutional is moving towards smaller cap stocks below RM5 billion.  This is very good, as it helps to develop the smal cap capital market and encourages new comers to participate.

Pick wisely on stocks with at least 3 years visibility and sustainability as well as good growth prospects.  

Having a good skills in valuation does not guarantee a super profit in stocks, however, it does provide a buffer, if you are one of the lemmings that follow the crowd that jump off the cliff, at least you have a parachute.  Hence, you will be safe in the long run.

Monday, July 2, 2018

SOS What is happening to Bursa? 2018

FAQ

What is happening to ...........

1.  Bursa - KLCI (60% of market cap)

In a broader context, following the region, we are down.  Foreign investor fled post GE14 till 30 June 2018.  Drop about 15% to-date.

2.  Bursa - Small and Mid Cap stocks  (assuming 1000 stocks in Bursa, consist of 80%)

Stocks around RM500m to RM5bil, dropped around 20-60%.  Not many are spared.  Even veteran investor like Mr Tong (The Edge), portfolio drop 24%, positive since inception.

As for i3 forum - 90% is cursing or swearing I have never seen before.  Mainly blame management, other commentators, analysts, but themselves.

3.  Liquidity

I believe this is one of the major catalyst for our market, which is lacking at the moment.

4.  New Cabinet lineup

Represent hope.  However, they need to establish a "training school" for competent MPs and also "SOP" to reduce leakages/corruptions.

5.  1MDB

Hopeful some of the leakages can be recoverable.

6.  Tun Mahathir

So far so good, except of the mention of 2nd National Car project.  Hopefully not bulldozed trough.

7.  LGE or new Finance Minister

Continue to be transparent, but on both sides.  Do talk about assets besides debts and how to resolve it.

8.  New UMNO president - Zahid

Warlords mindset continue.  Will be good ending for UMNO.

9.  China

China stock market dropped double digits, no thanks to trade tariff issue and geopolitical issue.

10.  Donald Trump and USA

Other than what he said, everything else is fake news.  An unconventional president that may cause global recession (frankly he just accelerated it - not his fault entirely).  Great start - pulling out of climate change, pulling out of UN human rights council, pulling out of TPP (Economic partnership) and wanted to pull out of WTO.

11.   Malaysia Economy and Malaysia Stock Market

Both at certain level are mutually exclusive.  Stock Market is perception, confident, and liquidity effected.  Economy is commitment of public and private sector in real businesses.

12.  What to buy in Bursa?

One of the criteria I look for now (next 3 years positive growth in the company), I also like major shareholders buyback (insider purchase) with significant amount like RM10m and above.


Wednesday, June 6, 2018

SOS Bursa vs NYSE? Part 2

PLEASE APPLY WARREN BUFFETT'S PRINCIPLES WISELY

Ask ourselves:

1)  How many people can be as good as WB?

2)  How many % of WB's wealth is outside of USA?

3)  How many Bursa counters is internationally competitive?

4)  Did WB said his principles can be used in Emerging Markets squarely, if yes, how much he has invested in the Emerging Markets?

5)  Why didn't WB invest heavily outside USA?


HOW MUCH YOU WILL ALLOCATE BETWEEN NYSE AND BURSA?

1) I suppose it depends on each investors' situation but if we put on the investment cap, we will realise USA's companies offer a better deal because, they are innovative, one of the most competitive, attract talents all over the world, up on the value chain, companies with international brands and moats.  (I am not degrading how smart our businessman in Malaysia, I am saying, generally, in many aspects, they have the competitive advantage).

2) Also depends how much you trust the US Dollars.  Yes, many hated them, they overspent, print lots of money, have tonnes of debt, and yet, their currency among Euro, Yen, Sterling or RMB, they are still well accepted.  And lots of people say, their currency worth less than toilet papers, and yet, no other toilet papers can replace them at the moment. (Can Euro take over? Sterling? Yen? or RMB?)

3)  Whatever case we are in, I suppose it would be wise to allocate a little bit there.  If unfamiliar, just get the ETF on S&P 500.  I am doubtful all 500 of them will collapse at the same time.  Even if it happens, buy more.  Invest say RM1000 each month, increase to RM2000 or RM3000 a month if there is a crash (drop >30%).  I should have done it when I was young in 1990s. (Not too late, will tell my son to do it).   They always select the best of the 500, the non performer will be dropped, a better one will be included, so, in the long run, the index will go up.

4) WB did advise, a general rule, Market Cap over GDP.  Use it wisely.

MORE TO COME?

If we weigh carefully, in the long run, risk reward of NYSE is likely be better than Bursa.  I am referring to companies and investments risk vs reward.

PROOF THAT KLCI AND STI is not really that provides double digits return for long term (other than NYSE)

Goto website yahoo.finance.com and look for FBMKLCI charts for 20-30 years and you will find that KLCI (Index 30 stocks now, 100 stocks previously - about 50% of Market Cap of RM1.7trillion) chart, total return for 25 years is less only 65%. (similarly our neighbour STI)

Saturday, May 26, 2018

SOS Investment Reset Post GE14 Part 2

FOREIGN INSTITUTIONAL FUNDS IN 2018 in Bursa

Inflow 2 Jan to 8 May - RM2.9b

Outflow 14 May to 24 May - 2.9b

Average Outflow = RM250m to RM300m per day (14 to 24 May)

Average Outflow on 25 May 2018 = RM80m per day.

Looks like the foreign net outflow has subsided from RM280m per day to RM80m per day.

If next 4-5 days outflow is below RM80m, then it is good news.  Outflow has drastically reduced.

Some of the "foreign" funds could belong to some "locals".


OVERALL STOCK MARKET

The KLCI 30 largest stock movements does not reflect the real sentiment of the entire 1100 stocks.  Below the surface of the 100 largest stocks, about 800 stocks (mainly small cap & mid cap - below RM1b- RM5b) has dropped 20-50% across board.

Only a few consumer stocks are spared.  So, if we look at the performance of some small and mid cap unit trusts, you will likely see double digits in red.


HOW SOON WILL THE 800 STOCKS RECOVER AS UNCERTAINTY STILL AT LARGE?

Due to many "leakages",  "wastage" and "rent seekers" from the previous government, the NEW GOVT is going to reset some of these problems.  Many sectors are effected by this RESET, which involve political risk, structural risk and business risk.  In short, due to the uncertainty, risk premium has increased.

As usual, any panic, is always overdone.  Why? Panic remains panic, many cannot think rationally.  How so, when your plane is going to crash, how many can stay calm? Maybe 5% is rationale but 95% is not in position to think rationally.

Based on daily observation over the last 2 weeks post GE14 out of 1100 stocks, about 70% is down and 30% is up.  So, your probability of buying a winner, is only one-third.


BURSA, BESIDES THE 30-100 LARGEST STOCKS, HAS CRASHED 20-50%?

Can the 800 stocks goes further down? Likely it will go side way until the uncertainty is clear.  It may take at least another month.  So, let's monitor for another few weeks before we consider any drastic decision.

Personally, I like Litrak @ RM3.70 - RM4.00 on the pretext they are compensated reasonably.  There are many good ones which has been bashed badly.  Time to bargain hunt a bit and look for solid long term stock. (2-5 years).



Friday, May 18, 2018

SOS Investment Reset Post GE14

UNCERTAINTY - FOREIGN INVESTORS

First 5 days trading after GE14, foreign investors sold about RM2.4 billion, reversing almost the entire net inflow of RM2.9 billion since 2018 till the election date.

Foreign investors view that the change of BN to Pakatan Harapan will cause lots of uncertainty.

So, their slogan for the day is:

"SELL FIRST, ASK LATER"

They really walk the talk.


LOCAL INSTITUTION INVESTORS

The council of the elders, Daim immediately spoke with EPF, KWAP, PNB, KWAP, LTH to "stabalised" the market.

Consumer stocks are up.  The rest, toll roads, infrastructure and constructions suffered.  As usual, when panic, there are tendency of overshoot.


BN AND PAKATAN HARAPAN PLAY

Bursa is really a casino.  Besides the foreign and local institutions sell and buy, traders and speculators do not want to be left out.

BN stocks dropped like a rock.  Those who play golf with the former PM, dropped the most.  Surprisingly, the former PM's brother stocks, CIMB only suffer 10% drop.


SO WHAT TO DO NEXT?

Personally, I will do some bargain hunting, for toll, LITRAK, and trade a bit on Constructions (overshot when dropping) for fun.


CORRUPTIONS

Friends ask me, how to cover the RM42b on abolition of GST.

Reintroduce SST, net exposure is about RM26b.  Very easy, PM Office is RM18b, cut RM10b.
Approve Permits - abolish, save easily RM20b.  Actually many more, in healthcare etc, cut down on leakages (rent seekers).  Frankly, I think, if the Government is serious, it can easily save RM30-50b a year.

My only hope was to reduce corruption.


INFRASTRUCTURE & CONSTRUCTION OF CONDOS BY CHINA

Personally, I believe there is too much of infrastructure development & construction of condos (ECRL, Pan Borneo, HSR, Penang 3rd Link Tunnel, TRX, Bandar Malaysia, BBCC, Forest City, Iskandar Waterfront City, etc all add up over a trillion (although spread over many years).

Let's hope my view is wrong.  As far as infra per population per capita versus other regional countries. (like shopping complexes - overbuilt).  If I am not wrong, in future, our children will be burdened by Government Loan, or lose our land to China (ECRL).

Detail indepth on this will help to explain the situation.




Saturday, May 5, 2018

SOS Should we consider investing in NYSE?

INVESTING IN MALAYSIA STOCKS VS USA STOCKS

1.  Risk - higher in Malaysia mainly because we do not have many companies that has >50 years history and have international brands.

2.  Risk - Besides the top 30 largest stocks in Malaysia, form more than 50% of the whole market capitalisation which are influence by institutional investors (unit trusts, EPF, LTAT, Tabung Haji, KWAP, etc), the smaller cap (below RM2b) is very volatile and cyclical.  Most of the our largest stocks are DOMESTIC driven.  USA has more variety and depth.

3.  Currency - USD is a safe haven (for long term)

4.  More choices in USA

5. Many USA stocks have international exposure.

6. Can key in floor price and ceiling price for months.  Malaysia can only quote for ONE DAY.  Do not need to monitor day to day.

7. More professionally managed instead in Malaysia, more family managed.

8. More talent in USA than Malaysia (USA attract most talents, produced best companies)

9.  Can FULLY apply Warren Buffett or other investment gurus principles, unlike Malaysia, can use as reference.


Of course there are plus and minus, but overall USA is a better place in term of risk and rewards.  However, one must be careful as USA today is highly inflated in GDP over Market Cap and High PE based on historical comparison, mainly because of QE and zero interest regime for almost 10 years.  Advisable to go in AFTER THE COLLAPSE, i.e drop 30-50%.

So, start planning now.  Learn, and apply.  Now, you can really takes WB's advice squarely.  The reason I said wait for the DJIA or S&P500 to drop 30-50% sounds like I am TIMING the market.  I am not good in timing but recently they are doing at the high range of the spectrum because

1) market cap over GDP (is near 2008 peak)

2) Shiller Cyclical Adjusted PE is on the peak

The above conditions is basically driven by ZERO interest rate since 2008 and also QEs.  Of course, these two factors are being used by other advance countries like German, UK, France, Japan and many more.  I believe these two factors can drive the stock markets and causes HUGE misallocation of resources in order to safe the economy.

The next era will be faced by gradual deleveraging, i.e. reducing debt, hence, interest will continue to be low and USD will goes up against other major currencies.



MY VIEW

I will gradually SWITCH some of my local funds to USA, in a regular interval.  Of course, if I can now find a good stocks to consider, I will take action.

For a start, will be looking at consumer stocks like P&G, Johnson & Johnson, MCD, etc.