From what I gathered ..
1) The share issue will mean index ETF need to buy C to reweight it correctly in the index - (So means selling will be supported hopefully)
2) The book value(if you trust the numbers) before the share issue was around $4+. So, after the X% dilution, you just deduct accordingly (assuming no change in book value). Probably around the share issue price of $3.+ after dilution.
3) John Paulson believes in Financials - Read why from http://thewealthjourney.blogspot.com/200...-citi.html (He might have bought early but like Buffet, he believes it will turn out alright 3-4yrs later).
So, I believe it's a knee jerk reaction and if you are a trader, you trade the news. If you are 3-5yrs investor, you accumulate when C shares start turning up (look at the chart after it bounced off its support line).
But most important of all, just keep your money management plan in place (appropriate position size and exit plan) and you should be alright.
Friday, December 18, 2009
Thursday, December 10, 2009
Let your profits run and Cut your Losses
"Another fallacy - Exit when you make an 'above-average' profit ie 50% gain in 3 months."
Yes, I choose to let my profits run and cut my losses using trailing cut loss of 25% (but very troublesome, have to update my excel sheet daily with the highest closing price since i purchase the stock).. A bit wide but it will not force me out easily with whiplash on the stock prices (When i feel the biz fundamentals are still good for me). The 25% is still manageable with my position sizing. I believed traders used 8-10% as an appropriate cut loss strategy.
For me, I select stocks based on FA and reference to macro cycle, and then let the trailing cut loss take me out. Don't think too much - Sometime stock prices fall too much for no reason known to you.. it must means someone else knows something you don't.
Maybe not a very good example to illustrate this.. but Suntec Reit was giving excellent yield even though its gearing was not too much and its business fundamentals seem unchanged. The share price was depressed (under bk value) and now we know why... a rights issue.. (things that are beyond our control and only known to insiders)
Yes, I choose to let my profits run and cut my losses using trailing cut loss of 25% (but very troublesome, have to update my excel sheet daily with the highest closing price since i purchase the stock).. A bit wide but it will not force me out easily with whiplash on the stock prices (When i feel the biz fundamentals are still good for me). The 25% is still manageable with my position sizing. I believed traders used 8-10% as an appropriate cut loss strategy.
For me, I select stocks based on FA and reference to macro cycle, and then let the trailing cut loss take me out. Don't think too much - Sometime stock prices fall too much for no reason known to you.. it must means someone else knows something you don't.
Maybe not a very good example to illustrate this.. but Suntec Reit was giving excellent yield even though its gearing was not too much and its business fundamentals seem unchanged. The share price was depressed (under bk value) and now we know why... a rights issue.. (things that are beyond our control and only known to insiders)
Wednesday, December 9, 2009
Exposing Fallacies in Investment
Business Times - 09 Dec 2009
Exposing fallacies in investment
That's the mission of Boston University professor Zvi Bodie, who is enraged at financial advisers' 'misinformation', reports GENEVIEVE CUA
A US-BASED professor yesterday slammed the financial industry for perpetuating investment 'fallacies' that do little to educate retail investors about risk and return.
These fallacies include the oft- repeated maxim that diversification reduces risk, and that risky assets such as stocks become safer as the holding period gets longer.
According to Zvi Bodie, Norman and Adele Barron Professor of Management at Boston University: 'In the US, there is a movement towards consumer (financial) literacy which is completely misdirected. The idea is to make consumers capable of deciding how much to save for retirement over time, and how to invest money. But the professionals don't even know how to do that.
'It's silly and counter-productive and disingenuous. It's a kind of fraud, an excuse for transferring risk from the corporate sector to the consumer sector.'
Prof Bodie singled out 'target date' retirement funds in particular as flawed instruments that only further the fallacies and ultimately do little to provide investors with a secure stream of income in retirement. He was speaking at a public lecture organised jointly by the Centre for Asset Management Research & Investments (Camri) and the Singapore Centre for Applied and Policy Economics. He is a visiting professor at Camri at NUS Business School.
Target-date funds, also called life-cycle retirement funds, are designed to mature at a point in time that should coincide with one's retirement age. Asset allocation and rebalancing are done automatically, so the allocation to equities reduces with age. In the US, such funds are a default option in retirement accounts.
They have, however, come under scrutiny since the financial crisis last year. Citing Morningstar data, Bloomberg has reported that target-date funds labelled 2000 to 2010 lost an average 23 per cent last year, with some dropping as much as 41 per cent. The average 2050 fund declined 39 per cent in 2008, while the Standard & Poor's 500 Index fell 38 per cent. There are a number of target-date funds here, including those managed by Fidelity and UOB Asset Management.
Prof Bodie says target-date funds are a misnomer and misleading. This is because they are mutual funds, and some allocate money to other mutual funds, which do not have a maturity date. This is unlike bonds, which pay income regularly and at maturity will deliver an investor's capital.
'What consumers want and deserve is a pension, where they make contributions and the contributions can vary,' he said. 'The end result at retirement should be a secure lifetime income that lasts as long as they live, with inflation protection.'
Prof Bodie contends that the technology exists to create such a product, but it will require active government involvement, and not just the private sector. 'We have the technology to do the right thing to satisfy the requirement for at least some minimum level of guaranteed inflation-protected income at that stage in people's lives when they are most vulnerable to risk,' he said.
Prof Bodie cited three common investment fallacies. One is that saving is for the short run and investing for the long run. But according to financial economics, saving means income minus consumption. Investment means selecting a portfolio of assets.
A second fallacy is that the only way to reduce risk is to diversify. In finance, however, the way to reduce risk is to hedge, insure or hold safe assets.
The third fallacy is that stocks become safe in the long run due to 'time diversification'. But if this were true, stocks would not carry a risk premium, says Prof Bodie.
An indication of how risky stocks are, the longer the horizon, can be gleaned from the pricing of put options. The price of such protection rises with the time horizon - a put option that matures in 25 years costs five times as much as a one-year option, says Prof Bodie.
He argues that conventional advice based on the mistaken principle of time diversification leads to portfolios that are riskier than consumers realise.
The starting point for a retirement portfolio should be 100 per cent inflation-proof guaranteed annuities, he reckons. This, however, is a big challenge in Singapore, where there are no inflation-linked bonds. Even CPF Life, the CPF's new annuity scheme, fails to provide any inflation protection.
Even with US Treasury Inflation Protected Securities (TIPS), the real yield has dropped; on 10-year TIPS, it stands at about 1.3 per cent.
Prof Bodie has written a book titled Worry Free Investing: A Safe Approach to Achieving your Lifetime Financial Goals. In the WFI toolkit, risk is defined as the possibility of earning less than the risk-free interest rate, and reward as the possibility of earning more.
The instruments are a set of default-free bonds of all desired maturities and a market index fund. The investor hedges essential cash flow requirements with bonds, and buys mutual funds to gain exposure to the market index.
That's my dilemma as well. Do I really need to take all the market risks when I can generate enough from bonds alone.
My conclusion was that it was well worth taking the risks if we are invested in well-capitalized blue-chips companies that have been consistently paying dividends, provided you have set aside an appropriate amount to generate the minimal income required from bonds. Diversification does not take away the market risk(systematic risk), but it does minimize company-specific risk(non-systematic risk).
But I agreed that time diversification (ie stocks will be safer over the long run) is a fallacy. If you have boom/bust cycle, the longer you hold your stocks, the more market(systematic) risks you are exposing your portfolio to, unless as he rightly points out, you hedge your portfolio. If you can't hedge, you take money off the table (that is my hedge). Even if it means I might have taken only half out of the market before it's too late, you would still be less devastated than having all your money in the market when bear comes.
Sorry for sounding like a market timer.. but... I like to think of it as know when to jump out of the way when you see an incoming train approaching.
Saturday, December 5, 2009
Writing your own Investment Policy
The most important thing when starting out is to know your investment temperament(trader or investor) and lay out your Investment Policy. This is my initial draft investment policy if you are interested to peruse, but you could always find a lot of suggestions from books of proven gurus.
http://docs.google.com/fileview?id=0B6Um2mxsWCQRMmRmMWIxNGQtOWU4ZC00ZGY2LTlhNjQtYmRjZmNmM2UyYmIw&hl=en
As for the number of stocks to hold, you have to understand yourself. Some proven investors like concentration, others like diversification. Buffett once said something along the line of "The worst group of investors out there are the one who thinks they know but in fact, they don't know they don't know". So, to err on the safe side, I choose diversification as I find that unless you are an insider or with adequate industry knowledge, it is better to reduce the concentration risk thru diversification but not necessarily reducing the returns. Tweedy Browne have been an advocate of diversification with value investing and have outperformed the US indexes for decades.
http://docs.google.com/fileview?id=0B6Um2mxsWCQRMmRmMWIxNGQtOWU4ZC00ZGY2LTlhNjQtYmRjZmNmM2UyYmIw&hl=en
As for the number of stocks to hold, you have to understand yourself. Some proven investors like concentration, others like diversification. Buffett once said something along the line of "The worst group of investors out there are the one who thinks they know but in fact, they don't know they don't know". So, to err on the safe side, I choose diversification as I find that unless you are an insider or with adequate industry knowledge, it is better to reduce the concentration risk thru diversification but not necessarily reducing the returns. Tweedy Browne have been an advocate of diversification with value investing and have outperformed the US indexes for decades.
Friday, December 4, 2009
Portfolio Update November 2009
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Monday, November 30, 2009
Profile of Noble Group
Taken off SCMP.COM
Quiet achiever Noble builds global footprint with stellar growth rate
Howard Winn
Noble Group founder and chief executive Richard Elman is determined to double the size of the company every five years.
Noble Group is the largest Hong Kong company in terms of revenue, but it is probably better known in Brazil or Argentina, where it has large agriculture operations.
Its profile is a good deal lower than those of many luminaries of the Hang Seng Index, since apart from a brief spell between 1994 and 1996, it has not been listed in Hong Kong and does virtually no business here.
Since listing in Singapore in 1997, where it has been one of the best-performing stocks over the past 10 years, it has made more of a mark. Its market capitalisation was just under US$100 million when it listed and has since grown to US$8.5 billion.
“There wasn’t much interest in industrial companies in those days. People were far more interested in real estate,” said founder and chief executive Richard Elman.
It is nevertheless one of Hong Kong’s few truly global businesses, with 100 offices in 40 countries and 10,000 employees worldwide, of which 450 are in Hong Kong.
The company is a market leader in managing global supply chains of agricultural, industrial and energy products. It sources products such as soyabeans, sugar and rice in low-cost producers such as Brazil and Argentina and transports them to high-demand regions the other side of the world, such as the mainland.
But Noble adds value – and captures the margin – by developing key assets along the supply chain, such as ports, processing plants, ships and financial services. Its agriculture business accounted for 27 per cent of revenue last year.
The company employs a similar strategy for metals, minerals and ores and manages the sourcing and supply of strategic raw materials for industry, such as iron ore, ferro alloys and aluminium and steel. This business division accounts for 17 per cent of revenue. Noble is also a big player in the energy business, which provides 51 per cent of its revenue. It invests in mines and ports and transports coal, coke and clean fuels such as ethanol.
Since 2005, Noble has invested more than US$1 billion in assets to support its supply pipelines.
“ In keeping with our hands-on approach, we rarely acquire businesses. We build our own ports and terminals, and we learn how to run crushing plants. There are no short cuts,” its 2008 annual report says.
There are few comparable companies in the world with such a high level of integration over such a range of commodities. Swiss firm Glencore International is one, and another is United States firm Cargill.
“We set ourselves a target of 20 per cent growth every year, and we manage to hit it,” said Elman.
As an indication of the strength of the business, it maintained this rate of growth right through the turmoil in the financial and commodities markets of the past year and grew shareholders’ equity 23 per cent in this year’s first nine months.
Although revenues for the period fell 28 per cent, largely as a result of lower commodity prices, net profit was a record US$471million. How did this happen? “We learnt some very substantial lessons during the 1997 Asian financial crisis,” said Elman. “Don’t overleverage the company, and don’t take on unsuitable long-term debt, by building plants, for example, with short-term finance.”
As a result, Noble went into the recent crisis with a very strong balance sheet and high levels of cash.
“We continued to trade when others weren’t there. We took market share as other people disappeared from the market owing to cash constraints. But we could be aggressive and continue to grow the company.”
One of the keys to Noble’s success is the attention it gives to risk management. Richard Elman, chief executive, Noble Group There is a risk dashboard on each executive’s computer screen that is updated every day with a range of metrics on the company’s underlying exposures.
Elman said this attention to risk enabled the company to see looming reversals in the commodities markets in last year’s second quarter, which enabled it to reduce its exposure to counterparties and extend programmes that hedged the company’s assets.
“We understand risk – we understand how to value it and know how to sell it – we buy it and move it on as fast as we can,” he said.
He said for every big transaction there were about 45 actions that needed to be taken, meaning that there were 45 opportunities for something to go wrong.
“Risk is everything. You can have the best transaction in the world on paper, but if you mess up the execution, then you lose out. I think that first and foremost, as a company, we are a risk manager,” he said.
Noble has a risk management department in Hong Kong with 30 people, but there are also risk managers embedded in the company’s frontline operations.
It was partly Noble’s performance during the past 12 months of financial crisis that has led to it recently being raised to investment grade by rating agencies Moody’s Investors Service and Standard & Poor’s. It is one of the few firms to be upgraded this year.
“This has completely changed the standing of the company in the market,” said Elman. “Major companies that gave us limited credit before give us substantially more now that we are investment grade.”
Noble has significantly strengthened its finances in recent months, raising US$850 million with a 10-year bond issue and securing a committed US$ 2.5 billion revolving credit facility. In addition, it secured US$ 850 million from one of the world’s biggest sovereign wealth funds, China Investment Corp, for a 15 per cent equity stake.
“This was a very significant deal for us, and I think they are going to add a considerable amount of value to Noble in future,” said Elman.
He said there was the prospect of jointly investing in agricultural projects.
The stock is trading just off its record high of S$3.08 (HK$17.20) at S$3.07, an increase of 201per cent so far this year.
With the world’s population growing at 3 per cent, Elman reckons it will need at least 3 per cent more food. The company is on course to double in size every five years, a target he is determined to achieve. “It’s my vision, it’s my aim, and I don’t like to fail,” he said.
Quiet achiever Noble builds global footprint with stellar growth rate
Howard Winn
Noble Group founder and chief executive Richard Elman is determined to double the size of the company every five years.
Noble Group is the largest Hong Kong company in terms of revenue, but it is probably better known in Brazil or Argentina, where it has large agriculture operations.
Its profile is a good deal lower than those of many luminaries of the Hang Seng Index, since apart from a brief spell between 1994 and 1996, it has not been listed in Hong Kong and does virtually no business here.
Since listing in Singapore in 1997, where it has been one of the best-performing stocks over the past 10 years, it has made more of a mark. Its market capitalisation was just under US$100 million when it listed and has since grown to US$8.5 billion.
“There wasn’t much interest in industrial companies in those days. People were far more interested in real estate,” said founder and chief executive Richard Elman.
It is nevertheless one of Hong Kong’s few truly global businesses, with 100 offices in 40 countries and 10,000 employees worldwide, of which 450 are in Hong Kong.
The company is a market leader in managing global supply chains of agricultural, industrial and energy products. It sources products such as soyabeans, sugar and rice in low-cost producers such as Brazil and Argentina and transports them to high-demand regions the other side of the world, such as the mainland.
But Noble adds value – and captures the margin – by developing key assets along the supply chain, such as ports, processing plants, ships and financial services. Its agriculture business accounted for 27 per cent of revenue last year.
The company employs a similar strategy for metals, minerals and ores and manages the sourcing and supply of strategic raw materials for industry, such as iron ore, ferro alloys and aluminium and steel. This business division accounts for 17 per cent of revenue. Noble is also a big player in the energy business, which provides 51 per cent of its revenue. It invests in mines and ports and transports coal, coke and clean fuels such as ethanol.
Since 2005, Noble has invested more than US$1 billion in assets to support its supply pipelines.
“ In keeping with our hands-on approach, we rarely acquire businesses. We build our own ports and terminals, and we learn how to run crushing plants. There are no short cuts,” its 2008 annual report says.
There are few comparable companies in the world with such a high level of integration over such a range of commodities. Swiss firm Glencore International is one, and another is United States firm Cargill.
“We set ourselves a target of 20 per cent growth every year, and we manage to hit it,” said Elman.
As an indication of the strength of the business, it maintained this rate of growth right through the turmoil in the financial and commodities markets of the past year and grew shareholders’ equity 23 per cent in this year’s first nine months.
Although revenues for the period fell 28 per cent, largely as a result of lower commodity prices, net profit was a record US$471million. How did this happen? “We learnt some very substantial lessons during the 1997 Asian financial crisis,” said Elman. “Don’t overleverage the company, and don’t take on unsuitable long-term debt, by building plants, for example, with short-term finance.”
As a result, Noble went into the recent crisis with a very strong balance sheet and high levels of cash.
“We continued to trade when others weren’t there. We took market share as other people disappeared from the market owing to cash constraints. But we could be aggressive and continue to grow the company.”
One of the keys to Noble’s success is the attention it gives to risk management. Richard Elman, chief executive, Noble Group There is a risk dashboard on each executive’s computer screen that is updated every day with a range of metrics on the company’s underlying exposures.
Elman said this attention to risk enabled the company to see looming reversals in the commodities markets in last year’s second quarter, which enabled it to reduce its exposure to counterparties and extend programmes that hedged the company’s assets.
“We understand risk – we understand how to value it and know how to sell it – we buy it and move it on as fast as we can,” he said.
He said for every big transaction there were about 45 actions that needed to be taken, meaning that there were 45 opportunities for something to go wrong.
“Risk is everything. You can have the best transaction in the world on paper, but if you mess up the execution, then you lose out. I think that first and foremost, as a company, we are a risk manager,” he said.
Noble has a risk management department in Hong Kong with 30 people, but there are also risk managers embedded in the company’s frontline operations.
It was partly Noble’s performance during the past 12 months of financial crisis that has led to it recently being raised to investment grade by rating agencies Moody’s Investors Service and Standard & Poor’s. It is one of the few firms to be upgraded this year.
“This has completely changed the standing of the company in the market,” said Elman. “Major companies that gave us limited credit before give us substantially more now that we are investment grade.”
Noble has significantly strengthened its finances in recent months, raising US$850 million with a 10-year bond issue and securing a committed US$ 2.5 billion revolving credit facility. In addition, it secured US$ 850 million from one of the world’s biggest sovereign wealth funds, China Investment Corp, for a 15 per cent equity stake.
“This was a very significant deal for us, and I think they are going to add a considerable amount of value to Noble in future,” said Elman.
He said there was the prospect of jointly investing in agricultural projects.
The stock is trading just off its record high of S$3.08 (HK$17.20) at S$3.07, an increase of 201per cent so far this year.
With the world’s population growing at 3 per cent, Elman reckons it will need at least 3 per cent more food. The company is on course to double in size every five years, a target he is determined to achieve. “It’s my vision, it’s my aim, and I don’t like to fail,” he said.
Friday, November 27, 2009
Prudential's Honestly Speaking Comic Creator! FUN!
Honestly Speaking - Speak Your Mind About Investing
Have you guys watched the commercial on TV lately.. with the people in there dunno fretting about what.. machiam like die father die mother look like that..
Here's what I created to lighten up the mood .. haha.. look out Marvel Comics!
oH.. you should head over to view the comic gallery.. there are a lot more that is 10x funnier than mine!
Have you guys watched the commercial on TV lately.. with the people in there dunno fretting about what.. machiam like die father die mother look like that..
Here's what I created to lighten up the mood .. haha.. look out Marvel Comics!
oH.. you should head over to view the comic gallery.. there are a lot more that is 10x funnier than mine!
Wednesday, November 4, 2009
Berkshire Hathaway B shares proposed split
Warrent Buffett does the splits for Berkshire Hathaway
I'm buying! A stock split effectively brings the share price down to a very affordable level and I am quite confident that the B shares will become a hot speculator favourite which means more violatility but also means the $66.51 post-split share price might become $100 or $200. That is assuming that Berkshire do not control the price.
From my knowledge, Berkshire B shares (which represents 1/30 of an A share) have never traded significantly above 1/30 of an A share as Berkshire does buy in more A shares and sell more B share to bring the price back to equilibrium. However, I have a feeling that might changed.
It's a wild speculative bet and I'm loving it! :) Even if it does not pan out the way I think, Berkshire is not in anyway inferior to any good business at the current price.
Berkshire Hathaway Inc.'s planned 50- for-1 stock split will put its Class B shares within reach of investors Warren Buffett once called an ``inferior'' class.
The proposed split, announced today as part of Berkshire's takeover of Burlington Northern Santa Fe Corp., would push the price of each Class B share to $US66.51 from $US3,325.35, data compiled by Bloomberg show. Buffett created the equities in 1996 by dividing Class A shares by 30 to prevent fund managers from carving them up in trusts and selling lower-priced interests. The B shares have never traded below $US990.
I'm buying! A stock split effectively brings the share price down to a very affordable level and I am quite confident that the B shares will become a hot speculator favourite which means more violatility but also means the $66.51 post-split share price might become $100 or $200. That is assuming that Berkshire do not control the price.
From my knowledge, Berkshire B shares (which represents 1/30 of an A share) have never traded significantly above 1/30 of an A share as Berkshire does buy in more A shares and sell more B share to bring the price back to equilibrium. However, I have a feeling that might changed.
It's a wild speculative bet and I'm loving it! :) Even if it does not pan out the way I think, Berkshire is not in anyway inferior to any good business at the current price.
Sunday, November 1, 2009
Portfolio Update October 2009
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1) Big fluctuations in market value for this month but ended up more or less at where I left off in September. Barring any unforeseen events, I am optimistic going forward and will use the dips to buy any stocks that are undervalued.
Tuesday, October 27, 2009
Cao Sir's Nuggets of Wisdom
曹仁超：未来三个月下调幅度可能在2500-2700点_财经_凤凰网
I've read his recent book, 论势, and will be waiting for 论战 to be available in Singapore.
As summarized succinctly by the journalist, the key nuggets of wisdom from Cao Sir's 40yrs experience are :-
四十年投资智慧融为两本书
曹SIR做投资四十年，从5000港币起家，赚到2亿的财富，出版的《论势——曹仁超创富启示录》《论战——曹仁超创富战国策》两书，是一生投资智慧的总结，有缘者将会从中掘得黄金。《论势》是投资哲学，讲进出时机，《论战》是投资策略，讲如何实战以及管理资金。
《论势》归结为一句话就是“有智慧不如趁势”，也叫“趁势创富”。这里的“势”不局限于股市或商品市场，外延更广，包括世界大势、宏观大势、产业大势、股市大势和大众情绪，在大势分析正确的基础上，不仅可以投资股票，还能投资地产、黄金和大宗商品。
《论战》才是真正上战场实战，是战略的执行。曹SIR操作的经验之谈总结为几句话：止蚀不止赚、沟上不沟落(买涨不买跌)、宁买当头起、莫买当头跌。记者林兰
曹仁超，上海富商之后，孩童时期家道中落，40年投资生涯，将5000港元变成了2亿港元。曹先生现任香港信报有限公司董事，香港最权威的投资评论家之一，财经专栏作家
I've read his recent book, 论势, and will be waiting for 论战 to be available in Singapore.
As summarized succinctly by the journalist, the key nuggets of wisdom from Cao Sir's 40yrs experience are :-
- The trend is your friend, make use of it to grow your wealth
- Cut Loss and let your profit runs
- Rather average up than average down
- Rather buy the Leaders than the Losers
China finishing its 1st leg of bull and entering 2nd leg soon
曹仁超：未来三个月下调幅度可能在2500-2700点_财经_凤凰网
A well-known HK investor, affectionately known as Cao Sir, who have accumulated over sgd$40 million thru' investment stocks, properties and alternatives. Cao Sir shares the same view as Anthony Bolton, whom I mentioned in the previous post, the market has already finished its explosive 1st leg of the bull cycle for the China market. What follows is the consolidation period and any dip is an opportunity to accumulate. The 2nd leg of the bull cycle, Cao Sir predicts, will be multi-year and possibly last another 2 years based on his HK market experience. A typical bull market consists of 3 legs and the whole duration might possibly last around 7 years. Though I would be reducing my weightage in equities when the 3rd leg of the bull which is marked by rampant speculation and sky high valuations begins.
曹仁超将5000元变为2亿的“股神” A股慢牛将重回6000点
投资者最关心A股市场走势，曹SIR的看法是什么呢？曹SIR认为，A股从2008年11月开始进入新一轮牛市，本轮牛市将持续7年。2008年11月到2009年7月是牛市的第一阶段，2009年四季度有可能出现C浪下跌，但跌幅不会太大，未来三个月，下调幅度可能在2500-2700点。这同时也是建仓的机会。2010年A股进入牛市第二阶段，出现“慢牛”机会极大，牛市第二阶段上涨不会低于9个月，甚至达到两年。在慢牛阶段，A股会反复上升，但上升速度没有今年这么快，也不是普涨，有些板块涨，有些会跌。根据香港经验，牛市二期会持续两年半到三年，2010—2012年都会是牛市二期。牛二结束后，会进入牛市第三期。“我看好内地股市的长期趋势，日出东方、日落西方，在未来三到四年，上证指数就能重回6000点的高点附近。”
牛市的观点相信多数股民都会接受，大家该如何做股票，才能赚到更多的钱？曹SIR说，牛市已经从2008年11月开始了，未来七年是牛市，我相信这个牛市很强的，所以每一个调整都应该是买进的机会，所以我很相信未来三个月又是买进的时候，买进的话你就要数了，一二三四五，五个浪出现就卖出去。投资者应该“止损不止赚”和“追涨杀跌”，看大势做股票。任何时刻只要损失10%-15%必须行使止损，至于赚钱则如何多也不算多。
A well-known HK investor, affectionately known as Cao Sir, who have accumulated over sgd$40 million thru' investment stocks, properties and alternatives. Cao Sir shares the same view as Anthony Bolton, whom I mentioned in the previous post, the market has already finished its explosive 1st leg of the bull cycle for the China market. What follows is the consolidation period and any dip is an opportunity to accumulate. The 2nd leg of the bull cycle, Cao Sir predicts, will be multi-year and possibly last another 2 years based on his HK market experience. A typical bull market consists of 3 legs and the whole duration might possibly last around 7 years. Though I would be reducing my weightage in equities when the 3rd leg of the bull which is marked by rampant speculation and sky high valuations begins.
Saturday, October 24, 2009
Be critical of what you hear or see.
Look out for something along the line of this phrase in How to Get Rich Courses.
"To qualify to invest in investments of the rich, you need to have at the least the nett worth of $1million. Find out how you can invest with the rich even if you do not have it in this event."
Out of boredom, I attend these seminars and I can tell you the modus operandi and I am still amazed that there are so many s*ckers out there.
1) Build Logos (credibility by reasonable logic) by telling audience how much you made and try to show evidence by flashing some cheque/invoice/dubious share certificate of value beyond reach of most audience(possible around $300k to a million).
2) Build Pathos (emotional) by recahing out to audience the fruits of being rich and how you can become one of them by learning what the trainers have to offer.
3) Build Ethos (ethical) by telling audience why they want to impart the get RICH skill to the audience, not because of money but because of ..you filled in the blanks.
It never fails to amaze me that those sc*kers don't differentiate between how the trainers achieve financial freedom (was it before or after the training course started? and how they achieve financial freedom)
"To qualify to invest in investments of the rich, you need to have at the least the nett worth of $1million. Find out how you can invest with the rich even if you do not have it in this event."
Out of boredom, I attend these seminars and I can tell you the modus operandi and I am still amazed that there are so many s*ckers out there.
1) Build Logos (credibility by reasonable logic) by telling audience how much you made and try to show evidence by flashing some cheque/invoice/dubious share certificate of value beyond reach of most audience(possible around $300k to a million).
2) Build Pathos (emotional) by recahing out to audience the fruits of being rich and how you can become one of them by learning what the trainers have to offer.
3) Build Ethos (ethical) by telling audience why they want to impart the get RICH skill to the audience, not because of money but because of ..you filled in the blanks.
It never fails to amaze me that those sc*kers don't differentiate between how the trainers achieve financial freedom (was it before or after the training course started? and how they achieve financial freedom)
Wednesday, October 21, 2009
Anthony Bolton: this bull market is not over - Telegraph
Anthony Bolton: this bull market is not over - Telegraph
"The bargain phase is over. But despite the fact the market is well off lows, we expect the bull market to go on. It's a multiyear bull market," Bolton said in Seoul on a trip to mentor young Fidelity portfolio managers in Asia. Bolton is president for investments at Fidelity International, an affiliate of Boston-based Fidelity Investments, the world's biggest mutual fund firm.
He said the first phase of the bull market was ending this year or by the first quarter of next year, but long-term valuations were still attractive.
"The bargain phase is over. But despite the fact the market is well off lows, we expect the bull market to go on. It's a multiyear bull market," Bolton said in Seoul on a trip to mentor young Fidelity portfolio managers in Asia. Bolton is president for investments at Fidelity International, an affiliate of Boston-based Fidelity Investments, the world's biggest mutual fund firm.
He said the first phase of the bull market was ending this year or by the first quarter of next year, but long-term valuations were still attractive.
Monday, October 12, 2009
Don't Get Hit By Crash at Finish Line
Don't Get Hit by Crash at Finish Line - WSJ.com
In his classic book "The Intelligent Investor," Benjamin Graham -- Mr. Buffett's mentor -- advised splitting your money equally between stocks and bonds. Graham added that your stock proportion should never go below 25% (when you think stocks are expensive and bonds are cheap) or above 75% (when stocks seem cheap).
The belief that extending your holding period can eliminate the risk of stocks is simply bogus. Time might be your ally. But it also might turn out to be your enemy. While a longer horizon gives you more opportunities to recover from crashes, it also gives you more opportunities to experience them.
But what about the probability that stocks will beat everything else, including bonds and inflation? "Who knows?" Mr. Buffett said. "People say that stocks have to be better than bonds, but I've pointed out just the opposite: That all depends on the starting price."
Sunday, October 11, 2009
The Superinvestors of Graham & Doddsville
Here's the link to the article by Warren Buffett suggesting there is value in Value investing after all -> http://www.gurufocus.net/guruek/thesuperinvestors.pdf
If you have not read it before, please do it! It is good for you! :)
If you have read it already, please read again! It is good for you! :)
My list of gurus I read for my own investment knowledge.
1) Bruce Berkowitz
2) Seth Klarman
3) Tweedy Browne & Partners
4) Marty Whitman
5) Warren Buffet & Charlie Munger
6) George Soros - ok, he's not value but he's one hell of a investor
7) Marc Faber - Always nice to balance out your view with Gloom & Doom & Boom!...
8) Jeremy Gratham of GMO
If you have not read it before, please do it! It is good for you! :)
If you have read it already, please read again! It is good for you! :)
My list of gurus I read for my own investment knowledge.
1) Bruce Berkowitz
2) Seth Klarman
3) Tweedy Browne & Partners
4) Marty Whitman
5) Warren Buffet & Charlie Munger
6) George Soros - ok, he's not value but he's one hell of a investor
7) Marc Faber - Always nice to balance out your view with Gloom & Doom & Boom!...
8) Jeremy Gratham of GMO
Wednesday, October 7, 2009
Unstoppable Bull Run!
Thursday, October 1, 2009
Portfolio Update September 2009
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1) Added more australian companies to my portfolio as there are still quite a few good names that are undervalued like Stockland, TabCorp, ANZ, NAB, Telstra, Wesfarmers etc with good dividend yield of > 5%.
2) Added Noble Group for its CIC stakeholder while GuocoLeisure & Wheelock HK are undervalued as well.
3) HK IPOs market wasn't that hot and so, not much profit to speak off there.
4) Market seems to have priced in almost all the good news now and if there are no more big economic news that confirms a recovery, the market will be trading sideways. I am still holding to cash in Aussie time deposit while waiting for any further buying opportunity should the market correct downwards.
Tuesday, September 29, 2009
My Holdings - Telstra
Greg Fraser, analyst, Fat Prophets
Perversely, the government's ultimatum to Telstra to physically untangle its network from its retail business provides a smidgin of certainty. Shareholders now know they will own two companies after Telstra complies with the minister's decree.
The first will be a network company. It will have about nine million residential and business customers, plus a clutch of wholesale customers who pay to access Telstra's network to connect their own customers. The regulator -- the Australian Competition and Consumer Commission -- will have very strong powers to set and control the price of access to this network.
It will effectively operate along the lines of a utility and will therefore generate steady earnings, but with minimal growth.
The second will be a retail company. It will still own some networks, such as the Next G mobile network and the Next IP network that Telstra spent several billion dollars constructing over the past few years. These networks are the platform for delivering you-beaut services such as wireless broadband internet, 3G mobile and fixed line broadband connections via the HFC cable network or ADSL2+. In addition, this company will own Sensis and a 50percent stake in Foxtel.
This scenario assumes Telstra submits a plan the ACCC finds acceptable, thereby allowing Telstra to keep its Foxtel and HFC cable assets.
On separation, the market should be able to transparently value each business. It may be that the parts are worth more than the whole, even after allowing for the cost of the exercise.
It is possible most of the bad news is already reflected in the share price. If so, shareholders have little more to lose and much to gain by hanging in there. After 10 years of transforming the business, Telstra's cash flow is healthy and able to sustain the current dividend or even increase it, though that is for the board to determine in light of the new information.
Quantitative Analysis
Telstra is a financially sound company with a very strong free cashflow generation. Although it has a debt/equity ratio of around 140%, it is able to pay down all the debt using just 4.5 yrs of free cashflow. It has predictable earning power and its ROE, ROA and even ROC is very acceptable at 29%, 9% and 13.5% respectively.
At current price, Telstra is valued roughly around 10x P/E with a dividend yield of 8.5%. My own estimate of a fair value for Telstra using Free Cashflow is around $3.30.
Qualitative Analysis
Telstra is a triple play company similar to singapore telcos which are operating in a protected regulatory environment. While I was staying in Australia, Telstra was and still regarded as the defacto company for your residential line as well as for Cable TV. If you do not subscribe to their internet service and subscribe to a 3rd party internet provider instead, the 3rd party provider still need to pay for usage of Telstra DSLAM network. On the mobile front, it still has a good market share against Optus and Three.
Current speculation about the proposed breakup, like what the Fat Prophet analyst above who is a value investor, has probably been priced into the stock and upside potential could be great if the broken up entities are listed and valued at a premium.
Vested at $3.24
Wednesday, September 23, 2009
I struck IPO lottery!
According to the report in SCMP, I kinda struck IPO Lottery! :) Only 6% of IPO subscriber for SinoPharm got their shares, albeit at the minimum 400 shares at hkd$16. You cannot imagine how miserable 400shares was since I actually had put in a bid for HKD$3million worth of shares but got allocated 400 shares. SinoPharm was active today on HK exchange and I sold my 400 shares for some kopi-money.
Tomorrow, it will be the turn of Metallurgica and I was allocated 1000 shares out of my bid of HKD$3million. Again, chump change for some kopi.
Hopefully, I will be third time lucky and strike another IPO lottery with the next IPO, China Resources Cement. This time, I have put in a bid of HKD$15million. Now let's see how many shares I will be allocated!
Sad to say, the free lunch is getting harder to get for Hongkong IPOs of credible companies.
Getting shares in IPO lottery far from being a sure bet
South China Morning Post
23 Sep 2009
There is no longer any such thing as a free lunch in the initial public offering market. More retail investors are putting money into the share sales because of their relatively high returns and low risks in a short period. But securing a piece of...read more...
Tomorrow, it will be the turn of Metallurgica and I was allocated 1000 shares out of my bid of HKD$3million. Again, chump change for some kopi.
Hopefully, I will be third time lucky and strike another IPO lottery with the next IPO, China Resources Cement. This time, I have put in a bid of HKD$15million. Now let's see how many shares I will be allocated!
Sad to say, the free lunch is getting harder to get for Hongkong IPOs of credible companies.
South China Morning Post
23 Sep 2009
There is no longer any such thing as a free lunch in the initial public offering market. More retail investors are putting money into the share sales because of their relatively high returns and low risks in a short period. But securing a piece of...read more...
Tuesday, September 8, 2009
Monday, August 31, 2009
Portfolio Update August 2009
Portfolio Cumulative Return since 2007 : -0.06%
Equity Cumulative Return since 2007 : +3.47%
Dividend/Coupon/Interest received for 2009 : SGD$64,061
P/S :
1) Bought into SHK Corporate Arbitrage Fund with John paulson as underlying Fund manager.
2) Tendered SPC shares for a total gain of 90%.
3) Renewed Aud deposit for 3 months at 3.05%.
4) Sell out of Cathay Pacific Bond yielding 3.8% and intend to use the money to buy into equities yielding more than 5%. Current portfolio is yielding sub-2% level as a portion of the portfolio is in non-dividend paying funds.
5) Speculative play on Citigroup at average cost of $4.40.
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Friday, August 28, 2009
Why Paulson is buying Citi?
This was taken off Paulson's 2008 Annual Report for his shareholders. Specifically, he has launched a Recovery Fund late 2008 and has cited Citi as an example of a recovery play he might be keen on. I believe he was also an active buyer of Bank of America.
Extracted from the key introduction of the Recovery Fund :-
Extracted from the key introduction of the Recovery Fund :-
Sunday, August 23, 2009
What would your last meal be?
I read with amusement on the above question posted by the Foodie Connection reporter, to a 50+yr old restaurant owner in the Sunday Times.
To which the owner responded "I don't think about those things", obviously kinda perturbed by such a morbid question.
Wouldn't it have been better rephrasing it in a more 'fantasy' way like "If there was only 1 food left on earth, what food would you like to have everyday?". This will put the interviewee at ease and reveal his/her desire since it's kinda a "fantasy" question. But to ask "What would your last meal be?".. Now that is really dumb. I can understand when an evocative question like "What would be the last thing you want to do in your life" is asked, people will want to tell you what is the thing that matter most to him/her. However, a Meal? Com'on?! If the last thing you want to do is think about what you want to eat.. I guess it speaks volume of you. So how do you expect the interviewee to answer?
To which the owner responded "I don't think about those things", obviously kinda perturbed by such a morbid question.
Wouldn't it have been better rephrasing it in a more 'fantasy' way like "If there was only 1 food left on earth, what food would you like to have everyday?". This will put the interviewee at ease and reveal his/her desire since it's kinda a "fantasy" question. But to ask "What would your last meal be?".. Now that is really dumb. I can understand when an evocative question like "What would be the last thing you want to do in your life" is asked, people will want to tell you what is the thing that matter most to him/her. However, a Meal? Com'on?! If the last thing you want to do is think about what you want to eat.. I guess it speaks volume of you. So how do you expect the interviewee to answer?
Saturday, August 22, 2009
My holdings - GuocoGroup
One of my holdings is HK listed GuocoGroup. While many singaporeans would be familiar with the Singapore listed GuocoLeisure and GuocoLand, GuocoGroup is the one you want to be holding. Here's why I think GuocoGroup is a good buy.
Company Summary
Guoco Group Limited ("Guoco") (Stock Code: 53), listed on The Stock Exchange of Hong Kong Limited, is an investment holding and investment management company with the vision of achieving long term sustainable returns for its shareholders and creating prime capital value.
The Group is engaged in the property development and investment; stock broking and commodities trading; insurance and fund management services; and treasury and investment managemnet.
In response to this worsening market environment, the group has trimmed down substantially the level of investment activities and the size of the investment allocation thereby reducing market exposure. The approach is to focus on a list of strategic stocks that the group believes offer reasonable valuation with good long-term underlying businesses and potential. It will look to acquiring significant positions in selected companies, strategic investments that present synergistic business opportunities to the Group. The company had undertaken a corporate streamlining initiative to consolidate the Group's interests in GL. A detailed plan of space utilisation, development opportunities and alternative use is being studied by management with a view to unravelling and enhancing the significant capital value of the hotel properties in London bearing in mind the potential boom in the hotel industry as London prepares to host the next Olympic Games 2012.
Core Assets/InvDao Heng Securities (100%); GLL (65%); Principal Investment(100%); GuocoLeisure Limited(54.1%); Hong Leong Financial Group Berhad(25.4%).
Quantitative Analysis
Share price at hkd$75.50 is around its net current asset value (Total current asset minus all currnet liabilities) of $78.218HKD. In other words, they can pay off any debt they have if they want to today.
GuocoGroup owns 65% GuocoLand (mkt cap – sgd$1700mil) and 54.3% GuocoLeisure (mkt cap - sgd$533.5mil). At current market value, GuocoGroup owns sgd$1394.69mil which is a per share value of hkd$21.20(sgd$4.238).
Just adding the net current asset value and the current market value of guocoland and guocoleisure subsidiaries, GuocoGroup has a net book value of hkd$99.41. Since GuocoGroup chairman controls 74.79%. of GuocoGroup, we have to give a discount of at least 10% for the illiquidity as bid/ask spread will be wide. So, we arrived at the final net book value of around hkd$90.
By buying at hkd$75.50, you are essentially paying for GuocoGroup net current asset value and getting GuocoLeisure and GuocoLand for free, not to mentioned other assets under GuocoGroup (example, their stake in Bank of East Asia) I've not accounted for. Further to that, it also have a manageable 5yr average annual payout ratio of 37.82% which gives you a yield of around 5%.
Even with the simple valuation measure of book value or p/e ratio, it is also undervalued.
This is a buy based on what I've pickup from Security Analysis by Graham & Dodd.
Qualitative Analysis
I am not much of a believer in scrutinizing every minute details of how a business works as I know I will not have more detail than the cursory glance off glossy financial reports while management will have in-depth access to the "on-the-ground" details as well as expertise to make strategic and operational decisions.
Thus, I adopt a more macro view of the business with relation to the business cycle and whether I feel good about the management. For GuocoGroup, the Quek family have shown themselves adept in business management and have been consistently creating value for the shareholders as can be seen from the increasing book value without resorting to any form of increased leverage or equity fundraising. Further, a family owned conglomerate is a good buy for me as the management interest is often aligned with the shareholders and excessive compensation will not be so prevalent as management are more interested in raising the book value of the company and they are unlikely to walk away from the company like a hired-CEO can.
Vested 5,000 shares at avg cost of hkd$66.04
Friday, August 7, 2009
Portfolio Update July 2009
Portfolio Cumulative Return since 2007 : -1.33%
Equity Cumulative Return since 2007 : -0.5%
Dividend/Coupon/Interest received for 2009 : SGD$50,000
Equity Cumulative Return since 2007 : -0.5%
Dividend/Coupon/Interest received for 2009 : SGD$50,000
Thursday, August 6, 2009
Saturday, July 11, 2009
F4 Vanness in a Singapore Villa with FastCars!
Van Ness’ Blog | Hypebeast
Now.. this is what I call OBSCENELY RICH. Look at the number plates on the fast cars.. All are with "288" = Same Owner! GOSH!
Now.. this is what I call OBSCENELY RICH. Look at the number plates on the fast cars.. All are with "288" = Same Owner! GOSH!
Monday, July 6, 2009
Where the Hell is Matt?
I believe this is the Visa Card guy who keeps dancing happily across countries with that catchy tune. However, this one is those that I've not seen before and it sure does brings a smile to me knowing how we are so different yet so similar. Enjoy!
Wednesday, July 1, 2009
Portfolio Update June 2009
Cumulative Return since 2007 : -6.7%
Dividend/Coupon/Interest received for 2009 : $43,995
P/S : Choppy markets worldwide. Will conserve my cash and await the correction?
Tuesday, June 30, 2009
曹仁超 - The Commoner's Stock Guru
http://vhead.blog.sina.com.cn/player/outer_player.swf?auto=0&vid=10254745&uid=1319156057
This guy created a whole fortune in excess of HKD$100 Million thru' investing with only less than HKD$100 Thousand. We can learn a lot from this guy and he is very humourous too. I especially like his comments on taking analysts' views too seriously. He mentioned that to be successful, you learn from those who have done it successfully. However, he have serious reservations taking views from analysts whose networth might be less than yours and who have not demonstrated success in their own investment venture.
So, for those who are interested in attending stock trading/forex trading or whatever course, please do see whether the trainer is successful in what he is teaching. Or did he become rich by conducting courses?
Or how about the financial advisors or bankers who are trying to get their own finances in order, advising you to plan for your future?? :)
This guy created a whole fortune in excess of HKD$100 Million thru' investing with only less than HKD$100 Thousand. We can learn a lot from this guy and he is very humourous too. I especially like his comments on taking analysts' views too seriously. He mentioned that to be successful, you learn from those who have done it successfully. However, he have serious reservations taking views from analysts whose networth might be less than yours and who have not demonstrated success in their own investment venture.
So, for those who are interested in attending stock trading/forex trading or whatever course, please do see whether the trainer is successful in what he is teaching. Or did he become rich by conducting courses?
Or how about the financial advisors or bankers who are trying to get their own finances in order, advising you to plan for your future?? :)
Monday, June 29, 2009
China's Pretty Millionairess
中国10大女富豪：长安俱乐部陈丽华居首(组图)_财经_凤凰网
中国10大女富豪：长安俱乐部陈丽华居首\(组图\)
3、刘迎霞：财富5亿元，年龄30岁，出生地哈尔滨，教育背景硕士，主要公司黑龙江翔鹰集团，首次证券市场融资未上市，主要行业建筑、装饰、水利、筑路。
点评：30岁就成了女富婆，还那么年轻漂亮！谁说女人读到了硕士和博士就有点傻了，刘迎霞可是典型的“知识创造财富”。但是年轻多金，学历有那么高，不知道那个男人能配得上她。祝她婚姻幸福美满！
3、刘迎霞：财富5亿元，年龄30岁，出生地哈尔滨，教育背景硕士，主要公司黑龙江翔鹰集团，首次证券市场融资未上市，主要行业建筑、装饰、水利、筑路。
点评：30岁就成了女富婆，还那么年轻漂亮！谁说女人读到了硕士和博士就有点傻了，刘迎霞可是典型的“知识创造财富”。但是年轻多金，学历有那么高，不知道那个男人能配得上她。祝她婚姻幸福美满！
__________________________________________________________________
She's worth RMB 500 Million (equivalent to around SGD$100mil) and is only 30yrs old! And She's pretty too! This is the changing face of China, it will have more millionaires and at younger age too. The China Story is one I believed in and I would think if history is of any guide, China's stock market might mirror that of US or HK market in its earlier years when blue chips were sold for pennies but over 10-20years, turned out to be worth $100s. Anyway, if you believe in the china story, a good way for you to access it is via ETFs in HK if you dont like stock picking.
2823.HK - FXI XinHua/A50 China Tracker tracks the Top 50 enterprises (A-shares) listed in Shanghai Stock Market but is invested using sythetic duplication (ie, not direct stakes in the stocks but thru' derivatives).
2828.HK - H-shares China Tracker tracks the H-shares(China enterprises listed in Hongkong Stock Exchange) and is directly invested.
Both are good buys , though some believe that 2828.HK will have more room for appreciation as H-shares is always priced at a discount to A-shares. For myself, I just spread the bets equally among the 2 ETFs and will be holding for at least till the next bull.
Sunday, June 28, 2009
Bonds Versus Property
Depending on your capital, you might want to consider treating physical property as an alternative to bonds instead.
I am of the view that bonds if bought under par will give you upside limited to the discount you bought it at, unless interest rate continues dropping which is unlikely.
However, properties bought below par or even at par can have unlimited appreciation and can be held for the long term (99-999yrs).
Both will give you fixed income streams but the distinctive advantage of property is that you control it and will ultimately owned it and it will generate recurrent income stream for the duration of its tenure.
Further, Bonds is not a good hedge against inflation but property will be. And we are right now at the tip of a new secular trend of a bond bear market due to the expansion of monetary supply and interest rate rise.
For myself, I will not buy any more bonds and will instead direct the money into properties and equities.
I am of the view that bonds if bought under par will give you upside limited to the discount you bought it at, unless interest rate continues dropping which is unlikely.
However, properties bought below par or even at par can have unlimited appreciation and can be held for the long term (99-999yrs).
Both will give you fixed income streams but the distinctive advantage of property is that you control it and will ultimately owned it and it will generate recurrent income stream for the duration of its tenure.
Further, Bonds is not a good hedge against inflation but property will be. And we are right now at the tip of a new secular trend of a bond bear market due to the expansion of monetary supply and interest rate rise.
For myself, I will not buy any more bonds and will instead direct the money into properties and equities.
Saturday, May 30, 2009
Portfolio Update May 2008
Cumulative Return since 2007 : -8%Dividend/Coupon/Interest received for 2009 : $33,222
P/S : For taking advantage of possible inflation and USD Downtrend, I have started taking positions in physical Gold. Gold should be well supported as China have also been increasing their gold reserves in their National Reserve. It will not be a long-term position and I intend to dispose of Gold if the bubble pops.
For the possible economic recovery, commodities will be on the rise and I have maintain position in my commodity funds and increase allocation to AUD, the commodity currency. I have converted more AUD dollars to be placed in 3mths FD at 3.24%. I have also increase allocation to Energy-related equities. Again, China have been actively increasing their activities on purchasing commodities/energy related companies & products and prices should be well-supported.
Finally, the recent equity rally have continued unabated and I will be looking to buy on dips as before. Though I will be maintaining my Cash Position and instead will be shifting out of equity funds and replacing them with direct equities that will be paying me dividends.
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Monday, May 25, 2009
David Fuller : Phases of Bear Turn Bull
David Fuller (Fullermoney): Substantiating bullish bias for equities “I have described conditions as being more bullish than bearish for a number of months. However such claims need to be substantiated by technical (market) evidence, which is best monitored every day.
“I will review the process, discussed at length in Fullermoney, in what can be a template for subscribers, not only for today’s environment but also the transition from every other bear to bull market in future:
“Climactic capitulation - Bear markets usually end in climactic fashion, which is the phase of greatest capitulation and despondency. This is what happened late last October and also in November.
“Base building - The most persistent capitulation stage marks the beginning of the end for the bear market, which by definition, must also be the beginning of the new bull market, although all one may see for some months will be ranging, including some new lows by indices for less fundamentally attractive markets, but also rising lows by indices for the next bull market’s leaders.
“Reversion to the mean - If the bear really is ending or over, you will see the evidence accumulate in several ways, which are different from the redistribution bear market rallies which occur on the way down. Mean reversion (we use the 200-day moving average to measure this because it is a widely followed medium to somewhat longer-term trend smoothing device) will become evident due to a combination of different developments.
“Uptrends are established - Indices will be breaking up out of their ranging bases, with the best performers establishing step sequence uptrends, one above the other. These will eventually break above the 200-day MAs, which will eventually turn upwards sometime later. The rising MA becomes a potential support level during minor mean reversions throughout the duration of the new uptrend.
“Summary - Perspective is gained by monitoring many indices, as there will inevitably be leaders and laggards. This is Fullermoney’s commonality approach. For instance, if stock market indices are mostly ranging but downward breaks are no longer being maintained, in contrast to some rallies which are being extended, one does not need to be a genius to deduce that demand (buying pressure) is beginning to exceed supply (selling pressure).
“The performance of upside leaders when looking for evidence of market bottoms and recovery potential is much more important than focussing on laggards, because we are looking for a transition from bear, which includes all stock market indices in its latter stages, to bull in which case markets will break away from the prior downtrend one by one over time.”
Source: David Fuller, Fullermoney, May 18, 2009.
FT : Declining Libor
Financial Times: Declining Libor “As a barometer of the financial crisis, it’s been hard to beat Libor, the London interbank offered rate for borrowing short-term funds in the banking system.
“On Wednesday, dollar Libor for the benchmark three-month sector set at 0.71625 per cent, extending its run of declines for 36 straight days. A comparison of Libor with the Fed funds rate shows that the gap between these two rates is at its lowest level since February 2008. Traders forecast further improvement on Thursday. The mood is a world away from the stressful peaks of Bear Stearns’ rescue last March and the failure of Lehman Brothers in September when Libor took a rocket ship to the moon.
“Further evidence that the banking system is stabilising is seen by activity in financial commercial paper. Lending for three months is back above that of the one-month sector for the first time since late January when the Federal Reserve’s support temporarily boosted 90-day paper. Quantitative easing and the smooth completion of the stress tests for banks has eased tension. That has helped nurture the recovery in risky assets.
“For the banking system, however, there are still signs of dislocation. Swap spreads, the difference between government bond yields and money market rates and a measure of bank credit quality, remain some way from looking normal. Liquidity also remains questionable as banks seek stronger balance sheets and raise capital to pay back government support.
“The steady declines in three-month Libor have also reduced the Ted spread, which compares the bank lending rate with that of three-month Treasury bills. After surging to record levels, the much lower Ted spread is another good sign. But with bills only yielding 0.18 per cent, it’s clear there remains an aversion to lending money at the much higher unsecured rate of three-month Libor.”
Source: Michael Mackenzie, Financial Times, May 20, 2009.
Thursday, May 21, 2009
Buy and MONITOR ACTIVELY
Don't Believe in Buy and Hold
The buy and hold devotees say you can't time the market, and if you aren't in all the time, you risk missing much of the gain. A Spanish research firm found that if you removed the 10 best days for the Dow Jones industrial average in the 1900-2008 years, two-thirds of the cumulative gains were lost. But if you missed the 10 worst days, it found, the actual gain on the Dow tripled. These results are in line with our earlier research and reflect the fact that stocks fall a lot faster than they rise.
We eschew the buy and hold strategy because of what's known in classical statistics as the gambler's ruin paradox. The odds may be in your favor in the long run--in this case, your stocks may provide great returns over, say, 10 years. But if you hit a streak of bad luck, your capital may be exhausted before that long run arrives.
Or more likely, a severe bear market will scare you out at the bottom. Many investors bail out then and don't reenter until the next bull market is well advanced. This explains why the returns of mutual fund investors lag well behind the performance of the funds in which they invest. A widespread retreat is what makes a good bottom, as we've noted in many past Insights. All those who can be shaken out are. They've reached the puke point at which they regurgitate their last equities and swear to never ingest any more.
Tuesday, May 19, 2009
Trailing Cut Loss is for everyone
If you were to invest $100,000 in 2004 and the next 4 years (end 2007), you achieve a gain of 25% annually with all money re-invested. How much would you made?
end of 2004 - $125k
end of 2005 - $156k
end of 2006 - $195k
end of 2007 - $244k
If in year 2008, you lose 60% of your gains, how much would you have made?
END OF 2008 - $97K left (a loss of $3k after holding for 5 years)
If instead of holding from 2004 to 2008, you get out of the market once there is a 25% decline from the highest point in your stocks since you purchase in 2004. How much would you have made?
Assuming in the year 2008, a 25% decline in your portfolio value is noted and you get out of all your equities.
End 2008 - $180k (a profit of $80k after holding for 5 years)
Food for thought. If you have the conviction to take profit off the table, wouldn't it have been better? You cannot time the market, but you can use your portfolio value to show you the way out.
*By the way, 25% is set because we do not want the violatility of the market to trigger your cut loss when the market is only experiencing a minor setback. Most bear markets decline is between 30% to 60%. So if it gets to 25%, you can be sure there must be something fundamentally wrong for a lot of stock holders to want to get out ahead of you. For traders, they might be more interested in cut loss level of 8% - 10% since they are actively trading the market instead of buying and holding for a market cycle.
end of 2004 - $125k
end of 2005 - $156k
end of 2006 - $195k
end of 2007 - $244k
If in year 2008, you lose 60% of your gains, how much would you have made?
END OF 2008 - $97K left (a loss of $3k after holding for 5 years)
If instead of holding from 2004 to 2008, you get out of the market once there is a 25% decline from the highest point in your stocks since you purchase in 2004. How much would you have made?
Assuming in the year 2008, a 25% decline in your portfolio value is noted and you get out of all your equities.
End 2008 - $180k (a profit of $80k after holding for 5 years)
Food for thought. If you have the conviction to take profit off the table, wouldn't it have been better? You cannot time the market, but you can use your portfolio value to show you the way out.
*By the way, 25% is set because we do not want the violatility of the market to trigger your cut loss when the market is only experiencing a minor setback. Most bear markets decline is between 30% to 60%. So if it gets to 25%, you can be sure there must be something fundamentally wrong for a lot of stock holders to want to get out ahead of you. For traders, they might be more interested in cut loss level of 8% - 10% since they are actively trading the market instead of buying and holding for a market cycle.
Thursday, May 14, 2009
Portfolio Update April 2009
Cumulative Return since Inception: -9.78%
Dividend/Coupon/Interest received YTD : $20,400
P/S: Despite the market run up, I have allocated more into equities for the month of April. Going forward, I expect to be putting more cash to work whenever a correction happens (like what is happening today).
Individual stocks are from Hong Kong, Singapore and Australia. ETFs are from US, Europe, Hong Kong and Australia.
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Tuesday, May 12, 2009
The Global Financial Solution
In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place.
Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
• The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.
• The butcher takes the money and races to his supplier to pay his debt.
• The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
• The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.
• The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.
At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his E100 back and departs.
There was no profit or income. But everyone no longer has any debt and the small town’s people look optimistically towards their future.
Could this be the solution to the global financial crisis?
>
Source: Unknown
Tuesday, April 28, 2009
Google Maps - Swine Flu Update
http://maps.google.com/maps/ms?hl=en&ie=UTF8&msa=0&msid=106484775090296685271.0004681a37b713f6b5950&ll=47.100045,9.316406&spn=34.792294,79.101563&t=h&z=4
Interesting application of google map to track swine flu outbreak.
Interesting application of google map to track swine flu outbreak.
Wednesday, April 22, 2009
Saturday, April 11, 2009
Portfolio Update March 2009
 | Cumulative Return since Inception: -12.80% Dividend/Coupon YTD : $8,000 P/S: I have included a new row to track my passive income as I have been in Cash for most of last year. I hope to increase the passive income this year significantly as I allocate out of cash into the portfolio. Hopefully, it will get back to the 6 figure passive income I expected. I have also changed my Return to track from inception. Let's see whether the cumulative return after 3 years can be at least 200% ? :P This is clearer at a glance how much the value of the portfolio have grown rather than using compounded annualized return. Compounded Annualized Return is good for tracking if you have beaten the indexes or the long run average and should be more applicable to the equity portion of the portfolio instead of mine which consists of different asset classes esp since I do a bond ladder for a steady income stream that scales with inflation. |
How to invest $30k?
For the $30k, I would buy the following :-
$5k - HK Tracker Fund , 2800.HK
$5K - iShares STI ETF
$2.5k - SingPost
$2.5k - SPH
$2.5K - Boustead
$2.5k - Rotary Engineering
$2.5k - ComfortDelgro
$2.5k - Wheelock
$2.5k - NOL
$2.5k - SAT Svc
Average Dividend Yield should be around 5%.
Then, whenever you get the dividends, you decide where you want to average down/up or diversify into other ETFs. 'coz your amount is really too small to buy individual stocks, Better buy ETF.
But I design it that you get dividends from those companies to fund your purchase of ETFs.
But the capital gain will come 3-5yrs later.. with your $30k easily doubling to $60k. I am very confident that none of the stocks I mentioned above will go BANKRUPT or will stay at the price you see now in 3 years time!
Yes, it is very Asean-centric and only in the 2 Financial hubs of asia (Ex Japan). But you are doing it for capital appreciation and in a very very conservative way. When you have enough, then you think about other regions. You are in the market to make money , not to follow some theory that you must die die get exposure to all countries. If indeed you want that, then go and speak to your qualified financial professional.
This is solely my way of DIY a $30k portfolio. For your own , please give it some thought and if you are unsure, do speak to a qualified financial professional.
$5k - HK Tracker Fund , 2800.HK
$5K - iShares STI ETF
$2.5k - SingPost
$2.5k - SPH
$2.5K - Boustead
$2.5k - Rotary Engineering
$2.5k - ComfortDelgro
$2.5k - Wheelock
$2.5k - NOL
$2.5k - SAT Svc
Average Dividend Yield should be around 5%.
Then, whenever you get the dividends, you decide where you want to average down/up or diversify into other ETFs. 'coz your amount is really too small to buy individual stocks, Better buy ETF.
But I design it that you get dividends from those companies to fund your purchase of ETFs.
But the capital gain will come 3-5yrs later.. with your $30k easily doubling to $60k. I am very confident that none of the stocks I mentioned above will go BANKRUPT or will stay at the price you see now in 3 years time!
Yes, it is very Asean-centric and only in the 2 Financial hubs of asia (Ex Japan). But you are doing it for capital appreciation and in a very very conservative way. When you have enough, then you think about other regions. You are in the market to make money , not to follow some theory that you must die die get exposure to all countries. If indeed you want that, then go and speak to your qualified financial professional.
This is solely my way of DIY a $30k portfolio. For your own , please give it some thought and if you are unsure, do speak to a qualified financial professional.
Wednesday, April 8, 2009
Buy GOLD
Soros Says Fed in a Bind Beware Stagflation Bursting of Bond Bubble: Tech Ticker, Yahoo! Finance
After the financial market collapsed last fall, the Fed responded with a massive injection of liquidity and expansion of the monetary base.
Eventually, Ben Bernanke & Co. will face the challenge of having to remove that liquidity from the system. "That's a big and difficult task and probably the authorities will not be able to do it well," says legendary financier George Soros, chairman of Soros Fund Management. "That's the fear that drives people into gold."
Soros wouldn't say whether he's actively trading gold but certainly implied it's a good bet; more explicitly, he agreed with the view there's a "bubble" in Treasuries that's likely to burst sooner rather than later.
"The moment this fear of deflation turns into a fear of inflation, you'll find interest rates rise in the long end which is going to choke off the recovery," he says. "If we are successful [in reviving the economy] we are heading from the prospect of deflation to stagflation."
Tuesday, April 7, 2009
The Perfect Business - Dow Theory Letters
The Perfect Business
AH PERFECTION: Strange, but the most popular, the most widely-requested, and the most widely quoted piece I've ever written was not about the stock market -- it was about business, and specifically about what I call the theoretical "ideal business." I first published this piece in the early-1970s. I repeated it in Letter 881 and then again in Letter 982. I've added a few thoughts in each successive edition. But seldom does a month go by when I don't get requests from subscribers or from some publication or corporation to republish "the ideal business." So here it is again -- with a few added comments.
I once asked a friend, a prominent New York corporate lawyer, "Dave, in all your years of experience, what was the single best business you've ever come across?" Without hesitation, Dave answered, "I have a client whose sole business is manufacturing a chemical that is critical in making synthetic rubber. This chemical is used in very small quantities in rubber manufacturing, but it is absolutely essential and can be used in only super-refined form.
"My client is the only one who manufactures this chemical. He therefore owns a virtual monopoly since this chemical is extremely difficult to manufacture and not enough of it is used to warrant another company competing with him. Furthermore, since the rubber companies need only small quantities of this chemical, they don't particularly care what they pay for it -- as long as it meets their very demanding specifications. My client is a millionaire many times over, and his business is the best I've ever come across." I was fascinated by the lawyer's story, and I never forgot it.
When I was a young man and just out of college my father gave me a few words of advice. Dad had loads of experience; he had been in the paper manufacturing business; he had been assistant to Mr. Sam Bloomingdale (of Bloomingdale's Department store); he had been in construction (he was a civil engineer); and he was also an expert in real estate management.
Here's what my dad told me: "Richard, stay out of the retail business. The hours are too long, and you're dealing with every darn variable under the sun. Stay out of real estate; when hard times arrive real estate comes to a dead stop and then it collapses. Furthermore, real estate is illiquid. When the collapse comes, you can't unload. Get into manufacturing; make something people can use. And make something that you can sell to the world. But Richard, my boy, if you're really serious about making money, get into the money business. It's clean, you can use your brains, you can get rid of your inventory and your mistakes in 30 seconds, and your product, money, never goes out of fashion."
So much for my father's wisdom (which was obviously tainted by the Great Depression). But Dad was a very wise man. For my own part, I've been in a number of businesses -- from textile designing to advertising to book publishing to owning a night club to the investment advisory business.
It's said that every business needs (1) a dreamer, (2) a businessman, and (3) a S.O.B. Well, I don't know about number 3, but most successful businesses do have a number 3 or all too often they seem to have a combined number 2 and number 3.
Bill Gates is known as "America's richest man." Bully for Billy. But do you know what Gates' biggest coup was? When Gates was dealing with IBM, Big Blue needed an operating system for their computer. Gates didn't have one, but he knew where to find one. A little outfit in Seattle had one. Gates bought the system for a mere $50,000 and presented it to IBM. That was the beginning of Microsoft's rise to power. Lesson: It's not enough to have the product, you have to know and understand your market. Gates didn't have the product, but he knew the market -- and he knew where to acquire the product.
Apple had by far the best product in the Mac. But Apple made a monumental mistake. They refused to license ALL PC manufacturers to use the Mac operating system. If they had, Apple today could be Microsoft, and Gates would still be trying to come out with something useful (the fact is Microsoft has been a follower and a great marketer, not an innovator). "Find a need and fill it," runs the old adage. Maybe today they should change that to, "Dream up a need and fill it." That's what has happened in the world of computers. And it will happen again and again.
All right, let's return to that wonderful world of perfection. I spent a lot of time and thought in working up the criteria for what I've termed the IDEAL BUSINESS. Now obviously, the ideal business doesn't exist and probably never will. But if you're about to start a business or join someone else's business or if you want to buy a business, the following list may help you. The more of these criteria that you can apply to your new business or new job, the better off you'll be.
(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years -- then another bigger and better retail store moves nearby, and it's kaput for the first store.
(2) The ideal business offers a product which enjoys an "inelastic" demand. Inelastic refers to a product that people need or desire -- almost regardless of price.
(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it's something that can be copyrighted or patented.
(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today's example of this is the much-talked about "virtual corporation." The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.
(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.
(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).
(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.
(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you're now in your own business, you most definitely know what I mean with this one).
(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want -- Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.
(10) Here's a crucial one that's often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There's nothing like being fascinated with what you're doing. When that happens, you're not working, you're having fun.
(11) The ideal business leaves you with free time. In other words, it doesn't require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).
(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).
That's it. If you use this list it may help you cut through a lot of nonsense and hypocrisy and wishes and dreams regarding what you are looking for in life and in your work. None of us own or work at the ideal business. But it's helpful knowing what we're looking for and dealing with. As a buddy of mine once put it, "I can't lay an egg and I can't cook, but I know what a great omelet looks like and tastes like."
Rich Man, Poor Man
Rich Man, Poor Man
RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.
The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.
The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.
And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).
But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).
Monday, April 6, 2009
Interesting Taiwanese Financial Programme
I watch a Taiwanese show on Cable last night and following is a recap :-
1) A head of institutional fund said stock market typically follow a pattern yearly :-
i) Feb-March - Consolidation
ii) Apr - May - Rally
iii) June - Increased Volume but sideway market
iv) July - Aug - Correction
v) Sept - Rally All the way till Jan.
2) They attribute the current Taiwan Market rally to the increase in MFG demand from China (mainly arising from demand for the China山寨products). However, some manufacturers have noted that orders for April till June have decreased significantly.
3) All are optimistic that the US Economy will survive this crisis but global growth will be driven by Asia from now on.
4) The Taiwan yield curve has turn positive and a contrarian indicator of investor risk appetite is the increase of insurance endowment that matures in a few years and pays pathetic interest spiked up sharply during Nov - Jan. The Contrarian means that most who want to leave the market have already left.. so from now on, it will be serious buyers ..
So, my conclusion is the same before I watch the programme, Buy When Dip or Buy when I spot undervalued stocks(according to my own estimation). Focus more on Bluechips for me.. and set aside a little for small caps.
1) A head of institutional fund said stock market typically follow a pattern yearly :-
i) Feb-March - Consolidation
ii) Apr - May - Rally
iii) June - Increased Volume but sideway market
iv) July - Aug - Correction
v) Sept - Rally All the way till Jan.
2) They attribute the current Taiwan Market rally to the increase in MFG demand from China (mainly arising from demand for the China山寨products). However, some manufacturers have noted that orders for April till June have decreased significantly.
3) All are optimistic that the US Economy will survive this crisis but global growth will be driven by Asia from now on.
4) The Taiwan yield curve has turn positive and a contrarian indicator of investor risk appetite is the increase of insurance endowment that matures in a few years and pays pathetic interest spiked up sharply during Nov - Jan. The Contrarian means that most who want to leave the market have already left.. so from now on, it will be serious buyers ..
So, my conclusion is the same before I watch the programme, Buy When Dip or Buy when I spot undervalued stocks(according to my own estimation). Focus more on Bluechips for me.. and set aside a little for small caps.
Friday, April 3, 2009
Of Value and Cycles
I got this quote below from Howard Marks of OakTree Capital :-
"In my opinion, there are two key concepts that investors must master: Value and Cycles. For each asset you're considering, you must have a strongly held view of its intrinsic value. When its price is below that value, it's generally a buy. When it's price is higher, it's a sell. In a nutshell, that's value investing.
But values aren't fixed; they move in repsonse to changes in the economy. Thus, cyclical considerations influence an asset's current value. Value depends on earnings, for example, and earnings are shaped by the ecnomic cycle and the price being charged for liquidity"
"In my opinion, there are two key concepts that investors must master: Value and Cycles. For each asset you're considering, you must have a strongly held view of its intrinsic value. When its price is below that value, it's generally a buy. When it's price is higher, it's a sell. In a nutshell, that's value investing.
But values aren't fixed; they move in repsonse to changes in the economy. Thus, cyclical considerations influence an asset's current value. Value depends on earnings, for example, and earnings are shaped by the ecnomic cycle and the price being charged for liquidity"
Tuesday, March 31, 2009
My Investment Philosophy?
Maybe I am wrong but for the qualitative measures like management ...and the business model.
I prefer to assume that a blue chip has the management quality and business model to sustain (the very reason it became a blue chip was its management ability to create a business model that is competitive in their respective sector). I do know their business model but not in the details. I believe capable management adapt to changes and business model is just an execution of the strategy of the management. Do not fall in love with management as sooner or later an idiot will run the company and you will find it out too late.
I acknowledge that I do not have the ability to understand or read management or their business model in detail. That can only be done by insiders or person working in the industry in management position. For the rest, they are reading and analysing off annual reports and PR and news and that can be a little superficial as those things are meant to be marketing tools. I don't think you can spot cans of worms reading those.
So, I am approaching it via a quantitative screening of bluechips instead of small caps (Which would required really intense scruntiny of the management and business model). Graham did mention in his works of later years that he thought an intense scrutiny of balance sheets and companies might not even be necessary for stock investment. We just need that few quantitative variables that matter. Tweedy Browne did a work on their own investment and philosophy which is nearer to Graham than Buffett.. and have proven for their own benefit that Low valuation ratio have proven to be invaluable to their selection of securities. They believe in diversification and have no more than 5% in any holdings and are investing in a whole slew of securities based on that and they didn't come out all too shabby.
But of course, the trend is my friend too. Or...at least I hope he wants to be friend with me.
I prefer to assume that a blue chip has the management quality and business model to sustain (the very reason it became a blue chip was its management ability to create a business model that is competitive in their respective sector). I do know their business model but not in the details. I believe capable management adapt to changes and business model is just an execution of the strategy of the management. Do not fall in love with management as sooner or later an idiot will run the company and you will find it out too late.
I acknowledge that I do not have the ability to understand or read management or their business model in detail. That can only be done by insiders or person working in the industry in management position. For the rest, they are reading and analysing off annual reports and PR and news and that can be a little superficial as those things are meant to be marketing tools. I don't think you can spot cans of worms reading those.
So, I am approaching it via a quantitative screening of bluechips instead of small caps (Which would required really intense scruntiny of the management and business model). Graham did mention in his works of later years that he thought an intense scrutiny of balance sheets and companies might not even be necessary for stock investment. We just need that few quantitative variables that matter. Tweedy Browne did a work on their own investment and philosophy which is nearer to Graham than Buffett.. and have proven for their own benefit that Low valuation ratio have proven to be invaluable to their selection of securities. They believe in diversification and have no more than 5% in any holdings and are investing in a whole slew of securities based on that and they didn't come out all too shabby.
But of course, the trend is my friend too.
Or...at least I hope he wants to be friend with me.
My Valuation Criteria
A lot of global blue chips (not financials) are turning up in my screen that fits my criteria of, even after normalising earnings & FCF with an appropriate capitalisation rate :-
1) EV/FCF of 10%.
2) P/B under 1
3) P/S ratio under 0.7
4) Discounted FCF with MOS of 20% at least.
6) Dividend Yield of > 5%
7) Strong B/S
Case in point, Arcelor-Mittal... Something is wrong somewhere.. maybe I missed it...
1) EV/FCF of 10%.
2) P/B under 1
3) P/S ratio under 0.7
4) Discounted FCF with MOS of 20% at least.
6) Dividend Yield of > 5%
7) Strong B/S
Case in point, Arcelor-Mittal... Something is wrong somewhere.. maybe I missed it...
Views on Balance Sheet and Valuation
My views on analyzing the B/S, P&L and Cash Flow Statement:
1. On the B/S. A B/S that is well-structured or well-proportioned supporting the underlying business and its further growth, is certainly superior to a B/S with a big overall size and/or big key B/S items. It is also very important to verify that the asset items in a B/S are of sufficiently good-quality, and their values properly or conservatively recorded. Given a choice, I will much prefer to have the body of a healthy athlete, than an 'inflated' body or one carrying 'diseased' parts!
2. On the P&L. It is crucial to first critically assess whether the profits are real, fair and sustainable. To just fall for big and nice profit numbers is obviously quite dangerous. It certainly pays to remind ourselves that profits on the P&L are merely numbers derived by accountants using accounting rules; and it is quite foolhardy to assume that the accountants and management are honest and knowledgeable in accounting, and the auditors are always diligent and never make mistakes. In this regard, having a good-enough understanding of the underlying business activities and the industries concerned, will certainly help in the interpretation and analysis of the P&L and financial accounts.
3. On the Cash Flow Statement. It is only good, if the profits in the P&L and the current assets in the B/S are both good. The primary additional value-add from analyzing cash flow is to be able to value the underlying business based on its capacity to generate free cash, which is superior to just relying on accounting profits.
For valuation of a business or a stock, I like to make it simple. My own views and approach:
1. I will only rely on my own valuation to decide on my own purchase price, after factoring in an appropriate margin of safety.
2. My primary basis for valuation of a business is a reliable estimate of its current aftertax FCF, before adjusting for WC changes or capex. Depending on the stabiity of the underlying business and quality of the financial accounts, I can accept the numbers in the latest P&L, or take a simple average of the relevant numbers over the most recent accounting periods to adjust for volatility.
3. Having determined a reliable estimate of a business' current aftex FCF, I would apply an appropriate multiple - based on my own judgement - to derive my own estimate of the fair or intrinsic value of the entire business. The appropriate multiple will take into account the quality aspects of the business, including its profitability and sustainability, volatility and growth potential, management quality/competence, intangible assets (like brands and goodwill), business/industry risks, long-term capex requirements, working capital/capex requirements, etc. The derived estimate of the fair or intrinsic value of the entire business will be used to determine the fair value of the unit share, after adjusting for any existing derivatives like warrants or stock options.
4. Depending on whether there are additional 'reserve-type' assets - e.g. investment properties, 'hidden' value (vs. realisable current market valuation) in key assets, large cash reserve, etc. - in the company, I will usually attach additional value in my estimate of the fair or intrinsic value of the entire business.
These are comments extracted from Wallstraits Forum. I find it to be of value in my understanding of how others value their stocks.
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