The Market and Me

The market is highly fluctuated at the moment. Put it this way i am not well prepared at present. My cash level is not high enough to take advantage of it. I still not willing to lower further my cash level until that is really a big steal. If the steep drop of share market happen in September or October it would be better as my source of fund will flow in by then. To me this round of sell off is the correction at the bull market as the profitability of businesses is not affected, only the prices of share went down. It is an opportunity to be exploited.

Besides, i also need fund for my property investment. Although i decided to pull out one of the condo i booked earlier this year due to pricing issue, i am still looking for investment elsewhere. This year i still not buy any property yet as my decision is hold back by this earlier booking. Since this is off, i am prepared to move ahead. There are some similarity between share and property investment, there are only buy the good ones and hold until the market appreciate it. Although the selection criteria are different but the principles are the same.

Both Public Bank and Hartalega reported fabulous financial results but the market still did not appreciate them. As the market is not efficient, however it long term it will. I still believe in this if not i will out from share market long time ago. The price performance of Public Bank and Hartalega is nowhere close to the performance of GLIC companies. Some say they are vomit blood companies as their share prices barely move. I still long on both counters not because i want to prove them wrong but to make money. I wont sway my believe and strategy. As long as they deliver good financial result i am prepared to hold for long term.

I did not update my blog for months because i have nothing to say. Buying share is not day to day business, most of the time doing nothing is doing somethings. My family members and friends are also at the same boats, i rather being conservative to make sure the boats are safe.

YTL Cement

Construction materials are some of the items to be benifited from the ETP and to be specific Greater KL. If the above are successful implemented, Malaysia construction or infrastructure industry set to pick up or boom. My opinion is good time to buy YTL Cement with reasonable valuation. Talk in detail later

Patience and Time

Some of my closed friends had started grumbling on the share prices of Hartalega and Allianz, but not Public Bank as they dont own it. In fact, the share prices of Hartalega, Allianz and Public Bank are sideline for months, even though all of them reporting impressive financial results. Every time they grumble to me, i told them to be patient as once the share price go up it will not stop.

Moving of share prices is illogical and irrational in short term, as it purely depend on the "buying interest" of the mass investors, it had nothing to do with the financial performance of individual company. A company can produce a wonderful results but without "buying interest" their share price will be sidelined, until the mass investor realised its potential, then it will be traded at "fair value", after optimistic kicking in it will be traded at higher PE valuation, finally traded at premium when investor priced in the future prospect.

I have mentioned previously that the only advantage a tidy retail investor possess in order to outperform the market is time. To beat the market you need to have patience, if the companies you vested are good then time will be at your side. As Warren Buffett had said "time is friend to good company but foe to average or below average companies". So let time work for you, over a long duration, good company will make more and more money. A company that making more money year after year will "worth" more and more as time will work for it. Or time is money!

A closed check of the financial results is a must to ensure that the companies you vested is good or average only in order for the above principle can be applied. This is a separate issue, not in the discussion today.

A company that is unable to increase their profit over years, an example BAT, it share price hardly can move over years, as time is not working in its favour. Althought it still paying out good dividend, but please construct a discounted cash flow for BAT, it will not be a surprise if you noticed that the future value is lesser that today; even without considering the inflation.

Buy only company that able to grow over a long duration for "time" to work for you.

Add position to Public Bank & Hartalega

There is nothing happen to my portfolio for the past months. However received new source of fund recently, add position to Public Bank and Hartalega. Public Bank just announced a very Strong 1Qtr results yesterday, net profit up by 20%, look like it going to make EPS of 95sen for year 2011. At the current price, it deemed quite attractive, PE is less than 14 for a well managed company. Many may not like it but not me.

As for Hartalega, i am quite optimistic that it is going to announce another record net profit, EPS can be around 53sen easily. It is going to built its plant No. 6 to expand further. I like company that able to grow organically, Hartalega is one of that in Bursa Malaysia. As i mentioned previously that a company only can fetch a higher PE valuation if it able to grow (in term of net profit) and pay good dividend. I am still waiting for the market to appraise it as grow stock valuation.

For property, i booked one more condo, nothing conclusive yet. Able to know the outcome or selection by next month only.

Comments

In the latest Berkshire Hathaway annual report, Warren Buffett talk about conserving an emergency fund for rainy day. It is very true and it is able to pull you thru during bad economy or crisis. Indeed it should form part of our portfolio management and the level of cash should depend on our strategy. This is crucial when your capital base grew bigger and your monthly income is insignificant as compared to your capital. (I had talk about this previously)

Crisis will come in every different forms each time, only a few are able to foresee that. Layman like us, is better to have some strategy in placed. In year 97-98, i was badly hit. Luckily my capital is very very small, that is my pocket money during college days and i knew nothing about share. I bought share merely follow friends recommendation. In year 08-09 i am well prepared for the bad time, was able to snatch some stocks at steal price. Selecting stocks in bad times is easy because even good companies will traded at floor price, however buying is tough. You need to have gut to go ahead which is against the crowd.

In bad times, most of stocks appear to be not safe, you are worrying that they might drop further. In reality it is safe to bet, is all human nature make you feel that it is not safe. Everything appear to be not cheap.

However in good times like now, most people feel that a lot of stocks it very attractive at current prices. They feel that some stock traded a a single PE is undervalue, they assume that this group of stock should command a better valuation. What a turnaround! They start to talk about the future of the company, the balance sheet, cash per share, and etc.

Just wonder why the stock selection criterion has changed so fast!

Comment and opinion

CNY is over, have to back to business as usual. Vet through most of the analysts' top pick for the year of rabbit. Surprisingly only one research house has picked my favorite counter - Hartalega. Only one analyst in The Edge highlighted Allianz, none has pick Public Bank. Ha..ha... what can i say? Absolute nothing. Most of the analysts tried to pick a winner for a short period, they need to prove themselves in a short period to build up their reputation or so that they are able to come back next year telling what their buy list for the following year. Is all different strategy at all. My strategy is to pick up stocks that able to generate substantial profit increase for the coming years. Sometime the stock i bought does not "move" for more than a year, but i still stick to it. Eventually it did move up and achieve the return i wish.

So do i have the pick for this year? I also don't know, as i most probably will stick to my holding or add my position in Hartalega and Public Bank. If market presented a good buy, i will take the opportunity. There are nothing cast in stone. I also follow closely on the saga of Hong Leong Bank - Eon Capital, it look like the deal most probably go through at the expense of Primus. HLFG appear to be the eventual winner.

CPO price is close to its historical high, however the plantation stocks did not enjoy the rich valuation compare to 3 years ago. Maybe investor already aware that no matter what it is still a commodity and cyclical in nature. Besides, there are no value pick at the surface, as i seldom buy these kind of stocks.

The Greater KL unveiled by the PM is making its present, property stocks are rising. Soaring property prices is good for those already vested, bad for the awaiting to get into it. Maybe i will try to get one more for this year, as the prices of future years appear to be more scary. Of course there are so many argue that there is a bubble, i only partially agree on it at the selected locations. Soaring prices is not equivalent to bubble, affordability is the issue.

Review of Year 2010

For year 2010, i thought i am going to under perform the index, however the last minute "window dressing" by the market has help to improve my return to 21% as compared to index at 19.3%.

My biggest mistake for the year was add on position to Topglove, although i still not suffering any lose of capital based on average purchased price, however it has affected me on the opportunity cost. I failed to foresee the adverse future of latex glove which is diminishing and the outlook will remain unfavorable in foreseeable future. A bleak outlook of latex glove means bright outlook for nitrile glove as the market is not going to shrink. I still positive on Hartalega. Despite the fluctuation of share prices, surprisingly it still beat the market.

Public Bank is slow and steady. It make feel safe to charge ahead - means have buffer to pick relative smaller growth stock like Hartalega. As i mentioned previously, it not going to fly but it is a safe bet.

Allianz, surprisingly also align with market performance due to i was lucky to pick it quite low. Market will appreciate it after it might declare higher dividend. It still relatively cheap as compared to LPI.

My other blunder will be JCY, i should stick to my initial intention, which is to sell it after IPO. I applied the IPO with intention to make use of my idling money, but after that i shift my strategy because one of friend work at WD told me it might be a good bet since it was dominating the supply to WD and Seagate. Sometime in stock market even insider can't help much.

Based on the current market condition i am reluctant to commit more capital but also not thinking to reduce my exposure yet.