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.

Debt Issues

For personal investment, some like to use debt, some avoid using debt. There are no right or wrong on this matter. To me, is all depend on which asset class you invest. Using debt in stock investing is very risky, but in property investment it is a leverage game. Give an example below, see which camp you prefer.

Case 1:
Cash = 30K
Debt = Nil

Case 2:
Cash = 30K
Asset = 100K
Debt = 100K

Case 3:
Cash + asset = 130K
Debt = 100K

Case 4:
Cash + Asset = 530K
Debt = 500K

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All the 4 cases above, you net worth are the same, 30K only.

The tricky issue here is if your able to turn debt to "self financing" with surplus; then how we going to treat or classify this debt?

Are Case 1 is wealthier than Case 4??
Sure Case 4 is richer, althought the net worth is still the same.

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In stock market, some of the listed companies like IOI and QL, are using debt to grow their business. So are this type of stock worth investing?

Personally I dont like this group of stocks as investing in stock market is already high risk investment. Better not to compound your risk.

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In property investing, is also dont compound your leverage by buying cash depleting "asset".

Buy and hold is dead?

Buy and hold is dead. I heard people are talking like this a few months back. My opinion is this may be right if you taking a short term perspective. At the current market state, is more easy to trade rather than buy then hold for a long period to realise the "intrinsic value" or "fair value". If you apply trading strategy for last few months, you may sit on handsome profit. People tend to talk louder when they are making good profit. I also have to admit that trading is more appropriate currently. If you traded correctly, making >20% is not a mammoth task, and you are on par with all the investing gurus. There are no reason not to shout about. I have seen enough people or so called "investor" huhaa at bull market but eventually disappear after bear market.

Investing in stock market is a long term business. To survive or making money in stock market is not how much you made in this year alone but consistency of profit you make year after year. All the gurus build their wealth and reputation due to they had achieved a long history of consistent above average profit. Any given year there are sure some "smart alec" is making more money then these gurus, but where are they?

The gurus must sure have some strategy to out last the bull and bear market that is unavoidable. And i am sure that their strategy is not short term oriented, since they are building wealth and furtune over a long duration. I am not against trading, but you have to limit your exposure. Is fine to trade 10-20% of your capital, but dont forget you must also ready for long term cycle of stock market.

To trade or not to trade? Is up to you. Frankly, i spend lesser time in stock market for last couple of months. The reasons are is stock market is high although is not forming bubble yet (my opinion. Contrary to year 2008 the market was traded above 1400. i sold most of my stock) and good buy would not appear now. The other reason is i spend more time in property investment.

Streamline of Portfolio....again

I have streamlined again my stock portfolio. My core holding reduce to Hartalega, Public Bank and Allianz. All my Topglove has been converted to Hartalega and Public Bank. The reasons i did so are nitrile glove is cheaper than latex glove, there may be foundamental change of latex glove producer because high raw latex price. It look like latex glove going to lose its edge. I dont foresee price of commodities going to drop in the offing. This going to hurt latex producers, especially players are not competitive in their price. Although Topglove is still the low cost producer of latex glove, and nitrile glove capacity is still unable to eat big market share from latex glove, but over time it will. Can you imagine that a premium product (nitrile glove) is selling cheaper than non-premium product (latex glove), what going to happen? Hartalega going to enjoy the wide profit margin and demand increase. I consider Hartalega is "able and lucky" as describe by Phlip Fisher. Bullish on it.

In early of year 2009, i converted my LPI to Hartalega. After that both also flying high. However as on today, net profit of Hartalega is more than LPI. Is a matter of time the market capital of Hartalega will outpace LPI. The distintive difference between the two is LPI paying good dividend, Hartalega is growing faster. Which one you prefer is depend on which camp you in.

For same sector comparison, Allianz is making comparative net profit as to LPI, however it is trade at steep discount to LPI. The market capital of Allianz (inclusive if Allianz PA) is aroung 1.4 billion but the market capital of LPI is around 2.5 billion. LPI is paying good dividend but Allianz is going to pay good dividend after settlement of loan from parent company. Again it depend on which you in. (P/S: Allianz is a low liquidity stock)

As for Public Bank, i knew it not going to fly but it still able to grow and paying good dividend. Again is balancing value and growth stock. It still not trading at the reasonable prospective PE (i peg at 16) of a well run business.

Underperform - Year 2010

Is about 2 months i did not update this blog. I am not out of the market but less attention. I did make some adjustment to my portfolio, this is due to i need more capital for my property investment. My holding currently just consist of Public Bank, Hartalega, Top Glove and Allianz. I am still holding stocks consist of value and growth. It look like i am going to underperform the market for the 1st time in 10years since 2000, but it did not bother me at all. I am not chasing the short term performance. I rather to stick to my strategy and investing method which has beaten the market for a long duration. I am looking at long term competitive advantages of my holdings not the short term share price fluctuation. As long as i am satisfied with their competitive edges i will hold them as long as i could. I am long enough in the stock market, i knew how to beat it in long run.

For property investment i just bought my 2nd and 3rd property with friend. One is for rental income and the other one is for capital appreciation. I prefer not to talk too much on property since i am still learning, limited sucessful case able to share. Furthermore, there is a debate on property bubble or property super cycle.