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.

Allianz 的 appraisal change

Allianz，最近买入了这间公司。有朋友问说，它也不怎么样 undervalue，underwriting 也不是非常出色，dividend 也很低，怎样看都不是很值得？？

保险公司是我一路以来都有留意的行业。打从10 年前看了评述 warren buffett 的书后，就买了 P＆O 和 LPI，也曾买过 Kurnia Asia。亏过也赚过。这行业的重点是管理层，只有好的管理层才能创造价值。

从cimb 那里买入普险业务后，跟母公司借了 490 Mil。问题也从这里开始，虽然是零利息的贷款。还有就是 bank negara 对资本要求的提高。为了解决这问题， Allianz 通过优先股筹了 611 mil。

那又有什么卖点呢？是 appraisal change。

通过优先股，它解决跟母公司的贷款 和 bank negara 对资本要求。从现在开始，它的盈利都可派发给股东。还有它的管理层也不差，形象会改变！

情绪切入法

Behavioral finance 华语我不知如何翻译，在佳礼的 Jeangrey网友 称它为情绪切入法。这东东的佼佼者是 bill miller 和 charlie munger。在美国 subprime 发生之前，bill miller 在这方面是非常出色的。

bill miller 在还未成为 fund manager 之前是读心理学的，在成为 fund manager 后，他把心理学的人性的弱点或盲点用在投资。在1985年开始，他就研究 warren buffett，benjamin graham 和 philip fisher 的学说，学的是 value investing （价值投资）。在他投资生涯的初期，多数投资在 old economy 的行业如银行和零售。在90年代中期开始，他把 value investing 用在科技行业上，买的公司有 Dell，AT＆T 等等，在2000年的科技泡沫前减持科技股。他的看法是 value investing 也可以用在这些科技股上。他的专长是研究投资大众对某些公司或行业有没有 mis－perception，而造成股价的 mis－price。

N年前，当 google 要上市的时候，他就马上成立了一个小组来研究 google。结果他得到的结论是市场或投资大众严重的对 google 不了解，也造就了 google 当时的 IPO 的 book building 被低估，他的平均买价是少过 100 美元。事后证明他的眼光独到，也赚了大钱。

他另外的观点有如 amazon 的 profit margin 和 Borders 同样是 8％ 是否也存在着 mis－perception 等等........

其实 behavioral finance 早在 benjamin graham 的 ＜inteligent investor＞ 一书出现，里面的 fear ＆ greed 也就是情绪切入法的一环。

当 Jeangrey 在两年前的佳礼发表，造成论坛的一小震荡，原因不外是人们没有听过，内心的求知欲望造成羡慕，也不停的猜测，不知觉中也掉入 behavioral finance 里的 mis－perception。我曾在佳礼说过 情绪切入法 只是 value－added，如果独立的在用会使你走入猜测股市短期的波动，那你就是在投机！！

我说它是 value added，是因为前提是你要会用 value investing！不然你会越踩越深，掉入别人或自己的情绪里。我也对佳礼的一些网友说，这情绪切入法不适合他们，因为他们的价值投资的基础不强，但听得进去的又有几个呢？

谁又会承认自己的基础不强呢？这也是人性的盲点！！！