My Investment Record (5) - 01 November 2013

Market Overview

The general market in last 2 month was dominated by two events, one is worry about US Fed may start tapering their quantitative easing program, another is on the congress debt ceiling deadlock that forced the US government to be shut down for 16 days. However, when both event duely passed, KLCI first recovered back to 1800 level after domestic fund buying activities cushioned off the effect of capital outflow, then hovered around at 1770 level, before breaking through 1800 level after US passed its debt ceiling problems. 

Last few months, there are several published articles warned that Malaysia economy may have entered into a bubble. See here , here and here. However, through a glimpse of graph i believe the trend produce make economic sense. It would be natural that, as malaysia real GDP is growing at 5% (nominal GDP = 7%) for last decade, coupled with more advance financial system, we would have higher house price, higher aggregate money (M3) and higher KLCI level. In fact, this article from Economic Malaysia  explains why the bubble isn't that big. 

The conclusion, i believe the property market and stock market is slighly overheating. However, the bubble is not big enough that warrant action by Bank Negara to pop it soon, or that the collapse of the bubble has catastrophic effect cascade down to the markets.

Current Return and performance

The holding period return for KLCI in the past period ( 1st September - 1st November 2013)

is 5.37% (with dividend included). Holding Period return for my portfolio, is 6.99%. Total holding period return since the start of investing is 5.58%, annualized to be 4.77%, this beat the Fixed Deposit rate of 3.2-3.8%, but still far below KLCI return of 14.62% (annualized, 12.41%)

In theory, my performance should track KLCI return although i currently hold non of the KLCI composite stock. In practice, my performance would lag behind KLCI return by 0.5% - 1.0% due to 

1) Trading cost (currently average 0.3%-0.5% per trade)

2) Portion of cash that earn only risk free rate. 

The objective of this investment program remain the same. I will try if i can track the market overcome trading cost and requirement to have cash position, if i can beat the market, that shows i can survive in the investment management business. 

Highlight

MNRB(6459) and YOCB(5159) performed particularly well during last period. 

Position in Cheetah (7209) , UMS-NEIKEN (7227) and XDL(5156) are sold due to uncertain company future. Cheetah is discontinuing stable dividend policy, XDL is splitting stock (to increase paid up capital) again, UMS has high CAPEX this year.  Unfortunately, all three stocks were sold before the end of fiscal cliff in US to preserve cash for any potential opportunity when market overeact and oversold. The opportunity didnt realized, and the selling decision cost around RM 3,000 in lost profit opportunity. 

  

New member add, TWR REIT (5111). Real Estate Investment Trusts(REIT) have high and stable dividend payout. TWR REIT has dividend rate higher than other REIT. 

My Investment Record (4) - 30 August 2013

Market Overview

Between Last holding until now, KLCI once reached its height at 1810 pt on 24th July 2013. However, worrying that US Federal reserve may tap Quantitative Easing (QE) soon, foreign capital start flowing out of emerging market, thus bringing KLCI back to 1720++ level. News of possible military action by US against Syria Assad Government further sent the market down to 1660++ level, where the market recovered only these few days. 

The fluctuation of stock price is emotionally driven rather than fundamentally driven. Thus, when investor's fear prevail, it would be a good time to enter the market and pick some good stock. However, this opportunity window is very short, where local fund will keen on exploiting it hence providing support to price level. 

Current Return and performance

The holding period return for KLCI in the past period ( 1st July - 31st August 2013) is -2.03% (with dividend included). Holding Period return for my portfolio, is -2.37%. Total holding period return for my first year of investing is -1.34%. Which is way below the Fixed Deposit rate of 3.2-3.8%, or KLCI return of 8.77%. 

The bad performance could be attributed to few of the bad picks at the beginning of my investment.  They are Jewellry Company's (Pohkong and Tomei) which suffered badly when gold price drop significantly during the year, non-performing company like RCE-Capital, "red chips" like Maxwell, Msport, XDL that saw their price depressed even though their P/E ratio （less than 3), cash level （higher than current market capitalization) remain attractives.  

Things should get better as my current portfolio is more diversify now, holding some potential stocks like YOCB, MNRB, MFCB and Harrison. Figure below listed a summary of stocks that i currently hold. 

New Members

Cheetah & UMSNGB have the same characteristics, their earning remain stable, ROE and ROIC around 10%, but price is below NAV per share. I believe this kind of stocks have the good chance to track/beat the market while enjoying lower downside risk. However, as general market still in fairly price/overprice region, it become increasingly rare to find the potential picks at bargain price. 

Market Watch - 4th August 2013

Question 1: Recent Fitch downgrading Malaysia's public debt sent KLCI to its first largest decline since GE13, which prompt a question, is KLCI overheat? 

I say no. We are far from overheat. Although KLCI had risen to all time high of 1800 compared to 1400 reached 6 years ago, just before the world financial crisis erupted, Our national GDP in nominal term also expand 1.5 times during the period, which make the KLCI market capitalization to national GDP ratio still significantly lower than what we are 6 years ago. The quick rebound in last two trading day after the sharp decline can confirm that market still confidence in the short and long term outlook of our economy.

However, we might already be at the brink of overheating. A quick scan through majority of stocks in Bursa Saham main market can tell you that there are no more undervalue stocks left to be hunted by value investor. 

Question 2: Talk about recent trend in property market, especially in KL area? 

First, property market rarely collapse unless there is market madness occurring. 

Second, the loan structure that triggered massive rate of default of housing mortgage, which in turn triggered the further collapse of property market, don't exist in Malaysia. I haven't heard of loan with teaser rate, where the borrower pay only 1-2% interest rate at the first few year, then subject to Base Lending Rate at 6-7% been offer in the market yet. With majority of the loan made are in fixed rate, you can be sure of the loan paying ability of the borrower. 

Third, with the latest MRT project coming online, KL will have more extensive transportation network that can cater more population. Property price in this area could hardly go down, when demand still outweight supply , or when people still expecting price to increase in the future. 

Question 3: The long term stability of Malaysia economy? 

I have a theory, which i shall elaborate more if i have the time to do research. 

Malaysia government had done a brilliant thing in creating the Employment Provident Fund (EPF). 

With the total asset of EPF amounting to RM 537 billion, which is about 60% of our national GDP. 

We have the financial capacity to fulfill government borrowing's need, pumping liquidity into private bond market, investing in stock market supporting prices, and even diversify out by investing in foreign equities, bonds and properties. 

A nation economy will start to collapse if investors realize the government might not be able to repay the national debt, which caused the market to charge extremely high interest rate to newly issue government securities, thus forcing the national debt cannot be finance in sustainable way anymore. 

In Malaysia, with EPF fund growing faster than increment of government debt, we wont see problem in near term future. 

However, with huge amount of EPF asset in government's liabilities form, the government is effectively funding our retirement, through collection of tax to pay the interest of the debt. The different between us and the western countries is, western countries like UK and Europe are lived on define benefit plan, while we are living on define contribution plan. The former is more prompt to collapse of the system. 

Question 4: Is China Growth Myth Over? 

I'm afraid the answer is yes. 

Failure to relax the birth control earlier had forced China to enter an Old folk society sooner than expected. The newly implemented retirement scheme and medical care requirement, will put the government financial at strain. 

There is other thing to worry about, 

Civil society required highly educated civilian to sustain. A society where its elite/talent group isnt producing enough offspring, will face the decline of populace cultivation when its education system cant replace the loss.

 It wasnt about the gene that can be inherit from the  parents, but is more about the education environment that the family can provide to the children. 

My Investment Record (3)

Overview

It was a very long time since i last posted on this blog, Debating, CFA exam and outstation to Indonesia ate up all my leisure time. However, there shouldn't be an excused as time could be squezzed as long as you want to. The problem that plaguing me, is how to define my investment philosophy, that ultimately bring me to my destination. 

Between 1st March and 30 June, lots of thing happened to KLCI and general stock market. First, there is a price drop/stagnation prior to Malaysia General Election due to the political uncertainty. Next, KLCI breaks record high when BN win comfortably. Later on, news of US Fed hint on reducing QE at later time of the year, plus economy slowing down in China, caused the KLCI to slowly drop. However, recovery sign from USA lead KLCI regained its foothold, and raised to 1773.54 point. 

The future prospect of KLCI and General Stock Market depends on the general economy and company profit data for Malaysia. However, judging from historical perspective (which i shall write about later on another post), KLCI and General Stock Market is fairly value/Slightly overvalue now. These means, 

a) Bargain stocks are hard to find, b) Direction of where stock market go later, will largely depends on sentimental of market participant, not underlying fundamental. The KLCI might climb to hotly overprice region, or stay at its current level until end of the year. 

Current Return and performance

Total Holding Period return measured the return on investment in one particular period. This concept is extremely useful when you have new round of capital infusion at particular date. Thus it will measure how much the manager earned you if you invest one ringgit from the start of fund until first capital addition, and how much after first capital addition. However, the base figure for calculation of next period performance is not the total amount of capital invest before, but the total value of investment at the end of last period. 

Hence, Total Holding Period Return for my fund from 1st of September 2012 to 28 February 2013, is -8.661% Compared with  +1.37% for KLCI (including dividend yield of 3.6%).However, if you are lucky enough to invest money with me from 1st March onward, a Total Holding Period Return of 10.36% is realized, compare with 9.52% for KLCI (including dividend yield of 3.67%). First time i beat the market. 

The win is meaningless unless you can beat the market for the whole period. The overall holding period  return since the start of investing (Counting both period) is 0.8% compared to 11.02% for KLCI. That is, one ringgit any investor placed with me from the start will have a return of 0.8 sen only compared to 11.02 sen for KLCI. The good news is, i believed my investing skills are improving, the bad news is, it probably takes many year for me to outbeat the market in overall time horizon. 

A summary of current stock that i hold. 

Detail Movement Analysis

The raise of general stock market after Malaysia GE 13 was a good opportunity for me to unload few of the stocks with less bright prospect. Among them are, 
1) RCE capital, a company who supposedly doing well by lending to government servant, but nevertheless performed badly after bonus issues, 

2) Pohkong and Tomei, both will be heavily affected by the current sharp drop in gold price (from around $1600 per ounce to $1200 per ounce and still falling). As both company unwisely increase their inventory during period of high gold price (who knows gold will drop?), and their inventory accounted for  one year revenue, i believe their performance will deteriorated for the next 12 months until they finished off their accumulated inventory, and only turn around earliest at Q2 2014 if the gold price stabilize at current price. You will hope that, the management have the wits to buy enough put option to hedge again fall of value for their huge inventory. 

Other Stock Analysis

The Red Chip

Shoe and Sports ware Industry in China is maturing faster than i previously thought. Low cost of entry, overcapacity, slowing demand and harsher bank lending lead to highly competitive environment. Some company have already abandoned their business, other stay but saw their output crippled. However, most of the red chip i hold have one common characteristic, their Net cash per share is higher than their current share price (Net cash = total cash - total liabilities). 

Hence, buying red chips now is like placing a bet. Some of them will survive the intense competition, some of them will continue making profit, some may stop their production and yet, management refused to return the excess capital to shareholder. Out of the four stock, Xinquan seemed to be more likely to survive, but i feel uncomfortable holding small stake (thus i sold it with 20% profit). XDL and MSPORTS are both likely to continue making money, but MSPORTS is holding the excess capital (which might not be  a good sign). Maxwell just announced aggressive expansion plan recently. Their current stock prices make exit an unthinkable option, guess i need to wait until the reckoning day to see the odd of the bet. 

The Potential

YOCB, a leading home and bed liner manufacturer and saler in the region, with growing middle class population, the prospect is good, But yet the stock constantly beating my expectation. 

The undervalue

Harisson, MNRB are trading low to their intrinsic value at one time due to various reason respectively. But they are fairly value now. High dividend yield, high cash reserve (ability to pay dividend), low P/E and growth prospect make these stock an attractive investment. 

MFCB is another stable business conglomerate as potential "cash cow".

My investment record (2)

This post was supposed to be posted few days ago, before i start another round of infusion of capital. But nevermind, lets continue our review.

Overview
The detail of stock I currently hold, which average acquisition price, and current price is shown in following figure.

Current Return and performance
Total Holding Period return , including interest paid on trust fund deposited and dividend paid, is -8.661%. Compare with the return for FBM KLCI for the same period, which is around 1.37% (including average dividend yield of 3.6%). This is not good!

Although the return is unrealized, and as you can see, when stock price fluctuate, the unrealized loss so far staying at range of -6 % . The most important thing, the ability of the company to continue earn more money, have mixed results, where some are getting better, while other are getting worst. 

Analysis by sector
China Stocks (red stocks) 
M-Sports is still in profitable condition (P/E ratio still below 3), have ample cash position. although the future earning prospect remain uncertain. 
Maxwell and Xinquan are both doing well (profit increase in a tough environment).
XDL is ok. 

Jewellry stock
Both suffer heavy performance deterioration in latest quarter. Both have increasing cash drain problem. Both P/E still remain low (below 8), but both are no longer attractive investment compared to the past. 

Other
YOCB is doing well. RCECAP is getting worst.

How to get rich(4)- Mr Market and Stock evaluation basis

If you are a stock (or share or securities) investor,  what do you hope tomorrow market direction to be?

Most investor will hope the market will go up forever, so that tomorrow (stock) price will be higher than today, and their net worth will increase everyday. In fact, if every market participant hopes that way, they are hoping for someone to always pay for the higher price. But one would wonder, if the musical chair somehow stops, who will end up with the stocks when market is turning tide?  And how do you know when the musical chair will end? 

Thus, you should only hope the market go up forever, when you plan to sell, or stop buying in the future. 

An intelligent investor according to Benjamin Graham or Warren Buffet, which plan on keep buying in the future, will pray for the market to stay flat or even going down tomorrow, so that they can keep buying the stock at bargain price. In that case, they are not hoping to profit from capital gain, they are hoping to profit through underlying cash flow derived from the stock. 

How do you determined if the stock is underpriced? 

One simple way, is to find the implied rate of return using Present Value formula, 

P = D/ ( r - g) 

Where P is current price, 

D is amount of dividend, 

r is the implied rate of return,

g is the growth rate , equal to ROE * retention ratio

Retention ratio = amount of earning that is not pay out = (1 - D/E)

Using public bank as an example (stock code 1295) With Price = RM 15.64, Dividend per share of 48 sen, average ROE of 25.4%. and retention ratio of 0.52 for last year, 

g = .52 * 25.4% = 13.2%

r = D/P + g = 3.07 + 13.2 = 16.27%. 

Seem a good buy as implied rate of return is 16%! 

However , an investor should noted that, a large portion on the rate depends on the growth component, 

And it seemed that current earning growth for public bank have slowed to 10%. 

In other way, given the price is highly above its tangible asset (RM 4.83) , an investor can only recoup his principle from the dividend income. A dividend of 48 sen with 10% growth will repay the nominal principle in 15 years, which roughly translated into 6.6%  implied rate of return in 15 years. 

How to get rich(3) : Gamblers beware - on Technical Analysis and Forex

For past tips , please see here for how to use float, and here to understand the risk and return characteristic of investment products.

What is [ technical analysis] ?

Taking from wikipedia, 
" Technical analysis is a security analysis discipline used for forecasting the direction of prices through the study of past market data, primarily price and volume." 

In short, by trying to predict what the market will go next through current price and volume information, people are trying to [ act ahead ] of the market and taking profit from it.  Technical analysis is easy to learn, and can be apply to virtually any market which price and trading volume can be charted. There are so many experts that claim themself have been successful in technical analysis, that they can win big utilizing relatively small market daily price movement through the use of leverage. There is, however, one question that investors ask themself, if trading in currency exchange market using technical analysis is so successful, and everyone taking the same strategy, where is the winner's money came from? 

Unlike [ Stock Market ] ,  holding currency in a foreign exchange market will not generate cash flow over time. The only return you can get, is by buying low and selling high. But in foreign exchange market, every buyer must be matched by every seller. This mean that if one's is making money at this moment, someone else must be loosing money at corner somewhere around the world. One can easily related the trading in foreign exchange market as gambling in a casino. 

One would wonder, if the overall wealth of all the participant won't increase in a foreign exchange market, why would the brokerage firm like FOREX so keen on encouraging others to take part, and even providing free chips for them to start?  The answer is very obvious. Company like FOREX gain through the tiny amount of transaction fees they charged, hence the more you trade, the more they gain. 

What about those financial gurus that claimed to have [secret recipe] for successful trading? 

Well, think of all the gamblers in a casino each have different way in predicting whether the ball in a roulette game will fall on red or black square. Overtime , there must be someone that are lucky to predict accurately at 70/80% of the time. Now, the one who might be just lucky can sell whatever formula he have based on his past records. While the buyers seldom realized that, in a casino game, success can't be replicated. If there is one winner who success by trying the formula, there would be more people who end up loosing, and their failure will be attributed to their inability to master the trading formula...