Happy New Year 2018

31 December 2017

 

Dear Fellow Investors,

 

It looks like 2018 will be a good year for us just like 2017.

 

If we focus on companies with strong underlying fundamentals that trade below intrinsic value as we did in 2017 we should enjoy above average returns.

 

While in Langkawi last week, while watching the ocean waves I read a short but very powerful book by Ben Stein.

 

 

Ben is a value investor and a personal friend of Warren Buffet. He has built a fortune over the years by accumulating quality dividend paying companies with solid fundamentals.  

 

Ben is also a financial planner who advises his clients on how  to build wealth. His message is simple and he shows how to leverage on the expertise of great business managers by buying shares of their companies. It is how to leverage on capitalism without the headaches of running a business. 

 

With Trump in power we are seeing a major shift in the US from socialism to capitalism. 

 

With lower taxes across  the board, infrastructure spending, Obama care phase out, welfare and social spending cuts, a 37 % cut in corporate taxes and foreign aid cuts, the average citizen is seeing more money in their pocket. This is money that will stimulate business and boost the world economy.

 

With continued low inflation and low interest rates in most of the world how can you not be an investor ?  

 

Gary Dorsch, of Global Money Trends sums it up:

 

“In 2017, the biggest drawdown for the Dow Industrials was -2.4%. As a result of the nearly $2-trillion of liquidity injected into the world’s money markets by central banks this past year, virtually all of minor market “shocks,” such as North Korea’s detonation of a hydrogen bomb, proved to be fleeting and an invitation for the Buy the Dippers to jump right in, and fill the gap within days if not hours. The typical SPX trajectory around domestic political and geopolitical shocks since World War II has historically been of sharp, short-lived selloffs with relatively quick subsequent rebounds. Here is the average pathway for a Pullback: Down a median -5.7%; Then 3 weeks to find a bottom; Another 3 to recover prior levels; And significantly higher out 3-months (6.5%) and 12 months (13%)”

 

Please have a happy, healthy and prosperous  year of the dog

Bill

 

There has been progress on our puppy adoption drive. 4 have now found homes. There are 8 adorable ones left.

 

From the owner:

 

“They are starting to get active and their Mum finds it hard to feed esp the bigger white ones push the others away. We are supplementing the smaller ones with puppy formula but Mother’s milk is best. She sleeps outside their main box as they are getting larger and active when they see her.”

 

If interested to adopt, please whats ap/ call me 012 685 1207 and I will reply with the name of the   owner and contact number.  The owner lives near the Securities Commission in Damansara.

 

 

Merry Xmas and Happy New Year from us

Dear Fellow Investors,

Dolly and I will be going to Langkawi over Christmas and returning next Thursday. If you need anything regarding your account please call our customer service, Ms Nora or Idza at 03 2783 0300.

You may also call our analyst Angelina Chong @ 012 223 7528 for market information and the specific shares you are holding.

Angelina has spent the last 2 weeks researching the best opportunities in the plantation space. We will allocate to your accounts in due course.  

There will be no report this week but should have one out on the 30th of December. 

Merry Christmas to our Christian clients and lets have a prosperous New Year

Bill

The odds favour the bull in 2018

We buy before the crowd

18 December 2017

Dear Fellow Investors,
Last week I bought for all EPF and private managed accounts Hong Leong Bank Bhd.

I bought during a period of market uncertainty and pessimism. Malaysian banks have been congesting with a downside bias for the last few months but value is emerging.

I sold Nestle which in my opinion is overvalued and over hyped. Nestle PE is over 35 with a dividend yield less than the money market rate. Nestle insiders have been heavily selling near the highs. Revenues and profits have been dropping

In contrast, Hong Leong Bank has a PE of  12.7 and is off the radar screen of most investor.

I also like their focus on fintech.  The Star  noted that Hong Leong Bank is the pioneer in implementing cognitive banking in Malaysia in partnership with IBM Watson. 

“This combines a machine learning interface and big data analytic, and paves the way for more
customised products and faster customer servicing turnaround time.”

It’s official! Hong Leong Bank’s fintech startup programme goes live in Malaysia, 17 Mar 2017

Photo - (From left): Nazrin Hassan, Group Chief Executive Officer of Cradle Fund Sdn Bhd;  Dr. Sivapalan Vivekarajah, President of Malaysian Business Angel Network; and Domenic Fuda, Group Managing Director and Chief Executive Officer of Hong Leong Bank Berhad

Singapore banks including OCBC, DBS and UOB  have had a good run this year and one reason has been their fast adaption to fintech.  Fintech reduces headcount, increases efficiency, and increases profits.

Malaysia is catching up and that is our opportunity. We buy before the crowd.

There are tailwinds: Bank Negara  is on course to raise interest rates perhaps in the 1st quarter of 2018 and that will increase profits for the banks.

Loan growth is gradually picking up and the election is around the corner. Malaysian growth  also has increased to 5.6 %. Oil prices have picked up and this improves  bank balance sheets.

Banks are the foundation of any economy. An economy will not recover unless the banks recover.

Singapore is an example. Singapore has recovered from a grinding multi month bear market as banks and property were hit.  

Sentiment turned and with Trump winning the election  Singapore banks have lead the SGX to multi month highs and property in Singapore is recovering.

Will this happen to Malaysia ?  My bet is Malaysia will recover and buying banks is a low risk way to participate. Caveat: Be selective.

Invest well and grow your wealth,
Bill

Today there are 12 critters: Father resembles a Thai Ridgeback, He has a blue/grey coat. Mum is short haired tan/ light brown with white paws, both intelligent, Born 9 December 2017 Grey 1 female/ 1 male. Black 3 female, 2 male and white 2 female and 3 male.

If interested to adopt, please whats ap me 012 685 1207 and I will reply with the name of the   owner and contact number.  The owner lives near the Securities Commission in Damansara.

2018 should be a positive year for our investments.

11 December 2017

Dear Fellow Investors,

Our focus for 2017 has been mainly on multinational companies with Malaysian subsidiaries.  Examples include Heim, Carlsberg, Nestle, Inari and Uchitech. We also have some glove exposure as well as Gas Malaysia.

Biotechnology products commercializing health care services are examples of the many offerings of Uchitech.

This equity balance has allowed us to profit from  well managed, financially sound

businesses .that pay regular dividends.   

It has allowed us to outperform our KLSE benchmark.

Our 2 tech companies- Inari and Uchtech are leveraging on   the world wide boom in AI, fintech, micro processors and robotics.

Inari just announced their 1^st quarter 2018 results. Profit margins expanded from 14 % to 18 %. ROE increased, earnings advanced and net profit was up.   Although the PE was 26.08 the PEG ratio (Price/ earnings growth) was only 0.4 meaning growth is expanding faster than earnings- a very positive sign.

Our latest addition- Nidec Corp listed in Japan for our PGWA accounts  is unchanged in price despite the 8 % correction in world technology shares. If you think the disruptive technology of electric cars will snow ball,  Nidec is the share for you.

In 2018 we will be seeking similar companies that are disrupting the status quo, are off the radar screen, and meet our very strict criteria for sound management. We will be visiting these companies to get on the ground exposure and feedback from management as we do for all the companies we place in your portfolios.

2018 should be a positive year for our investments.

Below are some comments from  Gary Dorsch of Global Money Trends .

“Nowadays, it’s a waste of time to try to figure out the state of the world economy, or that of a local economy when trying to judge whether to invest in a local stock market, or not. Instead, all that really matters is the rate of inflows of liquidity injected by the central bank into the local money markets.” 

With Trumps new tax reform and near zero interest rates expect money to flow into equities world wide. .As the Malaysian election nears expect more liquidity to flow from our central bank.

As we hold the above shares mentioned please consult me if you wish to buy.

Invest well and grow your wealth

Bill

Today's 'critter' is a lance-tailed manakin which hails from Costa Rica to Northern Venezuela.  It is a small, compact bird about 13 centimetres (5 in) long.  Both sexes have the two central tail feathers elongated to form a spike. 

A disruptive trend which is emerging is Phygital.

2 December 2017

Dear Fellow Investors,
A disruptive trend which is emerging is Phygital.

Businesses which combine the physical presence of a store with a digital platform  can survive and prosper .

Mr Alan Tong in his recent Edge column commented on this topic and why we need as investors to adapt to this technology . He cited examples of Amazon and Alibaba.

I have been following Tong’s value investing column in the Edge for the last 2 years. He publishes a Malaysian portfolio which has performed well despite the KLSE making an 8 month low last week.

Because of the lack of volume and interest in the KLSE , he has been commenting on broad investment topics rather than specific shares.
For the last 4 weeks, he has not made any new KLSE recommendations.

He is keeping a low profile and is keeping a 26.9% cash position.  If he were bullish he would be at least 95 % invested.

His latest comment;

“Despite the ongoing rally in global and regional markets, confidence in the local bourse was weak. The benchmark index appears to be well supported by local institutional funds, but the sell off in smaller cap stocks is clearly evident.”
Tong’s comment makes sense so
we need to be patient and wait for confidence to return before aggressively getting back into the KLSE. I would like to see  banking shares to begin a recovery  before fully committing.

Look for value stocks diverging from the overall trend. There are some bright spots in
 Singapore, Japan, Thailand and Hong Kong due to a banking and property recovery. There is value in these markets

We are well positioned to leverage on this recovery. For those who wish to join me on the Asian recovery story consider to open a Phillip Global Wrap Account. Come and see me in my office and I am happy to share the opportunity with you.

Invest well and grow your wealth
Bill

Today’s critter is the red-crowned crane, also known as the Japanese, or Manchurian crane. Adult red-crowned cranes are named for a patch of red bare skin on the crown, which becomes brighter during mating season.  It is one of the largest of the crane species.  The estimated total population of the species is only 2,750 in the wild, including about 1,000 birds in the resident Japanese population.

Hidden potential selling means smart money will blast the media with bullish stories

25 November 2017

Dear Fellow Investors,

On 20 November 2017, Nestle had an ultra wide range price gap on the highest volume in 8 years.

Notice the wide gap on the chart. Nestle daily chart with last week’s price action. Notice the  gap on ultra high volume.

Some would call this a breakaway gap but since Nestle has been in a steady mark up phase for the last 3 years I would designate this as hidden potential selling and a change in behavour to distribution from markup. 

In fact one of the company officers as reported in the Bloomberg’s insider dealing report  sold 600,000 shares on this bar.

Hidden potential selling means smart money will blast the media with bullish stories to induce the crowd to buy at the high while they sell.

This volume was significant as the usual volume in Nestle is only a few thousand shares.

Smart money in the last week continued to sell in this distribution stage.

Will smart money continue to hold up the price so they can off load more shares ?

I have no idea but when I see something like this, I am not going to stand there and hope as the odds are not in my favor.

For all our clients and myself who have held as long as 7 years, I sold. We made handsome profits.  I am not smart enough to know the exact high or the low but when the odds are against me I look elsewhere.  Our job is to make a profit not to pick the high. 

Where should we look to find better odds?

We should look for companies that are disrupting traditional businesses whose focus is  robotics, artificial intelligence, micro processors, automation, and digital services.. 

There are some in Malaysia such as Inari and Uchi Tech which we hold. Our recent purchase of Nidec of Japan for our PGWA clients  fits  every criteria for disruption.

Contrast  this with media companies in Malaysia which have dropped an average of 25 % in the last 2 years. Retailers have fared worse. Property counters in Malaysia have been a disaster so far in 2017.

Sears, a major 100 year old retailer in the US has dropped over 90 %, while Staples, one the biggest office supply companies in the world is down 50 % in the last year. Amazon however is up over 1000 % since listing.

Lenin a Russian politician, said “ there are decades which pass and nothing happens and then weeks where decades happen.”  My gut tells me we are in one of those weeks.

A play on China and technology

By the way, we bought EWH for some of our PGWA clients. It is an ETF traded in New York which has a big overweight position in Tencent as well as other blue chip Hong Kong shares.  Tencent  is a leading edge technology company giving Amazon, Apple and Facebook a run for their money. 

EWH continues to make new highs and pays a 2.8 % yield.  PE in the Hang Seng is only 13.4  a far cry from overvalued US shares.

Invest well and grow your wealth

Bill

Today's colorful critter is an Indian roller from India

Demand and palm oil prices increase due to population and growth

18 November 2017

Dear Fellow Investors,

We continue to search for value.Within the current KLSE inertia   more value opportunities are emerging.

One such opportunity is in the plantation sector. There are some quality plantation shares that offer solid fundamentals, high dividends and honest management. Some are trading at reasonable valuations.

Two small countries Malaysia and Indonesia produce 90 % of the total world palm oil which represents a large share of edible oil. Our largest buyers China and India can not grow palm oil and as their wealth and population grows they will continue to buy more palm oil from us.  That means well run plantation companies will benefit from sustainable profit growth.

As value investors we always focus on profit growth over time.
Based on the latest PORLA report the world requires over 7 million tonnes of additional edible oil per year. Demand will increase as well as palm oil prices due to population and wealth growth.

Global consumption of vegetable oils is in a steady uptrend since 1995

We intend to add a quality plantation counter to your portfolios in due course.  

It looks like the tax overhaul in the US is on course to become law. It will lower taxes for corporations and individuals.  and  will stimulate consumer spending and boost stock markets world wide.  

If the liberals/socialists in the US block the Trump tax cuts it should not affect the supply demand for oil seeds and most of the shares we hold.

Invest well and grow your wealth
Bill

Today’s beautiful critter is an albino moose from Sweden. Government officials wanted to euthanize the moose because it was eating apples from the  forest and was a general nuisance .  

Thanks to You Tube publicity there was a huge public outcry and the government officials backed down.

Thank God for technology. It saved the moose as the moose is now safely in a sanctuary.

Magic carpet ride

13 November 2017

Dear Fellow Investors,

There is a magic carpet ride that never seems to end. It is the technological revolution that is changing the world and the way we invest. 

Electric cars, smart phones, big data, artificial intelligence, automation and robotics are the places we want to have exposure.

Inari which we bought a year ago has been a play on Apple and smart phone technology as Inari manufactures the radio frequency chip for the Apple phones as well as other phones.

SATS one of our Singapore holdings  has been a play on automation. They have a virtual monopoly on ground services and catering at Changi airport in Singapore. They have been replacing human workers with robots to reduce head count and increase profits.

Their latest quarterly/ half year report released yesterday shocked many bearish analysts. Profits, growth and earnings were up despite profit margins of air lines being squeezed  and on this earnings release the share jumped 6.8 %.

Based on their recently signed  contract with JetStar to provide in flight service for over 600 flights a week and the opening later this year of the 4^th Changi terminal, growth in earnings should be sustained which should result in higher dividends and a higher share price.

Kossan Rubber another one of our holdings has performed in part because of their focus on innovation and automation which has resulted in lower worker headcount and increase in profit margins. There completion of a new modern production line will increase profits

Uchitech, a recent purchase for our managed accounts leverages on microprocessors for medical equipment and coffee machines.

Our most recent acquisition- Nidec- is a play on  robotics, automation, micro motors and  electric car components.

When we invest in any company we need to focus on how the company increases earnings with technology.

Low interest rates virtually world wide below inflation rates and loose monetary policies help the carpet fly. The new Federal Reserve chairman, Powell is a super dove and will provide stimulus to keep the carpet flying.

Trump fired Yellen as she was not dovish enough and she was a Hillary Clinton supporter. 

Our newly hired analyst, Angelina, is tech savvy having recently graduated with a degree in mechanical engineering. We look forward to her research on technology focused companies to make more money for you.  

Invest well and grow your wealth

Bill

Today’s critter is a mallard duck from Canada

Meeting with head of investor relation of Nidec

3 November 2017

Dear Fellow Investors,

Yesterday, I had a meeting at the KL Hilton with Mr Masahiro Nagayasu head of investor relations of Nidec., a multi national  with an over 80 % world market share of micro electric motors.

We have been buying this company after last month’s visit to their company headquarters in Kyoto.so this was a good opportunity to find out more.

When I bought it I knew we had an edge . Now I realize we have a bigger edge.

I am impressed by Nidec’s   focus on high tech and innovation. This is where investor money is flowing.

For example, they are leveraging on the global electric vehicle trend.

The way to make money is to buy into a trend before the crowd. The electric car trend is in its infancy. Based of the above Bloomberg chart we are in the early stages of electric cars.
  
Buying into a hot story without performing due diligence is the recipe for big losses. Investing in an unfamiliar market such as Japan has issues such as language and culture. That is why I took a day from our precious holiday to Kyoto to see Nidec for myself .  

A review of Bloomberg’s research portal shows Nidec to have strong fundamentals such as growing earnings, profits, ROE and low debt.

They have a diversified customer base including Honda, Apple, Seagate, Rolls Royce, Caterpillar, GE and Shindler.

98 % of Nidec’s production is outside Japan in 43 countries including Singapore, China, Thailand and Vietnam. This helps diversify currency and labor risk.

I prefer companies which are component suppliers such as Nidec to the actual electric car company.

I would not advise buying a pure electric car company- look at the collapse of Tesla share price last night-

Tesla is overloaded with debt, high capex and questionable management.  With companies such as this it is only a matter of time before the ice breaks.

The reaction to the Malaysian budget was muted. The broad market continues to drift. We will continue with our defensive dividend strategy and focus on high quality niche companies. At some point the sun will rise. It always does.  

Invest well and grow your wealth
Bill   

With Japanese government buying of ETFs the Nikkei has reached a 21 year high. Will the momentum continue ?  If you think so Nidec is a low risk, high potential profit  play should clouds emerge.

Nidec is an approved share for our Phillip Global Wrap Accounts. Please contact me if you need more information.