21 January 2017
Dear Fellow Investor,
First I would like to thank all of you who wished me a speedy recovery from my sinus operation. I was discharged yesterday and I am now at home in front of my computer.
The operation went smoothly and has completely cleared my nose and sinus.
I would highly recommend Dr Narizan to any of you who have an ENT issue. Consult with her at Ampang Putri Hospital. She is a legend in her field according to her students at GH (General Hospital)
One good thing about this experience lying in a hospital bed was it gave me quiet time to read and reflect about the stock market, the economy and our prospects moving forward.
While waiting for the surgery, I read an e book, the Exponentialist by Nick O’Conner who details about emerging disruptive technology and how being familiar with these unstoppable trends can put you on the right side of markets.
That is why our investment in SATS, PGWA accounts as well as Inari in our KLSE accounts have performed. SATS is an airline caterer who has about an 80 % market share in Changi Airport. A few years ago they had over 10,000 workers but via robotics and automation they have reduced their headcount to less than 4000.
They are able to produce more at lower cost and higher profit. They are net cash and show continual earnings growth. They pay a solid dividend and reinvest in automation.
Inari in Penang provides radio frequency chips to Apple and rides on the fortunes of Apple. Apple just made a new high on Friday as Apple constantly innovates and disrupts.
Some of the other disruptive trends include data mining, machine learning, solar energy to disrupt fossil fuels, AI (artificial intelligence) and biotechnology.
He gave an example of a hedge fund in London which is one of the best performing hedge funds in the world.
The fund is automated and makes decisions based on fundamental and technical criteria. By using AI and machine learning, performance gets better over time. On the staff are physicists, computer, and statistics experts as well as a famous PHD human fund manager to oversee the operation.
There is reason to be optimistic.
Are you worried about 2017 ? Look at the newspapers predictions and you will see misery such as trade wars, real wars with China Russia and North Korea. The Eurozone will implode prompting a financial and political crises. Inflation will surge. Overpriced markets will crash. It’s all awful.
Unless you ignore the newspapers and look at the stock market price action there is nothing particularly awful happening or expected to happen. Since the beginning of November 2016 now most markets are up including the SGX and KLSE . The Dow is up 12 % since Trump won the election.
What if Donald Trump follows through on his business friendly policies, lowers taxes and cuts regulations? This could drive growth for the rest of the world. This could bring higher wages and higher profits for corporations. Suppose he makes peace with Russia and sanctions are lifted. This would revitalize Europe which would benefit Asian markets.
Marc Mobius in a recent Bloomberg interview said:
“Fundamentals of emerging market equities remain attractive and valuations are attractive when compared to developed markets. Opportunities will emerge.”
Alan Tong who writes a value investing column in the Edge wrote:
“I foresee higher inflation worldwide under the Trump policies. Interest rates will rise . Commodities will rise.
We must find companies whose earnings growth will outpace the discount rate rise. The company must have sustainable earnings growth, a solid balance sheet and honest management. “ These are the criteria for shares we invest in for our clients.
Invest well and grow your wealth,
Bill
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