Investment Strategy

18 Feb 17

Dear Fellow Investor,

Warren Buffet has sold his entire position in Walmart which is traded on the NYSE.

Weekly chart of Walmart

Buffet, the world’s greatest investor, is never afraid of making a difficult decision and when he acts he acts decisively. 

At  USD 72.5 per share in August 2016, Walmart showed evidence of smart money selling.  

We see up thrusts, no demand bars and no follow through on declining volume.  This is evidence that investors like Buffet are selling.

Why did he sell ? Very simple: retail is declining. Consumers are changing and Walmart is not adapting quickly enough to meet customer needs.   

Have you ever visited a Walmart ?  Some are bigger than  a football field. It is an all day affair to shop in Walmart.  You have to contend with large crowds, long checkout lines, and full parking lots.  Think of all the wasted time.

Wouldn’t it be more efficient and convenient  to shop on line ? This trend is emerging in Malaysia as well as the rest of the world.  Even Tesco will deliver  your groceries to your home if you order on line.   I order almost all my books on line and do not have to waste my time in a bookshop.  

How does Buffet choose an investment ?

Buffet’s method is to forecast the yield on an asset over its lifetime.  If he finds it difficult to forecast  he will most likely  by pass the investment.

He has taken long term positions in Amazon because he feels Amazon has a profitable future ahead as Amazon is disrupting  retail businesses such as Walmart.

As investors we need to have a view of what our companies will look like say 10 to 20 years in the future.  Are they able to handle the competition? Will they innovate ? Will they leverage on robotics and artificial intelligence  ?  Do they have pricing power ? Can they cope with substitution ? Is management nimble and flexible to adapt to change ?   

I am currently looking at Singapore banks. Book values are at 15 year lows averaging 1 to 1.2 . Net interest margins will increase should interest rates rise and they are.  NIM means what price does the bank pay for deposits and what are their loan rates. 

Leverage ratios of Singapore banks are low and average less than 10 while most US and European banks are over 30.    Singapore property is stabilizing and this is helping the banks. The same goes for the oil markets.  They also pay generous dividends.

Next Saturday, we will hold a market outlook from 9 AM to 5 PM at   The Club @ Bukit Utama, PJ.  Martin will give examples of profitable IVSA trades and the UOB head of research will present a market outlook. If interested please visitwww.ivsachart.com  for registration and event details.

Invest well and grow your wealth
Bill

This brave little girl has tamed a horse. The horse is like the market. The girl is the investor.  Can we tame the market to build our wealth ? The girl has. She has adapted and shows her love. She may enjoy a pleasant ride.