Selamat Hari Raya Aidilfitri 2017

27 June 2017

Dear Fellow Investor,

Volvo according to Road and Track magazine  is the safest car in the world.

There have been numerous documented Volvo cases of drivers/ passengers being able to walk away from a head on collision with only minor or no injuries.

Volvo is not a sexy, fast,  fashionable car but it gets you from point A to B in a reliable safe way. They are durable, comfortable and spacious. What if you were driving a Porsche and had a head on collision ?

The Volvo is a metaphor for value investing. The Porsche is a metaphor for momentum investing.

Value investing if applied with discipline has the potential to earn steady safe returns over time and protect you from market and individual share crashes.

As value investors, we emerged with only minor losses in the 3 year market down turn and are now in profit with the 2017 recovery.

Are we headed for higher highs or a major correction ?

Please read Mr Tong’s column on page 12 in the 26 June Edge to answer this question. He presents both sides of this question in an objective format.

Mr Tong has performed well since he incepted his portfolio in 2014. 

He is a value investor and buys shares off the radar screen rather than popular crowd favourites.   

He is currently 90 % invested in his portfolio which he shares in his column.  

In this business do not ask an analyst’s opinion, ask his position. His position speaks for itself  Money talks. And his portfolio is suggesting the bull will continue..

By the way Volvo was bought out by Geely . Geely adopted the Volvo safety technology and now Geely is advertised as the Safe car and is the fastest selling car in China. 

Most ordinary Chinese like safety rather than fashion. 

I am positive on the Proton alliance with Geely. if Geely incorporates the Volvo safety features into the Proton it will prove positive for sales and profit.

Invest well and Grow  . Your Wealth
Bill

A Rocky Mountain caribou which roams from Colorado to Alaska.
It is highly endangered.

We have the wind at our backs

Dear Fellow Investor,

As a fund manager, we are  very much focused on individual stocks. We expend a great deal of effort to carefully analyse the business behind a stock to find stocks that we believe have a high chance of experiencing material business growth over the long-term. And of course, we also pay attention to valuations to ensure that we are not overpaying for growth.

We don’t know when the market will fall. What we do know is that investors who focus on investing in growing businesses at reasonable prices will have a great chance of coming out ahead over the long term. 

Sure, The Straits Times Index, the KLSE and the Hang Seng  look to be at a high level now. But there are three important things to note in such situations:

We must study valuations and not focus merely on the price. And fortunately, the market’s valuations are not anywhere close to being crazy expensive right now. That’s good news for long-term oriented investors like you.

It’s incredibly tough to call a market top and bear markets have happened even when valuations are low. But, the stock market has still done fine over the long-term. This highlights the need to have a long term investing time frame. 

The best returns come over the long-term. If a business can continue to do well, then there’s more room for the stock’s price to rise. We are optimistic about the long-term futures of the businesses of the stocks I have placed in your accounts.

We have the wind at our backs. Major central banks are focused on growth and not austerity. Interest rates remain low and besides equities there is not much on offer to give us a reasonable return.

Invest well and grow your wealth,

Bill

A pygmy elephant . The Lok Kawi Wildlife park in Sabah has a collection of exotic animals including sun bears and pygmy elephants. The park is about a half hour drive from Kota Kinabulu

2 ways to operate in the stock market

Dear Fellow Investor,

100 billion USD of stock value was erased on 9 June Friday afternoon in the NASDAQ. The bulk of the losses were in the FANG stocks: Facebook, Amazon, Netflix and Google.  The catalyst of the drop was a warning by Goldman Sachs that valuations of tech stocks and in particular the FANG stocks were in an air pocket. PEs were averaging 60.  That means you get only 1 dollar of earnings for every 60 dollars of price.   Average dividend yields for FANG are less than 1 %.

Daily Facebook Chart . Note the ultra high volume price bar and wide price spread on Friday which is an indication of smart money selling.

Contrast this with Tambun Indah a Penang property company listed on the KLSE  which trades with a PE of 5.62 and a dividend yield of 6 %.  Tambun is also been consolidating at a low level for 2 years and there is evidence of smart money accumulation. 

Tambun Indah has a gearing of only 2.6 % with a net margin of 22.5 % and a solid set of financials .  Tambun Indah builds affordable houses  in the dynamic Pearl City development near the Penang 2nd bridge. 

If you believe in the demand for affordable property and the growth of Penang you can buy this share and sleep at night. If you hold FANG stocks be prepared for a volatile and uncertain ride.  We hold Tambun Indah in our managed accounts.

There are 2 ways to operate in the stock market.  One is to focus on value while the other is to  buy momentum/ growth.

If you buy momentum you assume that there will be a buyer to take your shares at a higher price.   The risks are higher for momentum because at some point there will be no more buyers and professionals will hammer you .   

FANG stocks havmiche surged this year and are showered with praise from the business press and market analysts who advise investors that FANG stocks should be a large part of every investors portfolio. They say that growth is what matters. I differ from this: I think margin of safety and buying value as Warren Buffet would say will preserve and grow your assets over time.  Remember Aesop's fable: The tortoise and the hare. Who won the race ?

Invest well  and grow your wealth,

Bill

The momentum hare and the value tortoise .

Indication of profit taking

3 June 2017

Dear Fellow Investor,

In the last 2 weeks, the momentum and volume in the KLSE has dropped . The small cap index after a good run since the beginning of the year has churned at current levels with a slight downside bias. This is an indication of profit taking. Insiders and smart money will attempt to hold the market up so they can off load at good prices.

On the other hand there has been a slow pick up in quality blue chip shares . I have been picking up quality shares for my clients which in some cases are undervalued and have potential for upside.  We can enjoy the dividends, stability and steady growth.

There has not been much interest in most quality blue chips while the hot small caps have run up so the blue chip space  is the area we should focus on. Prices and values for selected shares are reasonable.

Never underestimate the power of QE and this is the reason to stay invested. QE overrides the uncertainty of interest rates, North Korea threats, political turmoil and global warming.

With all the bad news markets round the world continue to go up.  

Crude oil prices at the USD 50 a barrel range are also supportive  for most sectors such as transportation and manufacturing . It makes the cost of doing business predictable.

On Friday 2 June 17, The July 2017  futures for crude oil delivery closed on the CME @ USD 47.74 . For the December 2020 futures delivery the price closed @ 49.46.   Futures traders anticipate trading in a narrow range for the next 3 1/2 years. Those who need crude oil for their business can lock in prices for future delivery  at a price close to today's price. 

In my humble opinion  commercial traders are the smartest and most well informed traders on the planet. They have the best information regarding supply and demand so following them can give you an investing and trading edge.  The CFTC or commodity and futures trading commission, a government body posts the positions every week of the speculators, funds and commercials.  Commercial traders in crude oil would be Exxon Mobile/ BP/ Petronas  etc.

From Warren Buffet.

My first filter for buying a blue chip company is the moat. The moat is the defense from the competition. It could be the brand, the financial strength, the unique product etc.  I like to see a company that consistently grows sales and earnings over  a 10 year period.  That means they have a moat. Sales and growth can be measured objectively by reviewing the financials using Morningstar, Bloomberg or most financial websites.   Carlsberg, Thai Beverage, SATS, OCBC, VICOM, Nestle, Inari, Gas Malaysia, Tambun Indah  which we hold are examples of companies with a strong moat. 

This castle has a wide moat to protect the residents. 

Invest well and grow your wealth,
Bill

I am not sure if this is a mouse ?

This dog is 4 months old name is Elle very healthy and alert. Please call or whats app me if interested. 012 685 1207