Crude oil is bottoming

29 July 2017

Dear Fellow Investor

I spoke with my analyst Friday and we concluded that crude oil is bottoming. Sentiment among the investing public is extremely negative and bearish.

As far as I know, none of the local investment houses are recommending oil shares

Ezra, a large oil services firm in Singapore just declared bankruptcy.  Some local highly geared oil companies are facing insolvency.

Hedge funds/ retailers are holding a historically high net short position in crude oil.

The news could not be worse.

When the majority of the crowd believes the market will go down, usually the opposite will happen.

Disruption is moving into the oil rig business to squeeze more profit.

In the last 3 months commercial traders have been covering their massive short positions according to the CFTC report ( The CFTC is the commodity futures trading commission in Chicago and traders must report their positions every week.)

Commercials are the strong hands of any market as they are producers and consumers.

Petronas and Exxon are commercial traders. They know more than the retailers and hedge funds as they are the strong hands.

I am looking for opportunities in this sector and if they meet my value investing criteria I will allocate some of our cash reserves.

The risk reward profile of some of these companies is favorable.

Money is moving out of the over hyped tech shares into value. The PEG ratio which measures price divided by earnings growth is a good way to know if it is safe to buy.

For example Alibaba has a PE of 58 but its growth is 30 % year on year so that indicates Alibaba is too expensive.

On the other hand the PE of Apple is 16 but it is growing at 27 % a year so it is safe to buy Apple.  We need a PEG ratio of less than one before buying.

To support the bullish case for crude oil, rig counts in the shale oil space are picking up. The Saudi oil giant Aramco is planning an IPO. And they will do all they can to boost the oil price.

IPOs are like that. The underwriters will do all in their power to boost the price of their offering before listing. 

Once listed, the insiders will sell to the uninformed greedy sheep and the price goes down.

Invest well and grow your wealth,

 Bill

From Ed Steer's gold and silver report

 Today’s ‘critter’ is the Arctic hare, a creature that I’ve very familiar with, having seen countless numbers in the high Canadian Arctic when I was a resident there for almost eight years.  These are large animals.  They can found singly, or in small groups of up to a dozen animals.  I have photos buried in my slide collection that I took from a helicopter where there were literally hundreds in a group.  In the very high Arctic, like the other animals up there, they had no fear at all of humans, as they’d never been hunted.  It’s easy to get within a few feet of them.  No telephoto lens required!  

Value Investing will prevent you from investing in a bubble

Dear Fellow Investors,

"If you like fairy tales, go watch a movie" is the headline in Tong's value investing portfolio in the 24 July Edge.  

Value Investing will prevent you from investing in a bubble

He details how logistics companies in Malaysia are trading at nose bleed valuations. For example Pos Malaysia is trading at 48 times earnings while GDX is at 103 PE.

Logistics companies have a low barrier to entry. Getting a parcel delivery license is easy and profit is made by increasing volume of delivery. Malaysia has only  about 30 million residents and how can local delivery companies compete with international delivery giants such as UPS, Fed Ex who trade at valuations of 15 to 19 PE ?

Yesterday, I attended the Phillip Investment Conference at Berjaya Times Square. I would like to thank all our clients for your support who attended and I hope you benefited.   It was a massive crowd with over 2000 hungry investors looking for expert guidance. 

As we are invested in Singapore via our PGWA accounts, I was particularly interested in the presentation by Lai Chang Wai Sing, CIO of Nikko Asia Ltd.   He detailed the case that Singapore property is beginning to recover in numerous charts. Transaction volume is up in the last quarter after being down for 3 years . This is  is evidence of pent up demand.  The residential market is improving as well as landed and non landed property.  Office rents have stabilized in prime Singapore locations. Recovery in property is supporting the rise in the stock market. 

Mr Lai likes companies that are in the technology space and especially companies that are adapting to disruptive technology like SATs which he and us  hold for our managed accounts. SATs have been automating their production lines that prepare food for airlines that service Changi airport. This means they are able to reduce their head count. Exports are also improving  which is also positive for selected logistics companies and airlines. SATs indirectly benefits. 

The presentation by Josephine Lip of Schroeder International on the China Stock market was useful.   She detailed financial metrics that showed PMI over 50, rise of credit growth, rise of commodities and a  pickup of infrastructure spending,

She showed that China leads the world in e-commerce and 26 % of their equity fund is in the e commerce space.  30 % of Shoppers in China now buy their TVs, washing machines, refrigerators, toasters etc on line .  With 5 clicks on your computer you can open an on line trading account without even visiting the stock broker.  

She likes insurance companies such as AIA and China LIfe but is under weighting banks due to over valuations.  China citizens just like Malaysians are under insured so there is room for growth.   

Ang Kok Heng, CIO of Phillip Capital Mgt spoke about probability and how it is the basis for successful investing. He showed that there is no certainty in the investing world but it is possible to put the odds in our favor.  

In the panel discussion which closed the event, we were able to raise questions to the speakers all of whom are  investment professionals and manage 100s of millions of dollars  in investment products.

I asked about Warren Buffet and why he is shifting from growth to value stocks which have been pumped up on hyped up investment stories. I also asked about Alan Tong of the Edge who in his last weeks column detailed the 25 outperforming Malaysian stocks making new highs in the last year and how 21 out of the 25 have questionable fundamentals such as high debt, declining revenues/ cash flows etc.   

My views were dismissed by the entire panel except Mr Phua/ Mr Ang . 

One  said Warren Buffet is 85 years old and out of touch. Another dismissed Mr Tong as a tip giver.  Mr Tong's published Edge portfolio has earned consistent  returns This is his personal portfolio- real time and real money.  I wonder  how many fund managers in town have beaten him or Warren Buffet?    

This goes to show that value investing for most high profile fund managers is out of fashion and that is our edge. We go to spaces that are not crowded, companies that are off the radar screen and unloved. This is the moat as Warren Buffet describes,  the obscurity moat.

Invest well and grow your wealth,

Bill  

Sea turtle rescued from a fishing net

  

 

Last call for free ticket - Phillip Capital Management Annual Investment Conference this Saturday

Dear Fellow Investor,

This is the last call for the Phillip Capital Investment Conference to be held at Berjaya Times Square from 9 AM to 6 PM this Saturday.  For clients there is no charge.

I and our analysts/ CIO and market strategist will be there to answer your questions. I will be there with your client statements to answer any questions you might have on your investments with us.  

If you have not already registered, please email me and I will make sure you are registered.

This is an event not to be missed. Prominent speakers will share their insights for markets going forward.

Invest well and grow your wealth
Bill 

Janet Yellen's testimony

17 July 2017

Dear Fellow Investor,

The whole investing world was focused on Janet Yellen’s testimony before the US congress last week. Will she raise rates and by how much? Will she start quantitative tightening ?  Gold, stocks, interest rate futures, currencies, bonds were subdued looking for guidance and direction.  No one really knows  what her policy might be. It appeared to be a wait and see response by the investment crowd.

Personally the only thing that matters to me is what can I do to protect those who trust me to manage their assets.

I do not know the future and anyone who claims to know is a charlatan. 

As a value investor we do not need to know the future. Value investing is like choosing the boat you wish to take a trip in. We have a choice. We need to choose our assets carefullhy. We need to choose boats that are seaworthy for our investing journey.

Many shares are like this leaky boat. They keep dropping with no chance of recovery.

Why not choose shares like this solid ocean liner ? These are proven, well managed companies that reward their shareholders. They deliver the goods.

In my experience, if an asset can’t be valued with any certainty, and the price doesn’t justify the expected returns, then it is an unworthy vessel.

This Wednesday, we will be visiting a company in Ipoh for a possible investment  The financials are solid – net cash- and they have recurring revenue in several currencies with a diversified and large customer base.  .

Our analysts will be speaking with the management to find out their catalyst and plans for future growth  This share is off the radar screen of the main stream analysts and not well covered. If by our analysis the odds favour a purchase we will purchase for our loyal clients. 

Visiting a company and reviewing their financials are in our control Nothing is sure but it puts the odds in our favour. This is why I don’t waste time listening to Bloomberg/ CNBC commentators or what Janet Yellen is pontificating on. As they represent the insiders and smart money what they say is likely to mislead and cause you loses. Their agenda is not to benefit  you but to benefit themselves.

Invest well and grow your wealth

Bill

The grizzly bear, less commonly known as the silvertip bear, is a large subspecies of brown bear inhabiting North America. Scientists generally do not use the name grizzly bear, but call it the North American brown bear.  The Kodiak bear is a recognized sub-species.   Most grizzly bear attacks result from a bear that has been surprised at very close range, especially if it has a supply of food to protect, or female grizzlies protecting their offspring.  

Checklist for share selection

8 July 2017

Dear Fellow Investor,

Over the years I have read over 50 books on investments. Most say the same things. There are however; a few books I can recommend.These are the ones that stick like chewing gum on your shoe.  

One such book is The Five Rules for Successful Stock Investing by Pat Dorsey.  He was head of equity research for Morningstar from 2000 to 2011 and now runs his own equity fund.  

He is a value investor and follows the Warren Buffet method.

In his book he provides a checklist for share selection. He lists 9 criteria and to invest successfully we need a majority of them to line up before investing

Dorsey’s criteria

1. The firm provides regular financial updates, has a long track record as a publicly-listed entity, and has a market capitalisation that isn’t too small.

2. It has consistently earned an operating profit.

3. It has generated consistent operating cashflow.

4. The firm earns a good return on equity.

5. It has been able to grow its earnings consistently.

6. It possess a clean balance sheet.

7. The firm can generate lots of free cash flow.

8. There are infrequent appearances of one-time charges.

9. There has not been major dilution of shareholders’ stakes in the firm.

An example of how to use the checklist  We have been buying Uchi Tech Sdn Bhd for ourselves and clients.  Uchi has met all 9 criteria but that is unusual so if the majority of criteria line up I would consider to purchase. 

DESCRIPTION OF BUSINESS

Original Design Manufacturing (ODM), specializing in the design of electronic control systems primarily for consumer and industrial electrical and electronic appliances industries (such as precision weighing scales and high end household appliances)

Uchi has been listed since 2000. It has consistently grown profits in the last 16 years. Its ROE has exceeded 17 % for the last 8 years and last reported ROE was 23.28 %

Its net margin in the last quarter was 45.9 % and the margin has been in an uptrend since listing in 2000. Its free cash flow was 51.1 million and also in a gradual uptrend. Gearing is zero and they grow the business organically rather than borrowings.

PE of 13.7 is  reasonable compared to peers.

I could find no evidence of share holder dilution via rights issues or options.

Weekly chart of Uchi Tech Sdn Bhd

In the last year they have earned a 15.2 % capital gain +  5.3 % dividend   This is not too bad considering that most Malaysian/ Singapore shares have underperformed and the KLSE index was  up 8.2 % + average dividend yield of 3.2 %.

For our loyal clients, we are constantly on the look out for shares that meet these criteria. We are like the eagle who flies alone and swoops on his prey to earn a tasty meal of say a fat sheep.

Do not forget our upcoming Phillip Investor Conference on 22 July in the Berjaya Times Square Hotel from 9 to 6 PM. Prominent speakers will review the markets and present opportunities.

If you are a client there is no charge and if you email me I will have our administrator register you.

Invest well and grow your wealth
Bill

A Canadian lynx who seems to be a lone hunter like the eagle

Coming Annual Investment Conference for Phillip Capital Management

Dear Fellow Investor,

I would like to invite you to the below event. The fee is RM 98 but if you are a client no charge:

Please let me know your name/ IC number and HP and I will have you registered via our administrator. 

I will be there to answer any questions you might have on your portfolios.

Invest well and grow your wealth
Bill

This most anticipated Annual Conference brings you more than 10 distinguished speakers to share insightful and up-to-date topics ranging from the global economy, investment strategies to investors' sentiments.

Conference Highlights:

Renowned investment and fund management experts both locally and overseas Panel discussion on strategies for the second half of 2017 Concurrent sessions on a wide range of topics from equity, derivatives and investment approach to cater to participants' diverse interest Focal point for investment and wealth management insights Excellent opportunity for networking and personal interaction with industry professionals and service providers Event PhillipCapital 8th Annual Investment Conference 2017 Date 22nd July 2017 (Saturday) Time 9:00 a.m. to 6:00 p.m. (Registration counters will open at 7:30 a.m.) Venue Berjaya Times Square Hotel, Level 14, No 1, Jalan Imbi, Imbi, 55100 Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur Please click HERE for hotel map. Admission RM 98 (Early Bird)* | RM 168 (Normal Price) RM 390 (Group Early Bird – buy 4 free 1) * | RM 670 (Group Normal Price – buy 4 free 1) * Early bird promotion only until 3rd July 2017. Accreditation Points CPE / MFPC CPD / CE Points SIDC – Pending Approval FIMM – 8 CPD Points MFPC – Pending Approval FPAM – Pending Approval

Over valued high flying tech stocks

2 July 2017

Dear Fellow Investor,

On 9 June 2017 Goldman Sachs issued a warning about over valued high flying tech stocks. Since then many of these stocks as represented in the FDN, (an ETF focusing on shares such as Google, Facebook, Amazon and Netflix) have seen their uptrends broken.  

Machine traders have offloaded millions of high growth tech shares in high PE companies and switched to  lower PE value stocks such as banks and  REITS.

It is a switch from high growth, high PE to low PE value and income shares.

Technology shares in Malaysia and Singapore are not as much effected as they are trading at much lower multiples compared to their US counterparts.

FDN, the internet ETF traded in the NYSE. Notice the extreme volatility after a big run up. This is a sign of a potential top.

As a value investor, I am not interested in the hot story, the dream and the hype. An exception was  Apple but when I did my analysis the valuations were reasonable and there was not much interest. 

As the crowd jumped in and valuations expanded , I took profit too soon but a profit never the less.

I still like Apple and I will buy again when the crowd loses interest and the price offers good value.  I like it because of their eco system, increasing revenue, cash flow and solid management

Money printing world wide will continue to counter low growth and fuel asset markets.

As investors we have the wind at our back but we must be prudent and vigilant and avoid popular crowd chasing shares.

Charge of the Royal Scots brigade in the Battle of Waterloo

This famous painting is a metaphor for a bull market – hard charging horses and fearless warriors but at some point the horses will lose momentum when they meet the enemy. In this case the machine traders   

Some of you are concerned with the strengthening Ringgit and how that might effect the shares we hold. I am not and I found a quote from Mr Tong of the Edge newspaper which reflects my views.

“We must stress that windfalls (and losses) from forex movements – and any competitive advantage gained – are almost always transitory. Enduring comparative advantages must come from the management, innovation and productivity gains. Therefore, it’s always the underlying fundamentals that count over the longer-term.”

Invest well and grow your wealth
Bill

A snapping turtle which can be found in Zoo Negara. Some turtles can live up to 300 years.