Panic selling by the uniformed

13 Aug 2017

Dear Fellow Investor,

Damage on world markets  last week was over USD 1 trillion . The catalyst for panic selling was North Korea’s threat to launch a missile  attack on Guam, a US possession and navy base.  This is a low probability event based on the below report:

Scenes like this scare people and cause panic selling by the uniformed. We are bombarded by the media 24/7  and this intensifies the fear. Kim is a bully and will ultimately back down in the face of overwhelming China and US power.

In a Chinese state-run newspaper on Friday Beijing made it clear “If the US and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.” Beijing’s preferred outcome is a continuation of the status quo, warning Kim Jong Un that it would “remain neutral if North Korea were to strike first.”

China has the military and economic power to back up their policy.  Trump knows this as well as North Korea.   North Korea knows China will remain neutral should Kim attack Guam. Without China, North Korea has no economic  or military support  .  

North Korea will threaten but take no action and markets will recover.  Trump being a businessman does not want war that involves South Korea as  they control multiple world wide supply chains for electronics and high tech industries  An attack on Seoul could put the interconnected business world into a world wide depression and Trump would lose in the next election.  

Just like Kim Jon Un, Trump’s main focus is to keep power for himself and his cronies.

August, historically is the worst month for the stock market  however; our value investing strategy in managing your cash and EPF accounts has protected us during these uncertain times.

Year to date we have earned a net return of over 10 % for our managed accounts. We run our winners and are mindful of the companies we hold.

For example some of our losses in the last 5 years were in Amway which cut their dividends and had large Forex losses. We sold LeFarge cement due to an oversupply of cement, dividend cut and receivable payment problems  We cut our BAT position due  dividend cuts and rises in excise taxes to a level which makes their cigarettes too expensive for the average Joe smoker.

We also sold our Tune Insurance positions due to  Tony Fernandez selling large portions of his Tune shares. I was always wary of Tony because of his public boasting and high media profile. However;   we hold  insurance companies such as LPI and Allianz which keep a low profile and have super solid balance sheets. 

We also cut our position in Delium which although solid financially was exposed to oil which is still in a downtrend. .  Lastly we cut our Hovid position when they did not get FDA approval for Tokovid, a heart protection product and also production problems and MOH suspension due to miss labeling .  Their balance sheet was also deteriorating. 

Our losses were relatively small  compared to our winners but we take calculated risks to put the odds in our favour and that is why we earn reasonable returns over time. And sometimes take losses

Our winners speak for themselves so I won’t mention them.

I am positive moving forward but there will be volatility.

S&P 500 has made it at least a year without so much as a -5% pullback, and marks the longest streak since 1995. In the background, global economic growth is strengthening, central banks continue to be accommodative and despite this week’s earnings disappointments, S&P-500 profits are on course for the back-to-back +10% growth.

Invest well and grow your wealth

Bill

Today’s critter is “out of Africa” as well.  It’s the klipspringer, a tiny antelope found in eastern ad s

Southern Africa — and it’s just too cute for words.  I saw several when I was in Rhodesia/Zimbabwe back in the early 1970s.  They stand 17/24 inches/43-60 cm tall at the shoulder.   The name “klipspringer” is a compound of the Afrikaans words klip (“rock”) and springer (“leaper")