Happy Lunar New Year

Dear Fellow Investors,

According to Feng Shui masters, the year of the Earth Dog is supposed to be good for so called fire industries including technology, utilities and the Internet.

My take: We still must do our detailed research. As Peter Lynch said “Investing in companies without performing proper research is like playing stud poker without looking at our cards.”

As a follow up from last week’s letter

From, CNBC:

Two weeks after markets freaked out, the worst appears to be over for now.  

The gut-wrenching tug of war between rising interest rates and falling stock prices seems to be taking a rest, and strategists say the worst of the February correction may be over for now.

  Stocks closed out their fifth day of gains, with the S&P 500 just 4.9 percent away from its all-time high.

The KLSE was not much affected by the world wide stock market panic as it is difficult for bear raiders to short sell shares in the Malaysian market as the bulk of quality shares are held by institutions who will not sell in a panic.

A bear raid was initiated in the US markets by the fear of higher interest rates and a bearish CPI number.  CPI or consumer price inflation is a highly manipulated number by the US government.  Professionals do not focus on it.

The media whipped up the fear and retailers panicked.  There were margin calls and forced selling.  The panic spread around the world.

As calm returned, short sellers around the world were forced to quickly cover and we experienced a V recovery. A short seller faces unlimited risk and can quickly go bankrupt should the market go up.  Cover means to close the position.  

I expect the markets to be quiet next week with the CNY, so continue to focus   on quality.

Dolly and I leave for Adelaide Monday for a week break. Investment questions, you may email me for administrative issues please call our customer service @ 2783 0300.     

Invest well and grow your wealth

Bill

Exotic fish from the KLCC Aquaria

A friend from Canada visited me last week. I took him to the KLCC Aquaria and he was impressed. I was surprised to see they have upgraded their facilities with new animals and exhibits. They even have background music with jungle sounds. A visit would be a good CNY present for your family.

Do not panic and buy at these lows if you have the cash

Dear Fellow Investors,

In October 2008, Lehman Brothers declared bankruptcy. World stock markets collapsed.

Warren Buffet on 17 October 2008 wrote an article in the New York Times and headlined the article BUY !  He bought  over USD 10 Billion. in stocks while the S & P was at 900   In 8 years  his investments have tripled as the S & P is now over 2850.

Since 1987 there have been 10 major corrections in the US markets. Each time those who had the courage like Warren Buffet to buy made money.

Will this time be different ?

I do not think so.
If history is a precedent, my bet is not to panic and buy at these lows if you have the cash. Risk is relatively low .

Earnings yields spreads are positive. What that means is that the risk free return of the US T Bond of 2.85 % is less than the trailing earnings yield of the S & P 500 of 4.1 %.

Notice the blue line. The spread of 1.3 % is positive. If history is a precedent, as long as it remains positive there will not be a recession and market collapse as in 2008.

Under pining the earnings yield spread is the recent massive Trump tax cut which has reduced taxes across the board including the drop in US corporate taxes from 35 % to 21 %.

This will and is boosting earnings to compensate for gradual rises in US interest rates.  Couple this with the Trump wholesale elimination of the business killing Obama regulations, the background for world equities is positive.

Expect  the recent weakness in world markets to subside and be patient. It could take 2 to 3 months.

We are positioned in solid blue chip companies with low or no debt and with our cash are picking up quality shares to take advantage of the panic. We collect our dividends while we wait.

Invest well and grow your wealth.

Next Friday will be spending the Chinese New Year in Adelaide and back the following week. If you need any assistance please call our customer service desk at 03 2783 0300. You may also email me.

Bill

This is a snowy owl from Northern Canada. They are arctic birds and like the cold.   

Value in markets by identifying money trees like redwoods.

3 February 2018

Dear Fellow Investors,

The Redwood trees in Northern California are the tallest trees on Earth. They can live for over 3000 years.

Notice the size of the man standing next to the giant Redwood

Imagine all the storms, droughts, and forest fires these trees have experienced and yet they are still standing strong.

We find value in markets by identifying money trees like redwoods. These are shares that grow over time, survive adversity and continue to grow stronger.

We may be entering into a period of adversity. US Interest rates are rising, bond prices are falling and stocks are correcting. The water is heating slowly but not yet boiling.  World wide, investors are demanding higher rates to compensate them for a falling US dollar and rising budget deficits. Some investors are asking why should I hold shares and get a dividend payment less than a risk free US
Treasury bond ?

We need to be mindful of managing our risks should the water start to boil.

The shares in our portfolios are solid companies with low or no debt  which mitigates interest rate risk. They are like money trees compared to killer trees.

Debt is the killer of capitalism. Debt adds uncertainty and risk. Good businesses don’t need much debt to operate. Debt also reduces operational margin of safety and manoeuvrability.  

As long as our companies continue to grow earnings and have solid balance sheets we will survive and prosper over time.

I have moved to a defensive position. keeping cash reserves to take advantage of lower prices should they come.

Should major supports in shares we hold break down, we will lock in our profits and live to fight another day.

Invest well and grow your wealth
Bill

This dog is a survivor !  Saved by the technology of a microchip.

APOLLO, Pa. — A family has been reunited with its dog 10 years after the dog went missing.

Debra Suierveld and her family assumed their dog Abby had died after she ran away in 2008 from their home in Apollo, but decade-old sadness turned to joy on Saturday when Suierveld received word someone had found the dog.

The black Labrador mix showed up on George Speiring’s front porch in Lower Burrell, 10 miles west of Apollo. 

Speiring contacted Animal Protectors of Allegheny Valley, which discovered the dog’s microchip and was able to contact Suierveld.