How bull markets work

11 August 2018

Dear Fellow Investor,

There are plenty of worries which dominate the news flow.

Trade tensions, sanctions, currency wars, rising inflation, stagnant wage growth, stock market volatility, massive increase in deficits and political uncertainty are some. Yield curve flattening and asset bubbles are part of the mix. These issues dominate the business news and create fear and uncertainty among the uninformed.

That’s how bull markets work. They climb the wall of fear.

Less spoken about are positives such as US company earnings this quarter are likely to be higher by 20 % compared to the same quarter last year. Companies are buying back more of their shares. Credit in the US is easily available.  Foreign funds are beginning to return to Malaysia and Asia as they buy value at cheaper levels.

We need to look past the noise and focus on value investments.

For those who have been with me through the up and down cycles since 2006, you know what I mean.  We survived and prospered. We continue to prosper.   One of our Singapore holdings Riverstone just reported their second quarter earnings last Tuesday. From Motley Fool research :

 

Here are some important financial numbers for Riverstone for 2018’s second quarter:

• Revenue was up slightly by 0.5% year-on-year to RM 214.24 million.
• Gross profit jumped by 10.6% to RM 48.28 million.
• Profit attributable to shareholders soared 23.9% to RM 33.55 million. Diluted earnings per share for the reporting quarter was 4.53 sen, up by 24.1% from a year ago.
• Operating cash flow declined by 29.9% from RM 37.57 million in the second quarter of 2017 to RM 26.33 million in the reporting quarter. With capital expenditure declining by 30.8% from RM 34.99 million to RM 24.17 million, Riverstone’s free cash flow fell by 17.9% from RM 2.63 million to RM 2.16 million.
• As of 30 June 2018, Riverstone had RM 92.52 million in cash and equivalents, and RM 22.0 million in total debt, giving rise to a net cash position of RM 70.52 million. The balance sheet had weakened compared to a year ago, when there was RM 113.35 million in cash and equivalents, and RM 28.0 million in debt.
• An interim dividend of RM 0.013 per share was declared, unchanged from a year ago.

Riverstone is a specialty rubber gloves company with plants in Rawang and Taiping though listed in Singapore. We visited them a few years ago and found them to be very conservative and prudently managed. We like them because it is a simple business and earn revenues in USD. The CEO Mr Wong Teek Soon spent a few hours of his valuable time explaining to us the challenges and opportunities in the rubber gloves business and this understanding gave us the conviction to invest in this sector.

If you as investors take the time to do on the ground research and understand what you are investing in you will be armed with the knowledge to overcome and prosper even though there is an onslaught of negative news flow.

Invest well and grow your wealth,

Bill

Critter of the week is the hooded merganser small diving duck very common in North America. Both sexes have crests that they can raise or lower, and the breeding plumage of yhr male is handsomely patterned and colored.