The end of easy money

8 Dec 2018

Dear Fellow Investor,

The end of easy money

Money Week, November 2018.

After 10 years of QE and, low to negative  interest rates , the party is ending.

Popular growth stocks such as the Fangman stocks have been hit hard.  These include Amazon, Facebook, Netflix and Google . These are all good companies but they are grossly overvalued in terms of cash flow and, price earnings ratios. These shares are all hyped by the financial media and held by most institutions and asset managers.

For the last 5 years value stocks  have underperformed growth stocks but that cycle is changing. It was possible to borrow money at less than inflation to fuel growth. That window is closing.

With interest rates rising and credit being squeezed, those highly leveraged companies are running into trouble.  General Electric is an example. In year 2000 GE was trading at USD 59.60  per share. Now it is trading at USD 7.01.   GE used to be the largest company by capitalization in the world and now it is facing disaster and possible default. What happened ? They took on too much debt -over USD 500 billion  to make questionable acquisitions and  with rising interest rates they are in trouble.  Incompet and ego driven and empire building managers did not help.

Moving forward we need to allocate to only the strongest and well managed companies that offer value.  Value for me means an asset that offers a steady return, recurring revenue, and a reasonable dividend. Value is money now while growth is hopes and dreams  of the future.

There are some good value opportunities in Malaysia, Hong Kong, Australia and Singapore but they are generally ignored and off the radar screens of most brokers, the media and the public.

My team is constantly searching for these and despite all the negative sentiment and bad news we do come up with opportunities from time to time.

Invest well and grow your wealth,
Bill

Critter of the week is a rhino

Today's first photo is another one from the Siena International Photo Awards -- and was taken by Khaichuin Sim in Masai Mara National Park in Kenya.   "I was taking an early ride out from the camp, searching for the Great Migration, when I saw a rhino from far away standing beside a tree. The backlight from the early sun was too strong, so I took a silhouette instead".