10 Warren Buffett Tips to Use for 2020

28 December 2019

Dear Fellow Investors,

10 Warren Buffett Tips to Use for 2020

We are only 4 days away from 2020.

Next year, Warren Buffett will celebrate his 90th birthday. Buffett is widely acknowledged as one of the most successful investors of our generation. And there is much that we can learn from his wisdom shared over the years. 

Between 1965 and 2018, Buffett grew the book value of his firm, Berkshire Hathaway (NYSE: BRK.B), by 18.7% per year. Shareholders that held on to the shares of his firm throughout that period would have enjoyed returns over 20% per annum. 

Keeping it simple

There are many things to admire about Buffett.

But Buffett may be best-loved for his ability in presenting investing ideas in the simplest terms, making investing accessible  As we look to 2020, here are 10 of the great quotes from Buffett:

1. In predicting the future, uncertainty is almost always a certainty (from Buffett’s 1994 letter to shareholders) 

“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. 

Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.”

In 2019 we have had Brexit, an on going trade war, an attempt by opposition Democrats to remove Trump from office, major riots and demonstrations in Hong Kong and other countries however; many markets worldwide have risen to new highs,.

2 On predicting where the stock market will end up next month or next year (written in October 2008, during the depths of the Global Financial Crisis)

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now.”

3. Instead of forecasting where the economy is headed, spend more time studying companies … 

“To my memory, I can’t recall us ever making or turning down an acquisition based on a macro factor. We focus on what’s likely to be the average profit, the moat. Any company that has an economist has one employee too many.”

4. Remember, you’re buying a business, not a stock symbol

“Nobody buys a farm to make a lot of money next week or next month. They buy it to make money over the long term. They don’t get a quote every day. That’s a better way to look at stocks.”

5. Being smart is not about taking on the most difficult businesses 

“I don’t look to jump over 7-foot bars, I look for 1-foot bars I can step over.”

6. The one thing that a business should have is …

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.

And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.”

7. Meanwhile, have you heard that Buffett hates airlines? (2013 annual shareholder’s meeting) 

“Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results. It’s been a death trap for investors.”

8. But by the end of 2016, Buffett poured almost US$10 billion into airlines.

“It’s true that the airlines had a bad 20th century. They’re like the Chicago Cubs. And they got that bad century out of the way, I hope.”

Extra note: No, I don’t think that Buffett was being hypocritical. If you learn something new and critical about a company or industry, then your opinion should change too. 

9. The next US Presidential Elections will happen in November 2020. Here’s what Buffett said about the 45th US President, Donald Trump

“I mean, the American economy, you know, we’re up to number 45 or so and we’ve done awfully well. If you mix your politics with your investment decisions, you’re making a big mistake.”

10. As always, think beyond 2020 and for the long-term … 

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Moving into 2020,plantation companies are showing signs of life. CPO is trading at a 5 year high due to increased demand trends. CPO contributes 7.3 % of Malaysian GDP or 39.3 billion USD. It also supports over 491,000 workers.

In the face of the pervasive market pessimism, I have been accumulating United Plantation shares for our clients anticipating further gains There is value in the plantation sector.

Invest well and grow your wealth
Bill

Critter of the week is a Christmas horse. We wish a Merry Christmas to our Christian friends and clients.

How To Position For 2020

21 December 2019

Dear Fellow Investors,

Today, I listened to a presentation by Tim Price, CEO of Price Value Partners in London.

He outlined how to position for 2020.

He recommended to avoid bonds and overvalued shares in overvalued equity markets including Europe and the US.

Selected shares in Hong Kong, Malaysia  and Singapore offer better value.

Position in Vietnam ,small cap Japan and the UK which offer value and in the case of Vietnam value + growth.   Wage rates are 1/3 rd that of China and they have a skilled and educated workforce. Supply chains are moving there. Vietnam is still a frontier market which means institutional investors can not invest but should Vietnam be upgraded by MISC to a developing market  institutional  funds will flow into Vietnamese shares.

Many fine quality small cap Japanese shares are trading at prices less than their cash holdings. This is because of extreme pessimism.  Value at a discount is usually a profitable bet.

With the UK election of Boris Johnson resolved expect institutional funds to push up UK shares. This professional money has been waiting on the side lines for the election uncertainty to be resolved.  This will also benefit the UK pound giving a currency gain as well as an equity gain.

He also reviewed how all major governments have debts so large they will never be repaid except by inflation or default. Many European banks are technically insolvent and are propped up by QE. Should one of these giant banks default expect contagion, share collapse  and a flight to precious metals. 

For these reasons he recommends to position in gold and silver via Central Fund of Canada.

There was panic selling in Inari last week but price held the weekly support at RM 1.60 . Volume was the highest in over 10 years. The news was that they would lose a major customer Broadcom. It is not that simple as Broadcom has a 2 year contract to buy Inari  RF chips which are supplied to Apple . Supply chains in the RF space are complex and not easy to suddenly move.  If Apple buys the Broadcom RF unit expect Inari to go to new highs due to increased demand.

Inari also has many other customers and is now in the 5G space.

In my experience, ultra high volume on a wide price spread indicates panic selling by the uninformed. Price will either move sideways or have a V recovery after this event

Expect some window dressing next week,

Invest well and grow your wealth
Bill

Critter of the week is a cassowary. It is a dangerous Australian bird and can kill a human. The claws are so sharp they can rip out some ones intestines.  

Going forward into 2020

14 December 2019

Dear Fellow Investor,

Going forward into 2020

For the last 4 months the Bursa technology index has been consolidating its 1^st half gains. It has outperformed most sectors in 2019 and may have room for more gains in 2020.

The reasons include supply chains from US companies are relocating to Penang. Penang has the infrastructure, the networks and a trained workforce for the continued growth in the technology sector.

Malaysia is not in the crosshairs of the China US trade war  so this may be the reason supply chains are moving to Malaysia.

The KLSE is down 7.9 % year to date while the technology index is up over 23 %

Shares such as Inari who supply to Apple have done well.

Technology companies continue to grow as they disrupt most established industries. The US technology dominated Nasdaq is testing all time highs

Below is a weekly chart of the Nasdaq technology sector index. Despite all the rhetoric and volatility, it continues to move to new highs.    

Our analyst is now focusing on opportunities in the technology space. moving into the new year. This space is relatively immune to political infighting and currency fluctuations. Some have strong financials with low borrowings . Revenues are mostly in USD. They also supply some of the major companies such as Apple/ Microsoft/ Broadcom and Intel  which are reflected in the above chart.

Will keep you posted on our technology research project.

Invest well and grow your wealth,
Bill

Critter of the week is a kangaroo. We will be visiting Perth Australia over the New Year holiday and it is said there are more kangaroos there than human beings.

Updates on managed accounts

7 Dec 2019

Dear Fellow Investor,

After visiting Nidec, the world’s largest maker of micro electric motors  in Kyoto, Japan, I decided to buy for some of our managed accounts. All the pieces fit: Earnings growth, financially solid, well managed, low debt, and diversified revenue streams including USD.

They  are involved in AI and robotics, both high growth areas.

I was able to purchase at a reasonable valuation, however my timing was off and it suffered a steep correction.  However,  Earnings did not suffer. Company insiders accumulated on the price break and nothing dramatic happened so I decided to hold. Price has since recovered and with the pickup in the technology sector it is well positioned for more gains.

I was pleasantly surprised to read in the latest Forbes business magazine that Nidec was selected as one of the top potential investments for 2020.

Below is the Forbes write up.

The whole focus of investing is to put the odds in our favor, nothing is certain  and by visiting the company and reviewing the financials  does improve the odds of profit.

Media hype about the trade war, Brexit and Trump impeachment are dominating the financial news flow.  This is creating volatility and large price swings but I have confidence in our investments so we should not be worried.

In the end Trump will keep power, and there will be a trade resolution. I have no idea about Brexit but we have no UK exposure so that is a non issue. Hong Kong is slowly getting back to normal so expect recovery. Property prices in Singapore are bottoming and in some sectors are beginning to rise . Once political uncertainty in Malaysia is resolved expect foreign funds to come back in size. This will benefit some of the big caps.

Invest well and grow your wealth,
Bill

Critters of the week are our security geese.

We keep geese behind our house for security.  They are  the best security guards. They are always on alert.

Hong Kong Real Situations

30 Nov 2019

Dear Fellow Investor,

Today, I attended a briefing by Phillip strategist Mr Phua Lee Kirk. He just returned from a one week trip to Hong Kong where he met analysts, government officials  and fund managers.

He shared a number of photos which showed that the worst of the riots and violence has calmed. It showed that the news flow from the BBC and CNN is not giving a true picture  of  the real situation in Hong Kong. Hong Kong  is presently safe to travel and do business.

Pop star Joey Yung Cho, posing with her fans on a Hong Kong street a few days ago. It seems peaceful-no tear gas
*South China Morning Post.

The majority of Hong Kong citizens  do not want independence. They want a return to normality and business as usual.

His insights are quite useful as Hong Kong market volatility has been effecting Asian markets. High quality value shares in the Hang Seng are presently on offer. The same is true in Singapore, Malaysia and other Asian markets.

Asian markets have been hit  by fears and uncertainty regarding the trade war and Hong Kong riots.

Mr Phua was advised by senior Hong Kong officials that trade war fears have been greatly exaggerated. China is rebating tariff collections to manufacturers and other effected businesses. Trump is doing the same such as in the US.

Farmers  are getting tariff rebates. It means that in public and as reported by the media there are quarrels but behind the scenes calm has returned.

Not many factories are leaving China because of this rebate policy.

President Trump is a businessman and not an idealist. He will do what is good for business. Chairman Xi is the same. They both want to hold power. Prosperity is the key to holding power. Both the US and China can not afford a slowdown.

Mr Phua also made a case for interest rates world wide to remain low based on political reality. On the home front, that should support Reits. Best sectors moving forward are tech shares, automation, environment related shares such as solar power, cyber security,  oil and gas, plantations  and banking.  There are many beaten down shares in these spaces.

Invest well and grow your wealth

Bill

Critter of the week

Red panda at the Hong Kong zoo. It seems business as usual at the Hong Kong zoo. Perhaps this might be a good time to visit. Less crowds ?

Oil Outlook Review

23 November 2019

Dear Fellow Investor,

Some of you have asked me about my oil outlook. I am neutral with an upside bias based on my view that there will be some trade war resolution  A trade war resolution will boost Asian markets and be positive for oil companies.

We hold Dialog for our managed accounts which is an integrated oil company based in Johor. That means Dialog is exposed to upstream, midstream and downstream activities.  

Dialog is effected by crude oil prices but not to the same extent as most other oil companies.  The reason is that they own tank terminals for oil storage.  Their tanks are in Pengeran, a deep water terminal in Johor.  The location is strategic because they handle cargos from the Straits of Malaka, the second busiest oil passageway in the world compared with the Gulf of Hormuz. and are able to easily handle Asian demand.

Asian oil demand is steadily increasing and Dialog is centrally located in close proximity to Japan, Singapore,  Thailand, China, Indonesia and India.

These storage tanks provide residual income not dependent on the oil price. Demand for storage continues to increase and they have plans to expand their tank farm. They have long term leases established with several oil majors such as Exxon, BP, Petronas etc.

Stable income also comes  from the plant service team which provides a wide range of maintenance, shutdown, turnaround and specialist services for the refineries, petrochemical, gas and chemical plants.

On a negative note, revenue per share has been declining for the last 3 years, and on the positive side margin has been expanding. The debt level is acceptable. PE is 34  is on the high side but cash flows are healthy and should support this valuation.

Expect range trading next week. Hong Kong elections are tomorrow and if they are peaceful that could be a positive for Asian markets. 

Invest well and grow your wealth,
Bill   

Critter of the week

 Abandoned giraffe becomes good friends with watchdog at animal shelter (and no, it’s not a tall story!)

• Jazz the nine-day-old giraffe arrived at The Rhino Orphanage after a farmer discovered him struggling  in wild.

• Resident watchdog Hunter, a young Belgian Malinois, quickly began to care for the baby, befriending him.

• Keepers will reintroduce Jazz into the wild when he's ready, but for now he remains Hunter's cuddle buddy

Solarvest IPO Presentation

16 Nov 2019

Dear Fellow Investor,

Last week I attended an IPO presentation by Solarvest .

According to Inter Pacific research:

SOLARVEST Holdings Bhd stands to potentially benefit from Putrajaya’s aim to grow the entire value chain of the solar photovoltaic (PV) industry. There is a target price of 49 sen on the company based on a valuation of 13 times  price earnings ratio pegged to the financial year 2020.

“The government is committed in supporting the growth of the solar PV industry by setting a target for electricity generated from renewable energy (RE) at 20% of all power produced.

“On top of that, the government provides incentives by way of lower taxes for green technology projects, income tax exemption on green technology services and tax incentives for purchase of green technology assets, all of which reduce the investment payback period,” Interpac said in a research note.

Last month, The Malaysian Reserve reported that Solarvest aims to raise RM34.6 million from its IPO on the ACE Market of Bursa Malaysia, with the money largely for its working capital for daily operations and future projects.

The IPO entails a public issue of 98.83 million new shares with 19.5 million shares available for the public at 35 sen each.

The research house also said Solarvest currently owns a 1MW facility in Kedah and intends to own a large scale  solar PV (LSSPV) plant in the future.

“As an experienced subcontractor for LSSPV and a turnkey engineering, procurement, construction and commissioning (EPCC) contractor for three LSSPV projects in Kampar and Kamunting in Perak for Asia Meranti Group, Solarvest intends to tender for its own account as turnkey contractor in future LSSPV projects,” it said.

Inter-Pacific remains optimistic on the growth of the solar PV industry as the government intends to achieve a total installed solar PV capacity of 5,800MW by 2025.

Independent market research, Protégé forecasts the total solar PV installed capacity in Malaysia to grow from 438MW in 2018 to 3,322MW in 2023, representing a compound annual growth rate of 50%.

Solarvest is slated to be listed on Nov 26, 2019. This would be the 10th ACE Market listing for the year from a total of 23 listings in Bursa Malaysia year-to-date.

M&A Securities Sdn Bhd is the advisor, sponsor, underwriter and placement agent for the IPO exercise.

Solarvest is 45% owned by Main Market-listed Chin Hin Group Bhd. Upon completion of the IPO, Chin Hin’s shareholding will fall to 33.6%.

Solarvest specialises in turnkey EPCC services for solar PV systems. It also provides operations and maintenance services of solar PV systems.

According to the prospectus, the listing expenses are 9 %. That means if you take up the IPO you are down 9 % before you take up the offer.

Although, I like the potential of solar power and the government supporting this sector based on the new budget, I would wait for a few months before acquiring. This share is not suitable for EPF/ investment  accounts.  

The business has a low barrier to entry and there is a lot of competition and I do not like paying a 9 % premium to the sales staff.

Expect window dressing in the markets as we approach the end of 2019. Blue chips, selected Reits,  the banking sector,and  plantations should be supported by the institutions and funds. This applies to the Asian markets we invest in.

Interest rates have stabilized but remain low as world growth is slowing. Focus on high quality established dividend shares to ride out the uncertainty/ low rates especially for your EPF and investment accounts.

Invest well and grow your wealth
Bill

Critter of the week is a 3 legged dog. He lives in an LRT station in Cheras and takes his food from passers by. He is active and healthy  If anyone is interested to give this dog a forever home I can give you more details.