From a cup half empty to a cup half full.

26  Jan 2019

Dear Fellow Investor,

From a cup half empty to a cup half full.

In the last 2 weeks  the cloud of doom that has been overhanging the KLSE/ Singapore  and world markets has been pierced by some rays of sun.

Our shares which were under pressure in  the last quarter are recovering.

Maybank has caught a bid. Dialog is recovering. Wellcall has held support and shows positive price action. Even Genting Malaysia after a massive panic sell down  has stabilized. Our rubber glove holdings are attracting investors

In Singapore OCBC has been congesting for 7 months and is now challenging the long term weekly resistance.  High dividend paying  Singapore REITS are moving up

We bought Maybank after the 14^th GE  anticipating positive change moving forward.  Where Maybank goes so goes Malaysia.  My timing was off as I bought in the RM 10 range. In 3 months the price dropped to 9.10.  and has now recovered to 9.66.

However; in the meantime Maybank  has paid 57 sen in dividends.   Counting the dividends  we are slightly in the money despite the volatility, doom and gloom negative sentiment and extreme fear by many investors.

Had we been caught up by the crowd’s negative sentiment we might have sold at a loss and with the problem: what to do with the cash realized ?

That is why as an investor I carefully examine the business, how they make their profits, the customer traffic and the management.

I deal with Maybank in the KLCC branch. Their  service is very efficient and there is always a crowd.  Every customer contributes to their profits and cash flows They are open 7 days a week which is very convenient as I can do my banking business on Sunday. 

My point is I do not think those who run the bank are much concerned with the daily fluctuations of stock   prices . As long as business and profit growth continue up, the directors are happy.  

When selecting shares for you, I look at the business first. I am not smart enough to pick the low but I attempt to buy value at a discount. When I bought Maybank the book value was at a 15 year low but it went lower by about 8 % . A low below book value according to Warren Buffet gives a margin of safety so I was not worried and could sleep at night.

World news flows are becoming less negative. Trump has reopened the US government. Trade talks move along and most important of all : the Federal Reserve has slowed the pace of interest rate hikes.

Invest well and grow your wealth,

Bill

We intend to revive our Investment club after Chinese New Year which will meet once a month on Saturday at my office in Phillip Capital.   For over 10 years we ran the club and had many distinguished speakers to answer your questions, share market outlooks  and address your investment concerns. There will be no charge and we meet from 10 to 12 in the morning.  If interested please let me know. 

 

Critters of the week are 3 African wild dogs. They are vicious killers but the pups are cute. Notice they are playing with the leg of an impala.

 

 

Caution, uncertainty and wait and see.

19  Jan 2019

Dear Fellow Investor,

Some of my friends have been attending Malaysian/Singapore/ Asian  market outlook talks by major brokers and asset managers.

The consensus opinion among these prominent experts is caution, uncertainty and wait and see.

The problem with wait and see  is that while you wait you may miss  opportunities and you might wind up buying the high.

As long as the company you are interested in is a solid well managed business, pays a reasonable dividend and offered at an attractive price you can buy it.

 It’s the same as buying a house to live in in an economic slowdown .  If the house is well located, reasonably priced in a growing area with solid infrastructure, why not consider to buy ?  

Because there is so much negative news and uncertainty about the economy, you should be able to get a good deal.  You might be able to undercut the seller.

That is the situation in the Asian stock markets now.

There are many fine value shares trading at attractive levels.

As long as the probabilities favour your play, go for it.

The major world market correction in 2018  was caused in part by the trade wars, higher interest rates, recession fears and the current bluster between Trump and the deep state. 

The Chinese, the sovereign wealth funds, deep state operatives, the liberal socialist media  were doing all they could to get rid of Trump by collapsing the market .

They failed.

Semiconductor, manufacturing and banking stocks are leading the way up. Solid blue chips are recovering.

The US has paused interest rate hikes, the US Dollar is weakening, and it looks like China and the US are resolving the trade issues.  

In this business you need brass balls, not a crystal ball.

Invest well and grow your wealth, Bill

Critters of the week

 "Family Portrait" by Canadian photographer Connor Stefanison.  The caption reads "A great grey owl and her chicks sit in their nest in the broken top of a Douglas fir tree in Kamloops, B.C....Canada. They looked towards Connor only twice as he watched them during the nesting season from a tree hide 50 feet (15 metres) up." 

 

 

The Thucydides Trap

12  Jan 2019

Dear Fellow Investor,

Today I attended a stock market outlook by Mr Phua Lee Kirk  strategist for Phillip Capital Management.

He explained the on going impact of the current trade war on shares and markets  between China and the US.

Bottom line he said there will be no quick and clear end to the trade war because of the hidden agenda behind the trade war. This will cause range trading  and high  volatility for the next few months. Look for under valued shares with strong financials and these could be growth as well as value shares or a combination of both.

We need to pick individual shares rather than sectors. Range trading of stock index futures such as the SGX or CI futures   should be very rewarding

The hidden agenda is power and economic influence:    

The Thucydides Trap

Thucydides Trap.  Thucydides Trap  refers to when a rising power causes fear in an established power which escalates toward war. Thucydides wrote: "What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta."

 

 

As China grows, they are expanding their belt and road project, their military presence in the South China Sea. economic influence in most Asian countries including Africa, Malaysia and Thailand, 5G technology as well as threatening a Taiwan invasion.

This has led to the rise of trade and military hawks to power in Trump’s administration.

China can afford to wait. They have a president for life while Trump faces election in 2 years. China hopes they can get rid of Trump.

Trump is smart enough to avoid an escalation of trade war or a shooting war. He will overrule his advisers, the war and trade hawks and  the socialists like Schumer and Pelosi and find a compromise to keep power, make a deal with China and keep his job in the upcoming election in 2020. This will benefit all parties.

A real war between China and the US benefits no one. Now they are posturing and bluffing to gain an advantage. Upward of 350 million people would die should China invade Taiwan according to the Economist, stocks would collapse world wide and there would be a world wide depression.

This is a highly unlikely scenario.

The 24 hour news cycle constantly stirs the pot to stir up fear and uncertainty. As I mentioned in last weeks report, we must put wax in our ears to turn off the news. 

Mr Phua mentioned that the Malaysia market has limited downside due to the lowest foreign fund participation of any Asian market. Foreign funds can not sell what they do not own. The recent strengthening of the ringgit supports that the KLSE is stabilizing.

He also mentioned no recession in 2019.

China is now in their 70^th anniversary of the new China when the communist party was formed after WW2

President Xi to save face  will do all in his power to make sure of a strong economy This includes lower interest rates, property market support and  lower reserve requirements.

This will indirectly benefit all Asian markets.

This was only a part of Mr Phua’s outlook. If you have any questions please let me know and I will ask him for you.

Invest well and grow your wealth, Bill

 Today’s miracle of nature  is :a slipper orchid sighted in a vegetable market in Laos.

Investors sabotage

5  Jan 2019

Dear Fellow Investor,

There is an interesting book- Heads I Win, Tails I Win by Spencer Jakab who is a financial journalist with the Wall St Journal.

He details many examples of how investors sabotage themselves.

A tragic example is the story of Peter Lynch who ran Fidelity Magellan  Fund from 1977-to 1990. He had only 2 losing years but his average annual return was 29 % but tragically  the average investor in his fund only earned 7 %.

The reason is that the average investor would sell in a market panic and buy when there is market euphoria. Another words they sell low and buy high which is exactly what Warren Buffet advises against.

If we are careful in our share selection and focus on buying quality businesses at reasonable prices which offer recurring revenue, rising dividends  and steady and growing earnings we simply buy, hold  and avoid getting caught up in the news cycle. To earn these good returns we have to stomach corrections and drawdowns such as the one we are now experiencing.

Of course, if the business we buy becomes disrupted, shows earnings and revenue declines, we need to re-examine why we bought in the first place.

An ancient epic of what is now happening and how to protect ourselves from the volatility.

Below is an illustration of an ancient epic about Odysseus,  a Greek king.

After the 10-year long Trojan War, Odysseus embarks on a journey home to Ithaca. On his arduous way back, Odysseus had to pass Sirenum Scopuli, a chain of small islands that were home to the Sirens, creatures with the face of women but the body of birds.

The Sirens were deadly because they sang and played beautiful melodies that would enrapture passing sailors, so much so that the sailors would steer toward Sirenum Scopuli, inevitably crash their vessels on the islands’ rocky terrain, and drown. Our hero Odysseus knew this. But he also badly wanted to hear the Sirens’ tunes. And so, he devised an ingenious solution.

Odysseus was certain that he would fall prey to the Sirens’ seductive voices – all mortal men do. So, he instructed his followers to tie him to his ship’s mast and to ignore any of his instructions to steer the vessel towards Sirenum Scopuli. He also ordered his men to fill their own ears with beeswax, so that they would remain immune to the Sirens’ call. Odysseus’ instructions were for him to be released only after his ship had sailed far beyond the Sirens’ home.

His plan worked and he and his crew survived.

His story is a metaphor for markets today.

Tune out the CNBC financial news cycle, the media headlines the volatility,  the intraday price movements which stimulate fear, panic and greed.. Focus on what really matters your quality businesses and your regular dividends received.

Invest well and grow your wealth, Bill

Todays critter is  a  leopard from the 3 D museum in Langkawi. There are many impressive 3D animals in the museum that look real just as all the fake news on CNBC that appears real..  :