The China/ US trade war may be slightly thawing

8 June  2019

Dear Fellow Investor,

Expect Asian markets to be boosted next week as Mexico backed down from  President Trump’s tariff threat.

Mexico has facilitated a migrant invasion into the US from its Southern border and Trump has tried to stop it.  Trump’s tariff threats did the job and now Mexico has mobilized 6000 troops to stop the migrants.

The China/ US trade war may be slightly thawing.

 President Xi last week in a 3 day visit to Russia said Trump is his friend

 “It’s hard to imagine a complete break of the United States from China or of China from the United States. We are not interested in this, and our American partners are not interested in this. President Trump is my friend and I am convinced he is also not interested in this,” Xi said .

On the domestic front, FDI or foreign domestic investment in the last  3 months has exceeded  all FDI for  2018.  This shows confidence in the new government by professional investors and is reflected in the KLSE by a near term 60 point rally.

Of course it will not be a smooth ride and we must always be on guard and follow our method.

Our value method of investing consists of 3 parts:

1.  Honest management who focus on the shareholders rather than  themselves.

2.  Solid financials with rising sales, profits and growth, low debt and steady rising dividends

3.  A reasonable price with room for capital appreciation

If a company meets this criteria we should allocate a portion of our capital and then carefully monitor the company for change

We would exit our share in profit or loss if the following things happen.

1.  If the crowd starts to run up the price  we should consider to sell if the share goes into bubble territory.

2.  If there are major fundamental changes in the business such as related party transactions, issuing rights to fund an acquisition that may be unrelated to their core business and issuing convertible bonds.

3.  Change in management, changing the auditor, lawsuits, shifting location

4.  Heavy insider selling which must be reported to the exchange. Insiders would be the CEO or company management. We were holding Hovid for our clients and I noticed the CEO and his managers were heavily selling their shares before the collapse so I exited. These fellows know the company better than anyone.

These are company specific but macro factors such as trade wars, politics, interest rates  and currency fluctuations sometimes effect all companies so if we are careful when we screen potential investments for the 4 criteria I mentioned we will have a good chance to recover when the whole market drops.

A good example of this was the Thailand floods in 2011  which effected F & N who had plants there producing milk.  The floods effected production and F & N shares dropped sharply to RM 16. Many uninformed  investors sold on the drop but as the floods receded F & N recovered and moved to a new high.

As you know F &N is a high quality value share with  good shareholder friendly management founded in Singapore in 1883.  A temporary flood has little effect on their long term business. Company insiders were buying F & N near the low when Thailand was flooding. We bought with them and are still holding. 

Insider buying and selling is in my opinion the best way to access the fundamentals of a company. Those who run a company know it better than anyone and money talks. It is available to you on the Bursa website as well as the Bloomberg work station.

Invest well and grow your wealth
Bill

 

Critter of the week is a mule deer from Canada. Notice the giant ears and alert posture. I suppose if we adopt the behaviour of the mule deer we can be alert to danger and opportunity in the market