We have the wind at our backs

Dear Fellow Investor,

As a fund manager, we are  very much focused on individual stocks. We expend a great deal of effort to carefully analyse the business behind a stock to find stocks that we believe have a high chance of experiencing material business growth over the long-term. And of course, we also pay attention to valuations to ensure that we are not overpaying for growth.

We don’t know when the market will fall. What we do know is that investors who focus on investing in growing businesses at reasonable prices will have a great chance of coming out ahead over the long term. 

Sure, The Straits Times Index, the KLSE and the Hang Seng  look to be at a high level now. But there are three important things to note in such situations:

We must study valuations and not focus merely on the price. And fortunately, the market’s valuations are not anywhere close to being crazy expensive right now. That’s good news for long-term oriented investors like you.

It’s incredibly tough to call a market top and bear markets have happened even when valuations are low. But, the stock market has still done fine over the long-term. This highlights the need to have a long term investing time frame. 

The best returns come over the long-term. If a business can continue to do well, then there’s more room for the stock’s price to rise. We are optimistic about the long-term futures of the businesses of the stocks I have placed in your accounts.

We have the wind at our backs. Major central banks are focused on growth and not austerity. Interest rates remain low and besides equities there is not much on offer to give us a reasonable return.

Invest well and grow your wealth,

Bill

A pygmy elephant . The Lok Kawi Wildlife park in Sabah has a collection of exotic animals including sun bears and pygmy elephants. The park is about a half hour drive from Kota Kinabulu

2 ways to operate in the stock market

Dear Fellow Investor,

100 billion USD of stock value was erased on 9 June Friday afternoon in the NASDAQ. The bulk of the losses were in the FANG stocks: Facebook, Amazon, Netflix and Google.  The catalyst of the drop was a warning by Goldman Sachs that valuations of tech stocks and in particular the FANG stocks were in an air pocket. PEs were averaging 60.  That means you get only 1 dollar of earnings for every 60 dollars of price.   Average dividend yields for FANG are less than 1 %.

Daily Facebook Chart . Note the ultra high volume price bar and wide price spread on Friday which is an indication of smart money selling.

Contrast this with Tambun Indah a Penang property company listed on the KLSE  which trades with a PE of 5.62 and a dividend yield of 6 %.  Tambun is also been consolidating at a low level for 2 years and there is evidence of smart money accumulation. 

Tambun Indah has a gearing of only 2.6 % with a net margin of 22.5 % and a solid set of financials .  Tambun Indah builds affordable houses  in the dynamic Pearl City development near the Penang 2nd bridge. 

If you believe in the demand for affordable property and the growth of Penang you can buy this share and sleep at night. If you hold FANG stocks be prepared for a volatile and uncertain ride.  We hold Tambun Indah in our managed accounts.

There are 2 ways to operate in the stock market.  One is to focus on value while the other is to  buy momentum/ growth.

If you buy momentum you assume that there will be a buyer to take your shares at a higher price.   The risks are higher for momentum because at some point there will be no more buyers and professionals will hammer you .   

FANG stocks havmiche surged this year and are showered with praise from the business press and market analysts who advise investors that FANG stocks should be a large part of every investors portfolio. They say that growth is what matters. I differ from this: I think margin of safety and buying value as Warren Buffet would say will preserve and grow your assets over time.  Remember Aesop's fable: The tortoise and the hare. Who won the race ?

Invest well  and grow your wealth,

Bill

The momentum hare and the value tortoise .

Indication of profit taking

3 June 2017

Dear Fellow Investor,

In the last 2 weeks, the momentum and volume in the KLSE has dropped . The small cap index after a good run since the beginning of the year has churned at current levels with a slight downside bias. This is an indication of profit taking. Insiders and smart money will attempt to hold the market up so they can off load at good prices.

On the other hand there has been a slow pick up in quality blue chip shares . I have been picking up quality shares for my clients which in some cases are undervalued and have potential for upside.  We can enjoy the dividends, stability and steady growth.

There has not been much interest in most quality blue chips while the hot small caps have run up so the blue chip space  is the area we should focus on. Prices and values for selected shares are reasonable.

Never underestimate the power of QE and this is the reason to stay invested. QE overrides the uncertainty of interest rates, North Korea threats, political turmoil and global warming.

With all the bad news markets round the world continue to go up.  

Crude oil prices at the USD 50 a barrel range are also supportive  for most sectors such as transportation and manufacturing . It makes the cost of doing business predictable.

On Friday 2 June 17, The July 2017  futures for crude oil delivery closed on the CME @ USD 47.74 . For the December 2020 futures delivery the price closed @ 49.46.   Futures traders anticipate trading in a narrow range for the next 3 1/2 years. Those who need crude oil for their business can lock in prices for future delivery  at a price close to today's price. 

In my humble opinion  commercial traders are the smartest and most well informed traders on the planet. They have the best information regarding supply and demand so following them can give you an investing and trading edge.  The CFTC or commodity and futures trading commission, a government body posts the positions every week of the speculators, funds and commercials.  Commercial traders in crude oil would be Exxon Mobile/ BP/ Petronas  etc.

From Warren Buffet.

My first filter for buying a blue chip company is the moat. The moat is the defense from the competition. It could be the brand, the financial strength, the unique product etc.  I like to see a company that consistently grows sales and earnings over  a 10 year period.  That means they have a moat. Sales and growth can be measured objectively by reviewing the financials using Morningstar, Bloomberg or most financial websites.   Carlsberg, Thai Beverage, SATS, OCBC, VICOM, Nestle, Inari, Gas Malaysia, Tambun Indah  which we hold are examples of companies with a strong moat. 

This castle has a wide moat to protect the residents. 

Invest well and grow your wealth,
Bill

I am not sure if this is a mouse ?

This dog is 4 months old name is Elle very healthy and alert. Please call or whats app me if interested. 012 685 1207

Keep calm & Salam Ramadan

27 May 2017

Dear Fellow Investor,

The sentiment of almost all world markets is super bullish. With share buybacks, historically low interest rates in most of the world  and easy money policies the investment crowd continues to pile in.  What is the background? What is the fuel for the bull ?  Simply put: Easy money

Donald Trump has the option to appoint 3 Federal Reserve Board officials to fill 3 vacancies. They will likely be easy money advocates even more dovish than Janet Yellen. With Trump's plans to revive infrastructure and defense spending credit will be further loosened.

A lot of this easy money is finding its way into equities world wide.

Bad news promoted 24 hours a day by the Trump hating main stream media has not stopped the bull run in the S & P/ Dow and Nasdaq and other world markets.  

Investors have become immune to the lies and misinformation promoted be CNN, BBC  and CNBC concerning Trump, political witch hunts, Putin etc. Markets continue to go up.

To protect ourselves from getting caught up in the crowd euphoria continue to focus on off the radar screen companies trading at reasonable valuations. These are companies that are under researched, not in the popular press and overlooked by the crowd.  

In this way when there is a correction, you will be protected. Value is always value, property is always property and gold is always gold.

Invest well and grow your wealth and I wish all our Muslim clients a happy Ramadan. 

Bill

This is a fisher, a member of the  weasel family. They live in Northern

Canada.

The sun rises again.

20 May 2017

Dear Fellow Investor,

The sun rises again.

be

That was the theme of yesterday’s presentation on The Asian Economy held at the Swiss Garden Hotel.



Prominent speakers included Charles Lee, Portfolio Manager from Phillip Securities Singapore, Louis Wong, Director, Phillip Capital Hong Kong, Ms Pikun, Fund Manager from Phillip Securities Thailand and Mr Phua Lee Kerk Market Strategist, Phillip Capital Mgt.



Statistics and charts were presented to support the rising sun theme.



The sun is definitely rising in japan. Exports are picking up. Tourism numbers continue to increase. Deflation is ending. Consumers are spending. The employment market is robust and wages are going up. Abonomics is working. Valuations of 13.9 PE are reasonable and there are quality small and mid caps which offer opportunity.



The sun is also rising in Thailand. The 3 year drought has ended and the farmers are happy. They have more money to spend and that is boosting consumer stocks. As the Army is in control for at least the next 5 years that provides economic and political stability which is attracting foreign investment. Ms Pikun recommended several Thai consumer stocks to ride the trend.



The sun is definitely rising in Singapore after 3 under performing years. Property is beginning to recover with government initiatives to loosen policies imposed to cool off the property market.



The policy of strategic alignment with China is the new focus. This alignment includes goods, services and finance . Over 100 China MBA grads are now in Singapore studying at a local University the Singapore model of growth and business development so they can replicate this model



This will provide support and growth to the Singapore/ China economy.



The compelling valuation of the Singapore market is PE 13 with a price to book of only 1.2. Average dividend yield for the blue chip index is a generous 3.4 % which beats the FD rate by a wide margin.



Charles Lee continues to like selected REITS as a income plays as well as transportation and infrastructure stocks.



The sun in Hong Kong is also bright. With the PMI expanding in China growth is accelerating and spilling over into Hong Kong. Valuations of the Hong Kong share index are at PE 13.2 which are reasonable.



I have bought the EWH as a play on Hong Kong for our PGWA clients. This is a fund listed in New York managed by Blackrock which include a selection of blue chip Hong Kong shares. So far it has been performing and should continue to perform with the China recovery.



Malaysia is also benefitting from the rising sun and I am focusing more on small and mid cap stocks with solid fundamentals. We visited Kossan last week to get a review of the rubber glove sector and also attended the AGM of ECS IT. Kossan is expanding with a new plant which should boost profits. Since inception 30 years ago I was told that Kossan has never had a losing year.



The prospects for ECS are bright as they are expanding into the Internet of Things and establishing a presence in the Penang free trade zone.



Invest well and grow your wealth

Bill

Secretive and largely solitary by nature, the cougar is more closely related to smaller felines, including the domestic cat…rather than the large cats of Africa, India, Siberia…or the jaguar in South America.

Time to look for undervalued shares

14 May 2017

Dear Fellow Investor,

Some of you have asked me why we hold large cash positions. One reason is that we recently took profits on some big winners which became overvalued compared to the price paid. We hold cash to take advantage of a7 low risk and potential high reward opportunity

 

When a share becomes overvalued based on the metrics of P/E and revenue growth our margin of safety decreases and our risk increases.

 

Our plan is currently to look for undervalued shares that have not attracted the interest of the media and the crowd. We wait for line breaks of accumulation using price and volume spread analysis.

 

 

There are currently some out of favour beaten down property / plantation/ rubber glove and oil and gas companies which are now at value levels.

 

 

You must be patient to wait for line breaks on volume before taking a position.

You must also be mindful of the fundamentals of the companies you buy. A line break on high volume is a sign of insider buying. They know more than us so why not follow them?

I use the Bloomberg research station in my office to filter the fundamentals and check the financial statements before planning a line break entry. That increases our odds for profit.

 

 

Please do not be concerned or anxious about holding too much cash. Be patient. Cash is the ultimate hedge and when the odds favour our play we make the bet. That is why the majority of stock market players and casino gamblers lose. They do not have an edge and the patience to wait. 

 

  

Going forward, low interest rates in most of the world, QE in major Central Banks, coming election in Malaysia, will provide support for carefully selected shares.

 

Add caption

 

Invest well and grow your wealth,

Bill

 
 

Please ignore the liberal media noise and propaganda, the majority who are Trump haters. It is simply a distraction from our investing in quality companies. I do not see much news on the favorable trade deal Trump just made with China Obama tried for 8 years to make a deal and failed while Trump took less than 100 days.

 

Coming ECS AGM

8 May 2017



Dear Fellow Investor,



On 17 May, I will be attending the ECS IT AGM to be held at the Tropicana Golf Club at 10 30 am. For those who hold ECS in your EPF/ managed accounts, I am happy to get you a proxy form from our trustee so you can attend the meeting but you need to let me know by Monday.



I personally know the MD and his son who is an MIT graduate in computer science. They will explain the ICT trends moving forward and this will explain why we need to focus on these trends to align ourselves with what is making money.



Semiconductor stocks such as Inari are making new highs as well as many other technology companies around the world.



ECS IT is a driver of Malaysia’s digital economy and distributes products from Apple, Huawei, Lenovo, IBM Samsung and all the major ICT companies.

Unlike the ICT trends, other trends are not presently in our favour: These include traditional brick and mortar businesses, oil and gas, plantations and commodity related counters.



Some of the counters in these sectors have made new highs and there is a high degree of complacency and supreme confidence. Value is difficult to find. I suggest taking profits as we did with Press Metal



Headwinds include the recent rise in China interest rates and credit tightening which caused a crash in industrial metals/ materials such as coal/ copper/ and iron ore. The CRB commodity index is now down to the same level before the Trump rally.



I read that to buy a big house in Bejing, you need an 80 % down payment and a small house is 60 % The authorities are cooling the speculation.


There has also been record plantings of soybeans, corn and wheat in the US which will put downward pressure on palm oil.

The CRB Index which represents a basket of world commodities is in a fierce downtrend.

As commodities are cyclical, they will recover but in the meantime focus on what is making money now.



I am adding a momentum mandate to diversify your investing portfolio . Obviously the shares that come up on our IVSA(Volume Spread analysis) filter must meet our high investment standards but we add the filter of momentum and line change to increase returns.



When I bought Gas Malaysia for you a few months ago, I bought on a line change and increasing volume. Risk was low compared to potential reward. Gas



Malaysia is also a high quality fundamental counter. Once I get clearance from our compliance, I will forward you a mandate letter to sign so we can proceed.  



Invest well and grow your wealth,
Bill

A Bali Mina bird which is highly endangered. THere are only a few left in the world. There are some in the Negara Zoo.