Portfolio Review

15 June  2019

Dear Fellow Investor,

Portfolio Review

I have been reviewing our holdings and do not see any problems with trade war/ tariff  issues. Our Hong Kong shares as represented by EWH, Link Reit, and Hong Kong Land and have  corrected but as they are high quality blue chip issues they should recover.

Now Hong Kong is caught up in a frenzy of fear and hysteria  as demonstrators flood the streets protesting the government’s new  extradition policy   and the initial Hang Seng market drop was over 2 ½% but on Friday the selling abated.

This may carry on for a few more days but I am not concerned. Business and the pursuit of profits are the main focus of citizens there.   Participating in a demonstration does not put food on the table or pay the rent.

Our Singapore shares are not affected as they are mostly domestic issues.  Vicom, a major holding of ours is a taxi inspection business and its business is 100 % local.  

 Our Sing REITS are also domestic and do pay us good income.  We  hold SATs, an airline catering business  who hold an 80 % market share in Changi airport with exposure to fast growing Asian economies.  We hold Riverstone, a rubber gloves company listed in Singapore. It has the lowest valuation of all the rubber gloves companies including those in Malaysia and has potential for recovery.  The owners have not been selling their shares.  Thai Beverage, listed in Singapore is also domestic as they do not export their spirits and beer.  

Our holding in Japan is Nidec which is the world’s largest manufacture of micro electric motors. They have plants throughout Asia and earn their revenues in USD.  Many of their motors are not available anywhere else. Some are used by US defense contractors so this company should be safe from Trump’s tariffs. So far they are not affected by global stock market fear and uncertainty.

The company has been heavily buying back their shares on the recent correction.

Our  blue chip dividend paying Malaysian shares are weathering the storm but I intend to exit  the under-performers and replace with better opportunities.  I recently purchased United Plantations for some of our managed accounts. This is a quality well run company in an unloved sector. It has been congesting for several months but pays a reliable 5 ½ % yield.  We get a nice pay day while we wait for the crowd to get interested. I attended the UP  AGM  last month and gained an understanding of the plantation sector and the current challenges. I believe these challenges will be overcome  and that is why I invested.

Invest well and grow your wealth
Bill

Critter of the week is a bloodhound

What a nose! Thanks to her super sniffer, heroic search dog, Deja, saves a kidnapped girl’s life. In Cucamonga, California, a child was kidnapped and a K9 bloodhound  found the girl. She was chained in the basement of the house.  3 kidnappers were arrested.

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 

Donald Trump Tweeted

1 June  2019

Dear Fellow Investor,

On Thursday Donald Trump tweeted that he will impose a 5%  tariff on Mexican imports in punishment for  not stopping  the free flow of illegal migrants storming into the US. If Mexico refuses to agree, tariffs will rise 5 % a month until Mexico takes action  

On this news world markets dropped losing several hundred billion of value.

If that was not enough. Trump threatened Hong Kong with sanctions for allowing an Iranian oil tanker on its way to China to  transit Hong Kong. He has also threatened sanctions on Europe if they bypass the US controlled SWIFT money transfer system to conduct trade with Iran.

Trade war news headlines and sanction threats   seem to be a daily occurrence so what is the solution for us as investors to survive the volatility ?

In a word own and buy Quality Value Stocks preferably with rising dividends.

Our fund manager Kevin Christopher  competed a research study using Warren Buffet’s favourite indicator  Market Capitalization  over GDP

This measures the value of the stock market relative to the gross national product.  The indicator low of 86 % in 2008 reflected the world stock collapse and a deep value area. Presently we are at 118 % which is a 5 year low and does represent value for selected stocks.

Kevin then presented a study of 32 KLSE value stocks showing cumulative returns . All showed positive returns over the last 12 years. Many of these we hold

Presently, as we hold quality value shares in our portfolios we can hold the shares we own and not worry about the latest Trump headline.

Yesterday, I attended a one day workshop on Value Investing by 2 Singaporeans whose main focus is the SGX . They reviewed our Singapore holdings and  liked our holdings with the exception of Kepple Reit.  I agree with their analysis so we can sell Kepple Reit and replace with a better one.

They reviewed the Singapore property market and said the recovery is still not happening due to the government’s restrictive policies. Another words the government does not want another property bubble.

They said banks are OK as interest rates may rise. Valuations of banks in Singapore are at multi year lows.

I trust their opinions as they use a very objective method of value investing modelled from the Warren Buffet method.  They also mentioned there was deep value in Hong Kong as valuations in Hong Kong are at recession levels.

They advised to avoid the US markets as valuations are generally over stretched.

Invest well and grow your wealth
Bill

Our annual investment conference will be on 29 June. Main topic will be trade war. For clients no charge. If interested please send me your name, IC and phone number and I will forward to our administrator for registration.

 

Critter of the week is a rare white panda with red eyes.

What is behind 5 consecutive weeks world markets have been hammered?

25  May 2019

Dear Fellow Investor,

For 5 consecutive weeks world markets have been hammered.  Asian markets have seen USD 2 ½ Trillion  wiped off equity values.

What is behind this and what is the likely result ?

If you listen to the media it has to do with the escalating China trade war. Each negative headline fuels the onslaught of selling.

Professional investors and company insiders are taking advantage of the selling by buying back their company shares and buying for themselves. Apple announced an 80 billion dollar share buyback. Semiconductor companies such as Micron, Intel and AMAT are heavily buying back their shares. Hedge fund manager Stanley Drukenmiller is buying beaten down semiconductor shares  

This is  good use of company funds. It means they are buying  quality at a discount. It shows confidence of recovery and raises the earnings of existing shares.

Once the capitulation is over, expect recovery in the semiconductor space. There is nothing stronger than insider buying support. After all company insiders understand their companies better than anyone. No insider will buy unless he thinks the share will go higher.

As a value investor, I am not much concerned about politics but I am mindful of the current political background and how it might effect our investments.

The world has not been playing a fair trade game with the US. If a US car company wishes to sell a car to Europe the tariff is 25 % but if Europe sells a car to the US the tariff is less than 5 %. The same is true for China, Canada Japan and Korea.  These unbalanced tariff levies apply to almost all manufactured goods and commodities including beef, pork, grains cosmetics, steel, aluminium  and pharmaceuticals.

I do not blame China, Japan and Europe for the one sided  trade balance. I blame the corrupt political hacks, lobbyists and weak leadership in the US

The last great president who stood up for America was General Dwight Eisenhower. He defeated the Nazis and Japanese in WW2  America has never won a war since WW2.  Eisenhower was  incorruptible. and was able to build consensus with the opposition party to build a vast intrastate highway system which connected America from coast to coast. just like the North South highway in Malaysia.

Then Trump arrived on the scene 58 years too late. He is a man of action and not talk. He decided to make things right and get better trade deals. He has made progress with Korea, Mexico and Canada but not Europe and China. This will happen in my opinion

There has been tremendous opposition to Trump’s fighting for fair trade policy by his political opposition, the deep state, the Chinese, and the Europeans. To get rid of Trump   they have plotted to bring down world stock markets including the Dow Jones, Nasdaq and S & P. The whole world establishment seems to hate Trump. They want to get rid of Trump and put a weak compliant crony in his place such as Obama or sleepy Joe Biden  Then corrupt business as usual

China has said it is not afraid of Trump. My view is that when someone expresses they have no fear they are afraid. China will negotiate

Trump has the financial support of the US Federal Reserve and the Treasury.  The US economy is booming, tax revenues are up and there is full employment.  Trump has the power of money behind his back. There is value in some of the beaten down semiconductor shares and markets should recover and creep higher going into 2020.

Our shares are high quality dividend producers and should hold up despite the volatility.  Our position in Inari has been effected but they have no exposure to Huawei and  should recover being a proxy to Apple and Apple as well as Inari are buying back their shares. Our positions in Kossan and Riverstone are also effected due to rubber glove oversupply  but both are financially solid and should recover. Demand trends for rubber gloves continue to move higher despite recent weakness. Our consumer stocks and REITS are holding up

Invest well and grow your wealth
Bill      

Critter of the week is a hero 3 legged dog

Thailand: disabled dog rescues baby buried alive by teenage mother

Ping Pong alerts local villagers to infant’s location by digging to expose child’s legs

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US presidential election will benefit our stocks.

18  May 2019

Dear Fellow Investor,

Next year 2020 will be the US presidential election and it will be important for Trump to deliver a prosperous economy to increase the odds of his victory and thus benefit our stocks.

For now the US economy is doing well with record low unemployment, relatively low interest rates and  well performing US stock markets.

What could upset the apple cart is the escalation of  trade conflicts between  China. and the US.  

Even Warren Buffet in his recent AGM warned that trade wars hurt all parties. I do not think Trump will ignore Warren Buffet’s advice.

Last night Canada reached an agreement with Trump to end steel, aluminium and agricultural tariffs. Trump also extended a 6 month moratorium on auto tariffs with the EU. These are good signs and might motivate China and the US to find common ground.

Because of the current solid economic performance Fed Chair Jerome Powell is reluctant to lower interest rates but there is a seasonal pattern in play.

In the 3^rd year of a presidential cycle, many former US presidents pressured the federal reserve to cut interest rates. Jerome Powell looks like a man who knows how to cooperate.

An interest rate cut will support world markets and increase the odds of Trump winning a second term.

On the home front, there are some positive signs. Economic growth figures released by Bank Negara beat economists estimates and came in at 4.5 % Also the establishment of a Debt Management Office (DMO)  led by the finance minister will look for savings on debt restructuring.  The 1600 level on  the KLSE is well supported.

On 13 June I will be attending the AGM of Kellington Group, who manufacture industrial gases.  They have performed well and should continue to do so in spite of trade jitters.   

Many quality KLSE and SGX companies  were trading when we bought at less than intrinsic value which does give us a margin of safety.

If the cycle turns we will do well and if it doesn’t our risk is low and we still collect our dividends.

Invest well and grow your wealth
Bill

Critter of the week is the newly born giraffe at Zoo Negara. We hope to visit him Monday.These are amazing animals.  

 

Trump trade tweets

11  May 2019

Dear Fellow Investor,

World stock markets last week experienced extreme volatility because of the Trump trade tweets. Traders who bought index futures based on a positive outcome lost money as well as the short sellers.  who bet on a trade talk collapse.

By Friday nothing much happened and the powers that be decided to kick the can down the road. Markets ended flat. Friday the Dow Jones was heavily down but in the last hour reversed losses to close in positive territory. Trump posted a positive tweet near the day’s low saying trade talks will continue.

Hoping for a positive Trump tweet is not a plan I would recommend.

Asian market should be positive on Monday.

A good indicator of impending doom is the gold price. In times of stress and panic, gold will rise as gold is the ultimate safe haven.  In calmer times gold will drift lower. By the end of the week gold ended slightly up signifying nothing.

To prosper in markets we should focus on things we have some measure of control. That would be the companies financials, the companies earnings, sales and revenue growth, and return on equity over at least a 10 year period.

Interest rates, currency values, politics are things we can not control or forecast so why bother ?

Warren Buffet always asks before he invests, “ Will the company be around in 10 years ?”

Three weeks ago, I attended the AGM of a high quality plantation company.

It meets all my financial criteria and is well managed. The dividend is well covered and is trading at a reasonable valuation.  Because the sentiment and news flow is so negative towards the plantation sector, my opinion is that risk is low. Plantation  stocks are not in a crowded space.

Once I finish buying this counter for my clients, I will publish the name of this company in my weekly report.

In contrast, the IPO of UBER was launched Friday on the NYSE. By the close it dropped over 7 %.

This was an IPO in a crowded space. The brokers, financial media  and investment bankers were hyping this share to their clients and public  and those who bought suffered large losses.

UBER has never made a profit, has no earnings and a very unhappy workforce who are on strike worldwide over low wages.

I do not think this business will be around in 10 years.

Invest well and grow your wealth
Bill

Critter of the week is a Penang owl. When we visited the plantation company they told us that owls and leopard cats are crucial in controlling rats which attack the palm fruits. :As investors we need to behave as the owl .

 

A low volatility solid blue chip dividend shares

4  May 2019

Dear Fellow Investor,

On Friday,  the monthly US jobs report was released and US markets advanced strongly on a drop in the unemployment rate to 3.6 % from 3.8 %,  (a 49  year low) wages rose 3 % and Trump’s approval according to Rasmussen polls rose to over 50 %.

The Asian market country fund ETFs which trade on the NYSE rose strongly anticipating strong Asian markets next week.

EWM, the Malaysian country fund rose 1.13 %,  EWS, the Singapore country fund rose 1.04 % and  EWH, the Hong Kong country fund rose 1.42 %

These are substantial moves as these etfs focus on low volatility solid blue chip dividend shares.

Surprisingly, the US dollar index fell which should add to Asian market gains.

Just as Donald Trump is doing the right things for the US economy, DR M is also making the right moves  . It was announced that substantial sums missing from 1MBD  are being returned to Malaysia from Singapore and the US. He is also approaching Switzerland, UK and other countries to recover missing money.

Dr M like Donald Trump has business savvy and knows how to put deals together. Lets prey to God for him to maintain his strength to continue the positive momentum.    

The most important thing he is doing is building positive relations with China that will benefit all parties. This is shown by a gradual rise in selected KLSE   plantation and construction shares

Tuesday, Next week, I am attending a briefing by a prominent banking analyst and will keep you posted on relevant  take a ways . For the Malaysian economy to recover the banks must recover.  Across the bridge, Singapore banks are beginning to recover. Our OCBC  holdings are performing well which should spill over to our Singapore REIT holdings. 

Invest well and grow your wealth
Bill

 Critter of the weeks is a best of friends picture :