8 September 2018.
Dear Fellow Investor,
The US Trade Conflict: What Should You Do?
The United States,
China, Europe, Canada, Korea and much of the world
have been at
loggerheads for some months now with tit-for-tat tariffs on
billions of
dollars’ worth of goods.
The conflict does
not seem to be abating. Just last week, US tariffs on
US$16 billion worth
of Chinese imports took effect, with Beijing fighting
back with its own
levies on goods from the US worth the same amount.
Why worry about
things we have no control over trade policies, US
politics, monetary
policy or President Trump’s rhetoric ?
We can control our
share selection by our focus on quality companies
which offer value,
solid financials, low or no debt, and those businesses
that have recurring
revenue.
Our recent purchase
for our clients of Kellington Group Bhd fits this
profile.
Kellington Group
designs, fabricates and installs ultra-high purity gas
and chemicals
delivery systems. They supply to hospitals as well as the
semiconductor
industry. Revenues are derived from Singapore,
Malaysia, Taiwan
and the PRC. They are net cash with a PEG ratio of 0.3.
PEG means price to
earnings growth.
A PEG ratio of 0.3
shows Kellington is undervalued. Should earnings
increase
which is possible based on a strong trend of earnings growth
and if the PEG
increases to 0.5 expect at least a 20 % jump in the share
based on the
current price of 0.955 sen. Kellington may also benefit
from the trade
tensions between China and the US. China wishes to be
self sufficient in
semiconductor manufacturing and Kellington
produces the
vital gases for semiconductor production. Kellington has
a facility in
China.
Motley Fool
Singapore posted a valuable comment which applies:
“Investors like you
and me cannot control the trade war
happening between
the US and China. But, what we have control over
are the investments
we make, and how we handle our emotions. Instead
of focusing on the
fears, we should focus on the business fundamentals
of the companies we
own. Short-term fears create opportunities for long-term investors.
Billionaire
investor Warren Buffett once said:
“Over the long
term, the stock market news will be good. In the 20th century, the United
States endured two world wars and other traumatic and expensive military
conflicts; the Depression; a dozen or so recessions and financial panics; oil
shocks; and the resignation of a disgraced president. Yet the Dow rose
from 66 to 11,497.”
Stocks tend to rise
over the long run, despite the short-term worries surrounding the world we live
in.
There will always
be negative news to spook the stock market every now
and then. However,
if we focus on the long-term picture, these short-
term blips will not
matter. In fact, such drops allow us to buy great
companies at lower
valuations.
We should also not
time the market by dumping our shares, thinking we
can buy the shares
back later when things become clearer. Buffett had
this to say when it
comes to market-timing:
“People that think
they can predict the short-term movement of the stock market — or listen to
other people who talk about (timing the market) — they are making a big
mistake.”
“If we’re right
about a business, if we think a business is attractive, it would be very
foolish for us to not take action on that because we thought something about
what the market was going to do. … If you’re right about the businesses, you’ll
end up doing fine.”
Always remember:
Time in the market is more crucial than timing the market.
The US-China trade
conflict may or may not get worse. No one can tell
for sure. However,
what we can do is to focus on the things that matter,
which is on
business fundamentals and our emotions. To borrow
Benjamin Graham’s
words, in the short run, the stock market is a voting
machine, but in the
long run it is a weighing machine. Would you rather
focus your energy
on the things that matter or on the things that don’t?
It’s your call.
Invest well and
grow your wealth
Bill
Critter of the week
is the Malaysian tapir. You can visit the wildlife
reserve in Sungai
Dusan to see the tapirs as well as other wildlife. You
will need to call
03 6046 2400 to get a permit from the wildlife authority
before visiting.
Distance from KL is 110 kilometres.
