Diversification or Focus portfolio?

Recently I read a book that I bought for more than 10 years ago which I have read only once then. The title of the book is " The Winning Investment Habits of Warren Buffett & George Soros".

I must say I have missed out these 2 points highlighted by the author ( of course whether he is right or not, I am not too sure) which I find interesting.


1. Attitude towards Risk
On top of the winning investment habits list of these 2 successful investors - they always think of capital protection. We all knew Warren Buffett's famous maxims - Rule No 1: Never lose money, Rule No 2 : Never forget Rule No 1.
To my surprise, according to the author, George Soros is also risk-averse and his decision making process is always to consider the downside first. 
I supposed one of the ways to strengthen this habit is only invest within our circle of competence. Do not invest in something that we are not familiar with!!


2. Diversification
Warren Buffett once said "Diversification is protection against ignorance, it makes little sense for those who know what they’re doing.” He seems not in favour of diversification as an investment strategy to minimise risks as opposed to view expressed by many other great investors, especially Benjamin Graham.
Then I read from different sources and realised that he said that with reference to professional investors as professional investors have better resources, hence better chance to know which investment can give them better return. For non-professional investors, he still think diversification is a better investment strategy.
My personal take is that it has to do with circle of competence as well as investment time horizon (fund size could be a factor but I am not there yet). If we know the company/industry well, we have better chance to earn a higher return as we know when a company is undervalue or expected to report strong growth. Similarly, if we have longer time horizon (of course Warren Buffett's famous saying is to hold forever), our chance of winning is also higher as we can wait till the market uncover companies that are undervalued or with growth potential. Remember the popular saying " Time is the best friend of good companies and enemy for bad companies". 

I must say diversification has been my biggest dilemma lately, my personal experience is that I have achieved much better return when I focused on only a few stocks. When I attempted a more diversified portfolio, I realised the return is not as high though this is not conclusive as we have not really seen a major correction in the last few years.  

Stock investment is so exciting and one can continue to learn endlessly. Is diversification only better than focus strategy in a down market? Is diversification an effective risk minimisation strategy while focus is profit maximisation strategy? My learning journey continues...

SMTrack - Be careful of what you are getting into

From the announcement on a series of corporate exercise, it seems that existing shareholders have something to look forward to after suffering from years of massive losses.


Just a word of caution if you happen to read this article, the capital reduction and share consolidation, rights issue, private placement and proposed acquisition of Wellspring will dilute your existing shareholding massively. The issue price per share of Rm0.14 for acquiring Wellspring is based on after all the share consolidation (based on current price of 5.5 sen), private placement & rights issue, it is not a reference price of how much SMTrack is worth now. If you acquire at 14 sen today, you may be in a big loss later after share capital reduction & consolidation (4 into 1). Further more, you need to fork out money to subscribe to rights and later subject to further dilution when they issue share to acquire Wellspring.


Wellspring past financials do not seem attractive ( FY15 only with profit of USD 2.3 mil) and SMTrack is paying 16.18 times of average profit of USD 4.5 mil for FY 18 & FY19. Though there is profit guarantee, it is already built in the high PE ratio SMTrack is paying to acquire Wellspring. It looks more like a good deal for Wellspring's shareholders on the reverse take over.


Yes, many will speculate and trade SMTrack shares but just be careful, don't get caught and paying a high premium for it. Furthermore, whether the RTO will go through or not is another risk. Just my 2 cents.

Priceworth - what is not right?

“Priceworth forecasts Rm100 mil net profit for FY18.” NO kidding , from less than Rm2 million profit company to Rm100 million profit!!

I am sure the recent news from this company caught many investors’ attention and I do not wish to put it up on Priceworth’s i3 page as many will curse me for being the devil advocate.

As usual, market will react to such an eye catching headline:-

There are 2 big questions in my mind and I would like to put them on record for case study purpose:-

1. How to get PE of 2? The calculation of EPS 10.89 sen and the PE of 2 basing on the forecast profit has not taken into consideration of the additional shares from private placement 64.2 million shares & special issues 141.25 million shares for fund needed.
2. The news came out on Star dated 20 Oct 2016 when the deal was announced with expectation to have 6 mil cu meter timber in total but now FY 18 alone has 9.3 mil cu meter timber?? (Furthermore, WTK only log 594k cu meter timber in FY2016. Wow…15 times of WTK in one year, really??)