2020 - Year of Awakening

Year 2020 will be a memorable year for all due to the covid pandemic, it has impacted almost every aspect of one's life and has changed perspective of many, whether in daily life, investment, career, family, etc. Whatever it is, continuous learning and adapting to changes are the most important lesson in life.

2008 financial crisis has taught me to only invest in fundamentally strong companies and ever since I have been avoiding highly geared companies and those weak in financial position and cash flow. I have also started to invest in REITS for recurring and stable dividend income as well as what is known as value stocks with strong free cashflow and reasonable (>4%) to high(>6%) dividend yields. I must say I had enjoyed a smooth sailing without much volatility and performed portfolio re-alignment once a while.  

Now year 2020 has changed what was thought to be rather resilient stocks. Few important lessons I learnt:-

• The pandemic has accelerated the change in business model and adoption of technology Eg retail & office REITS once thought to be stable are affected badly, even the weaker healthcare Reits such as First Reits is hit extremely bad. In addition, during the pandemic many Reits tried to built up their cash reserve by reducing dividend, some were even doing cash call/rights issue, not only I didnt get the dividend I used to receive, I need to utilise my reserve to avoid dilution :(
• My portfolio was heavy on value and income stock. Some value stocks that look cheap when I bought them, looks even cheaper. I am referring to Chinese banking stocks - looked cheap then with good dividend yield, now even cheaper. The hard truth is these stocks are perceived to be low growth stock. When times are bad, bank face high default risks, in addition, these state controlled stocks are vehicle used to support and save other businesses when times are bad. Hence, they do not have the total freedom and theirs' deep value become deeper. 
• The anti trust law and propaganda happening everywhere has resulted in disruption in growth of technology giants. More so in China where policy dictate whether a person or a company still has the future once perceived to be very bright. Alibaba/ANT serves as good reminder not to bet big in a single Chinese stock no matter how bright the future looks.     
• Reinforced my own preference all this while - avoiding airline stocks whether economy good or bad. I always think this industry is a very tough industry with fierce competition, highly impacted by fluctuation in oil price, highly geared.. yes, I may not understand well about this industry but I just do not have faith in them, May be I always thought of Malaysia Airline as an example.  

What have I changed in 2020:-

• accelerated my learning and adoption of ETFs - which I find suits me quite well, more diversification, less volatility and seems able to achieve reasonable growth in the long run
• reduce exposure to a specific country, hence reducing risk of a particular currency devaluation
• realignment between income, value and growth stocks to achieve a more balanced portfolio 

I am happy that there are some good picks in 2020 eg Eita, HLInd, Frencken and Tech, Income & Growth ETFs as a result of the realignment, of course partly due to luck as in the case of Eita for its bonus issue exercise.

No matter what crisis or events, it will still recover. Therefore, we just need to ensure we or the stocks we invested survive the shock, then everything will be fine.

Wishing all of us a safe and fulfilling 2021. 

Daibochi - a long term & sustainable growth stock?

 

Year 2020 is almost over, despite the deadly Covid 19 impact at the beginning of the year, stock market indexes have recovered and some even surpassed level before the pandemic eg. DJIA, Nasdaq and our FBM KLCI too. Surprisingly HSI, STI and ASX are still below the Jan 2020 level. 

A stock in my portfolio that has shown good return this year is Daibochi ( I know, nothing compared to glove stocks). Let's have a quick look at its FY20 annual report and see whether it has a long term & sustainable growth potential:-

1. FY2020 Revenue (FY 2019 consists of 19 months), Earnings and Dividend per share are all showing good growth

2. Company's growth strategies:-

- allocating Rm100 million in FY20 & FY21 to expand capacity by 60%

- developing sustainable FPP to meet customers need 

- expand beyond just MNC into regional brand customers in Southeast Asia & Oceania

3. Strong management if we believe the Scientex DNA is embedded

I am positive with these growth strategies and hence holding on to it as I believe it is still at the beginning of a long and sustainable growth trajectory. At current price of 2.70, it does not look over or undervalue but if the 60% capacity expansion is delivering the growth expected, I hope its value will be double by then.

As some of you may already know, there is a substantial shareholder, Samarang Asian Prosperity Fund started offloading Daibochi since July 2020. Based on its last announcement on 19 Oct 2020, it has reduced it stake to less than 5% (about 16 million shares) but I believe it is still selling. This, I believe has somewhat suppressed the share price of Daibochi lately. 

As long as it continues to deliver growth and when Samarang has stopped or finished selling, the price should continue its uptrend to demonstrate the characteristic of growth stock. Please do your own assessment if you decide to invest in Daibochi as I have vested interest in it.

 

Hong Leong Industries - what is the plan?

 

Looking at the latest quarterly results of HLI and an interim dividend of 17cents (similar to last financial year), as a shareholder of HLI I am happy and at the same time disappointed. Happy the company is doing reasonably well this quarter, seems recovering well from the pandemic as compared to last quarter and with 17 cents dividend, no complain. 

However, when I look closely at the financials, I am disappointed why this big fat cash cow not distributing more dividend to shareholders as the cash reserve is almost Rm4.15 per share (half of market cap). If it maintain the same dividend as last year which was at 42 cents, yield based on share price of Rm8.2 is around 5%. Though its not too bad but the huge cash reserve has brought down the ROE as company has not been investing the last few years hence no profit growth the last 3 years. 

From what I heard about Hong Leong Group, the expectation from the big boss is high and one needs to perform and deliver in order to stay in the position. So, what is the plan for HLI?

I have been telling my myself be patient in investing and stay with good companies, but more often than not, controlling shareholders show no sympathy when they see its time to harvest - privatize it at a low price when market is bad. HLI is likely a candidate for such action as it is 76% controlled by him.

So what can we, the tiny shareholders do to ask for better return or ensure a fair deal if it is privatized? Literally not much we could do. What happened in HLCapital's failed privatization is an exception rather than the norm. There is a influential shareholder with a sizeable holding and managed to pull other shareholders to make up more than 10% of shareholding in total to fail it. When I look at HLI's top 30 shareholders, the 2nd largest shareholder ( a mutual fund) only has less than 2%. Not likely to have a champion if there is a poor privatization offer for HLI.

What my frustration is - being loyal and patient not necessarily be rewarded by controlling shareholder, and the opportunity cost could be very high. Finding a good company , buying at good price and selling at good price not only required patient but also luck. That luck is sometimes in the hand of the controlling shareholder. Well, looks like I could only pray if still decide to cruise along with HLI.   

Eat - Sleep - Invest - Exercise

Due to the pandemic, I got the chance, unwillingly, to experience the 14-day quarantine in a hotel. There are still differences in terms of freedom and space as compared to staying at home with constraints to move around freely.

Hotels are badly hit by the pandemic, hence I can understand when they are used as quarantine centre, it is not national service, they are very cautious on cost control with the hope to make small profit from it. For example, no tooth brush and tooth paste provided until you request for it. There are 4 bottle water provided upon check in and any additional bottle will be charged. Reason being tap water is safe to consume.

The meals provided are all right though I expect something more from a 5-star hotel. A friend commented the meals look pathetic and I responded with "that is the price to freedom". It is perfectly ok for me as I am eagerly waiting to be united with my family, after separated by more than 11 months.

So what can I do with the 14-day uninterrupted life in a hotel? ESIE : Eat-Sleep-Invest-Exercise.

As there is zero interruption in a quarantine place, I have the peace of mind to reflect on the past 11 months when I was arranging the funeral for my dad and mum, sold the house that me and parent had been staying, found some precious stuff while clearing the house, learnt more about what my parents had gone through, etc. I have never been so convinced that nothing else matter when a person lost his mobility/health.   

 I have been allocating more to ETFs lately, especially overseas market. Based on my reading about this instrument, it attracts lots of inflow from actively managed Mutual Fund and will become the main stream of stock investment for many investors or public who do not wish to pick stock on their own. the obvious reason is actively managed fund with higher fees do not necessarily beat the return from  passive ETFs. Furthermore, it provides sufficient diversification to my portfolio. Also, the risk of picking a look like sure winner that fall badly (eg Alibaba) is also mitigated through ETF diversification. Investment is made easier with ETF and we need not to study too much of individual stock, hence more time for other activities (well, I still enjoy doing analysis on individual company).  

The more I read about ETFs, the more I am convinced it is a very good instrument for working family to invest via ETF as they may not have the time to study individual stock. Just be careful that not all ETFs are created equal and there are different type of ETFs eg inverse, leveraged which we need to be aware what it means if we choose these ETFs. There are lots of write up or youtube on pros and cons of ETF investing. For me, 2 of the most compelling reasons - need not worry about cash call and individual company not performing. So, not much action required.

Investing is so interesting as there is continuous learning about investment options, market etc, most important of all, about our own character/style/risk appetite/greed and fear tolerance. Another 12 days to go before I get to breathe in fresh air - yes, freedom to do what you enjoy is very precious in life. 

 

Contrarian investing during bad times??

Once a while I will check on the price movement of stocks in my portfolio to see if there is something unusual happening. The price and volume in Daibochi last Friday triggered my curiosity who is buying or selling.

Daibochi has shown good progress in financial performance after Scientex acquired a controlling stake in it and has gone on expansion mode. After the latest quarterly results, the price has spiked but selling pressure were mounting when approaching Rm3. Profit taking is expected when price moved up fast but when I checked on the announcement, I noted a substantial shareholder ( Samarang Asian Prosperity Fund) is off loading slowly. It has bought the stake in 2017 at around 2.10 to 2.20. 

While searching for more info about this fund, it surprised me when I saw the fund keep accumulating shares in Coastal Contract, Latitude and Chinwell, all with substantial shareholdings ( eg it already has position in Coastal few years back and now keep accumulating more). I noted these few companies have something in common. 

1. Profit on downtrend and most recent quarter is loss making or insignificant profit (Latitude is small profit)

2. Net cash position (cash + short term investment more than debts)  

3. Share price at least 50% discount to NTA

Is this contrarian investing strategy?? I am so keen to find out more about this fund- its holdings, past performance so as to evaluate if it has been very successful in this approach and may be I could learn about this approach more. I tried to search online but could not find the answer I am hoping for.

We all know that contrarian investing will bring very impressive return if we are right, but it needs lots of gut to be contrarian. To me, the confidence lies in our knowledge and insights about the company and industry. If you know these companies well, you are in a better position to see if this is an opportunity or just another value trap (big discount to NTA!!). Dont assume the big fellow is always right.

Daily Trading Ideas

I subscribed to some research houses' Market Newsletter, daily report etc with the purpose of getting some ideas what or where to look for good companies.

In a recent report by a local brokerage house which cover regional stocks, I saw an ETF in its Daily Trading Ideas and just out of curiosity, I did some reading about this ETF. Well, its an inverse ETF - which means you make money if the market drop, not the ETF which hold a basket of securities where the ETF will follow the collective price movement of the underlying securities.

Obviously in all the research houses report there is fine print on disclaimer and one should be responsible for his own investment decision. Knowing there are many new investors coming on board during the Covid 19 pandemic, I am sure many are totally new to stock investment. I would think many are totally lost when come to inverse ETF or leveraged ETF. So, they may not be fully aware of the risks they are exposed to if they start trading these ETFs. 

As stock investing and trading are made so easily accessible to all via Apps, one can easily get into some securities which he doesn't even understand. Searching for ideas is so easy and convenient as they are readily available everywhere with the help of internet, but at the same time, we are also exposed to higher risks of getting into something we do not understand. 

Good ideas may turn out to be big trouble if we do not equip ourselves with good knowledge on the securities we are investing.  

     

Some losses are just inevitable

Year 2020 starts as a really tough year for most investors if not all. Of course it also created lots of buying opportunity for those who are not heavily loaded with equities yet. The number of new account opening during the last 2 months shows many are rushing in to take advantage of this once in a decade buying opportunity. 

Unfortunately in my case, the timing could not be worst, not because I suffered paper loss of my investment which is painful, I have also missed an opportunity to buy when there was panic selling. But all that is not important as I have a much bigger loss that is permanent - the loss of both my parent in the last 2 months (no, not due to covid 19). That is the biggest loss to me so far even though I have prepared my self for it few years back.

My only consolation is that I have spent some really memorable moment with them in the last 2 months of their life. This chapter of my life make me appreciate the wisdom of my parent, which I have not paid enough attention before theirs' departure. 

Though most of us know no one is immortal, but I believe not many of us keep reminding ourselves that it may strike us anytime, till something happen that is close to our heart. Yes, the loss of my parent strikes me hard and I am still coping with it and keep reminding myself to accept the reality of life. But it's just too hard especially after spending a good 2 months taking care of them, watching them slowly becoming immobile and letting go of things as hope of getting back to normal life diminishing by the day.  Eventually they felt sad to fully depend on someone to take care of their daily life. All these pictures of moment keep lingering in my mind, for those who have similar experience, I believe you know how it is felt.

But life goes on and I believe for many of us , especially after this pandemic of covid 19, we will appreciate life more than ever. Hope for better days going forward is the driving force, continue to appreciate life even though some losses are just inevitable. The same goes for investment, some loss are just inevitable, but there is always light at the end of tunnel as long as we invest well - buy good companies when they are selling cheap. Happy investing.