Are there many low hanging fruits in stock market now?

When I was a little kid and lived in a small village, one of my activities to pass time was looking for low hanging fruits from mango, rose apples, guava and ciku trees around my house. As this was the easiest way to get these fruits, I had to compete with my other cousins as they could also get them easily. So, usually these low hanging fruits were all gone before they were ripe. Hence, I would start to look for fruits higher up and may need to climb the tree or using long stick to pluck them. 

I like to compare that activity with my stock investing - do I still find low hanging fruit easily today? I dont think so and I felt most fruits are now hanging at the tip of the tree instead. It is getting more and more risky to pluck those fruits and to get them at that height, I may misstep and fall down to the ground and hurt my self badly. Somehow, I start to remind myself, if there are not many fruits low hanging or within reasonable reach, I better take a break and wait for new fruits to grow at a range within my safe reach.

With US stocks at all time high and a rich valuation, I better trim my exposure and for sectors I have under-invested earlier, I am not taking excessive risk to chase them. I am afraid of height even during my childhood, so I better remind myself this height in stock can be very damaging. 

   

Bursa has something to offer too!

The last two years have seen many non-US investors/traders attracted to US equity and bond market for various reasons eg strong US dollar, high interest rate, poor local market performance (those I am aware of - HKEX, Bursa), super performance of superstar Tech giants - especially the magnificent 7 (Apple, Microsoft, Tesla, Nvidia, Google, Amazon, Meta), resulting in more fund flow to US, more so when international funds trying to avoid HK/China market has also either go to US or Japan. 

 Of course, there are always contrarian investors who find HK/China market at very attractive valuation now, which we will only know in future whether this action will bring superb return in the next few years. As the saying goes, high can get higher and low can get lower, there are times this is right and there are times, it can be big mistake by hoping so in investing decision. 

Since stock investment over the last two years getting more complicated with the 3 highs - high interest rate, high inflation and high volatility, I tend to focus on risk first - diversification through ETF & different market, prudent capital allocation that minimize losses in the event of picking the bad company, try to select companies with healthy financial position and expected to be still profitable if there is recession (which many are expecting it will come soon). That lead me to look at Bursa which I have underweight for quite a while. 

There are these 3 sectors - plantation, glove and furniture - which I find could offer some bargain at this moment, better still if there is more negative news flow to make them bigger bargain. Covid pandemic has actually strengthen the financial position of some of the companies in these sectors and currently they are facing with various issues ( over capacity in glove, commodity price has come down for plantation, lower demand for furniture in US as interest rates has affected consumers' discretionary spending). 

Plantation and furniture appears cyclical in nature, so invest during down cycle should work, the uncertainty is when the cycle will turn. These are the few names that may be worth studying - Kossan, TaAnn, Jaya Tiasa, SOP, Lii Hen.

ETF with Covered Call ideal for stable income seekers??

The ETF products have evolved so much that almost any theme, sector, value/growth, dividend etc that you can think of are available in the US market, so much so that one is spoilt for choice.

One of the dilemma in selecting which ETF is better also depend on the objective as well as risk and return tolerance of investors. Often, there is trade off between these ETFs.  

For purpose of illustrating one of the trade off , I have used the following 4 ETFs :-

QQQ (PURPLE line in chart) - Invesco QQQ is an exchange-traded fund (ETF) that tracks the Nasdaq-100 Index. The Index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap. Current dividend yield is 0.51%, distributed quarterly.

SPY (BLACK line in chart) - is the SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index, which consists of the 500 largest companies on US market. Current dividend yield is 1.3%, distributed quarterly.

XYLD (RED line in chart) - The Global X S&P 500 Covered Call ETF (XYLD) follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the S&P 500 Index and “writes” or “sells” corresponding call options on the same index. Current dividend yield is around 12%, distributed monthly.

QYLD (GREEN line in chart) -The Global X Nasdaq 100 Covered Call ETF (QYLD) follows a “covered call” or “buy-write” strategy, in which the Fund buys the stocks in the Nasdaq 100 Index and “writes” or “sells” corresponding call options on the same index. Current dividend yield is around 14%, distributed monthly.

Please do note that foreign individual is subject to 30% withholding tax on US dividend. 

The chart above does not take into consideration of dividend paid as it is the price of each ETF. Just to give some comparison in terms of return (ex-dividend) basis from Jun 2013 to Apr 2022 (almost 9 years). Numbers below are quick estimates from website without verifying the actual dividend paid over the last 9 years:-

Cummulative price appreciation (dividend pay out not factored in):-

QQQ   +386% (annual dividend around 0.3%)

SPY    +177% (annual dividend around 1.2%)

XYLD   +22% (annual dividend from 8 - 10%) 

QYLD   -13% ( annual dividend from 9 - 12%)

The last 2 years has seen drastic growth in Tech sector, especially after the covid pandemic, hence QQQ's return has been remarkable in the last 2 years while SPY also consists of many giant tech companies also recorded impressive return. In comparison, ETFs with covered call strategy(XYLD & QYLD) while providing good and steady dividend income about 10% p.a, did not show good capital gain as they sell covered call and lost the upside potential when price keep going up and Call being trigerred. Hence, even with the high dividend* included, ETFs with covered call strategy will still fall behind on total return in the growing market, especially if the growth is fast and significant.

We can see during 2014 to 2018 when the growth was not that significant, the total return gap between straight forward ETFs and Covered Call ETFs are not that big and I would say during the down market, Covered Call ETFs would probably provide the cushion with Covered Call strategy to continue with good dividend income though the price will fall just as the normal ETFs.

Hence, if we seek stable income eg retirees who need monthly cash flow,  and willing to trade off with potentially high capital return, ETFs with covered call strategy may not be a bad option. There is always an ETF that fit into one's objective but no ETF can meet all needs (capital gain, dividend, steady, monthly, etc).   

 

 * Non US resident is subject to 30% withholding tax on dividend.

Always keep an open mind

 

After investing for the last 30 years, only the last 2 years have prompted me to keep an open mind about investment - thanks partly to Covid which has changed people's life, economy and many more aspects.

Though I have invested in Bursa, HKEX & SGX for many years but was dragging my feet to explore US market, partly because of the time zone that caused the concern if anything major happened in US stock market while I am sleeping, I could not re-act fast enough. I always felt more comfortable with companies that I think I understand more because they are closer to Malaysia :(). In addition, I always imagine with so many derivative products on US market and so many hedge fund in the market to slaughter small retailers, the risk is so much higher. After all, I heard some very successful investors in Malaysia only invest in Bursa !!

What happened the last 2 years ( especially after the departure of both my parent in 2020) has prompted me to think more openly and continue with my passion in investing - to earn and also to learn more about financial products. That is my passion.

The 1st thing that came to my mind, comparing all the stock markets' historical  performance, US stock market has the most impressive long term return for whatever reason (whether QE, or almost all the world's Top 500 companies are there etc). So I asked myself, is it easier to invest in good companies in a market that has shown long term growth or try to find a few hidden gems in a market that has not been growing?? If I have very good insights and industry knowledge in a particular slow or no growth market eg Bursa , yes, I should focus there because I believe I could find the shining star easily. Otherwise, I believe it is easier to pick good companies in a growing market and likely end up a winner in the long run. 

I have learned so much more about investing in US recently,  ETF - leveraged & inverse, options and gain reasonably good understanding of the usefulness of these products in risk management eg hedging using inverse ETF or options, there are in fact very good products if one understand and manage the risk accordingly. 

Options is something that I have been resisting in the past as many investors/fund collapsed due to this product. Though I had some basic knowledge about it from my Uni studies but that's far from adequate to give me the confidence to even learn more and explore this product. Well, I finally told myself to keep an open mind, learn and learn more about this product and why some investors lost big and how to avoid that, why this product is still available if it is all that bad, how Warren Buffet made good use of this product. It is in fact a very useful product - it provides avenue for monetisation of the equity holdings that we have and make some return for idle cash while waiting to fish at bottom. If we don't understand the purpose of option and just see it as stocks/products for trading purposes, then we could expose to unlimited loss when thing goes the other direction. 

I am glad that I keep an open mind and finally look at what option is all about,  I saw something I didn't or refused to find out in the past. Investing is not just about earning, it is learning too !! 

 

   

Will you be different this time?

There are many write-ups and articles on how stock market performed during and post war period, there was not even one time market did not recover because the market never "die", very likely the impact on stock market from this war will not be different and market will recover and continue its trajectory. I guess the more relevant question should be..how do we ensure we survive during the crisis and enjoy the gain brought by post crisis recovery. Yes, this time is no different for the market, it may still be volative and go down more, but it will recover once the crisis is contained/resolved/or can be on going for much longer with no expectation of major shock. So will you be different this time? 

Besides investing in financially sound and profitable companies, I now put into practice what I have learnt for so long but never have the gut to explore. I have decided to learn how to hedge my portfolio with inverse ETF [ CFD could be my next learning subject :)]. My main purpose is not to short the market or try to profit from the falling market, instead I would like to protect my portfolio value from falling too much and get emotionally affected, that may lead to unnecessary action (sell at depressed price) or inaction by ignoring what is happening (do nothing when crisis just started). 

Through my first 2 months (in 2022) experience of enduring volatile market with inverse ETF, it did provide the hedging expected and reduce my anxiety during the falling market as the fall in value of portfolio is mitigated during the fall, of course the gain is also partly offset by the hedging when market is up. The objective of hedging during crisis is to mitigate the fear of major losses, which may result in smaller gain should the market stage a strong rebound too fast. But it served the purpose, reduce the anxiety and stress during volatile and sharp fall market. For that, I am positive about the objectives of these financial products (inverse and leveraged ETFs) -  hedging and leveraging seems to work well to address my concern. 

I have now moved into the next learning subject, close the short position(inverse ETF) and build long position via long leveraged ETF into the portfolio in anticipation of market recovery as I believe in past statistics - bear market duration is usually shorter than bull market. yes, this will not be the last crisis and we will see many more crisis if we live long enough. 

If you are not happy with how you handled your investment in the past crisis, how would it be different to you this time or the future crisis when it happens? I believe in continuous improvement through continuous learning and in fact, I am excited this time :) .

The patient investor

 

It came to my knowledge that some close friends that I know have been making good money lately by joining social media investing group, even my sister who does not know much about stock investment asked me if I can help in trading stocks.

It makes me ponder on my belief in value investing, buying good companies when it is undervalued or buying great companies at reasonable price. Yes, I know, investment is about the future and the objective is the same  - to make money from investment. But the key difference is the risk involved when comparing investing (rather speculating)  based on pure speculation or hope and investing based on facts, figures and more reasonable forecast about future.

For instance, Bursa currently present some of these choices:-

1. Tech stocks with current valuation sky high, but with reasonably fair expectation of strong growth ahead. Now it is entering correction phase

2. Glove stocks with current valuation appears low, but with expectation super profit will revert to normal level soon

3. Hot penny stocks with lots of stories and many have made good money and continue to attract more people into it  

4. Plantation stocks with CPO keep climbing but not the stock price, on concern of ESG issue

5. Traditional stocks with reasonable valuation but not much growth expected, is getting attention lately

6. Stocks badly affected by pandemic and expected to recover soon as vaccination already started

7. Oil prices recovered strongly to near US$70 a barrel, market focus shift to Oil & Gas stocks  

There are always opportunities in the market, rotational play will set in when one sector seems overvalued and others undervalued. I am not sure if chasing momentum stocks is a better strategy in such market, I have to admit I am not good at it. I tend to believe what a very patient guru once said:" stock market is an exceptionally efficient mechanism for the transfer of wealth from the impatient to the patient". 

Well, his company Berkshire Hathaway uphold that belief now as the share price has been climbing lately. That shows an obvious shift of attention from growth to value stocks in the recent correction on high growth tech stocks. 

Price volatility is not risk, value destruction is.

 

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.  

Success of BIMB Restructuring - Minority warrant holders have significant influence??

I am a BIMB warrant holder and keen to know more about the Proposed Restructuring announced recently. 

Firstly, I wanted to evaluate whether my 10 to 15% return within 9 months can materialise?

Secondly, what are the chances I can get even more return eg BIMB offer a more attractive price if the restructuring could not get warrant holders' buy in?

Lastly, if the Scheme of Arrangement fails (not buying back all outstanding warrants), what will happen to warrant price?

  

There is a long list of approval required for the Proposal which include BNM, Ministry of Finance, SC, Bursa, shareholders, warrant holders, High Court and creditors. Yes, it needs warrant holders approval ( If I am not wrong, Scheme of Arrangement under S366 of Companies Act requires no less than 75% approval).

Looking at the warrant holders list as at 31/3/2019, Lembaga Tabung Haji & ASB only have 27.54% & 7.02% respectively. Top 30 warrant holders only hold 59.47% of warrant outstanding, so it is rather scattered and many individuals with significant portion appeared on the Top 30 list. So, in order to get majority (75% if I am not wrong), the offer price must be attractive enough. But the challenge of valuing warrant is complicated ( I am not good at Black Scholes Model), hence, what is the fair price then?

In the Announcement under para 4.2, I noted it mentioned the 5-day VWAP of warrant up to Latest Practicable Date (LPD) as at 15 Nov 2019 is 29 sen but Para 2.2.1, the price is fixed at 26 sen being the 5-day VWAP of warrant upto 10 Dec 2019. That is 11.5% down ( I could be looking at 25 to 28% return within 9 months if it is 29 sen....).

For those who bought at higher than the offer price of 26 sen, my bet is they would not vote in favour of the SOA and rather bet for another 3 years plus hoping the warrant price can go higher instead). Of course, it all depend on ones' opportunity cost holding on to the warrant or take the 26 sen.

That probably also explain why some are even selling it for 23sen now or this portion of warrant are just too insignificant to the sellers' portfolio eg few funds on the list or for those who believe they can recycle the capital for higher return than the 10 to 15% within 9 months and of course, those who don't believe SOA will be approved and price will drop further after that.

Yes, looking at the offer price of 26 sen, this SOA may fail and I would not be able to realise my 10 to 15% return within 9 months. Would I suffer huge loss instead?? As the warrant is currently selling at only 11% premium and there is another 4 years to go, I would take my chance. Furthermore, I am sure BIMB has already considered the likelihood it may not get sufficient warrant holders approval at 26 sen offer price. But what is their Plan B to ensure sufficient approval? Started to buy now to gain more control ? Counter offer at higher price***??

Anyway, this is an allocation of my cash reserve for potentially better return, it is not significant and yet, I take it as I do not want to miss an opportunity that is reasonably certain.

Or we may be able to demand for more by writing to them prior to the meeting....hahaha.

Please do your own evaluation before buying even if you agree with my view.   

*** Final Offer Price under restructuring - 38 sen

Potentially Better yield than FD - would you take it??

I have taken more prudent approach in 2019 in view of the higher uncertainty on US China trade war, Hong Kong protest, anticipated economic slowdown, bull run for more than 10 years in US. I have stayed between 50 to 60% invested through out the year and allocated more towards dividend stocks including S-Reits while maintaining a high cash level.
Yes, there is always opportunity cost in holding cash, especially when there were opportunities to buy good stocks at dirt cheap but I did not act on it. I missed the plantation stocks rebound though I kept an close eye on a few counters. My only consolation, I managed to catch SOP but have cashed out too early.

Moving into 2020, I probably would stay prudent too but will definitely act if opportunities to buy good stocks at dirt cheap arise. So, I noted there is opportunity to buy into BIMB-W** now that will give 10 to 15% return in approximately  9 months later (highly likely, as always, nothing is guaranteed).  That is a much better yield than all the dividend stocks I am currently holding ( yes, there is opportunity cost here as there may be capital gain for my dividend stocks - again, no guarantee it will be capital gain, it could be loss!!).
If I compare with the yield from Fixed Deposit (cash reserve), 10 to 15% return in 9 months is 3 to 5 times more. Of course, there is a potential opportunity cost if market crash and I can allocate the FD to buy good stocks that are selling cheap instead. For me, the highly likely scenario with 10 to 15% return is just too hard to ignore. What about you??


Hope this provide you with an alternative to your FD in bank too. Happy New Year and happy investing.



** Under the Proposed Restructuring of BIMB, all outstanding warrants shall be bought by company at 26 sen. Should the Proposed Restructuring fail and warrants remain listed, the 10 to 15% return will not materialise. Market price then may be higher or lower. Do take note this is warrant, expiring in Dec 2023.

 

Follow Fund Managers a better investment approach??

Lately I heard some said the best strategy in stock investment is follow the big guys - fund managers. Study the stock pick by fund managers and invest in the same stocks as them could be a better strategy. Well I have reservation on the above approach, not only that, we have to exercise extra care when doing so.

It has been almost 2 years when I first wrote about Lafarge.

Lafarge - mispriced?

I was puzzled for a while when the price continued to scale higher even I thought price then was way above its intrinsic value. Not long later, the price plunge (more than 60%)!! The last few days saw some strong rebound as there are rumuors on revival of mega project, to me, it did not change my view on Lafarge as its financial position as well as cashflow looks real bad. If the only reason to buy is because it has dropped a lot, I think it can drop even further when it turns out -- just rumuors. 

Sometimes overvalued or undervalued  stock can continue to be wrongly priced , more so if they are tightly held by institutional investors until some of them started to accumulate/offload, it will then trigger a spinal effect and its true value will emerge.

Of course Lafarge is an easy pick for obvious case of overvaluation due to its poor financial performance and cashflow. 

There are other bluechips that appeared to have been overpriced for a long period of time. Eg Nestle, DutchLady, QL but their business are highly profitable and with sound financials, they remained overpriced for a long long time.. 

I have no question about the sustainability of its business, quality of its management and financials, however, I am just puzzled on its valuation (whether its PE, PB, P/CF or dividend yield, except their ROE is exceptionally high) on what kind of return could we expect from investing in such overvalued and low yield stocks. Well, institutional investors have a different perspective, firstly they have a really long term holding power, secondly, especially in time of volatility, small return is better than negative return and as long as none of them started to offload ( still not yet), everyone is happy with holding on the 2 to 3 % yield  overly priced bluechips. Well, if one of them start to offload when they realised the market is more stable and they could go for higher yield on undervalued stock, it may be too late for us to sell especially most of them are highly illiquid.  

For me, following the fund managers to invest in these bluechips may not be a wise idea when the stock appears to be over valued. 

Buy and Hold ?? Please perform review regularly

Esprit share price - A picture paints a thousand words

I always use this case to remind myself that don't be over-confident that it can't get worst, especially during this uncertain time.

Esprit, is a international fashion brand (in case some of us do not pay attention to Fashion brand) as well as a bluechip on HKEX that was doing so well in the past. Its share price has gone up from less than HK12 in 2002 to about HK120 in 2007 (about 5 years to be ten bagger). Then when GFC hits in 2008, it had dropped to about HK50. 

When the company performance further deteriorated subsequently, it has dropped to around HK20 and that has caught my attention where a bluechip on HKEX fell close to 80% from its peak. "How much more can it fall" I whispered to myself. Looking at its balance sheet, it still had healthy cash balance and asset backing even though the business was facing very challenging time then. So...I bought on the basis of share price already fell so much for a bluechip, healthy financial position and fashion is cyclical (I thought) at around HK20 in 2010.

One year later it went down ti around HK13 and it started to register loss, and I told myself I must have made a mistake and did not have good knowledge about fashion, so with great pain, I cut loss.

Looking at the current price now (HK1.56), it has dropped more than 80% again. While this may be an exception or unusual event, we have to continue reviewing and assessing the companies we invested. I do agree with the strategy of buy and hold long term, but that does not mean we can just sit back and forget about it. "Do not be over confident" - I keep reminding myself. 

For me, new year marks a new beginnings with hope and wishes, it is also a time for me to review, rethink and refocus... opportunities and threat need to be assessed, not left entirely to "luck" factor. Investing is not gambling though it has the luck factor too.

Wishing all of us a great year in 2019!!

The most important thing - Time?

Many books on value investing state that to be a successful investor, one needs patience and discipline. Well, let's take a look at the 20 years index charts on Dow Jones, Hang Seng, Nikkei, STI and KLCI.

In the long run, if Index is a good indication of how the respective stock market has performed, I would say it gets better and better but not without its ups and downs. It seems that as long as we did not buy at the all time high at any point of time, we will be able to recover (on conditions the companies we bought are good companies and survive the downturn!!).

Of course the most important question now is - do we have the time? That's why we always hear the great investors said take a long term view when investing in stocks. Economy needs time to recover and compounding return takes time, yes, we need time to earn good returns from stock investment. 

Though there are times the high gets higher and the low gets lower. But knowing there are bound to have cycle in economy,stock market,company etc, where do you want to buy now? Trade war..um, my humble opinion .....its a matter of time, this shall be the past when leaders, countries, companies or investors resolve, adjust or adapt to the new era of trade relationship. Just buy and stick with good companies with strong management capabilities, sound financials, solid product & service offerings. Just sit back and relax. 

Buy on dip or buy on rising trend?

I had a chat with a friend recently and we had different approach when come to buy decision. I prefer to buy when it appears to be undervalued and buying as it gets lower. He preferred to ride on momentum - will only buy when the stocks start to move up.

I am no expert in economics and definitely not in any position to predict or forecast the potential impact of trade war between US and the rest of the world. 

If stock market is an accurate barometer, it seems that US stocks are on the rise and most other stock markets are falling, so US companies are the winners? When goods sold by other countries are more expensive, US products will become more competitive and able to increase their market share? Consumers will be at the losing end disregard who win the war, and companies exporting to US will be the sure losers and inflation is inevitable? When I read economists/analysts/academician analysis of trade war, all of them sound logical and make sense. All the major events happened also make sense when we analysed them after, not before they took place. 

The trade war talks has caused the stock market, especially HK market to correct to a level that looks attractive now. 

I dont know when will the crash come and dont know how trade war will turn out to be, if there is anything to learn from the past or from successful investors, the time to find bargain is:-

1. the companies appeared undervalued from financial metrics (on condition they are well managed companies with good products or services )
2. when others are not buying but selling heavily (when market is in fear mode). 

How I wish there is a way to find out when is the bottom. Since I do not have that super power, I will always keep some reserve - in case there is panic sales. Even the market looks low now, there is always a chance that it can get much lower. 

Analabs - just share buy back and nothing else?

I have written about Analabs - hidden gems?? in Apr 2017 and the share price continued to be dull and boring with no excitement from its results since then. The only consolation is that the price did not drop as bad as many other small cap stocks over the last few months.

It is interesting to note that starting July 2018, the price started to move up north (from Rm2.1 to close to Rm2.5 now) due to share buy back. This stock has very low liquidity and low buying interest, it is not easy for sellers to get rid of their shares especially during a quiet and down trend market. While it seems like a logical reason to buy back its own shares because it is trading well below its book value (Rm4.48), but why make it looks like a well programmed plan to push up the price gradually and consistently? Is this just a share buy back with no other agenda behind the move?
Obviously insider trading does not include company share buy back and it is perfectly justifiable for the buy back as it is trading below its book value.
Yes, I still see a potential privatisation of the company by major shareholder as the likely scenario and I do not see any major benefits from being a PLC in this case. But the share buy back that push up its share price does not support this thought - no major shareholder will want to offer the other shareholders a higher price.  Let's wait and see if there is something brewing in a company that has probably remained unnoticed ever since its listing.