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. 

Learn it from Hyflux's case

I came to know about Hyflux four or five years back when there was a write up on its founder, Olivia Lum, highly successful  Malaysian entrepreneur. Grown up as an orphan in a small town Kampar, Perak, to whom she is and what she has achieved so far, her story is inspiring (you can find it here).

After reading about Olivia Lum and Hyflux, I was tempted to invest in the company then based on the followings:-
1) lead and managed by highly capable founder, who has proven track record to build business
2) with great support by Singapore government as it is seen as a highly successful Singapore grown enterprise that made it to international level
3) it is in water and energy sector - a sustainable business
4) it has been paying consistent dividend since 2003 till 2016
5) the company is expanding into other countries rapidly( highly leveraged on gearing), with very high growth potential 

However, there was one area - its debt level, pulled me back from investing in Hyflux.
Due to the one factor, I have avoided a big surprise from Hyflux ( though in some cases eg Air Asia, yes, I have missed some that have multi fold returns too, but it is ok). Ever since the Asia financial crisis where I have witnessed what happened to some highly geared Malaysian companies went into serious financial problem, I have distant myself from highly geared companies no matter how promising the future of its business appears to be. 
What happened to Hyflux once again reinforced my own belief, avoid highly geared companies no matter what other positives are there, they can't compensate for the high risk of bankruptcy.
In our investment journey, we are bound to make some really great investment and some bad investment too. As long as we did not make a bad investment that cause a big dent in our ship, the sailing journey will continue though it may be slow down by storm once a  while. A big dent could cost the ship sink and our journey may end before we could even enjoy it.

Dividend, and nothing else!

I would like to share my thought after attending a shareholders presentation by a closed end fund recently. I went to the venue early and there was no one there yet except a few staff setting up the place for the presentation.

It was in a ballroom and I think there were about 250 seats and I was telling myself, could it be another over optimism by the organiser as 2 weeks earlier I attended a PLC's shareholders presentation with only 5 persons turned up. To my surprise, the hall was filled with people later on, I would say at least 95% full and they are mostly senior citizen. Well, I thought they must be here for the free lunch. So I decided to chat with a few of them at lunch session.

The few persons I spoke to are either retirees or about to retire and they share something in common - they are less concern on the price volatility as they hardly sell those stocks that they bought. They are more concern whether the DIVIDEND they receive are sufficient for their retirement life as this cashflow will affect them, not the up down of stock price. (of course I think if the stock price goes up, one can always sell some to cover the cashflow but to them, this is not in their mind as they see it as depending on capital rather than income to sustain a living).

From the questions they asked the management, I would say many of them are well educated and with sound financial knowledge. I like the way management responded too as they not only highlighted their big wins, but also provide reasoning and lesson learnt on the big losses where they went wrong.  

There is something probably we all could learn from the fund strategy which has recorded 17.5% CAGR over the last 20 years, which I believe there must be something they have done right.

Investment Methodology used by them:-

1. Screen for growth or undervalued stocks

2. Evaluate both qualitative (management) and quantitative (forecast EPS growth & valuation)

3, Buy when a catalyst is identified

4. Sell when valuation is reached

 

It appears to me that we may all know about this, so the key then must be execution - which includes patience and discipline.

I came to agree with the investors I met in the presentation - one can only sit calm when the market is down if one still receive good cash inflow without having to worry about paying your living expenses. Hence, DIVIDEND is one key ingredient to investment for long term.

 

 

 

 

  

This time is different - market or you?

Just like some of you, this is the 3rd time I see huge volatility in market (though it is till far from the previous 1997 & 2008 crisis, where everyone was rushing to sell and wanted to keep more cash ). Probably the real crisis is still not here yet as I do not feel what I felt in the 1st & 2nd crisis, I did not feel like cashing out at whatever price or keep monitoring the price movements of my stocks.

Just as many said, every crisis is different - eg 1997 Asia Financial Crisis triggered by currency crisis and 2008 Global Financial Crisis triggered by the subprime mortgage problem. Well, 2018 - culprit is trade war? So it seems that there are always different elements in the economy that may trigger a crisis.

What about us? Are we acting differently in these crisis - did we learn something from past crisis to improve our re-action so as to take advantage of it instead of being victimised? Are we doing the same right thing or repeating our mistake from previous crisis? 

As for me, I do not re-act too much yet (probably after seeing the last 2 crisis and eventually market will still bounce back, hence I am not that worried somehow). I noted many small cap stocks are already dropped more than 50% from their peak. Isn't that in crisis mode?

What I could recall in the past 2 crisis, I looked at the price compared to the highest and see if it was "cheap" then. I looked at the historical PE and dividend yield but did not pay much attention to whether the company was expected to continue to do well in the future ( if the past could provide a little reference). 

I keep reminding myself, whether the crisis is different this time is not important, the most important is whether I will make the difference this time as crisis do not come often. My past experience was that I could not tell when was the bottom then. When the sentiment started to make a U turn, I was slow to enter and the sharp rebound would make me wanted to wait for a pull back, then I realised I missed  it when it continued to move up......yes, it need some gut to make that move especially it is still on its way down and many said the worst is yet to come...yes, all of us are speculating now, trying to predict when is the bottom.
I don't have to buy at bottom and sell at the peak to make money, I don't believe anyone can do just that. Yes, I have started to accumulate some stocks that appears to offer good margin of safety, also with attractive dividend yield. When the market recovers and the companies  I invested continue to do well, they will probably give double digit dividend yield (based on cost price) - that is my ultimate aim.