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.