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.