FOMO then, FOGI now?

With the exception of Big Cap, stock prices of many small and medium cap stocks on Bursa have seen quite a fair bit of correction. Yes, many people (me included) would have seen some unrealised gain made evaporated fast.

Many stocks that were showing good growth story and financials last year eg Superlon, SCGM, RCECap, Unisem, (Hengyuan - I am not sure about this ??) etc have come down quite drastically when the most recent performance did not meet investors' expectation.

No one knows what is forthcoming and will there be a more severe correction, that is a billion dollar question. To what extent Trump's trade tariff proposal will have on world's economy and equity market is anyone's guess. I still believe in just sticking to analysing the fundamental and growth prospect of a company. Though it will still be subject to overall economic situation but that is something so difficult to predict. 

Last year we have seen the above mentioned stocks hitting all time high because of Fear Of Missing Out (FOMO). When these companies' financial performance did not meet the expectation of investors for 1 or 2 quarters, they were dumped ( well, I do not think all are under Pump and Dump game). There were various reasons cited for the under performance, mostly due to materials and labour cost escalation. With the recent price correction, I see these companies are getting more attractive for investment case. If those factors affecting the last 1 or 2 quarters performance are not expected to last or damage the fundamental of the companies, then buying them at down cycle could be very rewarding provided we have the power to hold till up cycle is back. Now, when they are selling at more attractive price, we have another fear - Fear Of Going In (FOGI)??

My question, which fear has higher risk - FOMO or FOGI? I believe you and me may have different answer. If you have a longer investment time horizon, I personally believe it is time to start the accumulation of good companies that we never had the chance to buy when they were selling at premium earlier! Well, I intend to do it in stages.

  

What is more important - P/L, B/S or C/F?

The recent correction on Bursa are making some stocks look really attractive compared to a year ago. I asked my self this basic question - what is more important to me at this stage ( as I believe to different people at different stage, it varies) - my own balance sheet, profit & loss or Cashflow? Once that objective is clear, it would be easier for me to pick the right stocks in my portfolio. 

Let me put this into better perspective.

Balance Sheet:
+Non liquid assets (property)
+Liquid assets ( stocks, cash, unit trusts)
-Liabilities (Loan)
= net worth

To increase my net worth, the value of my non liquid and liquid assets must go up or my liabilities must go down. At the moment, liquid assets have been my focus to achieve this.

Profit and Loss:
The dividend income, interest income, gain/(loss) on disposal of stocks, unrealised income/(loss) on stocks/unit trusts/ revaluation gain/(loss) of property, interest expense. 

Cashflow:
Inflow : Dividend received, Interest received, proceeds from sale of stocks/unit trust,
Outflow: Purchase of stocks/unit trusts, loan repayment, living expenses, tax if any.

As these 3 statements are inter-related, the same items may appear in more than one statement. But which is the most important to you now as the investment strategy may be slightly different.

For example, if the focus is growing net worth, then unrealised gain could also help to achieve that by investing in assets which may not be liquid but provide good capital growth or stocks. It may not give much dividend but potential capital growth is there(of course one can always sell it to realise the gain, and hence provide cashflow too).

If the focus is getting sustainable cashflow to support living expenses, then dividend and interest are more important, and of course we can sell some assets to provide the cashflow required (but may not be sustainable).
Hence, Profit & Loss appears to be the end results based on the above strategy. Did I put my focus wrongly by looking at my own monthly or yearly profit and loss performance? (Are we also doing the same when evaluating a company's performance??)
If you do have the same dilemma, please have a thought and ask yourself what is your focus now. Besides looking for undervalued stocks, our objective will also help us to decide which stocks fit into the strategy of either growing net worth, showing good profit and loss  or providing sustainable cashflow to us or a mixture of all.








  
  

Time to Buy or Sell?

All companies with financial year ended 31 December have reported FY17 results by now, from a quick glance, I noted most companies were not doing that well compared to FY16, in terms of financial performance and of course, share price movement too.

 

Though KLCI is showing good uptrend, it is very much due to performance of big blue chips, especially consumer as well as banking counters. Many value and growth stocks have been hammered when the growth momentum expected were not shown or quarterly profits were badly affected by foreign currency fluctuation, higher input cost, labour shortage (the most common reasons or excuses provided in performance review).

 

As a result, many stocks fell to multi years low and historical PE now looks very attractive, but most would think that there could be a major correction this year (based on 10 year cycle prediction?) or the current market is on down trend, it is time to sell those stocks that are not showing good performance in the latest quarterly results. They are either sitting on huge cash reserve or switch to stocks that are turning around or showing strong growth YOY/QOQ.

 

This is the time that really test our investing process and thought - what have we been practising? Many questions came into mind and of course, there is no definite answer to them but this is the time to show what we understood about long term stock investment.

 

To me, one important belief remain unchanged, only buy companies or businesses you understood and are financially sound as we don't know when the next financial crisis will come to hit us. Financially sound companies tend to stand the test of crisis better. There are many articles on net cash company, high asset backing companies, strong cash flow etc, I always believe we need to carry out our own verification before jumping on board. Hopefully we can all earn a decent return in the volatile market too. All we need to do is .....take action at some point in time!!

HRnet on SGX

I have been keeping track on HRnet since its listing in Jun 2017 (mentioned on my blog here). I like its business model which is asset light, strong operating cash flow and easily expandable, especially with a strong war chest after its IPO (sitting on close to S$280 mil cash reserve). Hence, I have started to accumulate at 80 cents and lately there are some research reports by analysts on the stock (here).

It's expected to record ~S$40 mil net profit for FY17. If the management can utilize the cash reserve to generate the following returns, it will have the following impact on its profit (Based on RHB's research, lets assume it has budgeted S$200 mil for acquisition):-

5% will give additional PBT of $10mil
7.5% will give additional PBT of $15mil
10% will give additional PBT of $20 mil

My investment case is basing on growth potential from M&A and ride the recovery in labour market of Singapore. Target price from analysts ranging from $0.96 to $1.14, which indicates upside potential of 20% to 40%, which I tend to agree after my own estimate basing on discounted cash flow and PE valuation basis.

Please do your own valuation if this stock excites you.

2018 - Focus

2017....

My portfolio return for 2017 only achieved 11.2% , yes I missed my 2017 target of 15% return. Though at one stage it exceeded 20% return but the not so encouraging 3rd quarter results of some companies in my portfolio have almost halved it. :(  In the mean time, I have raised my cash level to more than 50% over the last 3 months.

All of us have different forecast and expectation on how equity market will be in 2018 while some believe in staying fully invested. For 2016 & 2017, my approach has been such that whenever I find a good company that looks undervalued based on my own valuation, I will take position and sell it when it get close to its fair value. Yes, sometimes sold too early or bought too early...well, I believe I am not alone here.

So, I am planning to take a different approach in 2018. Unless and until I see a really deep in value company, I will not take position so easily for the remaining 50% cash reserve. I know many will not agree with me on this and most super investors opined that one should not time the market because no one has done that right all the time, though some may have done it right once or twice. There will be opportunity cost involved if the market performs totally opposite of what I expected. I want to be "speculator" in 2018, speculating on the market dip for deep value buy. My stock selection criteria remains the same, only good company that appears undervalued..no speculation on company's fundamental. I am not sure if I can stand this real test of my patience by not doing anything with idle cash earning low returns from FD..  :)

Whatever your approach or strategy  is in 2018, I wish all of us achieve what we target.
Happy New Year !

2018--->




  

Take A Break!

It's the last month of the year already..my investment returns have been showing promising results before the major U-turn started in November, and December does not look that good as well. But that is part and parcel of the investment life cycle, just like our life, it has its ups and downs. More importantly we survive and strengthen our position during the downs. Learn to capitalise on opportunity offered during the downs and emerge stronger when ups are back.

I like December because most people is in holiday mood - family travelling plan, catching up with friends, time to sit back and think of the big plan for next year, etc. I recalled when I graduated, I enjoyed taking time to plan what to achieve in the coming year and putting them down in a little diary and tried to check the progress during the first two months...more often than not, I forgot about the plan from third month onwards because I lost focus as a result of many unforeseen challenges. That explained why I did not achieve most of them those years, especially my investment plan!! ...but still, I enjoyed having that plan year after year. Reason being it gave me hope that there would be better times ahead if we plan ahead and execute it well. 
Fortunately I still keep the old habit of year end planning. My investment plan for the last 5 years have shown me that if I stay focus, I am getting very close to what I planned for. It has given me more confident and I am excited to plan for the next 5 years. Yes, lets take a break - everyone deserves a good break at least once a year. We need to maintain a calm mind in a bearish market.

"A calm mind is the ultimate weapon against your challenges. So relax." - Bryant McGill


        

Seeking Wisdom from Philip Fisher

Below are the 8 popular quotes by Philip Fisher I like most.
1. The market is filled with individuals who knew the price of everything, but the value of nothing.
2.  I don't want a lot of good investments, I want a few outstanding ones.
3. If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never. 
4. Doing what anyone else is doing at the moment, and therefore what you have an almost irresistible urge to do, is often the wrong thing to do at all.
5.Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much into others which they know nothing about.
6. Be extra careful when buying into companies and industries that are the current darlings of financial community.
7. My mistake was to project my skill beyond the limits of experience. I began investing outside of the industries which I believe I thoroughly understood, in completely different spheres of activity, situations where I did not have comparable background knowledge.
8. One, which I mention several times elsewhere, is the need for patience if big profits are to be made from investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens.