Follow by Email

Saturday, 28 March 2020

(Tradeview 2020) My Principles of Investing - Rule 1: Buy Good Quality Companies Which Will Still Be Around In 5 years




Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Website / Blog : 
http://www.tradeview.my/

or Email me to sign up as private exclusive subscriber : [email protected]
__________________________________________________________

The steepest selldown in KLCI since 1997, you can see the chart below.


As you can see the steep sell off have caused a sharp technical rebound or rally of almost 110 points from 1219 to 1334.73 as per this afternoon KLCI break. This in our view is within our expectations though the magnitude of rebound exceeded expectations. However, the question remains for us and many of our readers are, will this be U shape rebound or V shape? Different circumstances dictates different outcome. I will give a simple hypothetical :

If tomorrow, any country announced the vaccine for Covid-19 is ready, most definitely this will lead to a V shape rebound globally across all markets. If the Covid-19 prolongs coupled with other factors, it may even be a case of U shape rebound. In addition, world economies will need to deal with the aftermath of the impact from Covid-19.

So question now, should I sell on strength, hold or wait for dips / retracement to enter the market again since KLCI and global economy has rebounded so strongly in 1 week?




This is where I hope to draw the attention of my readers to. As boring as it may be, value investing is the best guide to making your decision. Please use this as guidance above and to make it even simpler for beginners, I would like to share our Rule 1 - Buy Good Quality Companies Which Will Still Be Around in 5 years.

This seems like such an simple philosophy, some may even say its lame. But if you look back at each recession, there is always a minority that is still around with the same management, same name and continued good performance. Just compare 1997 to 2020 share counters. Therefore, we do not have to look all the way into the future 50-100 years unlike Warren Buffet did with Coca-cola. The reason is because today, with the proliferation of technology, competitive landscape, easy funding and liquidity, there will be an ever changing dynamic to the business world. What may be around and successful now will disappear in 5 years. Additionally, investors these days are less patient and more greedy than ever, hoping for fast return and money. Not many can wait. Hence, my rationale for using the 5 years metric. 



I will use a few of the stocks in my list to exhibit how I choose to the shares to invest. CCK was listed in 1996 as poultry broiler farm company. Over the years it has evolved and grown tremendously. Today, CCK should no longer be a designated poultry company as it has businesses in aquaculture and bulk of their earnings are derived from their CCK fresh mart. There are retail company with foot prints mainly in East Malaysia. Recent expansion to Indonesia are amongst is growth strategies paying off. So when I chose this company, I believed in the prospect of the growth and most importantly, the management. I know in 5 years, this company will still be around and grow even bigger. If you look at their earnings and dividends, every year it has improved in tandem with their business strategies. Previously, we have analysed their mid term Fair value to be at 69 sens. Due to the market sell down, it is only trading at 34 sens now. It is 40% below its intrinsic value, has good DY of 3+%, it is growing as well. If we don’t consider investing now, when else?



Another example would be Guan Chong Bhd, the largest cocoa grinder in South East Asia. It is companies like this that make us as Malaysian proud. I believe most would not have known about this humble 1 factory company has grown to be a leader in this sector and region. What I like a bit this company is the fact it is involved in processing of a raw commodities which are required on daily basis for the FMCG sector. Additionally, it has grown organically in the past but in recent times have grown through M&A buying German chocolate maker Schokinag Holding GmbH for RM 137.84 million at the end of January.  The valuation in itself is not expensive for a growth company at only trailing 9x PER at current price of RM 2.06 (Please note ourselves and our subscribers entry price is much lower as we bought on weakness). Further they have implemented sound growth strategy whereby they are setting up their facility in Ivory Coast, the biggest cocoa producer in the world to bring down cost for their exports. I believe in 5 years, GCB will do even better and with their focus being exporting to overseas market, the world is the market.




I like the message that Ray Dalio is trying to convey here, the time to buy is when there are blood on the streets. These are just amongst the 13 stocks I have picked during this downturn and my list will only grow with the emerging values. I also like a variety of big caps and small caps, not just mid cap stocks. I sincerely believe we should not fear buying on weakness but we must have the ability to hold. I understand it take a lot of guts to buying on  a sell down compared to buying on a bull run, but it is all psychological. If you are worried and scared, always return to this Rule 1 - Buy Good Quality Companies Which Will Still Be Around in 5 Years. 

Do stay tune for my next write up, “Principles of Investing - Rule 2 : Small Is Beautiful, Especially During A Crisis.”


_______________________________________________________________

Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 










Wednesday, 25 March 2020

(Tradeview 2020) - April Fool’s Came Early : MYR 100 Billion Bank Loans Deferment Policy By Government



Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Website / Blog : 
http://www.tradeview.my/

or Email me to sign up as private exclusive subscriber : [email protected]
__________________________________________________________

I am sure most by now would be have heard about a “wonderful” new policy by Government which allows people and businesses to enjoy a 6 months period moratorium. Now, I do not usually comments on politics as I am a financial writer, not a political writer. 

However due to the urgency and request for clarification by many of my readers, I felt obligated to write an immediate post to enlighten my readers due to the misconception painted to the public by the Government especially where it is being trumpeted like a “Great Escape” for the people from their current predicament. 

Our new PM said RM100 billion worth of credit restructuring will result thanks to the Moratorium on bank loans repayment for 6 months. Now first thing first, it is important to understand what Moratorium means. A quick search on Mr. Google shares :



After studying and understanding this so called policy to help the people, we find this to be a half past six measure / half baked policy to assist the people. In a same away, this is exactly like the EPF Account 2 assistance aid to the Rakyat. 

Let me explain, before clarification from BNM, many thought the interest during 6 months deferment period of all loans (except credit card) will not be charged. Turns out, whilst both principal and interest are suspended for the 6 months period however the interest owing still runs including the 6 months period which is accrued to be pay later. 

In simpler terms, the policy only defers 6 months but this 6 months interest unpaid during deferment will be charged later on to the people and business. 





It is no wonder the banks shares perform well today, because it doesn’t affect the banks at all as the  Bank’s cashflow in this 6 months will be mitigated by the lifting of their reserves by BNM and in fact may even get extra income from people and businesses who don’t understand the real impact because the loan tenure is extended and additional interest income can be collected for the 6 months deferment. A simple explanation below  :

Now Ali have 30 months loan outstanding, because of Covid 19, the Government imposes lockdown.  Ali cannot work and have no income, or Ali work from home, and Ali’s Boss forced to continue paying salary even though Ali’s Boss shop is close and Ali Boss has no income. How long can Ali and Ali’s Boss sustain? 3 months, 6 months, or 12 months?

Hence the Government imposes moratorium for 6 months on banks loans as relief to Ali and Ali’s Boss (Individual and SME). This is great news right? But no, turns out Ali and Ali’s Boss will still need to pay the interest on the loan for the 6 months moratorium. Which means Ali’s original interest on the loan for 30 months has now been extended to 36 months! 





Same like the EPF Account 2 aid, the Government permits the people are to withdraw their OWN MONEY during this difficult time. It is in fact actually using our own future savings for old age to be used presently. Yet, the Government shouts about the potential RM40 billion flooded to the market. This is not a form of stimulus at all. These funds are already within the financial system of the country. It is with the EPF who uses our savings and funds to invest and support financial & the housing markets. So what is new?

Policy makers, please fee free to read comments of the Rakyat before making half baked policies.

Covid-19: Mixed reactions over EPF withdrawal scheme
https://www.thestar.com.my/news/nation/2020/03/24/covid-19-mixed-reactions-over-epf-withdrawal


Relief at the expense of EPF savers
https://www.thestar.com.my/opinion/letters/2020/03/25/relief-at-the-expense-of-epf-savers


https://www.themalaysianinsight.com/s/231406


Unlike other countries such as US, Japan, UK, Italy, Singapore and others, the government steps in and absorbs the cost for the suffering people and business instead of passing the cost to the people.  Example, in the US, the government student loans for 2 months and whilst it is suspended in the 2 months the interest for loan repayment is waived, not accrued!

The government should have a skin in the game, instead of asking the people and business to shoulder the financial hardship from being locked down unable to make a living. This is why the Rakyat and Businesses pay taxes, for the Government to use the taxes to take care of the Rakyat  and Businesses during difficult times







Quoting a reader of mine “ It’s a big disappointment and for good 3-4 pager of notices in the Circular , This key point on interest on accrued interest is only at the footnote” 



As I am writing, a fresh news is out saying MCO is extended another 14 days to 14th April. From ‘‘ 1. warm water stops Covid-19, 2. EPF Account 2 withdrawal releases RM40 billion into the market and 3. 6 months Bank Loan Moratorium releases RM100 Billion to the market,  indeed, April Fool’s came early this 2020.

_______________________________________________________________

Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 











Tuesday, 24 March 2020

(Tradeview 2020) - ”Cash Is King”, Time to Deploy?




Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Website / Blog : 
http://www.tradeview.my/

or Email me to sign up as private exclusive subscriber : [email protected]
__________________________________________________________

“Cash Is King”, this age old adage or wisdom you may call it has ring true in the many years of financial markets history of mankind. The reason why bank continues to grow and prosper is because it serves the very fundamental needs of mankind since the invention of currency (money) as the methodology of trade. When you see the headline news articles in 1997 Asian Financial Crisis, 2000s dotcom bubble, 2008 Global Financial Crisis and today, the Covid-19 2020 Global Meltdown, you will see the truth in this wisdom. 

But what does this phrase actually means?  Have a look at this video below by Warren Buffet where he gives his perspective on what cash is king really all about. 




The logic of having lots of cash is to deploy when necessary. It is not a form of collection but it is a tool to be used when the occasion arises. However, due to ever competitive and changing business model landscape in today’s economy, most governments and private sector companies are highly leveraged or geared as a whole. Running on budget deficits seems to be a common notion. In the chase of revenue growth, many top companies bleed cash year in year out. What more governments? Few practice fiscal prudence. Example : Argentina




That is why people and companies belonging to the likes of Warren Buffet, Li Ka Shing, Robert Kuok are highly admired because their businesses churns out good profit and cash flow, above and beyond that, they have substantial cash reserves stashed away for rainy days and to be used for occasion like the current market sell down we are facing. We don’t have to even look far, let’s look at one of the many companies of Malaysia richest man Robert Kuok, PBB Group, the cash holdings is a staggering RM1.5 billion. 




I have had numerous discourse with extremely intelligent people on their view on the market. Some would be hesitant to call this a recession as a recession has to be shown by data of negative growth over a prolong period of time. Yet, why is it even the common man on the street knows that this is a recession or recession looming? Well very simple answer to that would be the stock market usually reacts ahead of time. It is one of the best indicators. Usually the stock market, the property market, then the job market. Now can anyone disagree with me that all the markets mentioned above is not suffering? 



Therefore this would bring me to the conclusion that we are indeed facing a recession and with our cash in hand, is it time to deploy? 


1. Savings for Rainy Days :

I think most people would be a net debt position instead of net cash. This includes many listed companies as well. High net worth individuals mostly also leverage up on their wealth to build more wealth. So all in all, most people have more debts than cash. Few have substantial savings to weather the storm but I do think that many have some emergency funds or savings set aside. 

If we are to dig deep and look at our reserves, do we have the necessary extra funds to invest in the market? Please make sure whilst reading my articles on investment, I will never ever ask my readers to take margin, borrow money, rack up credit card debts just to buy shares. THIS IS WRONG. 

My priority and goal towards financial independence is always premised on using excess cash / extra funds to invest in the market. Delay instant gratification like buying a nice car or luxury items, instead use those allocated funds for such gratification to invest in quality value stocks for the future income / wealth. So first thing first, make sure you set aside at least 25-30% of income to savings for rainy days, children’s education, health care fees, insurance etc. These are funds you cannot touch and utilise for investment no matter what. Beyond that, you can consider for other usages such as investment.




2. Deploying Excess Funds for Good Stocks Now :

How many times have you all heard older folks sharing last time Public Bank only RM5, Maybank only RM3, Genting RM1 etc? I am sure countless. Now whenever you hear that, did you ever ask them why they didn’t bought back then?

Of course, everyone has different circumstances. For those in the market, probably they got stuck with large amounts in their shareholdings unable to get out before the sell down. Some require excess funds for their own business and personal expenses. Hence my viewpoint above, deploying EXCESS Funds for Good Stocks NOW. 

Many authors of articles write very carefully as they are afraid readers will blame them in case anything go wrong. So in their articles, it is always pointing out the obvious, or sharing observations with no transparent guidance on their calls or picks or direction. We would like to make it very clear, if you have spare funds lying around or excess cash, delay buying a new car or new toy or new luxury jewellery or whatever it may be, use the funds to buy into good fundamental stocks whacked down terribly due to the current situation. I know many are under lockdown, working from home, you would have some time compared to working hours to study and understand the market. For those who do not know and are lazy to study, following us and our articles, we have shared multiple times before on our stock picks below. We share it again here now. 


We previously shared the following stocks as our favourite :


  1. CCK
  2. OCK
  3. RCE Capital
  4. DKSH
  5. Riverstone Holdings Ltd (Singapore listed)
  6. Pintaras Jaya
  7. GCB
  8. MFCB
  9. Scicom
  10. RHB Bank
  11. Pentamaster
  12. Public Bank
  13. QL Resources

If any of you all have been reading and following and entered as our articles are published, I am sure most would be in +Ve position as the market has rebounded over close to 100 points since then. 

Please stay tune for our next write up on “Principles of Investing - Rule 1: Buy Good Quality Companies Which Will Still Be Around In 5 years”.

_______________________________________________________________

Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: 









Thursday, 19 March 2020

(Tradeview 2020) - Recession is finally here? Or is it an Opportunity of A Lifetime?




Dear fellow readers, 

Once again, these writings are just my humble highlights (not recommendation), feel free to have some intellectual discourse on this. You can reach me at :


Website / Blog : 
http://www.tradeview.my/

or Email me to sign up as private exclusive subscriber : [email protected]
__________________________________________________________



The Covid-19 news cycle seems be on 24 hours a day and that seems to be the most information i received every day in my WhatsApp or telegram group. In fact, it would seem to be the most dominating headline of our every day life. The question in my mind was why now? Why finally after so many long months only we are at this point? Was it ignorance, optimism, or wilful blindness? 

But enough of Covid-19, I am sure most are sick and tired of this. Let me focus on what matters, how to make the most of the current situation. When Malaysia was a tiger economy in the 1990s until end of the millennium, the crisis hit us hard due to the Asian financial crisis. It took Southeast Asia economy almost 20 years to be on a sound footing.  




Many have said, finally, this is it, recession. The recession they have predicted finally arrived. Some predicted it to arrive since 2013. I remember a very big fund listed on our share market was one of those. Well, surely a broken clock may be right once a day. The question is not about being right but if you are right, what are you going to do about it? This is the same thing I ask myself every single night before going to bed (second last thing is observing global markets indicators). Are we willing to pull the trigger? 



The reason why heroes are so well loved because there are few and hard to come by. I believe once this whole entire episode is over, there will be only a handful that people will sing about. Specifically about their success in making the most of this frightening times. So let me share few simple viewpoints and of course some of our actions taken in this climate. I do not believe we will be right but if anything, history have taught us well and we should always head back to history to guide us especially in the times of uncertainty and great crisis. I believe this is a major crisis and especially so unexpected to the start of a new decade. 


1. What rises will fall & similarly what has fallen will rise :

With the triple whammy of political instability, oil plunge and Covid-19, the perfect storm has come to the shores of Malaysia. None can escape unscathed. Now when the market is on a bull run, we think it will keep going up. Ex: At 15x PE, analysts say its cheap comparing to global peers which valuations stands at 25x. Today, those so-called cheap laggard counters are actually down to a valuation of only 4-6x PE valuation. True it is unfair to generalise as it is a downtrodden market affected even the best investors in the world. However this is a reflection of the market sentiment and investor confidence.

Let’s have a look at the charts to compare :



STI - Singapore Index has fallen substantially from its peak of 3650 in 2018 to 2425 today, estimated 34% down.


S&P 500 has fallen from 3400 to 2398 estimated 30.5% to date. 





KLCI has fallen from 1900 in 2018 to 1219 today, estimated 40%.





Now if you compare the major dips from the peak to the bottom in 1997 - (1250 to 500), 2008 - (1400 to 800), & today 2020 - (1900 to 1219), it would appear there may be still some down side. On average each crisis, it falls close to or more than 50% from the peak of the market. Also you will notice the timeframe of recovery is between 6 months - 12 months from the bottom. 2008 was more of a V shape rebound compared to U shape rebound for 1997. Would 2020 crisis be a V or U shaped? In my view, it would be a U-shaped if the vaccine is not created sooner than later. After all, since the explosion of epidemic in Wuhan, China till today, it has been almost 4 months.



The important difference is this, so far there is no mass layoff yet and no street protest or unrest for Malaysia. Also, BNM is still solid and fundamentally sound compared to back in 1997. However, all this will get out of control if the new Government do not get their actions together to formulate a proper way out for the country. Remember, there is still shortfall from GST, shortfall from oil plunge income for the national coffers, increasing budget deficit, high debt outstanding from 1MDB amongst the many other issues we have yet to resolve. With limited fiscal room for the Government to manoeuvre, there is a risk our MGS will become less attractive for foreign funds especially with this global sell down, foreign funds as more choice than before where the global markets having lofty valuations compared to Malaysia.






2. Statesmanship to Lead the Country out of Turmoil :

One of the most notable effort by our country leaders during the 1997 crisis was to implement capital control to help us out. Shortly in 1 year, Malaysia was back on growth track. Till today, many dispute this decision by our Govt then. It wasn’t until much later that international community praised Malaysia government in rejecting IMF money by pegging Ringgit against USD. 

The fact of that matter is today, we do not have the leader of comparable calibre to lead us, be it in terms of government policy or economic policy. The backdoor government only cares about their own position and power and in the midst of the Covid-19 played a terrible political play for their own personal interest leading to the spike in cases due to lapse in supervision and control measures implement.

Many things could have been prevented and many rescue plans could have been formulated if the government was still operating, not a window of 2 week coupled with further effort spent on politicking, trade bartering and on boarding for new / old but incompetent ministers. This is my biggest concern as I believe the international community will find a resolution to the virus but the aftermath will have long lasting effect on the country whereby the economy will take a long time to rebound due to poor leadership.



We previously shared the following stocks as our favourite :


  1. CCK
  2. OCK
  3. RCE Capital
  4. DKSH
  5. Riverstone Holdings
  6. Pintaras Jaya
  7. GCB
  8. MFCB
Now, you may say by entering this 8 counters, it has fallen also since the time we shared out article. Indeed, however, similarly the valuation you entered is way cheaper than its FV am I right? So if you should hold it for 12 months, would it still concern you? That is what you should ask yourself.

We are looking at these few more :
  1. Scicom
  2. RHB Bank
  3. Pentamaster
  4. Public Bank
  5. QL Resources

We have many more counters we are thinking to invest with the current market sentiment. They all say Cash is King, best to hold cash, stay sidelines. Now, then what would the purpose of holding cash be for?

Please stay tune for our next write up on ”Cash Is King”, Time to Deploy?

_______________________________________________________________

Telegram channel : https://telegram.me/tradeview101
Website / Blog : http://www.tradeview.my/
Facebook : https://www.facebook.com/tradeview101/or 
Email me to sign up as private exclusive subscriber : [email protected]


Food for thought: