August 05, 2021

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“Principles of Investing - Rule 6 : "Comprendo. Invest Only In What You Understand.”

I would like to share my view on airlines. Those long time subscribers of mine know that I have never promoted or recommended airlines stock all these years. This is because I don’t understand airasia financial accounts and didn’t like their business model. I also find the space too crowded and competitive. Probably this saved me from huge investment losses all these years if I were to invest. 
 
https://www.channelnewsasia.com/news/asia/malaysia-s-airasia-x-seeks-to-stave-off-liquidation-with-us-15-13220210
 
https://www.channelnewsasia.com/news/business/malaysia-airlines-khazanah-stop-funding-lessor-talks-covid-19-13222496
 
 
Moving on, when Warren Buffet decided to invest big into airlines stocks, it shocked me as he was a strong advocate against airlines stock. Although he changed his stance, I didn’t. I can’t invest in something I don’t understand. 
 
Fast forward to today - Warren Buffet divested all his investments in airline stocks recording one of his worst investment year on record. What I want to say here is when Warren Buffet decided to admit the mistake and cut loss, he really did it even though it was painful. I remembered many even criticised him, saying he cut loss too early, covid will end, govt will bail out and all will normalise again. 
 
It is almost 1 year since covid-19 broke out last year, has things changed much? What about airline stocks? 
 
So this is why Warren Buffet is the greatest investor of all time. He made a mistake and he admit it. He cut his losses and stick back to fundamentals. Years ago, he never touched tech stocks. Now his largest holding is Apple. He too adapted. As for me, many have been asking me to consider tech stocks in Msia and I refused until now. It is not because of I am stubborn but because I don’t understand the Msia tech sector well enough to justify me paying a huge premium over its earnings. I may miss out opportunity but I definitely won’t lose money in case it turns. 
 
My point in sharing this with you is so you all understand my investment philosophy better. I am careful, rather be wrong and miss the boat then make a mistake and pay dearly. 1 wrong move can potentially wipe out a years gain. But if I am convicted with an idea or investment thesis, I will remain stubborn - So I am thankful this year the calls were great and tide favoured our calls. 
 
Gloves are still the safest and it is in my view undervalued even if Trump orders emergency approval of Regeneron or what not. Fact is everyone has been talking vaccine for the longest time and operation Warp Speed, vaccine before election. Doesn’t it appear to be highly unlikely now? Even if approved, it’s not even for mass vaccination. So why are some people willing to call Gloves - game over, time to get out. Yet these same people are the same one calling to enter Tourism, retail, oil & gas recovery play? 
 
This is not contrarian value investing. It’s called being a smart Alec / wannabe. Why? Because these group of people intentionally ignore objective facts but seek out other alternative investment thesis for the sake of being different. At the end of the day, the few analysts that called game over for Gloves are not because they are smart but because they are scared. They are afraid to be remembered as the last analyst calling a buy on the sector and when it turns they can’t change their opinion in time. Hence this fear impaired their judgment.
 

Food for thought: 
 
Budget 2021 Preview & US Election Conclusion (No W...
Flash Crashes Come & Go, Do Not Fear. Ride It Out.
 

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