Of course we can analyse each company business and its other non operating asset to come out with our valuation. But the valuation depends on our expectation, and our expectation is influenced by current market situation. Of course we can made our investment decision according to our valuation, whether it is overvalue or undervalue. To be safe, we try to tweak our expectation towards conservative when we do valuation for investment purpose, and tweak our expectation towards more aggressive when we do valuation for the purpose of selling.
But most of the time, we underestimate extremity of investor behaviour as how undervalue the valuation will go, and how overvalue the valuation will go. So we tend to buy in too early and sell out too early. We also underestimate how good the economy will bring and sell too early; and underestimate how severe the economy will go down and buy too early. And economy is always the most decisive factor to determine how much return one will make.
The best return is is made during investment in the bottom of the business cycle, and sell during the peak of the business cycle.
The second best return is made during investment in dip along the business cycle.
The third best return is made during investment in confusion of market, but we realised that the future is still promising.
It is very easy to misjudge the economy stage. We loss money if we invest but don't see the economy downturn coming or underestimate the severity of the downturn. We incur huge opportunity cost if we hold too much cash and don't realise the economy is actually slowly moving upwards or underestimate the prosperity of the economy.
Tuesday, November 12, 2013
Wednesday, November 6, 2013
Thought of monetary tightening impact on company valuation
Current world is flushed with money, supply of money is so large that interest become so low. It pushed up all the asset price.
When tightening happen, supply of money reduce. It put pressure on asset price.
Those company with high asset dependent base, its valuation will suffer.
It is because company usually finance the asset with financing. Tightening will not just putting pressure on the asset value, but will cause the interest rate to rise, which then reduce the EBIT coverage ratio and affect rating. Thus interest rate paid by the company will likely raise faster than the general interest rising trend. This will raise the cost of capital of the company too. Higher interest payment will reduce the future cash flow, and the reduced future cash flow discounted by higher cost of capital, further reduce the firm value.
Those company with asset light business model will outperform.
Bank will take a hit as its collateral asset under price pressure.
Insurance will likely do well as its liabilities is not asset base, but either event base or personal life base, and its income will rise upon rising interest rate.
When tightening happen, supply of money reduce. It put pressure on asset price.
Those company with high asset dependent base, its valuation will suffer.
It is because company usually finance the asset with financing. Tightening will not just putting pressure on the asset value, but will cause the interest rate to rise, which then reduce the EBIT coverage ratio and affect rating. Thus interest rate paid by the company will likely raise faster than the general interest rising trend. This will raise the cost of capital of the company too. Higher interest payment will reduce the future cash flow, and the reduced future cash flow discounted by higher cost of capital, further reduce the firm value.
Those company with asset light business model will outperform.
Bank will take a hit as its collateral asset under price pressure.
Insurance will likely do well as its liabilities is not asset base, but either event base or personal life base, and its income will rise upon rising interest rate.
Tuesday, September 10, 2013
Productivity, efficiency improvement?
There might be nothing to be cheer about when a company say want to do something to improve its efficiency. It is just part of competition in business world. If all your competitors has the same access to new technology and technology supplier; as long as your competitor has the financial resources, they can improve their efficiency as your company do too. The margin improvement you hope to enjoy will be eliminated when your competitors can afford to sell cheaper to gain market share because of higher margin. You will then sell cheaper to protect your market share and thus your margin improvement gone.
Unless you develop your own technology in house, kept it secret or apply patent to protect it, you are likely not able to enjoy the improve margin.
Unless you develop your own technology in house, kept it secret or apply patent to protect it, you are likely not able to enjoy the improve margin.
Friday, August 30, 2013
Buying on dividend yield, good or bad?
Sometimes we select stock base on dividend yield. We might say this business looks to be able to generate good and stable cash flow over previous years. Even the growth is not high, but it is slow and steady, at least without severe drop as it seems historically. Due to that, in low interest rate environment, we might think that 6, 7 % dividend yield return is a very attractive rate. In other cases, we might find other small company that can provide dividend yield up to 8% to 10%. Again look at the historical track record, it seems quite stable.
But is it really safe? Unexpected can happen. Even the strongest business can drop in challenging economy time. Earning can turn and cash flow reduce. Even if the company is still strong and stable, the drop in cash flow will prompt the management to reduce the dividend payment, hence drop in dividend yield. Bear in mind that challenging economy comes in cycle, some very long that we can't recall the history if we are not aware of it. When it come, it can stay long too. We are not just suffering from drop in dividend yield return, but also drop in share price. Many times, the drop can be severe and takes a long time to recover. Even more so apply to small company. Small company is vulnerable to strong economy headwind. When the headwind is strong enough, it is common for those small companies that once afford to pay dividend into losses. If the challenging economy last for long, it can bankrupt the companies.
Hence, i feel buying into dividend is not very good. We need to buy into business/company that has visibility future growth prospect that offer undervalue price, or buy into stable business that offer substantial undervalue price. If really want to buy into dividend yield, buy those strong and stable business that can afford to pay over 10% dividend yield, because most of the time, it is undervalue. Only undervalue stock provide margin of safety cushion, not dividend yield.
But is it really safe? Unexpected can happen. Even the strongest business can drop in challenging economy time. Earning can turn and cash flow reduce. Even if the company is still strong and stable, the drop in cash flow will prompt the management to reduce the dividend payment, hence drop in dividend yield. Bear in mind that challenging economy comes in cycle, some very long that we can't recall the history if we are not aware of it. When it come, it can stay long too. We are not just suffering from drop in dividend yield return, but also drop in share price. Many times, the drop can be severe and takes a long time to recover. Even more so apply to small company. Small company is vulnerable to strong economy headwind. When the headwind is strong enough, it is common for those small companies that once afford to pay dividend into losses. If the challenging economy last for long, it can bankrupt the companies.
Hence, i feel buying into dividend is not very good. We need to buy into business/company that has visibility future growth prospect that offer undervalue price, or buy into stable business that offer substantial undervalue price. If really want to buy into dividend yield, buy those strong and stable business that can afford to pay over 10% dividend yield, because most of the time, it is undervalue. Only undervalue stock provide margin of safety cushion, not dividend yield.
Wednesday, August 28, 2013
Search for the Bottom
Taiwan’s God of share market 胡立阳 say there are 4 stages when Fed tapering the QE. First is the rumour of QE tapering, second is the reaction of the stock market increase volatility because the rumour is getting more real, 3rd is the actual tapering of QE where the stock market plunge further, 4th is the increase of interest rate where not only stock market plunge further, the housing market also drop.
I believe we can apply some of this concept on the search for the bottom as well. First is the initial plunge of the stock market. 2nd is people enthusiastically ask about bottom fishing., but stock market continue to plunge 3rd is stock market continue to plunge, most of the people already sold and they will warn anyone who want to buy not to buy. There is so many pessimism and skeptical surrounding as there is no recovery hope. 4th stock market range bounce at certain level with great volatility and volume rise. That is when there is huge change hand of stock ownership from those pessimistic people to optimistic people. Stock ownership structure change to those savvy and long term investor. That should be the bottom! Of course those skeptical and pessimistic people remain their believe. They will always ask, can drop further or not? don't put all in one basket etc etc. They only started to want to come in after the stock market has rebound significantly.
I believe we can apply some of this concept on the search for the bottom as well. First is the initial plunge of the stock market. 2nd is people enthusiastically ask about bottom fishing., but stock market continue to plunge 3rd is stock market continue to plunge, most of the people already sold and they will warn anyone who want to buy not to buy. There is so many pessimism and skeptical surrounding as there is no recovery hope. 4th stock market range bounce at certain level with great volatility and volume rise. That is when there is huge change hand of stock ownership from those pessimistic people to optimistic people. Stock ownership structure change to those savvy and long term investor. That should be the bottom! Of course those skeptical and pessimistic people remain their believe. They will always ask, can drop further or not? don't put all in one basket etc etc. They only started to want to come in after the stock market has rebound significantly.
Tuesday, August 13, 2013
Deep discount stock?
I believe we will always better off buying a operating business than buying a undervalue non operating asset. Non operating asset is like a dead pool of water. Operating asset is like free flowing of water. We won't get anywhere betting the dead pool of water. However, we explore new things constantly by following the flow of the water. I want my resources to follow the flow of water, not the dead pool of water, because I don't know when the dead water will get refreshed. In other words, I don't know when the non operating asset value will get unlocked. The owner may not really want to unlocked the value forever, may be because of family tussle, ownership pride, or conservativeness etc. By waiting for the unknown, I feel it is like buying jackpot, too much uncertainty. Investing should be base on certainty of return. I rather buy good operating asset with good price than buy non operating asset with deep discount price.
Saturday, August 3, 2013
When the tide goes out
I am starting to worry about the interest rate rising. It is not about the timing of QE tapering. We can see US unemployment trend is getting better, which mean US economy is gradually improving, and prospect is looking good. Interest rate will eventually rise when the economy gets better. And I predict the interest rising trend has started.
Whereas China continue to face slow down problem. It's rampantly heavy public investment has hit wall. Many of those investments are getting tiny return. It is clear that China has grow to a size that they can't just invest on any thing and get good return. From now on, every investment will have to be carefully evaluated the risk and return. This will be different from previous 3decades of flying growth story. Growth should return to normal 5 to 8 percent. But before that can happen, China has to solve other problems. Huge state province debt, highly not local affordable housing price, and over capacity of many major industry sector. Those problems will certainly drag down growth in may be 2 to 3 years time. Besides, the implementation of economy structure reform will ultimately determine the sustainability of China long term economy growth story.
While China has its own battle to fight, the predicted slow down of China in few years ahead will affect surrounding regional countries. The major hit will be commodity base countries. Further more, India has its own tough economy situation (currency depreciation, high inflation, increasing debt). Commodity demand such as metal, edible oil, will have tough time for recovery. Previous few years of commodity price boom has created a wealth for commodity country such as Malaysia and Indonesia. They thus have started their high growth plan in infrastructure construction and housing construction. Centered in high growth in China, the wealth effect has draw in huge foreign investment into many Asia emerging market. In addition, high ambition of those Asia emerging countries has been borrowing money to increase spending on construction to boast growth. Of course, those happened during past few years of very low interest rate environment. All of this resulted in increase of asset prices. When asset prices increase, the process repeated and create a vicious cycle of uptrend asset prices.
That's why I am worry about the rising of interest rate. US is still the largest economy by far in the world. When the largest economy improve, regardless of the state of others, interest rate will follow US economy situation and rise. When interest rate rise, the money will flow back to US. Now with the emerging markets had show signs of weaknesses, foreign money may find more reason to pull out from emerging market back to developed market to avoid risk. This will further exacerbate the emerging market problems (slow growth, high inflation, low commodity price, high borrowing). When interest rate rise, bad loan will emerge, falling asset price may then follow on.
As Warren Buffet said, "when the tide fade, you will discover who's been swimming naked."
Whereas China continue to face slow down problem. It's rampantly heavy public investment has hit wall. Many of those investments are getting tiny return. It is clear that China has grow to a size that they can't just invest on any thing and get good return. From now on, every investment will have to be carefully evaluated the risk and return. This will be different from previous 3decades of flying growth story. Growth should return to normal 5 to 8 percent. But before that can happen, China has to solve other problems. Huge state province debt, highly not local affordable housing price, and over capacity of many major industry sector. Those problems will certainly drag down growth in may be 2 to 3 years time. Besides, the implementation of economy structure reform will ultimately determine the sustainability of China long term economy growth story.
While China has its own battle to fight, the predicted slow down of China in few years ahead will affect surrounding regional countries. The major hit will be commodity base countries. Further more, India has its own tough economy situation (currency depreciation, high inflation, increasing debt). Commodity demand such as metal, edible oil, will have tough time for recovery. Previous few years of commodity price boom has created a wealth for commodity country such as Malaysia and Indonesia. They thus have started their high growth plan in infrastructure construction and housing construction. Centered in high growth in China, the wealth effect has draw in huge foreign investment into many Asia emerging market. In addition, high ambition of those Asia emerging countries has been borrowing money to increase spending on construction to boast growth. Of course, those happened during past few years of very low interest rate environment. All of this resulted in increase of asset prices. When asset prices increase, the process repeated and create a vicious cycle of uptrend asset prices.
That's why I am worry about the rising of interest rate. US is still the largest economy by far in the world. When the largest economy improve, regardless of the state of others, interest rate will follow US economy situation and rise. When interest rate rise, the money will flow back to US. Now with the emerging markets had show signs of weaknesses, foreign money may find more reason to pull out from emerging market back to developed market to avoid risk. This will further exacerbate the emerging market problems (slow growth, high inflation, low commodity price, high borrowing). When interest rate rise, bad loan will emerge, falling asset price may then follow on.
As Warren Buffet said, "when the tide fade, you will discover who's been swimming naked."
Tuesday, July 16, 2013
Prospect of Malaysia is good
Some say Malaysia is a small market. With urbanisation going on and with the focus shifting to relatively undeveloped East Malaysia, there is still many opportunities for local company to focus on. For the West Malaysia, focus now is on East Coast where there will be highway linking Johor Pengerang oil hub to Pahang being planned to build. Just like few decades ago when North South highway opened, this will create a lot of opportunities, with the creation of and expansion of many currently small town. Many jobs will be created and income will be rise. Then many houses and retail shop will be built up. Small town will then reinforce capital city like KL to greater height, as many business headquarter in KL will reap the bigger profit and also, many more people from the small town will have access to KL better job opportunities.
Malaysia is bless with its center location of South East Asia and its well developed resources.
Malaysian is good at making great plan and have a plenty of great business people with great business acumen. Prospect is looking good. Now it depend on the government execution and reform to make Malaysia the center of South East Asia.
Malaysia is bless with its center location of South East Asia and its well developed resources.
Malaysian is good at making great plan and have a plenty of great business people with great business acumen. Prospect is looking good. Now it depend on the government execution and reform to make Malaysia the center of South East Asia.
Wednesday, July 3, 2013
How to identify good long term investment
In investment portfolio, I think we need to have a combination of long term bet, arbitrage bet, company or industry revaluation bet, undervalue with huge upside potential bet, etc. Basically long term bet is hard to come by as well known company's valuation is usually already very expensive and hard to call it fair, and potentially good long term bet is hard to identify in our naked eyes.
To identify potential long term bet, i think 1 of the way is to start with arbitrage bet, undervalue company bet, good company in downturn industry bet, solid foundation company that kept on downgraded by analyst or investor bet, small medium growth company bet that investor have doubt with its growth sustainability. Of course the company has to be financially sustainable and have good management in place. As time goes by, those bets might eventually become our long term bet if things turn out favourably. If it turn out bad, just sell it as we know it is just a bet. As we keep on our betting practise, our skill of betting improve overtime.
To identify potential long term bet, i think 1 of the way is to start with arbitrage bet, undervalue company bet, good company in downturn industry bet, solid foundation company that kept on downgraded by analyst or investor bet, small medium growth company bet that investor have doubt with its growth sustainability. Of course the company has to be financially sustainable and have good management in place. As time goes by, those bets might eventually become our long term bet if things turn out favourably. If it turn out bad, just sell it as we know it is just a bet. As we keep on our betting practise, our skill of betting improve overtime.
Monday, July 1, 2013
Perception is hard to change
It is human nature that perception is hard to change. Things we have been hold on to so long we cannot just let go instantly. For example, a man who done something dishonest act and lost his friends' trust, he will be struggle to gain back the trust although he changed and doing everthing honestly since then. Similarly, a transitional CEO especially from a legendary founder will have difficulty to prove his ability and gain trust of investment community although he is leading the company well or even better in his own style.
However, time will tell. If the change is towards better and it carry consistency, sooner or later people will realize the value and accept it with open arms. And once people accept it, their perception changed and they accept it long term.
However, time will tell. If the change is towards better and it carry consistency, sooner or later people will realize the value and accept it with open arms. And once people accept it, their perception changed and they accept it long term.
Monday, June 10, 2013
Know well the company you invest in, not the numbers
To be able to have a peace of mind in the business of investing, the most important thing is to invest in a company you know very well.
1. You know that the company's product or service will be in demand anyway,
2. you know that the company will still be around tomorrow,
3. you know that the company staff or employee will still be happy to work in the company,
4. you know that the company customer will still be happy to be with the company
5. you know that the supplier of the company will still eager to work with the company
6. you know that the company finance is very healthy with no debt problem in whatsoever economy condition it become.
Only look at company with outstanding growth and track excessively close the financial numbers is not the way for investing. This will only create stress and disrupt your peace of mind.
1. You know that the company's product or service will be in demand anyway,
2. you know that the company will still be around tomorrow,
3. you know that the company staff or employee will still be happy to work in the company,
4. you know that the company customer will still be happy to be with the company
5. you know that the supplier of the company will still eager to work with the company
6. you know that the company finance is very healthy with no debt problem in whatsoever economy condition it become.
Only look at company with outstanding growth and track excessively close the financial numbers is not the way for investing. This will only create stress and disrupt your peace of mind.
Sunday, June 9, 2013
New exciting blog introduced to all of you!
Would like to introduce a blog I discovered today. It is "Observatory" by Ken Segall, the author of "Insanely Simple, The obsession that drives Apple's success." The link is placed in "My Blog List" in my blog.
Yeah, I am big Apple fan, not merely by its products like iPhone, iPad, iPod or iMac, but more of its culture, its style, the thinking and value in Apple corporate world and its employee. I admire the company. Whether is it coming to introduce new innovation is not the primary concern, but the culture that stimulate innovation that is really matter, and Apple still the old Apple when Steve Job alive. It only create quality, simplicity, artistic, detail defined product and only intend to sell to people who value those qualities, not to anyone. I am really proud of Apple.
Yeah, I am big Apple fan, not merely by its products like iPhone, iPad, iPod or iMac, but more of its culture, its style, the thinking and value in Apple corporate world and its employee. I admire the company. Whether is it coming to introduce new innovation is not the primary concern, but the culture that stimulate innovation that is really matter, and Apple still the old Apple when Steve Job alive. It only create quality, simplicity, artistic, detail defined product and only intend to sell to people who value those qualities, not to anyone. I am really proud of Apple.
Friday, June 7, 2013
Missing the boat
Just finish study 1 company, and found the prospect is very interesting going forward, and still undervalue despite rapid surge recently. Planned to buy the next day, and was transferring the money into brokerage account yesterday. Today the price surge another 10% but still my money isn't in the brokerage account yet.
This type of situation is frustrated.
Rerating stock is very hard to chase. Although I know there is still plenty room to the target price, but watching the margin shrink so fast is frustrated. If the margin is not wide enough for me by the time I am able to buy it, I may drop it and consider missing the boat.
This type of situation is frustrated.
Rerating stock is very hard to chase. Although I know there is still plenty room to the target price, but watching the margin shrink so fast is frustrated. If the margin is not wide enough for me by the time I am able to buy it, I may drop it and consider missing the boat.
Tuesday, May 28, 2013
Forward looking 2014 valuation
Half year into 2013, RHB investment analysts are already using forward price earning of 2014. It is still one and a half year away. But I think that's how the valuation in Malaysia work, and probably that's how international equity valuation work too. 1.5 years forward earning, it suddenly give room to a lot of stocks to run further, it suddenly open more opportunities for investment.
To study and value a company, we should try to forecast the next 2 to 5 years earning (try our best to guess base on previous track record, management planning, contract in hand, economy growth etc) and have roughly in mind how the stock price will be down the road. Better company will have better earning visibility and the better management planning and execution ability. Better company will let the investor know their direction clearly.
To study and value a company, we should try to forecast the next 2 to 5 years earning (try our best to guess base on previous track record, management planning, contract in hand, economy growth etc) and have roughly in mind how the stock price will be down the road. Better company will have better earning visibility and the better management planning and execution ability. Better company will let the investor know their direction clearly.
Tuesday, May 21, 2013
Malaysia bull market party started
When the news said retail investor started to come in Malaysia stock market, I reckon that Malaysia stock market is going in a full blown bull market. All category of stock from small to big cap will rise, pull the index rise. Fund manager whose fund performance track the index will probably have to invest. They will fuel the market further. When you see stock like Landmark where it's hotel business is not making profit and its hotel property is so small compare to the whole balance sheet, (all other asset is land development in Pulau Bintan in Indonesia where we still have no idea when the contribution will come in), when you see even Landmark stock started to follow the other Malaysia property developer stock rising, you know probably no stock will be left out unseen. Let the party begin.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. I may already have positions in the above mentioned counter. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees. I may already have positions in the above mentioned counter. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
Saturday, May 11, 2013
Unprecedented low interest rate
In this global unprecedented low interest rate environment, what happen is that highly leveraged corporates and individuals benefit as they can accelerate their deleveraging process. In the same time, huge liquidity created by central banks, profits and excess income generated by other healthy corporate companies and individuals need to be invested. Because of low interest rate, opportunity cost of not investing into higher risk asset is high. So, it drive up all asset price, namely property, stock market, high yield bond and others bonds as well. High liquidity is also solving the price anormally of lack of liquidity stock, small capital stock where marketability is low. A lot of those stocks are being discovered and revalued. Less and less arbitrage in the market as all is being exploited (money is not a problem, they can always borrow because of cheap borrowing cost). Eventually, the discount rate, thus business risk will be down (to close the premium between interest rate and discount rate) and hence, asset valuation will be up significantly.
We are in that journey, but i really dont know how long before the journey end. As long as the journey goes on, all asset price will hit new high. Some time down the road, the 2 factors: deleveraging process call upon completion and wealth effect created by high asset price, may prompt central bank to raise interest rate. At that time, we should turn cautious of the reversal of asset price.
How long? Now? 1 year, 3 years, 5 years? This is a million dollar question!
We are in that journey, but i really dont know how long before the journey end. As long as the journey goes on, all asset price will hit new high. Some time down the road, the 2 factors: deleveraging process call upon completion and wealth effect created by high asset price, may prompt central bank to raise interest rate. At that time, we should turn cautious of the reversal of asset price.
How long? Now? 1 year, 3 years, 5 years? This is a million dollar question!
Wednesday, May 8, 2013
Technology should play main role in election process
I think in next general election, technology should play main role. All of our Identity card IC should be come with security verification like thumbprint or password like feature. Our personal info is further store inside for verification purpose. So when election, we insert our IC and let the computer verify our thumbprint and other security question. We self register using computer and vote through computer. The computer will then count the vote.
Therefore, no unqualified or fake voter, no voting for others, no manipulate of vote, no unknown or extra vote box.
Just we need to make sure the thoroughness of the software system, and security of the software system. It has to be very well design, cannot be hacked and most importantly agreed by every people before the election.
A lot of time, people is the main reason for being used to manipulate. We should leave it to technology computer which just know to obey order and system without bias.
Therefore, no unqualified or fake voter, no voting for others, no manipulate of vote, no unknown or extra vote box.
Just we need to make sure the thoroughness of the software system, and security of the software system. It has to be very well design, cannot be hacked and most importantly agreed by every people before the election.
A lot of time, people is the main reason for being used to manipulate. We should leave it to technology computer which just know to obey order and system without bias.
Tuesday, May 7, 2013
Malaysia is having internal and external risk (内忧外患）
The Malaysia election is finally over, with the ruling party again winning the election with simple majority. While it is over, the dust has yet to settle down. There are still uncertain factors here and there, such as
1) The losing side's emotion, will there be demonstration, protest going on, and how will it settle down? When will it settle down?
2) The change of structure inside UMNO（the ruling coalition). How will it affect the policy and the stability of nation
Political unstability period is a transition period that we have to wait and see. But the economy issue can be rather pressing. With the debt/GDP reach 55%, shadow unofficial number of debt/GDP may be even more. Public debt and consumer debt is reaching a very high level. Continuing budget deficit of Government may soon put a cap on the development. High consumer debt may also put a cap on consumer spending too. With government spending and consumer spending reaching the cap, we have to rely on foreign investment to boast GDP. We definitely can also increase the income of consumer, but it can be very difficult in current situation of middle income trap.
Foreign investment brought in money and boast the ringgit to very high level in short time. They can create jobs for Malaysian. But now I see the problem is more and more money is pouring in to buy property, land rather than create jobs. (May be we can argue that jobs will be created along the way, we have to wait and see, we have to see also wether the jobs created is a low pay job or high pay job) Strong ringgit is good for Malaysia consumer spending, but is it true? There is no sign the inflation is slowing down, may be only good for Tony Fernandes. Strong ringgit will make Malaysia less competitive because of higher living cost and business doing cost. Unless Malaysian can increase productivity or work in highly paid service job,that may put a cap of foreign investment. Strong ringgit is also bad for export, it will push out export manufacturing to lower cost countries or out of business completely in worst case scenario. Export manufacturing is one of the main income to Malaysia. Malaysia require company to switch to automation and reduce worker. This has to be done gradually.
Lower commodity price is another blow to Malaysia income group. Malaysia depend largely on resources. Low commodity price means lower consumer spending and government spending. With the global economy slow down and there is no sign of picking up in this year or next (Europe is worse off, China is slowing further), commodity price may not able to pick up soon. There is also risk of over expanding of oil palm in Indonesia and Africa.
Uncertainty of political landscape; high government and consumer debt; high budget deficit; rapid rising of RM; huge inflow of foreign money; low commodity price; gloomy global economy; There are many risk in Malaysia economy. Government need to do something to mitigate. I think government should now focus more on 养精蓄锐 (conserve wealth and build nation structurally to become more transparent and effective) rather than desperately expand aggressively to reach the 2020 high income vision.
1) The losing side's emotion, will there be demonstration, protest going on, and how will it settle down? When will it settle down?
2) The change of structure inside UMNO（the ruling coalition). How will it affect the policy and the stability of nation
Political unstability period is a transition period that we have to wait and see. But the economy issue can be rather pressing. With the debt/GDP reach 55%, shadow unofficial number of debt/GDP may be even more. Public debt and consumer debt is reaching a very high level. Continuing budget deficit of Government may soon put a cap on the development. High consumer debt may also put a cap on consumer spending too. With government spending and consumer spending reaching the cap, we have to rely on foreign investment to boast GDP. We definitely can also increase the income of consumer, but it can be very difficult in current situation of middle income trap.
Foreign investment brought in money and boast the ringgit to very high level in short time. They can create jobs for Malaysian. But now I see the problem is more and more money is pouring in to buy property, land rather than create jobs. (May be we can argue that jobs will be created along the way, we have to wait and see, we have to see also wether the jobs created is a low pay job or high pay job) Strong ringgit is good for Malaysia consumer spending, but is it true? There is no sign the inflation is slowing down, may be only good for Tony Fernandes. Strong ringgit will make Malaysia less competitive because of higher living cost and business doing cost. Unless Malaysian can increase productivity or work in highly paid service job,that may put a cap of foreign investment. Strong ringgit is also bad for export, it will push out export manufacturing to lower cost countries or out of business completely in worst case scenario. Export manufacturing is one of the main income to Malaysia. Malaysia require company to switch to automation and reduce worker. This has to be done gradually.
Lower commodity price is another blow to Malaysia income group. Malaysia depend largely on resources. Low commodity price means lower consumer spending and government spending. With the global economy slow down and there is no sign of picking up in this year or next (Europe is worse off, China is slowing further), commodity price may not able to pick up soon. There is also risk of over expanding of oil palm in Indonesia and Africa.
Uncertainty of political landscape; high government and consumer debt; high budget deficit; rapid rising of RM; huge inflow of foreign money; low commodity price; gloomy global economy; There are many risk in Malaysia economy. Government need to do something to mitigate. I think government should now focus more on 养精蓄锐 (conserve wealth and build nation structurally to become more transparent and effective) rather than desperately expand aggressively to reach the 2020 high income vision.
Thursday, April 18, 2013
Technology stock like Apple.
In company like technology stock, things are very unpredictable. Things change very fast.
"New technology, product launch, is it acceptable by consumer, how is the consumer taste now, why our taste change so rapidly without any sign, what is our future, can the company keep leading us into future, who are they, it is not them that decide our future, we are the ultimate user and decider of our future.....etc."
Look, how confuse are we about our future and hence the unpredictable of technology company. It is not like consumer product company where earning is more or less very predictable. We know we eat everyday and we are reluctant to change our habit.
For technology stock, as a prudent investor, I should not be too concern about the speculation of the stock price and earning. This is when the earning reporting season is near when the speculation noise is the loudness. The volatility of the stock is prompting a lot of people to enter into market because of higher probability to earn money when the stock price fell below your target price or rise above your target price. But we are always the outsider, we do not know exactly how the performance of the company during the period between the reporting time. Looking from outside, all the prediction is merely speculation unless the insider top executive personally reveal something. If not, it is better to wait for the earning report and decide after that. Everything will settle down after the reporting time. I will be more able to make better judgement.
Now the Apple is falling to USD400. How will it be 5 years from now? This is really who knows question....
"New technology, product launch, is it acceptable by consumer, how is the consumer taste now, why our taste change so rapidly without any sign, what is our future, can the company keep leading us into future, who are they, it is not them that decide our future, we are the ultimate user and decider of our future.....etc."
Look, how confuse are we about our future and hence the unpredictable of technology company. It is not like consumer product company where earning is more or less very predictable. We know we eat everyday and we are reluctant to change our habit.
For technology stock, as a prudent investor, I should not be too concern about the speculation of the stock price and earning. This is when the earning reporting season is near when the speculation noise is the loudness. The volatility of the stock is prompting a lot of people to enter into market because of higher probability to earn money when the stock price fell below your target price or rise above your target price. But we are always the outsider, we do not know exactly how the performance of the company during the period between the reporting time. Looking from outside, all the prediction is merely speculation unless the insider top executive personally reveal something. If not, it is better to wait for the earning report and decide after that. Everything will settle down after the reporting time. I will be more able to make better judgement.
Now the Apple is falling to USD400. How will it be 5 years from now? This is really who knows question....
Tuesday, April 9, 2013
Japan monetary policy the game changing point
China recent H7N9 is again bring down China and Hong Kong stock indexes. But in Japan and other ASEAN countries, stock indexes are climbing. This arbitrage make China related stocks the more attractive.
US Quantitative and Europe bond buying activities are bringing down the interest rate to ever low level. With low interest rate, bond become less attractive compared to equities. Low interest rate also make the currency less value. Therefore, more money is switch from bond to equities, to other asset like property. The one who kept buying the bond is government to support the low interest rate environment. Apart from money switch from bond to equity and other asset, money also search their way oversea to Asia where interest rate is higher, where currency is stable, where equity return are better. All of these actions make the equity indexes all over the world to climb higher and higher.
Now, Japan joins the crowd of US and Europe. We can see immediately Japan stock index is climbing very fast where its currency is depreciating fast. Due to scare of continue depreciating of its Yen, money switched from bond to equities, money is converted to other currency, or transfer out to other countries. So, while we are seeing the depreciating of yen and surging of Japan stock index, we see appreciating of other countries' currency in countries other than US and Europe, we also see the surge of equity indexes of other countries.
Japan policy of "printing money to create inflation" might be a game changing point in world economy. A sudden slump of yen value will greatly disrupt the trading pattern of the world economy. Devaluation of yen, US and Euro will automatically made China and ASEAN countries currency appreciate. From that, looks like US, Euro and Yen will export more and China and ASEAN will import more. Looks like the trade imbalance will improve. Looks like the world is paving a better foundation and footing for future economy growth.
It is not that US QE and Europe Bond buying activities thus far is not improving the situation, just that the adding of another economy giant into their "money printing" camp has a very huge impact. Also Japan has been not contributing to world economy growth for more than 20 years. If Japan can return to growth, the impact can be huge.
US Quantitative and Europe bond buying activities are bringing down the interest rate to ever low level. With low interest rate, bond become less attractive compared to equities. Low interest rate also make the currency less value. Therefore, more money is switch from bond to equities, to other asset like property. The one who kept buying the bond is government to support the low interest rate environment. Apart from money switch from bond to equity and other asset, money also search their way oversea to Asia where interest rate is higher, where currency is stable, where equity return are better. All of these actions make the equity indexes all over the world to climb higher and higher.
Now, Japan joins the crowd of US and Europe. We can see immediately Japan stock index is climbing very fast where its currency is depreciating fast. Due to scare of continue depreciating of its Yen, money switched from bond to equities, money is converted to other currency, or transfer out to other countries. So, while we are seeing the depreciating of yen and surging of Japan stock index, we see appreciating of other countries' currency in countries other than US and Europe, we also see the surge of equity indexes of other countries.
Japan policy of "printing money to create inflation" might be a game changing point in world economy. A sudden slump of yen value will greatly disrupt the trading pattern of the world economy. Devaluation of yen, US and Euro will automatically made China and ASEAN countries currency appreciate. From that, looks like US, Euro and Yen will export more and China and ASEAN will import more. Looks like the trade imbalance will improve. Looks like the world is paving a better foundation and footing for future economy growth.
It is not that US QE and Europe Bond buying activities thus far is not improving the situation, just that the adding of another economy giant into their "money printing" camp has a very huge impact. Also Japan has been not contributing to world economy growth for more than 20 years. If Japan can return to growth, the impact can be huge.
Thursday, April 4, 2013
Nature of competition "new entry"
After much hoohaah about new innovation by smart phone "stiff competition", consumer will soon find out true innovation is rare, evolution is the hope they can hope for, and they will find most so call competitor only know how to copy and follow the leader (see how test water rat do first?).
Wednesday, March 27, 2013
Investing rule
First, Buy great business with discount price.
If no, then Buy great business with fair price.
Sometimes can Buy ordinary business with great discount price.
But Remember, don't buy mediocre business with whatever price.
If no, then Buy great business with fair price.
Sometimes can Buy ordinary business with great discount price.
But Remember, don't buy mediocre business with whatever price.
Saturday, February 16, 2013
Betting the unknown
I am talking about investment as a tiny minority shareholder:
If we done our homework, by reading news, forum or company annual reports, most of us knows the fundamental of a company or industry. No matter how well you dig into detail related information, there is always somebody else knows better and act faster. And that somebody is really a lot of experts, and the experts comes from all over the world. It is almost impossible to outrun their wit.
If you want to outperform the market, what you can do is betting the unknown. The unknown is really the unknown, either is a breakthrough, secret innovation, future business, where even the top executive is unsure of the success. Or you can form your own believe or idea where majority of people will not believe. That means you are silly in the eye of public. Most of the time, you are. Even you are proved right, it is hard to turn around people view of your silliness. If you got it correct once or twice, you may be lucky. If you got it wrong, it is expected. So between the 2 ways: betting the unknown, and be a contrarian, which way is better to outperform the market?
Anyway, i believe its better to continuously learn, dream, set your own trend and believe, refine it. It is better worth to bet your own idea and prove it right. Investment is just one of an exciting process for me to learn about the world.
If we done our homework, by reading news, forum or company annual reports, most of us knows the fundamental of a company or industry. No matter how well you dig into detail related information, there is always somebody else knows better and act faster. And that somebody is really a lot of experts, and the experts comes from all over the world. It is almost impossible to outrun their wit.
If you want to outperform the market, what you can do is betting the unknown. The unknown is really the unknown, either is a breakthrough, secret innovation, future business, where even the top executive is unsure of the success. Or you can form your own believe or idea where majority of people will not believe. That means you are silly in the eye of public. Most of the time, you are. Even you are proved right, it is hard to turn around people view of your silliness. If you got it correct once or twice, you may be lucky. If you got it wrong, it is expected. So between the 2 ways: betting the unknown, and be a contrarian, which way is better to outperform the market?
Anyway, i believe its better to continuously learn, dream, set your own trend and believe, refine it. It is better worth to bet your own idea and prove it right. Investment is just one of an exciting process for me to learn about the world.
Thursday, February 7, 2013
Timing dilemma again
While waiting for Malaysia election approaching, I notice that the interest of stock seems to be diverse. The investor don't favour any of stock. Sitting sideline become obvious. And the market become highly sensitive now. Any election movement, news, rumours can move the market. Looking at the level of index which is over 1600, it is still at high point. I believe most of other investor thought the same. This high index certainly make a lot of people uneasy. There are certainly a lot of uncertainty in market right now.
But looking fundamentally, it is getting cheap in someway. More and more company is having free cash flow to equity above 10%, some even is in the grow industry. Although now the term is "cheap", it may get "ridiculously cheap", and even "insanely cheap". The timing issue always come back to hunt me when decision to buy is so tempting and I sometimes may act irrationally too quickly.
But looking fundamentally, it is getting cheap in someway. More and more company is having free cash flow to equity above 10%, some even is in the grow industry. Although now the term is "cheap", it may get "ridiculously cheap", and even "insanely cheap". The timing issue always come back to hunt me when decision to buy is so tempting and I sometimes may act irrationally too quickly.
Saturday, February 2, 2013
Housing price reality
To maximise the selling price of malaysia property, property developer strategy is to push the affordability of Malaysian to its limit, but in the same time, emphasis on quality and lifestyle to attract foreign buyer from Hong Kong, China, Singapore, South Korea, Japan etc. In their homeland, the house is so expensive which easily 2 to 5 times more expensive than Malaysia most expensive house. If Malaysia property developer can offer similar quality but lower price, they will likely to take up this bargain.
Now consider every property developer in Malaysia, Thailand, Indonesia is doing the same strategy to attract rich foreign buyer. It is hard for a single government to control price of housing (by building houses that are truely affordable to different class of income range,) if all other regional countries in neighborhood isn't doing the same. Because it is just not worth building: not profitable, letting go foreign investment to other countries, lower GDP.
So, fellow Malaysian, we are competing against the rich from countries all over the world now. Even if our salary fail to keep up, the trend and force of globalisation will keep the housing price high in foreseeable future. Unless, our salary keep up, or there is another serious crisis happen here in Asian countries, or less people is viewing house as an investment and more view house as purely a place to live, I don't think house will become affordable for most Malaysian.
Now consider every property developer in Malaysia, Thailand, Indonesia is doing the same strategy to attract rich foreign buyer. It is hard for a single government to control price of housing (by building houses that are truely affordable to different class of income range,) if all other regional countries in neighborhood isn't doing the same. Because it is just not worth building: not profitable, letting go foreign investment to other countries, lower GDP.
So, fellow Malaysian, we are competing against the rich from countries all over the world now. Even if our salary fail to keep up, the trend and force of globalisation will keep the housing price high in foreseeable future. Unless, our salary keep up, or there is another serious crisis happen here in Asian countries, or less people is viewing house as an investment and more view house as purely a place to live, I don't think house will become affordable for most Malaysian.
Sunday, January 20, 2013
Capital spending of a company
A good company should have a long term view and vision, and then a strategies how to achieve the vision step by step. Therefore, decision on how to allocate capital expenditure should not be NPV or IRR priorities. Capital expenditure should be according to the step by step strategy planning to achieve the long term goal.
NPV and IRR are developed base on future cash flow forecast. Some project might generate very good NPV and IRR but will shift the path of the company long term direction and objective. And I think if a company, like a person, who don't have a direction, who just follow where the whatever opportunity that flash through their eye, will get confused and getting nowhere in the end. They are more likely to be conned since they will be very surface but not expert if they are involve in so many thing.
In order to achieve the long term goal, company need to be very focus and not distracted by other temptation investment opportunity. Sometimes the company work on smaller project to build foundation, sometimes the company work on big project to expand. This should be the way the company grow.
If a company just chase whatever investment opportunity that looks or in reality good just because the company has strong financial background, then I think the existence of the company is just to fulfill the shareholder and investor quarter to quarter value creation, but no meaning to a community as a whole.
NPV and IRR are developed base on future cash flow forecast. Some project might generate very good NPV and IRR but will shift the path of the company long term direction and objective. And I think if a company, like a person, who don't have a direction, who just follow where the whatever opportunity that flash through their eye, will get confused and getting nowhere in the end. They are more likely to be conned since they will be very surface but not expert if they are involve in so many thing.
In order to achieve the long term goal, company need to be very focus and not distracted by other temptation investment opportunity. Sometimes the company work on smaller project to build foundation, sometimes the company work on big project to expand. This should be the way the company grow.
If a company just chase whatever investment opportunity that looks or in reality good just because the company has strong financial background, then I think the existence of the company is just to fulfill the shareholder and investor quarter to quarter value creation, but no meaning to a community as a whole.
Wednesday, January 16, 2013
A Strong Reminder to myself
I would like to remind myself that if I only taking into consideration of my personal interest without taking into consideration other parties interest, it is quite impossible I can struck a deal. Only when I can create a win win situation, everybody happy and then the deal can more possible be done.
I would further like to remind myself that even if a win win situation is created, if the opposite party only has in mind his personal interest and don't care about other people interest, I may be pushed to the detrimental losing position if I am too soft hearted. The situation can be quickly turn from I am offering a good deal to other and to myself to a situation where other party get all the good deal while myself decline into losing end.
It is very easy to get into such a bad situation if it involve emotion like:
1. I am too desperate into the deal.
2. I am over optimistic about the long term benefit of the deal
3. I am over hopeful of the understanding of opposite party.
4. I am underestimate of the cunning of opposite party. (Opposite party pretend to completely ignore all the consequences of not entering into the deal and try to exploit all the advantages the deal that come to him.) I become an obvious dumb or "Sui Yu" to him.
End in end, I am too naive to believe that people will help each other to create a better environment for everyone.
I would further like to remind myself that even if a win win situation is created, if the opposite party only has in mind his personal interest and don't care about other people interest, I may be pushed to the detrimental losing position if I am too soft hearted. The situation can be quickly turn from I am offering a good deal to other and to myself to a situation where other party get all the good deal while myself decline into losing end.
It is very easy to get into such a bad situation if it involve emotion like:
1. I am too desperate into the deal.
2. I am over optimistic about the long term benefit of the deal
3. I am over hopeful of the understanding of opposite party.
4. I am underestimate of the cunning of opposite party. (Opposite party pretend to completely ignore all the consequences of not entering into the deal and try to exploit all the advantages the deal that come to him.) I become an obvious dumb or "Sui Yu" to him.
End in end, I am too naive to believe that people will help each other to create a better environment for everyone.
Friday, January 11, 2013
Malaysia at cross road
Malaysia stock market seems like will be continue to be very dull going forward. With the palm oil price continue to be depress, a lot of farmer wealth is threatened. They represent large part of domestic spending. With domestic spending also peaking after recent years of run up, we need to earn money abroad so further gear up our domestic spending. Further more, debt to GDP at all time high 55% means it is not good for us to further borrow and spend. The challenge ahead will be to export value added product out to earn more abroad money, so we can spend more.
But to be successful with that, we need to ask, what is our competitive advantage compare to Singapore and Thailand? Why most of the direct foreign investment gone to Singapore and Thailand but skip Malaysia in the middle?
But to be successful with that, we need to ask, what is our competitive advantage compare to Singapore and Thailand? Why most of the direct foreign investment gone to Singapore and Thailand but skip Malaysia in the middle?
Tuesday, January 8, 2013
A bit of Future dream
Dream about future these days. In my dream, I see the power of internet. I see if the search engine, through our communication with internet through what we search, who we chat, our conversation of chatting, our internet buying behaviour, our gesture in typing and etc, soon a ultimate perfect maid will appear, and it is computer hologram that understand us, provide solution to our problem whenever we need. Combine the hologram with Robot, we will have software and hardware combine. Soon these robot can interact with us not just working for us, fact telling but also emotionally.
Driverless car is under testing and so far has been very successful. Gradually, cities by cities, country by country, driverless car will become a must in city. We can switch to manual driving only on certain track. This reduce the road accident to almost zero in the world. Driverless car will be totally computer control that it will be very fuel efficient. The car can utilise every inch of the road. With those changes, all car will be redesign. Because it is so safe, less material is needed to construct a car, more space will allocate for the comfort of passenger as steering wheel and pedal can be eliminate. Manual driving will be like play station steering where the steering can be dismantle or keep in case. In the next development, wheel can be eliminate too as all the car will be float in the air. This reduction of friction improve fuel efficiency further.
With the community car sharing started in Europe country, it will become more prominent in the future. It is not necessary to own a car unless it is for your car collection hobby. Smartphone will become a must if you want to live in cities. You call a car using smartphone and the driverless car will arrive in minutes. Almost everything can be done by smartphone like scanning your smartphone to pay instead of wait for credit card processing, all your information, public information, is already store in the "cloud" that can be access by your smartphone. A lot of people is working to sell their knowledge and idea into the "cloud" platform and let the platform to resell their knowledge and idea to the world population. The scale is the world now. Because the market is so big and equal to everyone, a lot of people will work for their own and work at home. Suddenly, the world will become an idea trading platform. Anyone studying economy know that trading increase economy of pie. In today world, although trading is consider significant contribution to economy, there is still a lot of restriction by countries, industries and so on. Imagine in internet, idea trading is no restriction, buying and selling can become no restriction more easily. The economy pie will certainly improve. That is why unemployment rate will fall even though the advance country don't generate enough job. Those unemployed will find their way to contribute to the internet trading.
Driverless car is under testing and so far has been very successful. Gradually, cities by cities, country by country, driverless car will become a must in city. We can switch to manual driving only on certain track. This reduce the road accident to almost zero in the world. Driverless car will be totally computer control that it will be very fuel efficient. The car can utilise every inch of the road. With those changes, all car will be redesign. Because it is so safe, less material is needed to construct a car, more space will allocate for the comfort of passenger as steering wheel and pedal can be eliminate. Manual driving will be like play station steering where the steering can be dismantle or keep in case. In the next development, wheel can be eliminate too as all the car will be float in the air. This reduction of friction improve fuel efficiency further.
With the community car sharing started in Europe country, it will become more prominent in the future. It is not necessary to own a car unless it is for your car collection hobby. Smartphone will become a must if you want to live in cities. You call a car using smartphone and the driverless car will arrive in minutes. Almost everything can be done by smartphone like scanning your smartphone to pay instead of wait for credit card processing, all your information, public information, is already store in the "cloud" that can be access by your smartphone. A lot of people is working to sell their knowledge and idea into the "cloud" platform and let the platform to resell their knowledge and idea to the world population. The scale is the world now. Because the market is so big and equal to everyone, a lot of people will work for their own and work at home. Suddenly, the world will become an idea trading platform. Anyone studying economy know that trading increase economy of pie. In today world, although trading is consider significant contribution to economy, there is still a lot of restriction by countries, industries and so on. Imagine in internet, idea trading is no restriction, buying and selling can become no restriction more easily. The economy pie will certainly improve. That is why unemployment rate will fall even though the advance country don't generate enough job. Those unemployed will find their way to contribute to the internet trading.
Tuesday, January 1, 2013
Oil palm equilibrium
When the demand of palm oil increase, the oil palm price will be good. Follow up will be good cash flow of the oil palm company that pile up their cash. This will induce the company to expand and plant more oil palm. Later on the increase of supply will lower the oil palm price.
When the supply of palm oil increase, the oil palm price will be down. Bad cash flow will reduce the activities of expanding and replanting. Reduce supply will increase the oil palm price.
Because of the 3 to 5 year period for oil palm tree to mature, the delaying effect (slow respond to changing demand and supply) will cause the oil palm price to move in sinusoidal form. Of the volatile nature of the oil palm price, the center of the sinusoidal is the equilibrium of the oil palm price. And this price equilibrium only move according to the real demand, which ultimately depend on the growing of population and growing of wealth. These 2 are relatively stable factors.
Above mentioned is the natural self adjustment mechanism of oil palm price. However, artificial factors like excessive bank borrowing to expand and diversifying into oil palm business by other industry company (they can using their other business profit to support oil palm business expansion), can disrupt this self mechanism and further exaggerate the volatility of the oil palm price.
When the supply of palm oil increase, the oil palm price will be down. Bad cash flow will reduce the activities of expanding and replanting. Reduce supply will increase the oil palm price.
Because of the 3 to 5 year period for oil palm tree to mature, the delaying effect (slow respond to changing demand and supply) will cause the oil palm price to move in sinusoidal form. Of the volatile nature of the oil palm price, the center of the sinusoidal is the equilibrium of the oil palm price. And this price equilibrium only move according to the real demand, which ultimately depend on the growing of population and growing of wealth. These 2 are relatively stable factors.
Above mentioned is the natural self adjustment mechanism of oil palm price. However, artificial factors like excessive bank borrowing to expand and diversifying into oil palm business by other industry company (they can using their other business profit to support oil palm business expansion), can disrupt this self mechanism and further exaggerate the volatility of the oil palm price.
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