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."

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.

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.

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.

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.

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.

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.