Taking The Bull By The Horns

May 10, 2009

Are you trying to invest on your own?

Many retail investors are investing by themselves and try various strategies to maximise their return / beat the market.

Some investors like to analyse and pick stocks. Others attempt to choose from a list of unit trusts.

Retail investors think that their own intelligence & skills are above average. 

Logically, it’s impossible for us to outperform the market when information about a particular company is know by the public.Both buyers and sellers know the same information can’t make money from each other.

It’s impossible for investors to beat the market by investing on their own. It would be  alright to think that for each person who beat the market, there must be some investors who are underperforming the market.

Example, let’s say Bursa Malaysia has 100 investors only and the sum of all money invested is RM 1 mil. In order for you to outperform the market, someone must be underperforming by an equal amount.

But what is the probability of success for a retail investor to beat a well organised investment fund?

You are not competing with your neighbour only but actually the whole world including mutual funds,Government linked funds,foreign funds,hedge funds and others.To make some money out of these big funds, you might need an I.Q similar to Albert Einstein, or more.

The truth is,you can’t make money by investing alone and trying to beat the returns offered by big funds.Big funds have accessed to SENSITIVE INFORMATION through their BUSINESS NETWORK. Any information that you and I know have already been priced into the share price. 

Just try to visit Bursa Malaysia in KL / nearest brokerage office. You’ll see a lot of retired senior folks acting like “Mr. Know It All”.

I really pity them because they are “gambling” away their hard earned money which is supposed to be their retirement fund.They don’t really know what they’re doing. Mass Media are also responsible for this because they are REPORTING whatever stuffs FEEDED to them WITHOUT ANALYSING any information and come out with at least TWO DIFFERENT VIEWS.Well,that’s why their occupation is named “REPORTERS” not “ANALYSTS”.

But most analysts are also “pressured” to find ways to MASK the truth with flowerly WORDS in their reports. Try to read these reports here and tell me whether they help you to make a better investment decision.Or Are these reports trying to MISLED YOU?You really need to read these colourful reports with your BRAINS WIDE OPEN, not EYES ONLY.

After obtaining CFA and working with a famous investment bank for years, I felt indebted to the public because some of the reports which have been published by me (with the directive from CEO) may had caused you/parents/uncles/aunts lost huge sweat money in Bursa Malaysia. I felt bad but I still have to bring back food on for my family.Therefore, I created this blog to do some good KARMA.In this blog,I will recommend companies which I have “inside” information but it can’t be so obvious because I still want to keep my CFA license.

Please browse my previous recommendations and you’ll find that most of my recommendations make money if you still holding them until today (Buy Mah Sing Group, ahem)

Actually, what I’m trying to tell is almost two-thirds of your competitors is made up of mutual fund managers, pension funds, insurance companies, trusts/foundations, and banks. So, do you want to try to beat the market like Warren Buffet? Do you think you have the INFORMATION to outperform the teams of full-time professionals? These teams are well-funded and have well-staffed research departments. If you’re confident that you can beat them, then you’re probably trying to commit financial suicide

But please go ahead and try because you don’t have to take whatever I’m feeding you right now.

By the way,don’t forget to subscribe to my RSS on NEW BLOG (http://boyboycute.blogspot.com)

Bursa Malaysia Is Too Expensive !

April 25, 2009
market valuation

market valuation

According to various research house (international & local included), the current market has been overbought. Please click here for a copy of these reports.
Let’s look into the valuation of Bursa Malaysia. Earnings of Malaysian companies will moderate in 2009 but their share prices have been going up and up. This has caused the forward market P/E to breach 16x. In January 2009,the forward market P/E was around 13x. P/E of 16x is actually the average P/E for Bursa Malaysia for the past 9 years but with current economic crisis, the P/E should be below 16x. Frankly speaking,I will value the whole market at 12x only. 
The sharp rise in the share price is not supported by any good fundamentals. Most of the Malaysian companies have yet to show losses as their annual reports will be out around June 2009.But if you investigate into their quarterly reports,you’ll see that most Malaysian companies have shown sharp drop in their revenue & profit in Q4 2008 and Q1 2009. Hence,it’s matter of time for the bear to rule again.
So what cause the market to go up so fast? My group of friends (who are analysts) discussed & have several explanation for it.
a)  Political power which requested inflow of public funds,  trust  funds and ‘Foreign Direct Investment’ which is ‘proceeds’ belonged to some politicians parked in overseas banks.
b)  Human Greed: Retail investors who are actually market followers (PIGs) have been ushered by mass media to jump into the market now. When retail investors start to trade actively and confidently, big funds mentioned above will quitely and slowly sell their holdings to retail investors who are mostly ‘Uncle and Aunties’. This has pushed the volume to 1-2 billion several times.
Big funds exchange their paper money (shares) with real money (invested by retail investors). This is a great way to ‘collect’ money from the public. Who needs ‘EPF’ and ‘PNB’ anyway?
c) Foreign funds who have fled from the West into Asia. Foreign funds know that the current economic crisis is still with U.S. Therefore,it’s better to park their cash in Asia which has large pool of surpluses.These funds will pull back anytime especially right now, when market valuation in the West start to become more attractive than Asia.
I advise my readers to take their profits now. Even Mr. Tan Teng Boo is smart enough to sell his funds’ holdings. What are you waiting for?
Latest disposal by Capital Dynamics

Latest disposal by Capital Dynamics


Swee Joo Berhad : A VALUE BUY

April 19, 2008

Swee Joo Berhad, an investment holding company, provides container shipping and related services primarily in Malaysia. The company operates vessels of various sizes that provide liner services between peninsular and east Malaysia in addition to regional routes that cover Thailand. It is also a box operator regional routes that cover Ho Chi Minh in Vietnam, Jakarta and Surabaya in Indonesia, and Singapore. Swee Joo also offers transportation and haulage services; containers warehousing, handling, repairing, and washing services; and shipping agency services. The company was incorporated in 1997 and is headquartered in Kuching, Malaysia.


Swee Joo Bhd is transporting crude palm oil (CPO) and related products to China, India and Indonesia. The company is in expansion trail and planned to invest RM500mil in more tankers and container vessels in the next few years to expand its fleet. Currently, the group plans to add one or two vessels to transport logs from Papua New Guinea and Solomon Islands to China and Vietnam in view of the strong demand.

The group now owns 34 vessels, comprising a 7,000-tonne chemical tanker, 15 container ships, 10 general cargo ships and eight support vessels, which ply domestic, intra-Asean and international routes.

Swee Joo at RM 1.13, P/E around 7, and directors are accumulating more shares since a few months ago.

Read more about Swee Joo over the here!



KLSE Security Analysis:Owner Earnings

March 30, 2008

After applying criteria for analysis recommended by various books,I have created a checklist before buying any stocks in KLSE.Starting from now,I will elaborate on these criteria under KLSE Security Analysis title in the future.To understand these criteria,you should have medium level of understanding of financial statement.This part has to come from your own initiative.No pain,no gain! 

b_06toyochem.jpgOne of the most important criteria in my analysis is to calculate ‘owner earnings’ from a business.This criteria is recommended by Warren Buffet in his letters to shareholders and has been summarized under a book written by Warren Buffet himself and edited by Lawrence Cunningham entitled ‘Lessons for Corporate America’.Make sure you buy 2007 edition. Owner earnings concept is very useful analysis to gauge what the company has left for its shareholders.Rising share prices does not necessarily means the company has added value for its shareholders.When company earns X from business,it can choose to reward its shareholder by paying a dividend or retaining those earnings and reinvesting them to increase the underlying value of the company. If the company employes this earnings efficiently, over a period of time, the company’s underlying value will go up and cause the stock’s price to increase.

This differs from the view most investment professionals hold. They might have a CFA but they don’t consider earnings theirs until the earnings are paid out via dividends. One good example of owner earnings is the stock of Warren Buffett’s holding company, Berkshire Hathaway, Inc. In the 80s,it traded at US$500 a share. Today, it trades around $76,000, and it still never paid a dividend. The increase in the market price of the stock came from an increase in the underlying value of the company, caused by Buffett’s profitable and efficient reinvestment of Berkshire’s retained earnings.If a company believes it can profitably employ the earnings at a rate of return that is better than the investor could get, the management should keep the cash. But most company keeps on feeding shareholders with ‘sweet’ dividend to attract traders. This act is detrimental for long term shareholders and the business but good for traders.When company suddenly declares juicy dividend,a value investor should look further.

 If you have attended any AGM before, you will be suprised how most shareholders react when the management announces its dividend policy.For me,unapropriate amount of dividend is like a ‘bribe’ to shareholders to blind them from seeing the management incompetencies and failures.Hence,value investors must really make sure the dividend policy is suitable for the business.Rising dividend amount does not always mean good. In addition,dividend is taxed!

In KLSE, it is common for some security analysts to assign a higher target price to companies that pay a high dividend than to those that don’t. This is true even when the company that is retaining all its earnings is an infinitely better enterprise. Maybe the analysts’ brains are controlled by directive from the top. Value investors should check the quality of management by what it does with its earnings. If it retains them, does it profitably employ them, or does it squander them on dreams of grandeur? By analysing the history of the management performance, we can come to a conclusion whether the underlying businesses will create consistent earnings to allow make its shareholders rich.So, how does an investor calculate owner earnings?

1st , check the ‘cash from operations’ under the statement of cash flows. See whether cash from operations has grown steadily throughout the past 6-10 years. If it has steadily growing, then you can go further.

2nd, calculate Owner earnings = net income + amortization and depreciation – normal capital expenditures. If owner earnings over the 6-10years,then it is a good indication. Owner earnings adjusts for accounting entries like amortization and depreciation that do not affect the company’s cash balances. So, owner earnings can be a better measure than reported net income. If you want to be more conservative,you can go on to subtract from reported net income:

• any costs of granting stock options, which divert earnings away from existing shareholders into the hands of new inside owners

• any “unusual,” “nonrecurring,” or “extraordinary” charges

• any “income” from the company’s pension fund.

3rd, calculate the growth of the owner earnings. If the growth of owner earnings is around 7% or more for the past 6-10 years, the company is a stable generator of cash, and its prospects for growth are good.

But is owner earnings foolproof? It’s not a sole determinant for business of course! For example, when a growth stock is investing heavily in new venture/market, the owner earnings will certainly plunge to negative territory due to losses or charges. If the company has good management and experience, the owner earnings will recover and value investors who hold on through the painful period will be richly rewarded. Investors may also use owner earnings to compare companies in the same industries to gauge their strengths and weaknesses.The value of the business can also be estimated by forecasting future owner earnings and bring them back to present value. This value may be used to check with the calculation of value using Free Cash Flow. More criteria will be introduced under this section. So, stay tune!       

What is Value Investing? Part 8

June 3, 2007

Now,you need to read all audited financial statements provided by the KLSE. Take extra notice on the foot notes and analyze financial ratios in the financial statements. You might need to study about financial statements from Investopedia and other websites.

Summarize all the computation on the financial ratio and % changes from year to year. Dig more information if there are large increment/decrease in any figures. Get to know what the company is trying to hide behind the financial statements…(continue)

What is Value Investing? Part 7

May 27, 2007

Now,you should have calculated annual EPS growth (from Part 4), understood a company’s strength,weakness,opportunity and threats (SWOT) (from Part 5) and analysed financial ratios in financial statements (Part 6). Next is to dig further into the management of the company.

Well, there are cases which companies were investigated by S.C on irregularities in annual report and some CEO are investigated for corruptions.As a value investor, you should put  these companies away from your portfolio. Remember, it is ……(continue)

What is Value Investing? Part 6

May 13, 2007

The 3rd criteria is to recognize ‘EPS Manipulation’ in financial statement.Before buying a share, read the ‘Notes to the financial statement’. Get to know how the company define its sales, expenses, debt and others. Look for irregularities in the financial statements such as extraordinary write off, special expenditure and so on. This means you as an investor must question every ‘weird’ numbers in the financial statement. Each financial statement will go through an artist work (by the accountant) to hide any ugly sides of the company.

For example, a company can declare its sales before the products are sold to the end users. This means the company declares its revenue before it receives the cash or before the cerdit term expires. By doing the ‘art work’, the company can significantly increase revenue, reduce expenses and get a better EPS.