Fund Performance

Dear Readers,

This year has not been a good year for my fund. Share purchases have been dismal and the portfolio damning.

Lets go through the table to view the performance.

Stocks	Average Price bought	Current Price (as of 5 December 2012)	Percentage
Pjdev-wc	0.22	0.17	(22.73)
KSL	1.44	1.45	0.69
Tagb	0.28	0.25	(10.71)
Favco	1.80	1.67	(7.22)

To say that the performance has been dismal would be a compliment. I have never had such bad performance in my entire life! The reason(s) for this dismal performance is the fact that I, as the holder of the fund, did not do enough aggressive expansion.

I made a mistake for allowing a small problem to slip through undetected that caused a huge catastrophe. I spent more than I expected ten bloody percent more, to purchase a property that generates positive cash flow every month. (Thank heaven for that). But it still does not mask the fact that I allowed my funds to be used in an unproductive manner. I made that mistake.

Imagine you have 3 bullets left, and you used one bullet to put down a zombie. Somehow, due to your stupidity, you mistakenly fired another bullet into the dead zombie! You have one bullet left and there are 2 zombies coming to eat your brains out. You could have survived if you have 2 bullets, but with only 1 left, you have this “Oh sh!t im f*cked.” Feeling.

The second reason would be me losing my balls. The simple adage I hold dear to my heart seems to be true.

“When you have everything to lose, you tend to err on the side of caution, hoping to preserve what you have” No more risk taking, no more gung ho approach. No more attack maneuvers. Thus, I missed out on the following:

Padini at RM1

Old town at RM0.80

The two stocks would provide the much required ammunition for me to go hunting again, but alas, it was not to be. I take full responsibility for this.

However next year would be a different year. There are four reasons for that:

Reason number 1:

US fiscal cliff. Regardless of whether America goes off the cliff or not, either way it is good. I am going against the norm here to say that the Fiscal cliff is a good thing. A wonderful thing even! You cant keep an economy afloat without higher tax revenue. Sure, America might be sent to a recession if it goes over the cliff, but in the long run, it is a much better proposition. America, you need to bite the bullet for the short term pain for the betterment of your future generation.

If America does not go over the fiscal cliff, its also a good thing. Somehow or rather, they will find a compromise that improves the economy. Thus, it would still be a good move.

Reason Number 2:

I love Europe. They have been battered so bad that the banks in Europe now seems cheap. No bad news can come out from there that could change the outlook anymore. Greece going to go bankrupt? It already has! Three bloody times ( if my calculations are correct)! Spain is in recession? We knew that last year. Germany is slowing down or maybe contract? What you expect? Germany has been propping up Greece, Ireland, Spain and Italy. Of course they are going to break.

Reason Number 3:

You know I love China lot right? My partner soon to be wife is from China so I love the country to bits. Im looking at the fact that China seems to be slowing down. Im also forecasting that the property bubble will burst in China, sending its economy spiraling. However, there is a saving grace. There is a new premier. The new premier would use every last Renmenbi to prop up the economy. They will spend as much as they can so that the economy grows. So expect in the next year or the next two years, China will grow, albeit at a slower rate.

Reason Number 4:

You have me back on seat. I will be taking a very active approach next year. I will not hesitate to remove underperforming stocks to be replaced with other stocks. I will go in strong and go in fast. No more holding back. No more shirking my responsibility.

Air asia vs Astro

Today i am writing about two companies in two different industries. One is in the aviation business and the other is in the entertainment industry.

Both companies are power houses and known to every Malaysian. Let us go through each company.

Air asia

The best low cost airline in South east asia currently. They have pioneered the low cost business model in Malaysia. They have actually changed the industrial landscape and made MAS scramble to keep up. Currently, they are penetrating other markets with their long haul flights to China, Korea and potentially other parts of the world. This counter is the darling of many funds; local and international.

I like that they are penetrating the long haul markets. They do have the money to purchase new planes and likely they have the expertise to make it a success. However, this business is not scalable. With every new route, they would require new planes. With new planes being purchased, this would burden them with higher borrowing or reduce their cash pile. Capital expenditure will likely increase in the years to come should they insist on this growth strategy.

They do not have a choice though. They have to grow beyond the Malaysian market.

With the imminent arrival of Malindo Airways into the Malaysian market in 2013, the pie that they are currently enjoying will likely shrink; they have already educated travelers that used buses/ cars as their mode of transport and converted them into using planes as their mode of transport. ( I used to drive from KL to Penang, but with Airasia, I use planes instead.) There is limited growth in terms of potential new travelers.

Current travelers are actually quite price conscious. They will go to the lowest priced airline. If Malindo Airways want to carve a market share, they are likely to reduce the price to either match or be lower than Air Asia. This is another business model that i dislike; price war.

Astro

99% of the household in Malaysia have Astro. They are currently moving towards the HDTV box set and most likely all will convert to HD. ( this is based on the assumption that most TVs sold are HD-ready. With an HD-ready TV, most subscribers will definitely switch to HD channels). Granted, they are spending more for marketing to educate and convert subscribers to HDTV and also spending too change the box-top. However these costs over the long run will be re-coupe.

I also like the fact that they have a monopoly of channels such as EPL or Wah Lai Toi; the channels most people watch. No other broadcaster have that ( caveat: IPTV could stream PPSTV which could cater to Wah Lai Toi, but i will get to that later)

The current capital expenditure that they are likely to incur is to shoot another satellite into space to increase their channel offerings and to improve their quality. However, a satellite cost as much as two planes, and the business is scalable. One satellite cost is likely to be lower over time as more subscribers convert to Astro while Air Asia could not. One plane can only serve a fixed amount of passengers.

There are still 50% of the current household that does not have Astro and likely to be in the rural areas. Astro is working hard to target them with prepaid cards to view content ( smart move as once you use the pre-paid card, you will likely to continue using Astro). Best of all, they are offering more malay content to target the Malay community. Once they secure the Malay content (like how they secured the Chinese market, no way will others be able to compete)

Their competitors are likely to be the following two:

Unifi/ Other broadcaster:
Potential threat? Likely no. They have crap for their content. EPL and Wah Lai Toi is secured and not many customers would want to watch Shanghai Dragons vs Shendong Tilapia as compared to Manchester United vs Liverpool.

IPTV
Yoonic in Malaysia; Mio in Singapore. All you need to do is plug in the decoder into your modem, and voila, you get to stream content onto your TV. Think Apple TV. Can they challenge Astro? Likely no. There are no content worth paying the price for. Of course if you really like China content or Taiwan or Spanish Telenovela yes please go ahead. or else it would be a waste of your time.

Illegal IPTV.
Porn would be the only saving grace. Or else it would be another waste of your time.

Thus, Astro has growth and value potential.

Both stocks are trading at less than RM3. I believe that Astro have the best potential with the same RM3 as compared to Air Asia.

15 things NEVER to say to your child

1. Call her "stupid" or "useless"
It's shocking that, in a fit of anger, many parents call their child "stupid" or "useless". Cruel words like these can remain etched in her mind for a lifetime.
2. Decide everything for her
Doing this can make her feel like she's being restricted and that she's not wise or intelligent enough to make her own choices.
3. Overemphasize the importance of obedience
Some parents do everything they can to raise an obedient child, but this can come at the expense of the parent-child relationship.
4. Don't show affection
When parents rarely show affection, the child may begin to question whether she is loved.
5. Discipline her when they are angry
Discipline should be carried out when the parents are calm. Caning or spanking the child shouldn't just be an immediate reaction to something she has done.
6. Show conditional (or seemingly conditional) love
Parents wound a child psychologically when they appear to show love and concern only when she performs well in school or when she's well behaved. Children need to know that their parents' love is unconditional.
7. Compare her with her siblings or with other children her age
Every child is unique, so she shouldn't be made to feel as if she's living in the shadow of someone else.
8. Praise her for her ability, instead of her effort
Praising the child for her commendable effort will encourage her to develop new skills and try out new things, instead of doing only the tasks that she has already proven her aptitude in.
9. Set boundaries but don't enforce them
Parents often set boundaries with regard to behaviour, sleeping time, household chores, etc. When these boundaries are not enforced, it causes the child to become confused and, possibly, defiant.
10. Allow their emotions to get the better of them
Based on my observations, the majority of parenting mistakes occur when parents fail to control their emotions. When parents allow negative emotions to get the better of them, it indirectly gives the child the permission to do the same. This manifests itself in the form of temper tantrums and teenage angst.
11. Attempt to achieve their unfulfilled dreams through her
Many parents live vicariously through their children. This can, however, be unhealthy. Parents who force their child to study certain subjects or pursue certain careers—against her wishes—can cause her to become angry and resentful.
12. Continually bail her out of trouble
For example, if a child forgets to bring her mathematics textbook to school and is threatened with punishment, many parents would bail her out by bringing the textbook to school for her. This kind of parenting, however, doesn't teach her to take full responsibility for her choices and her life.
13. End arguments by saying "I know what's best for you"
Parents use this phrase as a kind of trump card, but it's hardly ever effective. Instead, parents should express how much they love and care for their child, all while stressing the fact that choices come with consequences that she will have to bear.
14. Shield her from challenges and discomfort
It's completely natural for parents to do this, but it usually isn't best for the child's long-term development. Challenges, discomfort and struggle are necessary for her to find enduring success.
15. Allow her to become the center of the family's universe
Many parents allow the child's wants and needs to determine the entire family's schedule, plans, etc. But when this is taken to an extreme, the home environment can become hectic and stressful. Instead, parents should make the child realize that she is an important member of the family, but that the world does not revolve around her.
In closing…
Parenting isn't just about raising children. It's about empowering the next generation to be the best they can be, and to lay the foundation for a better future and a better world.
Such a noble and monumental task requires parents to continually reflect on their parenting style, so that they can improve as parents day by day.
To all of you parents reading this: I know you're up to the task.

Stupid stupid company

Air Fuel Synthesis has created fuel out of water. Their process is harnessing the carbon dioxide in water and turning it into fuel.

http://www.chinapost.com.tw/life/science-&-technology/2012/10/21/358367/Engineers-at.htm

Another startup in Princeton University called Liquid Light also made a similar breakthrough.

http://www.princeton.edu/main/news/archive/S33/95/96G16/index.xml?section=featured

While i applaud their efforts to convert CO2 into fuel, and their quest for sustainable energy, i condemn their business stupidity. They are operating in the notion that this world is fair and the best innovators win and live like Tony Stark. ( i guess that is how every professor thinks of this world, it is either black or white; a or b)

Sorry to burst your bubbles, but this world is NOT fair, when you announce to the world that you are capable of producing fuel out of water, with your business still at its infancy, what do you think major oil companies like Rotal Ducth Shell or Exxon Mobil will do to u? they will likely choke off your funding and destroy u.

within the next two years, when your project delivers fuel at pump price or below pump price, it will adversely affect the major oil companies. Remember that their profit and their investment decision depends on the price of crude oil. You are now trying to kill off their business. Of course they will try to take you out first!

Gosh, you guys should have waited until you are ready for commercial use before announcing it to the world. Have you not learned from Apple? Only launch a product that you are ready to ship in the next 1-2 weeks. Dont be like Microsoft or RIM! Announce a new product that needs 2-3 months to ship.

Facebook Revenue Jumps, this is the power of Analysis

http://www.cnbc.com/id/49522459

Remember when i put up a posting saying that the selling down of Facebook shares are being overly done? Remember my argument saying that they will be able to penetrate the mobile market more effectively? Guess they have done it.

There are still a few more points that they should implement to ensure their growth is sustained but they are now growing at a very respectable rate. And if they implement my strategies, they WILL increase their profit by at least three fold.

As for stocks, with an eye on the US election and the Malaysian election, this month and the next would be at best muted, no stock purchase at the moment.

Yes, i know some people say that it is unwise to hold so much cash, it is painful to hold cash and let inflation eat into that pile, but it is even more painful to make a mistake and dumping your cash into an unprofitable investment venture.

Seawater into jet fuel?

Just read an interesting article today. Apparently the US NAVY Scientists have found a way to convert seawater into jet fuel.

Start of article:

For centuries navies used a renewable energy form as a means of propulsion — the wind. Now the U.S. Navy is investigating another potentially limitless fuel source to produce JP-5 jet fuel — seawater.

Source: U.S. Navy U.S. Sailors standing on deck of a ship.

The U.S. Naval Research Laboratory (NRL) is developing the chemistry for producing jet fuel from renewable resources in theatre. The process envisioned would catalytically convert carbon dioxide and hydrogen directly to liquid hydrocarbon fuel used as JP-5.

And how exactly would this alchemic sleight of hand be performed?

By extracting CO2 to produce H2 gas from seawater and subsequently catalytically converting it into jet fuel by a gas-to-liquids process.

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NRL research chemist Dr. Heather Willauer said, "The potential payoff is the ability to produce JP-5 fuel stock at sea reducing the logistics tail on fuel delivery with no environmental burden and increasing the Navy's energy security and independence. The reduction and hydrogenation of CO2 to form hydrocarbons is accomplished using a catalyst that is similar to those used for Fischer-Tropsch reduction and hydrogenation of carbon monoxide. By modifying the surface composition of iron catalysts in fixed-bed reactors, NRL has successfully improved CO2 conversion efficiencies up to 60 percent. With such a process, the Navy could avoid the uncertainties inherent in procuring fuel from foreign sources and/or maintaining long supply lines."

[ More From Oilprice.com: Romney's Claims About Obama's Green Spending]

Note the comment “at sea.” The process would eliminate the time-consuming and risky process of refueling at sea, theoretically allowing each of the U.S. Navy’s 10 operational Nimitz-class carriers to produce their aircrafts’ fuel while underway.

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The NRL has now successfully developed and demonstrated technologies for the recovery of CO2 and the production of H2 from seawater using an electrochemical acidification cell, and the subsequent conversion of CO2 and H2 to organic hydrocarbons that can be used to produce jet fuel.

The project, if successful, would add to the Navy’s desire for a self-sustaining carrier task force. Nimitz-class carriers are already independent of the fuel chain logistic because of their nuclear capacity — such a development would subsequently free them from the need to replenish their aircrafts’ fuel reserves as well, leaving them needing only to restock food and ammunition supplies, allowing them greater operational autonomy.

So, how far forward is this process?

In the past three years the NRL has made significant advances developing carbon capture technologies in the laboratory, having begun by utilizing a standard commercially available chlorine dioxide cell and an electro-deionization cell were modified to function as electrochemical acidification cells, whereby both “dissolved and bound CO2 were recovered from seawater by re-equilibrating carbonate and bicarbonate to CO2 gas at a seawater pH below 6. In addition to CO2, the cells produced H2 at the cathode as a by-product.”

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Again, according to the NRL website, “NRL has developed a two-step process in the laboratory to convert the CO2 and H2 gathered from the seawater to liquid hydrocarbons. In the first step, an iron-based catalyst has been developed that can achieve CO2 conversion levels up to 60 percent and decrease unwanted methane production from 97 percent to 25 percent in favor of longer-chain unsaturated hydrocarbons (olefins). In the second step these olefins can be oligomerized (a chemical process that converts monomers, molecules of low molecular weight, to a compound of higher molecular weight by a finite degree of polymerization) into a liquid containing hydrocarbon molecules in the carbon C9-C16 range, suitable for conversion to jet fuel by a nickel-supported catalyst reaction.”

The principle has been proven — can it be ramped up to provide JP-5 for task forces at sea, spread around the globe?

The NRL website is silent on the possibility of full-scale production. Most 102,000-ton Nimitz-class carriers, the largest warships ever built, mount aerial forces of 50 TACAIR air wing of up to 82 aircraft, a usual mix of: 12 F/A-18E/F Hornets, 36 F/A-18 Hornets, four E-2C Hawkeyes, four EA-6B Prowlers fixed-wing a brace of four SH-60F and two HH-60H Seahawk helicopters.

But it is one thing to prove a fuel conversion technology, another to implement it. Will Neptune permit the U.S. Navy to mine the liquid gold of his realm? Watch this space. This might be the biggest naval propulsion revolution since Britain’s Royal Navy reluctantly abandoned sail.

This story originally appeared on Oilprice.com. Click here to read the original story.

Best place i want to go

Apologies as i have not posted for many weeks, but the market is trending as expected. My prediction is that in the next 2 months the market will react the same. End of December most likely you will be able to buy stocks that you want by at least 20% discount at the current prices.

Since there is nothing financial to blog about, i want to show you a country where i love the scenery but hate the government, i love the women but hate the men

You gotta love the scenery, makes you feel like you are in some post card thingy eh

but i really hate the men there, they are narcissistic chauvinistic spoilt little twats. Below are photos taken where the guy just sits there and reads the paper while his wife goes around peddling dvds.

Goldman advising clients to get out of stocks

http://www.presidentandceomagazine.com/wealth-management/4265-goldman-to-clients-get-out-of-stocks-before-fiscal-cliff-hits.html

Goldman is advising their clients to get out of stocks before the fiscal cliff hits. Im going in nibbling at stock. The question now becomes is it wise to go against the advise of the best ( maybe second best)investment bank in the world.

Only time will tell

Favco

Bought another 5 lots of Favco at 1.52

Facebook

Facebook, everyone i know has an account there, nearly everyone i know plays some sort of games in there ( mafia war, avengers etc and i have been bombarded with game requests everyday!) This shows that the time spent on the website by their users should theoratically increase. ( Ok i admit, i spend at least an hour in there playing games, another hour stalking other people's profiles)

Facebook shares currently is being pummeled by investors for whatever reasons they can think of. Facebook is not growing fast enoug, facebook is not generating enough revenue from mobile ads and another few thousand reasons the sane mind can conjure up. And most of them have their own merits.

i for one beg to differ.

Facebook’s total revenue in 2011 was $3.7 billion, of which $3.1 billion came from ads. Meanwhile, more than half of its 845 million monthly active users accessed the social network through mobile apps or its mobile website, both of which sport no ads.

Lets take a look at this statement and the numbers linked to it.

3.7 billion USD. even if we assume that it makes only 10% profit margin, it will be making 370 million a year! Those are good numbers to be associated with.

Ok lets go through their strategy.

They still have a vast ocean of potential customers to tap. China, India and the far-flung countries in Africa. Ok lets take the worst case scenario in which they could not penetrate any of those countries. NO more growth in their customer base. So bloody what? They still have at least 845 million active users every month. and im sure not shifting to any other social sites such as Orkut as all my friends are in Facebook. and most of my data are in facebook. They have achieved the critical mass that does not allow for competitors to chip away their customer base.

Ads on their website. Granted, they suck. Most of them are telling you how to be a expert foreign currency trader within 48 hours. All you need to do is click on the ad that brings you to ijustscammedyou.com. It just does not give you the confidence to click on any of the links. But, if Facebook can utilize the one thing called "Like" and the "Groups" we join, they can systematically target us with the ads no? I liked Adidas facebook page. Well, it does not take a NASA genius to figure out that if an ad for Adidas comes out from their official page, i would click on it ( and hope it does not bring me to zalora, now dont get me started). Are they doing it currently? I hope so. Or else they should be fired.

Ads on mobile. Currently, nothing is on their mobile app that utilizes ads. And they cant really make money off the mobile users. They are currently working on a system to capitalize on the mobile advertising sphere but no official news is out yet. Im puzzled at their inability to do so. I really am. So mark, if you are reading this, i have one word for you, its called Groupon. Unless you tell me that Groupon's business model is trademarked, patented and what not, why on earth is Facebook not capitalizing on this model? Facebook has this feature called check-in ( Mr X has checked into Chilis Bar at KLCC, Malaysia). So Facebook ( assume that they have Chilis as their advertiser) sends an ad to Mr. X, telling him about this deal that if they come back next week they get 10% off their midwestern lamb chop. Or even better, Zara KLCC is having a sale, and since Mr. X is in Chilis, why don't Mr. X hop down to check them out? The potential is unlimited!

It is unwarranted that facebook is being pummeled. Their business is growing, it is difficult for their competitors to poach us away from facebook, unlimited ad potential from mobile.

My bet on Facebook. It will be a roaring success.

 

Favco, my new darling of a Gem

Called up favco to ask them about their business, their future projections and etc.

Found this

PE: less than 4 (@RM1.80)

Profit has been increasing year on year from 2007-2012.

Potential:

Muhibbah Engineering is the parent company and will buy the cranes from Favco

Profit margin is high due to the customization of the cranes, servicing of the cranes helped to boost revenue as wel

Malaysian plant is a full fledged plant, the risk of operation inefficiency is reduced

Oil and gas industry booming in Malaysia, have a high chance that the purchase of cranes go to Favco

Going to China with the same business model; thus looking at them maintaining their high profit margin.

Risks:

Servicing of the cranes may go to other Companies instead of favco ( can go to Ah Kong Servicing) as cranes are not proprietary in nature

Customized cranes, overhead costs high for labour/manpower. Hard to scale down the manpower costs should the market goes into a downturn

No mass production, thus cannot achieve Economies of Scale. However, this is mitigated as you will need to be ‘big enough’ to achieve EOS. A bigger company does not mean better EOS.

Recommendation:

Strong buy but with an eye out for the GE, lets buy in stages

HP strategy

http://www.cnbc.com/id/48753689
If you read this particular article by CNBC you would have thought that they are heading in the right direction. And you would be right. They are moving away from the shrinking red-ocean battle for personal computers and personal laptops and moving into the more profitable segment such as servers, networking and storage. Thus if your analysis is based on current situation, yes you would be right.

But stock picking is based on future earnings, ie: you are buying today X stock for USD1 that in the next few years will increase to USD10; giving you that sweet taste of profit.

So if you look at HP's strategy of moving into servers, the biggest company that pops into my head is really Big Blue aka IBM. So you think they will sit by and let HP come in and dominate? Likely no. They will fight back tooth and nail to maintain or even grow their market share. and when there is a fight between two dogs, my bet would be on the bigger dog.

Their customers such as Facebook and Google are building their own data centres and thus reducing the need for HP's services. ( It could lead to an increase in sales for Dell though as they are no focused on selling to Enterprise). So their customer pool is shrinking.

All in all, potential customer is shrinking, a competitor hell bent on defending its territory, weak external demand, a sinking ship all leads to my one conclusion. HP better get his act right, and soon!

My best bet, for the PC makers, it would be a bloodbath and only companies such as Lenovo could make money due to their low ( lower than most cost) and not HP or Dell who currently is moving like a rudderless ship.

Update-23 August 2012

All,

Apologies for the late posting, but has been busy in the past couple of weeks,

with the General Election coming to malaysia soon, be prepared for the share market to fall from their current highs. But, I am not God, in the short term ( next few months) i will not predict the movement of stocks which are under my radar ( anyone who claims that they can predict stock market movements in the short term is either a Toyota Salesman or God. My guess is the former)

Thus to eliminate the problem I have decided to do this: Buy a few lots first, and conserve cash to wait for the market to turn sour. Why don't i wait until the market falls before buying? Like i said, im not God and I will not be able to foresee when the market is heading for a downturn. So if the market goes up instead of down, i would have missed a chance to profit. So by buying in stages, either way im happy. If the market goes down, i get to buy more at a cheaper rate. If the market goes up, i am happy as my investment just grew in value.

So this is what i bought:

Ivory (30 lots)-average price of RM0.54
Favco ( 20 lots) average price of RM1.78

Will look to buy more if the market turns bearish

New stock

Im buying in a new stock that is currently very attractive, it starts with an I, after i buy in will let you know tomorrow night..heheheh

Understanding the China Slowdown

The above picture actually paints a thousand words, nothing i can say or type will be reflected ever more clearly than the picture above ( thanks to Bloomberg btw)

Lets understand first how the China slowdown happened, for starters they are not a superpower country just yet and their massive economical boom for the past few years is owed to the following:

• Cheap labour that got many companies setting up their factory there
• Massive population that many companies want to target
• Huge export to the rest of the world, owing to their low cost structure

From the above you can see that besides their huge population; all are actually based on low cost structure. And the low cost structure cannot work for infinity when there are so many other countries that can actually offer lower costs. At the time of writing, the cost of setting up a factory in USA is actually now cheaper than in the coastal areas of China due to their rising labour costs. So many companies are actually insourcing their jobs back to America. Or they move on to lower cost countries such as Vietnam. So lower FDI is currently killing them.

Even point number 2 is flawed. We have suffered from something i call China Syndrome. You know how it works, there are 2 billion people in China, if everyone of them can give me RM1, i will be a billionaire. yes, your maths are correct Einstein, but look carefully and you would realize that out of the 2 billion people in China, how many can actually buy your product? ( will touch on this later)

Point 3, they need to export because they do not have the internal consumption capacity to absorb their surplus, but where to? USA is going to a slowdown (again), EU is imploding anytime soon, the rest of the world do not contribute much to the export market of China, so where to export?

All their economic boon structure is currently flawed. Even worse is what their country is going to do or have done!

Money being pumped into the economy to jump start it, and how is the money being used?

Well for starters the local municipals ( huge beneficiaries from the loans) built huge train stations and huge buildings that no1 ever uses, thus no income is generated. No income=loan default. But Chinese being Chinese, they are ever smarter. These municipals then sell their land ( all land belongs to the Government) to developers, got the money, get more loans ( who rejects free money) and start a building binge

The developers then build more houses, condos that no1 can afford to buy. Point number 2: So many people yet all of them are quite poor. When the developers cannot sell, run into trouble and cannot pay back the banks, so how?

Understand there are reports saying that the houses/condos being built are actually 80-90% sold etc. There maybe really rich people who buy up the whole floor, in one city is plausible but the whole of China? You really think that the rich in China can afford that?! Hell, even Warren Buffet and Bill Gates combined probably could not pull this feat off. There are also unsubstantiated reports that the condos/houses are sold to sub-prime people who never could pay back their loans. (Earning RMB 3000 and buying a RMB800,000 condo, you are so screwed)

So it is just one hell of a party China is in right now.

So now they are planning another cash injection which will lead to more building, more surplus and a bigger bubble. Sorry China, my best bet is that you are on course for a hard landing.

KSL

ok bought KSL 25 lots at an average of RM1.35.

Reason for selecting:

2008-RM90 million

2009-RM91 million

2010-RM121 million

every year their profit is increasing, 

PE: 5 ( take the past 3 quarters and assume the next quarter: 7.77+ 4.13+6.54+ (assumed) 6.54) you get an earning of 25) Price of 1.35/25=5

ok, lets assume they halved it, you still get a PE of 6++, not good enough?

now like i said, PE low not necessarily mean good prospects, but if you look at their annual report, where is their land located most at? where are their developments located most at? If you can find the answer it is in JB and in the Iskandar region.

So tell me, why Im bullish on Iskandar? Well, the government is pushing it as THE investment destination of the year and Singaporeans are lapping it up like no tomorrow.

I guantee that sooner or later the price will follow their profit.

mark my words.

Low PE or High PE

My first criteria for selecting a stock is actually based on a very simple tool. Note very simple and i do not need to use some wierd mumbo-jumbo analytical tool some bank is touting to be able to improve your batting average. Total BS if you ask me, At the rate Im picking stocks faster and better than most of your analysts, i think i will pass.

Now what is the tool? Simply it is just the Price/ earnings (PE) ratio. what is this and why is this important  let me explain.

Price is what you pay for a stock right? Earnings of course is how much the company earns. So if the price is low and the earnings high, is it a good thing? ( PS the answer is yes! because it shows that you are in essence buying an undervalued stock) if the PE is high, then yea you are buying an over valued stock or at best fair valued,

Now if you are smart enough you would probably ask, what is 'High PE' and what is 'Low PE'? Good question, and the answer is this, it depends, you can compare it to the industry average of KLSE average ( 12) and either way you are not wrong.

I am a risk averse person and i always choose PE that is at least <10. the lower the freaking better because i increase my margin of safety.

Anything that is above 10, i normally would take a pass on it.

A caveat though, a low PE does not mean sure profit, but a high PE can guarantee you a loss.

I use low PE only as my preliminary selection and not the full monty just yet. You will see soon enough why i say that.

Next post i will post what i have bought and why low PE plays an important factor in it.

Framework for buying stocks

here is a program i use to buy a stock and i strongly suggest that you follow it:

a. Select the way you choose a stock that meets your criteria
what is the reason you are buying a stock? Is it for capital appreciation? is it for dividend gains? Are you buying the stock because it is a consistent performer in the past with a low PE? or are you buying it because of future growth prospect? Select your investment criteria and you will be able to zoom in on the stocks that would capture your eye.

Once you determine your investment criteria, do NOT break it in any way, do not break it because your investment criteria is your circle of competence and you ought to be good within your circle of competence to make a buy/sell call. Anything that is outside your circle of competence i would strongly advise you not to buy at all,

b. Write down why are you buying it.
I normally write down in a piece of paper why i am buying the stock that i am buying, only on a piece of paper. anything more than one piece will be a waste of time, and i never use sentences that most analysts do to make them look smart. " Due to the economic uncertainty, the yield between the US treasury and the KLSE is expected to bla bla bla". NO. Just write down in really simple words ( of course if you ask your broker, he would tell you so many financial jargon that would make you feel stupid.) Im buying it because their PE is low, their profit is increasing and their main competitor just went out of business etc etc.


c. Write down why you are selling it.
Many people would buy stocks not knowing when to sell. selling is an afterthought, the result of market movements and factor in which they cannot control. Don't be like a deer caught in the headlights of a car. Prepare yourself. Remember the market is inefficient, everyday it will go topsy turvy like a freaking roller coaster. Will you sell because it dropped 20% yesterday? Well, you freaking should not if you know the reason to sell. You should only sell of the company's fundamentals deteriorate as what you expect and nothing less will make you liquidate it.

Me? I normally sell when the profit is starting to decrease, the company is mired in an industry where profit margin is shrinking and management do not know what they are doing.that is my cardinal sin.


d. Write down how it would happen.
You can write down what will happen if your company performs as you expect. Would the stock price increase? if it does not, is there a reason?

write down any other things that may happen that could affect your stock price? Is there a financial storm coming? if there is what will you do? what i normally do is that i always keep at least 20% of my portfolio as cash, this is to ensure that i have a security net to profit from any panic selling. I cannot predict what will happen tomorrow or next week, but i can safely predict that if the company increases their profit by x% this quarter, the stock price will eventually follow. thus the 20% cash is to ensure that any panic that causes a price decrease i can profit from it.

Company in a boring industry

As promised, I will select one stock in a boring company which has all the potential to be a multi bagger, but do make your own judgement call:

Emivest:

Profit attributable to shareholders
2008-RM 11, 273, 373
2009-RM 17, 348, 627
2010-RM 21,434, 809
2011-RM 37,000,000

Fundamentals
As can be seen, from 2008-2010 their profit has increased albeit slowly in very lousy industry. The industry: livestock feed and duck breeding. Not something you would be particularly proud to own.
but for crying out loud, look at that earnings! i always use 2008 as my base because if you can earn money in 2008 (financial turmoil), you can be damn sure they can earn in the future.

PE: less than 2, ( for those who do not understand how PE works, i will explain in my next blog and why i adamant on selecting low PE stocks.) where on earth can you find a company that grows their profit every year at such a low PE.

They have branched out to Vietnam in their pursuit of growth for their duck business and in the future, their earning will still be growing ( nothing spectacular) as they can replicate their successful business model, their efficient operations without much of a glitch or errors that may impair their earnings. This is what i would call Replicable Development Model. The higher the RDM the better it is for their earnings.

Heaven


Now with the current market situation, share prices will definitely drop. And with the company in such boring industry it will take a while before lady luck shines on her.

A risk associated with heaven would be that a bird flu suddenly comes along and all the ducks are killed off. Now that would be catastrophic but it is something that we cannot have control over. Just be weary of such forces of nature.

Human

Your share price will only go up if there is someone who is willing to pay a higher price for your part ownership. And Emivest has very low trading volume, thus their share price may just linger there for months of not years as nobody would pay any attention to them. Is that a good thing? Well, if you are here to make a quick buck, i suggest you just dump all your money into football betting, twice the thrill and twice the potential pay-out!

I am perfectly happy to hold on to a part ownership of a profitable company for many years, waiting for their stock price to reflect their true value. Thus if you have the same mentality, just be aware of this.

Conclusion:
Multi bagger in the making? Only time will tell but at current price of RM0.90 i would say it is a good buy.

Selecting a good stock

This is the first blog for Monnaie, a blog to reach out to the masses on financial literacy, but focused more towards stock selection. The main reason stock selection is chosen is because this subject has caused many debates among many scholars, professors and fund managers with each touting the merits of their own strategy; thus leading to more confusion.

When I first started, I was also totally confused. Spent many days ( and sometimes night) trying to figure out which works. Technical analysis? Fundamental analysis? PE ratio that is high or low is good? ( if you browse through google, there are 100 sites saying a high PE ratio is good and another 100 saying that low PE ratio is good! sheer madness if you ask me!) cash flow analysis? 

Which leads to my First rule of Investing: Don't listen to anyone!

That is my first piece of advise to you. I learnt it the hard way by trusting people, my uncle's second cousin's wife's neighbor's maternal grandmother gave me my first stock to buy; which was a mining company. Rumour was swirling that the share would soar in a few days and that it is good to buy in now. I jumped in with two feet, hoping to make a quick buck.

Big mistake!

The share price tanked shortly afterwards. At first, agony, then despair, then anger, acceptance, guilt, the emotions going through that order.

I learned that day never ever trust anyone. Not the neighbors, not the analysts in the papers (most times all the time, when an analyst's report comes out to encourage masses to buy a stock, I am ready to sell.) not my dog. I trust myself.

Selecting a stock is not hard, all you ever need is to trust yourself, even when the tide is going against you, the stock fell 10% the day after you bought it. No problem, so long as you have done your research and the fundamentals did not change.

Don't trust the management of the company you plan to buy either; they will sprout all nonsense about how good their company performance will be next year ( remember Gpacket? A malaysian company in the internet provider business, for the past 4 years they had been saying that their company would be turning around the next year. They are till turning around! Im guessing they are turning in a big circle.) 

The first key to selecting a good stock is to understand the company. To people wo tout a top-down approach( basically meaning select an industry and drill down to individual companies under that industry) I say bullshit. They normally choose industries that are doing well, which means more competitors, which leads to lower profit margin in the future. I make the most profits from companies found in dying or boring industries. why you ask? Simple, in dying industries, companies tend to be cost-cutters, be more efficient leading to at least profit during bad times, and in most cases, exceptional profit during the good times; and when most competitors are out of business, well, good companies get the whole pie to themselves.

Do that! Select a company that is basically tanking; no1 has ever heard of, bothered too much about it. I can think of a few and in my next post i will share one company in that particular industry