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.