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.