2013

Dear Readers,

As the founder of St Jude Investments, our flagship Fund, Wolf Fang Fund for this year performed on the average, returning at approximately 8% for this year. Granted, KLCI and the S&P has beaten us with a considerable margin and actually left us in the dust. This really gives me the feedback i need to reflect on what went wrong.

Mistake 1:
Selling way too fast.

Now, from my picks, i am very very capable of picking stocks, however, the need is for me to evaluate how i sell stocks. It seems that all my picks; SKPetro, Digi, KSL for this year delivered exceptional returns for the shareholders. IF they have held on to it. I did not. This i need to take the blame for. Should i have held on to them, the returns would be in the double digits. I guess i need to overcome the fear of holding on once the stocks reach an all time high and keep holding on provided their fundamentals change to reflect the ever changing market.

All three companies above were fundamentally strong, with little or no chance for drastic changes in the future. They were like dating Rinko Kinkuchi; should i have held on, i would have found heaven. rather i chose to chase the next short skirt available.

Now, i do advocate taking profit when it reaches your target, but i would take this holiday to devise a strategy to mitigate this risk in the future.

Mistake 2:
Losing my balls

Some of the best returns were lost due to me losing my balls. I just did not pull the trigger when the price was tempting enough; hoping for a pull back which never came. Ford came into the picture when i initiated a call at USD12, now it is at USD15.

I am always proud to summon my Ultimate Defense; where rain or shine, no harm shall befall my principal. But this year, my defense, although did not fail me, it served to be a hindrance. By focusing too much on the defense, i became lethargic on my offense.

Again, i will take this holiday season to develop a plan to mitigate this.

As of right now, we are loaded with cash and will seek to buy only companies who fit our model. I have found a few that do currently, either by their shift in strategy ( my oh my, it starts with a G), shift in demand ( starts with a V) or just battered by irrational pessimism ( starts with an F).

I am willing; albeit still seeking my balls, to bet on them with everything i have.

till then, happy holidays. and god bless

Can the market keep going higher?

It has been nearly 5 years since the great crash of Lehman Brothers. The US government via the Federal Reserve is trying to prop up the market with a wave of printed money and there are no signs that it is abetting.

It seems to me that the market is really overvalued but at the same time the taper cannot start. The US government is stuck between the proverbial rock and a hard place. They are blowing bubbles but at the same time they can't afford to stop. If you look via the chart, you can see an eerie looking similarity between the 2004-2007 bubble and the one developing now.

At first, i am very very surprised that the Fed did not taper in Q4 2013 but were willing to wait until 1H2014. In the face of such strong economic data, they are still keeping the money printing going strong and no signs of slowing down at all. Why is that? There is absolutely no logic to that movement.

But now we know.

Faked data seems to have bloated the job numbers in 2012 and it happened during the time the US election is happening. Now it makes sense. If the job data is not as strong as it is reported, the Fed would of course keep the money printing machine going!

It basically means that all the profit, all the EPS increases and what not are actually the product of the free money that is being printed around.

And the best part is Japan is coming on stream and joining the party!

my best prediction is that the government loses control of the debt, investors flee en masse to gold and to oil and the market crashes.

oh with it, the property prices of Malaysia, Hong Kong, Singapore and to a certain degree China.

You have Wolverine's great powers

Do you have a favorite superhero? I do. Mine is the feral, cigar chomping beer drinking Wolverine. Now let me be specific on which version of Wolverine i like ( ok, my geek side is showing). I loved the version where he healed from serious injuries but he is still mortal; not the Nitro ( please read Marvel's Civil War storyline) where Wolverine can be blown up to leave only his skeletons and he can still regenerate.

Now why do i like that version? Simple, if a superhero cannot die, all he needs to do is jump into every fight with gutso and slice and dice until he wins no? No heart, no element of injury nor death to suspense us.

For those who do not know who the Wolverine is here is a link to wikipedia:

http://en.wikipedia.org/wiki/Wolverine_(comics)

and i hope your nose bleeds for not knowing this icon.

I have always wanted his super powers, adamantium claws and super fast healing factors and his amazing one liners. I have spent years trying to gain his super powers but alas only perfected my one liners ( read: being an a$$hole)

But, deep down i believe all of us have the same powers that make Wolverine so great.

Do you know which story that touched me best? There are actually two.

First story is called Wolverine: Origins where we traced who Wolverine was and his childhood. It was a tragic story ending with him killing his first love called Rose accidentally. He was so traumatized by the event that his mind was totally damaged and his healing factor kicked in to heal it; causing him to lose the memory.

The second story was when he met his other love Mariko. Mariko was poisoned with tetrodotoxin from a blowfish by an assassin named Reiko, in the hire of her rival Matsu'o Tsurayaba.  She asked Wolverine to kill her to avoid a painful death and preserve her honor. 

He did.

Imagine this: both women that you love were killed by your own claws. How would you feel losing the one person that understands you, that accepts you for who you are and you are at your heavenly blissful state with her; and yet you are the one responsible for their death?

I would be devastated. I would have lost the will to go on. I would have stumbled around, not knowing right from wrong and finally give up.

But he did not. He preserved. Sure he grieved, spent some time in the wilderness and in Mariko's case, cut off a part of Matsu'o's body on the anniversary of her death. But he never freaking gave up. Nor did he lose his moral compass.

That is the super power that you and I have that we share with Wolverine.

To not give up. No matter how bleak it is, never ever give up.

To not lose our moral compass. To always know what is right and what is wrong even in the toughest of environments. To stand tall when everyone else starts to lose their footing and fall.

To stare defeat in the eyes when he tells you in his icy cold voice that he will tear you down; in good ol-fashioned Wolverine style say "Let 'er rip!"

3 ways Malaysians are screwing up on their retirement

Malaysians, by and large, are very pessimistic lot. They see everything as half empty instead of half full. The paradox is that with such uninspired view of life, they choose to ignore or to half ass the plan for their retirement. Maybe just maybe, they have such a uninspired outlook of life they need to drown their sorrows with splurges that they never need.

Lets start:

1: No plan
I am utterly dismayed that so many of Malaysians have absolutely no plans for the future. Their route is always the same; get a job, save, buy a car, buy a house, get married and live until you die of old age. They never seem to be able to plan for any emergency ( lay-off, death, sickness). When this emergency happens, they tap the easiest ( and also costliest) credit they know. which is the credit card. Stupid is it not? Then they spiral out of control into a mountain of debt.

Even more astounding is the fact that they have absolutely abysmal knowledge of how to grow their money to beat the inflation that is inevitable. They do know on a very basic level-buy property and rent lor, become "millionaire landlord" mah, buy stock wait for goreng. I cant seem to facepalm myself enough when i hear these two statements. Utter stupidity when you consider these "millionaire landlord" are bleeding their finances every month by buying a property so high in price that their bank installments are higher than the rent itself. No positive cash-flow. ( factor in the maintenance, sinking fund and income tax, it would be even worse.) 


2: Not wanting help

Malaysians in general do not seem to want help in their finances. Yes, they know that they are in debt, but they will not seek help until it is too late; and even after bankruptcy, they still do not want help!.

Example would be how many people are "investing" or i call gambling in the stock market instead of utilizing the mutual funds that are available out there. These fund managers devoted their life to understanding the stock market and are fully qualified to make investment decisions with at least some form of fundamental analysis and/or technical analysis.

But what do Malaysians do? Invest in the stock market based on tips they get from their neighbours' cousin brother who works in MOF that overheard the pantry lady talking to her nephew's wife that xxx stock will rise soon. 

I mean really? Give you an analogy. Assume that you have cancer. Instead of going to the doctor, you decide to read a few books on how to perform surgery, and after hearing about some guy in africa who performed the surgery and survived, you decide to do it yourself.

With a butcher knife.

3: Health care dichotomy

This is more of a grey area but Malaysians seem to underestimate the impact of their health on their long term finances. They either buy insurance that under protects them in terms of emergency and during their old age. How much money you need to survive now, I guarantee you that by the time you hit retirement, with your income gone and you need MORE money for medication, you will suffer.
Maybe Malaysians found the fountain of youth so that is why they are not worried about insurance.

Malaysian Budget 2014, how will it affect us?

Well it is not a secret anymore that with the Malaysian economy tanking and we are running close to the self-imposed limit of 55% ( we are currently at 53%), Malaysia will have to increase revenue and at the same time reduce expenditure. However, reducing expenditure might be too big a task as most mega projects have commenced and postponing or canceling them will have adverse impact on the economy.

For me I believe these are what will happen:

a) Impose of GST to replace the SST. Will likely be at 3-5% and this will cause a drop in the average Malaysians disposable income. However, I would believe that the Government will reduce the personal income tax to ensure that Malaysians have money to spend in the first place. A reduction of income tax by 2-3% points should be suffice.

b) Extension of the tax exemption for hybrid cars lower than 2000cc. That should spur our car industry and ensure that the major car manufacturers choose Malaysia as the hub for EEV manufacturing. We will never be able to fight Thailand in terms of producing petrol and diesel vehicles as they are miles ahead of us, but we can still offer some challenge in terms of EEV. DON'T let this slip out of our grasp Malaysia. We NEED this!

c) Remove DIBS, impose higher stamp duty for third property onwards, increasing the RPGT higher and imposing a lower MOF for third properties and onwards. That should help stabilize the property market.

And finally lets see what the Government will do to stop our free falling currency. Normal doctrine will show us that the Government will increase the interest rates to stop the free fall. And that is what a normal thinking person would do as well.

I would take the opposite view. Look at the reports coming out, our export is falling and our foreign currency cash pile is dwindling. And our growth comes from local consumption. To encourage a greater export and to ensure sustainable internal consumption, what is the best way to do it?

Decrease the interest rate!

Let our currency go to RM3.80 to the dollar. Make sure that our export grows and when interest rates are so low, no1 keeps money in the banks anymore. they will spend on either consumables ( and thus increase our GST collections) or they will hedge against inflation; buying up properties maybe? ( increase our stamp duty collection)

So if i exchange RM20,000 to the dollar now ( RM3.20 to the dollar) that would be approximately USD 6250. Now assume that the Ringgit does drop to RM3.80, that would be RM 23,750, a profit of RM3,750. 15% returns. ( ok, i assume that you are smart enough to find banks or changers that charge lower service fees)

But assume that the Government does increase the interest rates, what is the risk? Rm3.00 to the dollar? that would be RM18,750, a deficit of RM1,250.

So make that call, if you think our currency will drop further, make that exchange.

Im taking the opposite view

From a prominent Malaysian financier.

For the past 2 years, I was very cautious about the market until the breakthrough in market sentiment after GE XIII; I cited the major risks in:-
1. The end to Fed easing- The day will come when Bernanke couldn't find enough paper to wrap the fire he was playing with in QEs. 
2. The huge property bubble in Asia.
3. The reverse in the miraculous Asean markets in Philippines, Indonesia and Malaysia- What goes up, must come down.
4. Credit bubble in Asia- The wealth we see today is a mere aftermath of easy money by Asian central bankers.
5. Rising interest rates eventually

From Wall Street:

A lot are screaming like a petulant child when their candy is being taken away when Ben said that they will soften QE with an eye to stopping it all together.  They are saying that with the rising interest rates, the bond yields, it will hurt the economy and cause it to stumble into recession.

My take:

Lets focus on the Malaysian economy first.

Point 1. Stupid at best. 

Point 2. Huge property bubble in Asia. In Malaysia i really do not see a bubble popping. Yes the prices are high but will it pop and send KLSE crashing? No. There are a few factors that cause the bubble to pop ( cheap money, sub-prime credit, banks highly leveraged) out of the three points, besides cheap money to a certain extent, none are present in Malaysia yet. You can argue saying that households are gearing up on their personal loan to pay 30% down-payment for their third property but in all likelihood, these people CAN afford their monthly repayment not some burger sellers.

Point 3:Again i struggle to understand why people are reluctant to give Indon, Philippines their due. is it because our maids come from Indon? Indonesia is quite populous while Philippines is growing by leaps and bounds. The market might correct but a full blown crash? Unlikely. Even Malaysia does not seem to be a candidate for a full blown crash ( even with debt top GDP nearly 53%)

Point 4: Credit bubble, totally agree. Cheap money is leaving as interest rates are higher, that should help the market correct itself to sustainable levels. Biggest risk is actually in the Land of the Dragon. Cheap international money is pump priming the stock exchange, cheap money by the Central banks to pump prime the property, cheap money to banks to lend out thus creating a shadow banking network, all these points to a deadly cocktail that may push China off the rails. ( Oh, if China goes off the rails, we should buy Airasia X shares in anticipation of all the China girls coming to Malaysia to work..tongue in cheek, i mean their tongue in my cheek)

Point 5: For USA i assume, if so, do you realize the main problem with the US economy? They are not saving enough, spending like there is no tomorrow. Like what i would say, taking a dump without making sure there is toilet paper.) So yes, rising interest rates would allow Americans to think about savings, to grow their money and in turn create sustainable spending. Short term pain, long term growth.

QE is basically printing money. Them being stopped is a good move. No one wants fake money running around the economy. The faster they are stopped, the better. Let the economy slowly grow but the growth is both sustainable and natural.

Advise is always the same:

Profit when your neighbor starts talking about stocks. But if you see them holding their heads in despair buy them. Once you identify good companies, BUY them. Good companies will stumble, but in the long run they WILL make money.

Stocks to me is like having sex. You go HARD or you go HOME. Once you find a gem, go HARD.

Joe's Jeans-JOEZ

Dear Investor,

It makes premium jeans in the United States. It has secured a price niche that is neither too expensive nor is it too cheap. Consumers always want to have the latest fashion and apparent from their balance sheet that consumer spending is likely back.

Profit

Description	2011 (Q1) (USD’000)	2012 (Q1) (USD’000)	2013 (Q1) (USD’000)
Retail	-119	253	-326
Wholesale	4,441	5,671	6,704
Total	4,322	5,924	6,378

Strength:

·         Premium branded jeans. Gross profit margin stands at 50%.

·         The consumers are spending again in the US,

·         Third most owned premium brand in the US

·         Wholesale via Departmental stores are growing

·         Experimenting with retail which could boost their brand image

·         Jeans known for its comfy and perfect fit

Weakness:

·         Dependant on consumers to like them, one wrong product and they are screwed

·         Competition are strong; profit margin maybe eroded from heavy discounts

·         Its jeans; not much of a differentiator

·         Retail is still making mistakes and hiccups

Opportunity:

·         The countries such as China, South East Asia has not been penetrated. IF they can just make it into these markets, the potential will be immense.

·         Their retail strategy in theory should be better; once they sort it out, they will be making money

Threat:

·         Bigger guys going after them; Guys like True Religion.

·         Consumer spending to go down will cause even more discounts

Catalyst:

Currently, they are facing investor’s wrath because of missed earnings. In Q1 2013, they spend money to acquire the founder’s block of shares so that they do not need to pay him the gross profit anymore, thus lowering their earnings. But from the business fundamentals, nothing has changed.

Opportunity to accumulate will be present to accumulate if this falls to levels around USD1.20…(RM3600 per lot)….