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Showing posts with label Value Investing. Show all posts
Showing posts with label Value Investing. Show all posts
Thursday, December 18, 2014
Saturday, June 04, 2011
Volume 3 Issue 22: Intelligent Investing
Buy High, Sell Low?
Even though I hate quoting the Star, but it does have the most convenient example of why IPOs suck. Just from the following paragraphs, it is already clear:
Can you imagine losing 60% of your money in one year? It is mind-blowing. If you had RM10,000 invested in JCY, you would be left with about RM4,000. That's not the worst part. The worst part is, to get from RM4,000 back to RM10,000, you would have to make a total return of 150%. But but but.... all you lost was 60%. Why do you now have to make 150% to break even? That is the unfairness that is life. That is why it pays to be prudent, and to have a huge margin of safety.
To rub it in, check out that last paragraph above:
ANALYSTS had said that the company was likely to do well. So, it is all the analysts' fault then? So what happens next? Can we claim our money back from those analysts? Well, here's the kicker:
Hey, that's easy. Once the company has already tanked, let us all switch our calls to "SELL". We often here all the analysts telling us, "BUY LOW, SELL HIGH". But what? Wait... did I hear wrongly? What happened with JCY was, they asked you to BUY AT RM1.60, but then now, they ask you to SELL AT AROUND RM0.60. Isn't that "BUY HIGH, SELL LOW"?
So, there are two lessons to take away from this:
1. I hate IPOs. They may be good on paper, and may promise a lot, but at the same time, it could be a lot of hot air. My take is, if the company is a good one, it will still be around five to ten years from now, and it would not be too late to buy then.
2. Many analysts do not have accountability. One one hand, they preach a "Buy Low, Sell High" mantra, but what they are essentially doing is to get you to "Buy High, Sell Low". Some stockbrokers are even worse. They will tell you to "Buy High, Sell Higher"!!!!! And when the stock tanks, they don't even have the guts to tell you that they are sorry. They are not accountable. You will hear reasons like:
a) Oh, no one can predict the market. (Then why the hell did you tell me that it will go up when you asked me to buy? Were you not trying to predict it?)
b) Oh, the information has changed, so it changes our analysis. (No shit. You change your advice AFTER the fact of the price drop (change in information?). My boss would say that that person is not an analyst. He/She is a historian.)
Because of nonsense analysts like the ones mentioned above, us Main Streeters have to analyze the analysts. We need to analyze which analysts can be trusted, and which can't. And the easiest way to do that, is to look at long-term results. Who gives you the most consistent performance, through the longest time period?
Even though I hate quoting the Star, but it does have the most convenient example of why IPOs suck. Just from the following paragraphs, it is already clear:
One company that comes to mind is Malaysian hard disk-drive component maker JCY International Bhd, which was listed on the Main Market over a year ago. The company promised a good growth story and was touted at one point during its fund raising exercise as potentially being South-East Asia's largest technology IPO exercise since 2000.
Based on previous news report, YKY Investment Ltd, controlled by Malaysian businessman Y.K. Yong, had originally wanted to sell some 530.2 million existing shares, or 25.9%, of the company to institutional and non-institutional investors at RM1.60 to RM2.20 per share.
Since listing in late February 2010, the company has seen its share price take a beating, losing 62% of its listing price value and ending at 61 sen as at last Friday. The lacklustre appeal in the stock has been mainly due to declining profits although analysts had said then that the company was likely to do well on the back of the technology industry having a bright future.
Can you imagine losing 60% of your money in one year? It is mind-blowing. If you had RM10,000 invested in JCY, you would be left with about RM4,000. That's not the worst part. The worst part is, to get from RM4,000 back to RM10,000, you would have to make a total return of 150%. But but but.... all you lost was 60%. Why do you now have to make 150% to break even? That is the unfairness that is life. That is why it pays to be prudent, and to have a huge margin of safety.
To rub it in, check out that last paragraph above:
...The lacklustre appeal in the stock has been mainly due to declining profits although analysts had said then that the company was likely to do well on the back of the technology industry having a bright future.
ANALYSTS had said that the company was likely to do well. So, it is all the analysts' fault then? So what happens next? Can we claim our money back from those analysts? Well, here's the kicker:
Many of the “buy” calls recommended by research houses covering the stock have been switched as of late last year to a “sell” or “hold” due to the company's poor earnings. From the six quarterly results announced by the company after its listing in February last year, two quarters reported growth in revenue and earnings, one quarter saw revenue and net profit somewhat plateau while the last three quarters recorded a decline in revenue and earnings.
Hey, that's easy. Once the company has already tanked, let us all switch our calls to "SELL". We often here all the analysts telling us, "BUY LOW, SELL HIGH". But what? Wait... did I hear wrongly? What happened with JCY was, they asked you to BUY AT RM1.60, but then now, they ask you to SELL AT AROUND RM0.60. Isn't that "BUY HIGH, SELL LOW"?
So, there are two lessons to take away from this:
1. I hate IPOs. They may be good on paper, and may promise a lot, but at the same time, it could be a lot of hot air. My take is, if the company is a good one, it will still be around five to ten years from now, and it would not be too late to buy then.
2. Many analysts do not have accountability. One one hand, they preach a "Buy Low, Sell High" mantra, but what they are essentially doing is to get you to "Buy High, Sell Low". Some stockbrokers are even worse. They will tell you to "Buy High, Sell Higher"!!!!! And when the stock tanks, they don't even have the guts to tell you that they are sorry. They are not accountable. You will hear reasons like:
a) Oh, no one can predict the market. (Then why the hell did you tell me that it will go up when you asked me to buy? Were you not trying to predict it?)
b) Oh, the information has changed, so it changes our analysis. (No shit. You change your advice AFTER the fact of the price drop (change in information?). My boss would say that that person is not an analyst. He/She is a historian.)
Because of nonsense analysts like the ones mentioned above, us Main Streeters have to analyze the analysts. We need to analyze which analysts can be trusted, and which can't. And the easiest way to do that, is to look at long-term results. Who gives you the most consistent performance, through the longest time period?
Friday, February 18, 2011
Volume 3 Issue 7: Intelligent Investing
Real Estate and Stockbrokers
The first thought that should come to your mind is, what does my stockbroker know about real estate? Very often, the answer is, "Not much". In fact, that same answer also applies when you ask what your stockbroker knows about investing.
To know why, let us just think for one second what a stockbroker really is. For starters, a stockbroker is most definitely not an investment advisor. Wikipedia gives us a the following:
Yes, you read it right. His primary function is to buy and sell shares on behalf of investors. In actuality, a stockbroker may or may not be an investor himself. So why do we rely on our stockbroker for "advice"? Why are we ever so willing to get tips and rumors from our stockbrokers about which stocks are on the move and which are not? Very often, after their predictions turned out to be false, they will give you the same old reason:
They may even say this with their conscience intact because they do not realize that it was upon their advice, tips or rumors that the investor made a trade. And the best part is, after being bitten over and over again, we go back for more. Maybe we decide to switch stockbrokers, in hopes that the next one can give us better tips and more accurate rumors, but we still go back for more.
This article is not meant to belittle the profession of stockbroking. They have their purposes. Who would I call if I wanted to make a trade or place an order? But that is precisely what they are. They are traders. They find buyers and sellers, and match demand with supply.
This is not very different from a used-car salesman, or a vegetable seller in the market, or a unit trust agent. We must not forget that their compensation is based on the amount that we trade with them. It is in their best interest that we make trades. The more, the better.
So, how do we tell the difference when a stockbroker actually knows that a stock price is really going up, or when he is making a hard sell to you?
Well, the next time your stockbroker tries to persuade you with tips and rumors, perhaps you can try asking them:
The picture above shows a die that which has a Buy, Hold and Sell calls on its sides. For all we know, our stockbroker could be on the other end of the line throwing this exact die, and giving you advice based on the results of the die. The biggest joke of all is that I found the above picture from an investment advisory. I wonder how much business they get by publicizing themselves with a die for stock calls.
This brings us to the Main Streeter Portfolio. I understand that many of you have been waiting patiently for the first purchase by the portfolio and let me say that this is intentional because we are working on the final stages of our research.
Let me declare that more often than not, the stock analyses that are featured in the Main Streeter will consist of stocks that the publisher and its associates have an interest in. This is not a ploy to induce mass purchases to drive the stock price up for the publishers of the Main Streeter to make a quick buck. It is because we strongly believe in "eating our own cooking".
Just as I suggested above, when your stockbroker recommends a stock, you should ask how much has the stockbroker invested in that stock. Over here at the Main Streeter, when we feature a stock analysis, more often than not, we would either be already invested in the stock, or will make a purchase soon. That is why we are taking our time in finishing up the final stages of our research to confirm a few more details before we feature our first stock analysis.
For those of you who have followed Robert Kiyosaki relatively closely, you must have heard the following rhetorical question a million times (give or take a few):
"Why would you consult your stockbroker about real estate?"
The first thought that should come to your mind is, what does my stockbroker know about real estate? Very often, the answer is, "Not much". In fact, that same answer also applies when you ask what your stockbroker knows about investing.
To know why, let us just think for one second what a stockbroker really is. For starters, a stockbroker is most definitely not an investment advisor. Wikipedia gives us a the following:
"A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors."
Yes, you read it right. His primary function is to buy and sell shares on behalf of investors. In actuality, a stockbroker may or may not be an investor himself. So why do we rely on our stockbroker for "advice"? Why are we ever so willing to get tips and rumors from our stockbrokers about which stocks are on the move and which are not? Very often, after their predictions turned out to be false, they will give you the same old reason:
"Who could have predicted the that the stock would tank? Even experts did not predict it."
They may even say this with their conscience intact because they do not realize that it was upon their advice, tips or rumors that the investor made a trade. And the best part is, after being bitten over and over again, we go back for more. Maybe we decide to switch stockbrokers, in hopes that the next one can give us better tips and more accurate rumors, but we still go back for more.
This article is not meant to belittle the profession of stockbroking. They have their purposes. Who would I call if I wanted to make a trade or place an order? But that is precisely what they are. They are traders. They find buyers and sellers, and match demand with supply.
This is not very different from a used-car salesman, or a vegetable seller in the market, or a unit trust agent. We must not forget that their compensation is based on the amount that we trade with them. It is in their best interest that we make trades. The more, the better.
So, how do we tell the difference when a stockbroker actually knows that a stock price is really going up, or when he is making a hard sell to you?
Well, the next time your stockbroker tries to persuade you with tips and rumors, perhaps you can try asking them:
"So if this is really going to go up, how much are you buying for yourself?"
The picture above shows a die that which has a Buy, Hold and Sell calls on its sides. For all we know, our stockbroker could be on the other end of the line throwing this exact die, and giving you advice based on the results of the die. The biggest joke of all is that I found the above picture from an investment advisory. I wonder how much business they get by publicizing themselves with a die for stock calls.
This brings us to the Main Streeter Portfolio. I understand that many of you have been waiting patiently for the first purchase by the portfolio and let me say that this is intentional because we are working on the final stages of our research.
Let me declare that more often than not, the stock analyses that are featured in the Main Streeter will consist of stocks that the publisher and its associates have an interest in. This is not a ploy to induce mass purchases to drive the stock price up for the publishers of the Main Streeter to make a quick buck. It is because we strongly believe in "eating our own cooking".
Just as I suggested above, when your stockbroker recommends a stock, you should ask how much has the stockbroker invested in that stock. Over here at the Main Streeter, when we feature a stock analysis, more often than not, we would either be already invested in the stock, or will make a purchase soon. That is why we are taking our time in finishing up the final stages of our research to confirm a few more details before we feature our first stock analysis.
Saturday, February 12, 2011
Volume 3 Issue 6: Intelligent Investing
Price vs Value
While in our everyday life, we very often use the above two words interchangeably, in reality, they are very much separated like night and day. We may even believe that price is a good indication of value, but more often than not, we would be wrong. Let me explain.
It is intuitive enough that the price of a good is represented by the monetary value of a payment or receipt of for that good. In simple terms, it's pretty much the price that a seller is willing to accept for a good he is selling or the price that a buyer is willing to pay for a good that he wants.
Value, on the other hand, is a completely different monster. I'm just going to throw out a few examples. First, sentimental value. Imagine that your mother gave you a RM200 watch for your 21st birthday. The price may be worth RM200. Assuming a stranger walks along and asks to buy that watch from you for RM250. You may or may not wish to sell it, but I reckon any self-respecting child of their mother would not sell the watch for almost any price. This shows that the value of that watch to you far exceeds its price.
Second, earnings potential. Think of the proverbial goose that lays golden eggs. How much would you sell that goose? Would it be at the cost of three of its eggs? Five of its eggs? Ten of its eggs? While the goose may be traded for price, its value to different people may be different. For some people, they may be in urgent need of cash and would prefer receiving the price of five golden eggs in exchange for the golden goose. Some others who are in less need of cash at the present may only wish to part with their goose if offered the price of ten golden eggs.
This brings us back to value investing. The price of a stock is only the monetary value it is being traded at in the stock market. Whatever its intrinsic value is, depends greatly on the person who values the stock. In value investing, we hope to find geese that lay golden eggs and we hope to pay a very cheap price for them.
If you believe that no one is stupid enough to sell you a goose that would lay a golden egg, think again. The stock market is pretty much like a goose farm with a bunch of geese running around in every direction. And the people who trade shares are pretty much like a clueless goose farm owner who tends to the whole bunch of geese that run around in his farm. The key for a value investor is in finding the golden goose. To do that, one must be patient, and must study the geese very well. Of course it would be impractical to wait for every single goose to lay and egg before we the golden one.
Thorough research should guide you to determine with some amount of certainty what a golden goose would look like and how they are separated from the normal geese. This is pretty much stock picking for you. For those who are unaware of their special abilities, they may sell the goose to you at a cheap price.
P/S: I have put the transaction for the Mainstreeter Portfolio on hold simply because the KLCI is in a correction phase and there seems to be a lot of panic selling. This is the time where opportunity arises and we must remain vigilant to take advantage of it. For now, we would still opt to hold cash while waiting for a price of geese to drop.
While in our everyday life, we very often use the above two words interchangeably, in reality, they are very much separated like night and day. We may even believe that price is a good indication of value, but more often than not, we would be wrong. Let me explain.
It is intuitive enough that the price of a good is represented by the monetary value of a payment or receipt of for that good. In simple terms, it's pretty much the price that a seller is willing to accept for a good he is selling or the price that a buyer is willing to pay for a good that he wants.
Value, on the other hand, is a completely different monster. I'm just going to throw out a few examples. First, sentimental value. Imagine that your mother gave you a RM200 watch for your 21st birthday. The price may be worth RM200. Assuming a stranger walks along and asks to buy that watch from you for RM250. You may or may not wish to sell it, but I reckon any self-respecting child of their mother would not sell the watch for almost any price. This shows that the value of that watch to you far exceeds its price.
Second, earnings potential. Think of the proverbial goose that lays golden eggs. How much would you sell that goose? Would it be at the cost of three of its eggs? Five of its eggs? Ten of its eggs? While the goose may be traded for price, its value to different people may be different. For some people, they may be in urgent need of cash and would prefer receiving the price of five golden eggs in exchange for the golden goose. Some others who are in less need of cash at the present may only wish to part with their goose if offered the price of ten golden eggs.
This brings us back to value investing. The price of a stock is only the monetary value it is being traded at in the stock market. Whatever its intrinsic value is, depends greatly on the person who values the stock. In value investing, we hope to find geese that lay golden eggs and we hope to pay a very cheap price for them.
If you believe that no one is stupid enough to sell you a goose that would lay a golden egg, think again. The stock market is pretty much like a goose farm with a bunch of geese running around in every direction. And the people who trade shares are pretty much like a clueless goose farm owner who tends to the whole bunch of geese that run around in his farm. The key for a value investor is in finding the golden goose. To do that, one must be patient, and must study the geese very well. Of course it would be impractical to wait for every single goose to lay and egg before we the golden one.
Thorough research should guide you to determine with some amount of certainty what a golden goose would look like and how they are separated from the normal geese. This is pretty much stock picking for you. For those who are unaware of their special abilities, they may sell the goose to you at a cheap price.
P/S: I have put the transaction for the Mainstreeter Portfolio on hold simply because the KLCI is in a correction phase and there seems to be a lot of panic selling. This is the time where opportunity arises and we must remain vigilant to take advantage of it. For now, we would still opt to hold cash while waiting for a price of geese to drop.
Saturday, February 05, 2011
Volume 3 Issue 5: Intelligent Investing
The Main Streeter Portfolio
From next week onwards, I will start a paper portfolio with a starting cash of RM100,000. The Main Streeter portfolio will be updated weekly based on its net asset value.
The base investment philosophy used for this portfolio is value investing. I would not go too much into what value investing is because there is abundant literature out there on what value investing is along with some form of its methodology.
It would be sufficient to say that value investing is like shopping for a stock that is WORTH RM10, but paying RM5 for it. The key is in knowing how to find such stocks. I will not hide the fact that it will be a challenging ordeal. In fact, publishing the portfolio is actually a bold move on our part because of two reasons.
First, I would be in many ways staking my reputation on the stocks that are chosen here. The reputation of this newsletter will sink and swim with the stocks that the portfolio purchases. Second, the kind of research involved in order to find these value stocks are actually worth a lot of money. I will be publishing this for free for the time being to put our reputation of the Main Streeter to the test.
Nonetheless, it should be noted that the philosophy used will not be the value investing in the strictest sense as introduced by Benjamin Graham. In fact, it would not even be the same kind of value investing that Warren Buffett uses. It is a combination of many other techniques and methods that we deem useful with value investing at its core.
The investment objective for this portfolio would be similar to any portfolio that is based on value investing, that is, to achieve long term capital appreciation. This means that the price of the stocks may drop or may shoot up in the immediate term, but we may not sell the stocks to cut losses or take profit. The goal for the performance of our portfolio would be to double the value every five years.
Nonetheless, our benchmark used will be the FBM KLCI. At the least, we hope that the Main Streeter Portfolio will outperform the KLCI over the long run. Otherwise, there is absolutely no use in having this portfolio at all.
Finally, to explain the details of transactions. Purchases will be announced at 8.00 a.m. on the day of the purchase based on the latest closing price of the stocks. We will assume that the transaction cost 0.6% of the value of purchase. Apart from the purchases, we willl publish the portfolio every quarter ending 31 March, 30 June, 31 September and 31 December.
The cash in the portfolio will be assumed to earn an interest of the 1-month prevailing fixed deposit rate and adjusted for any purchase during the month.
Disclaimer: All company analyses, including the paper portfolio that appear in this newsletter are derived from facts gathered from various sources and the contributors' personal opinions and for education purposes. It is NOT an invitation to deal in securities, and especially not a recommendation for buying or selling any stock. The contributor(s) do not guarantee the accuracy of the facts being presented. The accuracy of such facts are only as reliable as the sources that they are obtained from. Please consult your investment advisers before acting on any information provided by the analyses here.
From next week onwards, I will start a paper portfolio with a starting cash of RM100,000. The Main Streeter portfolio will be updated weekly based on its net asset value.
The base investment philosophy used for this portfolio is value investing. I would not go too much into what value investing is because there is abundant literature out there on what value investing is along with some form of its methodology.
It would be sufficient to say that value investing is like shopping for a stock that is WORTH RM10, but paying RM5 for it. The key is in knowing how to find such stocks. I will not hide the fact that it will be a challenging ordeal. In fact, publishing the portfolio is actually a bold move on our part because of two reasons.
First, I would be in many ways staking my reputation on the stocks that are chosen here. The reputation of this newsletter will sink and swim with the stocks that the portfolio purchases. Second, the kind of research involved in order to find these value stocks are actually worth a lot of money. I will be publishing this for free for the time being to put our reputation of the Main Streeter to the test.
Nonetheless, it should be noted that the philosophy used will not be the value investing in the strictest sense as introduced by Benjamin Graham. In fact, it would not even be the same kind of value investing that Warren Buffett uses. It is a combination of many other techniques and methods that we deem useful with value investing at its core.
The investment objective for this portfolio would be similar to any portfolio that is based on value investing, that is, to achieve long term capital appreciation. This means that the price of the stocks may drop or may shoot up in the immediate term, but we may not sell the stocks to cut losses or take profit. The goal for the performance of our portfolio would be to double the value every five years.
Nonetheless, our benchmark used will be the FBM KLCI. At the least, we hope that the Main Streeter Portfolio will outperform the KLCI over the long run. Otherwise, there is absolutely no use in having this portfolio at all.
Finally, to explain the details of transactions. Purchases will be announced at 8.00 a.m. on the day of the purchase based on the latest closing price of the stocks. We will assume that the transaction cost 0.6% of the value of purchase. Apart from the purchases, we willl publish the portfolio every quarter ending 31 March, 30 June, 31 September and 31 December.
The cash in the portfolio will be assumed to earn an interest of the 1-month prevailing fixed deposit rate and adjusted for any purchase during the month.
Disclaimer: All company analyses, including the paper portfolio that appear in this newsletter are derived from facts gathered from various sources and the contributors' personal opinions and for education purposes. It is NOT an invitation to deal in securities, and especially not a recommendation for buying or selling any stock. The contributor(s) do not guarantee the accuracy of the facts being presented. The accuracy of such facts are only as reliable as the sources that they are obtained from. Please consult your investment advisers before acting on any information provided by the analyses here.
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