Saturday, July 19, 2008

The market is always wrong?



In the recent market crashes, the KLSE fell about 1150 points, a drop of 350 points within 6 months. When the overall market is coming down, analysis tend to lower the target selling price of a company and increase the target selling price when the overall market is trending higher.

Whenever stock market has a lot of uncertainties, all stocks good or poor fundamental stocks will hammered down. However, we always believe crisis means opportunities. The recent drop in market prices creates magnificent investment opportunities. Even though the market may drop further as there are still a lot of uncertainties and outstanding negative news pending announcement, we believe there is great opportunity for long-term investment.

Warren Buffer believes that stock market is manic depressive, it always overreacts to positive as well as negative news. If the overall market sentiment is good, the stock price may surge sky high. However if the stock market is depressive, the stock market may go down to very cheap price. The market is there to serve you and not to instruct you. It is not telling you whether you are right or wrong. The business results will determine that.” The key factor is to purchase right business at the right time.

As a investor, we should hold good quality stock for long term, as a result of recent market crash, these stock are not expensive anymore and the price now become quite attractive. We need to prepare ourselves by understanding the intrinsic value of the stock. We should stop predict when market will reach its bottom (as no one will know until it reach its bottom) and take the advantage of uncertainty.

Sunday, July 13, 2008

Lessons from Warren Buffett’s guru


Phillip Fisher says he doesnt want a lot of good investments but a few good outstanding ones. 

Q: What can we learn from Philip Fisher?  

Philip A. Fisher, one of Warren Buffett’s investment gurus, is known for his philosophy on the qualitative aspects of selecting a good company for investment. Buffett learned qualitative analysis from him.  

Fisher got his early education at Stanford Business School . He joined an independent San Francisco bank as a securities analyst in 1928, and founded Fisher & Co, an investment rganizati business, in 1931.  

According to his book entitled Common Stocks and Uncommon Profits, one of the most important investment philosophies from Fisher is Scuttlebutt, which he also calls “the business grapevine”, in investing.  

Scuttlebutt is the use of the business grapevine to analyse a company. We can obtain the information from customers, employees, suppliers, academics, trade association officers, industry observers, etc. This information is crucial in determining the character of its managers and the potential of the company.  

A good company should exhibit unquestionable management integrity, own highly competitive products, be in a healthy financial position, have good cost control and be effective in its research programme. 

According to Fisher, even though it is hard to know quality of management, a good management team should possess the ability to carry out day-to-day tasks efficiently and have good long-term planning. The management should also have high integrity and maintain good labour, personal and executive relations. 

Fisher is a believer of growth investing. We need to select stocks that have great potential to grow their businesses. It will be a waste of time to hold on to stocks that have no growth potential. He believes that we can get capital gains by buying into these companies as their stock prices would go up in line with the increase in their intrinsic value. 

It requires extensive research before you can get one. Fisher said: “I don’t want a lot of good investments; I want a few outstanding ones.” These companies can be bought at high historic price earnings ratio (PER) because there is a possibility that their stock price is reflecting good news you don’t know about yet. 

The growth companies should demonstrate strong and well-directed research capabilities. These companies should also exhibit an above-average sales organization. Besides, they need to have a sustainable profit margin and good return on capital. Normally, these companies are the market leaders in the industry and have the advantages of scale.  

A consistent and predictable dividend policy will provide the minimum returns to investors. Although high dividends are good for investors, to maintain business growth, high growth companies need to retain a certain level of profits for future expansion.  

If a company is paying dividends with little retained earnings, it will cause lower reinvestment, which will affect its long-term growth. As mentioned earlier, the main returns to an investor is capital gain. He believes that buying into high growth companies will provide the capital gain. 

When to sell 

Fisher believes in long-term investment. According to him, the most important thing is to select the right stocks. “If the job has been correctly done when a common stock is purchased, the time to sell it is almost never,” he said. However, if we select the wrong stocks, we need to sell.  

We need to admit that we have made mistakes in our calculation. This attitude is important as not many retailers have the courage to admit their mistakes. Furthermore, we should not expect to be right all the time. We should be aware that we can make mistakes and we will make mistakes in our analysis, but more importantly, we need to learn from our mistakes.  

Fisher said: “The chief difference between a fool and a wise man is that the wise man learns from his mistakes, while the fool never does.” 

Fisher will only call a sell on a stock when the company or industry has changed and the stock no longer qualifies as a growth stock or a better prospect is available elsewhere. He will not sell a stock just because a stock appears to be selling for a significantly above average PER or because the stock price has increased.  

He believes that most investors always make mistakes by selling their stocks with the hope of buying them back at lower prices. In most instances, the investors miss the stock when it recovers. 

Tuesday, July 8, 2008

Now Is a Fantastic Time to Be a Value Investor


The Dow Jones Industrial Average reached its yearly low yesterday. The S&P 500 and Nasdaq are each down a minimum of 12% year to date, too -- and we're talking about broad-market indexes, including Bursa.

Now is a fantastic time to be a value investor. Really. With stocks so widely sold off, and with pessimism so pervasive, you should make like a bargain shopper and pick out a few of the values that seem to be screaming, "Buy me!"

Of course, it is always difficult to believe that stocks could possibly go up when every day they seem to edge lower. We're human, after all, and a constant downward spiral brings an overwhelming sense of loss and makes us remember prior market crashes, like the Nasdaq bubble at the beginning of this decade or the Black Monday Crash of '87. But if those memories make you want to shun the market, sell your stocks, and move to "safer" investments, let me be blunt: That's a recipe for disaster. The market crashes I alluded to before -- dot-coms and Black Monday -- were actually fantastic times to be net buyers of stocks. So although it may seem tough in today's chaos, now's the time to go shopping, because there are many superior companies trading at discount prices.

Citigroup recommends investor to buy shares in plantation, bank, telecommunications and property. "The market is trading at 11 times of next year's earnings after a 25 per cent fall this year. It looks very attractive. But no one looks at valuation now unless there is improvement on politics," he said. The broker has turned more bullish on Malaysia as it was convinced that recent policies, including the cut in petrol subsidy and the rise in power tariff are setting the country on the right path.

Thursday, July 3, 2008

Resort - 2008 Quarter Review


Received the below article from one of the fried:
Income Statement - 
Nothing major sticks out like a sore thumb here when comparing Q1/08 to Q1/07. 
Revenue grew slightly. 
Cost of sales marginal growth. 
Gross Profits okay. 
Other Income and expenses steady. 
Profit from Operations Good. 
Finance cost small and improved. 
No more big loss from Star Cruises. 
Taxes okay. 

In short, diluted earnings of 5 sen for Q1/08 looks okay.


Balance Sheet - 
There's no question Resorts Balance Sheet is very strong. 

Total cash recorded under Current Assets is $3.2 Bn. 

Under Fixed Assets, there is another $1.4 Bn of what comprises mainly quoted securities. The "other long term investments" recorded at $0.5 Bn does not reflect unrealized gains (per 2007 Annual Report, although I'm not sure what the value is today). 

However, the sharp eyes amongst you will have noticed that the sum of these 4 items have actually decreased from Q1/07. The question is where did that money go?

A quick look at the current liabilities showed 2 improvements. 
1. Trade payables dropped from $0.49 Bn to $0.405 Bn. 
2. Short Term borrowings also dropped from $0.18 Bn to $0.08 Bn.

Overall, Net Assets dropped slightly from $1.43 to $1.37, or from $8.2Bn to $7.9Bn, or $0.3 Bn drop. 

It is clear this is more than explained by the bigger drop in Fixed Assets from $6Bn to $5.4Bn, or $0.6 Bn drop. 

I view the drop in Fixed Assets favorably since Fixed Assets is normally a playground for valuation "games" amongst experienced accountants. Personally, I like to see RESORTS trimming its fixed assets. 

However, I note there is capital commitment to the tune of $0.66 Bn ($0.21 Bn contracted, $0.45 Bn Not yet contracted).

RESORTS has 5.9 Billion shares. Net Cash ($B) = 0.90 + 0.51 +1.11 + 2.13 - 0.08 = $4.57 Bn, or 77 sen per share.

Overall, nothing too worrying sticking out like a sore thumb. 


CASHFLOW STATEMENT
Operating Profit Before Working Capital Changes increased, which is good. 

They've used the cashflow to reduce their current liabilities (payables and loans) which is good.

RESORTS continue to invest $0.09 Bn in Q1/08 into Plant, Property Equipement like prior year.

They also bought back shares this year. 

My quick glance at the price charts show that Q1/08 prices are higher than Q1/07 prices, although one needs to closely examine at what prices they've bought back. Somehow, I don't think they are doing a good job here, since prices now (July 2) is at this year's low. Whilst buybacks are generally seen as positive because they reduce the number of shares outstanding and increase earnings per share, the price they pay to buy back is also very important. Still $0.03 Bn hardly dents the Net Cash, but something to watch out for.

VALUATION

Valuation is actually complex, but a very quick and dirty one is to look at current price of $2.50, less net cash of $0.77 = $1.73. If we assume yearly earnings is $0.05 x 4 = $0.20, then, this implies a business P/E of 1.73 / 0.02 = 8.6, which is getting in the region of a "value" buy. If exclude the net cash, the quick and dirty P/E is $2.50 / 0.2 = 12.5, which is also getting "interesting".


FUTURE PROSPECTS
Short term challenging but within the general view of "steady". Nothing terribly exciting, but not bad. Very solid business. Genting Highlands business is secularly cyclical, but when the good times comes back, business will be bomming bigger than ever before, although exactly when is unclear.

Disclaimer: As usual, buy/hold/sell at your own risk.

Breath


我們有左邊、右邊鼻孔,吸氣、吐氣時有沒有一樣? We have left, right nose, is that the same for inhale and exhale? 其實不一樣,可以感覺不一樣;右邊等於是太陽的意思,左邊等於是月亮.

Actually they are different, can feel the difference; right side represent the sun, left side represent the moon.

 

平常頭痛時可以用手把右邊鼻孔關起來,只用左邊鼻孔吸氣、吐氣,約五分鐘, 頭痛就好了。

When having headache, try to close right nose and use your left nose to do your breathing, about 5 min, headache will be gone. &n bsp;

 

如果疲倦、累了,相反的關起左邊的鼻孔,只用右邊吸氣、吐氣,不用多久,馬上 精神好起了。

 

If you feel tired, do it the opposite round, close your left nose and breathe through your right nose. After a while, you will feel your mind is fresh again.

 

因為右邊屬於火氣,比較會熱,左邊比較會涼。

Right side belongs to heat, so it gets hot easily, left side belongs to cold.

 

女生大部分吸氣、吐氣在左邊,所以心比較會涼快。

Most of the girls breathe with their left nose, so their heart gets cold easily.

 

男生大部分吸氣、吐氣在右邊,所以他們比較會生氣。

Most of the guys breathe with their right nose, so they get angry easily

 

我們起床時,可以注意哪邊吸氣、吐氣比較快?左邊或右邊?

Do you notice the moment we wake up, which side breathes faster? Left or right?

 

如果左邊比較快,覺得提不起精神,可以關起左邊鼻孔,用右邊呼吸,很快的精神會好起來。

If left is faster, you will feel tired. So, close your left nose and use your right nose for breathing, you will get refresh quickly

 

這也可以教給小孩,大人用更好。如果你有警覺心的話,速度更快。

This can be taught to kids, but the effect will be better if apply by elders.

  

當時每天晚上都頭痛,沒有辦法看書,有吃藥,也不是辦法。

That time, every night I am having headache problem, not able to study, I did take medicine, but that is not a good way.

 

有一天晚上靜坐,關起右鼻孔呼吸,這樣子做,不到一個禮拜,頭痛好了!持續做了一個月,從那天晚上到現在,一次也沒有頭痛過。 One night, I sit down and close my right nose and breathe with left nose, less than one week, my headache problem is gone! I continue to do it for one month, from that night until today, headache does not attack me anymore.

 

這是我自己親身經驗過,每一次我告訴別人,你們頭痛的話,試試看,因為我的身體有效果,很多人試過也有效果。這是一種自然的處理,不像吃藥會有副作用,不用呢?

This is what I experienced myself, I told others, if headache, can try this way, because this is effective for me. Many people have tried and it works for them as well. This is a natural therapy, not like medicine, taking for long term will get side effect. So, why not try it out?

 

經常清楚的吸氣、吐氣,身體會覺非常輕鬆。

Always breath correctly, your body can feel very relax.