Merdeka

Happy Merdeka, Tunku ! You are always in our heart.

 

Tales of two salemen

Salesman A : I am going this rural town to explore new business opportunity.

 

Salesman B : I will be going there to assess the market too.

 

After their trip to the rural town, both salesmen reported back to their respective company on the viability of setting up the shoe business over there.

 

Salesman A : Boss, cannot do ! I spent the entire day and noticed that almost all the people do not wear shoe ! If we set up our shoe business there, surely there will be no business. We should only go to places where people wears shoe.

 

Salesman B : Boss, wonderful ! I spent the whole day and noticed that nobody wears shoe and thus it is a huge market opportunity. Give them the awareness to wear shoe to protect their feet. If we set up our shoe business there, it will surely flourish. It is a new business frontier.

This is a story I think many might have heard before. It is about 2 salesmen have different opinion on how they view business opportunity on a particular same situation.

*****

 

I see the above story is quite relevant to our stock investment. Essentially, stock investment is like putting our money into a business which we think it will flourish over time. The business model must not only sustainable but must have plenty of opportunities to expand. It is not good enough just maintaining the current rate of doing business. Revenue must increase over time. Profit will catch up as the company will improvise to reduce cost as the company understands more deeper and have more knowledge about the business over time. With revenue increasing and cost reducing over time, the only thing that sure will go up is profit.

 

Back to the relevancy of the above story. A good businessman or salesperson will see great opportunity ahead in an uncharted territory while other will take the easy path of following the established market. Of course it will be safer to join the established market but competition is higher as you will be the newcomer up against the big guys. Investing in stock market is the same. A good investor or value investor will see great opportunity ahead at time when the company is moving into uncharted business territory. Average investor will normally shun this type of company until they show good results. Granted. But by the time the company shows good results, the average investor like you and me will not be fast enough to see it. By the time we see it, the big guys are already in it and the average investor will have to fight it out with them or with everyone i.e. chasing after stock and end up buying at higher price which by then there is lesser room to go up further. Sadly, this is what most average investors do, that is, only take investment action when price started to move up, but not based on company's business fundamental. Company's business fundamental has been relegated to second priority. Even though it is nothing wrong with this, but it is not wise strategy. You will end up just another story of Johnny comes late. Surprisingly, many an average investor is contented with such situation.

Currently, stock market is full of pessimistic sentiment. Have you heard of this quote - "Maximum pessimistic is the best time to buy and maximum optimistic is the best time to sell". The problem is when maximum pessimistic has set in, we already short of money to buy because we already fully invested at the time of maximum optimistic. Whilst I don't fully subscribe to this quote but certainly there is one or two things to learn from this quote. I would advise investor to set out their investment goal first. Once you have set your investment goal, any situation of the stock market is time to buy or sell. I have set my investment goal for OCK since June last year. Here. You see, there were so many strong ups as well as many terrible downs since then until now but I have been patiently stood my ground because I have set my investment goal for this company right from the start. If I have sell or sell-then-buy-back which is the most favourite strategy among retail players, I think I would not have make that kind of profits as it is now. From what I gathered, the next four months will be interesting months for OCK. Yes. I can't wait for the New Year to come. The company has announced their quarterly results. Good or bad, you judge yourself or wait for analyst's report (this will be another Johnny-comes-late case again). But I am certain this will set a new tone for a better results for the coming quarters.

As for Hovid, the company has announced their full year results. Revenue improved and profit dropped slightly. I am satisfied with the results. As expected, not much of excitement. The company announces a dividend of 0.5 cents and this is good for any long term investment.

 

Its price (Hovid) closed at RM0.41 on 28.08.2014.

Its price (OCK) closed at RM1.40 on 28.08.2014.

Presbhd - bruised but certainly not out

Admittedly, this month is not a good month for Presbhd. As usual, many analysts have come out to caution about the company's missed earning target. If one were to go by purely on the analyst's call, one would be very busy buying and selling stock. Is this not will make us a short term player? In fact analyst will give out recommendation every 3 months or so which is coincide with the quarterly reporting session. It means that if one is to strictly follow this routine, one will end up buying or selling every 3 months or so. And this of course will make your broker very happy. Imagine if you only make investment action to buy or sell once every year, your broker will be out of business very soon. Of course, there is nothing wrong for these analysts to chunk out report after report. After all, it is their job to do so. But think about this. Have you ever wonder why analysts or research houses are so generous to publish their reports for the public to read for free? Ain't these reports are meant for their private investors or clients only? Or are they truly doing it for free public service so that everyone can make money together? If everyone makes money, who loses money then?

 

Yes. Presbhd stock price takes a beating recently particularly the last two days. This mainly because the quarterly earning results is not so good, so the analyst said. Let's take a deep breath and relook at the profit numbers for the last 4 quarters : 14Q2 (7.0mil), 14Q1 (6.4mil), 13Q4 (10.7mil) and 13Q3 (12.3mil). I concluded that the numbers are decent. And don't forget, the dividend keeps flowing in.

 

In conclusion. What I am saying is that the decision to buy or sell or hold is entirely yours which must be based on your investment goal. Certainly investment goal is not and must not depends purely on analyst's report alone. What happen if one analyst says buy and another analyst says hold and analyst says sell. I, for one, will never sell just because one quarter results did not meet the target (who decides the this target anyway). As long as the business structure of the company does not changed, there is no reason for me to follow the analyst's report. Be patient. It is not end of the world.

 

Good luck.

 

Its price closed at RM1.90 on 28.08.2014.

Google Inc & Apple Inc's Share Price War

With KLSE market is kind of unexcited recently, it is good to take a back seat and relax and take a look at outside world, particularly the US market.

I always have a strong interest in Google and Apple stocks. Not only because I have some very small interest in Google stock but also because these 2 companies are so prominent in our life. I think no one can deny that almost everyone in this planet knows what Apple is famous for as well as what Google is famous for. Of course there are other brands too that we are so used to like Coca-Cola, Samsung, Microsoft, Facebook etc. Most Malaysians can easily connect to these brands one way or another. Even the young kids know who they are. Coming to think about it - do Malaysia has any product that have prominent presence at world stage? Perhaps AirAsia, SP Setia, Petronas .... how about Tongkat Ali? I don't know. 

Apple Inc. split its share for 7-for-1, converting a share that closed at $645.57 to seven shares valued at $92.22 on the morning on 09.06.2014. Currently AAPL is at $100.30 a share which is nearing the company's intraday high, and Google Inc. split its share for 2-for-1 on 03.04.2014, although in a different fashion. In the stock price increase war since the events, Apple has won handily. The anticipation for the iPhone 6 has overwhelmed Google’s growth dominance in Internet advertising, both on PCs and mobile devices.



Its price at one time crossed $1,200 a share before the share split

In the past three months, Google’s shares have risen 8%, which is less that the 10% advance in the Nasdaq. Apple’s have spiked 16% over the same period.

 

The two tech giants are among the three most valuable, based on market cap, of any company traded on U.S. exchanges. Exxon Mobil Corp. (NYSE: XOM) rounds out that group. Apple’s market cap is $439 billion, Exxon’s $403 billion and Google’s $257 billion. For comparison, the entire market cap for KLSE is $556 billion which consist of one thousand over listed companies.



Its price was hovering around $640 a share before the share split. With its price closed at recent high above $100 a share or equivalent to $700 a share, this reminiscent of the good old days

Google holds the edge in recent growth. In the most recent quarter its revenue rose 23% to $16 billion. Apple’s revenue rose 6% to $37.4 billion. Although operating income and balance sheet considerations are also part of any evaluation, each company is wildly profitable and carries huge cash positions. Growth companies continued to be measured by their top line improvement ahead of almost all other considerations.

 

Google and Apple share one thing in common. Each tends to be analysed primarily on one measure. In Google’s case it is search advertising, and in Apple’s it is iPhone sales. Both companies have plenty of other businesses. Among Google’s most important are Android and YouTube. Neither brings in enough revenue to be terribly important. Apple has its media distribution and app business, along with iPad and Mac sales. Very few analysts look at these smaller businesses over Apple’s flagship smartphone.

 

Unlike Google, Apple is largely a single-event company. It launches a new iPhone every year or so. Its market value is pegged primarily to the success of each iPhone generation. A poor launch can hinder its stock performance for months. Google, on the other hand, has relied primarily on the performance of its original product, which has improved, but not changed radically, since the company went public a decade ago. All of this goes to say that if the iPhone 6 release meets with a poor reception, Apple’s share performance and Google’s will change places.

Its price (Google) closed at $592.54 on 22.08.2014.

Its price (Apple) closed at $101.32 on 22.08.2014.

The secret is unveiled

Someone up there is cursing the newspaper editorial for publishing this article for what may considered as unveiling the secret pack that has long being practiced in the stock market. It is an unspoken rule that everyone knows what is happening but no one will talk about it outside their circle lest ruffle the feathers.

This is what the paper said - "For retailers, ultimately value investing is the game". What the paper is trying to say is that speculating in stock market is not for retailer players. And this was what I said before.

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"" .... Apart from Sumatec, the bulk of the shares were traded in two other stocks, namely, Globaltec Formation Bhd and PDZ Holdings Bhd. The three stocks have a combined market capitalisation of RM2.6bil, which is a fraction of the entire market capitalisation of Bursa Malaysia that stood at RM1.76 trillion yesterday.

The large trading volumes of stocks should not be a reason for retail investors to invest in stocks. Fundamentals should be the primary reason. The large volume is a game for a select group of market participants called proprietary day traders, or better known as stockists.

There are about 80 of them attached to various brokerages in Bursa Malaysia. Their job is to trade for the brokerage as principals. They don’t have any clients. The stockists can buy and sell as much as they want in a day. There is no limit imposed.

They are not imposed any brokerage fees but have to pay stamp duty and clearing fee to Bursa Malaysia based on the value of trades done. The duty is capped at RM250 or less, while the clearing fee is minimal.

A brokerage will normally place their stockists in a room where they conduct their buying and selling operations with minimum disruptions. Even phone calls are restricted.

The stockists can short-sell stocks without having the shares in hand. But they have to cover their positions by buying back from the market before the end of the day’s trading.

The profit from buying and selling are shared between the brokerage and the stockist. Normally 60% goes to the brokerage and the trader gets 40%. However, an “ace stockist” can command up to 90% of the profits. But the stockist has to absorb all the losses.

Normally, the brokerage will hold the profits of the stockist and pay out only after a year. An ace stockist can earn RM10mil or more a year by just being a principal stockist for the company.

But there are limitations to what a stockist can do to generate the volume of stocks. They generally shy away from stocks that are more than RM1 and that have a small paid-up capital.

Apart from having to incur a higher clearing fee, normally stocks that are held tightly tend not to have enough shares in the market to generate the volume without causing a substantial rise in the price.

The typical targets for a stockist are stocks that are priced at less than RM1 and that have a large share capital. For instance, Globletec Formation, which is an amalgamation of three stocks that were involved in manufacturing automotive components, has a capital of more than 5 billion shares.

Some companies like to see the activities of the stockist because it supposedly adds excitement to the market, not to mention to the stock as well.

But there is also a view that the stockists hold an unfair advantage over the normal investors because they can short a stock or take long positions several bids higher.

This allows a few stockists to “gang up” and deliberately cause a panic sell-down of a particular stock.

For retailers, ultimately value investing is the game. Value stocks may not have the kind of volume one would like to see nor would it be cheap. But it attracts the kind of investors who generally take a long-long term view.

Berkshire Hathaway Inc, the flagship listed entity of Warren Buffett crossed the US$205,000 per share mark last week, making it the highest-priced stock on the New York Stock Exchange. Despite calls from shareholders to split the stock, Buffett has stayed firm in refusing to undertake such an exercise on the grounds that it would attract a “different breed” of investors that he does not fancy.

A hard-to-trade stock encourages investors to take a long-term view and cuts out those trading on emotions. This is something retail investors should take heed of. The volume game in trading stocks is not their cup of tea. It is only for a select few. "" - The Star 23.8.2014

.....

What gives, Mr Bursa

Yesterday major newspaper screams market is very hot will high transaction volumes. Retail players certainly have their field day with high excitement and expectation. FBM SCAP index has crossed 19,000 points multiple times and racing to reach 20,000 points. As I write this, the transaction volume has exceeded yesterday's transaction volume. But surprisingly the trade values is more or less the same as yesterday's. Loser counters outnumber winning counter by 4 to 1. It shows today focus is very much on penny of the penny stocks. Some commentators even claimed that a lot of hot money has flown in. But it would be naive to believe hot money flows in to pick up penny stocks.

With the current market sentiment, I get excited too but not for the same reason like many people. It seems the party has 'started'. For good or for bad, it depends which side you are at. When penny stocks play has become the main theme, it is the sign of the beginning of something and at the same time it is also the sign of the-end of something. There will also be opportunity but that opportunity has to be cautiously measured. Most brave retail players will see current penny stock play is an opportunity to make quick kill for money. It is a game of the fastest competition of in and out. No more technical analysis or fundamental research. Some will said sarcastically - "technical analysis, fundamental research? What's that? Waste time la." Some even go further "Before I could finish reading the research report, I could probably have make several in/out from the market in fastest time even faster than my eyelid blinks and make money. Hell with the research report." I, for one, am happy with such sentiment but not for the reason to make quick kill, even though I did make a few quick punts just for the fun of it. Just for the fun of it. Because I know I will never get burnt with this. I just want to get by the day filled with fun actions. So that there is topic to chat about whenever get around together with friends. Similarly like betting on golf game. Whoever loses, he has to pay for the lunch meal for everyone. Never about money. Treat your punt this way, you are safe - mentally and emotionally, most important your wallet. But never forget your main goal is to make good money for long term. Penny theme play like this will come and go even before you know it. The one that makes the most good money is long term investment in good stocks.

What interested me now is not the current penny stock play euphoria, but rather what's next that is in store for us. What has Mr Bursa planned for us after this. If you can understand this and plan along with it, you will be more prepared for what come may. Stay invested. Stay safe and good luck.

Google - thank you

Google Inc. - thank you

Previous story here.

Its price closed at USD 574.64 on 14.08.2014