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Wednesday, November 04, 2015

Buy low or Buy High

TA says, buy, when the price is up
FA says, buy, when the price is down
Which advice should you take
Depends on whether gold or silver is what you wish to make

Both can be profitable
If cleverly implemented
Gains could be wondrous
Otherwise, result could be disastrous 

The stock market is full of traps
There are bull traps, bear traps and value traps
Learn what they are
Be knowledgeable to avoid being trapped

You can buy low and sell high
Or buy high and sell higher
which strategy you use is up to you
Just make sure the strategies are not foolishly abused

Saturday, October 24, 2015

Budget 2016

Budget 2016

Sadly lacking in this budget is that nothing is done to mitigate corruption, cronyism and the abuse of power which are the causes that bring hardship to the people of a nation. 

No plan is also put in place to restore the value of our depreciating ringgit, and nothing much is done to improve our security and to promote tourism.  

Building cheap and affordable houses for the low-income and middle-income group is a good move. As housing has a big multiplier effect, many industries will benefit. Those companies involve in cement, iron, bricks, sand and other building materials will benefit. Consumables such as household utensils, electrical, wood-based and plastic products will also be in demand as new homes require all these necessities.

The lowering of corporate tax by 1% is good for the stock market. This will probably be reflected on Monday when Bursa starts trading. 

Construction companies and those involve in food production will probably see some improvement in their prices. The former will have much to do as transportation and other infrastructure activities come on line. The latter will benefit from tax incentives.

Sabahans and Sarawakians will benefit much from this budget as many goodies are in place for them. 

Overall, this budget is not doing anything to bring about the prosperity of the nation. 

Sunday, August 30, 2015

Tides, Waves and Ripples

Stock prices have three movements. They are known as the tides, waves and ripples. The primary trend is the tide, the secondary trend is the wave and the daily movements are the ripples. 

When you are watching the movements of the sea, it is difficult for you to know whether it is high tide or tide. But if you plant a stick at the shore where the water reaches it, and watch the wares coming in and going out you can easily determine whether it is high tide or low tide. When the waves that come in show higher marks on the stick, you know it is high tide. In a low tide, the marks will be reversed.

In stock prices, you look at the highs and lows. A higher high and a higher low means that the market is on an uptrend. A lower high and a lower low indicates a downtrend.

Bear in mind that trends move in trends. This means a trend in motion is likely to continue in the same direction. Thus, you do not buy in a downtrend or sell in an uptrend until the trend is reversed or has shown signals that it is about to reverse. If you do not know TA (Technical Analysis), charts will be of no use to you. 

An investor will not worry about the ripples which are the hardest to forecast. But to a day trader, these movements are the ones that matter most.

A day trader does not carry position overnight. Make or break, he will clear his position at the end of the day. 

Can a day trader make money? A professional one probably can. But for an ordinary one, his chance is close to zero. He may win some and lose some, but on balance over a year, he is likely to lose. High transaction cost which includes stamp duty is high. It eats away your profits, if any. 

The problem with most traders is that they tend to over estimate their skill. They think they are professionals when in actual case, they are not. When they win, they say they are good, but when they lose, they say luck is against them. 

From my experience, I find that when you invest, it is easy to make money, but when you trade, it is difficult unless you are really good.

I have always consider myself an investor. However, there people who consider me as an trader. 

Well, If I am a trader, then, I must be a great one, simple because I have been making lots of money in the last fifty over years. 

Wednesday, June 03, 2015

A Fantastic Turnaround

Malaysian National Reinsurance Berhad, the country's national reinsurer was set up in 1972 to limit the outflow of reinsurance premiums overseas. The company commenced operations on 9 February 1973.
In 2005, as a result of a restructuring exercise within the MNRB Group, the company's reinsurance license, business and assets were transferred to its subsidiary company, Malaysian Reinsurance Berhad. Pursuant to the restructuring, Malaysian National Reinsurance Berhad became an investment holding company and changed its name to MNRB Holdings Berhad (MNRB). Today, MNRB is listed on the Malaysian Bourse (Bursa Malaysia). Its market capitalisation stood at RM1.02 billion as at 23 July 2014.
The MNRB Group comprises leading wholesale providers of reinsurance and retakaful as well as a takaful operator. Its reinsurance subsidiary stands tall among the top reinsurers in the region, writing lines of general businesses locally and abroad. In Malaysia, its takaful operator vies among the leaders in the provision of Islamic financial protection services based on the takaful system.

10 reasons why I like this company

1. Big Turnaround

From a loss of RM20.1 million in the previous quarter to a net gain of RM76.9 million in the quarter ended 31.3.15 is an achievement. The momentum in earnings is likely to extend into the next quarter.

2. High NTA of RM6.32 as at March 31, 2015

Compared to its market price of below RM4, the NTA is a safety net.

3. Group Profit of RM127 million is commendable

Despite hefty provisions for claims relating to the MH17 tragedy and the disastrous floods in Kelantan, Terengganu & Pahang, the company is able to made 59.9 sen per share for the year ended 31.3.15.

4. Low Price to Earnings

Based on EPS of 59.9 sen and the price of 3.90, the PE is at 6.51. This is undemanding for such a good stock.

5. It wholly-owned subsidiary, Malaysian Re (Dubai) Ltd (MRDL) which contributed much to the bottom line is rated ‘A’  by A.M.Best Co and Flitch Ratings.

6. Appointment of new CEO

A proven leader, (accordingly to the Chairman of MNRB) Zainnudin Ishak has been appointed as the new CEO on April 01, 2015. Being new, he is sure to be going all out to prove himself as a capable leader. He is likely to bring the group to a new level of growth. 

7. The company has a dividend policy of paying 40% of earnings as dividends.

8. Next quarter earnings are likely to be good as the group has done well in the past for quarters ending in June. 

9. Recently, Malaysian Re has been granted approval by BNM to conduct General and Family retakaful business. This is likely to bring in more profits. 

10. With a new and proven CEO at its helm, I believe that the company will be lifted to a new level of growth. Hence a much higher market valuation by yearend is expected. 

Buy at your own risk. 

Sunday, May 24, 2015

Investing Without Tears

Investing is never 100% risk free. No matter how diligent and careful you are, a certain amount of risk is there. But with some knowledge and a good strategy, risk can be mitigated. Here are some guidelines:

1. Be an investor not a trader

Every stock has a company behind it. If you do an in-dept study of the company and you are convinced that the company is fundamentally sound and that your principal is safe in addition to an adequate return before you buy, you are investing. 

2. Don’t buy liabilities

A company with high gearings and no earnings or very little earnings is a problem company. It is a liability. Don’t buy it; don’t buy somebody’s problem. 

3. Follow the trend

Prices move in trends. A trend in motion is likely to move in the same direction. Follow it. When you see higher highs and higher lows in a chart, that’s an uptrend. A down trend is when you have lower lows and lower highs. 

4. Avoid the herd mentality

Just because all your friends are buying a certain stock, and therefore it is safe to follow, is a wrong way of thinking. In the stock market, there is no safety in numbers. You need to think independently as an investor. 

5. Be aware of what is cheap and what is low price

Many people assume that a low-priced stock is cheap. In reality, a higher-priced stock is often cheaper. You must look at the intrinsic value before you decide which is cheaper relative to its price.

6. A stock market is not a casino

The stock market has no mercy for those who treat it as a casino. All amateur gamblers lose money. Trading and speculations are akin to gambling. 

7. Be aware of your own ability

The problem with most people is that they tend to over estimate their own ability. 
Imagine what chance you have if you pit yourself against the professionals who are there ‘playing’ the market full-time.

8. Insist on value when you buy

A stock has three prices. It has a market price, a book value and an intrinsic value.
The market price is easy to understand. It is the last traded price at the end of a trading day. 

The book value is simply the net tangible asset (NTA) as shown in its balance sheet. 

The intrinsic value is the most difficult to calculate. I do not know of any formula for this. At most, it is only an estimation. You have to factor in many metrics such as barrier of entry, calibre of management, earnings potentials (present and future) growth prospects, patents, etc.

So, what should we do? For me, I make it simply. I look at the track record relative to its earnings, earnings growth and dividend yields. The higher these are, the higher the value. 

Buying a stock at high earnings per share (PE) is risky. Unless the forward PE is  expected be much lower, avoid stocks trading with high PE. (A PE of over 16 is too high for me.) 

To value a stock, here are some metrics or key ratios to consider: EPS( earnings per share); D/Y (dividend yield); NTA (net tangible assets); PEG (price to earnings growth); NPM (net profit margin); ROE (return on equity); D/E (debt to equity ratio) C/R (current ratio); PCF (price to cash flow). One other thing to carefully consider is the core business of the company. Here, you need to think about barrier of entry, patents and competition.

9. When is the best time to sell a stock

Close to 100% of all stocks will at one time or another be selling at extremely high valuation that they should be sold. At other times, they will be selling at overly undervalued prices that they should be bought. We want to sell a stock when it is very much overvalued.

Understanding the value of a stock is crucial in this respect, and with the help of technical analysis, you have the advantage of the competitive edge.  

10. Control your emotion

Taking action for action sake is a weakness that many people fail to control. Some people need to move in and out of the market often enough to overcome boredom. 

They forget that transaction costs eat into their earnings. 

Buy and sell with good reasons and not simply with intuition and the need for action.

Following the guidelines mention above will go a long way to help you to invest intelligently. 

If you like the above article and wish to join my group known as “Intelligent Investing” please install Telegram into your phone and contact me.  My number is: 016-9321849 

Monday, April 27, 2015

An above average-company at below-average prices

In early 2014, PRK was the subject of a capital restructuring and repayment exercise. The investment arm of the Perak State Government (PSG) and some other parties had proposed to privatise the company at RM3.90 per share. Sime Darby considered the price too low, and as a result the proposal did not materialise.  Indeed the price was too low considering that the NTA value of PRK was at that time more than RM5 plus per share. 

PRK had a 15.74% stake in Integrax. Recently it sold this block of shares to TNB at RM3.25 per share. This will add in some RM153 million to the coffers of PRK with a gain of about RM50 million or 50 sen a share. 

Before this transaction, PRK was already cash-rich with RM100 million in cash although it had about an even amount in debt. 

PRK is building a township in Perak and in a joint venture with the Sanderson Group to develop a theme park in the vicinity of its township. The Sanderson Group is a specialist in operating theme parks. Hence, the success of this theme park is likely to be odds in favour.

The media has reported that the theme park would be ready for operation by early 2016. There is bound to be some furore when the theme park is launched. This will have a positive impact on the price of the stock. At the last traded price of RM2.96, this is a buy. 

The PSG has failed to privatise the company in its first attempt. I don’t think it will stop at one. I strongly believe that it will make another attempt in the not too distant future, probably within the next 12 to 18 months. It could even be within the next 6 months. The offer if it does come could be as high as RM4.50 per share. This is not a wild guess but a logical conjecture. 

I am long on the stock. I intend to accumulate more before it shoots above the RM3.30 level. This is an above-average opportunity to make a good profit. 

Whatever action you take as a result of this article, you do so at your full responsibility. In other words, you buy, sell or hold the stock at your own risk absolutely. 

Thursday, March 26, 2015

MMSV My Stock for 2015

I highlighted MMSV on Dec 08, 2014 as a good buy at 53.5 sen. 
At 11.50 am today, the share price has gone up to 62.5 sen. This is an increase of 9 sen. Together with the interim dividend of 1 sen, the gain is 10 sen or 18.69% over a period of 3 months and 18 days. While this is not something to shout about, nevertheless, the gain can be considered as commendable. 

What is the status quo of MMSV now? Let us take at look as its latest balance sheet. As at 31 Dec 2014, the key statistics are as follows:
Share Issued: 163 ml shares
Par Value: 10 sen
Revenue for the year: RM39.691 ml
Net Profit: 10.645 ml
Net Profit Margin: 26.343%
EPS: 6.41 sen
Total dividend for the year: 2 interim dividend of 1 sen each
Total non-current assets: RM9.922 ml
Total current assets: RM30.468 ml of which RM15.715 is in cash and cash equivalent
Total equity: RM31.402 ml
Total non-current liabilities: RM503,000 
Current liabilities: RM8.486 ml
Current ratio: 3.59
Quick ratio or acid-test ratio: 2.72
Return on equity: 33.90
Debt to equity ratio: Not applicable, as the company has zero borrowings

Some of the things I like about this stock are as follows:

Current ratio of 3.59 means that the company is solvent and solid.
Its cash position is high. Thus, the company does not have any cash problem.
The Return-on-equity ratio of 33.9 shows that the management is competent.
As for growth, the company’s profit has surged 109% in 2014 when compared to the profit of the preceding year.

Inter alia its filings with Bursa are the following statements:

Financial period-to-date against preceding year corresponding financial period 
The Group’s total revenue of RM39.691 million for the year ended 31 December 2014 marked a hefty increase of 49% (RM13.017 million) as compared to RM26.675 million reported in the previous financial year. The higher revenue was contributed by the higher volume of machines delivered to meet the surge in the market demand of smart phones/devices together with the LED related products. This higher revenue was attributed to the Group’s ability to penetrate into the niche market of smart phones/devices. 
Profit before tax surged by a significant 109% (RM5.479 million) to RM10.510 million from RM5.031 million in the preceding year, mainly attributable to the increase in revenue coupled with the favourable forex gain during the financial period under review. 
  • Prospects
    The Board of Directors foresees that the current positive market momentum will enable the Group to continue delivering another good set of results for the quarters to come. The Board is confident of reaping benefits arising from the continued growth of both the LED and smart devices industry. Besides, our huge cash resources will come in handy for use of the Group in any future prospective business opportunities that may arise.
    The Board is also pleased to announce that the Group has obtained approval in principle from Malaysian Investment Development Authority (MIDA), a 10-year 100% tax exemption under Pioneer Status for one of its subsidiaries. This is a very promising development which bodes well for the Group’s future.
  • Conclusion
  • My view is that this stock will have a good run in 2015 and beyond. The present price is a good entry point. 
  • As usual, you buy at your own risk.