Saturday, October 04, 2008

Tat Hong - Analysis of Purchase Part 3

In part 3, I will explore some of the regional prospects for Tat Hong, and also the Company's plans for growth based on their press release for 1Q 2009 (I also offer some comments for each point). But first, please see a snapshot of Tat Hong's fleet which I have summarized below:-



Comments on Company’s Strategies and Plans for Growth

1. There is a gradual shift to larger and bigger capacity cranes for rental and sales market - From the table, it can be seen that their fleet of cranes now consists of 42 cranes which are >250 metric tones, up from about 20-25 two years ago. The fleet also contains 82 crawler cranes between 150-249 metric tonnes, and the total fleet size has remained relatively constant over the last year, though the % of large cranes is higher now. These larger cranes can help to garner higher rental rates and also be sold at higher prices in a tight market. One important aspect of the Company's profitability is the utilization rate for cranes, which continues to remain high presently at around 75%. According to analyst reports, the Company's breakeven utilization rate is 45%, so there is still a margin of safety for them. However, there are risks that this can plunge in a protracted economic slump; but I am betting on the Management's astuteness to tide the Company through this difficult time (should it come).

2. The Company intends to focus on Singapore and Australia markets as key growth drivers in the coming years - Considering Singapore has the potential for many more construction projects, and that their Australian subsidiary Tutt Bryant has been actively acquiring companies to expand their market share, this bodes positively for the company.

3. Actively explore opportunities to secure more long-term structured rental contracts - The Group intend to negotiate for contracts which enable more stable and consistent revenue and cash flows so as to smoothen out the otherwise “lumpy” contractual nature of their current business.

4. Grow tower-crane rental business in China

a)
Increase size of JV rental fleet to 200 units by 2009 – This can be done by purchasing more units of tower crane gradually over time, in order to stock up in anticipation of lower supply in the market. However, care must also be taken to ensure that the company does not buy expensively, and end up with excess capacity which are unable to be rented out.

b) Expand presence into more PRC cities – I assume this will be done through more joint ventures. Considering the company has a strong reputation in S.E.A and is one of the global players, this should make it easier for them to find potential JV partners.

c) Expand through strategic acquisitions – Tat Hong are looking out for companies to buy over in China too, and in the current economic climate, they may very well be paying a discount for a good company as valuations in general are very depressed.

d) Targeting 20% contribution from China to the Group’s bottom-line by FY 2010 – This implies that the Company intends to grow their tower crane rental business and let it make up a significant portion of net profit (not just revenues). In order to do this, they need to scale up and make use of economies of scale to lower COGS in order to grow this business division. I see this as possible if Management is careful in screening potential acquires and joint venture partners, and receives government support as well.

5. Expand Australian Operations – Tat Hong’s aggressive strategy of using Tutt Bryant to acquire companies in Australia is bearing fruit, as their scope of operations in Australia has increased significantly. North Sheridan, Caradel Hire and Bradshaw are expected to increase earnings significantly in the near-term. Contributions from associates jumped 234% in 1Q 2009 from S$789K to S$2.6 million, and it is expected that more profits will flow from associated companies to the Group in future.

6. Tat Hong owns 70% of Tutt Bryant - A quick check on ASX shows that Tutt Bryant is trading at A$1.415 per share*, with a total issued share capital of 129,913,000 shares; effectively valuing the entire company at A$183.8 million. Tat Hong’s 70% stake will be thus worth A$128.7 million, or S$181.9 million using a rate of 1 A$ = S$1.4131. Thus, their 70%-share of Tutt Bryant makes up about S$0.36 per share of value.

*Note: This information was accurate at the time of preparing my analysis, the market value may have fluctuated since then.

Comments on Regional Prospects (extracted from Tat Hong’s 1Q 2009 Presentation)

i) Middle-East is most active and vibrant with respect to construction activities, fuelled by oil boom. Even though oil prices have dropped to US$106 per barrel, it still has spurred the oil companies and oil countries to ramp up construction and building. Examples of “modern” Middle Eastern cities are Dubai and Qatar.

ii) In Indian news on July 9, 2008, the Government has planned capital outlay of 23,849 billion Rupees over the 11th five-year plan. Forecast growth of 15.6% over a period of 5-years till FY 2012.

iii) For China, forecast growth rate for construction industry is about 11.3% per annum during FY 2008 to FY 2012. The industry is expected to be worth about US$315.32 billion by FY 2012.

iv) For Australia, there is to be a Building Australia Fund which will provide funding for US$20 billion worth of infrastructural projects over the next 2 years from budget surpluses. The industry is forecast to grow to US$106.04 billion by 2012.

v) Vietnam’s government is assisting the infrastructure and real estate boom and urban areas are rapidly developing, industrial areas are being built and the entire country is modernizing rapidly.

vi) Malaysia has inherent uncertainties relating to its political climate, but the construction industry is still expected to grow at a high average of 6.58% during 2008-2012.

vii) The total value of construction projects from Indonesia had hit US$51.92 million from 4,682 projects country-wide, not a large figure and there is definitely room for growth. The industry is expected to grow at an average rate of 5.74% for the 2008-2012 forecast period.

viii) For Singapore, the Government is deferring S$4.7 billion worth of public sector construction projects to 2010 and beyond. This is because of existing projects such as the IR, Marina Business Financial Centre (BFC) and downtown MRT line taking up much resources. In future, there will be other projects like the development of the Jurong Industrial area which will see new hospitals being built, as well as the Sports Hub and National Stadium in Kallang area. All these should provide sustained demand for cranes and construction equipment, of which Tat Hong is a beneficiary.


From the above, one can conclude that regional prospects are decent, and I am cautiously optimistic that the Company can grow its bottom-line by about 10% per year (a very conservative and "steady" growth rate). Though the future is never clear, I am basing my cautious optimism on the fact that the Company is one of the largest in South-East Asia (hence, less prone to down cycles which traditionally weed out smaller players) and that they have a robust fleet renewal programme in place which ensures they continually update their fleet to ensure good rates and high utilization.

On a side note, I had passed by some construction projects in downtown area and near Chinatown, and seen many cranes with the "Tat Hong" label on the crawler crane. It makes me happy to know that their cranes are being utilized for these high profile projects. I have also spotted Hiap Tong heavy equipment being deployed on some of these construction projects, but I believe Hiap Tong will wait for market conditions to improve before listing as they can get a better valuation then.

For Part 4 and the last part of my analysis of purchase, I will be using Buffett's 12-step approach as a framework to analyze the Company and my reason for purchase.

35 comments:

kanglc said...

Hi MW,

Thanks for sharing your analysis on Tat Hong. I'm also impressed with your forth-coming and open attitude in sharing your portfolio online. May you have a successful investing journey. (may we all!)

Well, I'm interested in adding 'infrastructure' to my portfolio. I think that given the current climate (credit crisis, inflation, uncertainties ahead), countries, especially developing countries in South East Asia, or Asia/Australia as a whole, and also, as you mentioned in Tat Hong's presentation, the Middle East countries (due to the oil boom), will be more willing to invest into infrastructure. So, by the time the economy turns around, foreign investments will be attracted more to those countries with better infrastructures. I am glad you are doing such in-depth analysis into Tat Hong, and I will be looking forward to reading part 4 of your analysis.

MakeTraffic said...

Hi MW,

Thanks for sharing your analysis on Tat Hong.

i am just curious, as a value investor, you would have calculated the 'fair' value of
Tat Hong, Could you share with us the numbers?

Why wouldn't you wait until the price drops some more to go in since it would give you more margin of safety and valuation?

This is something that i do not understand and would like to learn from fellow value investors.

Also looking forward to reading part 4 of your analysis. Cheers!

Anonymous said...

Hi MW,
Thanks for the writeup.

I did some quick calculation of EV/FCF for Tat Hong, and it didn't look cheap.

Based on today's price of $1:

EV = $579m
Avg FCF (ovr last 3 yrs, from your data) = $18.8m

EV/FCF = 30+

Even if you were to use FCF from the best year, EV/FCF will still be > 20. Doesn't look like a bargain even at current price, due to the high capex.

Am I wrong in my calculation? Thanks!

- caseyc

musicwhiz said...

Hi kanglc,

Thanks for visiting and also thanks for your encouraging words. May we all have a successful investing journey. The road may be bumpy but eventually we should see the rewards. :)

Cheers,
Musicwhiz

musicwhiz said...

Hi maketraffic,

I don't really calculate an intrinsic value for a company. For me, I prefer to use PER as a rough gauge and support my analysis with other factors (intangibles). Everyone has their own method of analyzing and each person's is different.

At the time I bought, I will not know if the price will rise or fall. I am just buying based on value. It is almost impossible to time the market and I don't see any point in trying to do that.

Regards,
Musicwhiz

musicwhiz said...

Hi caseyc,

Sorry you got me confused. What is "EV" ? Expected Value ? What significance does this EV/FCF have in analyzing a company ? What is it supposed to tell us ?

I am not saying you are right or wrong. I just hope to be able to understand your rationale for the computation. High capex alone is not always a good way to judge if a company is good, or not good. Hope you can elaborate, thanks.

Regards,
Musicwhiz

Simon said...

yo mw,

as we know, banks r very careful abt giving loans to companies. does swiber or ezra has any vessels that have not had a firm contract with their customers? if im the bank, i might be afraid to even lend to such companies for their vessel purchases where they do not even have a confirmation from their customers. is this of any concern to you?

Anonymous said...

Hi MW,
EV = Enterprise Value = Market Cap + Debt - Cash.

It's essentially the "Takeover Price" that someone has to pay to take over the company completely.

You can think of EV/FCF as the P/FCF ratio, or an enhanced P/E ratio.

Earnings is of little use to shareholders if most of it needs to be plough back into the company to maintain machinery, which is why measuring it against FCF is better (IMHO).

In Tat Hong's case, although the P/E is decent, the EV/FCF (> 30) seems to indicate that it's not a worthwhile purchase.

Let me know if I'm wrong, thanks!

- caseyc

musicwhiz said...

Hi Simon,

Thanks for your comment. Yes I had said this before on many of my Ezra and Swiber postings. Each company will ensure they have a firm offer of a contract on hand by a potential customer before they begin to construct their vessels. Of course, one other risk is counter-party risk (if the counter-party goes bankrupt). But that is a risk facing all companies now, not just those in the O&G sector. One must manage their customers as well as suppliers well.

Regards,
Musicwhiz

musicwhiz said...

Hi caseyc,

OK I understand the term enterprise value and I have heard of this formula. But I am curious as to why you are using the "takeover" price to assess the company as it is not exactly a takeover target; therefore this formula may not be relevant in this case.

You said earnings are of little use if it needs to be ploughed back to maintain machinery. I must correct that. It's cash which needs to be used to maintain machinery, and most companies with manufacturing facilities have to spend this kind of money anyway to maintain their fixed assets. Moreover, Tat Hong is a rental company and not a manufacturing company so I don't expect this expense to be high. I feel the FCF alsready shows the net-net figure after spending on capex and repairs. Using Enterprise Value further complicates the situation and may not be an appropriate measure.

Just my views though, appreciate your contribution to this discussion. :)

Regards,
Musicwhiz

Anonymous said...

Hi MW,
Thanks for the comments.

Comparing EV to FCF (more correctly, FCFF) is quite common, actually. Here's a FOOL article that describes it better than I did:

http://www.fool.com/investing/general/2004/02/13/two-with-hidden-value.aspx

Basically, I'm a little concern about the low FCF yield for Tat Hong.

I'll wait for your last installment on this before I decide if it's something I should look at further. Thanks again for your writeup!

- caseyc

Simon said...

hi mw and all...
this is just some thoughts and would welcome comments from all and sundry.
...looking at swiber right now at 72 cents compared to mw's buying price of S$1.01, i can't help but feel there is always a sense of market timing. now there's value everywhere, but if i ask you guys to buy swiber now, or suntec, or pacific andes etc, u probably say 'wait, i think it will go down further'. even mw commented once b4 that the market will trend down further. isin't that market timing?
and it's not just swiber, you can't deny the fact that so many stocks have been trading at fantastic value just a few months ago! if i was a pure die-hard value investor, i would have plunged in a few months ago and busy licking my wounds right now..moreover, so many stocks have busted the 'safety of margin'...so how? was i wrong to have put money in a few months ago? yes, u can't predict whether prices will go up or down, but i definitely don't want to be the sucker loser to be buying a stock that is 30-40% higher than it is now.

Anonymous said...

hmm...read somewhere that 1% depreciation of the AUD reduce tat hong's earnings by 0.5-0.6%. the AUD is down 25% year to date.

musicwhiz said...

Hi caseyc,

Will read up the article and get back to you when I post my last portion on Tat Hong. Thanks !

Cheers,
Musicwhiz

musicwhiz said...

Hi Simon,

We can never tell Mr. Market's mood swings. I for one am slowly injecting money into the market as it goes lower, to average down my cost. Of course, I do this if I see that it's worth it to average down. I maintain my horizon for my companies is still at least the next 3 years.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Yes, I think it was mentioned in one of the analyst reports. Note that they are just using estimates. Also, my horizon is long-term so such sharp fluctuations in spot rates do not concern me.

Thanks,
Musicwhiz

PC said...

"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You cannot buy what is popular and do well." -- Warren Buffet

"Buy low and sell high" is the most important investment rule!" -- Jim Rogers

Simon said...

hi mw,
as we know, market goes in cycles, up and down, up and down, especially for the asian market where both earnings and valuations goes in cycles.
so when you hold it for long term and for at least 3 years, in the end, aren't u going to try to sell it during the subsequent up-cycle, (or even worse during the down cycle...)?
so isin't better to sell it at the first up-cycle rather than wait to sell at the 4th or 5th upcycle after, let's say, 10 yrs? in that way, you can profit from the 4-5 cycles in between.

and do u think warren buffet is a long term investor? i definitely don't think he is. he's a value investor, but not long term investor. when the price for the value gets too high, he sells. he doesn't wait for the next cycle..he doesn't have a designated number of yrs he is going to hold the stock for, unlike you...look at what he did to petrochina. he did such a fantastic job by dumping petrochina at the peak of the mkt after holding it for such a short period of time. now he's scooping other asian stocks again and i bet he won't be holding on to those forever.

mw, i think u r a fantastic value investor, but your 3 yr benchmark is going to cost u a lot...

PC said...

MW, fyi, I enclosed Citi's recent review on Tat Hong, dated 8th Oct'08. (Click on my initial 'pc' to get the respective file in pdf.)

Simon said...

mw,

ferro just went bankrupt cos they couldn't refinance their debt. this is despite the fact that they have never said anything abt encountering problems.
so u can't really just believe what management says or think everything is ok since nothing was disclosed.

and if u remember, a few months back, i have been commenting (a number of times!) abt the concerns abt swiber and pac andes, abt whether they will encounter any problems refinancing their debt. if im not wrong, u quoted mgt as saying they do not have any problems.

Ferro's past profit growth have been astounding. lots of operating cash flow. their business is doing extremely well. gearing ratio and other ratios look ok. but once they can't refinance their debt, wham! there goes the company....

so all high-gearing companies are highly suspect, especially those small s-share companies and those in businesses which are cyclical, out of favour and likely to be hit by the economic slowdown, like o&g, shipping, property, construction.

i mean, just imagine you read in the newspaper abt all the bankruptcies, the economic slowdown, the deteriorating world trade etc, and this small o&g or shipping company comes to you for a loan. do you think u'll lend this guy money no matter how well the business was for the past few years? i don't think so man...

i know this may sound over-simplistic, but that's what's going on.

musicwhiz said...

Hi PC, thanks for the file. Have noted that Citigroup changed their valuation method from PER to PTB, which confuses me a lot. You mean analysts can just change their method of valuation to justify target prices ? I would think they are taking a very pessimistic view of the business and the fact that Management has managed to grow it to this stage.

Regards,
Musicwhiz

musicwhiz said...

Hi Simon,

I know WB is not long-term in the sense, he holds on when he sees value. I see continued value in the companies I hold, notwithstanding factors which are totally unexpected. In the light of the recent downturn, I have also reviewed the companies in my portfolio.

Boustead is cash-rich and should not face issues except maybe debtor defaults.

Tat Hong is an established company and has cash reserves to tide them through. This recession will of course hit them but I believe they can bounce back after several years.

For Ezra and Swiber, there is still demand in the O&G sector (despite what people say about oil prices crashing, US$40 is the breakeven level for most companies). Note that Ezra had got a loan of S$500 million as recently as August 1, 2008; while Swiber has entered into a sale and leaseback to free up cash for their expansion. I would also assume they have no cash flow problems as they have been buying back shares (a company would be extremely dumb to buy back shares if it had problems with refinancing its loans !).

In the instance where you quoted Ferrochina, I note that theirs is a manufacturing business and differs greatly from Ezra and Swiber where they are on longer-term contracts. Ferrochina also has to refinance due to its commitments and if you note they have NOT been buying back shares; neither have they announced any recent initiatives to boost their cash levels or that they were able to secure more funding.

Moving on, Suntec REIT and FSL Trust are not a concern as they are yield plays and unlikely to go belly up.

For China Fish and Pac Andes, their long operating history and market dominance gives me comfort that they are able to weather the downturn. Note that these are not "newbie" companies but have established themselves as big players. PAH and China Fish's debt will partially mature in FY 2009 and needs to be re-financed, but their operating cash flow should be fine.

That said, it's still a risk investing in companies with high debt at this moment. I can't rule out that something funny might happen but I certainly hope my choices based on my research will turn out to be right.

Thanks,
Musicwhiz

Simon said...

hmm..talking abt swiber, it's down quite a lot on very big volume today. usually not a very good sign....think u should take notice of such charts and not always think the mkt is wrong and behaves 'erratically'...

PC said...

"The lesson you have to learn here is, no one is going to protect you but yourself." ^_^

Biz professors say worst yet to unfold

UGA economic forum

By Lee Shearer | lee.shearer@onlineathens.com | Story updated at 11:35 pm on 10/8/2008

A trio of University of Georgia business professors offered some hope to worried UGA students - if not to their parents - in a panel discussion on the global financial crisis Wednesday.

It may be hard to find a job, and unemployment rates could get as high as 10 percent or 11 percent, panelists said.

But the downturn won't last forever, said economics professor William D. Lastrapes.

"In the long run, things will get better," he said.

The long run can take awhile, said another panelist, real estate professor James Kau.

"Land prices in Chicago didn't get back up to what they were before the Depression until 1970," Kau told more than 400 people in an overflowing classroom at the Miller Student Learning Center on Wednesday.

The economic drama is just beginning, said Chris Cornwell, head of the UGA economics department and moderator of the discussion.

"I think we're only in the first inning," he said.

Kau said the U.S. government's $700 billion bailout plan to help stabilize the economy instead will make the recession worse.

The bailout will balloon and cost taxpayers trillions of dollars, Kau said.

The recession would end more quickly if the government let shaky banks go down, Kau argued.

A bailout of savings and loan banks during the Reagan administration would cost $33 billion, the government said then, but actually cost five times that much, he said.

"The government can't buy their way out of this. I think the government is heading for a very serious problem," Kau said.

But the cost of doing nothing could be very high, Lastrapes argued.

"Nobody has the courage now to do nothing," Lastrapes said. "One of the reasons the Great Depression was so depressing was the inaction of the banking system."

Many observers point to deregulation as a chief culprit in the financial meltdown.

But a better answer would be less regulation, Kau argued.

"I guarantee Wall Street people can write a derivative (a kind of investment) that can get around any regulations," Kau said.

The U.S. government's backing of troubled mortgage companies such as Freddie Mac and Fannie Mae gave investors a false sense of security as housing prices boomed in the late 1990s and early 2000s, the panelists said. Investors need to know that investments carry a risk, Kau said.

The U.S. simply may be living beyond its means right now, according to Christopher Stivers, a banking and finance professor. The U.S. total debt - what the government owes, what we owe on our credit cards and other kinds of debt all added together - now is 330 percent of the U.S. GDP, or gross domestic product, compared to 170 percent two decades ago, he said.

The scholars' answers did not get to the heart of the economic mess, however, according to semi-retired pharmacist Karen Radde, who got up to speak in a question-and-answer period during the forum.

"Where is accountability? In the whole scheme of things, there has been no accountability," Radde said.

"The lesson you have to learn here is, no one is going to protect you but yourself," Kau said.

"But I've done everything I could do to protect myself, and I had a $10,000 Lehman bond that is no more," Radde said.

"You just got unlucky," Kau said.

Originally published in the Athens Banner-Herald on Thursday, October 09, 2008

PC said...

MW, for the benefit of those retail investors who're vested in Tat Hong and have been reading your blog here, consistently; I also enclosed Credit Suisse's recent bullish review (Maintain Outperform) on Tat Hong, dated 9th Oct'08. (Click on my initial 'pc' to get the respective file in pdf.)

8percentpa said...

Hi Simon,

Value investing is just a style. There are a few guidelines on how to do value investing, eg. buy with margin of safety, don't time the market, look for co.s with stable earnings etc.

However if you follow them strictly like a science experiment procedure, it is not going to work.

Ultimately investing to make money is an art, artists can follow a few styles, bold strokes, or draw like Monet, iffy iffy and looks good from a distance, or Picasso's style whatever.

Value investing is just one style. One that people believe and I believe has a better chance to make money.

Investors are also like artists, millions will falter and a small % can make a living as an artist and only a handful become masters.

Simon said...

hi 8%,

tat's the idea im trying to get across. but it seems from mw's website, he's just following it like science, always thinking the market is irrational, not bothering to find out why prices go up or down, not digging up more on mgt and their actions during the last financial crisis, etc. i think these are elements that we have to look at.

musicwhiz said...

Hi 8percentpa,

Yes, agree with you on that. One must learn to be flexible and analyze situations to see possible pitfalls.

Regards,
Musicwhiz

musicwhiz said...

Hi Simon,

I don't think it's fair to say I follow it like science. That will be more "graham" style I think. A lot of intangibles have been factored in but of course the current credit crunch is more severe than what everyone expects. Thus, the old assumptions may have to be changed. But that still does not mean I did not take a lot of factors into account.

Thanks,
Musicwhiz

Anonymous said...

read the bold parts. it's very true, particularly in a long bull mkt...

ANNANDALE, Va. (MarketWatch) -- Earlier this week, in reporting that contrarians did not believe the market had bottomed, I suggested that "When genuine capitulation finally takes place, few will recognize it as such at the time."
I also wrote that "an eagerness to declare that capitulation has occurred probably means that it hasn't." Read my Oct. 7 column.
In today's column, I want to focus on a related way of assessing whether a major bear market is nearing its final low: A gauge I first introduced more than 15 years ago that I call the "Market Timing Popularity Indicator."
This indicator measures where the average adviser lies between the extremes of buy-and-hold and market timing. Historically, buy-and-hold tends to reach its peak of popularity at market tops, just as market timing becomes most out of favor. The inverse tends to be the case at market bottoms.
For example, that means that, as a bear market approaches its final low, at least a few die-hard believers in long-term buy-and-hold throw in the towel and become latter-day converts to market timing.


That has yet to happen, however, at least as judged by my reading of the 200 newsletters monitored by the Hulbert Financial Digest.
Consider some of the comments made over the last couple of days by the buy-and-hold oriented newsletters on the HFD's monitored list:

*
"At the risk of sounding like a broken record, I urge you to stick with my earlier advice, and stick with your long-term investment plan. Running to cash may sound like a good idea on days like today, but you'll almost certainly miss out on the gains when the market starts behaving more rationally."
*
"It's important to know that markets have lost this much before and that things will get better. It's just a matter of time... We know that it is critically important to be invested when the market turns around... It's important to remember that the U.S. economy remains the biggest, most resilient and adaptable in the world. Better days and better markets lie ahead."
*
"It is not easy to keep our eyes on the three-to-five year time horizon, but history has shown that these are the times when those with iron stomachs have been greatly rewarded... My overall faith in the long-term prospects for equities and the long-term health of the U.S. economy remains strong."
*
"You need to have a plan [and you] also have to be realistic about your goals. On days like we've seen recently, with the market declining 700 points at a time, you have to know that there will be setbacks, but that you're working towards the pot of gold that will be there once the storm clouds clear."

I could go on and on, but you get the idea.
Let me stress that I don't necessarily disagree with the arguments these newsletters are making. I also want to emphasize that many of them have stellar long-term records.
Regardless of whether you or I agree with these buy-and-holders' arguments, however, is irrelevant. My point is instead that, at least historically, some die-hard adherents to buy-and-hold eventually give up the faith -- when things get bad enough. And when this conversion does take place, a bottom is probably not that far away.

Take the end of the last bear market, some five years ago. Just a few days prior to the ensuing bull market taking off, one of the newsletter arena's staunchest supporters of buying and holding declared that he had changed his mind and that he now believed it was essential to be a market timer. My column reporting this change of heart appeared on March 11, 2003, the exact day of the successful retest of the market's bear market low. Read March 11, 2003, column.
To be clear, the timing of that column five years ago was lucky; I would never claim pinpoint accuracy for this market timing model -- or any other, for that matter.
Still, it is worrisome that, unlike what has happened at bear market bottoms in the past, we have yet to see adherents of buying and holding becoming converts to market timing. End of Story
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

passerby said...

Judgin by the latest price movements, it's no secret that some of mw's past crown jewels like Swiber, Ezra, Boustead are dropping like new born chicks off the nest.

It's always easy to spin a story that sounds logical and rational, and just charactise all price movements as "mr market mood swings" when market vaulations go against the theory. I'm with Simon on the issue that one needs to investigate price movements in more detail rather than brushing aside.

That's why I tend to side with the other guy during one of the earlier debates when he noted that mw was just relying all his investment decisions on what management says and their so called financial statements.

Some of the recent companies who got into all sorts of trouble never gave any sign of anything unusual before that. That's why I always believe that one must try to diversify as much as possible.

musicwhiz said...

Thanks Anonymous,

A good article indeed, but it still does not give much foresight on what may happen in the coming weeks or months with respect to the market. I still think that concentrating on my companies and their underlying health may be a better strategy.

Regards,
Musicwhiz

musicwhiz said...

Hi passerby,

It's very strange that you call my companies "past crown jewels". Are you implying that a company is good on the basis of a high share price ? Then I think you may have to revisit your concept of a good company, because the last time I checked, good companies were defined by good financials, good corporate culture, good and prudent Management and strong fundamentals. Market price had nothing much to do with it.

If you really think price movements had something to do with underlying fundamentals, I would say you are probably right about 2-5% of the time, as is the case of Ferrochina and China Printing and Dyeing. In most other cases, it's just Mr. Market's mood swings as he cannot differentiate between good and bad companies and just conveniently thrashes them ALL.

In relying on financial statements, one is looking at just the numbers. I have also read industry reports, news on economies and other financial news; and not narrowly focused on company financials. It's not right to say my focus is very narrow; I just never declare how much reading I do just to keep up with the companies I own.

Can you name a few of such companies ? Ferrochina's case was highlighted by JP Morgan in a report a few weeks before they imploded, and other companies which died sudden deaths already were loss-making or suffering severe cash crunches.

Thanks,
Musicwhiz

Anonymous said...

Hi MW,

Tat hong seems to have a sizeable business in Australia.

Would the crash in Aussie affects its earnings?

Regards,
Cautiously Bullish

musicwhiz said...

Hi Cautiously Bullish,

Yes in the short-term their earning will be affected negatively. But in the long-term things should stabilize and earnings should trend up, I believe.

Thanks,
Musicwhiz