Saturday, October 11, 2008

A Value Investor's Test of Resolve

I shall type this post purely from scratch and this is based on the thoughts that I had rationalized over the last week as the stock market had taken probably the worst slide in the last 21 years (since the 1987 market crash). I intend to cover a few areas so please bear with me if the post seems haphazard, I am trying to organize my thoughts as I type and if there are some ideas which seem disjointed, it's because this is a rather "ad-hoc" posting.

What we have witnessed in the past 2 weeks is probably the worst rout in the history of stock markets, and for some time to come no doubt. I shall not go into the details as every major newspaper and website would have covered the events to death, sounding more doom and gloom to an already panicky cauldron of potent witchbrew. Mr. Market has shown time and again that he can be extremely emotional; as one year ago he was irrationally exuberant and bidded up the share prices of companies to lofty valuations. Now, exactly a year later, he is ferociously thrashing every one who made him look like a fool for being such an eternal optimist. I was reminded of some sections of the "Intelligent Investor" which stated that in a bull market, you'd worry about not making as much money as your neighbour; in a bear market, you just worried about whether your money will dwindled to absolutely nothing as the value of your portfolio dips by 50-60%. But I digress.

I am here to categorically state that as I am HUMAN too, I was affected by the emotional roller-coaster unleashed by a manic Mr. Market, and I was rather distressed throughout the whole week. This being my first true bear market (and a savage one at that), the severity, intensity and consistency of selling has truly amazed me. Reading books on such selling is one thing; actually witnessing it is an altogether different experience, one that I certainly won't like to experience too many times in my life. However, I would like to state that I did NOT capitulate and sell all my shares in a panic, even though the recent news on Ferrochina's bankruptcy and China Printing and Dyeing's scandal have further exacerbated my lingering worries about the financial health of my companies.

Being an aspiring value investor, I think the most rational and prudent thing to do would be to do a quick review on the underlying health of my companies:-

1) Ezra - I had sent the IR department an email on their loans and whether refinancing was needed or would be a problem. I also clarified if they were going ahead with their MSFV plans as industry conditions are more uncertain now. The reply was that they had no problems with their business as they had secured long-term charters with National Oil companies and International Oil majors (lower counter-party risk), while the Group had built up strong branding and relationship with their bankers over the years and there was no risk of the banks "pulling the plug".

2) Swiber - Some indications of their financial health are the consistent share buy-backs which Management is making, and also the recently sealed third sale-and-leaseback deal. Do recall that not too long ago in March 2008, the company raised S$100 million in bonds (at 4% interest rate) which have a 3-year maturity (maturing in FY 2011). As there is currently no announcement of their Equatorial Driller, this means that the company will not proceed to build it as yet and therefore does not need to pay a deposit to the yard, thereby saving more cash. I have also personally spoken to the Management, CEO and BOD and found them to be intelligent businessmen who know how to run a company; and they all have rich experience in oil and gas industry. Some Management also consist of talents such as Mr. Glen Olivera who has many years of offshore drilling experience; thus he would know how to properly run the ODS division.

3) Boustead - Off the cuff, I recall that Boustead had a cash hoard of about S$150 million as at 1Q 2009, and this will probably be boosted further by the sale of a property announced earlier in the calender year. All their projects are proceeding smoothly including the many projects Boustead Projects won in FY 2008, as well as the Al Marj township contract in Libya and the various O&G contracts too. With their strong net cash position, this is the company I'd worry about the least; and Boustead may also be on the quiet prowl for a suitable acquisition target which they can acquire cheaply as a result of the global turmoil. In addition, the company has been using its cash hoard to buy-back shares cheaply at prices which can be deemed under-valued, as a way of enhancing shareholder value.

4) Pacific Andes (PAH) and China Fishery (CFG) - It is true that these 2 companies are highly-geared, and are at risk in such a credit crunch. Of the 2, I would think Pacific Andes is more at risk than China Fishery because PAH operates on a very low net margin but with high gearing nonetheless. The good news is that most of the capex and financing is needed by CFG and not PAH, and many of PAH loans will not be due till late CY 2009. CFG has strong operating cash inflows and their balance sheet, though geared, has many assets (e.g. permits, fishing vessels) as collaterals to the banks so I don't see a problem where banks will pull the plug. Also, note that CFG, unlike Ferrochina, does not intend to incur significant capex to expand since they had already done this in FY 2007 with the acquisition of the Peruvian fishmeal operatons. In fact, Chairman Ng Joo Siang said in CFG's FY 2007 AGM that they intend to be prudent and keep cash. That was back in April 2008; so I don't think they will be reckless and over-extend. I trust in Management's capability as CFG, PAH and PAIH have been around for at least 10 years.
5) FSL Trust - After attending the EGM, I am of course not happy to learn that the DPU will probably have to be cut as a result of the dividend reinvestment scheme. But at least FSLT does not have a vessel pipeline coming up and they do not have to scramble for funds to pay for these vessels. Their aim now is to preserve cash and maintain their portfolio, rather than grow which is impossible as they cannot tap the frozen debt markets and the depressed equity markets. Hence, although FLST's yield will probably fall in the coming quarters, at least I can be assured of some cash flows and that there is no danger of them imploding. *Note too that the USD:SGD rate has actually risen to nearly 1.48 in recent weeks, therefore this may offset the effect of the lower USD DPU (recall the previous 2Q 2008 DPU was based on an exchange rate of 1.41+).

6) Suntec REIT - The recent collapse of a Japanese REIT has raised renewed fears of REITS being unable to refinance their huge borrowings to acquire real estate assets. Suntec had just secured financing for a bridging loan to acquire the 1/3 stake in ORQ, and this will be a 3-year loan at competitive spreads. The press release also states that Suntec REIT WILL NOT have any refinancing to be done in FY 2008 and FY 2009, thus only by FY 2010 will it need to refinance its loans. Thus, though DPU and yield may be affected, I do not see any further danger to the REIT as a going concern.

7) Tat Hong - I bought this company recently due to its strong operating cash flows from 12-18 month locked-in leases and its cash balance was S$79 million for 1Q 2009. The Company has also been buying-back shares from the market and I don't think the Management will be silly enough to buy back shares when they have loans to refinance. Their gearing is 0.38 and though they spend quite a bit on capex, note that they have FCF to back them up, and that the CEO Roland Ng has said that with the impending slowdown, they will build up their cash reserves by selling inventory. Note that when times are bad, people rent (they don't buy). Tat Hong's aim is to become a rental company and as computed in Part 2 of my analysis of Purchase for Tat Hong, gross margins for crawler crane rental can go as high as 60-65%.

After this objective review of my companies which has calmed my jangled nerves somewhat, it is time to comment on some of the remarks, suggestions and reponses I had on my blog (and through private messages on forums which I visit). These range from the good (encouraging), the bad (how could you have let all your profits evaporate and be in a net loss position ?) and the ugly ("I told you so !"). The thing to do, of course, is to ignore the callous and those who are in the position to gloat on my "failure". For at least I can hold my head high and say I invested with proper prudence, research and I had done my homework. Even if I were to lose money, I lose it with full knowledge that I had made an error and I will seek to modify my value investment style to accommodate the error. Moreover, my horizon is 3-5 years for the companies I own, and I see this recession as a setback to their growth, but it will not make them topple like bowling pins.

As the title of this post states, this vicious bear market is the ultimate test of a value investor's resolve and how he stands up to repeated criticisms on his style. Advocates of market timing suddenly pop up to point fingers and tell value investors that they should have timed the top to sell and then bought back at the bottom, not realizing that this is 100% hindsight investing, isn't it ? To have conviction is to be steady and not falter even when everyone around you is losing confidence in you, and is the most difficult test of all. Those who are more diplomatic have stated that I ought to be more "flexible" to accommodate the future (i.e. the credit crunch); but no one could have guessed it would have snowballed to this acute extent. I do concede, however, that I need to improve on my analysis in order to be a better investor, and that there are still more things to be learnt in order to be a more rigorous value investor. I still reject the idea of market timing as I don't think someone can get it right over and over consistently. My aim, I reiterate, is to own well-run companies which can give consistent returns, and I shall NOT deviate from this philosophy whether it is a raging bull market, or a depressing bear market.

Lastly, I would advise those who post comments to be diplomatic and tactful. I will not hesitate to delete comments which I think are rude, tactless, insulting or blatantly deragotory.

87 comments:

Anonymous said...

WOuld u not considering company like SPH, STE and OCBC as more a safer LT investment company ?

Ricky said...

Hi MW,

I do consider you a very astute investor, having read your posts in the forum before. I do not believe many investors made profits in this kind of market. Maybe traders.

So, heads up. 2-3 years down, you'll probably look back and think this was your finest moment yet :)

musicwhiz said...

Hi Anonymous,

It's not that I don't think blue chips are good, but their size usually means they have limited growth potential; but they are stable and yield good dividends.

At the current stage of my life (in early 30's) I would prefer to invest in growth companies with some yield (a more aggressive investor). When I reach close to retirement age (60+, 70+), I will consider parking my funds in stable blue chips for dividends.

Regards,
Musicwhiz

musicwhiz said...

Hi Ricky,

Thanks, that's a very encouraging statement to make and I appreciate it amid these uncertain times.

I intend to drill down more into the businesses I own to see if there is further value; and I will decide if I wish to average down further accordingly.

Regards,
Musicwhiz

Anonymous said...

1. Aren't you being too optimistic? Which mgt will say that their company is in trouble to investors until they can't deny it when creditors start knocking on their doors?
An intelligent mgt is insufficient to guard against trouble ahead.
A company that has been around 10years doesn't mean it will not suffer during a credit crunch.

2. Who said that value investors don't sell shares when they are clearly overvalued? Even Buffet does eg. Petrochina

musicwhiz said...

Hi Anonymous,

Good points ! Let me address them:-

1) Your view of "optimism" stems from what you have observed happening to companies which have tumbled because of poor cash Management or corrupt Management. I dare say that this is a minority of all the listed companies on SGX. When an investor invests, we take a risk with the Manageement and implicitly put our trust with them. Precisely, a company with 10-years or 100-years of history may still tumble and fall like Lehman Brothers; so the point here to ask is - was the company taking on excessive risk, was it leveraged to the hilt and aggressively expanding ? Circumstances are company-specific and you cannot use a large paintbrush to tar all companies, or use a generalized statement, I feel.

2. Value investors do sell when over-valuation occurs; problem here of course is in assessing the meaning of "over-valuation", which can be very subjective. In my opinion, the companies I own still have much potential for growth and probably many more good years of dividends ahead, so there is no reason for me to sell them right ? You may argue that it was over-valued during the bull market of 2007, but temporary over-valution based on historical PER does not signify that I should sell, as I use a forward-looking metric (detailed for each of my companies) to assess the investment value of each company.

Regards,
Musicwhiz

Simon said...

yo mw,

i have to disagree with u that blue chips have limited growth potential. there are plenty out there with outstanding track record, long history, survived through previous crisis and best of all, trading at fantastic valuations. i think this is the opportune time to scoop some up. some of them has extremely solid business models and competent management. the time to look at it closely is NOW.

i know some so-called value investors just shun them becos they are lazy (yes lazy!). they see that the business covers a lot of different areas, they see the tons of financial statements and they avoid the whole company, and in the end they say they 'don't understand' the business....

well...my answer to them is they better start understanding them!. most of these blue chips are crowded trades and has more likelihood of being sold down more than they deserve. this should attract the attention of those opportunists out there.

MakeTraffic said...

Hi MW,

Just want you to know that you are a diligent investor doing a fine job of research and anyalsis. Keep up the good work! Not many people i know did the kind of analysis like what you did.

You are an encouragement, at least to me, to continue my path as a value investor.

Cheers, Maketraffic

AT said...

Hi musicwhiz,

Am not a value investor myself, but i do follow your analysis. I find it logical, detailed and easy to read. I would like to commend you on your diligence and conviction.

There are many ways of investing. You know yourself best, and you understand that your temperament and style suits value investing (not many have it). Although its not easy to be 100% objective when one is already vested, you do try your best and accept criticism.

In today's market, there's hardly anyone who has not suffered losses. Not many have the guts to post their portfolios up for review. For such a high beta portfolio, your paper losses are impressively small.

The number of people who read and respond to your blog(including detractors) is already a huge testament to your efforts as a value investor. More importantly, your responses show your level of maturity and strength of character.

Keep it up, keep your head and keep learning friend! Our attitude determine our altitude.

Anonymous said...

Hi Musicwhiz,

I have been constantly reading your Blog for sometime now and for a "newbie" like me (i just started investing this year) i find your blog extremely helpful in helping green investors like me to understand more on the logic, details and reasonings behind making investments. (everytime i read your new posts i know i still got a lot to learn :p)

Thanks for all the help you have given me. (really appreciate it!)

Just to let you know, I mainly go for dividend play due to the nature of my character (humji) by vesting only in Reits (First Reit, CIT) and infracture/property/investment/shipping trusts (MILF, Cityspring, MacookPSF, Babcock, FSL, Rickers). Im sitting on a heavy paper loss right now at ~40% (excluding the dividends i received) which is a lot worst than yours but im confident that as long as i dun sell and with the dividends still comming in, im ok. :)
A lot of my "not close" friends are also making fun of me right now gloating me, which i relate to the situation you are in right now with people leaving nasty comments in your blog gloating you, just ignore them ba :).

Regards, Winston

PS: Appologies if theres lots of spelling mistakes as im working night shift now and a bit blur blur..

Anonymous said...

Dun worry too much.....

The stock market is a voting machine in the short run and a weighing machine in the long run.
- Benjamin Graham

Anonymous said...

Hi Musicwhiz,

Would you see a doctor if you are feeling great and energetic? Most probably that you will only be consulting a doctor when you are not feeling that good.

The lastest crash of the global stock market has prompted you to make a review of all companies you owned. Have you ever thought why would you want to do that? Something for you to ponder about.

Cheers,
learn2win

musicwhiz said...

Hi Simon,

Most blue chips will find it very hard to maintain high ROE and growth rates because they have a large equity base and their conglomerate structure means it is difficult to grow ORGANICALLY. However, they can definitely still grwo by acquisitions.

You seem to imply that some value investors are "lazy". Have you forgotten the circle of competence concept ? Some investors simply do not have the expertise to analyse companies with such diverse operations and intricate structures. It's not a matter of being lazy. If you were a General Practitioner (doctor), would you dare do a heart bypass surgery ? I won't say it's because one is lazy, one simply may not have the skill or expertise to do so.

Value investors should concentrate on what they understand and are good at, without feeling compelled to examine blue chips just because they are blue chips. Remember, some blue chips may also fall by the wayside if they are not properly managed or if they lose their competitive edge.

Regards,
Musicwhiz

musicwhiz said...

Hi maketraffic,

Thank you, please continue to share your insights.

Regards,
Musicwhiz

musicwhiz said...

Hello AT,

Thank you for visiting and posting your thoughts. I will continue learning and improving, that's what humans should do anyway.

Through this blog, I've also learnt that people can be caustic, unkind and insulting just because it makes them feel good. I myself am a person who loves to share and help people whenever I can, I won't gloat when people fall by the wayside or encounters obstacles. What some these people are doing is like seeing a dying kitten and then giving it a final kick to put it out of its misery.

It has taught me to be more stoic and to be less affected by criticism, and to take praise where its due.

Cheers,
Musicwhiz

musicwhiz said...

Hi Winston,

Don't worry, I am sure you'll be fine once Mr. Market regains his composure. There is no such thing as asset prices being weird and crazy for extended periods of time, unless the entire capitalistic structure of our economy goes awry !

Appreciate that you took some time off from your night shift to post comments on my blog.

You take care !

Musicwhiz

musicwhiz said...

Hi Anonymous,

Yep, I will read Benjamin Graham's book again whenever I feel that asset prices are detached from their fundamental values. It's not easy to keep a clear head when 99% of the world is pessimistic and telling you to sell everything from your shares to your mother.

But I will perservere.

Regards,
Musicwhiz

musicwhiz said...

Hi learn2win,

Thanks for bringing up this interesting point, I would like to engage you on it.

You said the crash made me review the companies I own and why I would want to do it. Perhaps you did not notice that every half-month (in fact every day), I have been keeping track of my companies through reading, research and tracking their announcements (if any). It's not like a brand new thing to be doing a review as it's what I do all the time.

Call this a special urgent review if you wish, for fundamentals of the world have changed and of course I have to revisit my assumptions. A value investor's greatest fear is if he was wrong in his initial assumption, as he makes concentrated bets. I think I chose my companies not just on the basis of financial statements or sparkling profit figures, but also based on a set of intangible factors like strong Management team, good management of cash, experience, high barriers to entry industry and other factors.

Therefore, the latest review is merely to assure me that the companies have not deviated too much from their original planned growth strategies, or that they will not face any short-term problems due to the severity of the credit crunch.

I think you would agree that investing involves a certain amount of gut feel and confidence in predicting if the companies you choose can weather downturns and/or recessions. No one can get it right all the time and even Peter Lynch says that if an investor can get 6 out of 10 investmentsd right, it's already an enviable record on Wall Street (that's a 60% success rate). So if at least 5 out of 8 of my companies are able to do well 3-5 years down the road, I would be quite satisfied. Note that even Warren Buffett did NOT get it right all the time; it's just that his correct decisions more than outweighed the effects of the wrong ones.

Thanks,
Musicwhiz

Gary Teh said...

Hi Musicwhiz and all,

Mark my words you will do well...let's reflect this thread in 2013 and you'll see your portfolio triple from here and that is just a minimum.

Indeed this are trying times...which is an understatement...more like panic.

In relative terms my portfolio has been decimated by about 25% overall. the figure is skewed and not representative as I still have 65% cash. So in actual fact my equities has been decimated to say the least down almost 40+%. what can I say...sad on one, happy on the other.

Anyway, I've been very active lately, re balancing my portfolio and gradually increasing my equities portfolio as I am certain that this is a once in a lifetime opportunity to buy equities at rather silly prices.

I've also also sold and realized losses and reinvesting the proceeds buying companies that are potentially 10 baggers 5 years down the road.

Although it may seem counterintuitive but I sold blue chip companies that have held up relatively well such as SPH to buy into HoBee and REIT's, Shipping Trust as on a relative basis those companies have a potential to far outperform when the market eventually turns 6-12 months down the road.

30% yield (on current price)on FSLT is incredibly ridiculous so are many other REITs and strong second liners.

For the S chips, I'm buying but albeit with more caution although it is REALLY causing me to salivate at this price levels for the following .. China Zaino, China Sports, China Milk, China Sky, Sinotech Fibre.

At the same token, a lot of small midcap in the NYSE is trading below Net Current Asset which no debts and very clear earnings forecast.

The prices reflected now are pricing in a deep recession but I don't think it will happen here. Regardless, cheap can get cheaper and I'm allocating my cash over the next 12 months to be 90% invested in equities.

Gary Teh

wsteh@johsntech.com

Gary Teh said...

BTW, I would suggest that if you do want to re-balance your portfolio, wait for a typical bear market rally and sell into those rallies...then wait for the market to tank again before buying into companies you do want to invest for the loooonnnng haul.

Anonymous said...

Hi Musizwhiz,

Thanks for your comprehensive explanation on why you would do an urgent review of the companies.

Having a routine/annual checkup on your health and doing an adhoc checkup because you are feeling unwell cannot be the same right?

Stay happy and I hope you all the best.

Cheers,
Dennis

Anonymous said...

“Great minds discuss ideas; Average minds discuss events; Small minds discuss people.” -Eleanor Roosevelt


Hi MW,
The crisis in front of us is a once in a lifetime opportunity. I would rather spend energy looking for good companies, than to respond to negativity (both on your blog & forum).

You're a wonderful human being, and I think you'll do fine. Just ignore the noise.

- caseyc

Anonymous said...

Encouragement

Hong Kong fund manager said
" For a specialist stock-picker like Value Partners, this is a bad time, since we are losing money even on
fundamentally very attractive companies, but we believe there will come a time when this will also be seen as
a period of opportunity, for we now have a buyers’ market in which a little money can buy a lot of value. "


Value Partners Classic Fund (formerly known as Value Partners “A” Fund)
Commentary / Third Quarter 2008
With a loss of 11% in September, the fund has declined 36.7% in both the first nine months of this year and
the past twelve month period. In September, there was nowhere to hide: the Hang Seng and MSCI China
indices fell 11.2% and 16.6%, respectively, during the month – and they are down 30% and 42% year to date.
For a specialist stock-picker like Value Partners, this is a bad time, since we are losing money even on
fundamentally very attractive companies, but we believe there will come a time when this will also be seen as
a period of opportunity, for we now have a buyers’ market in which a little money can buy a lot of value.
This point is illustrated by a 29 September announcement that Warren Buffett’s Berkshire Hathaway group
intended to purchase a 10% stake in BYD Co., a Hong Kong-listed company that is a global leader in making
batteries for mobile phones as well as assembling complete phones for such brands as Nokia and Motorola.
BYD is also a car manufacturer with expertise in battery-powered vehicles. BYD’s stock soared, up 64% on
the week in heavy trading (closing on 3 October at HK$13.78, compared to the 26 September price of
HK$8.40, just before the announcement).
Clearly, the profit potential is huge once investor confidence comes back, for BYD is far from being the only
attractive business in our universe. In the specific case of BYD, Value Partners’ funds currently own 12.7% of
the company’s “H” shares (“H” shares refer to that portion of the company’s issued shares that have been
listed in Hong Kong, and are currently the only shares available for public investment), as has been disclosed
through public filings, making us the biggest owner of the “H” shares and making this stock among the 10
biggest holdings in Value Partners Classic Fund. We bought the stock from April 2006 and held it despite a
very weak performance for much of this year.
(Also noteworthy is that prior to BYD, Warren Buffett’s group had made only one other substantial purchase
of a China/Hong Kong stock: oil producer PetroChina, and again, this stock was among Value Partners’
biggest holdings at the time. Value Partners’ funds started accumulating from April 2000, after PetroChina’s
stock fell below its IPO price, while Berkshire Hathaway made its purchases in 2002 and 2003, paying an
average HK$1.63 per share. At its peak exposure in January 2004, Value Partners Classic Fund was 8.5%
invested in PetroChina, at an average cost of HK$1.44 per share.)

Simon said...

hi mw,

yes! i wasn't jsut implying, but saying some value investors are lazy and just use the 'outside my circle of competence' as an excuse not to look into blue chips in detail.

but not you, pls don't get me wrong. despite having a daytime job, the level of detail you put into your analysis is truly astounding. and the fact that you continue actively blogging is already an achievement itself (unlike other 'value' investors who just disappeared when the mkt started turning!)

then again, i think u should still look at other things...but..it's ok to agree to disagree. =)

troy said...

Hi musicwhiz, I consider myself as a value investor like you. And I must really give credit and praise for your blog. It is insightful and shows the meaning of "due diligence".

In these times when the market is irrationally panicky, there are also strategies to protect your portfolio. I have been buying put warrants as a hedge against the downside, and selling off some of my "value" holdings in anticipation that the negative sentiment will continue for a while. It is clear to me that the market is irrational, and rather than sustain a paper loss (which is still a loss), I get out and stay in cash until the sentiment stabilises. In a way, I'm timing. But I see it as hedging.

I am also waiting for a clearer picture to emerge on the fundamental health of my companies before buying back in (hopefully at a lower price). In this way, as the STI dropped some 15% in September, my portfolio dipped by only 3%.

The fact is that some of my companies will be affected by the downturn (such as property companies that need financing). Hence the approach is similar to yours (to do an emergency review), but my review shows that my companies are not so safe.

I think it is useful to have a variety of tools and tactics for different situations. There is a saying "if all you have is a hammer, every problem will look like a nail". If you only know how to do value investing, you may lose opportunities to make money or simply protect your portfolio when we face big market drops like we're seeing now.

Many of the property counters are now trading well below NAV, and I'm targeting them on my watchlist. Likewise many solid companies are trading at 50% below my (DCF) valuation. However, I think there is no hurry to rush in despite the "discount" or "margin of safety", because the negative sentiment will not suddenly turn overnight. One thing that is important which I was telling my wife is that in this market, cash is king, and earning 0% or -7% a year (due to inflation) is better than rushing in and losing 30% in one month.

Finally in defence of my seemingly "trading" mentality, I quote the man himself, Buffett, whose Rule #1 is "Don't lose money". And losing money includes paper losses. Cheers!

troy said...

Just to add that being a value investor means different things to different people. I am not in Buffett's league where I can influence management decisions, so obviously my repertoire of tools is different from that of Buffett's.

To me, being a value investor is not just "buy good companies at a margin of safety and hold them forever". It means "buy companies at lower than valuation, to make money, while protecting against losses"

I would consider Oei Hong Leong a value investor. He buys good companies at low prices, but he also sells them if there is good profit to be made in a short time. This way, money can be rolled over to make more money (Kiyosaki calls this the velocity of money).

I mean if you buy a Buffet-like company (good management, industry moat, stable and consistent cashflow growth, etc) for 50cents when the valuation is $1, and tomorrow the price shoots up to $2, you would sell and wait for it to drop again to buy in, wouldn't you?

Anonymous said...

I think people who post nasty comments may have lost even more than you do. They are basically saying "See! Value investing also lose money what!"

Value investing means that you have purchased stock selling significantly below intrinsic value i.e. there is a margin of safety.

And from your blog, you have also paid attention to the quality of management, growth prospect, capital structure -- whether the companies are conservatively financed etc.

Nobody knew the size of this current "snowball" and many of us got caught in it. So, you had done your best.

Who knows, few years later you can have the last laugh.

Perhaps one thing you can consider is to pick up more shares of these great companies as bear market can mean quality items going on sale.

Apong
[Sorry, don't have a Blogger identity so remain "Anonymous"]

Ricky said...

hi MW,

you're welcome, the bear market rally that gary mentioned just happened :)

harry said...

hi MW,

what are your views on Pac Andes given the current price of $0.185? I have vested interest in it since 2005. I just reviewed the Annual Report 2007 again and am pretty concern that it is highly leveraged with senior notes, syndicate loans and convertible bonds. Some are due soon while others are due in 3 years time.

given the cash flow generated from operations, it does not seem possible for Pac Andes to meet its financial obligations in the event it is unable to refinance.

do you intend to average down now? please advice.

FYI, i bought Sino TechFibre today. dropped too much and value is too good to be true. alas, the price dropped further after my purchase! haha, have no fear, will buy more if Mr Market decides to continue the fire sale!

Anonymous said...

Hi MW,

Do you know that one of Pacific Andes's banker Landsbankinn (Iceland), which i think the former borrow quite a lot of short-term loans, has been put to receivership?

What is your take on the issue?

regards,
Ryan

Ninad Kunder said...

Hi Musicwhiz

I think more than bear markets its really the bull markets that test the resolve of a value investor.

Bull markets could make u feel stupid that u r not on the next hot thing which the entire world is betting on. It takes resolve to stick to value in such times.

Bear markets are great times for a value investor to pick up stocks at really bargain prices. To quote Buffet " Feel like a oversexed guy in a whorehouse" :-)

I m not from singapore and dont invest in the sing markets but have been tracking u r blog and enjoy reading your analysis.

I am able to look at u r anlysis in a unbiased manner since I neither know these companies or invest in them :-)

Keep up the good work.

Cheers

Ninad

Anonymous said...

citi just came out with a report on ezra. it appears management were less than candid with their guidance...the report is worth reading.

musicwhiz said...

Hi Gary Teh,

Thanks for visiting and sharing your thoughts. Well sometimes ridiculous can get even more ridiculous, as unprecedented conditions rock the globe. I guess as an investor, we can't be too prepared for such unseen events eh ? We just have to try our best to mitigate them.

I really won't dare to predict that my portfolio will rise by x% over how many years; as long as I get a good return on my investment (i.e. better than inflation), I will be satisfied. With the current uncertainty, it may also impact the companies I own negatively in ways I did not anticipate.

Regards,
Musicwhiz

musicwhiz said...

Hi Dennis,

Yes, it's like a new flu bug came out and I have to check if any of my companies got "infected". Quite different from a routine check-up. In such trying times, it calls for such measures.

Regards,
Musicwhiz

musicwhiz said...

Hi caseyc,

Thanks, that's a very encouraging comment. I will keep the faith and continue to look for value opportunities.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Thanks for the encouraging post. Knowing that other value investors are also seeing significant wealth destruction makes me feel that I am not so "unique". However, I still worry about the companies I own and whether they can make it through this recession in one piece.

Regards,
Musicwhiz

musicwhiz said...

Haha Simon,

Yes I take my investing very seriously, perhaps I even neglect people around me as I focus a lot on my investments and maximizing returns. And I do try to blog too to show whether this style of investing works. I think it's irresponsible to "run" just because your portfolio is not doing well, cos it's supposed to be a long-term portfolio anyway.

Yes, I agree I should be looking at other things too. :)

Cheers,
Musicwhiz

musicwhiz said...

Hi Troy,

Good suggestions but I am not familiar with such tools and they may just confound me further. I want to keep investing simple and simply want to own shares in good companies. These days the world gets more and more complex and such derivatives add to the complexity.

I am glad you managed to avoid bad losses, and hope you can find those good quality gems you are talking about. I am sure there are many out there right now.

Yes, I know about Buffett's style. Many here have commented on it. The problem is in identifying over-valuation which may not always be obvious except on hindsight. SO knowing when to sell is a very difficult task.

Thanks,
Musicwhiz

musicwhiz said...

Hi Apong,

That's probably the most encouraging thing anyone has said so far, thanks ! I try my best to cover all angles but of course one cannot know too much about a company.

I hope that in a few years time I can look back to say that I've done the right thing and bought these companies, and that they can show consistent growth over the years.

Thanks again and regards,
Musicwhiz

musicwhiz said...

Hi Ricky,

To be fair, no one knows if a rally will spell the end of the bear market or if it's a REAL bear market rally. There will be many false rallies before the real one comes, such that one will only know on hindsight. That is probably when the market has reached its nadir and people are so disillusioned with investing that they simply give up.

Cheers,
Musicwhiz

musicwhiz said...

Hi Harry,

I have no intention to average down further. There are other companies which I am eyeing and my funds are also limited. I think PAH should not face problems with funding as it is an established company and has support from its parent PAIH too.

Sino Techfibre seems like a well-run company; I have not looked at it in great detail though.

Take care,
Musicwhiz

musicwhiz said...

Hi Ryan,

I don't see much issue. The bank being put to receivership does not mean it will recall its loans. Even if it does, PAH can always refinance given their asset base.

And remember their parent company is PAIH, which can also render financial support should the need arise.

Regards,
Musicwhiz

musicwhiz said...

Hi Ninad,

Wow, great to know that people like yourself from outside Singapore are also reading my blog ! I never realized I managed to reach out to such a global audience as so far my research is mainly on Singapore-listed companies.

Thank you for your encouragement, and thanks too for visiting !

Cheers,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Can you please attacht the Citigroup report on Ezra on a file sharing website ? I don't have this report.

I also feel your comment is a little vague, and possibly irresponsible. I don't remember Management giving any earnings guidance, so the report must be mentioning Management giving a future forecast of conditions. Given the increasingly cloudy outlook for the global economy, I would think Management is just being cautious.

But why "less than candid" ? Unless you can explain this point, I am afraid it sounds very vague.

Thanks,
Musicwhiz

Ricky said...

Yes, i agree we wouldn't know if the rally is a real rally or just a bear market rally.
Have a question, what percentage of our portfolio do you think should be in cash?

troy said...

hi ricky, the answer to what percentage of your portfolio should be in cash will depend on each individual's specific circumstances.

For someone with low risk tolerance like a retiree or someone close to retirement, he may want to have cash holdings fluctuate between (say) 80-90%, with 80% being at the "higher risk" end of the spectrum.

It also depends on your portfolio size. If you have s $2 million portfolio versus a $20k portfolio it makes a difference, cos the former case, you can have 50% cash and still have "ammunition" to scoop bargains as the market falls. If you only have $20k, you scoop one time and you're out of ammo. So in terms of saving bullets it's safer to have a higher percentage, like 60, 70, maybe 80%.

Portfolio management is a study with some art and some science, but it is a subject all by itself that can be dissected deeply.

Anonymous said...

I came to look at your work and also materials on FSL. The counter dip to 36 cents today. A couple of days ago, I was told that AIA was selling their 8% holding and later buying about 1.49 million shares. Their current holding is in excess of 9% as reflected in the SGX website From 17 Sep to date, 56,165,000 shares were transacted.

I was watching the market today and saw huge "buys" of about 800 lots. Who could be the seller and how come that person or corporation has such large number of shares. Are there some news that we all don't know or a gem hiding at a corner.

The option for shares instead of dividend, is a double edge weapon. It dilutes the dividend, while at the same time, reduces the borrowing cost of the company, which currently is at a premium. Overall, it may still be the frying pan or the fire. Can some kind soul shed some light.

Thank You

donmihaihai said...

Hi,

You seem to becoming uncomfortable...

Being focus is good but focus on wrong things at the wrong time is another story… like blogging.

Something is seriously very wrong if... you can't pack your stuffs and go for a holiday with your friends and families at this moment. Most importantly, not reading news and looking at stock price.

You may consider my comment rude but I think you are in panic because maybe… you over-estimate yourself in term of psychology and stock picking framework.

Since you are not selling or buying much, take a break, take a holiday and clear your thoughts.

Anonymous said...

Hi mw,

i am like u too. buying happily. hahaha... =)

few years down the road when we looked back, this moment would turn out to be one of the best time to buy.

whatever goes down would surely come up again. =)

Anonymous said...

The severity of the economic downturn to follow will impact all companies especially those that are highly leveraged. Many banks have already started pulling their banking lines or refusing to roll over short term financing for some companies.

The other shoe that will drop soon is when more and more companies go into bankruptcy as a result of the banks making demands for payment. Banks are never there when it is pouring out there.

For those value investors out there who think that some companies here are bargains better think carefully about the economic fallout and the resultant effect on the company's business. I am watching in slow motion how the non financial companies are now starting to struggle.

Gary Teh said...

Hi MW and all,

I could not believe my eyes when I saw FSL Trust dip to 0.40. All cuation went out the window and I bought 20000 shares all for SGD8,000.

What a bargain and guess what, it closed even cheaper!!! Geez!!

Well as I"m typing this the DOW has loss 350 points and probably another bloodbath tommorow on SGX.

Maybe FSL will go to 0.30? I really hope it does then I'll be there to greet with another 20000 shares but at least I'll 'spend' less...about SGD 6000...then maybe goes to 0.20??

Even at 0.40, my rough estimate is that the FY09 yields are a ridiculous 44%...yes 44% and that is not a typo!

My better half was asking...is the market crazy or I am crazy....and she ask me whether the stock will go down to SGD0.10. I said only time will tell...but homework mostly done but hell...you'll never know.

As long as the insiders are not selling (yet), that is a sign of confidence.

this market surely ain't for the faint hearted.

Anyway, a general word of advise to all out there...maybe pitfalls, shoes and durians still to fall...so buy in slowly and in multiples (the more the better)...where is the bottom...I don;t know now but with the benefit of hindsight I can surely tell you where the bottom is 5 years from now...

Gary Teh.
wsteh@johnstech.com

musicwhiz said...

Hi Ricky,

I would think keeping a sizeable cash balance is very helpful in such times. As to the %, it depends on individuals and I can't give a definite figure.

Regards,
Musicwhiz

musicwhiz said...

Hi Troy,

Thanks for contributing to portfolio sizing. Yes, I agree with your comments.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

I am of the opinion that the selling was over-done, and that things are not as bad as they seem. Sentiment around the world seems to be at an unprecedented low, and since shipping trusts are viewed as shipping companies, they are also sold down. I would think that the Management are professional and know how to run the Trust, and that they are able to pay the DPU as promised.

Cheers,
Musicwhiz

musicwhiz said...

Hi donmihahai,

No, your comment is not rude. In fact, it's a good reminder to me on my principles for investing and the philosophy I should follow.

You may be right in saying that I may have over-estimated my ability to withstand fear (psychology) as I am worried if my companies with high gearing can survive this credit crunch. As this is my first real bear market, it is turning out to be more vicious that I expected; or perhaps my picking of companies was based on wrong premises in the first place.

Remember that the greatest fear a value investor can have is that he made mistakes in his original assumptions; I hope I can really take a holiday, ignore Mr. Market and come back and still see my companies surviving. It may sound a little exaggerated but in this current climate where even healthy companies are likely to fail, one can never be too certain.

Btw, I've visited your blog and think it's exceptionally good. Please continue to share your thoughts and I have much to learn from you as well.

Cheers,
Musicwhiz

musicwhiz said...

Hi Anonymous,

What goes down may not always come up; it depends on whether the company can grow its earnings and top-line too.

I think even in a bear market, one must be highly selective of what one buys. The noise and the turmoil make it harder to decide which companies are good and which are crap.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

I would like to offer a contrarian view that things are not as bad as they seem. If one is invested in large, reputable companies, banks will not want to pull the plug as it will severely tarnish their reputation among other clients. What the papers report is a handful of companies which may have over-extended themselves in terms of financing and thus have insufficient working capital.

I would like to think that the companies I own have Management which have built up a good relationship with bankers; and that they are experienced enough to be able to tide through any potential liquidity issues.

Regards,
Musicwhiz

musicwhiz said...

Hi Gary Teh,

Frankly, we won't know if Mr. Market is manic or if he was right in valuing FSL Trust so cheaply, except on hindsight.

Management has come out to reiterate that the counter-party risk is low, and that the DPU can be sustained for at least 3 quarters. Such is the climate of fear that many people start to indiscriminately dump. The news mentioned that Sep 2008 is the month in which redemptions from mutual funds hit a historic high, and the first half of Oct 2008 is also at an all-time high.

So think about it - with so many people pulling their money out, it's no wonder the funds have to cash out at whatever price.

Regards,
Musicwhiz

Anonymous said...

Your trust in management's ability to have a good relationship with the bankers is sadly misplaced. As their share prices continue to be hammered, their bankers which are human too will at some point panic and pull the banking lines.

Anonymous said...

very sad, your share value dropped more than 20% again.. more to come..

musicwhiz said...

Hi Anonymous,

Thanks for your view. We'll see if your "doom and gloom" scenario comes true. For now, I continue to have confidence in the companies I invested in.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous,

Thanks for highlighting, but it doesn't bother me.

Regards,
Musicwhiz

Anonymous said...

Hi Musicwhiz

If u remember, I ever said that I was not very comfortable with Swiber's high gearing ratio a couple of months back. I bought at 2.95 and sold and 2.55. Subsequently, when it gone down to 1.47, I started buying again and average it to around 1.39. I even bought at 0.7 and 0.6 but let those go at 0.55 because I really thing Swiber will be severely punished by the market for having high gearing.

Therefore, I will not be averaging down Swiber until things are more certain.

Keep up the good work. U are my source of inspiration and information.


Breakwind

8percentpa said...

Hi MW,

Would just like to reiterate the point raised over and over again: Great blog, great job, keep up the good work!

Need not spend too much time mulling over anonymous posts wet-blanket-ing your work. Some pple just have a grudge to grind, badly affected by the markets, I guess.

Charlie Munger likes this quote, don't wrestle with a pig. Even if you win, you get all dirty and muddy. And the pig enjoys it! So it's lose-lose for the wrestler.

Hope that you are not to distraughted by prices falling off the cliff. Prices are not intrinsic values. Well, you know that better, I guess.

Keep investing, esp during these times and when everything is said and done, you win bcos
1) Your knowledge base increase
2) You created a fantastic blog that helped many other investors
3) I believe your portfolio will deliver a good return.

hilltop said...

Seems like it's the same story in most value-investing forums / blog - the typical strength in numbers and herd mentality I see in people who beat their chests and loudly proclaim that they are logical and cool headed investors above crowd irrationality etc etc.

Think about it, the really calm ones are probably buying up quietly en masse or like someone above said, taking a holiday and enjoying their break from the market.

Only those who are in panic and near capitulation will crowd together online and try to console each other what a great time for stocks to fall, can buy cheap cheap, will profit handsomely many years down the road and all that bla bla.

Just look at the number of people and the frequency they post and you can sense fear all over the net, the louder they proclaim their calmness, the more panicky they probably are.

Ricky said...

Hi Hilltop,
pls try not to generalize, there are many reasons why people talk more. Some just like to post stuff taunting others for reasons known only to themselves.
There are serious issues and events happening around the world and it might not be a bad thing to bounce ideas or reiterate the basic investing principles.
Hope you have some ideas to contribute, we're all here to learn.

Tian Cheng said...

Hi Musicwhiz,

Of all the companies you analyzed, I am least comfortable with Pacific Andes - not sure if it is sinking in the current circumstance - there is not much information around for closer watch.

Simon said...

not me! not me! im calm! im calm! listen to me guys, im not panicking! u guys dunno, but ive been buying up so much shares without telling u guys! obikut!

haha.

so hilltop, wat do u want them to do? don't post anything?

Anonymous said...

Hi Tian Cheng,

Some points:

PAH SCM business is a trading nature, you need to compare the debt level of other trading companies.

The debt level of the group PAIH/PAH/CFG is health as stated by CEO of PAIH on 5/9/2008.

2008年9月5日 16:04 財經消息

匯港通訊- 太平洋恩利(01174)財務總監陳德熹表示,秘魯將於明年實施捕魚配額制度,公司取得約4.55%的配額,未來若價錢合理,會繼續收購魚船,而所需資金會以於秘魯及北太平洋所賺取的資金來應付。

副主席兼董事總經理黃裕翔表示,公司於06年底推出7年期債券,加上旗下船隻可分期供款,故較易向銀行借貸,目前亦無融資壓力。陳德熹補充,現時公司長短期貸款各佔一半,有良好的資本架構,公司的負債比率較同行平均1.5倍為低,為90%。

陳德熹指,公司現有23艘大型拖網魚船,其中2艘已調往南太平洋,預計於08年底至09年初會再調配數艘船到南太平洋。

PAIH increased PAH to 64.85 by Scrip Dividend Scheme on 26-9-08

16-10-08 announcement on SGX
http://info.sgx.com/webcorannc.nsf/37e9d50ee377b2304825735f00233861/a7ac3f9e330dc829482574e4003232e8?OpenDocument

The Board of Directors of Pacific Andes (Holdings) Limited ("Company") notes significant fluctuations on the Company’s share price during the last few trading days. The Company would like to assure its shareholders and investing public that as at to date:

1. The Board is not aware of any news or circumstances that may have rendered such movement on the Company’s share price;

2. Our business units continue to be strong and stable. With the recent decrease in oil prices, the Company expects a cost reduction to our business operations;

3. Clamford Holding Limited (“Clamford”), the controlling shareholder of the Company has not pledged or mortgaged any of its shares to a third party. Clamford has no intention to reduce its shareholding in the Company and has given its utmost commitment and support to the Company; and

4. The Board believes that the fluctuation of the Company’s share price is caused by lack of investors’ confidence arising from the current worldwide financial turmoil.


By order of the Board


Lynn Wan Tiew Leng
Company Secretary

16 October 2008



fishfish

pinsirrockz said...

Hi, fishfish,

Good summary of Pac Andes status! Let's hope for the best!

Anonymous said...

Please also note the announcement of PAIH:

The Board notes significant fluctuations on the Company’s share price during the last few trading days.
The Company would like to assure its shareholders and investing public that as at to date:
1. The Board is not aware of any news or circumstances that may have rendered such movement on
the Company’s share price;
2. Our business units continue to be strong and stable. With the recent decrease in oil prices, the
Company expects a cost reduction to our business operations;
3. N.S. Hong Investment (BVI) Limited (“N.S. Hong”), the controlling shareholder of the Company
has not pledged or mortgaged any of its shares to a third party. N.S. Hong has no intention to reduce
its shareholding in the Company and has given its utmost commitment and support to the Company;
and
4. The Board believes that the fluctuation of the Company’s share price is caused by lack of investors’
confidence arising from the current worldwide financial turmoil.
By order of the Board
Pacific Andes International Holdings Limited
Ng Joo Siang
Vice-Chairman and Managing Director
Hong Kong, 16 October 2008
As at the date of this announcement, the executive directors of the Company are Madam Teh Hong
Eng, Mr. Ng Joo Siang, Mr. Ng Joo Kwee, Mr. Ng Joo Puay, Frank, and Ms. Ng Puay Yee whilst the
independent non-executive directors of the Company are Mr. Lew V. Robert and Mr. Kwok Lam Kwong,
Larry.



fishfish

Gary Teh said...

Hey Hilltop...I guess that you must be the one going downhill fast since you probably bought at the 'hilltop' and it must be a real slide downhill...

If you don't have anything positive to contribute go rant somewhere else. As far as MW and other value investors are concerned this is a great opportunity..buying at the valley...not the hilltop.

musicwhiz said...

Hi Breakwind,

It's ok, everyone has their opinions about gearing amid such a credit crunch. I have to say that gearing of 1.0 is definitely not low, but then again the company intends for it to remain at 1 and will use bonds and sale and leaseback to raise more cash. Most importantly, the company has to have operating cash inflows from its contracts in order to continue expanding.

Regards,
Musicwhiz

donmihaihai said...

hi,

Remember that the greatest fear a value investor can have is that he made mistakes in his original assumptions;

>> It is a certainty that most if not all investor make mistakes. There is no fear here. The only thing is when mistake is being made, how bad it hurt or how you limit the pain.

I hope I can really take a holiday, ignore Mr. Market and come back and still see my companies surviving. It may sound a little exaggerated but in this current climate where even healthy companies are likely to fail, one can never be too certain.

>> You are entering a dark lane without a clear head... All your Buffett, Graham approaches that you wrote earlier in this blog are throw away.

Other won't say this but what are the root causes? Take a break, take a holiday, read a good book. Like Charlie Munger keep saying... "Equip yourself with more tools, don't keep hammering with a hammer.

musicwhiz said...

Hi 8percentpa,

Yes, you are right indeed about knowledge increasing ! This bear market has taught me more than any book or publication could ever ! I've learnt that one can wait for trough valuations before buying into good, solid companies. In bear markets, even blue chips are down so I will consider investing in blue chips as I near retirement age (assuming I get to research them of course).

Yep, no use arguing with some people - it's a waste of time and energy. I will take your advice and ignore the people who love causing trouble.

Thanks,
Musicwhiz

musicwhiz said...

Hi Hilltop,

Your comment is pretty interesting because it sounds contradictory. The calm ones are collecting of course, while the panicky ones may be going around suaning everyone else about their losses etc. Who knows ? Anyway, does it truly matter ? As long as you are comfortable with your investments, that's enough right ?

Regards,
Musicwhiz

musicwhiz said...

Hi Tian Cheng,

Yes, I admit I made a mistake and did not seek sufficient margin of safety when purchasing Pacific Andes. I will work towards correcting that mistake in my future years of investing.

Thanks for highlighting.

Regards,
Musicwhiz

musicwhiz said...

Hi fishfish,

Thanks for visiting ! Your posts are very good on CNA forum and I appreciate that.

Yes China Fishery and PAH came up with some assurances for shareholders, probably it's because of their high gearing issue. Hopefully, it does not spiral into a crisis for them but I have faith in the Management and their ability to handle this credit crunch.

Cheers,
Musicwhiz

musicwhiz said...

Hi Gary Teh,

No worries, value investors and serious long-term investors know their companies well and know the intrinsic value; thus they will know when to buy in - when Mr. Market is at his most manic and fearful.

Regards,
Musicwhiz

musicwhiz said...

Hi Donmihaihai,

Wise words indeed. Of course my main worry here is whether I had made a mistake in my original assumptions, not how the market price is doing. Market prices may or may not reflect the true underlying fundamentals, because currently it's a sentiment driven market and it's very manic. After reviewing my companies, I am glad to say that I feel comfortable owning them, and perhaps had panicked too prematurely when I realized the magnitude of the credit crunch.

I don't really agree that all the Buffett and Graham are thrown away. It's more a case of whether things have changed significantly enough for me to revisit my original assumptions. I think even Buffett reads extensively to understand the dynamics of the economy and the impact it may have on the companies he owns. Yes it may seem like the road is unclear and the future murky, but during such times one has to count on Management's competence to get through crises.

I agree with you on Munger's quote. I should equip myself with more tools for analysis and widen my knowledge base and competence, or else as you say everything looks like a nail when you have a hammer. I thank you sincerely for your good advice.

Regards,
Musicwhiz

ghchua said...

Hi Musicwhiz,

Ignore the noises. Follow through your value investing strategy. Keep up your good work!

musicwhiz said...

Hello ghchua,

Thanks for visiting. Yes I will ignore the incessant noise and stay true to my investment philosophy. Appreciate your comment.

Regards,
Musicwhiz

Anonymous said...

Hi Mr.MusicWhiz,

I saw the last comment of Mr.Chua which quite captured what i was about to say.

All the best for your investments.

Regards

V

Anonymous said...

scanning the comments showed a mix bag of consolations, encouragements, frustrations, humilations...etc, only a robot can avoid such feelings and emotions. human spirit is more interesting.. the least i can say is that all are sharing if you know how to interpret what they are saying.. and that is the wonderful part of human making a contribution to the society. can't say for sure anyone ever live through great depression out there, i didn't but certainly don't expect people to live daily starving in those days. i thought that is progress because human learnt and avoid repeating mistakes of the same kind.

Anonymous said...

The best time to buy is when people are fearful, when market is gloomy and when companies start to post lower or even negative earnings.

People as usual will think that the situation will get worse. It's normal. When oil price went up from $20 to $149, the analysts will come out and say price will go up to $200. When commodities prices were recording new highs everyday, people said it would go up MORE! They said (including the great Jim Rogers) the commodities prices will continue to rise. And rise for 20 years. But what happen now? Oil at $64? 60% drop.

When prices start to turn downwards, people start to say prices will continue to fall. Like oil $50(i thought they just predicted $200 not too long ago?), Dow 4000pts, HSI <10000 pts, SGX 800pts, KLCI 300pts. Whether will it come true or not, I don't think anybody here can tell.

For value investors (eg. Warren Buffett, Peter Lynch, Benjamin Graham, and Musicwhiz) they buy because they think the stocks are cheap compared to the value of the company. For example, there are companies selling at half of its net cash. People are willing to offer their $1.00 cash for $0.50. Can you believe it? Where to find these deals? In real life, people will say 'siao arr?'. But in the stock markets, you can sometimes find it. And it only comes once in a decade or sometimes once in a lifetime.

I dare not say that the prices won't go down further. Maybe it will drop another 50%, and sell at a quarter of its net cash. To use $0.25 to buy $1.00, I think it's not so bad afterall.

Those who disagree or throwing a wet blankets over MW. I hope you will stand up later (if he is proven right) to give him back the credits for being a courageous man at turbulent times. Only time will tell.

Regards,
ValueInvestor wannabe

musicwhiz said...

Hi valueinvestor wannabe,

You are right to point out about oil. Goldman Sachs was shooting itself in its foot when it reversed its prediction of US$200 oil and changed it to a mere US$50 by year-end. That shows how good these analysts and "experts" are at predicting stuff. I still remember UOB sent me a brochure for commodity funds when prices were sky-high, touting many more years of fantastic returns. I smelt a rat and did not invest. Usually, when everyone else jumps onto the bandwagon, that's when the bubble will burst. As WB said, you can't buy what's popular and make money !

I thank this bear market for giving me the chance to purchase a larger stake in the companies I had a stake in already, at very reasonable prices ! The companies I own have fallen out of favour now, which is why I can buy them cheaply. I avoided increasing my stake at much higher prices as the hype was so intense during 2007, even though some people were asking me to.

But seriously, this blog is not to prove if I am right or wrong. It's just to get a decent return on my investment over the long-term, and to illustrate the usage of WB and BG's techniques for investing in companies. Along the way, we live and we learn, and we GROW.

Thanks for visiting.

Regards,
Musicwhiz

fungisg said...

Hello Whizkid!
Am glad that you are being objective by reviewing the companies u bought. By the way, we share and like your opinion mostly. We are not sure whether you have been buying your shares along the way as they come tumbling down, but if u did, it will probably mean a lot of capital involved and some paper loss now. It would be a different scenario if we understand the trendline of the market and ask ourself : "What is the market telling us?". We read a strategy of selling a share when it falls below 8% of your value. This way, we can afford to be twice wrong to have a right.We also like a few companies which you are investing and we just want to share with you on the 8% loss rule, so that we can accumulate more of them in this way, Ha!