Read, sleep and thoughts on bottom fishing

The STI has been dropping in recent times. From a high of 3539 on 15 April 2015, it has dropped to 3202 on 31 July 2015, representing a drop of approx. 9.5%. This would probably translate to bigger losses to a number of individual stocks.

“You can lose money in a very short time but it takes a long time to make money.” 

“You should invest in several stocks because out of every five you pick one will be very great, one will be really bad, and three will be OK.”

Peter Lynch

In this short period of time, the overall paper gain in my portfolio has turned to unrealised loss.

Come to think of it, what Lynch said is quite true:

  • Often in the stock market, fear is the more immediate force (as compared to greed). I don’t recall seeing any stock price or market trending up very fast and declining very slowly (unless due to some anomaly). If this is the case, many would have ample time to flee the market hah… My impression is that it takes years to have some paper gains, but losses come very swiftly.
  • In my portfolio, there is one very great stock (Riverstone), and one really bad stock (Golden Agri) – read here, a few that are OK (like Vicom, Colex and ISOTeam). And others not too good – Supergroup, SMRT and SIA.

cotd-bull-markets

For people holding oil & gas, crude palm oil, commodity stocks, the recent market decline plus the drop in commodity prices seem like a lethal combination. And if you have short sellers or bloggers (or former insiders) bend on exposing the financial weakness of the company, it is close to a perfect storm (just lack the market crash portion) eg. Noble (read here).

Perfect_storm_v2_2_1000

So what have I been busy with these few days? Beside work (which is getting busier by the day), I have been reading a lot (news and books). Esp. after I found out that Scribd.com has a promotional 3 months free subscription. And the National Library allows me to borrow 20 books at a go. At last count, for the past 2 weeks, I have read the following books:

  1. Learn to Earn by Peter Lynch
  2. Buffettology by Mary Buffet and David Clark
  3. The Motley Fool Investment Guide by David & Tom Gardner
  4. Beating the Street by Peter Lynch
  5. Gene Marcial’s 7 commandments of stock investing
  6. The business of value investing : six essential elements to buying companies like Warren Buffett
  7. Safely prosperous or really rich : choosing your personal financial heaven

Some are easy read (like no. 7 and 4 – reread it). Of particular note, in book 2, near the end of the book whereby it states the fifty-four companies that Warren has invested in in the past, I am surprised that Buffett invested in BEAR STEARNS, and MERRILL LYNCH & COMPANY, INC. before. Maybe the fundamentals of these companies were much better in the good old days, cause we know what eventually happened to them.

The Bear Stearns Companies, Inc. was a New York-based global investment bank and securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession and was subsequently sold to JPMorgan Chase.

Merrill Lynch & Co. agreed to be acquired by Bank of America on September 14, 2008, at the height of the 2008 Financial Crisis. The acquisition was completed in January 2009 and Merrill Lynch & Co., Inc. was merged into Bank of America Corporation in October 2013

However, reading aside, I think I should spend some time penning down my thoughts. It is always a good practice to keep a journal.

The investing principles of Buffett typically applies to companies with long history of increasing earnings & good balance sheet. In addition, at the core of his principles, one must know the company very well. To be successful in investing, it takes more guts than brains (strong will power) and extreme patience.

“The big money is not in the buying and selling … but in the waiting.”  Charlie Munger

His principles are difficult to apply (or rather not applicable) to cyclical stocks (lack of consistent & predictable earnings). Will Golden Agri / Noble / Wilmar or even SIA go the way of Berkshire Hathaway (I mean the textile company. One that had been going downhill for years. When textile operations were shipping overseas)? The commodity and airline business are both over saturated industries within a slowing world economy. The palm oil business (or agri-commodity business in general) has to grapple with low crude oil prices (bio-diesel), record supply of soy bean, environmentalists, slowing China economy… resulting in the down trend of CPO prices since 2011.

“It’s not that much fun to buy a company that you hope liquidates at a profit just before it is destined to go broke.” Charlie Munger

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Bottom fishing: The recent sell off has resulted in a number stocks reaching new lows – stocks like Noble, Golden Agri, Boustead, Japan Foods, Osim, Genting, Keppel Corp, Sembcorp Marine, Super Group, Penguin Intl, etc. One should not just bottom fish. The Graham version of investing (Net-Net stocks) – scooping up any companies with low price to book and low P/E, often results in one holding losers.

It is not uncommon to read about share buy backs by the company in the face of falling share prices. eg. Noble, Genting, Golden Agri, Osim, etc have all been in the news for their massive share buybacks. However, what I will be more interested in is their Net earnings growth (without the share reductions). At the end of the day, the company has to grow organically, financial engineering can only take you so far. Without a strong moat, a company may not survive. Share buyback is secondary. This reminds me of the Chinese Government trying to prop up the markets with weak fundamentals, in the midst of weak economic growth.

In fact, the fundamentally strong companies’ share prices just keep on reaching new highs (eg. Raffles Medical, Kingsmen Creatives Ltd, Straco Corp Ltd, etc). To these stocks, the market does not seem to exist at all. Which also partly explains why I choose to spend most of my time reading these days.

SmileyFace2

In fact, in reality, the market does not really matter to the fundamentals of the company – it is in essence, just a market place, where people trade portions of companies (and for the brokers, the bigger the crowd the better, you get more actions & better prices. Imagine an auction house with only a few, you are unlikely to get a high price for the bids).

If one believes that the share price of the company will eventually catch up with the earnings of the company, then markets are just there to serve the purchase of undervalued shares (or sale of overvalued shares).

Having said that, I am all for buying shares of great companies (with ever increasing earnings and strong ROE) reaching new low stock prices due to extreme pessimism.

“You cannot ignore the market – ignoring a source of investment opportunities would obviously be a mistake – but you must think for yourself and not allow the market to direct you.” Seth Klarman

However, as of now, I still value a good night sleep above anything else (like potential paper gains).

“The problem is that with so much attention being paid to the upside, it is easy to lose sight of the risk.”   Seth Klarman

To some, now might be a good time to invest… but I end up spending more time reading up and writing on companies (see below) rather than trading their stocks.

  • Silverlake Axis (read here),
  • Spindex (read here and here),
  • Real Nutriceutical Group Ltd (read here),
  • Health Management International Ltd (read here),
  • GP Industries Ltd (read here),
  • Riverstone Holdings Limited (read here),
  • Neo Group (read here and here),
  • Colex Holdings Ltd (read here),
  • NeraTelecommunications Ltd (read here),
  • Osim International Ltd (read here),
  • Genting Singapore PLC (read here),
  • Japan Foods Holding Ltd (read here),
  • Super Group (read here),
  • Shimano Inc (read here),
  • Sarine Technologies Ltd (read here and here),
  • Vicom (read here).
  • Nagacorp (read here)

“You shouldn’t just pick a stock—you should do your homework.

Just because a stock goes down doesn’t mean it can’t go lower.”  Peter Lynch

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“A decline in stocks is not a surprising event, it’s a recurring event—as normal as frigid air in Minnesota. If you live in a cold climate, you expect freezing temperatures, so when your outdoor thermometer drops below zero, you don’t think of this as the beginning of the next Ice Age. You put on your parka, throw salt on the walk, and remind yourself that by summertime it will be warm outside.                A successful stockpicker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it’s coming, and you’re ready to ride it out, and when your favorite stocks go down with the rest, you jump at the chance to buy more.”        Peter Lynch
 Signing out. I am going to spend Sunday playing with my son with his new remote control car.
“When the operas outnumber the football games three to zero, you know there is something wrong with your life.”  Peter Lynch
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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat.
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