In what was possibly the worst week of my working career, there were many lessons which I learnt. 1) That there will always be people who do not have basic respect for other fellow human beings. 2) There will always be people who only look for you when they need your help. 3) The market is always poor in terms of interpreting news, sensationalised ones especially.
In my previous post last week, I stated very clearly that the market was wrong in their assessment of the Goldman news. Goldman was just a scapegoat to justify the need for further financial reforms. Politics is indeed dirty. If they really wanted to charge Goldman, they would not have informed Goldman that they were going to sue them 9 months before they did so. The markets have more than fully recovered to their highs in the US and there seems to be nothing that will stand in the way of the way up.
This week, shipping and shipbuilding was the hot sector, with the news of Yangzijiang buying into Bakertech's shipbuiding arm. Rickmers Maritime trust also revealed good news in the form of cancellation of their commitments on their ship orders. Rickmer's announcement is a clear indication that shipbuilders have not come out of the clear from their troubles as yet. However, the market tends to look forward and price in recovery before the actual recovery occurs.
The loser sector was once again Chinese property sector, with the likes of Yanlord, Capitaland, Capital Mall Asia getting hit. Prices of chinese properties are still rising strongly, from last month's data, the chinese are still wiping up properties as if they are free. Once again, it shows the market's tendency to price in weakness before the actual event happens.
What does all these mean for investors? In order to be successful, we all need to be able to see things before they happen. I am not saying a crystal ball is available on the shelves for us to buy, but if we pay enough attention to the signs around us, we will be able to spot trends before they actually happen.
Take for example, one thing I can see for this moment is the resurgence of tech stocks. In Singapore, we have seen the likes of Sunningdale tech, Ellipsiz, Huan Hsin etc doing particularly well last week. I would like to add my weight behind them, to say that technology stocks will outperform that of other sectors going forward. In fact, I feel that this is just the beginning of the technology rally. People who know me will know that I have been anti tech stocks for the longest time because I do not really like the heavy capital expenditure and erratic profits. That does not mean that I do not know how to see a trend in tech before it happens.
If we look at the profit turnarounds in the likes of Huan Hsin, we can see the V shape recovery is firmly entrenched with technology counters in Singapore. I am currently looking for undervalued tech shares not just in Singapore but also elsewhere. I have looked at the tech related mutual funds and I realised that there has not been many global technology funds launched in the last 10 years. As many people should know how I invest. I love to look at unloved stocks, that is where most money can be made. Technology and internet related stocks have been most unloved in Asia, thus this is my latest sector pick. If the funds are not looking at it, that means there will be a lot of rich pickings for retail investors in this sector.
Basically, I always believe is loving the unloved. Contrarian investing? No its not. Contrarian is buying something that is on the downward trend, that may lead to catching a falling knife, thus the risk is high. I will coin this my way of investing. Unloved investing. That is investing in stocks that do not see much love from investors but still delivering profits. That is where you will end up buying a stock below its intrinsic value and lowering your margin of error.
This is what I do best. Looking for companies that are below the radar of investors while having consistent earnings. I have done well using this unloved investing strategy and I hope that you will also learn how to profit from it as I have done over the years.
Stay tuned, I will be identifying tech or internet related stocks to buy, over the next few weeks.
Best,
SVI
Saturday, April 24, 2010
Saturday, April 17, 2010
Are All Banks and Bankers unethical? Are pigs greedy? Answer is the same.
It is not everyday that you wake up knowing exactly what would happen for the day in the market. Tomorrow is one of those days. Sad to say its not going to be a good day thanks to the news that the Securities Commission sueing the Great Goldman Sachs for fraud. Ironic is the word I would use to describe for this whole affair. For those who are not familiar to what happened here is the lowdown.
First of all I need to explain the instrument which this whole fraud is revolving around.
Synthetic CDO is a portfolio of credit default swaps (CDS). Each CDS is a form of insurance on a bond or other obligation (the "reference security"). The CDS seller provides protection (insurance) in the event of a default or specified "credit event" related to the reference security. The CDS buyer pays a premium in exchange for this protection.
In simple layman terms, Goldman Sachs structured a synthetic CDO and sold it to its investors. However in every synthetic CDO there are two parties to the trade. One will be the seller of the credit default swaps which means they are willing to provide the insurance and to the underlying bonds within the synthetic CDO portfolio. The other is the buyer of the credit default swaps which means the ones that are buying the insurance on the bonds.
So imagine this. If the people buying the credit default swaps were the ones that determined the bonds in the portfolio. What if they abused it by deliberately choosing the bonds that will be defaulting and not actually doing it for hedging but actually betting on the fact that the bonds would default and get paid for the credit default swaps. Would that be fair? Basically, that is what happened and the SEC is accusing Goldman Sachs for allowing it to happen and not fully disclosing it to the sellers of the CDS.
Goldman has issued a statement that they felt there was no truth to the accusations made. Goldman stock fell 12% on Friday night, pulling along the whole market with it. 90% of the constituents within the S&P500 fell on Friday and thanks to this piece of news, it is reasonable to expect the market to be in fantastic shape tomorrow. Of course, I am being sarcastic here.
So what do I think of this? Will this hurt the markets over the long term? My answer is a clear no. In the short term, the market will definitely be going through a short term correction as the market tries to make some sense of the Goldman affair. Personally, I feel that the market reacted the way it did on Friday was due to 2 reasons. 1) Finding an excuse to take some money off the table after that great run. 2) Investors are wondering whether there will be other banks brought to court by the SEC.
For the second reason, I really do not think that there is a problem of that happening because if they wanted to take unethical practice lawsuits to the banks, I will quit my job and go into law. Law will be the next boom industry. Every single bank in the world do not operate on the basis of ethics and I believe any investor knows that. It is like saying that only one politician is corrupt or there is only one liar in the world. Lets face facts here. Life is a zero sum game. One has to suffer losses for someone else to gain. That is a fact of life. When a person wins so many times, they become rich while someone else becomes poor.
So what do I really think? I think that the SEC is full of bull and are just making an example of Goldman Sachs. Why Goldman? Because they are probably the only one that can take the hit. Other banks are still too weak to take such a blow. JP Morgan probably is the other, but if Citi takes a hit like this, they are so dead.
I believe the world is a place full of propaganda and private vendettas, nothing is done for the good of all men but more for the good of a few men. Trust me when I say, there will not be many more repercussions to this Goldman debacle but short term weakness is a sure thing.
Take this opportunity, to buy into quality and accumulate more. Try to have a good week ahead.
Best,
SVI
First of all I need to explain the instrument which this whole fraud is revolving around.
Synthetic CDO is a portfolio of credit default swaps (CDS). Each CDS is a form of insurance on a bond or other obligation (the "reference security"). The CDS seller provides protection (insurance) in the event of a default or specified "credit event" related to the reference security. The CDS buyer pays a premium in exchange for this protection.
In simple layman terms, Goldman Sachs structured a synthetic CDO and sold it to its investors. However in every synthetic CDO there are two parties to the trade. One will be the seller of the credit default swaps which means they are willing to provide the insurance and to the underlying bonds within the synthetic CDO portfolio. The other is the buyer of the credit default swaps which means the ones that are buying the insurance on the bonds.
So imagine this. If the people buying the credit default swaps were the ones that determined the bonds in the portfolio. What if they abused it by deliberately choosing the bonds that will be defaulting and not actually doing it for hedging but actually betting on the fact that the bonds would default and get paid for the credit default swaps. Would that be fair? Basically, that is what happened and the SEC is accusing Goldman Sachs for allowing it to happen and not fully disclosing it to the sellers of the CDS.
Goldman has issued a statement that they felt there was no truth to the accusations made. Goldman stock fell 12% on Friday night, pulling along the whole market with it. 90% of the constituents within the S&P500 fell on Friday and thanks to this piece of news, it is reasonable to expect the market to be in fantastic shape tomorrow. Of course, I am being sarcastic here.
So what do I think of this? Will this hurt the markets over the long term? My answer is a clear no. In the short term, the market will definitely be going through a short term correction as the market tries to make some sense of the Goldman affair. Personally, I feel that the market reacted the way it did on Friday was due to 2 reasons. 1) Finding an excuse to take some money off the table after that great run. 2) Investors are wondering whether there will be other banks brought to court by the SEC.
For the second reason, I really do not think that there is a problem of that happening because if they wanted to take unethical practice lawsuits to the banks, I will quit my job and go into law. Law will be the next boom industry. Every single bank in the world do not operate on the basis of ethics and I believe any investor knows that. It is like saying that only one politician is corrupt or there is only one liar in the world. Lets face facts here. Life is a zero sum game. One has to suffer losses for someone else to gain. That is a fact of life. When a person wins so many times, they become rich while someone else becomes poor.
So what do I really think? I think that the SEC is full of bull and are just making an example of Goldman Sachs. Why Goldman? Because they are probably the only one that can take the hit. Other banks are still too weak to take such a blow. JP Morgan probably is the other, but if Citi takes a hit like this, they are so dead.
I believe the world is a place full of propaganda and private vendettas, nothing is done for the good of all men but more for the good of a few men. Trust me when I say, there will not be many more repercussions to this Goldman debacle but short term weakness is a sure thing.
Take this opportunity, to buy into quality and accumulate more. Try to have a good week ahead.
Best,
SVI
Sunday, April 11, 2010
QAF the DOUGH maker. $0.70 and will only go higher.
Here I am after a long sunday, sitting in front of the computer writing a note on a stock which I feel is a compelling buy and a great value stock. Without a doubt, it is once again a stock that does not have too much liquidity. So I am not going to ask you to buy it like a contra stock. I spent the past 2 weeks looking at the company and only now do I have the time to write about it. That is why I am sacrificing my sleeping time to write. The fact that I suffer from constant insomnia does not undermine this effort of mine to get this note out there before the stock begins its big move.
Ok due to the short time I have and not wanting to eat too much into my sleeping time, I will cut a long story short. The stock in mind is QAF. Never heard of it? How about Gardenia? QAF is a leading multi-industry food company with core businesses in Food Manufacturing, Bakery, Primary Production, and Trading and Logistics. They have a growing and strategic network of operations and alliances across the Asia-Pacific region, including Singapore, Malaysia, the Philippines, China and Australia.
Why I like it? It has a strong network, valuation is cheap, business is easy to understand and last but not least, it is under-researched by analysts. The valuation is cheap because they are currently only trading at 4.9 times trailing p/e and with the economy coming back to normal, we can expect their profitability to improve further. For year 2009, they made $59 million and that was driven mainly by their primary production division Rivalea, which deals in farming of pork and it is the largest exporter of pork in Australia. The sum of parts for the company is definitely worth more than the current NAV because I believe that their intangible assets like their Farmland and Gardenia brands are household names for South-east Asian countries are undervalued.
The only division that is not doing well is their apple juice division, but this is a small division and it should not be a drag. I like this company because this is a company that is dealing with businesses that are very cash driven and inelastic demand. This is the exact description of a brick and mortar company. The cash flow is constantly strong, over the past two years, cash flow from operations have averaged S$90 million, which is really impressive.
Revenue for the company stands at a very nice 2.55 times of its market capitalization. I know, I will definitely go down into history as a brick and mortar investor, but honestly I do not know how to value stocks that are all about growth potential. Potential to me is just promise that has not been delivered. Which means it stands for nothing.
QAF has been there since my primary school days and years before that. I remember, I had a classmate whose father was sitting on the board of directors. For me, if the analysts are not looking at it, that is always a good sign. Do not miss out on this opportunity, because if you have missed my other calls then this is something that you should not miss.
As for my previous posts, one of my followers have said that he is holding 2 stocks that I recommended. Auric and United Overseas Australia, but I have to say that both have been slowly creeping up. Look at Lion Asiapac, it was not moving for some time after I made a call for it, but suddenly, it has shot up because of the special dividend. So it shows, good things come to those that wait. Be patient and the money is going to come.
Gotta sleep now, big week ahead. Big decisions to be made. Have a good week ahead and happy trading.
Best,
SVI
Ok due to the short time I have and not wanting to eat too much into my sleeping time, I will cut a long story short. The stock in mind is QAF. Never heard of it? How about Gardenia? QAF is a leading multi-industry food company with core businesses in Food Manufacturing, Bakery, Primary Production, and Trading and Logistics. They have a growing and strategic network of operations and alliances across the Asia-Pacific region, including Singapore, Malaysia, the Philippines, China and Australia.
Why I like it? It has a strong network, valuation is cheap, business is easy to understand and last but not least, it is under-researched by analysts. The valuation is cheap because they are currently only trading at 4.9 times trailing p/e and with the economy coming back to normal, we can expect their profitability to improve further. For year 2009, they made $59 million and that was driven mainly by their primary production division Rivalea, which deals in farming of pork and it is the largest exporter of pork in Australia. The sum of parts for the company is definitely worth more than the current NAV because I believe that their intangible assets like their Farmland and Gardenia brands are household names for South-east Asian countries are undervalued.
The only division that is not doing well is their apple juice division, but this is a small division and it should not be a drag. I like this company because this is a company that is dealing with businesses that are very cash driven and inelastic demand. This is the exact description of a brick and mortar company. The cash flow is constantly strong, over the past two years, cash flow from operations have averaged S$90 million, which is really impressive.
Revenue for the company stands at a very nice 2.55 times of its market capitalization. I know, I will definitely go down into history as a brick and mortar investor, but honestly I do not know how to value stocks that are all about growth potential. Potential to me is just promise that has not been delivered. Which means it stands for nothing.
QAF has been there since my primary school days and years before that. I remember, I had a classmate whose father was sitting on the board of directors. For me, if the analysts are not looking at it, that is always a good sign. Do not miss out on this opportunity, because if you have missed my other calls then this is something that you should not miss.
As for my previous posts, one of my followers have said that he is holding 2 stocks that I recommended. Auric and United Overseas Australia, but I have to say that both have been slowly creeping up. Look at Lion Asiapac, it was not moving for some time after I made a call for it, but suddenly, it has shot up because of the special dividend. So it shows, good things come to those that wait. Be patient and the money is going to come.
Gotta sleep now, big week ahead. Big decisions to be made. Have a good week ahead and happy trading.
Best,
SVI
Keeping Our Feet On The Ground. Market complacency is creeping in.
Once again I must apologise for missing another week of posts. After GP Batteries, do I have anything to recommend? Yes. Why haven't I? Because I feel that it may not be the best time to continue to add to your exposure. Do not get me wrong, all the stocks which I have recommended are still strong buys in terms of value, but if you are expecting me to tell you to continue adding exposure to your portfolio, I am not. I believe earnings season is starting soon and it will be a good point for us to monitor closely on whether the earnings can substantiate the current rally we are experiencing.
I have been wanting to collate all the recommendations I have made to keep track of their performance but have not found the time to do so. Do you want to do it for me?
Since my previous post on the bond market going through a bear phase, we have seen yields rising higher due to poor response to the treasury auctions over the past 2 weeks. I would really hate to be in the bond investors shoes right now, especially the conservative ones who only buys AAA or AA rated government debts. This is how I view bonds, they are a con job. Because inflation is always higher than reported and there is no such thing as a fixed return on a risky investment. If you are going to take risk, why the hell would you want to cap your upside?
Today, I am just going to discuss some of my views on the market and why I feel we should be a little cautious about things. How about lets list them one by one.
1) The micro-caps are running. Micro-caps are companies that have extremely small market capitalization and are often viewed as the companies that have little or no fundamentals. Companies like Top Global, Teledata etc doiminating the market actives list. This normally signals the market participants running out of ideas. Retail investors are also starting to be sucked into the market. That is often a bad sign.
2) Fear is rising. Especially sovereign risks are rising. If the treasury auctions do not do well, that would mean that investors are starting to worry about the credibility of the US government. If yields continue to rise, there is going to be a problem with the housing market, as pressure on interest rates to rise will curb any feeble recovery that was in stall. With US$84 billion on treasury auctions next week, its going to be an interesting ride for the market.
3) We are near key psychological barriers. The Dow at 11000, STI almost 3000, HSI almost 22000, Nikkei ah...Nikkei (2 year highs).
4) Every S Chip moving due to speculation on the possibility of dual listing plans. Let me put this straight, this dual listing theme is just a short term theme and not sustainable. People pushing up Cosco to this price ($1.51), take heed. The company still has a lot to prove in terms of earnings.
5) Threats of possible action by the US on the Chinese refusal to do anything about their undervalued yuan. Personally, I really doubt anything is going to happen but I think that it is something which we should be looking at.
6) Greece needing to refinance US$10 billion worth of debt next five weeks, starting on tuesday. Plenty of eyes will be on the auction to see if Greece will default causing a frenzy of fear on the rest of the PIGS countries. As I said before, I do not view this a big thing, but when markets have been doing so well, people will take the smallest excuse to take profits.
I am not trying to say that the market is going to start retracing immediately. Markets always tend to behave irrationally and overshoot on both the upside and downside. So this rally will continue for as long as the market participants feel exuberant, but the reason to why I am writing this short post is to remind all, including myself to not get caught up with too much exuberance and to keep my feet planted on the ground.
The Singapore market is clearly on the road to recovery and we are still more than 20% lower from its highs in 2007. Do I think we will fully recover? I do. Do I think there will be bumps on the way? Of course. Once someone told me, that life is all about the bumps that makes things interesting. I think thats absolutely bullshit because there is really no meaning to life.
But in stocks, I think that it is very true. We need points of consolidation and gradual moves higher rather than spikes, this is to keep us realistic about our expectations. Remember, if they do not pull back, it will not give us more chances to buy more at a lower price, thats how I see it. Ok till the next post.
Best,
SVI
I have been wanting to collate all the recommendations I have made to keep track of their performance but have not found the time to do so. Do you want to do it for me?
Since my previous post on the bond market going through a bear phase, we have seen yields rising higher due to poor response to the treasury auctions over the past 2 weeks. I would really hate to be in the bond investors shoes right now, especially the conservative ones who only buys AAA or AA rated government debts. This is how I view bonds, they are a con job. Because inflation is always higher than reported and there is no such thing as a fixed return on a risky investment. If you are going to take risk, why the hell would you want to cap your upside?
Today, I am just going to discuss some of my views on the market and why I feel we should be a little cautious about things. How about lets list them one by one.
1) The micro-caps are running. Micro-caps are companies that have extremely small market capitalization and are often viewed as the companies that have little or no fundamentals. Companies like Top Global, Teledata etc doiminating the market actives list. This normally signals the market participants running out of ideas. Retail investors are also starting to be sucked into the market. That is often a bad sign.
2) Fear is rising. Especially sovereign risks are rising. If the treasury auctions do not do well, that would mean that investors are starting to worry about the credibility of the US government. If yields continue to rise, there is going to be a problem with the housing market, as pressure on interest rates to rise will curb any feeble recovery that was in stall. With US$84 billion on treasury auctions next week, its going to be an interesting ride for the market.
3) We are near key psychological barriers. The Dow at 11000, STI almost 3000, HSI almost 22000, Nikkei ah...Nikkei (2 year highs).
4) Every S Chip moving due to speculation on the possibility of dual listing plans. Let me put this straight, this dual listing theme is just a short term theme and not sustainable. People pushing up Cosco to this price ($1.51), take heed. The company still has a lot to prove in terms of earnings.
5) Threats of possible action by the US on the Chinese refusal to do anything about their undervalued yuan. Personally, I really doubt anything is going to happen but I think that it is something which we should be looking at.
6) Greece needing to refinance US$10 billion worth of debt next five weeks, starting on tuesday. Plenty of eyes will be on the auction to see if Greece will default causing a frenzy of fear on the rest of the PIGS countries. As I said before, I do not view this a big thing, but when markets have been doing so well, people will take the smallest excuse to take profits.
I am not trying to say that the market is going to start retracing immediately. Markets always tend to behave irrationally and overshoot on both the upside and downside. So this rally will continue for as long as the market participants feel exuberant, but the reason to why I am writing this short post is to remind all, including myself to not get caught up with too much exuberance and to keep my feet planted on the ground.
The Singapore market is clearly on the road to recovery and we are still more than 20% lower from its highs in 2007. Do I think we will fully recover? I do. Do I think there will be bumps on the way? Of course. Once someone told me, that life is all about the bumps that makes things interesting. I think thats absolutely bullshit because there is really no meaning to life.
But in stocks, I think that it is very true. We need points of consolidation and gradual moves higher rather than spikes, this is to keep us realistic about our expectations. Remember, if they do not pull back, it will not give us more chances to buy more at a lower price, thats how I see it. Ok till the next post.
Best,
SVI
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