What a week it has been. Markets have rallied (told you so) back to levels close to their year highs. Japan is back to its post quake highs (told you so too) with Japanese mutual funds leadings all gainers in the mutual fund space. Fortune always favors the brave. Expect much more to come, this is just the beginning. If you looked at the markets 3 months ago and compare it to today's levels, you would never have guessed that the world has been dealing with a global slowdown, US debt ceiling and Euro sovereign crisis issues. Magic? Thats what excess liquidity does to markets. When has the world seen such money supply growth in developed countries? Never. Liquidity is here to stay for some time.
What that means is inflation is going to be a lot stickier. How much has rice risen this year? 70%? Pork? 49%? Diamonds outperforming gold? Now that is what I call inflation. Yogurt for more than $3 bucks per small pint...at cold storage...so much for cheap healthy living. What should we buy in such a time? Gold, silver and platinum? Nope... The fallacy of gold being a great inflation hedge is something which investors have to learn. Gold has underperformed inflation for the longest time in the 90s and it is still trying hard to play catch up. Go check, you will know I am telling the truth.
I do not have all the answers on this, but personally, I am going to buy into some of my golden stock picks because of their underlying value which will eventually outperform inflation when their time comes.
QAF has just started moving, Heng Long has resumed its uptick, QSR Brands have broken out of its consolidation phase, STX OSV hitting new highs on a daily basis, Sarin delivering solid gains as raw diamond prices rise, Keppel T&T delivering solid growth in their profits etc. These are companies which I feel are still undervalued and should continue to perform well over time.
Was asked by a friend of mine to review my call on Tat Hong some time ago. So here it is. Tat hong as been the subject of downgrades over the past year and its stock price has fallen close to 35% over the past 12 months. Earnings have been dropping due to lower margins caused by more intense competition, weather issues in Australia and delays in shipments no thanks to the Japan earthquake. Why is Tat Hong facing so many headwinds? Bad luck or bad timing? A little bit of both, I would say. Tat Hong is in the middle of restructuring its business, acquiring new businesses and adding to their stakes in JVs. In normal situations, this would mean a lengthy gestation period and teething problems. However, I have personally met Tat Hong's management in the past and I was impressed by their professionalism and enthusiasm in managing their business. However, what should you do if you are down by 35%? Buy more or sell out? For me, I would buy more, but not everyone is the same. If there is a better opportunity this is staring you in the face, take it. If not, hold on. I think the turnaround should be soon. Remember KS Energy? They had a long gestation period and what happened now? 2 large contracts in a span of a month.
Sarin too has a blip before moving up. How long did it take for Sarin to move since my call? 1 year? To me, that is already fast. Bear in mind, when I make a call, I always have the long term in mind. We should always look at returns from a percentage point of view. My target is 10% per year, so if my stock stagnates for 5 years and suddenly within a year it doubles, it would still mean that it has hit my objective. Picking stocks is what I try to do all the time, one thing I never like to do is to time the market. Do not own a crystal ball and never will. Good things come to those who wait.
This coming week will see the market get jittery over the US debt ceiling situation as the deadline draws close. Do not worry, buy on weakness. There is no chance they will allow a default. If they do, we are all dead anyway. So no downside. Hahaha. Gotta go cos its getting a little late.
Have a great week ahead!
Best,
SVI
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