Profit from the Crash

This is a simple sharing about crash of stock market.

Stock market crash does not sound like a good thing to happen. Most people do want to see stock market crash.

People used to related stock market crash to

• Money losses in stock market
• Bad economy
• Loss of jobs, high jobless rate
• Bankruptcy

These are conventional wisdom.

Why not we view stock market crash from another angle - If we do things correctly, stock market crash benefits smart investors:

This is the only time great counters are offered at dirt cheap price. Time for bargain hunting. It is time to buy low. We can enjoy great appreciation in long term. For those with good dividend payouts, we can buy it at low price which mean high yield. For a share offering 0.10 dividend per year, there is huge difference in dividend return if we buy it at $1 vs buying it at $3. It is 10% vs 3%

For more aggressive investors, they can take further step to short sell. The more the market crash, the more they earn.

The conclusion is, we should look at market boom and crash neutrally, and take necessary actions to benefit ourselves.

[Note of Caution:  Stock Short Selling is strictly prohibited in Malaysia. We can do shorting on the KLCI via FKLI futures contract. For further details you may Google it]

WE HAVE MOVED! ...... valuerisk.blogspot.com

Hi!

We have moved to new address  :    http://valuerisk.blogspot.com/

Happy Investing!

Windows 8 and Microsoft (NASDAQ:MSFT)

http://windows.microsoft.com/en-US/windows-8/release-preview

Windows 8 is expected to launch in end October. After so many rounds of Windows upgrade, this seems to the most revolutionary and probably most ambitious.

It's a platform to cater for all hardware from smart phones, tablets, laptop PCs...everything.
In short, it covers ARM based and x86 based products. It comes with a Windows RT version
In one single platform, it can support touch and mouse control.
It can switch between 2 interface: a touched based interface more suitable for smaller gadgets like smartphones and tablets, and mouse based interface which is more towards what we have today, and it is meant for more commercial and heavier work.

The intention is very clear: To cover every area and extend it's domination. Past few years smartphones and tablets had been growing extremely fast, a term "Death of PC" are commonly heard. Actually it is implying The Death of Windows. This was an area Windows left out passed few years.

The term "Death of PC" sounds exaggerated. If we are to remove all Windows product from the world from now on, the world will collapse. It's serious. If we think carefully, all our daily activities are directly and indirectly supported by Windows based PC. If we are to remove all iOS and Android based products from now on, life will still go on as it only affects some of your leisure activities. Worst thing would be those tech fans will cry for a few days, but then you can go purchase other OS (Windows, Blackberry) gadgets to continue with you mobile surfing, gaming, and social networking. 

Tablets don't allow you to do much things except for leisure and communication purpose, but Wintel based laptops are lack of the Cool factor of tablets. So here's how current market works: most consumers still own a Wintel based laptops as usual (as they still need to work, and can't live without it), and yet purchase another tablet for leisure purpose and to look COOL.

If I am a consumer, this might make me think twice before I spend money on another Android or iOS tablet. For necessity, I will still own a Windows product - it could be a hybrid product: A x86 processor tablet with  laptop performance attached to separate keyboard and supports mouse. It can be used as a laptop or tablet depends on my need. Do I still have good reason to buy another tablet, since I already have one? Even if I justify myself to buy another extra tablet which is smaller and less powerful for leisure purpose, I can still chose between Win8, iOS and Android. So far, SURFACE and Samsung Win8 tablet look Cool.

So here might be the vision of Msft:

1. First, defend the fortress of PC - tell the world that PC (Wintel) will not die. It will evolve to something even stronger. I want all Wintel to remain powerful or even better, and now friendly for touch screen application

2. Launch a massive counter attack to tablet market. Now I am Cool enough for smaller tablet, while having the functions and versatility of wintel laptop

3. Then penetrate into Smartphones area. If number 2 starts to work well, now Cooler Windows 8 phone might look attractive, as it has good interoperability with my Wintel tablets or laptop.          

DANG DANG DANG.

Sensitive and greedy investors already started to figure out the share price of MSFT in relation to the new Windows 8.

FACTS:
For so many years until now: Revenue, profit, EPS, DPS had been an almost perfect growth pattern.
Operating margin remain solid and high.
Balance Sheet: Cash and Debt level excellently managed at very healthy level

For punters, the price pattern had been very boring. Company growth and profitability remain positive. At current price of $30, this translates into PE of 15, which means it is not at super bargain price. But again, we have to consider the EPS growth in future. Dividend yield is 3+%, looks OK but not impressive for Malaysia and Singapore standard.

You may refer to Morningstar.com to retrieve further details:
http://quote.morningstar.com/stock/s.aspx?t=MSFT&region=USA&culture=en-us

White Hot Apple

Every launch of new Apple product means headlines, hot discussions, long queue, hot selling. There is no difference for i-phone 5  this time, and it should be selling hot for coming 2 months.

Apple (NASDAQ:AAPL) share price is as hot. Recently it even once advanced above $700 mark. A few weeks ago, I met an auntie Apple fan. She has a whole collection of Apple products since early days from ipod, ipod touch, mac book, iphone 3G, 3GS, 4S, and going-to-be i-phone 5. What impressed me is she told me Apple share is going to go up and she wants to buy. Then Apple shares advanced above $700 a few days ago! 

From profitability perspective:

2011 is so far the best year for Apple. Net profit was $25 billion, almost double of previous year. For year 2012, it shall be even higher, around $40 billion! 

In past 10 years, it was a perfect growth pattern for both revenue and profit. Every year and quarter we are seeing absolute strong growth. Cash remain rich with zero loans. 

Interesting enough, looking at most recent quarterly earnings, for 3 quarters in a row, we are seeing $2-3 billion profit drop, $4-7 billion revenue drop QOQ. This is very unusual for Apple. Actual reasons are not sure.

To think positive it could be consumers holding back their orders to wait for iphone 5 launch. Other not so good reasons would be -

1. Android is growing at faster pace and more users switched from iOS to Android. Compare to 4 years ago Android was not really recognized. Now, Android market share is already 2x iOS in smart phone market.

2.  People gradually start to perceive iphone differently, as it has lost it's "WOW" factor. The design does not evolve much in past 4 years. Consumer can switch taste quick, especially for tech gadgets. Recently we can see increasing number of people proudly flashing their Android based gadgets (especially Samsung phones).

Besides, some potential concerns for future:

1. Competition in tablet sector. More and more players entering. WINDOWS 8 might bring huge impact to tablet market. It shall be launching in 1-2 month's time.

2. Putting all eggs in one basket - over dependent on 2 products, iphone and ipad.

3. Competitiveness - it is still a question mark on the future innovation in the absence of Steve Jobs. When Jobs was fired, Apple ran into trouble, until Jobs came back to revive them with all the i-products. Now the captain has left the boat again.

4. Life Cycle - We learnt from history that life cycle for hot tech gadgets are even shorter an athlete's. We have witnessed the stories of Sony Walkman, Motorola Startec, Ericsson, Nokia, Motorola RAZR, Blackberry.

Despite all the theories above, good news for today are:
- technically the chart tells us the the uptrend remains, before it changes
- fundamentally, the PE ratio is 16, which is not high. Of course we have to know that PE ratio is inversely related to EPS. If EPS starts to shrink, it means PE ratio will increase.
- we are still seeing people queue over night for iphone 5 despite strong critics from analysts of "lacking of WOW factor"  

KLCI dropped, blame who?

Recently a friend was joking with me, saying that since I posted an article of "Missed the boat, Chase the boat, or Leave the boat" back in July when KLCI hits historical high, then it lost its steam and not able to break through anymore.

Not only that, recent weeks in September we saw big sell down to push it to test 1600 level. My friend blamed me for bringing bad luck to KLCI so it's better for me to stop posting. It's just a joke from him, of course.

At the same time we must not forget some people who took the opportunity to short the KLCI index (FKLI) will be happy with recent movements.

So what is to blame for KLCI's case recently? A few things we commonly hear:

• foreign funds are not loyal to KLSE. They just ride on the trend to enter our market, when it is time, they just take profit
• local government and institutional funds are not providing sufficient fund to buy and support the market
• retail investors are not serious in investing in local blue chip counters. Most people are interested in penny stocks nowadays. [Note: KLCI consists of 30 blue chip counters only]
• election factor

There are valid logic for each reasons above. Another factor to add in, is to go back to the basics of investment:  Buy Low, Sell High. The higher it goes, the more prone to correction it is.

So there is no surprise to see recent correction. Those are small correction indeed. One day a real big correction will come.

It's time to buy HIGH and sell HIGHER!

If, you bought a share at $1 three years ago. Now you sell it at $6, four months later stock market crashed. The share drops to $2 one year later, and you start to collect again. This is BUY LOW, SELL HIGH. Sounds very simple to make good money.

This is assuming that you had done a thorough fact driven analysis and made an informed decision.

Sounds simple, but it is quite difficult, here's why.

When you bought at $1, it must be a very bad market. After you bought it might fluctuate, may be to the low of $0.70 within 3-4 months which is a 30% paper loss. There are a lot of bad news around. Your friends might ridicule and taunt you for buying it at such a market. To justify you made a wrong move, there will be a lot of conventional wisdom driven theories like "The Worst has yet to come" "Don't catch the falling knife" "We are still not seeing the end yet". If you are buying a plantation stock, theories to justify your foolishness might be "The palm oil price is too low""Demand for palm oil is weak now""Soil bean oil is a great threat to palm oil". When it drops further to $0.70. It further proved you are wrong. Although eventually it is a great investment, but within this 4 months you have to see price fluctuation, negative news, and taunts from your friends. Do you have a big strong heart to hold on to your fact based study??? 4 months is not that short, can you stand it?

Same thing, when you sell it at $6. It must be a great bull market. Your study shows it is overvalued and the market is on the verge of huge correction. After you sold it, it might continue to go up to $7 in 4 months. Again, you will be flooded with good news from the media, and again taunting from your friends for selling so early to miss the boat of such great opportunity. Common theories to prove you wrong are like "We are in a very strong economy" "The bull is running with unstoppable momentum" "Demand for palm oil is ever growing" "It's different this time, there is strong demand from Asia". Again you will be laughed around for 4 months, there's a possibility you will live with regret. So again a big strong heart is needed.

Just look at some famous examples of Warren Buffet (WB).

During the dot com bubble early 2000, WB stayed at the sideline due to reasons that most of the tech stocks are horribly overvalued and their business are "difficult" to understand. As a result, he is heavily taunted by the public for being missed out this time. When the bubble bursts, everyone burnt, but WB's portfolio still grows steadily as ever. People might find ways to criticized him for missing out the chance to enter and "goreng" to enjoy the sudden Windfall profit, but actually it's those people who suffer the Windfall loss ultimately.

Another more recent example, PetroChina. WB started to buy it in 2002. Total initial investment $500 million. He sold all his stakes in 2007, with a total profit of $3.5 billion, solely because it is overvalued. It was the time where we talked about how strong China would be and how it would rule the world. After the sale, PetroChina continue to rise and made another all time high, where people estimated WB had missed out another few billions profit for selling early. Again, WB was being laughed at for making a poor investment decision (although he made $3.5 billion profit). Everyone what happened then. PetroChina crashed and goes back to where it was.

That is why, during bull market, it is easier for analyst and stock gurus to shout for buy call with reasoning of strong bullish momentum, and call to BUY HIGH, SELL HIGHER. You will be under a lot of pressure if you made anti climax caution statement to warn people of high valuation.

For retail investors, buy during bull market is much much more comfortable. At least you can see your shares stay there, or goes up a while (a few months or may be 1 year) to make you feel safe. At least you are making same move as everybody around you, no body will laugh at you, and you feel good.

So it is more comfortable to feel good and die later, rather than undergo big pressure to earn big bugs later. This explains why theory of BUY HIGH SELL HIGHER is well accepted.

For smart investors who wants to BUY LOW SELL HIGH:
Do your homework, make your smart moves QUIETLY, avoid sharing with others. Then highly likely you will enjoy earning big bugs, while staying away from noise and rubbish talks.

Stocks to buy and hold for life time!!

I just recalled a few months ago a friend eagerly asking me to recommend a stock that she can buy now and hold forever for 40-50 years.

Of course my answer is I DON'T KNOW. Its not that I don't want to share, indeed I am very honest to her. I really don't know. Besides I also don't really understand her question and don't know what she wants. To help her to make the question more specific, I assume she is targeting to invest 1 million today, every year it will pay out dividend of 200k at least, and 30 years later the 1 million will turn into 100 million. This should be ideal enough.

We are too used to hear of classic examples of stocks that can hold forever, where it turned 10k investment 40 years ago to 1 million today (includes reinvesting all dividends and bonus shares) for instance Coca Cola, Gillette (P&G), Wal-Mart, American Express, Public Bank, Maybank, Genting...Those are such an inspiring story, no wonder people are so keen to find the next Coca Cola.

As a matter fact, how many investors who invested in those shares 40 years ago already expected this kind of return after 40 years? Besides Prophet, I wonder any human being can predict what will happen after 40 years.

In real world, a practical long term fundamental investing style should be identifying companies with great potential, invest only at good bargain, continue to monitor the progress of the business, to see if it continues on the right track, or something has structurally changed.

I felt sorry for my friend for not being able to give her a direct answer as I am not a Prophet.

Everybody likes to have money coming in easy. No need to think, no need to work, no need to bother, just tell me the answer will do (will people tell you the true answer?), I just want money to come in easy will do. Everybody DREAMED of this, and HOPE it happen in real life. The culture is so common in this country.

When HOPE and GREED are mismanaged in stock market, it's time for disaster.

KLCI: WE WANT TO FEEL GOOD

KLCI has hit historical high of 1660+ lately, and corrected "sharply" last Wednesday and Thursday which creates quite a lot of talking points among local retail investors. The "sharp" correction is merely ~-2%. A 2-3% fluctuation is very common to be seen in Hong Kong, Japan, US...

Among opinions from local retail investors, I can conclude that most defend this correction as a healthy correction and their views remain bullish, as this is a good opportunity to enter for upcoming bull run. Minority have bearish view. In fact KLCI is among the best performers in the world  this year. Within my knowledge, I can recall that lately only Malaysia and Indonesia had hit historical high, while the rest of market I know i.e. US, Japan, Hong Kong, Singapore, Korea, Taiwan...still have a long way to go to reach teh high before 2008 financial crisis. Not to mention China, the nation with the "strongest performing economy" , the Shanghai Index still hover around 2000, where the highest in 2007 was 6000 plus! This perfectly matches our proud and popular quote of "MALAYSIA BOLEH". Congratulations!

KLCI had been inching up as if there is an unseen propeller underneath. We are too used to see it goes up and appear to be so surprise to see the "2% correction". We are anticipating good news after good news to be published by the government to help propel the uptrend, so far it never fail us. We have been given different assurance with various good  news to tell us that our economy is strong and able to withstand any storm. As a preparation of a very important event ahead for all Malaysians, cash after cash has been distributed directly to people (certain), and may be indirectly through the stock market. That is supposed to be an event where people must FEEL GOOD, certainly an up trending stock market will help. It makes me feel like engineering the KLCI to go up is an mission which cannot fail.

Externally, we also like to hear good news of how the developed countries come out with measures to stimulate the economy. Ever since 2008 financial crisis, we had heard countless massive stimulation measures especially in developed countries, of course in different names and terms. Stimulation, Quantitative Easing 1,2,3,4,5....It started in US, then EU, then now in China we are also anticipating eagerly for Mr Wen to announce stimulation plan to stimulate our sentiment. Every time a stimulation measure announced, as usual investors will anticipate eagerly, when it is confirmed, investors become so positive and it reflects in the stock market with a rally, a short term one at least, before we anticipate another round of stimulation.

The logic here is as if we need to survive by depending on the government to keep on printing billions of dollars and inject into the market to make us strong and happy. It is said to encourage increase in consumption hence revive economy activities. I hope this will make us good. This resembles an athlete who keep on injecting steroid to himself whenever he feels tired. Just imagine what will happen to the athlete if this keeps on repeating.

The measure of injecting money into the market to save the economy sounds very simple, and I sincerely hope it works by making our lives better. I am still figuring out whether this measure can bring good changes like making the lazy ones become hardworking, corrupted ones become honest, stupid ones become smart, wasteful ones become thrifty, inefficient ones become efficient, rude ones become polite, inconsiderate ones become civilized, criminals become good citizen.

Back to KLCI, facts we can observe lately

1. It is not cheap, especially blue chips. The most straight forward valuation, P/E ratio is not low, especially compare to regional peers
2. Along the year, most blue chips are in side way movement
3. KLCI has doubled since 2009.
4. The most active stocks for 2012 are penny stocks. If you go to the market, the daily top active list consists of penny stocks
5. Highest gain (of course loss) are penny stocks. The "GORENG" interest is strong.

If we hope it keep on go up go up go up as we wish, we need a real crazy bull to come, where the crazy bull can push the stocks to very high valuation, in another words, very expensive.

Any way, we are human, we always like to feel good, at least for a short while.

Contrarian behaviour of KLCI

This is about how KLCI behaved, especially in year 2012. In simple words, it is a "contrarian" relative to regional markets.
Everyday at 5.30pm, you open up any finance website with a list of Asia stock market indices, you will find out:

1. If all markets are very GREEN, KLCI will be a little GREEN (0.1 to 0.2% will do)
2. If all markets are very RED, KLCI will also be a little GREEN, or occasionally a little RED (0.1 to 0.2% will do)

In general, it inches up a little by a little, regardless of what happened outside Malaysia, this is as if it is supported by an UNSEEN FORCE UNDERNEATH (what is that actually???). This matches the popular theory of Malaysia's economy and stock market are immune to external factors as we have strong internal play.

This is an interesting phenomenon to watch. Undeniably, Malaysia stock market is much less volatile compare to other regional bourses  such as Hong Kong, Japan and Singapore which can easily fluctuate 1 to 2% daily. Malaysia market typically fluctuate less than 0.5% daily, and it doesn't allow shorting. It is very unusual to see more than 1% daily fluctuation.

This has to link with my previous post of  "Missed the boat, Chase the boat, or Leave the boat" which mentioned KLCI had just reached historical high at the region of 1645-1650. So something unusual was observed last 2 days, where KLCI has made more than 1% drop for 2 consecutive days, while all other Asia markets are stably GREEN. From a bullish outlook at 1655, suddenly it is at 1617 which is said to be testing the 1600 support.

Ofcourse, I see mixed view from different forums where one side claim this to be perfect opportunity to enter while another side shows view of bearishness.

Not sure where it is heading to in near term, but THE KLCI BEHAVIOUR IS STRANGE WHICH WE SHOULD TAKE NOTE.