Who is Right?

http://buzz.money.cnn.com/2012/08/23/stocks-funds-inflows-outflows/?iid=HP_River

Since beginning of this year, retail investors have been pulling money out from the stock markets while the stock markets continue to charge ahead.

The hedge fund managers are also holding a large chunk of cash though they are not in net short position. They are preparing to take advantage of market decline but their refusal to short stocks indicating the market can still rally ahead. Read the rest hereHedge funds are betting on disasters

It was reported recently on the internet that George Soros is holding 75% cash. Read here : George Soro fund maintains big cash position

When the markets (Dow Jones Industrial, S & P 500) were finally turning down after Dow did not make a new high but S & P 500 did, Mark Hulbert, a regular comentator of Market Watch, made  comments like rally was living on borrowed time. Read the rest here May-June correction was a failure

Is it true that the rally is living on borrowed time?

 Dow gained about 6% on the year-to-date basis. Let's look at the winners of Dow components that drive the gains.

• It is obvious that stocks that are beaten down badly last year like financial and housing sector are getting back a bit of justice.
• Industrial sector around the globe tanked but the US industrial sector looks pretty healthy as they are in expansion stage though the data is deteriorating rapidly.
• Safe haven stocks that paying good dividend yield like telecom, health care and consumer discretionary are the winners.
• Solid oil price is providing support for oil stocks.
• Technology is sending a mixed message, outside Apple, I think the sector is in trouble.

I found this data after I have done the donkey job of looking at gainers and losers of Dow components. The conclusions are pretty much the same. 

By sector breakdown, info tech is the largest piece of pie now. Market cap expanded by USD 1,785 b and Apple contributed to about USD 384 B or 21%. It is quite to safe to say that large gains were Apple driven and the question is can Apple continue to do the magic?

I would say consumer staple, discretionary and energy are getting very close to its valuation and in some cases over-valued, unless people would like to chase yield slightly above 5 to 10-yield of 1.7%.

That will leave us with financial and industrial sectors, can it be the next rally leader ? Some possibility on financial sector but I doubt industrial sector can.

Global financial markets are very interconnected nowadays. Mind you that some stock markets are very oversold in Europe and emerging markets especially China. A counter-rally in these markets will continue to provide positive reinforcement loop. Oversold counter rally markets will reinforce US market and in return US market will provide confidence to oversold markets to rally. Until either one is exhausted, tanking US market or exhausted counter rally loop is broken, trend trading will remain the best friend of brave and agile ones.

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How to Lose Money in the Stock Market

Instead of writing something positive like how to be a millionaire or how to be a successful investor I prefer to write about how to lose money in the stock market. After all, 99.9% of people are having IQ 150 and above, why write something that they are already good at -- smart and successful in the stock market. This post is not backed by research but by experiences that I heard throughout my life. I hope you can follow these simple tips if you want to lose money, shirt and underwear in the stock market. I will you pay you the difference if you don't lose money base on these tips.

Tip #1. This is my last job, babe. We are going to retire in Bahama tomorrow. Ignore whatever you heard okay, I will be just fine. Just wait for me at the port all right. Mr. Stock market, I am going ALL-IN with the rock solid advice from a few public listed directors info. They told me no one has heard about this tipsy. Market will be stunned with this corporate development announcement. Sure Gap-Up, Yes, 100% of my net worth on ONE stock. RM 500,000 just ONE stock. Warren Buffet is right, diversification is for birds. Simple. One stock. One shot. Hantam kuat kuat!

Tip #2. Be a smart ass. On the contrary of what you heard that retail investors are stupid and ignorant, as education level of general population are increasing, people are doing more research than you ever imagine. Find everything you can and read them - the WSJ, the Star, blogs(including this one), Fortune, Forbes. And don't forget to turn on Bloomberg and catch up with Creamer on CNBC. Read everything. Understanding everything.

Tip #3. Have a STOP-LOSS. Yeah you did that but how come??? It is your 9th times of hitting the stop-loss. Let's do the math. A $ 1,000,000 will reach 387,420.489 when you hit the 9th times of hitting stop-loss. It takes a genius to achieve this level of REVERSE-8-Wonder of the world. No worries, when you reach this level, call me at 1-800-STOP-LOSS. Understanding don't count. Only price. When you are wrong, stop-loss will be there to save you.

Tip #4.  Be a geek, speak only Greek. Don't bet on something is sure, it just too boring. Invest based on this secret formula.

Asset allocation = (Probability of sun will come out tomorrow)*Penny stocks*100% + (Probability of sun will not come tomorrow)*Fixed Deposit*100%

Tip #5. Break down your long term goal into actionable investment goal on T+3 basis. 20% return will translate into 0.083% business day. I am sure you are not that greedy, just buy and sell it for 0.25% gains on T+3. No matter how high is the stock market, all you need is 1.65% gain in 3 days, your gain is 0.25% after minus 1.4% broker and stamp fees. This is an easy peasy strategy. If a  3 year old kid can do it, you cannot do it meh? No balls-ah?. Sure you can-lar. Boleh-lar. Have a po-C-tip attitude.

Like I said, if you don't lose money based the above 5 tips that painfully gain by billions of investors and speculators, I will pay you the difference. Call me at 1-800-sure-lose-money-dot-Com. By the way, Time dot Com worth at least RM 5 based on 20% discount to its SOP on shareholding in Digi and fiber business.

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Reversion to Mean

Some stocks or commodities generated poor or good returns for good reasons. Poor fundamentals or stretched valuations but selling for a high price will produce worse results. Improving fundamentals or modest valuations will produce good returns. The European stock markets performed poorly is understandable. Shanghai Composite Index generated closed to 50% losses is getting more attractive by days. The average PE for A shares selling for 11 times PE is very cheap. I have completed my visit in China. There is no doubt that it was slower than before but I could not find any signs of hard landing.  The day of Reversion To Mean will come. My Dollar Averaging strategy has been activated recently. 20% of Turtle Portfolio cash will be moved into Chinese equities spread out over a period of 8 - 12 months.

Funds that worth investigating:

1. Morgan Stanley China A Share Fund. It's a closed end fund listed in NYSE(CAF). It is selling close to 10% discount to NAV but with 13% market distribution yield is very attractive.

http://www.closed-endfunds.com/FundSelector/FundDetail.fs?ID=111897

2. United SSE 50 China ETF http://www.uobam.com.sg/uobam/html/china_etf.html

It is an ETF that has direct exposure to A shares listed in Singapore Stock Exchange. It has just recovered slightly after hitting a new low of USD 1.54.

3. BRIC mutual funds 

4. Mutual funds specialize in H Shares

5. CIMBC25 listed in KLSE.  I sold off last year at RM 0.83/share. It is about time to get back in soon.

Have a good weekend everyone.

SUNDAY, AUGUST 5, 2012

iCapital. Deja Vu?

As of Aug 4, 2012, iCapital closed end fund was selling for RM 2.30 but NAV was RM 3.01, represents a discount of almost 24%. As of May 30, 2012, iCapital has net asset of RM 400 million and almost RM 133 millions are in cash. Investors may be sceptical that it can maintain its high elevated level.

The fund has never declare any dividend since it was launch in October 2005. In a few months time, the fund will be getting almost 7years. Using the market price around first week of October of every calender since it was listed we all can see that all the capital gain was in the first 2 years and return was practically non existent since 2008.

There are some interesting developments since last year with emergence of two foreign funds. One of them is  City of London Investment Management Company LTD with initial interest of 5.26% in November 2011 and increased their holding to almost 6.2% as of July 31, 2012. The other fund is Lexey Partners Limited with initial interest of 5.92%. They started buying some time April 2012. 


What Lexey Partners did reminded me of of a closed-end fund Amanah Millenia fund. That fund was forced to closed in 2007 after in existence of 10 years. Lexey Partners bought an initial interests of 5.05% with almost 29% discount to its NAV. After the initial interest, they kept buying until it reached 16.2% and forced it to close.

Amanah Millenia was way under-performing at that time in terms of NAV with 21.9% gains only over a period of 10 years while iCapital managed to improve its NAV over time of almost 3 times.

The question is will iCapital face a similar fate? Will this time be different with City of London Investment and Lexey Partners already accumulated combined interests of 12.7%.

Many of closed end funds in listed in NYSE actually paying dividend regularly. Many of closed end funds sweetened their investors with generous dividend to compensate for the discount to NAV.

Having foreign funds buying is a good news to current holders and certainly adding pressures to its fund manager. The mentality of foreign funds are very different from small holders will just wait patiently hoping something will happen. They will make things happen and it will be a big dent to TTB's pride if his fund get liquidated!

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