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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Airasia Acquiring Batavia Air

Airasia is acquiring 49% of Batavia Air while the remaining 51% is acquired by its Indonesian partner. I have mentioned that it is looking at Indonesia as the base for growth and in fact this deal is even better, accelerating further the growth of Airasia as a group.

If anyone is holding any airline stocks in the region be it SIA, MAS, Cathay Pacific, Qantas etc, do change your holding as this Malaysian company is moving mountains. The larger premium airlines should be very afraid as the future of airline business is in low costs not your premium business seats!

Do not even bother about looking at the acquisition price they are paying for, as there is no point comparing someone so flexible who can bend, squat, run, hide while the other national airlines can only sit and watch. There is no competition in the future when comes to a company which can do deals with anyone overseas. Against these players, Airasia is just competing on a different rule. The deal is just an example on how fast they can get things done. National airlines would have it much more difficult.

This is the real Airasia as it no longer is a Malaysian based airline.

See announcements below.
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AirAsia Accelerates Indonesian Expansion Plans

AirAsia and PT Fersindo Nusaperkasa acquire Batavia Air

Thursday, 26 July 2012 for immediate release

Jakarta, Indonesia: AirAsia Berhad (“AAB”) today announced that it has through its fully owned subsidiary AirAsia Investment Ltd entered into a Conditional Share Sale Agreement ("CSSA") together with its partner PT Fersindo Nusaperkasa (“Fersindo”) to acquire PT Metro Batavia (“Metro Batavia”), which operates the Indonesian airline, Batavia Air, and Aero Flyer Institute (“AFI”), an aviation training school (together “Metro Batavia Group”). The agreement was signed today between AAB, Fersindo and Metro Batavia at a signing ceremony in Jakarta.

In accordance with Indonesian civil aviation ownership regulations, AAB will hold a 49% stake in Metro Batavia Group with the 51% majority held by its Indonesian partner, Fersindo. Fersindo is also the 51% majority shareholder of PT Indonesia AirAsia (“IAA”). The total purchasing consideration for Metro Batavia Group is USD80 million (equivalent to approximately RM253 million) and will be settled in cash. The acquisition of 100% interest in Metro Batavia by AAB and Fersindo will be carried out in two stages, through acquisition of a majority 76.95% stake and subsequently followed by the remaining 23.05% held by its existing shareholders.

Correspondingly, the total purchasing consideration for 100% interest in AFI is USD1 million (approximately RM3.2 million). The acquisition is expected to complete by 2nd quarter 2013 and is subject to regulatory approvals in Indonesia.

This new acquisition will complement AirAsia’s existing Indonesian operations, IAA, which has successfully captured strong market share in Indonesia’s international airline traffic, with an extensive and well-established domestic route network throughout the Indonesian archipelago. The Batavia Air acquisition provides greater domestic connectivity and an extensive feeder network into IAA’s existing hubs in Jakarta, Bandung, Denpasar, Medan and Surabaya. Upon the successful acquisition, Batavia Air and IAA will fly more than 14 million customers serving 42 Indonesian and 12 international destinations. The addition of Batavia Air will provide AirAsia immediate access to an enlarged fleet of aircraft, experienced pilots and flight crew and increasingly competitive slots at major Indonesian airports at a time when Indonesia’s travel sector is experiencing double-digit growth on the back of rapidly growing consumer demand for air travel.

Following the acquisition the number of distribution channels in Indonesia will increase ten-fold to over 5000 authorised agents and more than 70 sales outlets. With this enlarged agency footprint AirAsia will be able to reach even more customers while complementing our internet based sales. “The Batavia Air acquisition is a fantastic opportunity for AirAsia to accelerate our growth plans in one of the most exciting aviation markets in Asia and further underlines our belief in the growth potential of Indonesia’s aviation sector,” said Tan Sri Dr Tony Fernandes, Group CEO and Director of AAB.

Founded in 2002, Batavia Air has earned its reputation as a leading domestic airline with a strong safety track record throughout its operating history. Operating a fleet of 33 aircraft, Batavia has consistently held significant domestic market share through serving 41 domestic routes and has recently expanded its route network to international destinations such as Singapore, Jeddah, Riyadh, Kuching, Dili and Guangzhou. A certified flight school, simulator training centre and aircraft maintenance facilities also support Batavia Air’s operations.

“I am proud to have built Batavia Air into a leading Indonesian airline from its humble beginnings. Recent developments in the airline industry have made me recognise that Batavia Air requires greater scale in order to compete and grow further, and I am so pleased that AirAsia will now take Batavia Air to even greater heights,” said Bapak Yudiawan Tansari, Batavia Air’s founder.

“We are impressed with Batavia Air’s achievements over the past 10 years and will continue to build on Bapak Yudiawan’s legacy. We are excited with the potential synergies this acquisition will bring to AirAsia Group and see this as a natural extension of the success we have achieved with IAA . Indonesian air travelers can all look forward to even more affordable fares soon,” remarked Tan’ Sri Dr Tony Fernandes.

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Do You Think Now is The Right Time to Buy Top Glove

It is no surprise that Top Glove has high ambitions as it has been proven in their past records. It is mentioned in the article by EdgeDaily that this largest glove manufacturer is planning to triple its production capacities over the next 15 years while planning to increase its global market share to 50%. Doable? A bit overoptimistic I would think but it is not an impossible task.

I have mentioned in the past that if we want to buy glove manufacturers, one may not need to look beyond Top Glove and Hartalega. My reasoning is simple. In a mature industry which has decent growth, look for company that has size, strong balance sheet, reach and ability to scale. Both Top Glove and Hartalega have that. I am not discounting other players like Supermax, Kossan, Latexx Partners etc. but chances are that the dominance would probably be by the 2 companies. Only thing is that we do not know latex gloves or nitrile gloves would be the preference. The way I look at it industry players themselves do not know as they are preparing production lines that are switchable.

Anyway, over the last 6 months, prices of latex has tapered down as it was over speculated few years ago. At one point of time the price was so high that costs of production for latex gloves was higher than nitrile gloves, an unprecedented event. We will not know the future of these raw material however, but I believe these players would be more ready in future in the event any of the raw material shot up in price again.

With the recent price of raw latex reducing to below RM7 per kg, I am just wondering whether it is time to buy Top Glove again. Prices of these raw material however should not be a consideration for any long term investors. The main concern is the strategy.

Over time, it may not be the prices of latex or petroleum that is to cause concerns to these players but what I am more concern of is whether there can be a glut in terms of supplies as well as the increasing labor costs. Hence, these players will have to convert their plant to embrace automation much more than before as Malaysia and Thailand are introducing minimum wages almost at the same time.

On the concern for glut in supplies of rubber gloves, I am just worried as every time I read about the industry news, these players are preparing themselves for massive expansion. Can the demand be taking so much?

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Optimize Your Trading for Better Profitability

What do you have on tap for this weekend?  Gonna hit the bars with some friends? Hang out at the beach?  Perhaps you and your significant other are going to go to Home Depot and maybe Bed, Bath, and Beyond as well (if you have the time).

Let me be so bold as to suggest that you set aside a few hours this weekend for a project that will improve your trading….and your profitability.

This project can be as complex and in-depth as you want, but it need not be.  As long as you have a basic understanding of a spreadsheet program like Excel, just follow the outline below and you will be fine.

The first step is to download your trade history from your broker into a spreadsheet.  How far back you want to go is up to you, but obviously the more data you are willing to look at the better your results will be.

The goal here is to match up your opening and closing transactions to determine profitability. The best way to do this if you are a day trader is to sort the spreadsheet by “date and time” and if you are a swing or position trader by “symbol.”

Once trades are matched you might find it helpful to categorize them as “winning,” “losing,” and “break even” trades. The “break even” category should also include trades which were small wins or losses.  Once you match them up I suggest you color code the categories, with green, yellow, and red being the most obvious choices.

Now you want to go through each category and do some analysis by looking at the following;

Asset Class – Are there certain asset classes that you do better with than others?  That you do worse with?  A trader friend of mine who used to trade numerous asset classes went through this process and found out that he did worse overall trading equities than trading forex.  He dropped stocks and began focusing exclusively on forex to the benefit of his account’s P&L.

Instruments –  Here you are looking at the instruments within asset classes you trade to see what patterns emerge.  Are you a consistent loser with ETF’s?  How about leveraged ETF’s?  Do you do better with small caps or large caps.  Do your option profits come from in the money or out of the money options?  What forex pairs do you shine at trading?

Sectors –  Maybe you will find that you do better trading consumer goods stocks than pharma stocks.  You might be the axe in the NASDAQ E-mini (tech) and the donkey when trading oil futures (energy).  If you are crushing it in the $AUD make sure you know you are trading a proxy for commodities.

Time of Day –  Most historical trade data will not only have the date but the actually time that you entered the trade listed.  See if there is a pattern that you can identify.  Often the opening and closing hours are the good for trading, while the middle of the day is not.  Are your losing trades clustered around less than optimal times of day?

Length of Trade –  This is a critical area because even with a swing or position trade that you break even on, you still have to factor in how long your funds are tied up in those trades with no return.  Many traders don’t consider themselves day traders, but will find that in the few day trades they do take, they have a better win ratio than their longer term trades.

Price –  Where is the sweet spot here?  Are you coining money it the $20-$60 range of stocks?  Are you weak in the under $10 stocks but a monster in the $AAPL and $GOOG’s of the market?

Liquidity –  You won’t get this data from your history download but it’s easy to pull up the average volume numbers on the stocks in each trade category to determine if there is a pattern related to less or more liquid issues.  You can take this one step further if you like and browse the intraday charts of these stocks in more depth.  Many stocks that have what is normally considered “decent” volume can still move in a choppy fashion with wide spreads on an intraday basis, and a 5-min charts will show you that.

These are just some suggested filters and you can use whichever ones you think are most relevant.

In the end what you are trying to accomplish is to throw out any preconceived notions you might have about your trading and let the facts speak for themselves.  If you are open to what they are saying you can then start to eliminate factors related to your losing trades and emphasize the factors associated with your winning trades.

We all know that our weekend time is very valuable and it may seem a little bit tedious at first when starting this project.  But once you get into the process I think you will quickly see the value of it, and besides, nobody says you can’t still drink while you do it.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in).  Check out “The Best Of bclund” to get started.

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Timely Research Piece On Plantations

HDBS Research:



Sector valuation is overpessimistic. 
Even with lower crude oil prices and the EU debt crisis, we believe plantation stock prices have been unjustifiably sold off despite precarious vegetable oil supply outlook. By end Sep12F quarter, the combined ending stock of palm, soybean and rapeseed oils (as a share of consumption) would have been at its lowest since Sep05. There is no remedy for lack of supply. 


Looming end to soybean export boom.  
We recently examined soybean export data issued by Oil World and found that global inventories are fast depleting, due to South American crop failure earlier this year. Any US crop setback in Sep-Nov12 – if El Nino developed – would exacerbate this situation; as South American stocks would already have been depleted by then. Aug12 global stock levels are now forecast to be the lowest since Aug05. Subsequent stock levels are due to decline further – even after US output reaches the market – as Chinese imports are expected to jump 11% y-oy. We believe the market is ignoring this.  


Priced below market. 
Despite expectations of a further tightening in soybean supply, current palm olein (cooking oil) price discount to soybean oil is the widest since Oct11. Most planters PE now trade at -1SD and are pricing-in long term CPO price at 7-20% below current depressed levels. We think this is unsustainable; as CPO prices may not fall to such level on global vegetable oil supply constraints. In China, brisk soybean imports have so far defied poor crush margins. The coming supply crunch could spell even poorer margins, unless both soybean oil and soybean meal prices rise further. 


Don’t miss the boat.  
Planters with significant volume growth such as Sampoerna A., First R., TSH and Bumitama stand to benefit the most from both pricing and volume 
recoveries. Recall that poorer-than-expected 1Q12 FFB harvests, higher fertilizer costs – hence earnings – triggered the earlier sell-off. We also like Sime and Genting P. on sound balance sheets, decent growths.

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