Archive for May, 2008

« Older Entries
Newer Entries »

HSBC chart using chartnexus!

Monday, May 19th, 2008
Below is the chart for HSBC. I looked at the chart after I updated a newer version of chartnexus today. Now they even include HK stocks :) Amazing..and it's free too :) To all the guys/gals at chartnexus, thks for all the great work!


As mentioned in previous charting of hsbc, there is a rising wedge. But as I looked at it today, I realised that it didn't really breakdown as the pattern indicated. Instead, the price seems supported by ema20d and is also resisted at around 137.

Break below 137, I think we can expect more downside, at least for the shorter term. Break above 137, esp with high volume, we can see a uptrend.

Posted in bullythebear | No Comments »

How to detect and kill mozzies

Monday, May 19th, 2008
Today I killed another 5 more mosquitoes. I affectionately call them mozzies. I still keep a running tab of how many I manage to kill, just for the record. You can check it out here.

I must confess that I take no pleasure in killing these irritating insects. If it wasn't for the fact that they can create life threatening diseases to humans living around my area, I wouldn't be bothered. Ants and spider live a happy existence in my home.

Having killed so many mozzies, I think I can write a little more about how to go about detecting them and subsequently killing them.

Detection:

I follow the my own set of rules for detecting the presence of mozzies:

1. A buzzing sound is heard

2. I've been attacked by mozzies and there is a mark - those typical swelling followed by an insatiable itch on the affected area - to show it

3. Detection by sight

No 1 and no 3 have to occur together before I will go into 'hunting' mode. If no. 2 occurred, 'hunting' mode is justified without the occurrence of no. 1 or no. 3 or both.

Once hunting mode is on, a can of insecticide will be in my hands. I do not practice random spraying of insecticides all over in the hope of hitting one by luck. I will wait for the mozzies to rest on a surface before spraying. Usually they will fly over a few minutes before resting on a vertical or inclined surface. I've no idea why horiontal surfaces are not conducive for mozzies. Either that, or I'll be the human bait and I'll stand motionless for a few minutes to bait the mozzies to attack me. Once they settle on my skin for about 5 seconds, I'll spray.

The time interval of 5 seconds is to get the mozzies into feeding mode first so that my hit rate is higher. Key areas to focus on is the feet area or the head area, which are places that mozzies like to feed on.

Once sprayed, the procedure is repeated until:

1. The mozzies body is found and accounted for (killed and accounted for)

2. There is no activities for a prolonged period (missing in action)

Once 1 or 2 occurred, hunting mode is deactivated. Normal activities resumes :)

Posted in bullythebear | No Comments »

Peter lynch’s checklist

Saturday, May 17th, 2008
Here's a checklist from Peter Lynch's book, One up on wall street:

Stocks in general:
  1. P/e ratio – is it low or high for this particular company and for similar companies in the same industry
  2. The percentage of institutional ownership
  3. Whether insiders are buying and whether the company itself is buying back its own shares. Both are positive signs
  4. The record of earnings growth to date and whether the earnings are sporadic or consistent (the only category where earnings may not be important are asset plays)
  5. Whether the company has a strong balance sheet or a weak one (debt-to-equity ratio) and how it’s rated for financial strength)
  6. The cash position. With $16 in net cash, I know Ford is unlikely to drop below $16 per share – floor of the stock

Stalwarts
  1. These are big companies that aren’t likely to go out of business. They key issue is price, and the p/e ratio will tell you whether you are paying too much
  2. Check for possible diworseifications that may reduce earnings in future
  3. Check the company’s long term growth rate, and whether it has kept up the same momentum in recent years
  4. If planning to hold the stock forever, check to see h
  5. How the company fares during previous recessions and market drops

Slow growers
  1. Since you buy these for the dividends, check to see if the dividends have always been paid, and whether they are routinely paid
  2. When possible, find out the percentage of the earnings being paid out as dividends. If it’s a low %, then the company has a cushion during hard times. If it’s higher %, then it’s riskier than the company can continue paying the dividends.

Cyclicals
  1. Keep a close watch on inventories, and the supply-demand relationship. Watch for new entrants into the market, which is usually a dangerous development
  2. Anticipate a shrinking P/E multiple over time as business recovers and investors look ahead to the end of the cycle, when peak earnings are achieved
  3. If you know your cyclicals, you have an advantage in figuring out the cycles. The worse the slump in the cycle, the better the recovery will be. Vice versa.

Fast growers
  1. Investigate whether the product that’s supposed to enrich the company is a major part of the company’s business
  2. What the growth rates in earnings has been in recent years. Favourites ones are in the 20 to 25% range. Wary of companies growing faster than 25%. Those 50% usually are found in hot industries, a nono
  3. That the company has duplicated its successes in more than one city or town, to prove that the expansion will work.
  4. That the company still has room to grow.
  5. Is the stock selling at P/E ratio at or near the growth rate? In fair valuation, the P/E should be the same as the earnings growth rate.
  6. Whether the expansion is speeding up or slowing down. For companies selling products which customers buy only once, a slowdown can be devastating. Not so much for companies selling product which customers have to keep buying
  7. That few institutions own the stock and only a handful of analysis ever heard of it. With fast growers on the rise this is a big plus.

Turnabouts
  1. Most important, can the company survive a raid by its creditors? How much cash does the company have? How much debt? What is the debt structure? And how long can it operate in the red while working out its problems without going bankrupt? If the company have to issue shares to turnabout, the company may turnabout, but the stock might not
  2. If it’s bankrupt already, then what’s left for shareholders?
  3. How is the company going to turn around? Has it rid itself of unprofitable divisions?
  4. Is the business coming back?
  5. Are costs being cut? If so, what will the effect be?

Asset plays
  1. what’s the value of the assets? Are there hidden assets?
  2. How much debt is there to detract from these assets? Creditors will get the share first
  3. Is the company taking on new debt, making the assets less valuable?
  4. Is there a raider in the wings to help shareholders reap the benefits of the assets?

When to sell?

Slow growers
  1. Company lost market share for 2 consecutive years and is hiring another advertising agency
  2. No new products are being developed, spending on research and development is curtailed. Appears to be resting on its laurels
  3. Two recent acquisitions of unrelated business look like diworseifications and the company announces it is looking for further acquisitions “at the leading edge of technology”
  4. The company has paid so much for its acquisitions that the balance sheet deteriorated from no debt and millions in cash to no cash and millions in debt. No surplus funds to buy back shares
  5. Even at lower price, the dividend yield is not high enough to attract buyers

Stalwart
  1. New products introduced in the last 2 years have mixed results, others still in testing stage and are a year away from marketplace
  2. The stock has a p/e ratio of 15, while similar quality companies in the industry have p/e ratio of 11-12
  3. No officers or directors have bought shares in last year
  4. A major division that contributes 25% earnings is vulnerable to an economic slump that’s taking place
  5. The company’s growth rate has slowed down, though maintaining profits by cutting costs, future cost cutting opportunities are limited

Cyclicals
  1. Sell towards end of cycle. Look for inventories building up/falling commodity prices/new competition.
  2. demand for product is slowing down
  3. Compnay doubled its capital spending budget to build a fancy new plant, as opposed to modernizing the old plants at low cost
  4. Company tried to cut cost but can’t compete with foreign producers

Fast growers
  1. Watch out for the end of second growth phase of company
  2. When a lot of analyst are looking into it, giving highest recommendations, 60% held by institutions and coming out in magazines
  3. P/E gets bigger and reaches illogical levels. When p/e reaches 50, can the company still grow at 50% earnings?
  4. Same store sales are down 3% in the last quarter
  5. new store results are disappointing
  6. Top executives join rival firm
  7. Company returned from a show for intuitional investors
  8. Stock is selling at p/e of 30, while most optimistic projections of earnings growth are 15-20% for next 2 years

Turnabouts
  1. Sell when it’s turned around
  2. Debt, which has declined for 5 straight quarters, just rose by 25 million in latest quarterly results
  3. Inventories are rising at twice the rate of sales growth
  4. P/e is inflated relative to earnings prospects
  5. Company’s strongest division sells 50% of output to one leading customers, and that customer is suffering from slowdown in own sales

Asset plays
  1. Wait for raider to come
  2. Although the shares sell at a discount to real market value, management announced it will issue 10% more shares to help finance a diversification program division expected to be sold for $20 million only brings $12 million in actual sale
  3. Institutional ownership risen from 25% to 60%.

Posted in bullythebear | No Comments »

China Hongxing intiation report

Thursday, May 15th, 2008
Was alerted to China hongxing when I saw a thread in cna forum regarding its excellent results. I did browse through its quarterly results and found it pretty impressive, hence my initiation report on China hongxing.

What impressed me most is the high net margins generated from china hongxing business. They specialised solely on selling sports shoes, apparel and distribution business. The gross margins hovers around 30-40%, which is what I'll expect. But the net margins is around 15-20% for sports shoes. I would have expected a net margins of around 10%, having browsed through a couple of sports shoes company listed here and in HK.

I had such a hard time finding their number of shares because of a few issues:

1. They have convertible shares offering, which makes the number of shares outstanding very messy as they convert at different times

2. They split their shares 5 to 1 (every 1 ordinary shares is split into 5) to increase the liquidity, creating more confusion for me.

This is my compiled data. Note that the EPS is based on basic, non-diluted. The diluted one is too messy for me to keep track. All entries are in RMB ('ooo).


As I mentioned, the net margins is considered high for their business. I read that their sports shoe brand Erke is one of the top sports brand in PRC, so perhaps that accounts for their higher margins. Low debts and having a pretty strong balance sheet, at first glance. The founders own a huge percentage of the shareholdings too.

A few things I don't like about Hongxing:

1. I don't like it when companies split up their shares for more liquidity. Same pie but cut into more pieces only. The management mentioned splitting up the shares for more liquidity. Seems like the management is overly concerned about share price, though this could be a one-off incident and my judgment could be too harsh.

2. ROE is high but not consistent. I have no idea where the next ball park figures for ROE is next year and it keeps me from having a good valuation of Hongxing into the future. But from their latest quarterly results, ROE is around 12% annualised. Earnings are too erratic too.

3. They are listed only in 2005, so the history is a bit too short.

As such, no more investigation into this until perhaps after they stabilized their ROE and earnings per share. I wonder how they will fare once the Beijing Olympics fever fade away. They are trading at around 20x FY07 earnings at a current price of 0.675. Perhaps when the price reaches 0.40 again (around 10x FY07 earnings) then it'll be more realistic.

TA looks poised for another cycle of upsurge though.

Posted in bullythebear | No Comments »

Don’t get caught in a bubble - Part 1

Thursday, May 15th, 2008
Investing in stocks or real estate or any other asset class is a good thing most of the time. Over time, most "well-known" investable asset classes give a good real rate of return (ie a return that can beat inflation lah). Ok the other caveat here is "well-known" asset classes, ie dont go and invest in wine or art, jewellery etc, chances are you are likely not to see your money again.

Just some ballpark no.s to play with, historically these asset classes have been able to generate these returns (nominal not real and they also include dividend or other forms of yield, real return will be these no.s - inflation rate)

Stocks 10%pa
Real Estate 12%pa
Private Equity 15%pa
Bonds 5%pa
Commodities 8%pa

However, as we all know, these are historical AVERAGE returns, There is no guarantee that the future will be like the past. It may not be possible for us to enjoy these returns going into the future. In fact if you had invested at the wrong time, there is a chance that you will never get close to these rate of returns.

Of course the wrong time willl be ********drumrolls******** investing at the peak of some bubble. I shall highlight three real life examples on how investing at the peak of some bubble will make sure that you will earn a meagre return over a long period of time.

The first bubble that we are going to introduce here is probably the biggest bubble in recent history (yes even bigger than the dot com bubble) in terms of magnitude. There are two asset classes involved: real estate and stock market (as usual btw) and sadly these asset classes never ever recover close to its peak even after 19 long years.

Yes this is the Japanese bubble which ended in 1990 when everything collapsed. At the peak of the bubble, the Nikkei was close to 40,000 and real estate prices in Tokyo reached close to USD 140,000 psf. (Okay so Singapore is not so bad lah, only SGD 3,000+ psf this time round, we are about 2 more digits away).

Today the Nikkei stock index hovers around 13,000 levels and Tokyo real estate prices are on par with Singapore's SGD 3,000+ psf. A lot of Japanese that invested in real estate near the peak had to finance their mortgage with maturities stretching 2 lifetimes ie the sons have to continue to pay the father's mortgage.

Imagine if you have bought stocks or real estate even at 30% below its peak level, you will still not see your capital today, and the sad truth is, perhaps you will never ever see your capital again.

As for the stock market, the Nikkei declined steadily over the next 13 yrs after it cracked in 1990 and eventually reached a bottom at around 8,000 in 2003. So even if you DCA all the way down, you may not have broken even today. Subsequently, it rebounded to 18,000 before declining back to 13,000 today.

Moral of the story: Don't get caught in a bubble, but easier said than done right?

To be continued...
Investment advice, CFA tuition, stock analysis, value investing, financial statement, financial ratios, earnings drivers, SWOT analysis, secular trends, stock screens

Posted in 8percentpa | No Comments »

« Older Entries
Newer Entries »