Thursday, December 19, 2013

3 intersting Malaysian stocks

Disclaimer: The information presented in this article is simply my opinion (I could be fucking wrong). I’m not encouraging anyone to follow my opinion. I will NOT be responsible for any of your losses. I do not guarantee the accuracy of the information presented in this article. Be a badass investor and do your own research. Take personal responsibility for both your profits and losses. I personally have invested in the 3 Malaysian stocks that will be discussed in this article.

Sup, how Y’all doing? I hope you have hustled hard this year and earned some pretty good returns. Anyway, in this article, I will be briefly discussing three interesting Malaysian companies that you might want to take a look at if you plan to diversify internationally. Malaysia is a country in South East Asia. The country grew GDP at 5.6% in 2012 and is set to grow GDP above 4% this year. According to Trading Economics, Malaysia had a government debt-to-GDP of 53.1% and a budget deficit of 4.5% for the year ended 2012. Malaysia is rated as moderately free by the Heritage Foundation.

The following are the 3 Malaysian companies that I think are interesting and worth researching further if you plan to diversify your portfolio internationally:

KLCC Property Holdings Berhad: This company has interests in top quality office towers and one of the best shopping malls in the country. One of the company’s office properties is the iconic Petronas Twin Tower which even appears on postcards. The quality of the company’s real estate portfolio is evidenced by the higher rent per square feet it’s able to charge as compared to local REITs. I believe the company is reasonably valued. If you want to learn more about this company, please read my analysis on my new blog here:

Kawan Food Berhad: Kawan Food manufactures frozen Asian food delicacies such as curry puff and oriental buns. This company generates pretty good returns on capital, has a fortress balance sheet and is reasonably valued despite the share price being at all-time highs.  You can read my analysis of this company on my new blog here:

Kumpulan Fima: Kumpulan Fima has a stable of businesses consisting mainly of palm oil planation, manufacturing of security documents and bulking of liquid and semi liquid products. The company’s businesses collectively generate decent returns on capital for the company. The company has a solid balance sheet as it has lots of cash. I personally think that the stock is undervalued. If you’re interested to learn more about the company, please read part 1 where I talk about valuation here: Please read part 2 where I talk about the business fundamentals of Kumpulan Fima’s main business divisions here.

Thank you for reading, and may you have an awesome Christmas and a kickass New Year!

Thursday, November 7, 2013

Monster Beverage, Bank Rakyat Indonesia and Citizens & Northern Corporation

As mentioned in an earlier post, I established a new blog called the Greedy Dragon Investment Blog that chronicles my journey to build a portfolio that would hopefully generate superior long-term returns. The following are some of the stocks I recently discussed on my new blog: Citizens & Northern Corporation, Bank Rakyat Indonesia and Monster Beverage. Please click on the links to read my opinion on those companies. Thank you and take care!

Citizens & Northern Corporation:

Bank Rakyat Indonesia:

Monster Beverage:

Friday, October 11, 2013

My new blog: The Greedy Dragon investment Blog

I have set up a new blog called "Greedy Dragon Investment Blog." The Greedy Dragon will chronicle my journey to put together a portfolio that I think has the potential to generate above average long-term returns.The blog will discuss some of the companies I invest in, the techniques I use to value companies, and other random stuff related to the business and finance world. I hope that you will pay my new blog a visit some time soon! 
Here's the link: 

Wednesday, February 13, 2013

Asset allocation methods from a shark: Kevin O'leary

Today I will be writing about Kevin O'leary's approach to investments. Kevin O’leary is chairman of O’Leary Funds and is my favorite shark on the Shark Tank as he’s brutally honest, a supporter of free market capitalism and he’s just super awesome. Shark Tank is a TV series where entrepreneurs try to get The Sharks (successful business people) to invest in their business, I recommend watching it as its really entertaining.   

I only watched 2 or 3 videos of him talking about his approach to investing, so my knowledge on his investment strategy is necessarily limited, but here are some of the gems I learned from him:

Control your portfolio’s exposure:

Kevin suggests that investors do not allocate more than 5% of their portfolio to a single stock. He also suggests that your portfolio shouldn’t have a more than 20% exposure to any single sector. By allocating your portfolio this way, you significantly reduce your risk of being wiped out in the event that a company or sector you’re overexposed to collapses. If you have invested heavily in Citigroup before the great recession or the newspaper industry at their peak of profitability, you would have lost your shirt.

Exposure to emerging markets can be good:

All else equal (assuming valuations are the same as developed market stocks), the average emerging market stock should generate higher returns than the average stock based in a developed country as they’re in an environment of higher growth.  Over the long-term, a company can only grow earnings about as fast as the GDP growth of the countries in which they operate. Banco Santander Brasil is likely to grow profits at a higher rate over the long-term as compared to some bank that operates only in Italy.

Apart from investing in companies based in emerging markets, investors can get exposure to high growth countries by investing in companies based in developed countries that generate revenue and profits from emerging markets. Starbucks may be based in the U.S. but it has operations all round the world.

Your investments must return cash:

Kevin O’leary suggests investing only in stocks that pay a dividend (apart from gold and maybe some of his venture capital investments, I think all of Kevin O’leary’s investments provide him with a yield). After all, the purpose of owning a business (or a part of a business in the case of stocks) is to be able to regularly take out cash from the business. The investment will certainly be less risky if it regularly returns cash to shareholders. If you invest in high quality companies that consistently raise their dividends, it is not uncommon for you to receive significantly more cash dividends than the cost of your original investments over the long-term. In these types of situation, you may earn a decent return even if the company goes bust at the end (although it always sucks when one of your cash cows die). And even if you don’t come out ahead if the company you invested in goes bankrupt, at least you would get some of your capital back resulting in a smaller loss. Whatever it is, cash dividends reduce risks!

According to an article in Warren Buffett News published on August 2012, Warren Buffett (through his holding company Berkshire Hathaway) earns a 39% dividend yield on the cost of his original investment in Coca-cola shares. Here’s the link to the article:

I personally think that if management can reinvest profits at an above average rate of return, then it should reinvest as much profits as it can. Of course I have to make sure that the company is stable and very likely to remain competitive and maintain profitability over the long-term. However, Kevin O’leary’s principle of requiring an investment returns cash to shareholders is a sound one.

Hold a basket of currencies:

Currency risk is definitely NOT something that keeps Kevin O’leary awake at night. I can’t exactly remember what he says with regards to currency diversification so I can be wrong, but I think that Kevin, through his investments, have exposure to the major currencies such as the Canadian Dollar, the U.S. Dollar, the Euro and the Chinese Yuan. He has a larger exposure to the Canadian dollar as he lives in Canada.

By investing in such a way that we’re exposed to a few major currencies, we reduce the risk of significant losses from the deterioration in the value of any single currency. With all the idiot Keynesian economists running around and the ability of central banks to manipulate the money supply, it makes sense to diversify our investments in such a way that we won’t experience a large decline in our purchasing power in the event of a collapse of a major currency.

Thank you for reading and may you always sustain good returns on your portfolio! Take care.

Friday, March 16, 2012

Thinking rationally about growth

It is not uncommon for a fast-growing company to get overvalued by the market. And as we all know, investing in overvalued stocks is never a good recipe for attractive long-term returns. Sure, growth is great, but how do we take a company’s revenue and profit growth rate into account when valuing that company’s stock?  This article will give you my take on valuing growth companies:

I usually treat growth as a bonus, and value a growth company based on its current profitability. In other words, I would value a growth company just like how I would value any other company. However, there is value in the company’s growth, and I will account for that value by requiring a smaller discount to intrinsic value before investing in the stock (Benjamin Graham’s margin of safety concept states that stocks should be bought at a discount to their intrinsic value to reduce risk). One of the best ways to reduce risks is to earn more money; that’s my rationale for requiring a smaller discount to intrinsic value if the company is growing earnings at a good rate.

It’s only in the case of a very attractive company (both high growth and excellent returns on equity) that I might consider paying a higher valuation than what the company’s current profitability would suggest as appropriate. In this type of situations, I will look to the price/earnings to growth ratio that Peter Lynch popularized. The PEG ratio is basically the P/E ratio divided by the growth rate. As a general rule, you only invest in the stock if its PEG ratio is below 1. Example of the PEG ratio in action: If company Awesome Inc. has a P/E ratio of 15 and an estimated annual growth rate of 20%, then its PEG ratio would be 0.75 (15/20 = 0.75) which seems pretty good.

I don’t project growth into the future by plugging in a growth component when discounting future cash flows because you need both expert knowledge of the industry and the company to make any reliable estimates of growth. Even then I’m doubtful that someone can accurately predict the company’s growth rate far out into the future (you need to have a timeframe of at least 10 years if you want to be a serious long-term investor). For people without good knowledge of the company and the industry, adding a growth component when discounting future cash flows is dangerous in the sense that they can drastically overvalue the company.

It’s important to remember this point on growth made by Warren Buffett that growth is only good if the company can achieve good returns on capital. There’s a long-term adverse impact on shareholders’ wealth if the company retain earnings and load up on debt to pursue growth opportunities that yield subpar returns. So, when thinking about a company’s growth rate, don’t forget to look at the company’s return on equity and whether or not it has a durable competitive advantage (at the end of the day, a company can only sustain good returns on capital if it has a durable competitive advantage).

If you have any questions or have anything that you would like to share, please feel free to comment or send me a private message.  Thank you for reading, and may you always sustain good returns on your portfolio. Take care.