Saturday, March 31, 2007

Regarding DuFu


Yes, dufu was featured by Asia Analytica. here is the link:

  • Dufu Technology Corp Bhd (RM0.76) is shaping out to be one of the market’s cheapest and overlooked stocks — ironically because it was listed on the wrong day — Feb 28, 2007, right when the recent global equities crash started. As a result, investors would have dumped their shares in panic, and the stock was further forgotten in the ensuing sell-off.
Born on the wrong day. Bad timing.. but is this really a justifiable reason to invest in the stock? You can trade and you can speculate but investing? That for me, it's a rather lame excuse to buy a stock by itself.

  • Dufu’s business model is similar to Notion VTec Bhd (RM0.595), which we have long liked. The company produces precision component parts for hard disk drives (HDDs), such as disk clamps and disk spacers (where it has an estimated 30% share of the global market), as well as non-HDD components for the telecom, industrial safety and sensor and consumer electronics sectors.
See? I do not understand this issue at all. If DuFu business model should be compared to Notion, then perhaps the investing public should ask a rather simple logical question. Which is better? DuFu or Notion? To suggest that there is a huge differential in pricing as an excuse to buy, is rather a no-no in my opinion.

Hey, it's just an opinion, hor.

So how good is Notion?

Notion current earnings is 27 million. Previous fiscal year it did 22.3 million. Indicating another solid fiscal years with storng earnings growth of around 22%. Net profit margins based on current earnings is extremely, very impressive at 27%.

Dufu? All one has is to refer to is a set of IPO proforma numbers. It did a 8.3 million in earnings with a net profit margin of only a mere 7.5%. ( see
Quarterly rpt on consolidated results for the financial period ended 31/12/2006 ). The managment projects an earnings of 11 million for current fiscal year. That's about a growth expectations of 32%, in case you are wondering. Well for a company with no proven listed track record, would you base ur investing based on management's projections?

Simple common sensing asking... if given a choice, based on these simple yardsticks, which would you go for? And if so, isn't it clear why the other one, Notion, trades at a much higher earnings multiple?

So why shouldn't DuFu trade at a higher earnings multiple?

How about asking why within the same business model industry, why isn't DuFu as profitable as Notion? Or why isn't DuFu earnings much higher? Remember Notion is earning around 27 mil and Dufu only 8.3 million (based on a current earnings). Why? Is there a gulf in class in how both business are managed?


Now let's look at what the article's reasonings..

  • Attractively priced at 6x P/E
    Due to its ill-timed debut, Dufu’s shares have fared badly. From an IPO (initial public offering) price of 70 sen, its shares rose to as high as 95.5 sen on its debut, but have since slid to 76 sen.

    Ironically, its IPO was already priced very low to start with — at 5.7 times 2007 earnings. By comparison, Notion’s IPO exercise in mid-2005 was priced at a forward P/E (price-earnings ratio) of 10.9 times — and its shares have since roughly doubled, including dividends. At 76 sen, Dufu’s shares are trading at just 6.2 times 2007 earnings — well below the market’s 17 times average. Incidentally, its valuations are roughly half of Notion VTec’s, which trades at 11 times financial year (FY) September 2007.
Priced very low during IPO.

However, shouldn't the analyst explain the simple fact that the 2007 earnings is based on management's earnings growth projection of 32%?

32 percent.

How many times have we not see ipo earnings projections that are missed by some 50% or more?

Ah, do not get me wrong, I am not judging DuFu's ability to perform but all I am asking is a simple what if thingee? What if DuFu's earnings projections is simply too optimistic?

Then, isn't the reasoning that DuFu is priced very low during its IPO, is perhaps not an accurate statement to make?


The writer than continues to describe Notion's awesome performance since listing in 2005. Look at Notion numbers.. tell me if their stellar performance in the market isn't justifiable? See

          Sales   Earnings margin
2005 79.288 18.643 23.51%
2006* 90.230 24.543 27.20%
ttm 100.541 27.172 27.03%

06 Q1 19.435 4.979 25.62%
06 Q2 20.316 5.535 27.24%
06 Q3 22.370 5.456 24.39%
06 Q4 28.109 8.573 30.50%
07 Q1 29.746 7.608 25.58%
Should DuFu trade at the same earnings multiple? Maybe but we have no data. 
And most of all, isn't it way too early to insinuate that? 
Why don't DuFu show us its ability first? Yes, let's see some track record first.

Wouldn't that be a more rational investing decision?
  • Although Dufu is smaller and less profitable than Notion (due to its higher proportion of lower-margin HDD components), we believe the valuation discount is far too large. HDD components comprise 86% of Dufu’s sales, compared with 55%-60% for Notion.
The writer than acknowledges the issue I have been rumbling on.

DuFu is simply smaller and less profitable than Notion.

That is a fact.

So would you accept Asia Analytica reason as stated below?

  • Dufu is diversifying its product range to improve margins. Asset valuations are also attractive. Dufu has 90 million shares issued and a market capitalisation of RM68.4 million. Its shares are trading at 1.2 times estimated end-2006 pro-forma NTA (net tangible assets) of RM56.1 million (or 62.3 sen per share).
    This suggests a small premium of just RM12.3 million for a 20-year-old company with secure multi-national relationships and Second Board listing status.

    We believe Dufu should conservatively trade at RM1.21, based on 10 times 2007 earnings. This is 10% below Notion’s P/E, and a steep 40% discount to the broader market’s valuation.
    If we apply Notion’s similar P/E, Dufu’s shares could trade to RM1.34. In any case, we believe Notion’s shares are still very undervalued at current levels.

I hope this set of second opinions helps and I have no idea how DuFu will trade in the near future.


Friday, March 30, 2007

What about Megan?

My Dearest Moo Moo Cow,

Yeah, what about Megan? It seemed that it has been ages since you blogged on it. Your last blog posting was on July 6th 2006.
Megan: Part XIX

Megan just reported its earnings.

Again if you just look at its numbers, it does look nice.

But... my dearest Moo Moo Cow, you know very well that investing is not based just on numbers.

And the cash flow CLEARY shows the extreme poor health of Megan.


See the net decrease in cash & equivalent yet again?

Burning and burning all the cash my Moo Moo Cow!

When will it ever end?

And if that is not bad enough, last July 6th, you mentioned that Megan total borrowings now stands at 838.669 million!!!!!


Have a look yourself... 888.131 million in debts!!!!!


Burning all the cash and the debt bubble keeps on increasing!!!!!

Past postings here...

  1. Megan
  2. Megan: Part II
  3. Megan: Part III
  4. Megan: Part IV
  5. Megan: Part V
  6. Megan: Part VI
  7. Megan: Part VII
  8. Megan: Part VIII
  9. Megan: Part IX
  10. Megan: Part X
  11. Megan: Part XI
  12. Megan: Part XII
  13. Megan: Part XIII
  14. Megan: Part XIV
  15. Megan: Part XV

That 'Roti' Man

My Dearest Moo Moo Cow,

That roti fella, Silver Bird, recorded huge losses again. It said it lost some 18.2 million for its first quarter of its current fiscal year.

It's really not looking good at all.

This is what the company said.

  • For the quarter under review, the Group registered revenues of RM 154.5 million compared with RM 141.4 million in the corresponding period of previous year mainly due to higher revenue by 19% from MultiCom Division. However, the Group incurred a loss before taxation of RM 18.1 million for this quarter compared with a profit of RM 1.2 million in the corresponding period of previous year partly due to share of losses from the jointly controlled company amounting to RM 8.4 million.

    The Group registered a loss before taxation of RM 18.1 million for the current quarter compared with a loss of RM 53.9 million in the preceding quarter. The improved results for the 1st quarter were principally due to recovering return rates. This translated into higher revenue of 7%. There is no provision for impairment of assets in this quarter compared with the previous quarter where RM 35.9 million was provided and written off as impairment of assets.
Eh? So they lost less money.

but... but... would you call this as an improvement?

My dearest Moo Moo Cow, for me, a loss is a loss is a loss.


What is most worrying for me is their cash flow. Have a look below and you be the judge..

Look at the rate the cash vanishes!!


I do love my 'roti' but not this one!!

Past blog postings:
Silver Bird
Silver Bird: Part II
Silver Bird: Part III
Silver Bird: Part IV
Silver Bird: Part V
Silver Bird: Part VI
Silver Bird: Part VII
Silver Bird: Part VIII
Regarding Silver Bird Yet Again

What about Charlie?

My Dearest Moo Moo Cow,

I really have to bring this issue up to you: Why is there so little stuff about Charlie Munger?


Don't you like him?

Here is a decent article from posted last year on good old Charlie: An Afternoon with Charlie Munger

  • Here are some of his nuggets of wisdom.

    Opportunity Cost

    "There is this company in an emerging market that was presented to Warren. His response was, 'I don't feel more comfortable buying that than I do of adding to Wells Fargo.' He was using that as his opportunity cost. No one can tell me why I shouldn't buy more Wells Fargo. Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."

    When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions: (1) Do I understand the investment as well or better than one I already own? (2) Is the risk and reward profile of the investment superior to all other alternatives? If the answer is "no" to either questions, it is probably best to stay away.


    "Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one's own time. It requires developing systems of thought that improve your batting average over time."

    Munger is an evangelist for the virtues of rationality and his outstanding investment record is testimony to a lifetime of disciplined thought. To succeed as an investor, one has to make good decisions that are anchored in reality and free from emotional and cognitive distractions. At GrowthInvestor, we are searching for companies with significant market potential, rising demand, an economic moat, and growth-oriented management for purchase in the portfolio. This is not merely a checklist, but a research process focused on helping us make the most-rational decisions. If we make enough rational decisions, we will eventually have the returns to show for it.


    "Harvard and Yale concentrated with venture capitalists that got the best calls and brainpower. Very few firms made most of the money, and they made it in just a few periods. Everyone else returned between mediocre and lousy. When returns happened, envy rippled through institutional money management. The amount invested in venture capital went up 10 times post-1999. That later money was lost very quickly. It will happen again. I don't know anyone who successfully resists this stuff. It becomes a new orthodoxy."

    Munger and Buffett often say that envy is worst of the seven deadly sins because it is the only one that isn't fun to commit. When a group of people make money, others are compelled by an irresistible force to get a piece of the action, even though prices have risen so far above fair value as to guarantee disappointing returns and there are much better alternatives available. I am completely puzzled by this behavior, but I am also glad it exists.


    "We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side. If you can't state arguments against what you believe better than your detractors, you don't know enough."

    Carl Jacobi, a noted 19th-century mathematician, counseled his students to "invert, always invert" when they encountered a particularly vexing problem. I think this is a great way to approach investing. After you compile all the reasons you should buy a stock, invert the question and state the reasons why you should not buy the stock. By doing this, you ensure that your research process is more complete.


    "Chris Davis [of the Davis funds] has a temple of shame. He celebrates the things they did that lost them a lot of money. What is also needed is a temple of shame squared for things you didn't do that would have made you rich. Forgetting your mistakes is a terrible error if you are trying to improve your cognition. Reality doesn't remind you. Why not celebrate stupidities in both categories?"

Did you enjoy it? Did it make cow sense to you?

I really like this part.

  • When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own. Instead, many investors collect stocks like baseball cards and the resulting portfolio bloat will likely not increase returns or reduce risk. So when you hear about the new hot stock in the next can't-miss sector, ask yourself two questions: (1) Do I understand the investment as well or better than one I already own? (2) Is the risk and reward profile of the investment superior to all other alternatives? If the answer is "no" to either questions, it is probably best to stay away.


(1) Do I understand the investment as well or better than one I already own?

(2) Is the risk and reward profile of the investment superior to all other alternatives?

If the answer is "no" to either questions, it is probably best to stay away.

Thursday, March 29, 2007


My Dearest Moo Moo Cow,

Just how are you doing? Have you been having a go at them weeds yet again?

I do remember your very posting. Yeah, honestly I do. Let me prove it you. Your very last line in that posting you wrote this..

  • Oh... comes 2007.... i wonder if any1 will remember this ..


See? I do read and I do remember.


Anyway, you were rambling on and on and o, on how some folks justify by their recommendations by assigning extremely optimistic earnings estimates to the stock. Yeah, some call them as rocket numbers. Hey, but let's not be too critical, shall we?

Here is that said posting again which was posted on Oct 2005: S&P coverage on Mems

  • Profit & Loss

    FY Jul./MYR mln 2004 2005 2006F 2007F

    Revenue 33.8 48.3 80.3 223.1

    Net Profit 8.2 13.7 17.9 47.6

Well, I just read S&P write-up. What I am interested in is comparing them projection then against their latest report.

  • Profit & Loss

    FY Jul./MYR mln 2004 2005 2006F 2007F

    Revenue 33.8 48.3 50.2 88.4

    Net Profit 8.2 13.7 14.0 20.9


Exactly. (just for info.. rhb research has even more optimistic numbers on MEMs! .. and neither do i have anything against MEMs, yeah i do think they are ok but its just that the market has been too high optimistic about it, so optimistic that MEMS has always performed below expectations due to the high yardstick placed on it!)

Anyway, there is something I do like what S&P reports.

They are prudent enough to disclose their past recommendations and the assigned target prices.

See? S&P even have a SELL on it with a TP of 0.38!!!

Yeah, wow!!!

And rightly put in your posting: It Pays to Read!

  • HOW many retail investors take the trouble to fully read research recommendations that brokers issue, especially when these recommendations are on small caps or second liners? From observation and anecdotal accounts from dealers, the answer is: very few. Instead of scrutinising reports to judge if the assumptions or projections are reasonable, there is a strong tendency among small investors to just look at the heading and target price of a research report before jumping in (or out, as the case may be)....

    How to achieve this? A good starting point would be for retail players to read critically the dozens of reports issued each week before taking the plunge, especially for companies that have no earnings yet but whose shares have risen to all-time highs. This way, brokers will be forced to be more circumspect in recommendations, while investors may well be spared the pain of large losses in the future. Who knows, if everyone does this, all concerned may actually learn something in the process.


For quick references to the past blog postings on Mems:

  1. Mems..
  2. Mems: Part II
  3. Mems: Part III
  4. Mems: Part IV
  5. Mems: Part V

Regarding That Fountain View Again.

My Dearest Moo Moo Cow,

You have missed out a news report when you posted on that Fountain View Again this morning.

  • 28-03-2007: Fountain View ED ordered to restitute RM27.99m to company
    Fountain View Development Bhd executive director Datin Yam Yuet Chew has been ordered to restitute RM27.99 million to the company for breach of Bursa Malaysia Securities Bhd listing requirements (LRs).

    She was also fined to the tune of RM700,000. Yam was among Fountain View's eight current and former directors who were all publicly reprimanded by Bursa Securities and/or fined.

    In a statement on March 28, Bursa Securities said it was publicly reprimanding Fountain View for breach of paragraphs 9.16(1)(a) and 8.23(1).

    Paragraph 9.16(1)(a) states a listed issuer must ensure that each public or press announcement is factual, unambiguous, accurate, and contains sufficient information to enable investors to make informed decisions.

    Paragraph 8.23(1) relates to the provision of financial assistance to directors, employees, subsidiaries, sub-contractors or immediate holding company.

    Apart from the two paragraphs, Yam and another executive director Taufek Yahya were also in breach of paragraph 8.23(2)(a) which states that directors must ensure the financial assistance or advances were not detrimental to the company.

    Taufek was fined a total of RM150,000 for breaching the LRs.

    Another person who breached the rules was Tiew Chai Beng, who was fined RM5,000, while Loh Yoon Wah and former director Kington Tong were fined RM2,500 each.

    Also reprimanded but not fined were Fountain View's chairman Datuk Abdul Rashid Maidi, former director Lim Peng @ Lim Pang Tun and former chairman Datuk Miskon @ Miskam Setera @ Setero.

    Bursa Securities said Fountain View had breached paragraph 9.16(1)(a) for failure to take into account the adjustments as explained in the company’s announcement on May 26 last year in its fourth quarterly report for the financial year ended Dec 31, 2005.

    It had reported an unaudited loss after taxation and minority interest of RM5.364 million for the year ended Dec 31, 2005 versus an audited loss of RM68.488 million.

    Bursa Securities said the difference of RM63.124 million represented a 1,176.8% deviation.

    It said Fountain View breached paragraph 8.23(1) in respect of the payments made to Bizvista Success Sdn Bhd in 2004 totaling RM27.99 million on behalf of Wright Mart Sdn Bhd and Burke Greenville Sdn Bhd prior to its board of directors’ approval for the proposed subscription of Wright and Burke on May 26, 2004.

    Bursa Securities said such financial assistance was prohibited under paragraph 8.23. Yam was directed to rectify the breach by restituting to Fountain View the RM27.98 million paid to Bizvista within 30 days.

    The breach of paragraph 8.23(2)(a) was in relation to the failure to ensure that the advances to a contractor, Matrix Home Sdn Bhd, totalling RM31.1 million were fair and reasonable.

Asia Decoupling?

My Dearest Moo Moo Cow,

This issue is extremely interesting. Can Asia decouple itself from the US??? Can?

Here is a good posting on this issue from Morgan Stanley's Stephen Roach : Asian Decoupling Unlikely

  • In recent weeks, I have met with senior policy makers in both China and India. It is clear to me that in both cases the authorities are in the process of shifting their policy arsenals toward meaningful restraint. In China, the direction comes from the top in the form of growing concerns expressed by Premier Wen Jiabao about a Chinese economy that he has explicitly characterized as “unstable, unbalanced, uncoordinated, and unsustainable” (see my 19 March dispatch of the same name). Since those words were first uttered at the end of the National People’s Congress on 15 March, Chinese authorities have been quick to respond. There was a monetary tightening the very next day and the securities industry regulators have issued new rules that prevent companies from purchasing equities with proceeds from share sales. The former move is aimed at cooling off an overheated investment sector while the latter move is addressed at dealing with a frothy domestic stock market that increased by 100% in the six months ending in late February. I am more convinced than ever that Beijing is now deadly serious in attempting to regain control over its rapidly growing economy in an effort to shift the focus from the quantity to the quality of growth. This is good news for China but could be disappointing for the decoupling camp that expects rapid Chinese economic growth to remain resistant to any downside pressures.

    India is similarly positioned. The Reserve Bank of India does not take overheating and cyclical inflationary pressures lightly. I was actually in Mumbai the day the RBI tightened monetary policy last month (13 February), and it was clear to me in my discussions at the central bank that it meant business. The RBI’s official statement following that action said it all: “(A) determined and co-ordinated effort by all to contain inflation without unduly impacting the growth momentum is not only an economic necessity but also a moral compulsion.” Our Indian economics team underscores the risk of another monetary tightening prior to the 24 April policy meeting. At the same time, the government’s annual budget contained measures that would cut tariffs on food and other price-sensitive manufactured products. Indian authorities are fixated on a mounting cyclical inflation problem and appear more than willing to take a haircut on economic growth to achieve such an objective. Our current economic forecast reflects just such an outcome – a downshift to 6.9% GDP growth in 2008 following average gains of 8.7% over the 2005-07 period.

    There is a second factor at work that is also likely to challenge the view that hyper growth is here to stay in Asia – the region’s persistent reliance on external demand as a major driver of economic growth. This is less a story for India, with its relatively small trade sector, and more a story for the rest of Asia. China is at the top of the external vulnerability chain. Its export sector, which rose to nearly 37% of GDP in 2006, surged at a 41% y-o-y rate in the first two months of 2007. Moreover – and this is an absolutely critical point in the decoupling debate – the United States is China’s largest export market, accounting for 21% of RMB-based exports. As the US economy now slows, the biggest piece of China’s export dynamic is at risk. So, too, are the large external sectors of China’s pan-Asian supply chain – especially Taiwan, Korea, and even Japan. Lacking in self-sustaining support from private consumption, the Asian growth dynamic remains highly vulnerable to an external shock. That’s yet another important reason to be very suspicious of the case for global decoupling.

    Decoupling and global rebalancing go hand in hand. A decoupled world is very much a rebalanced world – and vice versa. Recent trends admittedly lend some support to the decoupling thesis – especially a booming Asia economy but also a seemingly remarkable cyclical revival in Europe. The European upsurge is a welcome development, but perspective is key. At most, it will add 0.2 to 0.3 percentage point to our baseline case for world economic growth. Asia, especially China and India, is a very different story. This is a much larger segment of the global economy and is growing at rates that are three times as fast as those in the developed world. An Asian economy that only barely widens its growth multiple relative to the rest of the world could well drive global decoupling on its own.

    That’s unlikely to be the case, in my view. Not only does Asia remain vulnerable to a US-centric external shock, but the region’s two most powerful growth stories – China and India – are now both very focused on matters of internal sustainability. The Premier of China has put his reputation on the line in attempting to bring an unstable, unbalanced, uncoordinated, and unsustainable Chinese economy under control. The Indian government is equally focused on an anti-inflationary policy tightening. Looking backward, both of these economies have been on an exceptionally strong growth path that – if left to its own devices – could play an increasingly important role in powering a decoupled world. Looking forward, however, it’s likely to be a very different story. With growth prospects in China and India tipping to the downside at the same time the US economy is slowing, the global economy is likely to be a good deal weaker than the decoupling crowd would lead you to believe.

That Fountain View Again.

My Dearest Moo Moo Cow,

Saw this news article:
Fountain View, directors reprimanded

I've added some comments in green bold

  • By Azlan Abu Bakar

    March 29 2007

    FOUNTAIN View Development Bhd and its directors have been publicly reprimanded by Bursa Malaysia Securities Bhd for breaches of several listing requirements.

    Among those reprimanded were non-executive chairman Datuk Dr Ir Abdul Rashid Maidi and former non-executive chairman Datuk Miskon @ Miskam Setera @ Sutero, who had resigned in June 2004.

    Bursa Malaysia said Fountain View had failed to take into account adjustments made by the company in its fourth quarterly report for the financial year ended December 31 2005.

    In that financial year, the company had reported an unaudited loss after tax and minority interest of RM5.36 million,
    compared to an audited net loss of RM68.48 million in the annual audited accounts. (WOW!!!!! 5.36 million and rm68.48 million is a lot, isn't it? Really!!!! What if there is the issue of intent???)

    The difference of RM63.12 million represents a 1,176.8 per cent deviation.

    Fountain View was also found to have breached the listing rules in respect of payments of RM27.98 million made to Bizvista Success Sdn Bhd during the period of February 10 to April 5 2004.

    The payments were made on behalf of Wright Mart Sdn Bhd and Burke Greenville Sdn Bhd prior to its directors' approval for the proposed subscription of Wright and Burke on May 26 2004.

    Its directors were reprimanded, among others, for failure to ensure that the advances to a contractor (Matrix Home Sdn Bhd) amounting to RM31.066 million in relation to a property development project in Alam Mutiara were fair and reasonable to Fountain View and not to the detriment of the company and its shareholders.

    Bursa Malaysia said the penalties were imposed after taking into consideration all circumstances of the matter and upon completion of due process.

    The directors were fined between RM2,500 and RM500,000 respectively.
Seriously only fined between rm2,500 amd rm500,000???

How can?

Remember: The difference of RM63.12 million represents a 1,176.8 per cent deviation.


Previously blogged:
Fountain View of Shame.

  • Saw this on theEdge

    Fountain View defaults on principal, coupon payment totalling RM81.7m
    By Gan Yen Kuan, 03 Nov 2006 8:57 PM

    Fountain View Development Bhd (FVDB) said it had defaulted on the coupon payment and redemption of its loan stocks totalling RM81.71 million due on Nov 3


    Some issues not to be forgotten.

    Friday may 13, 2005

    The Selangor Turf Club's purchase of four million shares in a property company was in keeping with the club's constitution, according to a speech by the club's chairman, Tunku Datuk Seri Shahabuddin Tunku Besar Burhanuddin.
    In his address at the Turf Club's AGM yesterday
    , Tunku Shahabuddin said the Turf Club invested RM20mil, or RM5 a share, in Fountain View Development Bhd.
    The investment was made after careful research, with legal and financial advice, and was expected to provide an annual return on investment of over 10% a year
    May 19th 2005

    SC begins probe into Fountain View trades
    THE Securities Commission (SC) has launched its probe into disruptive stock market price movements by delving into dealings involving Fountain View Development Bhd shares.

    The securities industry watchdog wants to talk to dealers who have traded substantial amounts of shares of the property developer which have since crashed, senior stockbroking executives said.

    The SC visited two stockbroking firms on Monday, looking for a dealer who is alleged to be the “mastermind” behind the unusual trading of Fountain View shares.
    And not to be forgotten...
    Auditors identify RM400m deals that made Plantation & Development insolvent
    NDEPENDENT auditors of Fountain View Development Bhd, formerly Plantation & Development (Malaysia) Bhd (P&D), identified some RM400 million worth of transactions made between 1997 to 2001 that left the group practically insolvent.

    The findings were included in an investigative audit report, issued by the new management at P&D to fulfil Securities Commission’s (SC) requirement.

    P&D, a Practice Note 4 company before it was restructured and bought over by Fountain View, racked up RM450.2 million losses from 1997 to 2001.
    The selldown was a huge issue back in 2005.

    Cover Story: Low-down on the selldown
    Stories by Lim Ai Leen & Risen Jayaseelan

    Of the 34 brokers in town, at least 30 were hit when Fountain View Development Bhd crashed two weeks ago. It was unprecedented. Usually, it is the retailers who are hit. But now, the banks and brokers are feeling the brunt of the selldown in several speculative counters. Seasoned hands in the stock-broking industry say it is a new phenomena. Why are the stockbrokers being battered by speculative activities? Is it due to the changing landscape where the demand to perform is so high that brokers raise their appetite for risk?
    What happened on Bursa Malaysia last week was not the norm. Nearly all brokers and many banks were hit when several counters hit limit down. "Those who were not affected are those who are not in the market at all," quips a broker.
    Normally, speculative stocks see their prices rise and fall time and again, with hardly anyone batting an eyelid. At best, these movements elicit an "unusual market activity" inquiry from Bursa Malaysia and a standard-form reply denying any knowledge from the company concerned.
    Last week's selldown has caused the Securities Commission (SC) to summon stockbrokers for a meeting this Monday and to issue a statement promising an investigation, and punishment for the "wrong-doers".
    Monday June 27th 2005

    Securities Commission arrest duo


    PETALING JAYA: The Securities Commission (SC) has arrested two individuals in relation to trading of shares in Fountain View Development Bhd.
    Sources close to the SC told The Star that the two, one of whom was arrested yesterday morning and the other in the afternoon, would be charged today at the Kuala Lumpur Sessions Court.
    One of them is believed to be a major shareholder of Fountain View, a property developer company and oil palm plantation owner that was listed via a reverse takeover of Plantations & Development Bhd at the end of 2003.
    The article continues..

    The sources indicated that investigations were still ongoing in relation to trading of shares. This included those of Fountain View which had made a good debut on the stock exchange. It had ended its maiden day at RM2.70 compared with its reference price of RM1.
    Fountain View, which had traded to as high as about RM5 for almost a year, recently fell to just over 40 sen at one stage.
    Its share price plunged 90% in just five days in late April and early last month, which brought down its total market value from a peak of RM2bil to just RM200mil, a loss of RM1.8bil.
    This was one of the biggest and fastest collapses of market value of a listed company in corporate Malaysia.
    And another article..

    Fountain View board "mum" on director's arrest
    By Tamimi Omar

    More than 100 shareholders of Fountain View Development Bhd turned up for the AGM at a hotel in Petaling Jaya on June 27, after reading press reports that a director, Datuk Chin Chan Leong, would be charged with share price and trading manipulation.
    Most of the investors were anxious about the latest development following Chin's arrest and queried the directors about the arrest, recent selldown on the shares and also future direction of the company.
    The meeting started at 10am and finished nearly 11am, but the shareholders told reporters later that none of the directors addressed any of their questions.
    Chin, a former controlling shareholder in Fountain View, claimed trial on June 27 to two charges of manipulating the trading and price of the shares between November 2003 and January 2004. The court granted Chin bail at RM1 million, with one surety,
    A remisier with Avenue Securities Sdn Bhd at the time, Joanne Hiew Yoke Lan, was charged with abetting Chin in both offences. The court set her bail at RM200,000 in one surety.
    “Generally, we are all very unhappy,” said one shareholder and added: “They (the board of directors) refused to answer our questions on the arrest and would not comment on the share price performance of the company”.
    Another shareholder blamed the authorities for the current situation, saying that it failed to act quickly when the situation on the stock market was deteriorating.
    Fountain View hit a high of RM6.15 in the first week of January and hovered at RM4.70 and RM5.50 before a sharp plunge in late April. It hit limits down for four consecutive trading days from April 28 to May 3.

Given all these issues that had happened before... how?

Anyway... i do remember some comments about 'investing' in Fountain View based on its NTA back in 2005. Yup, incredible. Invest in based on NTA despite all these known issues.

And the end result?

Wednesday, March 28, 2007

About them Adjustable Rate Mortages

My Dearest Moo Moo Cow,

Give this new article posted on CBS Marketwatch a GOOD read: 'Tsunami' of adjustable-rate mortgage resets coming. Scary, eh?

Here is what they are saying:

  • More than $2.28 trillion worth of ARMs were originated in 2004, 2005 and 2006, at the peak of the recent housing boom, according to a study released this week by a unit of real estate data company First American.

    Some of these loans have already reset at higher interest rates, but a lot more have yet to reset.

    This year, almost $370 billion worth of first ARMs are resetting. More than $250 billion worth will reset in 2008 and 2009 and another $700 billion will do so in 2010 and beyond, the First American study estimates.

Potential Market Risks.

My Dearest Moo Moo Cow,

A good Wednesday afternoon to you. And I am guessing that you have missed your lunch again. Am I correct?

Stumbled on this blog posting on The Bigpicture

The market hazards are simply put as as..

  • U.S. consumer spending dives. Perhaps the surest ticket to a bear market in stocks would be for Americans to close their wallets — either because they're spent out or because they're nervous about their finances or their job outlook.
    This is so obvious that it might well be overlooked as a risk. Investors have no recent experience with a consumer-led recession. The last one was 17 years ago, in 1990. The 2001 recession, by contrast, was led by a plunge in business outlays.
    • Corporate earnings shrink. Wall Street is fully expecting a slowdown in profit growth this year with a weaker domestic economy. But an outright decline in earnings might be a shock investors couldn't handle.
    Bad news: The margin of safety is dwindling. Total operating earnings of the Standard & Poor's 500 companies are expected to rise a mere 4.3% this quarter from a year earlier, according to analyst estimates tracked by Thomson Financial. That would be less than half the pace of the fourth quarter and the slowest growth in nearly five years.
    • The dollar's value tanks. The U.S. economy has been built on foreign money over the last two decades. Massive inflows of capital from overseas have been needed to cover the nation's trade and budget deficits. Other countries' saving underwrites our spending.
    What would happen if foreigners lost their appetite for U.S. assets? Granted, that question has been asked so many times since 1990 that Wall Street is downright bored with it. Which means that a dollar crisis would be exactly the kind of thing to catch most investors by surprise. A fast slide in the buck could be a sign that the allure of U.S. investments is fading with foreigners.
What do you think?

Would you agree with what the LA Times author, Tom Petruno, has written?

Tuesday, March 27, 2007

West Coast Highway?

My Dearest Moo Moo Cow,

It simply amazes what they publish in our financial business news. It really does. Have a look at today's so-called financial news (really Moo, how about they calling it the Daily Coffe-Shop Talk?): 'West Coast Highway on track'

  • 'West Coast Highway on track'
    By Francis Fernandez

    March 27 2007

    THE Cabinet is likely to discuss this week the implementation of the RM3.12 billion West Coast Highway project,
    sources said.

    The project was mooted 11 years ago, approved by the Works Ministry, but put on hold in 1997 after the Asian financial crisis.

    Sources said under the terms agreed by the Economic Planning Unit (EPU), the Government will pay the contractor some 18.9 sen per meter to build the country's third-largest highway which spans 216km.

    This will give the contractor, Konsortium LPB Sdn Bhd, an internal rate of return of about 15 per cent per year.

    The highway, which aims to link Banting and Taiping, was supposed to cost some RM6 billion, but under the revised plan, the project will cost just over RM3 billion.

    The project was awarded in 2002 to joint venture firm Konsortium LPB.

    Talam Corp Bhd, once the country's biggest builder of low-cost houses, owns 40 per cent of the joint venture company that will build the highway, while its associate Kumpulan Europlus Bhd, formerly Larut Consolidated Bhd, owns a 20 per cent stake.

    The finalisation of the revised terms of the West Coast Highway project has been stalling the planned purchase of a 25 per cent stake in Kumpulan Europlus by IJM Corp Bhd, the country's second largest builder.

    IJM is proposing to acquire a 25 per cent stake in the loss-making Kumpulan Europlus, with an option for another 5 per cent for 28 sen a share.

    The emergence of IJM will likely help stabilise Kumpulan Europlus, which suffered a net loss of RM323.4 million for the financial year ended January 2006, as well as help in the restructuring of Talam.

Everything is simply based on SOURCES SAID.

Aren't you really sicked and fed-up with such news reporting??

And worse still, how many times have we not see the companies mentioned in such articles where these so-called un-named sources are quoted to be saying this, this, this and that and that are denied by these companies?

Look at the very line... the sources even had the guts to tell the press what our cabinet will discuss this week.


Exactly my dearest Moo Moo Cow.

It never does end, does it?

Monday, March 26, 2007

Looking Back: Yikon

My Dearest Moo Moo Cow,

This series of posting is interesting indeed.

Dec 24th 2005: Gold and Yikon.

  • It's about that time of the year when we have the local financial newspapers highlighting the past events for 2005 and also the potential outlook for 2006. And sometimes, these papers arranges and moderates roundtable discussions on issues regarding the stock market. The Star Business had one such roundtable discussion which caught my attention (see Investors need longer time horizon ).

    Now in this discussion, there was this talk on this one stock that caught my attention: YIKON

    If you click on it, you would find a stock on a fantastic run.

    Just twelve months ago, this stock was trading at a low of 82 sen. Stock closed yesterday at a price of 4.76. (a pull back from a recent high of 4.90)

    Natutrally the bragging rights belong to that investment manager who did mention this stock as his stock pick in one such roundtable discussion in July 2005.

    This is what he mentioned then:

    The fifth one, I will pick a situational play, Yikon. It's like your Lion Parkson, but this one's just got a licence, the first given by the Chinese government to have country-wide goldsmith shops.

    They got a national licence, not a provincial one, to set up goldsmith shops all over China.

    They have started deploying shops this year in major cities.

    The shops are doing pretty well in in the department stores and stand-alone shops. They are putting their right people there, which is very important.

    Profit margins are better than in the Malaysian market where there is a glut.

    Year to date, this stock has been the second best performing in Malaysia, up 140%.

    This is what was mentioned in today's article:

    I still retain Yikon as my top pick. When I introduced the stock, it was RM2.50 a share and now it's RM4.40 after six months. The counter has been ignored. Not much research has been done due to the fact that it's a second board stock.

    But look at its business model, which comprises 100% gold exports, and gold has done very well. I think gold will continue to go up from about US$510 an ounce now to my target of US$800 or US$900 in two or three years.

    Given Yikon's 100% exports to Hong Kong, can you imagine a Malaysian company exporting gold to Hong Kong, the Middle East, and India and China, and with its franchise of goldsmith shops in China? The potential is great.

    They have opened 11 goldsmith shops in China, and are opening a 12th one next month. Of course, its current PE is very high, but I think people are looking at its potential in China. Yikon is the only gold manufacturing company in Malaysia, and is cash rich.

    The company has a huge state-of-the-art plant in Penang. If you look at the Singapore company that manufactures gold wafers like them, you can see that Yikon's technology and machines are far more advanced than those of its Singapore counterpart, which is a smaller company.

    Yikon buys scrap gold and processes that into pure gold wafers. The gold jewellery you buy is 91.6% pure and Yikon makes pure gold wafers of 99.9% purity.

    Of course, I am envious! Imagine making an investment in a stock a year ago at less than a dollar (err.. getting at the absolute low would probably be asking too much, isn't it?) and the stock is now trading at around 4.76!!

    How come I dun have this stock? How come?

    Why I no buy the bugger?

    Wouldn't it have been nice if we knew this would happen?

    And it would be even nicer if i had bought the stock. Tiok boh?

    I would be getting my new car and I would probably be in an island enjoying my holidays right now... yeah... wouldn't it be nice?... yeah... dream on Buster!

    And let's just be honest... such a buy is beyond me. Way beyond me!

    There is simply no way I would and could have jumped into this little ship sailing away to the island of my dreams.

    So what then? Am i being 'Jay' here or what?


    Now since, i had a post about learning from our mistakes, well, from an investing point of view, I think i should be asking myself this: Did I miss this opportunity or perhaps this stock was one of them stocks in the sharemarket that is simply beyond my circle of competency?

    Well, the best way is to have a good at Yikon itself.

    What kind of track record does Yikon have? Was it impressive?

    Here is what Yikon has earned has done since fy 2001. (read from left (2001) to right (latest)

    6.711 million -> 5.80 million -> 1.940 million -> 0.704 million (fy 2004).
    Hardly impressive right?

    Would I have invested in such a stock?

    Would you?

    Hence, what was mentioned in today's roundtable discussion really amuses me.

    Yeah gold is doing extremely well but what Yikon itself?

    Is Yikon doing well?

    Was the association that since gold is doing good, Yikon should also do good, justifiable?

    Here is four of Yikon's most recent quarterly earnings.

    1. Quarterly rpt on consolidated results for the financial period ended 31/10/2004

    Sales 10.776 million
    Net loss 0.158 million! (ahem)

    2. Quarterly rpt on consolidated results for the financial period ended 31/1/2005

    Sales 7.179 million
    Net profit 0.079 million.

    3. Quarterly rpt on consolidated results for the financial period ended 30/4/2005

    Sales 4.163 million (waa declining sales??)
    Net profit 0.057 million.

    4. Quarterly rpt on consolidated results for the financial period ended 31/7/2005

    Sales 9.136 million (huge improvement)
    Net profit 0.169 milion.

    So we have.. a total trailing net profit of only 147 thousand! (ytd net profit 3 quarters is slighty better at 306 thousand!)

    And more interesting is the following commentary reviewing Yikon's current year-to-date performance from the management own notes attached to their last earnings report.

    The turnover of the Group has reduced by 32.8% in the current reporting quarter as compared to the preceding year. This is mainly due to reduced in sales of gold in current quarter. Sale of gold only occurs when customers settle their purchase in cash rather than physical gold. However, this does not lower the gross profit of the Group as the margin derives from the sales of gold is negligible.

    Hmmm... interesting... very interesting... 'margin derived from sales of gold is negligible wor!'.

    Anway, Yikon has a current most recent 4 quarters earnings of only 147 thousand (ah.. its annualised earnings is perhaps higher... at around... 400 thousand... LOL!!... and oh, of course, currently, Yikon's PE is extremely high!)

    Oh btw... at around 4.76... Yikon is valued at some 194 million!!

    Based on such financial performance, do you think that such valuations are justifiable??


    So how?

    Did i miss a good investment opportunity?
    Would i have purchased Yikon as an investment then?
    How about now?

    Nah.. i really dun see myself making such an investment. No way Jose!

    Is a missed opportunity a mistake?

    Yes, the stock price is on a fantastic golden run.. but.. there is no way i could make a justification to invest in such a stock.

    And when such things happen, i just have to remind myself that perhaps this is one of them thingys that it's not destined for me ler..

    As my granny used to say, "What's not yours is not yours. See open a bit lah!"

    You just cannot win everything in anything, can u?

    hey it's Christmas Eve dude...

    Yeah... yeah.... :)

    Oh... one of me buddy posted me a really farnee card..... enjoy lah: Click here!

    here's wishing everyone.....

    A Merry, Merry Christmas!

    Ho Ho Ho!!!!

There's another update here: Gold and Yikon: Part II

Fast forward March 2007.

Yikon just reported its earnings:

Just imagine if an investot had followed what was said here: Investors need longer time horizon
  • StarBiz: Your picks, Kok Kheng.
    Kok Kheng: As mentioned earlier, I'm very cautious about next year's stock performance. Six months ago, at a roundtable discussion here, I recommended Tanjung Offshore, Berjaya Sports Toto, JobStreet, DiGi and Yikon. All have done well, especially Yikon, which I think has about doubled in price, and it was my best call.

    I still retain Yikon as my top pick. When I introduced the stock, it was RM2.50 a share and now it's RM4.40 after six months. The counter has been ignored. Not much research has been done due to the fact that it's a second board stock.

    But look at its business model, which comprises 100% gold exports, and gold has done very well. I think gold will continue to go up from about US$510 an ounce now to my target of US$800 or US$900 in two or three years.

    Given Yikon's 100% exports to Hong Kong, can you imagine a Malaysian company exporting gold to Hong Kong, the Middle East, and India and China, and with its franchise of goldsmith shops in China? The potential is great.

    They have opened 11 goldsmith shops in China, and are opening a 12th one next month. Of course, its current PE is very high, but I think people are looking at its potential in China. Yikon is the only gold manufacturing company in Malaysia, and is cash rich.

    The company has a huge state-of-the-art plant in Penang. If you look at the Singapore company that manufactures gold wafers like them, you can see that Yikon's technology and machines are far more advanced than those of its Singapore counterpart, which is a smaller company.

    Yikon buys scrap gold and processes that into pure gold wafers. The gold jewellery you buy is 91.6% pure and Yikon makes pure gold wafers of 99.9% purity.

Sick of Jim Cramer??

My Dearest Moo Moo Cow,

Aren't you sick and bored till death about Jim Cramer ranting in his pathetic revelations in his video interview?

Aren't you?

Hey, saw this posted on youtube. Yeah, probably should ask Cramer to learn from him!



A look Back

My Dearest Moo Moo Cow,

A good Monday Morning to you. Saw this interesting commentary posted on which i thought you might be interested in. A Look Back at a Raucous Month in the Stock Market

The following paragraph is interesting, really.

  • According to A.G. Edwards, $12.6 billion and $1.8 billion flowed into broad international and emerging market funds, respectively, in the weeks before the original 416-point drop. Those numbers were extraordinary. International stocks had already enjoyed a stellar 2006, returning 27%, and almost 75 cents of every dollar invested in mutual funds went chasing that performance. But January's fund flow estimates were double and even triple the amounts of some previous monthly periods. Any time that much money flows in the same direction there are bound to be some nervous investors.

Friday, March 23, 2007

A call for Help: Help Aisya...

My Dearest Moo Moo Cow,

It would be nice if folks could help:
Please give her some light, give her some hope

For more info, please read this : Spare Your Change: Help Aisya...

  • *New note to all who have been directed here from Jeff Ooi's

    I have been getting quite a lot of calls, sms's and emails regarding little Aisya. For those who want to keep in touch with how Aisya and her family are getting on and the status oF donations, please kindly leave a link to your blog/email in my blog (under comments lor-but under this post, please), and I will keep you updated as best I can.

    Here's the latest on Aisya:

    Little Aisya went for surgery to create eyelids for her last December, using tissue from her lips. Unfortunately, the operation has backfired, because her eyelids have fused back together. Doctors have decided (this is according to Aisya's mum) that there will be no more surgery for Aisya for another 2 years, as surgery is difficult for her young (and small) body and immune system. So it would be another two years before they re-attempt to create eyelids for her, and later, try and fit her with artificial eyeballs. That is the time when the family will need financial help the most.

    At present time, donations is solely for the family to survive on a day-to-day basis as Aisya's dad has lost his job (he's the sole bread-winner), and if there is any left, they can start a small account in case of emergency, and Aisya needs surgery (let's say they suddenly get a call to say they found someone who can help her see)...

    At the present moment, with present technology, it looks like little Aisya will never be able to see, because the little girl has only whites of the eyes.

    Donations can always come in kind. For example, you could offer to sponsor Aisya's diapers for a year. Or if you're some boss, you could offer her dad a job. Or if you're a broke college student like me, you could help by spreading Aisya's plight on your blogs, or simply remember her in your prayers.

    I did not ask Aisya's dad for his account number as I am afraid some unscrupulous people out there might somehow misuse that for their own personal gain. Thus, all cash donations will have to be in the form of a cheque under the father's name. Write the cheque to: SHAHIDAN BIN YANG GHAZALI, and send it to Aisya’s home at:

    45, Persiaran Putra 5,
    Bandar Baru Putra,
    31400 Ipoh, Perak

    Shahidan's Phone: 017-5586069; Hayati's (Aisya's mum) Phone: 017-5746317.

    I brought this case to my college's (Inti International College Penang) student body; they recently passed the tin around and we got about RM 2 K, which will be handed to Aisya's family shortly.

    *Original Post*

    Sigh...This blog is about little Siti Aisya Syazreen, a 3-and-a-half-year-old who has got no eyes, literally...Little Aisya suffers from a very rare syndrome called Fraser Syndrome, where children born have got no eyelids, and some even with no eyes...

    Darling Aisya is one such little girl...

    Her story appeared in

    The Staron the 24th December, 2006:-

    Special Mum for a Special Child

    When I first met Aisya, I was shocked, and I was overwhelmed...Honestly, I wanted to just reach out and hug her, but I was also afraid...Afraid that if I did that, I would be hurting this little girl, who looked so fragile, her body might snap in half if I so much as touched her...I was afraid, because I had never seen someone like her before...

    Aisya's dad is the only one working in the family, and he recently lost his job...You can just imagine how difficult it is. Raising children is never easy, but with an extremely special child like Aisya, a stable income is all the more neccesary...

    Inti International College Penang has taken the initiative to raise some money for her within the circle of students...Final results have not been finalised yet...

    I am appealing to anyone out that who has some extra to spare to think of little Aisya and her family...It doesn't have to be big; remember, as cliche as it is, it's the thought that counts...Every gesture will help...

    Think people, how would you feel if you cannot see, and cannot hear well? Think how you feel if everywhere you go, people are afraid of you? Think how you would feel if even your hands look different?

    Because that is what Aisya is going through everyday...She can't see, she can't hear well, and even her fingers are deformed...

    I am appealing to the human side of all those out that: Spare your change for little Aisya...I can be contacted at 016-5422774 for further details on how to contribute to the family...I won't be dealing with any of your money as I will put you in touch with the family directly.


How? If you could, please help...


Are you a fan of IBD?

My Dearest Moo Moo Cow,

Stocks, they simply went up all around, didn't they? In the US, they are talking about the stocks gaining 4 days in a row. Our markets weren't shappy at all: KL Shares End Broadly Higher and according to that Bernama market rap link, the markets were lifted with the so-called first quarter windows dressing and most importing the abolishment of the real property taxs and the very seductive corporate tax exemptions in the Iskandar Development Region project.


Where was the doomsday and the so-called perfect financial storm?

Let's check out what FSO's market commentators are saying in their market wrap: IBD Follow Through Day Moves Market Into "Confirmed Rally"

Here is a snippet of that posting:


IBD Follow Through Day Moves Market Into "Confirmed Rally"

Wednesday’s rally brought about an Investors Business Daily (IBD) follow through day thereby putting the market in “confirmed rally” mode. IBD’s word on the stock market as of Tuesday evening was, “market in correction.” But with Wednesday’s action, the benefit of the doubt moves from the bears to the bulls all within a single day. In recent years, the IBD method has been as good as any in predicting the intermediate term position of the stock market. Also relevant is the fact that what they consider to be leading stocks are acting well. While a cynic can throw several rationales at the recent action of the stock market, one trades against IBD’s method at their own significant risk. With regard to IBD, when you find a hot guru, it pays to follow his advice. Trading against the methodology of the hot guru can be both demeaning and expensive.

Below you see the daily chart of the Nasdaq composite. Last Wednesday’s mid-day turnaround which put the market up well off of its lows of the day was considered to be the initial rally. It is relevant that when the Nasdaq composite broke below 2,340 mid day last Wednesday, that was an apparent new low. The quick turnaround flashed a signal that the market’s character had not changed and bears were in for a rapid and tradable rally against their position. Once again, it was a losing proposition to sell into apparent weakness and once again, it was a winning proposition to buy an apparent break of technical support. Over the five days ending on Tuesday, it appeared suspect to the bullish case that the market was advancing, but on anemic trading volume. But when 2,410 was broken and then successfully tested this Wednesday morning, and the Fed said what the market wanted it to say, an IBD follow through day was produced. (The trading volume on Wednesday was only average, and would have been less than average except for the relatively high trading volume in the Nasdaq 100 ETF.)


How now My Dearest Moo Moo Cow?

Are you fan of IBD's follow through day?

And since we are talking of IBD and ultimately market timing, would my Moo Moo Cow see this as a confirmation of a change in trend and use it as a comfirmation market timing entry signal?

Would you my dearest Moo Moo Cow???

Thursday, March 22, 2007

The Delima

My Dearest Moo Moo Cow,

Just received this piece of article in my mail-box. It's fantastic really.

  • The Trader's Dilemma

    By Dale Baker

    February 20, 2007

    Whenever the markets slip a bit, we hear that buy-and-hold investing "never works."

    The short-term traders make two main arguments against fundamental analysis: 1) You can't rely on company-provided information, and 2) markets are just an amalgamation of buyers and sellers at a given oment in time, so all you can do is chase the nervous herd every day to make a profit.

    I think they're wrong on both counts.

    Knocking down the straw man

    The rise and fall of the dot-coms, plus the spectacular accounting frauds at Enron, Tyco (NYSE: TYC), HealthSouth (NYSE: HLS), WorldCom, etc., produced a new school of fundamental-analysis skeptics. Since a few companies were paper tigers or outright frauds, they argue, all companies run a risk of turning out the same.

    A freshman-level Logic 101 professor would knock down that straw man in a hurry. It's called a spurious correlation: "If some, then all" is not a viable hypothesis.

    If some people who get in an automobile are injured or killed, should I avoid all ground transportation? If an even smaller number who board an airplane are killed, should I avoid flying? If some prescription drugs have unknown side effects and adverse interactions, should I refuse to take all prescription drugs on principle?

    Of course not. If I avoided cars, planes, and prescription drugs, my life would be pretty limited. Investing is the same way.

    Who's the richest investor in America? Warren Buffett of the Berkshire Hathaway (NYSE: BRK-A) empire, of course. What philosophy does he follow?

    Value investing.

    How many superbillionaires made their fortunes in short-term trading? Not many. A few of the top hedge fund managers did, but not that many. Suffice it to say that they don't come close to Buffett on the 100 richest people in America list.

    The problems with excessive trading

    Trading sounds so easy in hindsight. One of the charting services has a commercial on CNBC that reminds me of a third-grade math class: "Look at this stock. It went up here, then it went down here. If you knew in advance where it was going, imagine the money you could make."

    Duh. And if I were the Prince of Wales' elder son, I would be the King of England one day. But I'm not. Only a very small, very select group of people ever become a monarch, just like only a few can untangle the mystery of technical analysis well enough to make a good living at it.

    traders face many more hurdles than investors.

    Diversified investors have to pick 20-40 stocks for a good-sized portfolio, decide when to buy, follow the news, and then decide when to sell. They can buy and hold for years if they like; Buffett often says he wouldn't mind if the arkets closed for a year or two.

    A trader, on the other hand, often makes more than 1,000 "round-trip" trades every year. That's more than 2,000 buy-and-sell decisions in several hundred stocks. The odds of making bad decisions go up exponentially with the number of decisions you have to make.

    Traders get smug when the market dips and they're sitting mostly in cash, but they go strangely silent in sustained runups where the 100% invested fundamentals guy makes his big returns for the year. A trader who goes to cash after every trade has to go out and find new trades each and every day to keep up with the investor. The fundamentals guy can wake up in the morning, decide his portfolio is fine, do nothing all day, and still beat the markets over time.

    The list of stocks that doubled, tripled, quadrupled or better since the market lows in 2003 goes on and on. It's a classic tortoise-and-hare story.

    The hare is flashy and full of energy, but he's also easily distracted and likely to burn out before the finish line.

    The fundamentals investor has to endure market setbacks and protracted periods of boring portfolio performance. Over time, however, the small number of well-informed decisions he makes should bring a superior return.

    The argument that a stock is only worth what the herd will pay for it right now comes from the efficient-market hypothesis. It says you can never do better than what the market offers right now, because the multitude of players know so much that all possible information is already priced in to the stock.

    Nonsense. If markets were efficient, I couldn't make a living. Even with rudimentary fundamental analysis knowledge, you can find undervalued stocks whose hidden sterling qualities have not been priced in yet. Otherwise, no stock or portfolio could ever beat the market indices. But every year, thousands of stocks do better, and at least several hundred fund managers do the same.

    So can you.

Wednesday, March 21, 2007

Say Moo

My Dearest Moo Moo Cow,

If you are interested in some investing discussion, there are two topics of interested posted on Sahamas: Pintaras Jaya and Bandar Raya Developments


US Market Wrap

My Dearest Moo Moo Cow,

Just how is my Moo Moo Cow doing? Confused? Unsure? Uneasy? I know, the US Market has rallied for the second straight day.

As reported on CNN market wrap:

  • NEW YORK ( -- Stocks gained Tuesday, rising for a second straight session as investors welcomed a strong report on housing and the start of the two-day Federal Reserve policy meeting.

    The Dow Jones industrial average (up 61.93 to 12,288.10,
    Charts), the broader S&P 500 (up 8.88 to 1,410.94, Charts) index and the Nasdaq (up 13.80 to 2,408.21, Charts) composite all added between 0.5 percent and 0.6 percent.

    Treasury prices rose, lowering the corresponding yields. The dollar was mixed versus other major currencies. Oil and gold prices ended higher.
    The major gauges have now risen 7 out of the last 9 sessions.

Can't be that bad, can it?

How about some second opinion?

Did you check out Frank Barbera's commentary on FSO: Let the Sunshine In...

Oh, yeah it's highly technical.

  • What a difference a few days can make. Last week, when we penned these commentaries, the S&P was plunging toward a retest of its lows with strong support clearly pegged in the 1360 zone. We wrote at the time that,

    Against this backdrop, a medium term low of some degree should form with prices rising in coming days to establish a “failing” right shoulder high. The momentary relief of a stock market rally says nothing about larger problems, and is the reflex action of crowd psychology gone a few steps ‘too far’ right out of the gate. In the case of the S&P 500, the 20 week or 100 day lower band closed today at a reading of 1360.50, and that area should be major support if tested tomorrow."

    As it happened, the sell off did indeed continue into the next trading session where prices fell to a reading of 1363.98 at which point, they began to reverse sharply higher. Since putting in that important short term low, the stock market has been solidly back in rally mode, with the S&P 500 rising four out of the last five sessions and ending today back above 1400 with a close of 1410.94 (a gain of nearly 50 S&P points since last week's intra-day low). Has our outlook changed? To this point, not one bit. We continue to view this advance with the broad stock market as very likely akin to the ‘eye of the storm,’ wherein the sun can shine brightly for a brief period of time. In our view, the stock market rally now underway should still most likely be viewed as a ‘right shoulder’ rally which would still be targeting prices above 1425 to 1430, and as high as 1450. Thus, for the time being at least, both the US and Global Capital markets have regained their footing. This thesis is also supported by the fact that the Japanese Yen has sold off against the Dollar, representing at least a partial stabilization in the unwinding of the Yen-Carry Trade. With liquidity trends stabilizing, we have also seen a healthy recovery in commodity prices with the Precious Metals stabilizing as seen with Gold back above $650, Silver back above $13.00 and Platinum back above $1200.

    Another question that needs to be addressed, in all fairness, relates to the bullish possibility that what we have just seen is a correction and nothing more, and that in the weeks to come, the rally could continue and make new, even higher 52 week highs. In our view, we will remain from “Missouri” on that one, and insist that if the market is going to re-vitalize a damaged bull trend, it will have to “show us” by pushing into new high ground and staying there for several weeks.

    This is not an impossible outcome, but is less likely given the severity of the recent decline and the fact that it is a high probability that more housing and economic pain lies directly ahead. As a result, the correct approach to the stock market going forward will be one that focuses on relatively short term trends for “traders” and stock/sector selection for more medium term investors. In the final analysis, where stock market “tops” are concerned, prices have not “completed” a top until there is a top visible on the charts, and a top from which prices have broken down. To this point, the farthest on point for this market would be that a top is under construction. True bearishness cannot spring from the wellhead until a top is constructed and prices have actually broken down. In the real McCoy, the actual construction of a top is usually measured in weeks, by a series of rapid fire back and forth swings, with prices ultimately breaking down in violent fashion. For the S&P a ‘would be’ topping formation would need to see a few important elements. First of all, it is important to note that the 100 day moving average (or 20 week MA shown last week) is now flattening out. This is a big change from the strongly advancing moving average seen during Q3 and Q4 2006. With the flattening out of the middle band, we will also see the lower band begin to flatten out in the weeks ahead, and over time, the upper and lower bands will likely begin to “pinch in,” converging toward one another. A powerful top, would ultimately break down (Point A) below the recent lows in the 1360 area, and in the process downside penetrate a declining 100 day lower band. In the world of technical analysis, moving down to a rising lower band, and moving down through a declining lower band are two entirely different animals.

    What was seen last week, while scary, had the protective overlay of a rising 100 day lower band; in other words, support rising underneath the market that could “catch” the market as it fell. In real “bear turns,” this is normally a ‘one off’ event. Put another way, the first crack at this band, prices always hold and usually recover nicely (what we are seeing now). The second crack at the lower band, and the whole edifice begins to topple over with a mess of much larger proportions gets underway.

    At present, we have time to judge and make sense of what will come next, and for now we do not want to pre-judge the stock market too harshly. We remain acutely aware of the fact that in recent years the great credit bubble has ballooned to such epic proportions that, if a real unwinding were allowed to take place at this late date, the consequences would most likely be both a capital market crash and an economic crash of epic proportions. Michael Panzner's “Financial Armageddon” (excellent read) springs to life with a speed of frightening proportions. For the “powers that be,” all bears need to remember that every effort will be made to avoid this unwinding, and to prevent the US Humpty-Dumpty from falling off the proverbial wall. In this sense, if a Fed-engineered “re-inflation” has any real chance, then keeping the stock market buoyant amid the Real Estate/Housing Correction is vital, and with the housing slump accelerating, now would be the right time to start pulling out all the stops where the stock market is concerned. Since not one of us can know what lies ahead, the best we can do is watch closely and try to evaluate where things presently stand.

How my dearest Moo Moo Cow?