What is real investing?

The everyday investor is exposed to numerous media coverage of investment ideas and stock picks.  But where does one really find these picks?  If you think the research reports are a good idea, think again.  A lot of times these documents just update you on what the companies are doing but rarely can one invest on them.  Financial institutions are required to churn out updates for their clients to act on.

Turn on the television, lots of pundits such as the ones below will give you their stock and investment picks and views.

Most likely,  the stock's boat has already sailed.

I'm not going to lie to you.  The answer is short, but the process is long has a lot of dead ends.  In fact I've just went through a long document and probably didn't find out much.  But such is the life of investing, turning up many stones but finding nothing underneath.

I just read this document:

Financial Masterplan blueprint by Bank Negara Malaysia.  It's long and quite dull.  But if you are an investor you will read these documents as they tell you basically what the nation is going to invest in and where the money will be flowing to.  Then as the investor you will have to piece the whole investment story together.  That's what investment is about, not just simply read a report, like the story, and buy it.  

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Perfect world cup stock

The world cup is finally here, and I have the perfect stock choice.  Truth be told, I've missed the boat on this one, but I'll be sure to get in on the stock next time around.  A few industries do well during the world cup, but many falter as the world lacks productivity during the tounament.

The one who has the most to gain from the world cup directly would be Astro, the broadcaster of the world cup.  Simply, they do the broadcasting for most of the football games.  Even TM Hypp TV uses their sports channels.  TM will do well of course, but Astro looks to hit a homer with a lower cost base and a boost in revenues due to the World Cup.

Other industries I thought might do well such as liquor didn't impress as much as I thought.  I figure that sales of the World Cup aren't significant enough to move the stock price.

I'll know what I'll be buying 6 months from the next world cup, assuming Astro still has the World cup broadcast rights!

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Plantation reits

I was actually a fan of the old Boustead REIT.  It's sad that they made the stock private to facilitate the new Boustead Plantation IPO.  Although I wouldn't necessarily recommend the IPO as I have yet to do solid research, Plantation REITs sound like solid investments.

Palm oil plantations' stock prices dependent on the price of palm oil, a commodity notorious for price volatility depending on agricultural prices caused by external factors.

Palm oil companies have been through the hard and good times.  They know how important it is to keep capital on the balance sheet and thus out of investor's pockets.  But sometimes, capital on the balance sheet leads to pressure to be fool hardy and double down on their investment, such as buy more land for palm oil plantations, than to concentrate on shareholder returns and efficiency.

The structure of REITs for plantations actually makes a Plantation CEO's task much easier, to return as much money to the shareholder as possible.  And if the price is good, to sell the REIT to a high bidder.

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Summer stock market duldrums

It's no coincidence that the market suffers quite a bit in the summer.  Especially this summer with a little event going on in Brazil.

I've recently come from a talk that put some logic behind market actions as a consequence of the World Cup.  What is the other big item that goes hand in hand with World Cup?  Lots of beer?  loots of food?  Yes, but the biggest would have to be a bit illegal and probably trumps the amount of money spent on both items.  

You probably guessed it, gambling!  Yes, the World Cup brings tons of gambling.  You don't have to be a mathematician to guess how much money is spent.  Just ask your friends and family whether or not they lost or won money on the World Cup.  You will have an idea of how much money goes through.  

It's not pretty, but generally the market will tend to decline after the World Cup due to these gambling debts.  People will be forced to sell their stocks and homes to meet obligations lost by betting during World Cup.   Of course everything has to be taken with a grain of salt. Do you agree or disagree.  let me know!

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The TSI indicator

In Technical Analysis, one of my favorite indicators in an oscillator called a true strength indicator or the TSI for short.

One of the most taught subjects in Technical Analysis is something called oscillator divergence, where price makes a lower low in a down moving market and the price oscillator doesn't make a corresponding new low.  Price oscillators are many in TA, example, RSI, stochastics, etc.

Oscillator divergence is simple enough to understand, but the tricky part is looking at what oscillator works well.  90 percent of oscillators are based solely on price and also suffer from lag.  At crucial times, these oscillators fail to record the divergences an astonishing amount of times.  

The TSI is one of the few indicators based on a derivative of a moving average of prices and differs from traditional oscillators in its speed and accuracy of tracking price momentum.  You would be amazed at how accurate and how many divergences it captures compared to traditional momentum oscillators.  Take a look at it and give it a go!

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Adding a little gula in your kopi never hurts

Ever notice that your favorite candy bar is going up in price?  Maybe a little extra 30 sen charge for drinks and your local kopi tiam?  I know, I am quite angry we are getting little benefit for our hard earned money and seeing it deteriorate due to inflation.

Inflation hurts, but as an investor, we have to see the forest for the trees, which leads me to an investment opportunity, MSM holdings.  I do own this stock so just be aware that you should always do your own research and come to your own conclusions.

MSM holdings makes the above bag of sugar that is so cheap at the local markets.  Sugar is a price controlled item and lately, the price controls have been gradually removed.  What will a price increase do for MSM holdings?  The revenue will skyrocket and so will the earnings, and followed by the stock price.

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Dividends and Beta, putting it together

A lot of people pooh pooh dividends.  But I'm going to stick up for companies which pay it out regularly.  The purest form of return on investment is dividends because this the the hard money which investors see.  Take for example a well known tech company, Apple.  As profitable as they are.  Very few investors have seen money coming in the form of dividends.  

The idea of shareholder return is more important than ever as Apple has gone off its highs.  those people who bought shares near the top are wondering. Where is my return? The company has billions of dollars!  But their poor dividend policy won't be winning over those investors who bought near the high!

The major rule is, if the stock has a high beta and DOESN'T pay out much dividends.  Sell these stocks first in times when defence is of the utmost importance.  The rationale is simple.  You aren't getting much return to hold these stocks and if the market turns, the likelihood of a high beta stock turning lower at the same time is higher than normal.  

Number 1 rule:

To play defense, sell those stocks with high beta which DOESN'T have much of a dividend return.   

You could go through your portfolio and rank each holding in terms of beta and dividend return.  Just have those which are low on dividend return, and high on beta on your potential sell list.

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What kind of investor are you?

Risk adverse vs. risk seeking.  We'v heard this statement from many investment advisors.  If you are young, you should generally be risk-seeking and go for more volatile investments.  If you are older, you should go for more risk-adverse investments.

Human nature says we are most risk adverse after suffering psychological damage from losses whether they are young or old.  The market tests the limits of psychological tolerance of price movement, how much it can withstand.

The best thing you could do for yourself is to objectively evaluate what kind of investor you are and stay within the realms of your limitations.  If you are a person who can tolerate losses, for example basically take the stock and store it in a container and look at the price once a month or quarter.  You are mostly able to tolerate the losses and could therefore be a bit more of a risk seeker especially on those investments you are absolutely sure will do well.

If you are a person who needs to have confirmation of a positive gain in your portfolio almost everyday, you are actually more risk-adverse and more prone to emotional ups and downs of the market.

Dividend stocks are more for you as the dividends will keep your spirit high.  Maybe you won't be a billionaire, but honesty with your own personality is another road to great wealth albeit slow and steady.  The most difficult part of investing is staying within your means as an investor.

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Much ado about dividends

Now we have our Betas down pat.

Lets summarize:

1. High beta stocks' movement are exaggerated by the market index, in the same direction.
2. Low beta stocks' movement are not as affected by the market index, gains are not as strong, as well as losses.
3. A beta of 1 means the stock moves pretty much in tune with the market.  example:  if BAT has a beta of 1, if the market is up one percent, BAT will likely be up one percent as well.

We'll move on to the subject of dividends.  Betas are nice and all, but is too little information on its own to make an investment decision.  High dividends are what makes high beta stocks' movements bearable.

Earnings are key of course, but earnings don't do much when the market is falling and you have nothing to show for it with little cash return or record of whether the board of the company will return money to the investor.  After all, we all invest to get money back from the investment.  Nothing is more pure of a return than in the form of dividends.

If a stock pays high dividends, holding the stock is definitely bearable and keeps the investor in high spirits by not having to realize the loss.

So, if you are an investor who would rather buy and hold than realize a loss, dividend stocks are best suited for this task.  Digest this information, I'll talk more about a tactically strong investment plan with dividends and betas next post.

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Add a little Beta to your Kopi O (Part 2)

Continuing where we left off, lets look at a small portion of the betas

A beta of "1" means that the market affects the stock about a 1:1 ratio.  For example, BAT and CIMB have a beta that is close to 1.  This means if the market is up 1 percent, these stocks will likely follow 1 percent and vice versa to the downside.

Hlbank has the lowest beta of 0.227 followed by Ambank with .646.  This means that they are not as affected by the market for some reason or another.  Market movements don't move the stock as much.

The higher betas stocks like Genting Malaysia with 1.676 means if the market is up or down 1 percent, the stock will probably be up or down 1.8 percent.  The stock movements are amplified by the market's movement.

So now we have had a run down of the betas how do we play defense?  I'm sure many of you are thinking, I own 20 stocks.  Which one do I sell when the time is right?  Geez. I can't sell all of them.

We start with looking at what stocks we own and determine the beta.  If the stock has a high beta, you would want to lighten up on those stocks.  If the market would turn lower, the downside move could be strong and swift, thus affect your portfolio value.  By the same regard, high beta stocks can amplify returns and market bottoms.

So, if prices are getting to out of line to the top side, Look at unloading the high beta stocks first!  But defense involves more than just selling betas.  We'll take a look further at what stocks you should keep and sell in the next post.

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Add a little FBMKLCI Beta to your daily Kopi O (part 1)

The FBMKLCI is the benchmark for stocks in Malaysia.  It's made up of the largest 30 Malaysian stocks by valuation as deemed from the FTSE in England.  The benchmark was born to cater to international investors who are looking for modernized benchmarking some years ago.

Looking at the chart,  the market is currently rising,  and what goes up does come down eventually as people see valuations are too high.  In sports we use a very simple analogy, offense wins games, defense wins championships.  So we are going to learn to play defense first.  Selling.

Listed below are the Betas for the last three months of FBMKLCI stocks.  What is the importance of betas?  The beta tells us how likely the stock will move when the overall market moves.  Higher beta means more likelihood of stocks moving as the overall market moves up and down.

I've had difficulty finding the correct betas of stocks as sites usually don't provide such data, but I've decided to manually calculate and share the betas for everyone as a reference.  Of course, its always good to double check as I've used an excel worksheet to calculate the betas.  But this is better than none.  The Betas are based off of January 21 to April 24th daily data.

Stock              Betas

ambank	0.646
astro	1.22
axiata	0.283
bat	0.92
cimb	1.149
digi	1.247
fgv	1.47
genm	1.676
genting	1.206
hlbank	0.227
hlfg	1.578
ihh	1.6
ioicorp	1.147
ioipg	1.424
klk	1.13
maxis	0.654
maybank	0.901
misc	0.395
pbbank	0.52
pchem	0.463
petdag	0.652
petgas	1.022
ppb	1.343
rhbcap	0.602
sime	0.684
skpetro	1.21
tenaga	1.731
tm	1.367
umw	0.881
ytl	1.131

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Welcome to Kopi and Stocks!

Everyone needs a jolt of caffeine to help them get inspired to select strong stocks.

Hopefully I can help lubricate the thought process with a blend of market comments, a splash of technical analysis, and an insightful look into fundamentals.

Stocks aren't for everyone, and not everyone should choose stocks.  One thing i hope to inspire is original thinking.  Too often we are told this is what matters, but the truth is far from it as far as investing and trading are concerned.  Being an original thinker is rewarded especially well.

                                           

Get your thinking cap on.  We're going on a ride.

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