We have another pleasant surprise this afternoon at the chatbox - Dali, the prolific author of the popular Malaysia Finance blog, has kindly dropped by the chatbox! Unfortunately, due to a family medical matter, I had to send someone to the hospital, and couldn't stay on to participate in the chat :-(
If you haven't visited Dali's blog before, I think you have the privilege of being a rare individual. His blog is highly recommended - see http://malaysiafinance.blogspot.com/. Do visit the blog, and you'll know what I mean.
To me, I would put Dali and Moolah right up there in terms of investment blogging. Dali is truly a prolific writer and a hard worker. I really don't know where he finds his energy and inspiration from but he blogs nearly everyday, and sometimes, several articles a day! Whereas yours truly who would be lucky to average once article per week! He has built up a large readership, in fact, reading both his blog and Moolah's has become one of the regular things that I do every morning, just like having a cup of coffee for breakfast. I don't know if coffee is necessarily a good thing for me, but I thoroughly enjoy it! And I intend to continue drinking coffee and do the things that I enjoy doing (including reading Dali's blog) for as long as I live!
One of the things I enjoy about Dali's blog is not just his unique investing and writing style, but his viewpoint. The immediate impression I get is "an original artist" or a "master painter". If you browse through his past articles, you will quickly get a sense that here is a guy who reads extremely widely and writes truly thought provoking articles ... and he's not afraid of saying what he thinks, even if he risks being wrong about it. And to be honest, I find myself constantly being provoked thought-wise, which is a good thing ... I believe one can learn a lot from Dali, if one adopts a critical view towards his articles, and constantly ask questions such as "have I considered this point before? What could be an alternative view? On balance, which is the better view?, etc.". As with all investors, Dali has made his share of mistakes too, but that doesn't detract him from continuing to write and invest in his highly original style, and you shouldn't too.
On that note, please join me in welcoming Dali to this chatbox!
Cheers,
Seng.
Monday, August 13, 2007
Thursday, August 9, 2007
Welcome Moolah!
The top chatbox went abuzz yesterday morning, when a few of the early chatters saw that Moolah had joined the chatbox. I was there, and interestingly sensed an aura of temporary disbelief and excitement amongst some of the investors, that the author of one of the best Bursa Malaysia investing blogs had joined them for a chat! For the few of you who may not know who Moolah is, allow me to introduce Moolah to you, not that he really need an introduction from me! :-)
Simply put, Moolah is the owner, author, researcher, analyst, formatter, administrator - in short - the "hard worker" of this popular and long-running blog - http://whereiszemoola.blogspot.com/ as well as Sahamas and the many other blog-links in his main blog. Both are investment places that I can whole-heartedly recommend every investor to visit if not, do a deep study. Moolah is a firm believer of business-like investing, but what makes his approach unique is his disciplined practice of the "negative art" of business-like investing. I visit Moolah's blog regularly, and I must say I have yet to see him recommend a sound fundamental stock to buy whole-heartedly. Don't get me wrong. It is easy to under-estimate this, but if you do a study of Moolah's thought process, you will quickly realize that to him, a company is just like people. There is no such thing as a perfect company, just like there is no such thing as a perfect human being. Every one has their flaws, just like every company has weaknesses. Moolah's unique strength is the ability to question almost everything, and as a result, realistically identify and highlight the potential weaknesses or uncertainties of every single company that he analyzes. This is actually a very important trait of a successful investor, because Moolah is very much aware of the potential downside to any investment. Moolah is one of the very, very rare people in the investment field who actually identified MEGAN very early on as a company to avoid, well before the company was actually exposed for the numerous accounting irregularities and fraud. And I am sad to say that MEGAN is not the only nor last company with problems in Bursa Malaysia. His site is definitely one of the most important websites for all Bursa Malaysia investors to bookmark, visit, and do a deep study. Moolah is also one of the most generous investing blog authors I have known - the quality of his analysis and second opinion generally ranges from good to excellent, he is a prolific writer, somehow, always managed to find the time to write so much, that he as well as Dali certainly set and define the benchmark for investment blog writers to emulate. In Moolah's own style, I must also say that I don't always agree with what he has to say (since he is also human just like you and me), but I always consider very carefully what he says, because more often than not, he has a very good point.
On that note, please join me in welcoming Moolah to this chatbox!
Happy investing! (and don't be afraid to question him! Remember he is Human just like you :-) )
Cheers,
Seng.
Simply put, Moolah is the owner, author, researcher, analyst, formatter, administrator - in short - the "hard worker" of this popular and long-running blog - http://whereiszemoola.blogspot.com/ as well as Sahamas and the many other blog-links in his main blog. Both are investment places that I can whole-heartedly recommend every investor to visit if not, do a deep study. Moolah is a firm believer of business-like investing, but what makes his approach unique is his disciplined practice of the "negative art" of business-like investing. I visit Moolah's blog regularly, and I must say I have yet to see him recommend a sound fundamental stock to buy whole-heartedly. Don't get me wrong. It is easy to under-estimate this, but if you do a study of Moolah's thought process, you will quickly realize that to him, a company is just like people. There is no such thing as a perfect company, just like there is no such thing as a perfect human being. Every one has their flaws, just like every company has weaknesses. Moolah's unique strength is the ability to question almost everything, and as a result, realistically identify and highlight the potential weaknesses or uncertainties of every single company that he analyzes. This is actually a very important trait of a successful investor, because Moolah is very much aware of the potential downside to any investment. Moolah is one of the very, very rare people in the investment field who actually identified MEGAN very early on as a company to avoid, well before the company was actually exposed for the numerous accounting irregularities and fraud. And I am sad to say that MEGAN is not the only nor last company with problems in Bursa Malaysia. His site is definitely one of the most important websites for all Bursa Malaysia investors to bookmark, visit, and do a deep study. Moolah is also one of the most generous investing blog authors I have known - the quality of his analysis and second opinion generally ranges from good to excellent, he is a prolific writer, somehow, always managed to find the time to write so much, that he as well as Dali certainly set and define the benchmark for investment blog writers to emulate. In Moolah's own style, I must also say that I don't always agree with what he has to say (since he is also human just like you and me), but I always consider very carefully what he says, because more often than not, he has a very good point.
On that note, please join me in welcoming Moolah to this chatbox!
Happy investing! (and don't be afraid to question him! Remember he is Human just like you :-) )
Cheers,
Seng.
Wednesday, August 8, 2007
Two new chatboxes
As you will have seen from the above, I pleased to have recently implemented two new chatboxes to this blog! I have been toying with this idea for quite a while, but did nothing as I was very comfortable at investssmart blog. I still believe it is an excellent blog, but when I was there recently, there were certain irrational disruptions that started off with targeting me personally. I felt obligated to create a 2nd set of chatboxes to provide the regulars with a backup. That gave me the push to create these. Also, the timing seems ideal - with the current volatile markets, I am more likely to sit out than participate actively in the markets, and so, it seems like a good time to do something else such as improving this blog!
I have purposely created 2 distinct chatboxes similar to investssmart. The top one is intended for fundamental and the more serious discussions. The lower box is intended for technical and other discussions.
If you're new, then, by fundamentals, I mean discussions on Intrinsic Values of the underlying business and related factors. For a better understanding, please see my recent article here (http://fusioninvestor.blogspot.com/2007/07/fundamental-analysis.html). This can naturally be broad ranging since it can cover macro as well as micro issues, global as well as company issues, earnings, valuations, cashflows, income statement, balance sheet, etc. in the past, current, future, short term, medium term, long term.
By technical and other discussions, it can be discussions on historical price charts and volume, support, resistance, moving averages, technical indicators, etc. In other words, the usual TA discussions. Others can be anything relevant to investing, such as psychological, emotional control, money management, etc.
But I won't hold the users strictly to the above. In practice, I noticed users prefer to choose one chatbox, and then, chat there. It is certainly more convenient. But I believe users also have certain preferred styles - either FA preference, or TA preference. If it's the former, you may wish to chat on the Top Box, if it's the latter, try the lower box. For me, I hope to just chat at the top box after things are more settled.
I would also like to mention that there are some readers here who unfortunately, due to their full time work, is unable to participate in the cbox during trading / working hours. Instead, they either review the top box history, or participate after hours. It would be greatly appreciated if the top box is reserved for the more serious comments, and the chatting at the box below.
I would like to share with you a few ideals for the chatboxes. Whether this is achieved or not will depend largely on the community using/residing on the chatboxes, so, it really depends on "the collective us" to make it happen. The analogy I would use is your own community - whilst having a nearby police department helps, it does not guarantee the ideal neighbourhood. To have that, we still need every neighbour's contribution and a collective sense of responsibility to make sure that the community we live in is indeed a better place to live in. I sincerely believe this analogy applies to both here, as well as any other chatboxes.
My ideals for the chatboxes are as follows:
- a place where both novices and experienced investors find it useful, relevant, supportive towards their general investing and trading experience.
- a place where second and additional considered opinions from other participants on certain stocks can be obtained, without fear or favor.
- a place where important business news, analyst and other reports affecting the stocks are shared freely, whether it is just recent earnings results, new stock analyst calls, new major business contracts secured, etc.
- a place to request for further analysis or comments by me or more experienced investors (request subject to availability of time, which is limited).
- a place where we can hopefully, at a glance at both chatboxes, easily see the views of both investors and traders alike, and form a more "fusion" / rational perspective.
- a place where regardless of investing skill, knowledge or experience or any other stereotypes, everyone enjoys being there because of the caring, respect and consideration they receive, and they feel they can grow and proper in their investing skills.
- in short, a place where we are all happy to be at. My wish is that you will find this a place where you find yourself continually learning new and relevant things, because the markets are incredibly flexible. In my experience, everytime you think you've figured the markets out, there's something new and unexpected arising that will knock you down a notch or two. But don't be discouraged. It happens to all of us. And which is why I enjoy investing in the stock market :-)
There are naturally some common-sense guidelines. Be considerate to others - I am inspired by the phrase "do unto others as you would like them to unto you". Bear in mind there are many silent visitors and readers too, besides those chatting. As I prefer to encourage as many participants to join and share views, I prefer each participant to try to make their point with fewer carefully considered paragraph/entry, than a dozen one-liners by a single person to make a point. Naturally, this is not a place to advertise your products nor spam, so, any such activities are highly discouraged. And naturally (and this applies only to just one person so far and not representative of everyone else that I have chatted with), use of inappropriate languages, personal attacks, putting words into another person's mouth, name calling, unsubstantiated accusations, lunatic behaviour, etc. will not be tolerated here. :-)
Otherwise, I wish you all the best, and Welcome to my chatboxes. Look forward to chatting with you!
Cheers,
Seng.
I have purposely created 2 distinct chatboxes similar to investssmart. The top one is intended for fundamental and the more serious discussions. The lower box is intended for technical and other discussions.
If you're new, then, by fundamentals, I mean discussions on Intrinsic Values of the underlying business and related factors. For a better understanding, please see my recent article here (http://fusioninvestor.blogspot.com/2007/07/fundamental-analysis.html). This can naturally be broad ranging since it can cover macro as well as micro issues, global as well as company issues, earnings, valuations, cashflows, income statement, balance sheet, etc. in the past, current, future, short term, medium term, long term.
By technical and other discussions, it can be discussions on historical price charts and volume, support, resistance, moving averages, technical indicators, etc. In other words, the usual TA discussions. Others can be anything relevant to investing, such as psychological, emotional control, money management, etc.
But I won't hold the users strictly to the above. In practice, I noticed users prefer to choose one chatbox, and then, chat there. It is certainly more convenient. But I believe users also have certain preferred styles - either FA preference, or TA preference. If it's the former, you may wish to chat on the Top Box, if it's the latter, try the lower box. For me, I hope to just chat at the top box after things are more settled.
I would also like to mention that there are some readers here who unfortunately, due to their full time work, is unable to participate in the cbox during trading / working hours. Instead, they either review the top box history, or participate after hours. It would be greatly appreciated if the top box is reserved for the more serious comments, and the chatting at the box below.
I would like to share with you a few ideals for the chatboxes. Whether this is achieved or not will depend largely on the community using/residing on the chatboxes, so, it really depends on "the collective us" to make it happen. The analogy I would use is your own community - whilst having a nearby police department helps, it does not guarantee the ideal neighbourhood. To have that, we still need every neighbour's contribution and a collective sense of responsibility to make sure that the community we live in is indeed a better place to live in. I sincerely believe this analogy applies to both here, as well as any other chatboxes.
My ideals for the chatboxes are as follows:
- a place where both novices and experienced investors find it useful, relevant, supportive towards their general investing and trading experience.
- a place where second and additional considered opinions from other participants on certain stocks can be obtained, without fear or favor.
- a place where important business news, analyst and other reports affecting the stocks are shared freely, whether it is just recent earnings results, new stock analyst calls, new major business contracts secured, etc.
- a place to request for further analysis or comments by me or more experienced investors (request subject to availability of time, which is limited).
- a place where we can hopefully, at a glance at both chatboxes, easily see the views of both investors and traders alike, and form a more "fusion" / rational perspective.
- a place where regardless of investing skill, knowledge or experience or any other stereotypes, everyone enjoys being there because of the caring, respect and consideration they receive, and they feel they can grow and proper in their investing skills.
- in short, a place where we are all happy to be at. My wish is that you will find this a place where you find yourself continually learning new and relevant things, because the markets are incredibly flexible. In my experience, everytime you think you've figured the markets out, there's something new and unexpected arising that will knock you down a notch or two. But don't be discouraged. It happens to all of us. And which is why I enjoy investing in the stock market :-)
There are naturally some common-sense guidelines. Be considerate to others - I am inspired by the phrase "do unto others as you would like them to unto you". Bear in mind there are many silent visitors and readers too, besides those chatting. As I prefer to encourage as many participants to join and share views, I prefer each participant to try to make their point with fewer carefully considered paragraph/entry, than a dozen one-liners by a single person to make a point. Naturally, this is not a place to advertise your products nor spam, so, any such activities are highly discouraged. And naturally (and this applies only to just one person so far and not representative of everyone else that I have chatted with), use of inappropriate languages, personal attacks, putting words into another person's mouth, name calling, unsubstantiated accusations, lunatic behaviour, etc. will not be tolerated here. :-)
Otherwise, I wish you all the best, and Welcome to my chatboxes. Look forward to chatting with you!
Cheers,
Seng.
Sunday, August 5, 2007
Imposter: Commentary
At the lower unprotected chatbox at investssmart (http://investssmart.blogspot.com/), an imposter, on Aug 5, 12.01 PM, who called himself "newbie" made the following remark:
"newbie: ha ha, seng called for buy on dip, dow down 281 points, still buy on dip ? ha ha hold & die ?now we see how good this tai chek kong seng is"
I would like to take the opportunity to mention a few cautionary remarks:
1. Don't automatically buy just because market has dipped.
It may be counter-intuitive, but the market is not the same thing as the stock. One comprises of thousands of stocks, the other a single stock. A good investor is a discerning investor, and will not buy every Tom, Dick and Harry. There are also many other reasons why (e.g. are you trying to catch a falling knife?), and it is definitely outside the scope of this article.
2. A market dip doesn't guarantee buying.
It can present buying opportunities, and it's just that. There is no guarantee that for the specific stock you are eyeing, it will reach your target buy price. It should also be obvious that there are some stocks that goes up when market goes down, and vice versa.
3. Other things equal, I prefer to buy superior businesess than the stock market.
It's easier to sleep at night, owning sound businesses, than, worrying every day what the index is going to do. You can also choose when to do short-term trading and when not to do so, as your long-term investment does the job for you. In general, I prefer not to do shorter-term trading during uncertain periods.
4. Never blindly buy even if I said I am buying.
Why? Because you are a unique individual. Your investment goals, your risk tolerance, your own personal circumstances and investment capital, your investing experience, your investing skills, your ability to monitor the market, your own financial needs are very likely (if not almost certain) to be materially different than mine.
For example, I have mentioned before that I am very satisfied if my long-term portfolio can earn double F.D. rates especially over the rest of my investing lifetime. Why? Because I am retired, I have done my analysis and calculations and have thought through my own circumstances over a very long period of time before and after I retired and have decided that achieving that goal would satisfy me very well. But 7.4% p.a. might be too low (or too high) and unsuitable for you. That's okay - we are all unique.
Others also said my investing + trading style is probably unique, and impossible to replicate. Maybe true. E.g. you may be aware recently, I followed kiddy's recommendation to buy COMMERZ-CB at 0.275 on 16 July (2+ weeks ago). COMMERZ-CB just expired last Friday, at 25.8 sen. If you had blindly followed me or kiddy, you may have lost money. In the chatbox, I mentioned it is close to gambling (and not investing).
My point in mentioning COMMERZ-CB is to illustrate the point that we are all unique individuals, with different abilities, experience, risk tolerance, objectives, etc. that blindly following a Buy / Sell call can give different results ... In my case, I very luckily made money. Why? Because between 16 to 27 July, I had done a further 7 transactions, to lower my average cost down from 27.5 sen to 24.5 sen (or 24.7 sen with brokerage). But it was pure luck and that is another story.
My point is that if you had followed kiddy or me blindly when I mentioned that I am buying, and left it at that, there's always the chance that you could lose money. Instead, whenever I mention that I am buying, always use your own judgement and assess for yourself whether to follow me or not. Treat this as merely an idea for your own individual follow-up research. And make your own decisions. Don't blindly follow me. (and I certainly didn't blindly follow kiddy, and would never consider blaming him if I had lost money because I know at the end of the day, it's my decision).
5. Don't believe others when they say Seng said Buy (or Buy on Dip tomorrow).
Hopefully, after you've read 1 to 4, you can see how the imposter misrepresented me. You may ask why he/she would want to misrepresent me.
6. Please don't call me "sifu" or "xifu" or "tai chek kong" or "Ah Seng Kor" :-)
Just Seng will be fine. Thanks! :-)
7. I only chat at the upper chatbox in investssmart where it requires registration.
For the record, I have yet to chat at the lower box, although I have noticed from time to time that a chatter pretending to be me appearing there...
8. For the record, I am not the slightest interested in proving how good (or how bad) I am!
That is not the purpose I blog and chat at investssmart chatbox, and nowhere near the list of priorities in my life. Definitely not my mission in life :-)
9. My advice to the imposter
First, thank-you for your comment. It has given me an opportunity to clarify my thoughts on the above topic, and hopefully to the readers here.
Second, consider using your own unique name, instead of pretending to be "newbie". It is unfair to newbie and everyone else who read the blog. Everyone who chats there regularly can see that you are an imposter.
Thirdly, reflect on Albert Einstein's quote below:
"Try not to become a man of success, but rather try to become a man of value"
If you don't have your own investment blog, why don't you create one? IF your life mission is to show the world how good you are, then, use the blog as that vehicle. Hopefully, this is not your life mission.
On the other hand, if you do already have a successful blog and it is your life mission, then, why not promote your blog constructively?. No need to misrepresent someone or cause destructiveness to another person's blog such as investssmart chatboxes. In the long run, everybody will be better off.
As Einstein says, aim to be a man of value.
Good luck in your future endeavours.
Disclaimer: As usual, always use your own judgement and invest (buy, hold, sell) at your own risks.
"newbie: ha ha, seng called for buy on dip, dow down 281 points, still buy on dip ? ha ha hold & die ?now we see how good this tai chek kong seng is"
I would like to take the opportunity to mention a few cautionary remarks:
1. Don't automatically buy just because market has dipped.
It may be counter-intuitive, but the market is not the same thing as the stock. One comprises of thousands of stocks, the other a single stock. A good investor is a discerning investor, and will not buy every Tom, Dick and Harry. There are also many other reasons why (e.g. are you trying to catch a falling knife?), and it is definitely outside the scope of this article.
2. A market dip doesn't guarantee buying.
It can present buying opportunities, and it's just that. There is no guarantee that for the specific stock you are eyeing, it will reach your target buy price. It should also be obvious that there are some stocks that goes up when market goes down, and vice versa.
3. Other things equal, I prefer to buy superior businesess than the stock market.
It's easier to sleep at night, owning sound businesses, than, worrying every day what the index is going to do. You can also choose when to do short-term trading and when not to do so, as your long-term investment does the job for you. In general, I prefer not to do shorter-term trading during uncertain periods.
4. Never blindly buy even if I said I am buying.
Why? Because you are a unique individual. Your investment goals, your risk tolerance, your own personal circumstances and investment capital, your investing experience, your investing skills, your ability to monitor the market, your own financial needs are very likely (if not almost certain) to be materially different than mine.
For example, I have mentioned before that I am very satisfied if my long-term portfolio can earn double F.D. rates especially over the rest of my investing lifetime. Why? Because I am retired, I have done my analysis and calculations and have thought through my own circumstances over a very long period of time before and after I retired and have decided that achieving that goal would satisfy me very well. But 7.4% p.a. might be too low (or too high) and unsuitable for you. That's okay - we are all unique.
Others also said my investing + trading style is probably unique, and impossible to replicate. Maybe true. E.g. you may be aware recently, I followed kiddy's recommendation to buy COMMERZ-CB at 0.275 on 16 July (2+ weeks ago). COMMERZ-CB just expired last Friday, at 25.8 sen. If you had blindly followed me or kiddy, you may have lost money. In the chatbox, I mentioned it is close to gambling (and not investing).
My point in mentioning COMMERZ-CB is to illustrate the point that we are all unique individuals, with different abilities, experience, risk tolerance, objectives, etc. that blindly following a Buy / Sell call can give different results ... In my case, I very luckily made money. Why? Because between 16 to 27 July, I had done a further 7 transactions, to lower my average cost down from 27.5 sen to 24.5 sen (or 24.7 sen with brokerage). But it was pure luck and that is another story.
My point is that if you had followed kiddy or me blindly when I mentioned that I am buying, and left it at that, there's always the chance that you could lose money. Instead, whenever I mention that I am buying, always use your own judgement and assess for yourself whether to follow me or not. Treat this as merely an idea for your own individual follow-up research. And make your own decisions. Don't blindly follow me. (and I certainly didn't blindly follow kiddy, and would never consider blaming him if I had lost money because I know at the end of the day, it's my decision).
5. Don't believe others when they say Seng said Buy (or Buy on Dip tomorrow).
Hopefully, after you've read 1 to 4, you can see how the imposter misrepresented me. You may ask why he/she would want to misrepresent me.
6. Please don't call me "sifu" or "xifu" or "tai chek kong" or "Ah Seng Kor" :-)
Just Seng will be fine. Thanks! :-)
7. I only chat at the upper chatbox in investssmart where it requires registration.
For the record, I have yet to chat at the lower box, although I have noticed from time to time that a chatter pretending to be me appearing there...
8. For the record, I am not the slightest interested in proving how good (or how bad) I am!
That is not the purpose I blog and chat at investssmart chatbox, and nowhere near the list of priorities in my life. Definitely not my mission in life :-)
9. My advice to the imposter
First, thank-you for your comment. It has given me an opportunity to clarify my thoughts on the above topic, and hopefully to the readers here.
Second, consider using your own unique name, instead of pretending to be "newbie". It is unfair to newbie and everyone else who read the blog. Everyone who chats there regularly can see that you are an imposter.
Thirdly, reflect on Albert Einstein's quote below:
"Try not to become a man of success, but rather try to become a man of value"
If you don't have your own investment blog, why don't you create one? IF your life mission is to show the world how good you are, then, use the blog as that vehicle. Hopefully, this is not your life mission.
On the other hand, if you do already have a successful blog and it is your life mission, then, why not promote your blog constructively?. No need to misrepresent someone or cause destructiveness to another person's blog such as investssmart chatboxes. In the long run, everybody will be better off.
As Einstein says, aim to be a man of value.
Good luck in your future endeavours.
Disclaimer: As usual, always use your own judgement and invest (buy, hold, sell) at your own risks.
Tuesday, July 31, 2007
RAMUNIA-LA, Asset Allocation, Diversification
From a reader "Lex",
"Hi Seng, I came across Investssmart chatroom and your blog accidentally early this year, ...
I am new in stock market invest and started to trade around end of year 2005. I know nuts about FA and TA. But can understand certain accounting term like NAV or NTA. I invest by buying low and hold (with certain percentage of stop loss) then sell once the price move up around 15% ...
Currently, I holding ... Ramunia LA @ RM1.159 and Ramunia WA @ RM0.855 which I slowly accumulated starting early this month. Of course the reason I start to invest in Ramunia is after go through your blog on Ramunia. I also agree and believe that the future of global oil and gas sector is very promising and got great potential that crude oil price will hit US$100 per barrel.
I still have around xxx capital set aside for share investment, and I plan to use all of it to invest in either Ramunia LA or WA for short term and long term.
Are you able to advise is it wise to do so? As I don't have time to monitor a few counters and so far each time I invest, I bought 1 or the most 2 counters only. Thanks."
________
Dear Lex,
Thanks for your email. I hope you won't mind me replying here, as it may be useful to the other readers with similar questions as you are. I have taken the liberty to remove any data that might identify you, as well as the more sensitive numbers relating to your actual stock and cash holdings. My thoughts follows. Please treat these as merely second opinion. At the end of the day, I am not a licensed investment advisor, I do not charge any fees, and it is your hard-earned money which is at risk.
Ramunia-LA vs Ramunia-WA
1. At the time of writing, Ramunia closed (prior day) at $1.42, Ramunia-LA $1.10, Ramunia-WA $0.865. At these prices, I still prefer the LA best, and would avoid both the WA and the mother share.
2. The reasons I would avoid the mother share is because come Sep 2007 and 20 Dec 2007, I expect the mother share price to fall as a result of the planned share dilution.
3. The reasons I would avoid the WA is because I expect the WA price to track mother reasonably closely. If the mother price falls, the WA should fall also. Worse, since the WA provides gearing, I expect the WA to fall proportionately larger than the mother. If I'm not buying the mother, I am certainly not buying the WA.
4. It may be counter-intuitive as to why when 20 Dec 2007 comes, both mother and WA falls but LA rises. The reason is simply because the rules of the game says that 1 LA stock gets to convert into 1 mother share, and for all intent and purpose, 1 LA stock is equivalent to 1 mother share comes 20 Dec 2007. As the LA price is significantly below current mother price, I expect the LA price to go up come 20 Dec 2007.
5. I would consider disposing some/all of the WA during strength before the planned September dilution.
6. There may be a smaller outside chance that the mother share might rise after the 20 Dec 07 dilution process completes causing the WA to rise proportionately faster than mother. That I cannot fully discount either as I do not have a reliable crystal ball into the future. Notwitstanding this, I would still prefer the LA, since in my opinion, the potential reward does not appear to fully offset the potential risk.
Asset Allocation
You mentioned you are planning to use all (100%) of your capital to just hold 1 (or 2) stocks. There are 2 separate issues here: 1. Asset Allocation (100%% invested in stocks), and 2. Diversification (1 or 2 stocks).
For the first part, I'm afraid I don't know you well enough to know whether you are still working, whether you expect to be a net saver over the next 6 or 12 months say, your savings rate or access to other sources of savings, your liabilities / planned expenditure, etc.
But assuming you don't plan to increase your capital, then, 100% of capital into stocks is not prudent. Whilst the market is bullish right now, noone really knows when the party will end. Especially if you do not have a history to time the market successfully.
In the Intelligent Investor book, Graham advocates a 50/50 asset allocation. In other words, if you have $100,000 to invest, consider investing $50,000 into stocks and the other half into bonds (or for practical purposes, fixed deposits and cash). Especially since you don't have time to monitor the market.
Under this approach, the defensive (or busy) investor may choose to review his portfolio say on weekends or every fortnight, and updates the % invested in shares.
If after a period of time, the % invested in shares has risen to say $60,000 at the next review date then, the total portfolio is now $110,000 (= $50,000 cash + $60,000 stock). The stock % is now 60/110 = 54.5% which exceeded 50%. The investor could consider rebalancing to 50/50 by selling approximately 4.5% x 110,000 = 4,950 or say $5k the following week. This would then result in stocks of $55k and cash of $55k, or roughly 50/50.
Conversely, if the % invested in shares fell to say $40,000 at the next review date, then, the total portfolio is $90,000 (= $50,000 cash + $40,000 stock). The cash % is now 50/90 = 55.6%. The investor could consider rebalancing to 50/50 by buying approximately 5.6% x 90,000 = $5k the following week. This would then result in stocks of $45k and cash of $45k, or roughly 50/50.
Of course, this is not the most optimal strategy to maximize returns. But Graham is of the view that it forces the investor to buy when prices are depressed, and to sell some when prices goes up, thereby, doing the right thing not to get a poor investment result.
The 50/50 approach may be tailored depending on your risk apetite and individual circumstances and preferences. E.g. if you expect to have say $10,000 worth of future savings coming in over the next 6 months that you plan to commit into stocks, then, you might start to consider this as part of your cash holdings in the above calculations. In other words, effectively, you have tilted towards $55k stock /$45k cash (since actual cash is only $45k and exclude the $10k cash which has not yet come in), or 55% stock, 45% cash allocation.
You may also choose not to act when the stock % is only a small variation from your 50% target, since the amount to rebalance may become too small.
You may also vary the % invested in stocks (from 50%) to another figure such as 55% or 60% especially when market prices has fallen and you are really bullish about the stock market in the future. However, this is potentially riskier since it is inherently difficult to predict future market movement, and more of your wealth is at risk should your assessment turned out to be wrong.
Diversification
You mentioned you would like to hold just 1 (or 2) stocks.
My general advise is to not to this, even if Warren Buffett himself have personally recommended a stock to me (which he won't).
Why? Because there are no guarantees in the stock market. Despite the best research today, noone can reliably predict the future, and that includes what is going to happen to the company and the stock price during the investment period. Owning a single company is not prudent. One of Buffett's famous quote (and I am paraphrasing him, in a similar context of employing leverage) is that even if there is a 99% chance of enhanced profits, and just a small 1% chance of having a terrible result, he would not take that risk. I think the same principle applies here, when it comes to being 100% invested (instead of 50/50 suggested above).
Perhaps an exception could be considered if the stock is a closed-end fund such as I-Capital, or a carefully selected mutual fund outside the stock market, since the funds in theory holds a diversified group of stocks. For the former, I would consider spreading my buys across lower prices if I am considering entry. For the latter, you need to consult a professional investment adviser.
If you still want to select stocks yourself, consider diversifying into 5-10 stocks at the very least. Apparently, Graham recommends 10 to 30, even though he himself holds nearly 100+ stocks. If you have $100k of capital, and plan to invest $50,000 into stocks, 5 stocks means roughly $10,000 investment each. The actual amount invested can be varied slightly around these rough yardsticks, to make it round lots, or to reflect your varying degree of confidence in the stock.
Other Comments
As this is already a lengthy reply, I think I will leave it at that, even though I have some relatively minor difference in opinion on stop loss when applied to sound, fundamental stocks, or on your sell targets.
Disclaimer: As usual, please treat this as merely second opinions. Always use your own judgement, consult a professional if you are still unclear, and invest (buy, hold, sell) at your own risks since at the end of the day, it is your own money.
"Hi Seng, I came across Investssmart chatroom and your blog accidentally early this year, ...
I am new in stock market invest and started to trade around end of year 2005. I know nuts about FA and TA. But can understand certain accounting term like NAV or NTA. I invest by buying low and hold (with certain percentage of stop loss) then sell once the price move up around 15% ...
Currently, I holding ... Ramunia LA @ RM1.159 and Ramunia WA @ RM0.855 which I slowly accumulated starting early this month. Of course the reason I start to invest in Ramunia is after go through your blog on Ramunia. I also agree and believe that the future of global oil and gas sector is very promising and got great potential that crude oil price will hit US$100 per barrel.
I still have around xxx capital set aside for share investment, and I plan to use all of it to invest in either Ramunia LA or WA for short term and long term.
Are you able to advise is it wise to do so? As I don't have time to monitor a few counters and so far each time I invest, I bought 1 or the most 2 counters only. Thanks."
________
Dear Lex,
Thanks for your email. I hope you won't mind me replying here, as it may be useful to the other readers with similar questions as you are. I have taken the liberty to remove any data that might identify you, as well as the more sensitive numbers relating to your actual stock and cash holdings. My thoughts follows. Please treat these as merely second opinion. At the end of the day, I am not a licensed investment advisor, I do not charge any fees, and it is your hard-earned money which is at risk.
Ramunia-LA vs Ramunia-WA
1. At the time of writing, Ramunia closed (prior day) at $1.42, Ramunia-LA $1.10, Ramunia-WA $0.865. At these prices, I still prefer the LA best, and would avoid both the WA and the mother share.
2. The reasons I would avoid the mother share is because come Sep 2007 and 20 Dec 2007, I expect the mother share price to fall as a result of the planned share dilution.
3. The reasons I would avoid the WA is because I expect the WA price to track mother reasonably closely. If the mother price falls, the WA should fall also. Worse, since the WA provides gearing, I expect the WA to fall proportionately larger than the mother. If I'm not buying the mother, I am certainly not buying the WA.
4. It may be counter-intuitive as to why when 20 Dec 2007 comes, both mother and WA falls but LA rises. The reason is simply because the rules of the game says that 1 LA stock gets to convert into 1 mother share, and for all intent and purpose, 1 LA stock is equivalent to 1 mother share comes 20 Dec 2007. As the LA price is significantly below current mother price, I expect the LA price to go up come 20 Dec 2007.
5. I would consider disposing some/all of the WA during strength before the planned September dilution.
6. There may be a smaller outside chance that the mother share might rise after the 20 Dec 07 dilution process completes causing the WA to rise proportionately faster than mother. That I cannot fully discount either as I do not have a reliable crystal ball into the future. Notwitstanding this, I would still prefer the LA, since in my opinion, the potential reward does not appear to fully offset the potential risk.
Asset Allocation
You mentioned you are planning to use all (100%) of your capital to just hold 1 (or 2) stocks. There are 2 separate issues here: 1. Asset Allocation (100%% invested in stocks), and 2. Diversification (1 or 2 stocks).
For the first part, I'm afraid I don't know you well enough to know whether you are still working, whether you expect to be a net saver over the next 6 or 12 months say, your savings rate or access to other sources of savings, your liabilities / planned expenditure, etc.
But assuming you don't plan to increase your capital, then, 100% of capital into stocks is not prudent. Whilst the market is bullish right now, noone really knows when the party will end. Especially if you do not have a history to time the market successfully.
In the Intelligent Investor book, Graham advocates a 50/50 asset allocation. In other words, if you have $100,000 to invest, consider investing $50,000 into stocks and the other half into bonds (or for practical purposes, fixed deposits and cash). Especially since you don't have time to monitor the market.
Under this approach, the defensive (or busy) investor may choose to review his portfolio say on weekends or every fortnight, and updates the % invested in shares.
If after a period of time, the % invested in shares has risen to say $60,000 at the next review date then, the total portfolio is now $110,000 (= $50,000 cash + $60,000 stock). The stock % is now 60/110 = 54.5% which exceeded 50%. The investor could consider rebalancing to 50/50 by selling approximately 4.5% x 110,000 = 4,950 or say $5k the following week. This would then result in stocks of $55k and cash of $55k, or roughly 50/50.
Conversely, if the % invested in shares fell to say $40,000 at the next review date, then, the total portfolio is $90,000 (= $50,000 cash + $40,000 stock). The cash % is now 50/90 = 55.6%. The investor could consider rebalancing to 50/50 by buying approximately 5.6% x 90,000 = $5k the following week. This would then result in stocks of $45k and cash of $45k, or roughly 50/50.
Of course, this is not the most optimal strategy to maximize returns. But Graham is of the view that it forces the investor to buy when prices are depressed, and to sell some when prices goes up, thereby, doing the right thing not to get a poor investment result.
The 50/50 approach may be tailored depending on your risk apetite and individual circumstances and preferences. E.g. if you expect to have say $10,000 worth of future savings coming in over the next 6 months that you plan to commit into stocks, then, you might start to consider this as part of your cash holdings in the above calculations. In other words, effectively, you have tilted towards $55k stock /$45k cash (since actual cash is only $45k and exclude the $10k cash which has not yet come in), or 55% stock, 45% cash allocation.
You may also choose not to act when the stock % is only a small variation from your 50% target, since the amount to rebalance may become too small.
You may also vary the % invested in stocks (from 50%) to another figure such as 55% or 60% especially when market prices has fallen and you are really bullish about the stock market in the future. However, this is potentially riskier since it is inherently difficult to predict future market movement, and more of your wealth is at risk should your assessment turned out to be wrong.
Diversification
You mentioned you would like to hold just 1 (or 2) stocks.
My general advise is to not to this, even if Warren Buffett himself have personally recommended a stock to me (which he won't).
Why? Because there are no guarantees in the stock market. Despite the best research today, noone can reliably predict the future, and that includes what is going to happen to the company and the stock price during the investment period. Owning a single company is not prudent. One of Buffett's famous quote (and I am paraphrasing him, in a similar context of employing leverage) is that even if there is a 99% chance of enhanced profits, and just a small 1% chance of having a terrible result, he would not take that risk. I think the same principle applies here, when it comes to being 100% invested (instead of 50/50 suggested above).
Perhaps an exception could be considered if the stock is a closed-end fund such as I-Capital, or a carefully selected mutual fund outside the stock market, since the funds in theory holds a diversified group of stocks. For the former, I would consider spreading my buys across lower prices if I am considering entry. For the latter, you need to consult a professional investment adviser.
If you still want to select stocks yourself, consider diversifying into 5-10 stocks at the very least. Apparently, Graham recommends 10 to 30, even though he himself holds nearly 100+ stocks. If you have $100k of capital, and plan to invest $50,000 into stocks, 5 stocks means roughly $10,000 investment each. The actual amount invested can be varied slightly around these rough yardsticks, to make it round lots, or to reflect your varying degree of confidence in the stock.
Other Comments
As this is already a lengthy reply, I think I will leave it at that, even though I have some relatively minor difference in opinion on stop loss when applied to sound, fundamental stocks, or on your sell targets.
Disclaimer: As usual, please treat this as merely second opinions. Always use your own judgement, consult a professional if you are still unclear, and invest (buy, hold, sell) at your own risks since at the end of the day, it is your own money.
Friday, July 13, 2007
EUROSP - Business P/E
From "starter" ...
"Seng, how you can get a PE of 3.5 for EUROSP? Correct me if I'm wrong but I think the PE should be around 8 base on the current price."
Dear starter,
Here are some simple facts about EUROSP:
1. Last night, EUROSP closed at $1.16. At this price, the stock is capitalized at $46.4M.
2. The TTM (Trailing Twelve Month) net earnings (PAT) is $7.2M, or 18.1 sen per share.
3. At the last Balance Sheet date (28 Feb 2007), the stock has a Net Cash of $22.2M, or 56 sen per share and nil borrowings.
4. This implies that EUROSP's underlying business is available for sale for only $46.4M - $22.2M = $24.2M
5. So, the Business P/E is 24.2M / 7.2M = 3.4, which I've simply rounded up to 3.5. Compared to its listed competitors, I believe EUROSP is trading at a very undemanding multiple.
6. Superficially, if one doesn't put any value on its $22.2M cash hoard, then, you could say the P/E is 46.4 / 7.2 = 6.4 times.
7. Superficially, if you prefer to use outdated 2006 Financial Year earnings, then, the P/E is 46.4 / 5.8 = 8 times. But to me, this is not the right way to value a business - and is potentially dangerous when applied to other stocks - since it gives no credit to recent earnings growth (EUROSP Financial Year ends 31 May), as well as not giving credit to EUROSP's strong cashflow and its large cash hoard.
8. If you think such a business, in the current environment, deserves a P/E multiple of 7, then, the Target Price could be 18.1 sen x 7 + 56 sen = $1.83, say between $1.50 to $2. Whether EUROSP actually reaches this price or not will depend to a large extent on the market.
For more details, you may refer to my previous writing on EUROSP here - http://fusioninvestor.blogspot.com/2007/04/eurosp-business-proposition.html
Cheers,
Seng.
Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risks.
"Seng, how you can get a PE of 3.5 for EUROSP? Correct me if I'm wrong but I think the PE should be around 8 base on the current price."
Dear starter,
Here are some simple facts about EUROSP:
1. Last night, EUROSP closed at $1.16. At this price, the stock is capitalized at $46.4M.
2. The TTM (Trailing Twelve Month) net earnings (PAT) is $7.2M, or 18.1 sen per share.
3. At the last Balance Sheet date (28 Feb 2007), the stock has a Net Cash of $22.2M, or 56 sen per share and nil borrowings.
4. This implies that EUROSP's underlying business is available for sale for only $46.4M - $22.2M = $24.2M
5. So, the Business P/E is 24.2M / 7.2M = 3.4, which I've simply rounded up to 3.5. Compared to its listed competitors, I believe EUROSP is trading at a very undemanding multiple.
6. Superficially, if one doesn't put any value on its $22.2M cash hoard, then, you could say the P/E is 46.4 / 7.2 = 6.4 times.
7. Superficially, if you prefer to use outdated 2006 Financial Year earnings, then, the P/E is 46.4 / 5.8 = 8 times. But to me, this is not the right way to value a business - and is potentially dangerous when applied to other stocks - since it gives no credit to recent earnings growth (EUROSP Financial Year ends 31 May), as well as not giving credit to EUROSP's strong cashflow and its large cash hoard.
8. If you think such a business, in the current environment, deserves a P/E multiple of 7, then, the Target Price could be 18.1 sen x 7 + 56 sen = $1.83, say between $1.50 to $2. Whether EUROSP actually reaches this price or not will depend to a large extent on the market.
For more details, you may refer to my previous writing on EUROSP here - http://fusioninvestor.blogspot.com/2007/04/eurosp-business-proposition.html
Cheers,
Seng.
Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risks.
Thursday, July 5, 2007
RAMUNIA Shares and Analyst Recommendations
Further to my article on RAMUNIA-LA, more than one reader mentioned the concern on the potential dilution of shares for RAMUNIA. Also, readers have requested for more analyst information. I will attempt to cover both topics below:
Potential Share Dilution
I have summarized the potential dilution with time frame and other information for easy reference.
A few points worth noting:
1. The above prices are at lunch time today (5 Jul 2007). Prices will vary over time.
2. The first line - mother share of 285m - includes the 45.5m private placement shares recently completed.
3. There are a couple of new share issues this month and in Sep 2007 as noted above (Line 2 & 3). Whilst Ramunia cash coffers are going to be increased by approximately $48m and $68m respectively after the placement of these new shares, there will be some dilution effects since the prices are done at below market price. The new theoretical price (assuming all things equal) should come out at around $1.43, or say 3 sen below current market price as a rough yardstick.
4. The next dilution will occur 20 Dec 2007 from the LA stock. It is important to note that this is not a new issue, but conversion of existing LA stock into mother shares. As such, it is not a true "new information", but something that has already known to the market for a long time (even though it may appear new to some of us). The LA stock also has a certain price and a certain market capitalization. To assume extreme dilution (with nil LA stock value) would be equivalent to "magic", that come 20 Dec 2007, total market capitalization can suddenly dissappear into thin air. To me, that is not rational. So, the theoretical diluted price, assuming lunch time prices is $1.31, or say 15 sen below current market price. This still represents a safety margin of 1.31/1.19 - 1 = 10% approximately gross of brokerage expenses, based on lunch time prices. Note the safety margin has decreased since my last article, since I didn't know about point 3 above at the time. Still, the safety margin does its function, which is to act as a buffer in case I was wrong ... :-)
5. The next 2 dilution will occur on 20 Dec 2009 and 2014, both events are relatively far away.
Approaching 20 Dec 2007
It is worthwhile to ponder a little what will happen to both share prices as we approach closer to 20 Dec 2007. 20 Dec is a Thursday, for some people, around the start of Christmas holidays. Some of you may be wondering what sort of prices should the LA and the mother stock trades on the day before (Wed), or even a few days before then ...
1. Assuming everything equal (and real life is never equal), then, prior to conversion, presumably some mother shareholders would be nervous that prices would fall, and start selling out. Maybe mother price falls a little from $1.46 to $1.45, 1.44, 1.43, etc. It might not happen yet, but as the conversion date gets closer and closer (say end of this year, in addition to this month and Sep dilution), then, we may start to see the effects.
2. Around the same time in 1. above or earlier, the large gap between LA and mother share price induce more and more buyers to buy more LA, driving the LA share price up, from $1.19 to $1.20, 1.21, 1.22 ... reducing the gap... Again, this might not happen much yet, and I suspect we'll see more activity happening as we get closer to the conversion date.
3. Come the day before conversion, I guess there should still be a gap, but smaller than what we see today ($1.46-$1.19 = 27 sen). It's hard to put a precise figure. Immediately after conversion, my expectation is that the reference price for mother share gaps down, and LA cease trading. Holders of LA can either sell out earlier when LA prices rise in early Dec, or wait for conversion to complete, and then sell. I suspect there may be advantages to wait after conversion, since the next conversion is a long time away - 2 years - and the best of Ramunia's future earnings are still to come. I.e. I expect after 20 Dec, the market will be relieved that the conversion is over, and then bid the prices up back to old levels to offset the earlier effects stated in 1. above.
Of course, this assumes everything else is equal, and real life is almost guaranteed to be unequal. So, take the above with a big pinch of salt.
Analyst Recommendations
First of all, thanks to everyone who wrote in and provided me with analyst reports. I have done a compilation of 5 analyst reports below.
A few notes:
1. Interestingly, the analysts actually have differing views on what should be the appropriate number of shares outstanding to use to calculate P/E! Target Prices are usually 12 months, but the number of shares outstanding seem to reflect different time-frames!
2. The latest report is by S&P, with a TP of $1.6. S&P actually assumes 662m shares i.e. exclude the WA due in 2014, as it is a long time away. But that would include the PA, which is due in 2009, which is different from other analysts. I suspect the difference is time-frames. But if one has a 12 month time frame, then, it is borderline ...
3. Aseambankers report is 28 June, which is still fairly recent. The TP is $1.80. Aseambankers assume 807m shares outstanding, which exclude PA, but include WA. This approach treats the PA holders under "minority interest", and takes a fully diluted shares at 807m. I can understand this approach too as preference shareholders are assumed to be paid first, and whatever profits left belong to ordinary shareholders. The time frame is definitely after 2014.
4. AmResearch report is dated 5 June, slightly dated. The TP is $1.95. AmResearch assumes nearly 1 billion shares outstanding, i.e. the time frame is after 2014.
5. ZJ Advisory report is dated, on 18 Apr. The TP is $1.41. ZJA does not include ICULS, i.e. only 556m shares. This is probably a weak assumption.
6. OSK report is the oldest, dated 18 Oct. The TP is $1.51, but because it is a very old report, one should not put much weight on it. In fact, RAMUNIA year end is 31 Oct, and so, its estimate of 2006 PAT of $22.8m is actually over-stated. Actual is $16.8m based on Bursa announcement dated 8 Jan 2007, but unaudited. We can expect slightly different results after audit. In fact, even the 2006 PAT differ slightly between the analysts - I suspect the analysts were given different figures after auditing and after company visits. S&P 2006 PAT include minority interest.
So, 5 different reports, with 5 different Target Prices. How do we make sense of this? To me, a few principles:
1. Superficially, all gives target prices which are higher than current LA stock price of $1.19. Superficially, there is comfort in this sense.
2. All 5 analyst predicts much higher PAT for 2007 vs 2006, as well as 2008 vs 2007. What is happening here that is causing all 5 analyst to be so bullish about Ramunia's future prospects? To use the word of one reader, do all 5 analysts believe in "magic"?
3. Point 2 highlights the fact that RAMUNIA is widely regarded as a growth stock by the market. The market is willing to pay a very high trailing P/E. Based on my standardized number of shares outstanding for all 5 analyst of 556m shares (i.e. using a time-frame up to 6 months), the trailing P/E ranges from 37 to 66!
4. One key principle in investing in growth stocks is to be certain of its future growth! This is because if the company fails to deliver the higher earnings, then, the market will not be kind to the stock, and the stock can expect a large price fall. This is definitely a high risk/high return play.
5. The O&G sectors is currently a market darling sector. Make no mistake about it. Even fellow bloggers and investment community are generally bullish about O&G at this point in time. Could they be wrong? Your guess is as good as mine.
6. But if the company delivers the earnings growth, then, the 2007 P/E falls to 14 to 22 range, and the 2008 P/E falls further to 8 to 14 range.
7. So, it all boils down to how reliable are the analyst projections for 2007 and 2008 earnings for Ramunia specifically. In other words, why are the analysts so bullish about Ramunia's future prospects? For this, stay tuned to a future article, if I have the time ... :-)
Disclaimer: The purpose of this article is not to promote RAMUNIA. Please read an earlier article on RAMUNIA-LA for context. I own RAMUNIA-LA, and so, my views may be biased. Always use your own judgement, and invests (buy, hold, sell) at your own risks.
Potential Share Dilution
I have summarized the potential dilution with time frame and other information for easy reference.
A few points worth noting:
1. The above prices are at lunch time today (5 Jul 2007). Prices will vary over time.
2. The first line - mother share of 285m - includes the 45.5m private placement shares recently completed.
3. There are a couple of new share issues this month and in Sep 2007 as noted above (Line 2 & 3). Whilst Ramunia cash coffers are going to be increased by approximately $48m and $68m respectively after the placement of these new shares, there will be some dilution effects since the prices are done at below market price. The new theoretical price (assuming all things equal) should come out at around $1.43, or say 3 sen below current market price as a rough yardstick.
4. The next dilution will occur 20 Dec 2007 from the LA stock. It is important to note that this is not a new issue, but conversion of existing LA stock into mother shares. As such, it is not a true "new information", but something that has already known to the market for a long time (even though it may appear new to some of us). The LA stock also has a certain price and a certain market capitalization. To assume extreme dilution (with nil LA stock value) would be equivalent to "magic", that come 20 Dec 2007, total market capitalization can suddenly dissappear into thin air. To me, that is not rational. So, the theoretical diluted price, assuming lunch time prices is $1.31, or say 15 sen below current market price. This still represents a safety margin of 1.31/1.19 - 1 = 10% approximately gross of brokerage expenses, based on lunch time prices. Note the safety margin has decreased since my last article, since I didn't know about point 3 above at the time. Still, the safety margin does its function, which is to act as a buffer in case I was wrong ... :-)
5. The next 2 dilution will occur on 20 Dec 2009 and 2014, both events are relatively far away.
Approaching 20 Dec 2007
It is worthwhile to ponder a little what will happen to both share prices as we approach closer to 20 Dec 2007. 20 Dec is a Thursday, for some people, around the start of Christmas holidays. Some of you may be wondering what sort of prices should the LA and the mother stock trades on the day before (Wed), or even a few days before then ...
1. Assuming everything equal (and real life is never equal), then, prior to conversion, presumably some mother shareholders would be nervous that prices would fall, and start selling out. Maybe mother price falls a little from $1.46 to $1.45, 1.44, 1.43, etc. It might not happen yet, but as the conversion date gets closer and closer (say end of this year, in addition to this month and Sep dilution), then, we may start to see the effects.
2. Around the same time in 1. above or earlier, the large gap between LA and mother share price induce more and more buyers to buy more LA, driving the LA share price up, from $1.19 to $1.20, 1.21, 1.22 ... reducing the gap... Again, this might not happen much yet, and I suspect we'll see more activity happening as we get closer to the conversion date.
3. Come the day before conversion, I guess there should still be a gap, but smaller than what we see today ($1.46-$1.19 = 27 sen). It's hard to put a precise figure. Immediately after conversion, my expectation is that the reference price for mother share gaps down, and LA cease trading. Holders of LA can either sell out earlier when LA prices rise in early Dec, or wait for conversion to complete, and then sell. I suspect there may be advantages to wait after conversion, since the next conversion is a long time away - 2 years - and the best of Ramunia's future earnings are still to come. I.e. I expect after 20 Dec, the market will be relieved that the conversion is over, and then bid the prices up back to old levels to offset the earlier effects stated in 1. above.
Of course, this assumes everything else is equal, and real life is almost guaranteed to be unequal. So, take the above with a big pinch of salt.
Analyst Recommendations
First of all, thanks to everyone who wrote in and provided me with analyst reports. I have done a compilation of 5 analyst reports below.
A few notes:
1. Interestingly, the analysts actually have differing views on what should be the appropriate number of shares outstanding to use to calculate P/E! Target Prices are usually 12 months, but the number of shares outstanding seem to reflect different time-frames!
2. The latest report is by S&P, with a TP of $1.6. S&P actually assumes 662m shares i.e. exclude the WA due in 2014, as it is a long time away. But that would include the PA, which is due in 2009, which is different from other analysts. I suspect the difference is time-frames. But if one has a 12 month time frame, then, it is borderline ...
3. Aseambankers report is 28 June, which is still fairly recent. The TP is $1.80. Aseambankers assume 807m shares outstanding, which exclude PA, but include WA. This approach treats the PA holders under "minority interest", and takes a fully diluted shares at 807m. I can understand this approach too as preference shareholders are assumed to be paid first, and whatever profits left belong to ordinary shareholders. The time frame is definitely after 2014.
4. AmResearch report is dated 5 June, slightly dated. The TP is $1.95. AmResearch assumes nearly 1 billion shares outstanding, i.e. the time frame is after 2014.
5. ZJ Advisory report is dated, on 18 Apr. The TP is $1.41. ZJA does not include ICULS, i.e. only 556m shares. This is probably a weak assumption.
6. OSK report is the oldest, dated 18 Oct. The TP is $1.51, but because it is a very old report, one should not put much weight on it. In fact, RAMUNIA year end is 31 Oct, and so, its estimate of 2006 PAT of $22.8m is actually over-stated. Actual is $16.8m based on Bursa announcement dated 8 Jan 2007, but unaudited. We can expect slightly different results after audit. In fact, even the 2006 PAT differ slightly between the analysts - I suspect the analysts were given different figures after auditing and after company visits. S&P 2006 PAT include minority interest.
So, 5 different reports, with 5 different Target Prices. How do we make sense of this? To me, a few principles:
1. Superficially, all gives target prices which are higher than current LA stock price of $1.19. Superficially, there is comfort in this sense.
2. All 5 analyst predicts much higher PAT for 2007 vs 2006, as well as 2008 vs 2007. What is happening here that is causing all 5 analyst to be so bullish about Ramunia's future prospects? To use the word of one reader, do all 5 analysts believe in "magic"?
3. Point 2 highlights the fact that RAMUNIA is widely regarded as a growth stock by the market. The market is willing to pay a very high trailing P/E. Based on my standardized number of shares outstanding for all 5 analyst of 556m shares (i.e. using a time-frame up to 6 months), the trailing P/E ranges from 37 to 66!
4. One key principle in investing in growth stocks is to be certain of its future growth! This is because if the company fails to deliver the higher earnings, then, the market will not be kind to the stock, and the stock can expect a large price fall. This is definitely a high risk/high return play.
5. The O&G sectors is currently a market darling sector. Make no mistake about it. Even fellow bloggers and investment community are generally bullish about O&G at this point in time. Could they be wrong? Your guess is as good as mine.
6. But if the company delivers the earnings growth, then, the 2007 P/E falls to 14 to 22 range, and the 2008 P/E falls further to 8 to 14 range.
7. So, it all boils down to how reliable are the analyst projections for 2007 and 2008 earnings for Ramunia specifically. In other words, why are the analysts so bullish about Ramunia's future prospects? For this, stay tuned to a future article, if I have the time ... :-)
Disclaimer: The purpose of this article is not to promote RAMUNIA. Please read an earlier article on RAMUNIA-LA for context. I own RAMUNIA-LA, and so, my views may be biased. Always use your own judgement, and invests (buy, hold, sell) at your own risks.
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