Review: The Global Sell Off

I was watching CNBC last night for an update on the US market. It collapsed 2% in the first hour of trade, and finally closing 3% down at the end of the day. I knew today would be a rough day.

Indeed, the STI Opened at 120+ points on the word "Go". I was shocked. Shocked to see my portfolio collapse. Yes collapse. This over "night" collapse is indeed a harder blow compared to last year's correction.

But for those who had bought Raffles Edu, China Hong, Sino Env at my purchase price, i don't think we have anything to worry about. The price should not drop anywhere close to below your purchase price.

This kind of correction may be good for long term investors like you. When was the last time you said "Hey, Sino is too expensive to buy now". Think this is the time to do it. But I don't recommend doing it now. Do it when the future is clearer. Buy closer to the "rock bottom". (Of course i don't think you can ever read the market to daily accuracy. )

But one thing is for sure (IMO), the STI is on its way back to the 2900+ level.

I've never recommended buying warrant but I've done it myself this morning.

I've purchased some insurance. I've bought STI 3000SGAePW70427, as insurance. My trade went thru at 0.19 this morning. This way, at least i've got something to cheer about when the market goes down.

Review: STI

Today, the STI index saw the biggest 1 day drop in a while. The STI index dropped 2.29%. The last time the STI started its month long correction that saw almost 300 points wiped out, the STI closed 3.27% over the previous day.

Today's correction is not isolated. Most international indexes (HongKong, indonesia, Korean, Malaysia, Manila, Japan, Shanghai, ShenZhen, Thailand and Sydney) saw the red, following the USA's Monday poor performance.

This could be one of the tell tale sign of a correction that most are anticipating. Whether this happens or not will depend on whether the US market continues its slide tonight or not.

For those who have not been vested in the market, i recommend against it until the outlook becomes clearer. For those who are already in the market, fasten your seatbelts and be prepared for a bumpy ride. But stay vested in the shares you already hold.

Review: Swiber

Swiber recorded a profit after tax of US$3,922,000. Thats a 55.4% growth on the back of a 288.4% increase in revenue. This translated to a 22.9% profit margin in FY 06, versus a profit margin of 42.0% in FY 05. The board has stated that this reduction in profit margin was "mainly due to chartering of third party derrick crane barges and vessels for the installation jobs in Malaysia".

It is my opinion that this increase in cost (and decrease in margin) is due to Swiber's contract that included their non-core business of EPCIC services. That explains their need to "chartering" 3rd parties for installation jobs.

Hence, I believe this reduction in profit margin is not a sign of weakness.

Full year 06 revenue ammounted to US$66.772 M, 262.9% increase, with a 96.5% increase in profit after tax to $12.140M. With just the Shell contract they recently won expecting to contribute $70.5M to FY07's results, together with contracts with BG exploration worth $33.75 M, we are already looking at a healthy revenue growth of 56.13% in FY07.

"A revenue growth of 56.13% growth expected in FY07, remember, we are only 2 months into 2007."

Challenges for Swiber this year. They have to keep their profit margin up, with new ventures into Brunei for Shell expected to increase their infrastructure support cost. It is now up to Swiber to convert that $140M contract into a healthy profit, with good margin.

Barring unforseen circumstances, I expect Swiber to win several other contracts, as their contract with Shell has really put Swiber up a few levels in its industry. Other large oil companies may now have more confidence in Swiber, and award them with more contracts this year.

Maintain BUY, with target of $1.95

Buy: Swiber

I apologise for the lack of updates for the last few days. CNY and work has been taking a toll on me for my trading job.

I had taken notice on Swiber immediately after Swiber announced their US$146.6 M contract.

Swiber_clinches_record_USD146.6_million_from_Shell_in_Brunei_13Feb2007_.pdf

Told my friend to add it into his watch list (it was already on mine), saw the price increase 20% in Friday, and than up further on Wednesday. Thinking a small correction was coming on Thursday, I saw the price at $1.21 in the morning, and half hour later it was $1.3++. Immediately put my trade for it.

I did my analysis on Wednesday night, that assured me about entering at the stocks price high. I apologise again for informing you all about my trade, but my blog is meant to "teach" my stock pick technique, not for you to mimic my trades.

If you look at the financial statement for the 9m 2006, they only have a 43,196 M revenue. Consistant with the boards expectations, they expect $70M from the Shell contract in FY2007.

Mind you, the company was trading at the range of $0.9 to $1.0, thats the price the market was willing to pay for its current financial performance. However, with this new contract, expected to increase the company's revenue by another 100%, if the company is able to keep its cost down, we could see the company share price double.

"In the medium to long term, share price growth almost always mimic the company's profits growth"


Already, Swiber has already been climbing at a good pace up to that "double" point.

Whats the risk? Swiber needs to keep its cost under control. There is no use of having that $70M contributed on FY2007, but seeing cost increase $70M. However, the company has been showing their ability to keep their financial records strong.

Looking forward to FY 2007, at $1.35 close on 23 Feb 2007, that stock price is still cheap. Although WestComb has set a target of $2.03, I'm not that optimistic. Unless Swiber shows it has the ability to win more of this kind of contracts, the P/E Ratio is definitely going to drop as the share price climbs. Thats why i'm not that optimistic on a $2.00 target, unless more contracts comes its way (which i think its possible)

BUY Swiber, target of $1.90.
Vested on 22 Feb 2007 at $1.30

Updates

China Hong Xing will be announcing their FY06 on the 26th Feb 2007.

Sino-Env will be announcing their results on the 28th Feb 2007.

Stay updated. I'm expecting results that meet, or exceed expectations.

Quick Lesson: Specialisation VS Diversification

Specialisation VS Diversification. Thats the question most investors, traders, whether new or experience, ask.

Anonymous said...
"hi musicwhiz
if u look at BusinessedTimes diversification of over 10 stocks, one of the portfolio has a 300% gain over 5 yrs..."

I'll like to show everybody the insignificant of that return. "300% over 5 years". If you do your calculations, this is what you'll notice for $1 that you invest in that 10 stocks 5 years ago.

• End of Year 1 - $1.25
• End of Year 2 - $1.56
• End of Year 3 - $1.95
• End of Year 4 - $2.44
• End of Year 5 - $3.05

Impressive. Thats slightly over 300% over that 5 years. OR is it? I used 25%PA for that calculation.

"25% PA"

Thats the kind of returns you get in equity unit trusts with good historical returns (ie. Aberdeen Pacific Equity). When you invest in stocks, you'll want to be looking at better returns wouldn't you? Otherwise why would you be in the stock market? Why don't you just buy unit trusts?

"Whats the use of buying shares and achieving returns attained consistently in Unit Trust? Excitement in shares? Shares are not meant to be exciting. Its for investing."

On the other hand, I'll like to bring to your attention to the powers of compounded returns. It can really make your portfolio look really good. Imagine getting 50%PA on your portfolio in shares. It will look something like this.

• End of Year 1 - $1.50
• End of Year 2 - $2.25
• End of Year 3 - $3.375
• End of Year 4 - $5.06
• End of Year 5 - $7.59

When investors diversify, they are trying to spread their eggs into several baskets. A well diversified portfolio would usually mean 15-20 stocks, but it really depends on the amount of money you have. What diversified investors get is a pretty safe annual return that generally mimic the country's stock index. And thats a very mediocre return.

What unit trusts do is just that. They diversify their funds over large number of companies in their target market. The result is the same. Almost consistant annual return that mimic the country's stock index.

"So why don't you just buy Unit Trusts if you want to diversify?"

For specialisation, investors don't like to spread their eggs. Usually, this kind of investors hold a portfolio of 1-10 stocks. This kind of investors will usually get large returns that can range from 2-5 times the general market movement, but tend to be exposed to a lot of volatility and risks. However, this exposed risk can be managed by several precautions like "cut loss of -7 to 8%", which i preach.

Specialised investors generally know more about their companies they hold. They have more time to do research for their companies, and generally are better informed compared to diversified investors who are probably overwhelmed with information, especially during financial statement season.

Here's my take. If you were to diversify your own assets into many shares, its in my opinion that you should just buy into Unit Trusts. The returns for your diversified shares, compared to returns in Unit Trusts will not vary much.

"Buy into Unit Trusts, if you are looking for safe and well diversified investments."

Do note that when you buy unit trusts, its not necessary for you to buy 10 different unit trusts. Unit trusts are already very very well diversified. I recommend for you to own only 3-4 unit trust, with each targeted to different market.

If you are looking into larger returns in excess of 30% PA or even 50% PA, the route you should take is to specialise. Buy a few stocks, and keep track of those companies like a hawk. Every financial release, every contracts won, every movement in its management (Notice i didn't say keep track of the stock charts).

My recommendation for all is not to over diversify in shares, but to specialise in some. This way, you'll be looking at returns similar to the 2nd example above.

Happy Chinese New Year to All!

Hello to all my readers,

Sorry for the lack of updates over Chinese New Year. I was too busy visiting relatives and friends, eating and laughing. But I guess so did you, readers. I saw a large drop in "readership" over CNY. =)

I'll like to wish all a Happy Chinese New Year! And may the bull run continue into the New Chinese Year!

PeHon

Quick Lesson: Cut loss, is that trading or investing, FA or TA?

I've created a controversy with some of my readers by practicing a "cut-loss" at the 7-8% point on my China Farm holding. So is that trading or investing? If the fundamentals of a company is that good, why be shocked at the 7-8% loss in shareprice?

Well, to recap. My China Farm shares were bought at $0.995, and sold at $0.915, for a 8% loss. If i was still holding on to my China Farm shares, I would be looking at a -25% paper loss, which would require a 33% rise to break even.

Emotions have to be taken out of investing. Yes, the ideal state will be to buy a fundamentally sound company and hold on to it through thick and thin. However, I wouldn't think its practical for relatively small investors like me and you (well unless you have a $5,000,000 portfolio, i'm talking about you).

When i was talking about "traders" and "investors", I'm basically talking about "traders" who practice Technical Analysis, who sits infront of a chart to find the pivot point and potential breakout point. "Investors" are fundamental analysts who look at the financial statements and research information to dictate their choise of investments.

Having a cut loss point of 7-8% does not make you a "trader". It can be a capital protection technique for "investors". Like me.

Review: China Farm

Following the fall of 7% from my purchase price of $0.995, I've cut loss at my 7-8% rule that I've always encouraged. Sold my holdings of China Farm at $0.915.

So whats wrong with China Farm? China Farm is still fundamentally strong. The cut loss rule is there to save my (and your) ass.

"Said it before, compounded returns magnifies your losses as well. a 30% loss would require a 42.8% gain before you break even. And 7% gives the share enough room for short term weakness."

Cut loss is even more important for a person like me that uses margin trading.

China Farm is fundamentally strong, but with the impending bear (or already in a bear) market, maybe the time isn't right. Will be monitoring China Farm and the market, and high posibility of reinvesting into China Farm in the near future.

Sold China Farm at $0.915, 13 Feb 2007 1140h

Review: The Bull Overcomed by the Bear?

Today I looked at the world market indices with fear. All the major stock exchanges showed a red. The US market last friday, KLSE, SGX, HKSE, MCI and australia all showed red. Only the Chinese market, Thai market showd me the green.

Looking at the top 30 volume on SGX showed more red than green. Thats not a good reflection of the performance this morning, where all i saw was red. Only on 1 - 5 stocks in the top 30 volume did i see green.

So what the hell is going on?

Well, the market is in intense anticipation for the upcoming US interest rates meeting. Whether the market will be a bear or bull will really be the result of what they say before the meeting, and what's changed after the meeting. Simply a simple negative remark can spark a global market correction, like the one last year, where after all the fan fare, interest rates were left unchanged after all, leaving all the professional analysts red faced.

"Those professional analysts were really the messengers of what didn't happen. They are the ones that affect whether the market is bull or bear."

But locally, we have a short term relieve. Singaporean companies can look forward to a good budget announcement this week, that may be able to offset any negative effects from the USA.

So would I recommend selling your shareholding to escape any volatility? First of all,no cause thats what you call trading, not investing. And in this season of financial year reports, you can look forward to a good financial report for FY06 (that is if your company is a good growth company), which will reinforce your shareholdings current price.

"When you trade, only your broker is happy."

Watch the market closely for the next few days. Watch the budget 2007 announcement. Watch any reckless comments by the USA officials. But do not dismay if a correction comes. Not all stocks went bear last year. Good companies like Sino Env and China Hong Xing were just 2 of the companies taht did not get affected that bad least year.

Review: Raffles Education

Anonymous said...
"hi pehon

i'm thinking of buying REC tdy at 2.33. Do you think it is a good buy at tis price ?

UBS is calling a buy but OCBC is saying a hold becoz of risk factor in the current price"

Usually, after a large price advance, you'll also see a very volatile few days or even weeks. The large increase for Raffles Education recently was good for traders, not investors.

I've read the UBS and the OCBC reports. I personally like the UBS valuation of Raffles Education. I personally feel the OCBC report is tuned to the general market trend. The general trend of trading, not investing. The UBS report however did mention the high posibility of a sideway accumulation, but they did give enough credit to the growth potential of Raffles Education, with the recent aggressive market actions by the board of Raffles Education.

So to answer your question, its never too late to buy Raffles Education, even at the current price high. WIth the excellent profit growth record, even with a relativelity large market cap, I'll still classify Raffles Education as a "Growth" stock.

However, if you invest at the current price, you've got to expect an extremely volatile period ahead, and you must be able to hold on to the stock for at least 6 months, or even 1 year, to remove all the short term risks of a volatile share price.

For existing shareholders (like me at $1.68 vested in Jan07 =) ), Raffles Education has potential for more in terms of its share price. So hold on to it. I won't recommending taking such a small profit right now, as its game for larger returns.

Quick Lesson: Fundamental vs Technical Analysis

There are 2 widely used techniques of analysis of share prices. Fundamental analysis which looks at the bottom line of a company, its management, its people and its products / services. Technical analysis generally looks at the stock chart and looks for known patterns that show good potential of breaking out. But which method is the better way to "invest"?

When I say "invest', its really different from "trading". The basis of technical analysis is really an assumption that price patterns are influenced by a company's financial performance, and impending good announcements. Most people who practice technical analysis are essentially, "Traders". They trade on the monthly, or weekly, or even daily basis. They spend lots of time going through charts to find potential break out points. Technical analysis assumes that historical price patterns repeat itself.

However, price patterns may not always repeat itself. When Traders buy shares using TA, they are exposing themselves to the risks of volatility of the daily market. TA teaches market timing. Many investors say you can't time the market. But traders claim they can. But the fact of the matter is, large returns of 100% or more are seldom achieved by trading. This is because Traders don't buy and hold. For most cases, they only hold for less than a month.

"Technical analysis practices market timing. Traders think they can time the market. Investors don't"

As a trader, how many times do you see yourself selling your shares at 20% gains, only to see it climb more than 100% over the next few months, and even 200% over 2 years.

Ask any successfuly investors like Warren Buffett, how do they buy shares? They invest. They look at a company's bottom line, the company's potential and fundamentals, and they buy the company and hold them for 5 or more years. They are the ones making compounded returns of 500% over 5 years. They practice Fundamental Analysis. They do not market time.

"Fundamental Analysts are the ones that make 100% or more gains. Not technical analysts."

Fundamental analysis base an investment on its future value. It really doesn't care about the comany's current P/E ratio. If a company grows at more than 25% PA, the high P/E ratio now, will be even out in future. In fact, most companies with High P/E are the ones that have good growth (>25%PA). Companies with no growth have low P/E. Investors and traders have nothing to look forward to, and no reason to increase the P/E. If you shy away from high P/E companies, you are missing out on good growth companies.

"With good EPS growth, a high P/E ratio is not a problem."

FA believes that over medium and long term, the daily volatility is taken out as share prices always climb in line with a company's earnings.

"FA removes the daily volatility and risks for a long term share appreciations in line with earnings."

You might say that in SGX, large returns (300%) thru fundamental analysis is nearly impossible, compared to the US market. However, you've got to remember that the SGX is very young. Singapore listed companies are young. Given another 50 years, the Singapore listed shares may mature its way to that of USA's.

Many times i hear people telling me that they bought Keppel Corp when its $2.00, and sold it at $4.00, and how they regretted not holding on to it (its $19.00 now). However, looking at their style of investing, they are traders. Many times they come to me telling me they made $1000 yesterday. But thats just 10% from one month. They are not the kind of people who would have held on to a stock. No matter what regrets they have. They are the ones that buy penny stocks in a hope that punters will have interest in them. They buy companies without knowing what the company does. They never learn from their previous experiences.

"You must tune your mentality to be a fundamental investor (holder), not a trader. This way, you will see larger returns."

Though both techniques provide good short term returns, it is Fundamental Analysis that assures an investor large price appreciation, removing all the short term volatility. The way to be a (very) successful is through fundamental analysis, not technical analysis. Fundamental analysis is the way to long term gains, while technical analysis exposes traders to lots of unknowns, and hence, lots of risks, with relatively less gains than FA..

Review: China Farm

What a debut! IPO at $0.345, opened at $1 on day 1!

Sincerely congradulate those who successfuly subscribed to it. But "BOO!" to those who sold it on day 1. This counter is meant to be held on to. For the long term.

So where do we go from here? Having only being vested at $0.995, I can tell you I'm bullish about this counter.

With such a surge from its IPO, there is bound to be a short term weakness. Expect to see some fall thru past CNY, in-view of the possible market correction around CNY. After the company announces its FY06 results, expect the price to start its upward trend.

So why don't I buy later? Well, first of all, I don't like to time the market. Secondly, who says there will be a correction? I expect China Farm to live up to its FY06 profit & eps growth, and maybe the market sees eye to eye with me. With the Chinese "farms" modernising, i espect China Farm to continue its growth.

Even with a high P/E ratio (relative to 8x P/E at $0.73), there is no saying that China Farm wouldn't be trading at 20x P/E in the near future.

Addition on 10 Feb 07:
With regards to the company's competitive edge, they have recently filed a patent for their latest plough machine. This shows the company's edge over other companies in the industry. In addition, with several awards for branding and satisfaction to China Farm's name (can be found on the website), it is clear that the company's managers know what they are doing when it comes to expanding China Farm.

With regards to the possibility of the company not being able to keep cost down, i'm consoled by the fact that they have won several awards for "financial performance" and "quality trustworthy enterprise". And on a more important note, the company has successfully maintained a good growth, and able to raise their sales and keeping cost in control in 9M06.

That assures me that FY06 will not produce any negative surprise, but a positive surprise is more likely.

In a short time to come, $1.00 would seem too cheap, and you will be wondering why oh why didn't you invest in China Farm then. (well, i hope so, nothing is certain in shares.)

Target of $2.00 for China Farm, in 1 year.

Buy: China Farm

I've been off the blogging mood for the last 2 years due to my anticipation for this stock.

"Please give me some lots for my subscription... Please!"

Coupled with the fear for me affecting the subscription (due to the sudden increase in visitors to my blog, and with more people influenced, less chance for me to get this stock!).

The growth potential for China Farm is immense. With the Chinese (communist) government targeting a mechanization rate from currently 7% to 45% by 2015, there is room. Lots of room for growth for China Farm.

"With such increase in mechnization rate, there is lots of room for China Farm. Will it be able to grab a share in that growth?"

China Farm is well positioned to tap this growth. Why do I day that? I've gotten a hold of China Farm's 10M06 vs 10M05 statement from Kelive Research.

Looking at the statement, we are looking at a 48% EPS growth for 10M06 vs 05. Already for 10 months in 06, China Farm has made 10.9 Million RMB more than the whole of FY05 (+32.1%!)

With that, I'm more assure the management of China Farm knows exactly what they are doing, and their ability to bite a big chunk of that 45% mechanization rate by 2015.

"There is no use for an industry to grow. The company has to show that its able to tap a large (larger if possible) chunk of that annual growth over its competition"

My plan. I'll be realising my profits for Tech Oil & Gas and Hiap Seng tomorrow (negative profits if it makes you happy). Don't mind me, but Tech Oil & Gas and Hiap Seng are good companies, but it is my believe that I'm putting my money in a better company, with relatively less competition, and a company thats a leader in China in its industry (vs the 2 above companies fighting in a tight market).

"Selling my losers for winners (or possible winners) is in line with my trading principle"

I'll put my money into China Farm and look forward to the long term, pending an easily achievable good 1Q07 results, as I already expect a good FY06 result.

Buy China Farm, with a short term target of $1.00, and a 1-2 years target of $2.00.
Sold Tech Oil & Gas for $0.870
Sold Hiap Seng for $0.78
Vested in China Farm at $0.995 on 9 Feb 06, 0901hrs.

Quick Lesson: Unit Trusts

As requested, many people have been asking me about my claims for high returns in unit trusts. I think this misconception is due to many not knowing and undetstanding the principles of unit trusts.

The basics
Unit trusts are basically funds "trusted" to fund managers to be invested accordingly. There are different type of funds. High returns (high risk), Balanced (medium risk), Income (low risk). Typically, high risks are invested largely into equities (shares) or properties depending on the type of fund you buy. Balanced typically mixed with equities and bonds, and Income mainly bonds.

How about the returns?
You'll be surprised. What are your returns for your shares last year? Think about it. Consider all the contra losses. Consider all your cut losses. Consider all your paper losses. Consider all the returns that you fail to reinvest cause you used the money to celebrate your 10% gains. Yes. My guess is that your return last year was less than 15%?

For aggressive unit trusts, Aberdeen Pacific Equity Fund. For the last 5 years, it has consistantly given me a return of 20% PA.

"20% pa only?!??!"

Mind you. At 20% PA, calculated monthly, your $10,000 would become $20,000 in 2-3 years.

"20% PA will mean double your investment in 2-3 years"

Another fund i own. Henderson European Property. Its given mea 40+% PA return last year. And from 2 -5 years ago, its given a 33-35% PA return.

"33% PA will double your returns in 1-2 years"

Remember, the stats above are assuming you reinvest all dividends and capital appreciation.

It just gets even better. My other holding. DWS China Equity. Its given me a 58% PA last year. And the fund is only 1 year old.

Does price of fund matter?
The price of a fund doesn't matter like shares. In fact, there is no such thing as P/E ratio of a fund. The only assurance you have of future performance of a fund is its previous performance.

"You don't look for funds that have bottomed out. Unit trusts don't work that way"

Why its previous performance? Isn't a unit trust that is too expensive dangerous to enter? No it doesn't matter. The reason why the fund is so expensive now is cause the fund managers's investment selections have been right for the last few years. Their investment model, their fundamentals, their asset allocations have been spot on.

"Funds that are expensive, with proven growth over the last years, are your best bet. They will out perform cheap unit trusts with bad performance."

Buy a fund on descend, you can only be assured that the fund managers don't know what they are doing.

Service charges are so expensive!
Consider this. If you were a share trader (notice trader not investor), you buy and sell shares 10 times a month, each time $5000 is traded. You've just paid $300, 6% has been paid. Thats alot of work for a month.

Banks charge 5% for unit trusts.

"Don't buy funds from banks, stupid."

Poems charge 1-2%. With very cheap fees for switching funds.

I'm currently buying funds with an wealth management company. 3% per buy, sell for free, switch funds for free. 1% PA for advise. I don't pay management fees by funds.

I don't mind paying for the services by the wealth management company as they monitor the performance of the funds, they have insider info on the fund manger's capabilities and i'm sure they are able to take care of my money well.

I don't have cash
Thats when you are wrong. have you thought of CPF? The funds above are all CPF OA approved. Imagine how much money you'll have for retirement now if you started 3 years ago?

"Would you rather risk your retirement by buying individual shares, or buy safer high return funds."

Even my CPS SA is growing at 10% PA (vs the 3% PA given by CPF), by investing in AIGIF Acorns, a CPF SA approved funds.

"Its never too late to start. Start now, be rich later"

If you were to buy funds the way they were supposed to be bought, you'll realise that the 3% charge is really insignificant to your investment. Its when you start trading funds (making 10%? cash it in!), thats when you'll see the banks growing rich.

If you need help in kick starting your investments in CPF in Unit Trusts, you can contact me. I can refer you to my financial adviser. From there you can find the value in their services and the 3% per buy (sell is free) is worth it. You don't need much money to start. Whats most important is that you've started.

Ps. i have no direct benefit from refering people to my financial adviser. I'm just sharing what i think is a good way to invest, and to grow your money..

Buy: Raffles Education

"What a week!!! Its like hitting the home run!"

Anyway, on a serious note, Raffles Education has traded at a high of $2.360, way past my target of $2.00.

Raffles Education has been brought to its all time high due to interest by investors for its dividend (though not much <1%>$2.00), on very low volume.

Fundamentals for the company has not changed. With 60% certainty, Raffled Education will see a small correction after it goes XD. With a very strong financial statement, which is unlikely to change in the forseeable future, its financial statement is set to see more improvements despite a relatively poor debt / assets ratio.

"Growth in Raffles Education has been impressive, and is set to continue its growth"

I recommend investors to buy after XD.

BUY Raffles Education, with a sell target of $3.00 for the long term

Review: SunVic

SunVic made a extremely impressive debut. Looks like the market is bullish about SunVic's potential. Its is however my opinion that this stock is over hyped, and over priced in a long run. With a poor showing in 1H 06, one must not forget a possible poor showing in FY06. That might cause shareholders to run.

In view of SunVic's good performance on day 1, I think it is possible in everyway for China Farm to perform as well as SunVic on day 1.

Advertorial: How to make money in stocks

I've been asked repeatedly how I learn my stock picking techniques. Over the years since I became interested, I've been reading into the mechanics of the economy, micro and macro. Its only with that understanding that I've been able to understand the stock market, quickly.

I've been largely influenced by this book, "How to Make Money in Stocks -A winning system in good times or bad". Although i've got to admit, the cover looks kind of dodgy, but take note, its the 3rd edition already, and i've read it, and it has influenced the way I choose my shares in a large and important way.
One thing to note here is that this book doesn't use P/E ratio. In fact, like me, it heavily dismisses P/E ratio in this book. It uses what i practice as well, EPS analysis. Using some of the techniques learnt from this book, I've been able to locate the winners and the losers.

"This book doesn't use P/E ratio to analyse stocks. Its uses EPS growth"

The only thing I don't really agree with is the fact that the author advocate market timing. As we all know, its impossible to do so, and by doing so it can diminish your returns. But this book was where i learnt the importance of "cut loss point", which has saved me a few times.

Though most books at the store aren't really relevant to SGX, the techniques taught in this book can be applied in our context, just like I did.

"Lessons learnt in this book can be easily applied to SGX"

If you are serious about learning how to pick good stocks, instead of listening to your friends at the cafe, buy this book.

Quick Lesson: What the Rich Does, and the Rest Don't (part 3: Compounded Interest)

It was in an article I read recently, that when asked what was the most powerful math formula known to him, Einstein said it was "Compounded Interest". Indeed.

The basic idea is simple. For every return in terms of capital gain and dividends, you reinvest them, to see exponential growth.

Lets say you have $10,000 to begin with. And assuming a return of 25% PA on your best investment (25% is achievable easily in Unit Trusts, so its conservative). You do not spend the returns on food or car. Calculated on a monthly basis, here is what the $10,000 would look like.

• 2 Years - $16,403
• 3 Years - $21,007
• 5 Years - $34,458
• 10 Years - $118,736
• 15 Years - $409,140

Time to buy the SLK you always wanted. But on the other hand, if you find yourself there with this kind of success, you'll not spend that money as just another 5 years. This is what you get if you didn't buy the SLK.

• 20 Years - $1,409,815

So, still want to buy your SLK?

Maybe spending your $1,000 profit in Sino-Env wasn't such a good idea? Though its tempting, I recommend buying shares on the notion that the returns are not "spendable".

So does that mean that after buying Share A and seeing a 100% return, I've got to sell it to see the compounded interest grow itself?

That was what I thought. But recently, I've got this revelation in my sleep.

Lets say you bought Sino-Env when it was $0.50. A few months later, you see it at $1.00. Thats a 100% return. A few months later, at $1.50, thats a 100% return from $1, but a 200% from your capital. From $1.5, to $3, thats a 100% return from $1.5, but a 600% return from your $0.50.

A $0.1 gain from $3 is about 3%. But from your purchase price of $0.5, its 20%. Need i say more?

Thats the beauty of compounded interest. Hold off that champagne to 20 years from now, where the champagne is 0.00001% of your gains, rather than 10% of your gains.

Review: IPO SunVic Chemical

In the recent "Edge", SunVic was hailed as an IPO that would open at $0.60 on day 1 of trading. Thats 100% gain from its IPO of $0.30. But here is why i think China Farm is a better choice over SunVic.

From their prospectus, you can see that from FY03 to FY05, the company's profits has increased at a good rate, backed by increase in revenue. If you based your IPO choice based on that, it might seem as a good choice to put your money at. However, look closer.

For HY05 to HY06, there has been a decrease from $118.7M to $63.3M. From that, my bet is that the FY06 profits will not show a growth over FY05. Infact, there would be a shrink in profit.

"No growth? Move on."

Based on my experience on IPOs, prior growth is extremely important for its share's open price, and of course future price appreciation. For Eg, Sino Env opened at $0.40 (ipo at $0.33), and quickily went to $3.00 in half a year due to its prior growth records and sustained growth after IPO.

vs

Sunshine Holding that had inconsistant growth before IPO, and IPO at $0.3, opened at $0.4, now $0.345.

Thai beverage public co as well.

Its my belief that SunVic Chemical is a good stock to apply for in IPO, but my money goes to China Farm, with the intention to keep the share for 1 year. SunVic Chemical would be a day 1 play for me, if I have even applied for SunVic Chemical's IPO.

Buy: IPO China Farm

As the name suggests, China Farm is a farm equipment supplier to farms, in China. They produce harvesters and plough machines (bye bye bulls hello stock bull), and they produce diesel engines for various uses, including in their own product.

In terms of prospects, there is lots. Looking back that the industrial age in USA, farms are rapidly mechanised to increase efficiency for the population, with a reduced amount of arable land for urban use. Bring it back to present world, we could see the same rapid mechanisation in China. China Farm is well placed to tap into that.

Prospects aside, hows the fundamentals? Since its an IPO, there really isn't much I can look into its quarterly performance. However, the yearly performance has been nothing short of impressive. Revenue, Profits and EPS has more thandoubled for the last 3 years, each year. >50% growth.

"Thats the kind of company that calls for not only a headliner day 1, but a headliner for 2007. "

Risks? What are the chances of the government withdrawing grants for machines to farmers? I think its unthinkable. The government, though Communist, has proved to be an extremely efficient government in economics, and is unlikely to make a decision like this. The farm industry is set to grow.

I will within the next few days sell my shares of Tech Oil & Gas and apply for China Farm's IPO (pick me!). I am 70% certain that shares for China Farm will gain >70% over $0.345, and may reach $1.0 by the end of the year. I based this on nothing.

Joking.

I've been monitoring IPOs for the last few years using my model, and companies that fit my model generally do very well on day 1 and the next year.

I just hope i don't make such an impact on the IPO that i don't get a single lot in China Farm in the ballot. I'll still buy China Farm on day 1, in view of its potential upside of a $1 stock.

Apply! With an interim target of $1.00, pending day 1 open price.
Will inform on blog when I sell Tech Oil & Gas. With graphical prove.

Buy: Hiap Seng

Before I start, here is the prove ("God!").

And so, a little background, Hiap Seng is a company involved in local oil & gas fabrication. With the impending completion of reclaimation projects in Jurong Island, coupled with the $3b investment from Shell on a plant, and seeing the number of plants on Jurong Island double over the next few years, there is room for growth for Hiap Seng, and of course, Hiap Seng's shares. In fact, Technics Oil & Gas is a direct competitor to Hiap Seng.

Analyst reports indicate that Hiap Seng's order books are fully booked for the next 3 years, but they have recently completed a capacity expansion project.

HY2006 Results show an increase in profits attributable to equity holders of 237.9%. The EPS growth is pretty close as well.

Likewise for their FY statements and forcasts, 2007 F looks at a 169% growth in EPS, and supported by increase in sales and profits.

"EPS EPS EPS. It shows the profit growth vs shares in the market. Follows the ancient supply and demand rule"

With the recent sudden surge in interest, it might be a good time to jump into the wagon. And on top of that, with such an upside to Hiap Seng's shares, we are looking at a possible $1 stock right now.

"Sustained interest is important"

The only downside to Hiap Seng's shares? Its listed in the Sesdaq, and my other share that is listed in Sesdaq (Techics Oil & Gas) isn't doing too good.On top fo that, both shares are in the smae industry. I'm also unable to find % shares held by institutional investors.

"Institutional investors are important for the good of the share. They control the number of floating shares as institutional investors don't engage in daily trade"

If Hiap Seng doesn't do well, I'm out of Sesdaq for life.

Buy, with target of $1.00.
Vested $0.785 at 1 Feb 07, 0910hrs

Reply to Critics and kids

For all the critics, here is my portfolio. Note Raffles Education is held in my cash account. This is my margin account. Why don't I show my cash account? I don't see the point in going thru more trouble. I've got nothing to proof to you. I'm the one with 100% gain in 1 mth (used margin for leverage).

For those who are lost on whats going on, visit this link.

http://forum.channelnewsasia.com/viewtopic.php?p=726896

And i thank you all for your interest in my blog. Thanks to my supporters, and of course, the kids.