myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Wednesday 16 December 2009

LCL at historic low, more bad news ahead?

LCL at historic low, more bad news ahead?

Tags: Affin Bank Bhd | Bank Islam Malaysia Bhd | CIMB Research | Dubai debacle | Historic low | LCL Corporation Bhd | LCL Furniture Sdn Bhd

Written by Joy Lee
Monday, 14 December 2009 11:26

KUALA LUMPUR: LCL Corp Bhd, which saw its share price drop to a historic low of 21 sen in intra-day trade last Friday on loan defaults, may get more bad news ahead as the Dubai debacle seems unlikely to abate any time soon.

LCL said it had been severely affected by the financial turmoil in Dubai and plunging property prices had resulted in delay and non-payment of its receivables. “Hence, LCL and its subsidiaries have been unable to meet its repayment obligations,” it said in a recent announcement.

The interior fit-out (IFO) company’s share price tumbled 10 sen or 31.25% to close at 22 sen last week, after wholly owned subsidiary LCL Furniture Sdn Bhd defaulted on loans worth RM72 million to two banks, Affin Bank Bhd and Bank Islam Malaysia Bhd.

The stock rose to a 52-week high of 95 sen on Aug 13, 2009.

Analysts were not surprised by the defaults given its high debt and slow collection problems in Dubai since the fourth quarter of last year. As at end-September 2009, its net debt totalled RM376 million and net gearing was 4.7 times.

CIMB Research expects the company to default on more loans in the coming months unless Dubai’s financial position turned around, which it said was a less likely scenario.

LCL had said the defaulted bank borrowings with Affin Bank and Bank Islam would have a consequence on the group’s other ongoing bank borrowings, which would also be declared in default under the cross default clause.

It cautioned that legal proceedings may be initiated by the lenders against LCL group of companies.

LCL’s borrowings are mainly short-term loans. CIMB Research said more than 75% or a total of RM293 million of the group’s loans as at end-December 2008 matured in less than a year.

“This is because almost all of the group’s borrowings are used for working capital. LCL’s interior fit-out business has close to six months funding for working capital.

“The group purchases raw materials like plywood and steel and undertakes the necessary fabrication, which takes three to four months to complete. LCL only gets to collect most of its outstanding receivables two to three months later assuming no delays in its collection.

“Clients have delayed payments to LCL for more than four to five months and this is having an adverse impact on its operational cash flows,” the research house said in a recent report.

News flow out of Dubai has not been positive and may remain that way for some time which may prove to be detrimental to LCL over the next few months.

“It is unfortunate that LCL has reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.

“The challenges are not just hitting LCL but also hitting hard on the main contractors in Dubai, including the Korean and Japanese contractors,” CIMB Research added.

It maintained its earnings forecasts and target price of 25 sen with an unchanged 75% discount to its 1.8 times target of price-to-book value for the CONSTRUCTION [] sector.

Meanwhile, LCL said the board was deliberating the group’s solvency status and would make the necessary announcement within the required time frame.

This article appeared in The Edge Financial Daily, December 14, 2009.

http://www.theedgemalaysia.com/business-news/155576-lcl-at-historic-low-more-bad-news-ahead.html

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Wednesday 16 December 2009

LCL at historic low, more bad news ahead?

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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