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.

Monday, 6 July 2020

Is Tencent Stock a Buy?

Does the 800-pound gorilla of China’s tech sector still have room to climb?

Jun 8, 2020

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Tencent (OTC:TCEH.Y) is one of the largest tech companies in China. It owns

WeChat, the country's top messaging app;
the world's largest game publishing business;
China's second-largest cloud platform;
one of the country's largest video streaming platforms; and
one of its top digital payment platforms.

Tencent's stock has rallied more than 1,400% over the past decade as its gaming and advertising businesses expanded and it entered new markets. Is it finally time to take profits, or does the Chinese tech giant still have room to run?

1. Keeping pace with shifting advertising trends

Tencent's advertising business, which generated 19% of its revenue last quarter, sells ads across

WeChat,
the older QQ messaging platform,
its mobile ad network,
Tencent Video, and
other apps.

The segment's revenue rose 32% annually during the quarter as

e-commerce,
online education, and
gaming companies

bought more ads throughout the COVID-19 crisis.

However, Tencent's ad business faces fierce competition from

Alibaba's (NYSE:BABA) paid product listings,
online search platforms like Baidu (NASDAQ:BIDU), and
Gen Z-oriented platforms like ByteDance, which owns the viral short video app TikTok (known as Douyin in China).

WeChat's ecosystem of Mini Programs, which locks users into the app, also faces competition from similar walled gardens like

Baidu's mobile app,
Alibaba-backed AliPay, and
Douyin's mini programs.

WeChat's messaging service, which serves over 1.2 billion monthly active users, also faces competition from dating apps like Momo and Tantan.

To shore up its defenses against these rivals, Tencent needs to keep launching new apps -- which will cause its operating expenses to rise.

2. The gaming unit is relying on overseas growth and investments

Tencent's gaming business, which generated 35% of its revenue last quarter, is still locking in gamers with hit games like

Honor of Kings,
Peacekeeper Elite,
PUBG Mobile, and
League of Legends.

Its revenue grew 31% annually during the quarter as people played more games throughout the lockdown period.

Tencent's stakes in overseas companies like

Fortnite publisher Epic Games,
Bayonetta developer Platinum Games,
Ubisoft, and
Activision Blizzard

also reduce its dependence on the Chinese market, which is hobbled by fickle censorship standards, tight playtime restrictions, and rigid licensing requirements.

That expansion also widens its moat against its top Chinese rival NetEase, which is gaining significant momentum overseas with its PUBG rival Knives Out.

Looking ahead, investors should expect Tencent's gaming unit to rely more heavily on overseas titles like Call of Duty Mobile, as well as increased investments in overseas developers and publishers.

3. Countering Alibaba in the cloud and fintech markets

Tencent's fintech and business services unit, which accounted for 24% of its top line last quarter, generates most of its revenue from

Tencent Cloud, China's second-largest cloud infrastructure platform after Alibaba Cloud, and
WeChat Pay, which shares a near-duopoly in the payments market with Alibaba-backed AliPay.

Revenue from this newer business rose 22% annually last quarter, but that marked a significant slowdown from its previous quarters. Tencent attributed the deceleration to fewer WeChat payments throughout the lockdowns, but it expects the business to recover later this year.

Tencent doesn't disclose its cloud profits, but it's likely unprofitable like Alibaba Cloud. Both companies will likely incur more losses in their cloud businesses, and use other profitable businesses -- like Tencent's ad and gaming units, and Alibaba's core commerce unit -- to subsidize the difference.

Therefore, the growth of the fintech and business services unit is a double-edged sword: It generates fresh revenue growth and diversifies Tencent's top line away from games and ads, but it will likely throttle its adjusted operating margin -- which declined annually from 43% to 34% last quarter.

4. Is it the right time to buy Tencent?

Analysts expect Tencent's revenue and earnings to rise 22% and 17%, respectively, this year, as its strengths offset its weaknesses. That's a solid growth rate for a stock that trades at about 33 times forward earnings.

I own shares of Tencent, and I believe it's still one of the best long-term plays on China's growth. Tencent is also better diversified than Alibaba and Baidu, which still rely heavily on e-commerce sales and online ads, respectively.

The only near-term threat to Tencent is the legislative threat to potentially delist Chinese stocks from U.S. exchanges if they don't follow certain accounting rules. But top tech companies like Tencent, Alibaba, and Baidu will more likely reach a compromise with U.S. regulators instead of staging a full retreat to closer exchanges like Hong Kong. Therefore, Tencent remains a solid long-term investment, and it has room to run after its 30% rally over the past 12 months

https://www.fool.com/investing/2020/06/08/is-tencent-stock-a-buy.aspx

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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)

Monday, 6 July 2020

Is Tencent Stock a Buy?

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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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