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.

Thursday, 25 May 2023

Malaysian Equity Market

Equites

The fortunes of a country’s equity or stock market are closely aligned with its economic well-being, and Malaysia is no exception. Similar to its global peers, Bursa Malaysia been enduring much turbulence in the last few years. Buffeted by strong external and internal headwinds, the market capitalisation of the local bourse had moderated further to RM1.74 trillion as at end-2022 (end-2021: RM1.79 trillion).

Profile of Malaysian Equity Market

Bursa Malaysia has the distinction of being among the biggest bourses in ASEAN with well over 900 listed companies. Investors can choose from a variety of listed products, including equities, derivatives, exchange-traded funds (ETFs), real estate investment trusts (REITs), and exchange traded bonds and sukuk (ETBS). Notably, 789 (81.2%) of the 972 listed entities on the local bourse were Shariah-compliant securities as at end-December 2022. These accounted for RM1.139 trillion or 65.6% of Bursa Malaysia’s overall market capitalisation as at the same date. Despite the tumultuous global markets, a total of RM26.0 billion was raised from the Malaysian equity market in 2022. Of this amount, RM3.5 billion originated from the primary market, i.e., via 35 initial public offering (IPOs). The other RM22.6 billion stemmed from secondary fundraising. The sturdier performance in 2022 was driven by a 52% y-o-y surge in IPOs and a 58% spike in secondary issuances.

Three Types of Markets on Bursa Malaysia

Bursa Malaysia operates through three markets – the Main Market, the ACE Market and the LEAP Market. Each has a different set of listing criteria for aspiring candidates. The following represents some of the most salient points of the respective markets.

The Main Market is the primary market for larger companies with strong operating and profit track records, with a minimum required market capitalisation of RM500 million upon listing, among other things.

The ACE Market is a sponsor-driven alternative market designed for smaller companies that exhibit strong growth potential. No minimum profit or operating track record is required for listing.

The LEAP Market is a fundraising platform for what are perceived as underserved SMEs, which do not need to demonstrate any operating or financial track record. This adviser-driven market is only available to sophisticated investors.

In 2022, the Main Market hosted the listing of five companies while the ACE Market welcomed 25 and the LEAP Market contributed another five – bringing the total to 35 IPOS for the year. Together, these newly listed entities raised RM3.49 billion.

Listing Process and Platforms

The listing process (from the time the candidate engages an adviser to the day of listing) usually takes four to nine months, depending on the structure and complexity of the listing scheme. Upon approval, the entity will be given six months to complete its IPO exercise.

Bursa Malaysia also offers an end-to-end Shariah-compliant investing platform, along with the world’s first end-to-end Shariah-compliant commodities-trading platform. In recognition of the importance of sustainable and responsible investment, Bursa Malaysia launched the FTSE4Good Index in 2014. This index permits investors to measure domestic companies’ performance based on ESG standards. In July 2021, the local bourse introduced the FTSE4Good Bursa Malaysia Shariah Index – the Shariah-compliant version of the former. This new index will assist fund managers to develop new investment products constituting a portfolio of Shariah-compliant equities, guided by sustainable investing principles.

Investor Profile

The Malaysian stock market benefits from a diverse pool of investors, underscored by sturdy support from local institutional and retail investors. Domestic institutions remained net sellers in 2022, to the tune of RM6.53 billion (2021: RM9.1 billion). Meanwhile, local retail investors infused RM2.31 billion of net funds into the equity market, which paled in comparison to the previous year’s RM12.2 billion. Interestingly, foreign investors pumped in RM4.40 billion net (2021: RM3.15 billion) after four consecutive years as net sellers. Against this backdrop, the participation rate of retail investors declined to an average of 25.7% in terms of transaction value, relative to 34.6% in 2021. Nonetheless, this is still higher than the five-year pre-pandemic average of 18.8%

Trading Procedures

To invest in shares in Malaysia, one must be over the age of 18, open a Central Depository System (CDS) account and a trading account at a stockbroking firm. There are specific steps to follow pursuant to this, as detailed on Bursa Malaysia’s website.

Regulatory System

The Securities Commission Malaysia (SC) is the ultimate regulator of the Malaysian capital markets, including the equity market. As the front-line regulator, Bursa Malaysia, is tasked with safeguarding a fair and orderly market for the trading of securities and derivatives. The SC supervises and monitors Bursa Malaysia on listing, trading, clearing, settlement, and depository operations – to ensure the latter effectively performs its regulatory duties and obligations. Brokers and regulated entities must comply with the various rules set by Bursa Malaysia.

https://www.capitalmarketsmalaysia.com/public-equities/

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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)

Thursday, 25 May 2023

Malaysian Equity Market

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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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