Marks, Howard – Mastering the Market Cycle

Marks, Howard – Mastering the Market Cycle
Houghton Mifflin Harcourt, 2018 [Finance] Grade

The holy grail of investing is market timing and its
realization is about as elusive. This is a guide on
how to master the financial market cycle, which is
something in a way related to market timing, but
still very, very, very different. The master (that
word again…) corporate bond investor and
investment writer Howard Marks at Oaktree
Capital Management is among those whom I
admire most in financial markets and his first book
The Most Important Thing ranks among my top five
all time investment books. In a way this is a slight
problem when it comes to Mastering the Market
Cycle. A classical advice to companies reporting
their financials is to “under-promise and overdeliver”
– the thing is that Marks’ first book drives
up expectations for this one to a level it cannot
fully live up to. But it’s still a really inspiring book
on an important and under-discussed area that I
will put to good use immediately.

A fundamental cornerstone for the author is that
financial markets cannot be predicted with any
practically usable precision in the short to medium
term. This doesn’t mean that all market outcomes
are equally probable at all times. By looking to
current conditions and by this forming an opinion
on where we are in the market cycle an investor,
according to Marks, can tilt his portfolio to take
advantage of what is more likely to happen in the
years ahead. It’s both about what one thinks will
happen depending on where one is and about the
probability of this happening compared to other
scenarios. If an investor is good at this game it
should pay off in the long run and he tilts the odds
for success in his favor. Prepare, don’t predict. I
think he is totally spot-on in this respect.

Another key basis in mastering the cycle is to
understand that things don’t just happen one thing
after another in – unfortunately irregular – cyclical
patterns. What happens in one stage of a market
cycle is instead causing it to move on to the next
stage. Cycles are chains of cause-and-effect
relationships. After a pair of introductory chapters
the main part of the book is devoted to describing
a large set of interrelated and parallel such cycles:
the economic cycle, the profit cycle, the risk
attitude cycle, the credit cycle and so on.

Underlying all these is the cyclical patterns in
investor psychology – a topic clearly nearest to
Marks’ heart. To a large extent Marks reads various
psychological markers and positions himself in the
cycle by these. Next comes one chapter that tries
to assemble all the above cycle inputs into the full
mosaic of the market cycle. The book finishes with
a few concluding more practical chapters and a
needlessly cut-and-paste type of summary.

It is honestly a luxury to have 50 years of hard won
experience condensed in such a graspable format.
Marks is a simply superb writer. Much like Warren
Buffet the language can be deceptively simple,
causing fairly complex issues to sound like child’s
play. Make no mistake – this is investment thinking
on the highest level. Still, compared to the high
standards set by the author’s investment letters
some passages of the book are a bit repetitive with
their long and recurring chains of cause-and-effects
and some newly written chapters that don’t build
on previous investment letters, but are required to
make an coherent story, are perhaps slightly less
inspired than the others.

There are clearly others who have made
contributions to the understanding of market
cycles such as Hyman Minsky, various Austrian
economists, the books from Marathon Asset
Managed edited by Edward Chancellor plus many
others. However, since Marks is so focused on
reading non-fundamental and non-economic
signposts I think the most complementary book
might be Big Debt Crisis by the more Borg-ish Ray
Dalio with his “economic machine”-concept, who
obviously mostly zeros in on the central bank
dominated cycle of monetary policy.
When it comes to books on market cycles this is a
must read – but it could have been even better.


Mats Larsson, December 15, 2018


https://static1.squarespace.com/static/5325c4b3e4b05fc1fc6f32ed/t/5c150aed562fa7836b23f752/1544882938556/2018-12-15_BR_ML.pdf

The Three Fundamental Truths of a Bear Market

The three fundamental truths of a bear market.

1.) A bear market is only bad if you plan on selling your stock or need your money immediately.
2.) Falling stock prices and depressed markets are the friends of the long-term investor.
3.) You must learn to separate the stock price from the underlying business. They have very little to do with each other over the short-term.



So what do I do with my money in a bear market?

The first thing you need to do is to look for companies and funds that are going to be fine ten or twenty years down the road. If the market crashed tomorrow and caused Gillette's stock price to fall 30%, people are still going to buy razors. The basics of the business haven't changed.

When you understand this, you will see falling stock markets like a clearance sale at your favorite furniture store... load up on it while you can, because before long, the prices will go back up to normal levels.

Digital economy in Malaysia will be worth RM85.8 billion by 2025.

Realising the RM85 billion industry



BY JEREMY CHEW ON MARCH 3, 2019

A recent update from Google, predicts that the digital economy in Malaysia will be worth RM85.8 billion by 2025. The key sector in digital economic growth is the e-commerce industry followed by the online tourism industry and the ride-hailing industry.

However, the same study by Google states that the contribution of the internet to the country’s GDP is 2.7 per cent in 2018 and is expected to grow rapidly in the coming year. However, what needs to happen to realise it?

Replicating the success of e-commerce from foreign countries

Jim Jarmusch, an independent film director, states: “Nothing is original. Take from anywhere that echoes with inspiration or spark your imagination.” In other words, the original idea usually sparks when one combines two or more ideas and makes it something new.

It has also been proven to work in the commercial world, where local businesses have managed to profit by replicating successful brand business models.

While various e-commerce platforms can produce genuine products and solutions for the market, it may sometimes be better to localise the successes seen abroad.

This is the inspiration behind the e-commerce business such as FashionValet (FV).

Vivy Yusof, founder of FV, said he was inspired by the fashion e-commerce platform when he was exposed to consumerism in the United Kingdom. With just a few clicks, users can easily purchase products and receive the purchase at their doorstep easily.

Together with Fadzarudin Shah Anuar (her boyfriend and her husband), FV was launched in 2010 with a minimum budget of RM100,000 from their savings and personal loans. A few years later, FV became more prominent and has successfully raised funds RM310 million from investors to date.

Today, FV receives more than 438,000 visitors each month and has four major physical stores throughout Malaysia.

Although FV was born out of a western e-commerce model, Vivy localized its business model for Malaysians and is now one of the most popular fashion brands in the country starting from the online space.

With so much success from around Southeast Asia and the world, entrepreneurs and entrepreneurs can observe successful e-commerce players abroad as an inspiration for their business ventures.

Changing the way we hire

According to market research, e-commerce businesses experiences major challenges when looking for highly skilled personnel in technical fields such as

• software engineering, 
• digital marketing, 
• data science, and 
• product marketing.

Finding employees working with experience in this technical role can be challenging due to the rapid growth of e-commerce in the region, meaning that there was no previous workforce supply for the digital economy in previous years in certain technical roles.

The lack of talent for specialized e-commerce is an issue identified as the most critical challenge in Google & Temasek’s recent report as well. Therefore, regular practice for e-commerce to recruit foreign talents with relevant experience and knowledge.

Although this solves the problem in some sense, this may not be the best long-term solution as most expatriates work on short contracts and only a handful of them would stay in the job for more than five years.

The ideal solution is to invest in local talent who are more likely to commit to a career in the long run.

Resolving this problem requires the participation of both recruiters and future workforce. One way to resolve this issue is to change the traditional recruitment process to a new process for digital economy.

One of the ways to solve this problem is to rethink the hiring process and prioritize highly motivated candidates, with high skills in problem solving and creative thinking.

This may mean putting lower importance on the technical skills and industry-specific knowledge. Recruiters from the digital sector need to invest their resources in training their workforce as well to reduce the lack of technical skills and knowledge.

Jeremy Chew is the head of content marketing for iPrice group, the fastest growing product meta-search platform in Southeast Asia. For further information, please visit https://iprice.my.


https://www.theborneopost.com/2019/03/03/realising-the-rm85-billion-industry/

Ministry proposes cap on oil palm plantations

MARCH 6, 2019 BUSINESS




KUALA LUMPUR: The Ministry of Primary Industries will be presenting a proposal to the Cabinet this month to cap the maximum area for oil palm plantations at about 6.5 million hectares, up from the 5.85 million hectares as at end-2018.

Minister Teresa Kok said this was expected to be achieved by 2023 based on the average annual expansion of plantations from 2013 to 2018.

“This move was made in order to dismiss accusations that oil palm plantations are the reason for deforestation.

“But, in order to achieve this, we have to work with various state governments,” she said when officiating the 30th annual Palm and Lauric Oils Conference and Exhibition, Price Outlook 2019 Conference and Exhibition (POC 2019) yesterday.

Kok said palm oil players should also improve the research and development of seedlings, as well as boosting the productivity and yields of existing oil palm tree.

Kok said the ministry would also propose to the cabinet to compel information on the areas under oil palm plantations to be made public.

“We need to be transparent. We hope the cabinet will approve the proposal,” she said.

Meanwhile, Kok said the government’s effort this year to expand the B10 and B7 bio-diesel programmes to the transport and industrial sectors was expected to raise palm oil consumption by 761,000 tonnes annually.

“This will help reduce the huge stockpile and lift the commodity prices,” she added. — Bernama

Mosva: Good times await offshore support vessel segment

MARCH 4, 2019 BUSINESS



KUALA LUMPUR: As the activities in the oil and gas (O&G) industry pick up pace on the back of rising benchmark Brent Crude oil price which has hit US$66 per barrel, the offshore support vessel (OSV) segment is upbeat of more tender offers, especially from Petronas.

In the dark days of oil price in 2016, when the price slumped to US$28 per barrel, barely 100 vessels were chartered.

With the stabilisation of the oil price at the current US$66 per barrel, the Malaysian OSV Owners’ Association (Mosva) foresees full utilisation of the industry’s capacity of 300 vessels, said its president, Mohamed Safwan Othman.

“Stability in oil price creates stable demand, be it from the national oil company or other oil majors in Malaysia such as ExxonMobil, Shell and Repsol,” he told Bernama.

Petronas, for instance, has kicked off maintenance work, hook-up commissioning drilling and exploration, disclosing that there would be about 20 greenfield and 30 brownfield projects between 2018 to 2020 that would have the potential for future oil projects.

Mohamed Safwan said for the past three years, since end-2014, Petronas had stopped all of its activities except for production, which resulted in a sharp decline in OSVs needed, culminating in only 170 vessels being occupied from 300 previously.

“Since July 2018, when the oil price reached US$70 per barrel, we saw the activities picking up. And imagine for 20 greenfield projects, they would require up to three OSVs, it is a simple calculation on how much vessels are needed, especially for three years until 2020,” he added.

According to Mosva, under the OSVs requirement for 2019 to 2021, Petronas has contracted out 107 vessels under the Integrated Logistic Control Tower packages.

“The most widely required OSVs for development projects are

• anchor handling tug supply vessel, 
• platform supply vessel, 
• straight supply vessel and 
• fast crew boat,” he said.

Mosva has 24 members in the country, with accumulated tonnage of 540,000 dead weight tonnage (DWT), representing 90 per cent of Malaysian-flagged OSVs.

Asked about the challenges ahead, Mohamed Safwan said the OSVs owners were facing issues with low charter rate, which could go as low as 50 per cent of its operating expenses.

“Whereas for Petronas, its profit margin is US$35 per barrel and for them to embark on the exploration activities, they require oil price to be at US$55 per barrel. But we are actively engaging with Petronas on this matter,” he said.

Meanwhile, the total Malaysian fleet as at 2018 stood at 10.23 million DWT, with oil tankers made up 31 per cent (3.2 million DWT), bulk carrier (eight per cent), general cargo (three per cent), container ships (two per cent) and other types of vessels (the remaining percentage). — Bernama

Petronas awards MCM contracts to five contractors

JANUARY 16, 2018

File photo of a Petronas offshore platform. Petronas’ subsidiary, Petronas Carigali Sdn Bhd (PCSB), has awarded its contract for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors.

KUALA LUMPUR: Petronas’ subsidiary, Petronas Carigali Sdn Bhd (PCSB), has awarded its contract for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors.

In a statement here, it said the contractors were

• Carimin Engineering Services Sdn Bhd, 
• Dayang Enterprise Sdn Bhd, 
• Deleum Primera Sdn Bhd, 
• Petra Resources Sdn Bhd, 
• Sapura Fabrication Sdn Bhd, and its joint-venture partner, Borneo Seaoffshore Engineering Sdn Bhd.

These five local contractors were selected for the five-year contract which took effect in September last year, with an option to extend an additional year, said PCSB.

Under the terms of the contract, the engineering and maintenance services will include Topside Major Maintenance (TMM) and Facilities Improvement Projects (FIP).

Vice-President of Malaysia Assets of Petronas and Chief Executive Officer of PCSB Mohd Jukris Abdul Wahab said new requirements were introduced to encourage collaboration across the industry supply chain.

“These contracts encompass requirements such as the utilisation of marine vessels from Malaysian-owned companies only and the mandatory participation of 20 per cent local state service providers to spur value-added services that ensures growth in Malaysia’s oil and gas upstream services industry,” said Jukris.

With 200 offshore platforms in operation under PCSB in Malaysia, Petronas continues to encourage merit-based participation from local contractors to achieve value-driven production growth for the long-term progress and sustainability of the oil and gas industry. – Bernama

Petronas contracts

Petronas contracts have gone to a handful of S’wakians, not to Petros


MAY 7, 2018 SARAWAK


See Chee How

KUCHING: Datuk Patinggi Abang Johari Tun Openg should be truthful to all Sarawakians and admit that Petronas work contracts awarded after his appointment as the Chief Minister of Sarawak, in as far as they involved the operations in Sarawak, have gone to a handful of Sarawakians and not to Petros, the state-owned company incorporated to partake the upstream and downstream petroleum-related development activities in Sarawak, said Batu Lintang assemblyman See Chee How.

See, who is state PKR vice chairman, was responding to Abang Johari’s denial on Saturday that most Petronas contracts worth RM2.1 billion being awarded to close relatives and Parti Pesaka Bumiputera Bersatu (PBB) members.

According to See, in Nov 2017, it was revealed that Sapura Energy Bhd has bagged five contracts worth a combined RM1.47 billion.

“The contracts included work in relation to the Pan Malaysia Transportation and Installation of Offshore Facilities for Petronas Carigali Sdn Bhd and Sarawak Shell Bhd, and a contract to undertake the provision of maintenance, construction and modification services under the Package A (Offshore) — Sarawak Gas for Petronas Carigali,” he said today.

On Jan 15, this year, he said a Memorandum of Understanding (MoU) for a logistics collaboration between Petronas Chemicals Marketing Labuan (PCML) Ltd and Hubline Berhad was signed, enabling Hubline Berhad to join PCML’s panel of transporters for petrochemical products.

“On Jan 16, 2018, Petronas Carigali Sdn Bhd (PCSB) had issued a statement announcing that it has awarded contracts for the provision of maintenance, construction and modification services (MCM) at its offshore facilities in Peninsular Malaysia, Sabah and Sarawak to five local contractors, namely, 
-  Carimin Engineering Services Sdn Bhd, 
-  Dayang Enterprise Sdn Bhd, 
-  Deleum Primera Sdn Bhd, 
-  Petra Resources Sdn Bhd, 
-  Sapura Fabrication Sdn Bhd, and its joint-venture partner, Borneo Seaoffshore Engineering Sdn Bhd.

“Tan Sri Datuk Amar Hamid Bugo, the former State Secretary of Sarawak was appointed the Chairman of Petros by the present Sarawak Chief Minister. He has remained a director in Sapura Energy Berhad, a corporation which is almost wholly West Malaysian.”

See said Abang Johari should have full knowledge that the joint venture partner for Sapura Fabrication Sdn Bhd in the contract to undertake the provision of maintenance, construction and modification services under the Package A (Offshore) — Sarawak Gas for Petronas Carigali, is Borneo Seaoffshore Engineering Sdn Bhd, a company registered in Kota Kinabalu, but one which the Sarawak Chief Minister’s one very close family member was made a director not long before the contract was awarded.

“Dayang Enterprise Sdn Bhd and Petra Resources Sdn Bhd are established corporations of which Sarawakian individuals have substantial interests, though a brother of the present Prime Minister Datuk Seri Najib Tun Razak was also made a director in Petra Resources very recently.”

Hence, See said he maintained his statement that the general Sarawakians have not benefited from the contracts that were awarded by Patronas, valued to be above RM2 billion, since the present Chief Minister has taken his office.

“And I urge the Chief Minister to be forthright and truthful in revealing who are the Sarawakians who are behind the companies and corporations who had secured the contracts with Petronas thus far.

“And I maintain my contention that, because of the personal interests and that of the parties within the Barisan Nasional (BN), the Sarawak Chief Minister has put himself in a weak position to safeguard and fight for Sarawak’s rights in the exploration, exploitation and development of our valuable petroleum resources in Sarawak.”


https://www.theborneopost.com/2018/05/07/petronas-contracts-have-gone-to-a-handful-of-swakians-not-to-petros-rep/

Petronas net profit soars 22 pct to RM55.3 bln in FY2018

MARCH 9, 2019 BUSINESS



KUALA LUMPUR: Petroliam Nasional Bhd’s (Petronas) net profit rose 22 per cent to RM55.3 billion in the financial year ended Dec 31, 2018 (FY18) from RM45.5 billion in 2017, on the back of higher revenue and supported by a net write-back of impairment on assets.

Revenue also increased by 12 per cent to RM251 billion from RM223.6 billion in FY17, mainly due to higher average realised prices for all key products.

President and group chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin said the company recorded a strong financial performance in 2018, supported by its ongoing drive to increase operational efficiency and commercial excellence.

“We have made progress in the pursuit of our long-term strategies and will continue to invest in the future,” he said during the company’s fourth quarter and 2018 financial performance briefing yesterday.

Commenting on oil prices, he said it was expected to remain volatile this year with uncertainties expected to have a significant impact.

Wan Zulkiflee said Petronas’ plans for this year would be based on the oil price of US$66 per barrel.

“We use US$66 per barrel (as a benchmark) for our planning as anticipate a volatile year. As you can see in the past month, the oil production was also quite erratic,” he added.

He said Petronas planned to set aside slightly more than RM50 billion for its capital expenditure (capex) allocation for this year, slightly higher than the RM46.8 billion allotted in 2018..

Upstream activities would see an injection of RM30 billion, while RM15 billion has been allocated for the domestic market.

“Last year, we saw most of the capex spent on the Pengerang Integrated Complex. Some of the capex would be used to venture into renewable energy.

“This is because oil is a depleting source and I think we have to allocate capex for whenever the opportunity is available, and India is one of them, and Malaysia as well,” Wan Zulkiflee said.

It was reported that Petronas had shown interest in one of India’s largest rooftop solar power producers, Amplus Energy Solutions Pvt Ltd, in a deal that could be worth RM1.56 billion.

— Bernama

Warren Buffet on Equity Bonds

@0.40  Anything can happen in the market, therefore, don't borrow money to invest.
@1.39  Look at the business to see if you have made a good investment, not the price.
@3.30  Many shareholders look at Berkshire as a savings account.
@3.50  Interest rates are gravity on the stock prices.  When interest rates are so low, the stock prices are going to rise.
@4.10  30 year government bond versus equity bond (hear Warren Buffett's explanation).
@5.10  When value of government bond offers higher coupon rates, it affects the value of your equity bonds.
@5.40  The yardstick is government bond.  The higher the yardstick goes, the less attractive are these other bonds.
@5.53  In 1982/83, when the long government bond got to 15%, a company that was earning 15% on its equity was worth no more than its book value in those circumstances.  A business that was earning 12% then, was a sub-par business.  
@6.15 to 7.00  On the other hand, a business earning 12% on equity when the government bond is 3% is a fantastic business to own.
@7.10  If you told me interest rate is going to be 15% next year, there will be a lot of equity I do not wish to own.
@7.30  Idiotic to own long term bond.
@8.05  Asset allocation to bonds and stocks.  Some people should never own stocks, especially if they are emotionally or psychologically not tuned to owning them, doing something stupid.
@8.53  The longer you hold stocks, the less risky they be, the longer you hold bond, the more risky they become.
@9.22  Investing is not easy, psychologically for most people.  Some gets the message, some don't.

QL Resources (Kenanga Research)

QL Resources Bhd - 9M19 Broadly Within Expectations


9M19 PATAMI of RM173.5m (+11%) and absence of dividends are within expectations. Better marine segment’s yield and expanding base of the integrated livestock segment as well as the eventual turn-around of the group’s convenience store chain could translate well to the group’s long-term profitability. We maintain our UP rating and TP of RM5.70.

9M19 broadly within. 9M19 PATAMI of RM173.5m is deemed broadly within our/consensus estimates, making up 81%/76% of respective fullyear expectations. No dividend announced, as expected. The group typically pays a single interim dividend annually; expected to be 4.5 sen for FY19.

YoY, 9M19 revenue of RM2.72b (+10%) was thanks to higher catch rates from the marine products manufacturing (MPM) segment and growth in output and sales from integrated livestock farming (ILF). Palm oil activities (POA) continued to be weaker from softer CPO prices and unsold inventories. Regardless, PBT grew slightly by 9% thanks to stronger results from the two divisions mentioned above. 9M19 PATAMI registered at RM173.5m (+11%) after incurring lower effective taxes of 14.5% (0.8ppt).

QoQ, 3Q19 revenue of RM978.9m grew by 6% on the back stronger sales from both MPM and ILF. PBT soared by 39% due to better margins from MPM and POA due to better conditions leading to higher catch rates and FFB yields, respectively. ILF, however, continued to churn stable margins. Due to higher effective taxes during the quarter (19%, +10.8ppt), 3Q19 PATAMI closed at RM69.1m (+14%).

On better steps. The continued growth in the MPM segment presents a welcomed change as it was previously bogged down by highly unfavourable weather conditions, which lowered catch rates. Further gains could come from its new surimi plant and fleet expansion. The POA segment may trail poorly if weak CPO prices persist. Still, contribution from this segment could remain less meaningful to the group as opposed to its other businesses (i.e. <10 120="" achieves="" against="" and="" base="" bases="" br="" buffer="" by="" chain="" commodity="" convenience="" could="" demonstrated="" detrimental="" expected="" familymart="" feed="" fluctuations="" from="" further="" fy20="" generate="" group="" growth="" had="" hand="" has="" ilf="" in="" indonesia.="" is="" it="" its="" local="" locations.="" market.="" milling="" of="" on="" optimal="" other="" pbt="" players="" potential="" production="" profits="" progressively="" proven="" provide="" s="" some="" store="" strong="" the="" to="" vietnam="" when="" which="">Post results, we leave our FY19E/FY20E assumptions unchanged.

Maintain UNDERPERFORM and TP of RM5.70. Our valuation is based on an unchanged 40.0x FY20E PER (within the stock’s +1.5SD over its 3- year mean PER). We believe the rich valuation is reflective of a higher investor appetite, attributed to the stock’s defensive quality in the consumer staples space. However, we also believe that current trading valuation could be excessive due to its: (i) low dividend prospects at c.1% (vs. best peer’s yield of 4%), and (ii) slower earnings growth expectations c.6% (vs. peers’ average of +10%).

Risks to our call include: (i) significant improvement to MPM sales, (ii) significant uptick in palm oil prices and sales volume, (iii) better-than expected demand of poultry products abroad.

Source: Kenanga Research - 1 Mar 2019

4 Charlie Munger Quotes That Will Make You A Better Investor

Ben Reynolds

October 16, 2018 

Every investor not living under a rock knows Warren Buffett, Chairman and CEO of Berkshire Hathaway Inc. (NYSE: BRK-A)(NYSE: BRK-B), but they might not be as familiar with Charlie Munger, Buffett’s business partner and Vice-Chairman of Berkshire Hathaway. Munger is Buffett’s right-hand man, and has played an important role at Berkshire Hathaway for decades. Together, these two legendary investors built the firm into the investment conglomerate it is today.

Investors can learn a great deal from the wisdom Munger has gained over many years at the helm of Berkshire Hathaway. Here we take a look at some of his best quotes.

A Remarkable Investment Track Record

Munger’s investment performance — both before and during his tenure at Berkshire Hathaway — is nothing short of spectacular. Munger actually managed his own investment partnership before joining Buffett at Berkshire Hathaway, during which he managed annual returns of 19.8 percent from 1962 to 1975, compared to just 5 percent annually for the Dow Jones Industrial Average over the same period.

Munger and Buffett share a similar investment philosophy. In short, they buy great companies trading for discounts to their intrinsic value. The focus here is on high-quality businesses:

“A great business at a fair price is superior to a fair business at a great price.”

Often, the stock market irrationally discounts companies based on short-term factors, such as geopolitical events, rising interest rates and other macro-economic factors. Buffett and Munger try to buy these undervalued stocks when the market does not appreciate their long-term potential.

Great businesses, according to Munger, are those that have durable competitive advantages, and highly profitable business models. Munger particularly likes businesses that do not require a great deal of reinvestment in order to grow. In addition, investors should focus on investments that are not overly complicated. Sometimes, the best long-term businesses operate in industries that do not experience rapid change.

In addition, investors should carefully consider a company’s management team. Even great businesses can be brought to ruin by incompetent managers. Investors should favor companies that do not require geniuses in the executive suite to be run effectively.

Now that investors have selected great businesses with strong management teams, the next best thing they can do is be patient.

Give It Time

Investors tend to react impulsively. With the often-volatile swings of the stock market, it can be easy for investors to think they always need to respond to daily events by trading in and out of their positions. This is a huge mistake, and is one of the biggest reasons why many investors earn weak returns over time. Trading frequently generates trading commissions, and in some cases, tax liability. There is simply no way any investor can know the perfect time to buy and sell stocks.

Because of this, investors should train themselves to ignore the daily fluctuations of the stock market, and instead think for the long-term. Patience is difficult, especially when the market is declining, but is necessary to reap the benefits of long-term investing:

“The big money is not in the buying or the selling, but in the waiting.”

Being patient allows investors to benefit from the magic of compounding interest. Patience is not to be confused with complacency. High-quality businesses do not often trade for significant discounts to their intrinsic values, so when they do come around, investors should pounce. Munger was not a big proponent of diversification. Munger never saw the reason to buy additional stocks just for the sake of diversification, when the best ideas should get the bulk of an investor’s attention:

“Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognized as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”

Munger’s apathy toward diversification runs contrary to a cornerstone principle of many investors. But given his remarkable investment performance at his own partnership, and then at Berkshire, it is hard to argue with his methodology.

Never Stop Learning

One of the core principles of Munger’s investing philosophy is to learn as much as possible. This is one of the best ways for investors to get better. Munger’s pursuit of knowledge is not necessarily to become more intelligent. It is not always the case that investors with the highest intelligence perform best in the market. Instead, Munger preached wisdom, which can mean different things to different people. To Munger, wisdom is more than simply memorizing facts:

“What is elementary, worldly wisdom? Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form. You’ve got to have models in your head. And you’ve got to array your experience — both vicarious and direct — on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and fail in life. You’ve got to hang experience on a latticework of models in your head.”

The takeaway for investors is that it is entirely possible to do well in the stock market, and you don’t have to be an investment banker or possess an MBA. Investors can generate strong returns over time, simply by following a few simple rules in the investment selection process. If investors buy high-quality businesses trading for less than their intrinsic value, with strong management teams, and are patient to hold for long periods of time, their performance can measurably improve.

https://www.benzinga.com/general/education/18/10/12515347/4-charlie-munger-quotes-that-will-make-you-a-better-investor

Warren Buffett and Charlie Munger discuss intrinsic value at the 1997 Berkshire Hathaway annual meeting.

Warren Buffett and Charlie Munger discuss intrinsic value at the 1997 Berkshire Hathaway annual meeting.


@7.00 Charlie Munger advocates the concept of opportunity cost.

@8.30 Compare with Coca Cola. Compare to Gillette. Is it better than buying Coca Cola or Gillette stock? Always compare to your own preexisting stock. Maybe better off buying more of the preexisting stocks.

@9.40 Concept of intrinsic value was easier in the past. Based on liquidation value. Based on asset value. You can see the discount from intrinsic value. Now, you need to get into Warren's type of thinking on valuation.

@12.00 Part of the process of calculating intrinsic value is the ability to: Walk away from anything that doesn't work? Walk away from anything you cannot understand?

Buffett doubles down on banks as Berkshire trims Apple stake

15 Feb 2019

NEW YORK (Feb 15): Warren Buffett’s Berkshire Hathaway Inc took advantage of a plunge in bank stocks to pile even further into his bet on financials, while trimming a giant stake in Apple Inc.

Berkshire spent the last half of the year snapping up more shares of banks and insurers, moves that made the company a major shareholder in four of the five largest US banks. The Omaha, Nebraska-based conglomerate boosted its stake in JPMorgan Chase & Co and Bank of America Corp in the last three months of the year.


Key Insights

Berkshire reduced its Apple stake by 1% in a period that marked its first holiday quarter sales decline in 18 years and saw shares plunge 30% . It’s still the biggest holding in Buffett’s portfolio, and the stock has rebounded about 8% this year.

Buffett didn’t enjoy his time investing in International Business Machines Corp, but he may have made quite a haul on its latest purchase.

Berkshire owned 4.2 million shares of Red Hat Inc at year-end, though it’s unclear if they were bought before IBM’s purchase of the company sent the stock up 45% on Oct 29.

Berkshire also boosted its stakes in regional lenders, including PNC Financial Services Group Inc and US Bancorp. That could be a bet on consolidation in the industry, as this month’s announced merger between SunTrust Banks Inc and BB&T Corp has led to speculation that more deals are coming.

Market Reaction

Oracle shares dropped 1.3% at 4:56pm in New York, after the end of regular US trading. Apple was down as well, losing about 0.5%.

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Buffett had long praised JPMorgan’s Jamie Dimon even as Berkshire Hathaway didn’t invest in the stock. Berkshire eventually plowed in when the timing aligned, according to Vice Chairman Charles Munger. “As investment has gotten harder and the banks have done better and better, we’ve finally reached a crossing point where he was willing to act,” Munger said Thursday in an interview after the Daily Journal Corp meeting in Los Angeles.

Berkshire’s dalliance with Oracle Corp was short-lived. After taking a US$2.1 billion stake in the software firm in the third quarter, Berkshire had sold out by year-end. Buffett has typically taken a more cautious approach to technology companies, given his lack of familiarity with the space.
Buffett likes to take advantage of what he views as fear in the markets, and that certainly hit banks last quarter. The S&P 500 Financials Index dropped 14% in the fourth quarter, the worst period in more than seven years.


- Bloomberg

EPF declares 6.15% for conventional savings, 5.9% for shariah

KUALA LUMPUR (Bernama): The Employees Provident Fund (EPF) has declared a dividend rate of 6.15% for Conventional Savings 2018, with payout amounting to RM43bil and 5.9% for Shariah Savings 2018, with a payout amounting to RM4.32bil.

In total, the payout for 2018 amounts to RM47.32bil, a marginal decrease of 1.7 per cent from 2017.

"With a real dividend of 3.93 per cent for Simpanan Konvensional and 3.68% for Simpanan Shariah on a rolling three-year basis respectively, the EPF has exceeded its mandate of delivering a dividend of at least 2.5% on a yearly basis and at least 2.0% real dividend on a rolling three-year basis," the EPF said in a statement on Saturday (Feb 16).

"We are very grateful and pleased that we have been able to consistently meet our two strategic investment targets. Beyond the anticipated nominal dividends, more importantly is that we consistently deliver above-inflation returns so that we are able to preserve and enhance the value of our members' savings over the long term and help them achieve a better retirement future," its chairman, Tan Sri Samsudin Osman said.

"Nonetheless, we remained focused on our long-term strategy and our portfolio diversification has provided resiliency and delivered commendable returns to our members," he said.

Gross investment income for 2018 was RM50.88bil, out of which a total of RM4.62 billion was attributed to Shariah Savings, proportionate to its share of total Shariah assets, while RM46.26bil was attributed to Conventional Savings.

The lower income for EPF's Shariah portfolio in 2018 was due to the underperformance of the telecommunications, construction and oil and gas sectors in the domestic portfolio.

The dividend payout for each account was derived from total gross realised income for the year after deducting the net impairment on financial assets, unrealised gains or losses from intercompany transactions, investment expenses, operating expenditures, statutory charges, as well as dividend on withdrawals.

The payout amount required for each 1.0% of the dividend in 2018 was RM7.72bil, which is higher compared with RM7.02bil in 2017.

In accordance with the implementation of the Malaysian Financial Reporting Standards 9 (MFRS 9), which came into effect beginning Jan 1, 2018, capital gains on disposal of equity amounting to RM18.21bil for 2018 will flow directly to Retained Earnings from the Statement of Other Comprehensive Income, instead of the Statement of Profit and Loss as under the previous MFRS 139.

In addition, under MFRS 9, the EPF will no longer recognise any impairment on its listed equity holdings, he added. - Bernama




Read more at https://www.thestar.com.my/news/nation/2019/02/16/epf-declares-dividends-for-2018/

Buffett explains Intrinsic Value

To avoid falling into a value trap, an investor must always keep asking, "why"?

Once you find an undervalued security trading at a substantial discount to your estimate of intrinsic value, your job is not over. 

"Why is the stock trading at this level and what catalysts will lead to its eventual reversal?" 

If you cannot answer this question, you should not be investing in the stock. 

This is second level thinking (Howard Marks) and it will keep you from falling into a value trap. 

An investor must always keep asking, "why"? 

• Why is this occurring? 
• What is the overarching reasoning or justification behind this particular scenario or occurrence? 

When you have those answers, you have to ascertain why the other side may (or may not) be wrong. 

• Is there are mispricing here? 
• There was a major disconnect between perception and reality - between the stock price and the intrinsic value of the business. Why? 

There can be from any number of reasons. Usually one or the other side is wrong from psychological or analytical misjudgements (sometimes both).

This is opportunity cost at its finest action.

PROBABILITY OF VALUE REALIZATION


What do you do if there are multiple bargains at the same time?

How do you distinguish which ones offer better value than the other ones?

One stock is trading at 40% below its intrinsic value and another at 70% below its intrinsic value.

• WHICH ONE DO YOU INVEST INTO?
• WHAT IF ONE OF THE INVESTMENTS HAS A GREATER PROBABILITY OF VALUE REALIZATION THAN THE OTHER?

Note: The best absolute value may not always be your best investment choice.



As a focused value investors, we want no more than a few investments in the portfolio at any one time.

As the number of investments in the portfolio build up, every decision make will be based on whether it is a better investment in comparison to any of the current holdings.

This is opportunity cost at its finest action.

Understanting Risk Aversion

Risk aversion- Various Definitions

Description: In economics and finance, risk aversion is the behavior of humans, who, when exposed to uncertainty, attempt to lower that uncertainty. It is the hesitation of a person to agree to a situation with an unknown payoff rather than another situation with a more predictable payoff but possibly lower expected payoff.

Definition: A risk averse investor is an investor who prefers lower returns with known risks rather than higher returns with unknown risks. In other words, among various investments giving the same return with different level of risks, this investor always prefers the alternative with least interest.

What is Risk Averse: Risk averse is the description of an investor who, when faced with two investments with a similar expected return, prefers the one with the lower risk.

Risk Averse: A risk-averse investor dislikes risk and, therefore, stays away from high-risk stocks or investments and is prepared to forego higher rates of return. Investors who are looking for "safer" investments typically invest in savings accounts, bonds, dividend growth stocks and certificates of deposit (CDs).

Description: A risk averse investor avoids risks. S/he stays away from high-risk investments and prefers investments which provide a sure shot return. Such investors like to invest in government bonds, debentures and index funds.



What is Risk Averse?

Someone who is risk averse has the characteristic or trait of preferring to avoiding loss over making a gain. This characteristic is usually attached to investors or market participants who prefer investments with lower returns and relatively known risks over investments with potentially higher returns but also with higher uncertainty and more risk. A common concept tied to risk, one which compares thee risk level of an individual investment or portfolio to the overall risk level in the stock market, is the concept of beta.

Risk Averse definition and chart



Types of Investments Risk Averse Investors Choose

A risk averse investor tends to avoid relatively higher risk investments such as stocks, options, and futures. They prefer to stick with investments with guaranteed returns and lower-to-no risk. These investments include, for example, government bonds and Treasury bills. Below are two lists that classify lower and higher risk investments. Keep in mind that while the relative risk levels of various types of investments generally remain constant, there can be situations where a usually low-risk investment has a higher risk, or vice versa.



Safer, low-risk investments
Bonds
Certificates of Deposit
Treasury securities
Life Insurance
Investment Grade Corporate Bonds
Bullet Loans
ETFs*

In addition to these specific investments, any type of debt instrument issued by a company will generally be considered a safe, low-risk investment. These debt instruments are typically well-suited for a risk averse investing strategy.

These instruments are lower risk at least partly due to their characteristic of absolute priority. In the event of dissolution or bankruptcy of a company, there is a definite order of payback to the company’s creditors and investors. Legally, the company must first pay of debtors before paying off preferred shareholders and common shareholders (equity investors).



Higher risk investments
Stocks
Penny Stocks
Mutual Funds
Financial Derivatives (Options, warrant, futures)
Commodities
ETFs*


*Some ETFs are higher risk, but most ETFs, especially those invested in market indexes, are considered quite safe, especially when compared to investments in individual stocks. This is because they typically experience relatively lower volatility, due to their diversified nature. Keep in mind, however, that some ETFs are invested in significantly higher risk securities. Hence, the inclusion of ETFs in both the low and high risk categories.

General Portfolio Policy (Benjamin Graham)

General Portfolio Policy: The Defensive Investor

Graham opens the chapter defining two different kinds of investors: the “active” investor, which is the kind of investor that actively seeks new investments and invests serious time into studying investments, and the “passive” or “defensive” investor, the kind of investor that wants to invest once (or on a highly regular basis) and just let his or her portfolio run on autopilot.

Regardless of the activity that you apply to your investments, Graham sticks hard with his recommendation from the earlier chapter: 50% stocks, 50% bonds (or a close approximation thereof, with an absolute maximum of 75% in either side). It’s important to remember with a recommendation like that that Graham is very conservative in his investing, dreading the idea of an actual loss in capital. Only in the most dire of down markets (like 2008, for example) would such a portfolio actually deliver a loss to the investor.

Things that enterprising investors should focus on. (Benjamin Graham) 2

Portfolio Policy for the Enterprising Investor: The Positive Side

Graham says that there are four clear areas of activity that an enterprising investor (read: not an ultra-conservative investor) should focus on:

1. Buying in low markets and selling in high markets.
Graham says, in essence, that this is a good strategy in theory, but that it’s essentially impossible to accurately predict (on a mathematical basis) when the market is truly “low” and when it’s truly “high.” Why? Graham says that there’s inadequate data available to be able to accurately predict such situations – he basically believes fifty years of data is needed to make such claims, and as of the book’s writing, he did not believe adequate data was available in the post-1949 modern era. 

2. Buying carefully chosen “growth stocks.”
What about growth stocks – ones that are clearly showing rampant growth? Graham isn’t opposed to buying these, but says that one should look for growth stocks that have a reasonable P/E ratio. He wouldn’t buy a “growth stock” if it had a price-to-earnings ratio higher than 20 over the last year and would avoid stocks that have a price-to-earnings ratio over 25 on average over the last several years. In short, this is a way to filter out “bubble” stocks (one where irrational exuberance is going on) when looking at growth stocks.

3. Buying bargain issues of various types.
Here, Graham finally gets around to the idea of buying so-called “value stocks.” For the most part, Graham focuses on market conditions as they existed in 1959, pointing towards what would constitute value stocks then. A brief bit on page 169, Graham discusses “filtering” the stocks listed by Standard and Poor’s (essentially a 1950s precursor to the S&P 500) and identifying 85 stocks that meet basic value criteria, then buying them and finding that, over the next two years, most of them beat the overall market.

That’s an index fund. Graham had basically conceived of the idea in the 1950s – it worked then, and it works now.

4. Buying into “special situations.”
Graham largely suggests avoiding “topical” news as a reason to buy or sell, mostly because it’s hard for investors to gauge how exactly such news will truly affect the stock’s price. Instead, one should simply file away interesting long-term news for later use if you’re going to evaluate the stock. For example, recalling that a company is still paying off an incurred debt from ten years ago and that debt is about to be paid off might be an indication of an upcoming jump in profit for the company – and a possible sign of a good value.