Stocks: Are Plantation stocks still worth looking at (with the current CPO prices hitting new highs)?

We have seen that there are many people calling for "buys" on the plantation sector due to the rising CPO prices. If you wonder where to find out on the latest CPO prices, they are mainly transacted via futures. FCPO is Malaysia's main platform to trade CPO and take delivery in future months. Hence, FCPO remains a good gauge on what will be the price for the future prices of CPO.

Below is the snippets of FCPO prices as of 28/12/2020

FCPO prices taken on 28 December 2020

So, are Plantation stocks a buy now? Let's look at the facts below before we answer the question:

1. Plantation stocks are normally trading below NTA (P/NTA of 0.3 to 0.8 times - depending on plantation size, location of landbank, productivity/age-profile of trees, lands' proximity to development and production cost per tonne). 

2. Plantation stocks are very cyclical and it normally has an uptrend during the CPO commodity price bull runs (due to a swell in earnings and potential dividend). 

3. Some of the Plantation companies like Genting Plantation, IOICorp has emerged into a developer as well due to their land being very close to "development areas". Places like Kulai and Puchong are being developed by Genting Property and IOI Properties as they were ex-estates. 

4. Production costs of FFB (Fresh Fruits Bunches) are estimated to be ~RM1,800. Due to logistical issue, cost structure of some more rural located plantation companies (especially at Sabah, Sarawak) has a slightly higher cost structure. Labour costs in peninsula Malaysia is slightly higher but at East Malaysia logistical issues often balloon the costs and also caused some FFB to degrade (hence commanding lower prices or even being dumped). 

5. Some of the bigger companies like FGV, TSH has landbanks and operations outside Malaysia (mostly all in Indonesia). Sime Darby Plantation has acquired NBPOL in 2015 hence they now operate and own palm oil plantation in Papua New Guinea. 

6. The fruits from the trees can be harvested, sent to the oil palm mill to produce Palm Oil. That is the priced asset. A young tree (normally defined as <7 years old) will yield very little FFB. Trees with age profile of 7 to 12 years old are normally deemed as young matured trees and I have read and seen some producing up to 18 tonnes/ha. The prime is said to be from 10 years of age until 23 years old where they can produce 18 to 25 tonnes of FFB/ha. This is again depending on the tree species. However, the machineries, mills and land cannot be monetize instantly. Land will take a longer time to be monetized as they need to be rezoned for other developments, divided into smaller plots and sold. The process usually take years to complete.

7. 1 tonne of FFB now sells for RM3,800 vs average production costs of RM1,800. The profit is tremendous as compared 9 months ago the average price is <RM2,500/tonne. 

8. Some of the Plantation companies are very illiquid and thinly traded. 

9. Tree stress will normally cause lower production after several months (6-9 months) of good production. Of course, dry weather is another root cause (while wet weather caused floods and harvesting issues leading to eventual reduction in production). This is one good reason on why CPO production and prices is always cyclical.

10. Windfall tax will be activated by Malaysian government (>RM3,000/tonne) and this is also a natural curb in profit. It's reported that in Jan 2021 a 8% Windfall tax will be collected.

Let's see how the companies in Bursa are being valued right now?

A truncated list of Bursa listed Plantation companies (filtered based on Market Cap)

Based on the filtered list above, you can see that the biggest players include Sime Darby Plantation, IOI Corporation, KLK, Genting Plantation is trading at P/B value of >1. One can always argued that the land have not been revalued over the years and if revalued now the book value can be higher, hence reducing the P/B value. 

In terms of P/E ratios, it might not be meaningful as months ago CPO prices were low and naturally profit is bad. 

If you observe well, most of the companies have gone up from their 52 weeks low and now trading almost at their 52 weeks high. 

Concerns

1. The share prices of most Plantation companies have risen and almost at their 52 weeks high. There is always a concern that despite the very likelihood in the hike in profits for the listed Plantation companies, it has already factored in all the good news. When the results come out, not all companies will report terrific profits (due to labour shortage factors, some companies' trees are either too young or old, logistical issues due to bad weather in Q4). Those who reports good profits might not experienced a sharp share price increased. 

2. Some plantation companies like JTiasa etc has pretty weak balance sheet. Some of the East Malaysian companies also involved in timber business and that segment of business wasn't doing well. 

3. Normalization of CPO prices. We can say that prices are market driven, so when prices rises it is due to sustained demand of CPO, the hike in price will dampen demand as well. Lower demand and potentially increase in production in coming months (especially after lots of rain from Sept onwards) could drive prices down.

4. Strengthening of Ringgit against US Dollar might put some pressure on CPO prices. The next edible oil which competes neck-to-neck with Palm Oil is Soybean and it's grown mainly in the West. Buyers buy CPO in USD and hence when RM appreciate, we will have to lower the price to compete with Indonesia.

Outlook? Is it still a buy now?

It is a difficult question to answer but our views are as below.

1. It is still possible to earn 10 - 30% profit by buying into Plantation companies. However, hoping for the stocks to double or triple up might be irrational (might happen in irrational market anyway). 

2. CPO Prices are set to come down after March 2021. The highest should be Jan 2021 which is around RM3,750/tonne.

3. Stocks are trading with a 6 months lookahead. Hence, it might be forecasting a reduction in profit going forward already. A good quarterly result might not help much in stock prices. It's the "Greater Fool's theory" in play right now as we also need to ask ourselves who is willing to buy at a higher prices.

4. If you use the "margin of error" methodology, you might not be comfortable. Margin of error might be lower now due to the price hike. 

5. If you want to take a bet, cherry-picking is the right way forward. Do make sure you read up the production of the Plantation companies (from Bursa's website as all plantation companies are required to post their monthly production figures).

Stocks: Why Index keep going up? And why it's not easy to beat it.

Warren Buffett has once mentioned: "In my view, for most people, the best thing to do is to own the S&P 500 index fund". He further believes that it's very difficult for most people to 'beat the index'. All of us were kind of puzzled and myself included has been asking the question on why is this?

An overview of historical KLCI and S&P500 chart:

After some hard thought process and discussions, we believed that the below are the reasons on why Indexes typically is on a long term uptrend (Japan excluded as they are the only one country in the world which faces long term deflation and hence financial products prices drop):

1. Indexes are being reviewed from time-to-time. Those who did not meet the criteria (i.e. free float, market capitalization) will be eliminated. However, when business is better they might be re-admitted again. Wikipedia (https://en.wikipedia.org/wiki/List_of_S%26P_500_companies) maintains a very good list on the current S&P500 component companies and the updates to it. The review process is already like a 'quality' screening of companies where ailing businesses will be removed and new and thriving businesses will be added.

You can see that only the fittest will "survive" being maintained in the index. This means that it's an auto elimination of businesses that were not doing well, either in the sunset industries or they have lost their competitive edge etc. Also, we know that size matters when it comes to businesses. Although the biggest companies may have higher cost structures and unable to grow as fast as a younger and smaller company, but the mid-to-bigger sized companies (that is likely to be included in S&P500) will have a higher chance of success as they already have competitive edge against their competitors (hence they can grow into the mid-to-bigger size) and have sufficient financial capabilities to do R&D (this is key to survival of a company). 

Notably, due to Technology sector's growth, more and more Technology companies are included into the index while old-school brick and mortar businesses and being kicked out.

2. Companies which are part of indexes are typically 'valued higher', including having higher P/E ratios, P/NTA etc. As index funds these days are gaining momentum, index fund managers have to buy stocks in order for the fund to 'mimic' the index. Hence, there is always demand for index-linked stocks.

3. Index-link stocks and companies does give business partners, investors more confident. Better investors' confidence will lead to point 2 as above while better business partners' confidence will mean that the ability to take loans at a cheaper costs, having slightly longer credit period and better consumers' confidence would also means better sales. 

Tesla, during the early days suffer in brand image and now that it has been included in S&P500 would bring better consumer confidence. The perception will be that it has to be a stable company to be included in S&P500. Similarly, stock prices will take a heavy beating should the stock be removed from the index. Don't be surprised that business might suffer as well post removal from index as customers' perception might be negative towards the company. After all, business is all about 'marketing and image' isn't it?

4. Other than Point 1, most importantly, these big and stable companies keep growing sales and profits, hence their share price keep rising to reflect that. Think of US companies (Google, Amazon, Microsoft, Intel, AMD, Qualcomm, Apple) and Malaysian companies (PB Bank, Maybank, Tenaga, TM, Hong Leong Bank), these companies still manage to grow decently despite their size. 20 years ago we are all talking about Intel Pentium III processor based computers with CRT monitors but today we talked about iPad, Laptops etc. However, companies like Microsoft keep evolving and they have Ms Surface, yearly subscription service of their Office products (Office 365) and offer cloud storage which wasn't in existence 20 years ago. 

For those "old-school" technology companies, they reinvent themselves and came out stronger. For example, Google, Microsoft and Apple reported that "Cloud Computing" is the segment that grows 'double-digit' consistently for the past 3 years. While Google is a newbie but Microsoft and Apple were in computer business since 1970s (the era of Wintel vs Apple). If you look at Microsoft (1986 @ USD21) and Apple (1980 @USD29/share) share price, you will definitely slam the table hard for not putting your money in. After many splits, the USD21 you paid for Microsoft is USD0.10 and at current share price of USD222, it means that a USD1,000 would turn into a hefty USD 2.2mil!

5. The world economy is growing, with exception of Japan where they experienced 20 years of deflation. This will link to the points above that coupled with inflation, profits of companies will keep increasing.

Conclusion
Index investing has not only becoming a trend but for the lazy and less-skilled investor, it become a natural choice. Beating the index is one of the harder things to do as index provides sufficient diversification, 'quality' selection done from time-to-time (i.e. every 3-6 monthly). 

Top 20 Warren Buffett's Famous Quotes

Like I mentioned in my previous articles, there is no "right and wrong" in investment as long as it earns you money. However, there are some notable ways that  you may earn your money in a 'safer manner' rather than relying on lady luck. 

Warren Buffett's investment ideology champions value investing and contrarian investment. Let's see what are Buffett's top 20 famous quotes and remind ourselves again on the basics of investing.

1. Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.

2. Price is what you pay. Value is what you get.

3. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

4. The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.

5. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

6. The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table.

7. Someone's sitting in the shade today because someone planted a tree a long time ago

8. If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes

9. When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever

10. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

11. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.

12. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

13. The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

14. I believe in giving my kids enough so they can do anything, but not so much that they can do nothing.

15. Don't get caught up with what other people are doing. Being a contrarian isn't the key but being a crowd follower isn't either. You need to detach yourself emotionally.

16. The best chance to deploy capital is when things are going down.

17. Never invest in a business you cannot understand.

18. Risk comes from not knowing what you're doing

19. In the business world, the rearview mirror is always clearer than the windshield

20. Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.

Conclusion
His quotes are words of wisdom after over 75 years of investing. One can argue that Buffett lives in an era where inflation, growth, opportunities are all higher and his recent years bet aren't that successful. However, if you read my list of Top 20 Warren Buffett's famous quotes, you will realize that it talks about personal education/learnings, views on risks and how to tackle risks in investment, cutting losses and even money issues in raising kids. 

As a human, I always believed that we ought to review what we have done especially during this year end break and holidays. Review the year and have a vision on the next. All the best folks!

Merry Christmas and Happy Holidays

The authors of Ant On The Street Blog would like to wish everyone a Merry Christmas and Happy Holidays!

Meanwhile, stay tuned for more blog entries.

Retirement Series: Delayed Gratification

As part of the continuation of the Retirement Series discussion, saving money is the first step in retirement planning. However, many of us faces difficulties in saving up. It is human nature that we want something better to indulge in life (most of the time better items, nicer things will cost more). After all, we will always 'justify' by saying that it's time to reward ourselves after a hard day at work or you will never know how long you will live. The 2 facts are very true indeed but we will need to find a balance between spending and saving. 

In this article, we will discuss what is 'Delayed Gratification' and how having this mindset can help you in your retirement planning and savings journey.

What is Delayed Gratification

Delayed gratification is the act of resisting an impulse to take an immediately available reward in the hope of obtaining a more-valued reward in the future.

How to Integrate the Concept of Delayed Gratification in our daily life?

1. Differentiate between a need and a want clearly

It is imperative that we as human ask ourselves regularly on what is needed in our daily life. In many cases, 'want' can quickly turn into 'need' if we are not careful. This is called 'lifestyle upgrades'. For example, what we need in a day's life is a balance diet. However, some will says that I 'need' a good environment for my meals, good quality ingredients like organically grown food items. Worse still, having Nescafe or normal americano is no longer a choice as Starbucks, Coffee Beans, Illy coffee is the bare minimum requirement for some. This will definitely escalate costs and reduce your savings. Remember: It's not how much you earn but how much you save

2. When you have achieved a goal, set a later date to receive the rewards

When you have achieved a goal, say a sales target, a fantastic achievement in your life or even career, plan for the rewards slightly later or combine

3. Have a smaller budget for the rewards

Instead of spending on a Tumi bag or a branded watch when you get a promotion or dine at a fancy restaurant, it could be a short weekend getaway, a road trip or treating yourself for a nice but budget meals at a local restaurant. Setting a smaller budget will definitely help you to save up for retirement and rainy days.

4. Go for rewards which costs no money
Although most of the good things in life costs more money, there are also numerous things in life that we can enjoy without costing money. For example, going for a hike, a picnic, cycling with some good buddies all doesn't costs you much but it's equally enjoyable. Those outdoor activities and sweat will also help your body to release 'endorphins' hormones which will make you feel happy.

5. Get yourself occupied with either reading, exercising or any hobbies which would have cost very little but bring a lot of fulfilment and contentment. 
There is actually a myth saying that when you retire, you spend less money. It sounded very logical and true but the truth is when your mind is not occupied, you will want to do something. The need of your body and mind to do something will probably end up costing you money. So what this has got to do with Delayed Gratification? Being busy with work, activities simply means that your mind is occupied. When your mind is occupied, you wouldn't think of indulging yourself, enjoying yourself and that definitely helps in the case of Delayed Gratification. 

Conclusion

Delayed gratification is one of the hardest thing to do for most people, especially those who grew up with a silver or golden spoon. Initially, you will feel uncomfortable, uneasy and question yourself if the 'pain' worthwhile. However, over time, it'll develop into a habit and you will start to enjoy simple things in life. Do keep in mind that fresh air, clean water, greeneries which all our ancestors enjoyed don't cost them any money isn't it? My view is that if we can spend more time with mother nature and keep our body and mind occupied, our life will be contented and will not keep yearning for material things which brings short term joy only. I for one no longer enjoy much of material things so I keep my lifestyle simple and look for more meaning in the small little things in our day-to-day life.

Stocks: How can we use 'Sentiments' to our benefit in stock investing?

In my previous article, we discussed about What Moves Share Prices. In that article, it is mentioned that Sentiments that is the key factor that affects and moves share prices. Now, knowing that the main contributor of share price movement is due to sentiment, how can we benefit from it? Remember one of the main mantra of Value Investing is "Price is what you pay and Value is what you get". 

I personally champion fundamental analysis and also a believer of Value Investing. However, since sentiment is not quite fundamental but it has to do with human behaviors and psychology, I will use mainly Technical Analysis method to select stocks and look out for opportunities.

1. Buy on Dips (if the overall market is on an uptrend)
If the investor has identified that the market is on a recovery and uptrend, buying during any dip is a feasible and proven option. As markets don't go up in a straight line, it's imperative that it'll correct itself once in a while and provide investors a good entry point to accumulate more shares. Normally in an uptrend market, actual data will provide support to the higher valuation and continuity of the bull market.

2. Buy on Price Irrationality (a combination of fundamental and technical analysis)
Often, there are companies that are selling below their intrinsic value. Some examples include property developers like SP Setia, Sime Property of even Banks like Ambank, CIMB, Affin Bank selling at 0.3 to 0.7 times of the book value. The prices are beaten down because of slow sales and anticipated massive impairments. However, if one were to look further and past the pain, most of these companies will bounce back strongly and valuation will rise certainly. 

3. Buy on Supports (Technical Analysis) I will not go in too detail as it involves a separate lesson on how to use each of the indicators (or a combination of them) effectively. Some examples as below:
a. Using Bollinger Band

b. Using RSI (oversold region <30%)

c. Using Stochastic

4. Using Contrarian Investing Strategy
Contrarian Investing is an investment strategy that is characterized by purchasing and selling in contrast to the prevailing sentiment of the time. A contrarian believes that certain crowd behavior among investors can lead to exploitable mis-pricings in securities. I have been using this strategy for over 12 years and it has been proven to be very profitable. 

However, risk management is key as when market sours, it normally means that businesses are suffering. This means that there will be some companies who will be bankrupt during the downturn. So, in order to exploit this method, you will have to study the balance sheet and fundamentals of the companies before you invest in them. This strategy involves buying companies' shares when stock market is having 'big discounts' (think of massive clearance sales) and hold them over a period of 2-5 years.

Conclusion
The above are some examples of strategies can be employed to profit from the stock markets. In the traditional market (non derivatives or structured products), the only way to profit is to "buy low sell high". For more advance or sophisticated investors, you may explore further instruments like warrants and futures which would allow you to bet both ways (able to profit when market is going up or down). However, the risks associated to it are normally higher as Warrants have an expiry date and normally trading at a premium to the underlying value. While Futures is normally purchased based on calendar month, it has a value (i.e. HKD10 per point for Mini-HangSeng) attached to the points movement. For investors wanting a smaller exposure it might not be suitable. 

Stocks: What moves Share Prices?

In business news, we frequently read that stock markets (when we mentioned stock market, we are  referring to stock indices) moved >1% a day due to news, incidents, optimism, pessimism etc. The journalists, the authors of news reports or even the wall street bankers will try to 'justify' the movement is due to certain events. You see I use the word "justify" here but not report. The reality is most of us don't know why markets behaved in certain way and certain time but there is only one big logical explanation for it - "sentiment". Of course there are other causes like fundamentals but all these will affect the sentiment that will eventually move the stock price.

Sentiment that moves Stocks
Stocks or Shares are merely "security that represents the ownership of a company". Whenever we buy or sell a stock or share, it simply means that you add on or reduce your 'ownership' of a company. Like what Warren Buffett has mentioned through his Value Investing principle: "Price is what you pay and value is what you get", the intrinsic value of a company don't change day-to-day, not unless there is a major event (i.e. a breakthrough in technology, product development). However, you will occasionally see big swings in stock prices although there is no material development in the fundamental of the companies.

Let's explore how sentiments move stock prices.
1. A positive sentiment will sway the human minds to think that the future of a company or economy is going to be better, hence the investors or traders will think that the future value of a company will increase due to better sales, better profitability. Hence, they are willing to pay more now to get into "position" or "own" the company shares. This will drive up the prices of the stocks as "buyers are more than sellers and sellers can command a better price due to the surge in demand".
2. A negative sentiment will tell the human minds to react in a way to think that there is higher risks ahead, worse days or future that lies ahead for companies and economies. Hence, the reaction will be "I will sell now so that I won't be caught if the gloomy projections does materializes". This causes more people to try to exit a stock even though they are unable to fetch the price they wanted. Hence, a reduction in stock prices is expected. 

Based on the above scenarios of the positive and negative sentiments, we can further explore what causes the sentiments to change:
1. News flow (be it fake or real news)
2. Fundamental change (i.e. a company had a breakthrough in a drug trial, better quarterly profit achieved)
3. Macro economy changes - it's expected that if the economy is doing well, most of the companies will do better and vice-versa. 
4. Expectation of a significant event or future - for example, the market anticipate Year 2021 to be a recovery year and COVID19 vaccine will assist to clear out the virus risks and reopen economies again. This "expectation" has drive up stock prices worldwide although we have not seen any real successes in any single country by using vaccine to wipe out COVID19 infection risks. 
5. Political influence change - as our world relies on the Politicians to make decisions and policies, which will affect businesses dearly, any change in political scenario will cause the sentiment on stock markets to change. 
6. Mood - when I say mood here, it's the mood of a group of people or within a region or country. Mood can be affected by many things, including employment, weather, season (i.e. winter, holiday, summer) and profitability from businesses or employment. 
7. Natural disasters - the way natural disasters connected to sentiment is always negative (although some companies or countries might benefit from it - i.e. Petronas got a very good deal supplying LNG to Japan post Tsunami that caused Fukushima Nuclear plant to shut and caused a power crisis in Japan. The hike in LNG demand and prices helped many O&G companies operating off Sarawak waters as Sarawak is the biggest LNG producer in the SEA region).
8. Views from Expert, Journalist, Analysts - as surprising as it is, Bloomberg, TheEdge, FT, Morgan Stanley etc reports and views on economies and companies does have an impact that forms view points and it's very much correlated to Point 4 (Expectation). An article from a renowned analyst will definitely swing stock prices but I would argue that the views from each individual analyst only forms a piece of the "Expectation". In order for the reports or views to significantly change the sentiment, it must have the "general consensus" of public.
9. Herd mentality - Humans don't live alone and we are social animals. Sentiments are also affected by herd mentality where a group of people thinking similarly will change the views on certain things. Of course this is normally temporary and will be 'corrected' by fundamentals later on.

From the above, we know that we are unable to control the causes to the change of sentiments and definitely unable to change sentiments as it highly correlates to a "group of majority" of how people think. So how do we benefit from sentiments in stock markets? I will write more on this topic so do stay tuned.

Melaka - Tong Sheng Restaurant and The Daily Fix Cafe Review

I have recently made a short trip to Melaka and instead of having the usual fun and "go everywhere and eat" trip, I have reduced it with my own "SOP" and "requirements" to reduce COVID19 risks. Spending more time in hotel room is certainly one of the strategy and another one is only to visit during off-peak hours and try to spend less time in restaurants. 

I have visited Tong Sheng Restaurant and The Daily Fix Cafe this trip and below are some photos and reviews.

Tong Sheng Restaurant
The restaurant is famous for its Crayfish Cheese Noodles. I was lucky that I came on a Sunday evening and not crowded. I did not pre-book and I managed to get a seat immediately.

I ordered 3 dishes including the famous Cheesy Prawn noodles - a must to try. The other 2 dishes are fried vegetable and salted egg "steam egg" were very good as well. The dent to my wallet is only RM82 which includes 1 bowl of rice and 2 hot chinese tea. 

Overall, I must say I enjoyed the food and would definitely come back. The price that they are charging is even cheaper than a standard KL Chinese restaurant and taste is very good. I was told that the crowd at the restaurant is normally huge and was advised to go early, which I did at 5.30pm. During this visit, I saw at least half of the customers are locals. 

Tong Sheng Restaurant 

Restaurant Interior

Story of the founder and the shop

"Cheesy Prawn Noodles"

I ordered 3 dishes and all of them are delicious

The Daily Fix Cafe
The cafe opens slightly later at 9am (but I was told they actually open for business before 9am). When I arrived, half of the tables were already. They have the standard cafe offerings like coffee, pancake, cakes, american breakfast etc. Since I had light breakfast prior to the visit, I only ordered a salted gula melaka coffee and a pandan pancake. The pandan pancake is delicious and it's unique (as it's not standard offerings in other cafes). However, I did not get so 'accustomed' to the taste of the Salted Gula Melaka coffee.  

The cafe's design and decorations is very picturesque as it has a blend of green old-school sun louvres, red-brown floorings and old solid wood tables and chairs. It gives a very relaxing feel but due to COVID19 risks, I did not feel much of relaxation and it quite defeat the purpose of visiting a cafe (to chill and relax). Anyway, let's have a look at the menu and photos.

Entrance of The Daily Fix

Menu

Menu

Menu

Salted Gula Melaka Coffee

Pandan Pancake with Gula Melaka

Majestic Hotel Melaka Review

I have been one of the many who booked Majestic Hotel Kuala Lumpur and got another night's voucher at Majestic Melaka Hotel. Due to the rising COVID19 cases, I was quite worried initially but was looking forward for a short trip to Melaka. In order to address the COVID19 concern, I have taken a few precautions including not visiting indoor tourist attractions, only visit open air areas and less crowded areas and going for meals extra early (i.e. 5.30pm and 11.30am). 

Upon arrival at Majestic Melaka Hotel, I was greeted by the hotel butler who checked my name against his guest list. I was told that I can park my car temporarily near the entrance for check-in. The check-in was immediate and brisk. We were shown to the lift to our room (as the hotel is uniquely designed due to the mix of an old building + modern tower wing). I must say both Majestic Hotels in Kuala Lumpur and Melaka shared the same English style feel and maintain the attraction of having a nice bathtub. They also included a capsule type coffee machine from Boncafe. Although as a coffee lover, I drink Lavazza or Illy regularly and would 'complain' that Boncafe doesn't taste as good, but I suppose the coffee is definitely better than the sachets of Nescafe that we normally see in hotel. 

I was given a room at the top floor (Level 10) and it's right in front of the lift. The room is adequately sized (~400sqft) and I must say the views at night is fantastic. The bathroom takes up about 30% of the room space already due to the nice bathtub (that's one of the main selling point of the hotel). However, the utilization of louvered doors (can be fully opened so that you can still look at the TV while soaking in the bathtub) helped in giving the feeling of spaciousness. Let's look at the photos below.

Exterior of Majestic Hotel

Lobby Sitting Area

Lobby Sitting Area

Lobby Sitting Area

Swimming Pool

The hotel is no doubt small in size but despite the size, the amenities are adequate for guests. Not many who come to Melaka would like to stay just in the hotel (unlike some beach resorts where the whole idea is to go to the beach and stay around the hotel and use the facilities). Most of us would like to venture out and just come back to the hotel for a good rest and chill.

Let's have a closer look at the room.

Bathroom

Minibar and Coffee and Tea 

Coffee and Tea making facilities

Bathroom with nice bathtub

View from the room - very scenic night view

Bedroom with King bed

The room is very comfortable and coupled with good night view, it's very relaxing. The icing on top of the cake is the bathtub where you can soak your feet and body in the warm water after a long day of walking and food hunting within Melaka town. Also, the nice thing is Kg Morten is just right opposite and you can just cross the bridge for a relaxing walk and sight seeing at both the village and Melaka River.

Promos: Mitsui Outlet Park December 2020 big discounts

It is no secret that the month of December is experiencing some form of "revenge spending" in Malaysia. The authors of Ant on The Street went to several malls and there were full of people who can't wait to spend the money. Taking advantage of this trend is Mitsui Outlet Park. One of our co-authors went to the mall and was delightfully surprised with the extensive promotions in store. 

Look at some of the pictures Mitsui have in their web (https://www.facebook.com/MOPKLIA/)

What we have found out:
1. There were plenty of good deals from famous and popular brands:
a. Samsonite has some special 'warehouse sale' category items (minor defects) selling with 75% off!
b. LocknLock under Maison Kitchen distributorship sells a lot of plastic and glass containers (including water bottles from RM10). Very good deal. 
c. The Travel Store has DKNY luggage bags going for 70 or 80% discounts. Pretty good deal for those who loves this. 
d. Wacoal selling lingerie at 'generic' brand prices (60-70% discounts)
e. Bags and leather products going for deep and steep discounts.
f. Poney selling products with 50-70% discounts. Bring your kids along to try them out. 
g. Shoes - yes all sorts of brands selling shoes at dirt cheap prices <RM100 per pair for adult or kids, be it leather or sports type.

2. Oh did we not mentioned that if you spend RM300 and above in maximum 2 receipts, you get to enter a contest and entitled to a lucky draw. Also, any spend above RM30 will entitle you for a free 2 hours parking.

Enjoy some photographs that we took while busy shopping.

Stocks: How is Hang Seng Index Calculated?

We always know that Index is a weighted approach to represent some movements in the financial markets. Yet, as always we will say: HSI went up 1% today, which is not an ordinary day for the markets. However, do we really know how indexes is calculated? Here we are going to explore how HSI is calculated and the component stocks that it's made up of (accurate as of 18th Dec 2020).

Some facts as below:
1. The Hang Seng Index (“HSI”) serves as a market benchmark that reflects the overall performance of the Hong Kong stock market. 
2. The HSI is a free float-adjusted market capitalization weighted index with a cap on individual constituent weightings.
3. The number of constituents is fixed at 50.
4. The formula of the HSI is set out below.

5. The HSI is a price index without adjustments for cash dividends or warrant bonuses.
6. As for the weightage, the below snapshot of their November fact sheet shows the sensitivity of it.

HSI Constituent Stocks (accurate as of 18th December 2020)

7. Resources:
a. For the latest list of Hang Seng Index Constituents, we can always refer to: http://www.aastocks.com/en/stocks/market/index/hk-index-con.aspx
b. Hang Seng Indexes website provide a monthly factsheet updates etc. Head on to https://www.hsi.com.hk/eng/indexes/all-indexes/hsi

Observation:
From the above table, you can see that collectively, Tencent (10%), Alibaba (4.4%), AIA (10.1%), Ping Ann (5.6%), Xiaomi (4.3%), HSBC (8.9%) and HKEX (4.8%) forms 48% of HSI. For those who trades HSI futures, you may put more focus on the 7 companies as mentioned in order to know where the index will end or move. By harnessing target prices (views from fund houses like JP Morgan, Morgan Stanley etc), there is a good bet that we know in 3-6 months' time where the index will be.

2021 Stock Markets Outlook: Key takeaways from Principal Webinar (Positioning for Recovery in 2021 Part 2)

As an active investor in few fund houses, one is frequently invited to Investment seminars and events. Due to the pandemic, this year Principal Asset Management had a series of webinar. One of it is titled: Positioning for Recovery in 2021 (Part 2). which was held on 16th December 2020 at 8.30pm. For the benefit of all readers, we are going to summarize the key takeaways from it. 

Just some disclaimers here: The author is not responsible for any errors made while translating information given in the Webinar. The views were provided by the fund house and AntOnTheStreet shall not be held accountable or responsible for any accuracies of information provided in this article. Readers are advised to exercise their own judgement before making any purchases in stocks or unit trust funds. 

Due to copyright issue, we will not be able to share you the snapshots of the slidepack in this article. However, you may keep in touch with us should you want a copy of it and it's possible to do it privately.

Key Takeaways
1. China will continue to dominate world's growth in Year 2021. At least 1/3 of World's growth will be coming from China

2. Key risk will be if vaccines don't work or have issue. Current equity rallies factored in vaccine will work.

3. Principal has grouped the Year 2021 investment theme to: Renewal, Revitalize and Recovery.
  a. Renewal: new practise and right technology is deployed to address past weaknesses and to meet future demands.
  b. Revitalize: resume conducting business in new eco-system facing new demands from competitors, customers and business partners.
  c. Recovery: economies and companies leveraging on respective comparative advantage to generate better profitability/income.
To reposition into the 3Rs themes. Also, in biotechnology and technology sectors as their role in human day to day life will keep on increasing.

4. 2020 Q4 company results (due in Jan & Feb 2021) for European markets and some parts of the world might not be pretty (mobility chart shows that further lockdown caused reduced mobility). However, the speaker is unsure that it'll caused a big dip as markets might just look past the slowdown.

5. China's economy continue to transform from export based to services based and domestic consumption. The social migration (lower income to middle income) will continue to support demand for higher value products (i.e. branded shoes, cars, housing)

6. EPS expected to grow strongly in 2021, with China leading the pack followed by ASEAN countries. The rest of the world will also recover fast but expected to be slightly lower than China and ASEAN region. World's GDP is expected to grow ~5% (vs previous yearly average of ~2.4%) 

7. Expect markets to be less volatile as Biden will behave like 'a traditional president', no social media storms issues.

8. 2021 world's fiscal policy will remain supportive and not many countries will raise rates. Some countries might still do one more round of rate cuts and stimulus while some might do a small rate hike if economy stabilizes. 

9. Raw materials prices will do well due to increased demand. This includes metal, silver, oil, gold etc.

10. There are observations from majority of companies that they are seeing positive margins from Aug onwards. It was understood that before that a lot of facing negative margins. Hence, the companies are able to do proper business planning (i.e. starting to plan for expansions, upgrades etc). This is reflected in PMI numbers throughout the world.

11. When asked on "Any recommended Principal Asset Management fund to choose from to benefit from the Recovery in 2021". The speaker is bullish on Principal Greater China Fund (due to bright outlook in China). However, due to Portfolio and Risk Management issue, it's recommended to diversify into Asia Pacific Dynamic Income, Growth, Millennial Equity or ASEAN (China-Indonesia-India Fund).

Stocks: My Equities Investing Journey

We know that statistically, there are about 80% of retail investors which did not make money. After all, the market is a "zero sum game" where if you sell your shares at a higher price, someone has to buy it. 

I have been fortunate to start learning about stock investing early on in my career life and made a decent returns over the past 12 years. As I never actually did calculate the returns (due to the fact that I was adding money in over the years into the same share trading accounts), I am unable to quantify the returns per year etc. However, from the records of my trade in CIMB iTrade account, it can be seen that 85% of my trades/investments made money. What I observe is as below:
1. 85% of my trades were positive
    a. 15% of my trades made very good returns (i.e. >50%). 
    b. 20% of my trade made <10% returns
2. 15% of my trades end up losing money. 
    a. 2/3 of the losing trades lost <15% 
    b. 1/3 of the losing trade lost >15%

Separately, I have also managed 3 separate accounts for very closed friends and they enjoyed very good returns at 180% over the duration of 8 years (i.e. grew RM50k to RM140k). I will not share further details due to the agreement with them.

These are the things I have done over the past 12 years, which I hope that I have done the right thing.
1. I have started investing 'real money' after I got my first month's salary 
2. I really had no idea how to properly select a stock so I read up books and stumble upon the theory of Value Investing, which is used by famous investors like Warren Buffet. I utilized valuation methods like P/E ratio, PEG, ROE, P/NTA to try to assess a company.
3. To enable me to properly assess a company, I learn how to read company's accounts. Also, I try to understand the nature of different business and how it connects to different market dynamics. 
4. I read daily financial news, market information and company announcements. 
5. While I got better in trying to value a company via the valuation methods, I realized that I am unable to tell market sentiments. Hence, I started to learn about Technical Analysis. 
6. Technical Analysis is an exciting tool as it is 'a study about humans' response in stock market'. By only looking at Fundamental Analysis, one will not be able to pick up stocks at its lows and sells at certain peaks and leverage on 'price disparity' to gain some good profit. I picked up a few tools in Technical Analysis like MACD, Bollinger Bands, RSI, Moving Averages, Candle Sticks, Support/Resistant, Stochastic etc.
7. In order to gain access to books on both Fundamental and Technical Analysis, I went down to libraries and sometimes stand at the bookstores reading. This saves me a lot of money. What I realized is most of the stories shared, tools and methodologies used are very similar. 
8. To further strengthen my Technical Analysis, I attended a few free seminars organized by Chart Nexus and at one point spent an entire year subscribing to the back end tester of Chart Nexus software (to simulate buy/sell decisions based on a specific algorithm/combination of Technical Analysis). The results proved that it's not very useful to utilize only Technical Analysis in trading without the support of Fundamental Analysis as they are a lot of 'blind spots'
9. I also came to realization that Share prices are normally forward looking (i.e. 3 - 9 months ahead). Neither Fundamental nor Technical Analysis alone is useful in picking and selecting the next market champion. Hence, I decided to utilize Fundamental, Technical Analysis together with business projections (I call it the "trio" factor) a particular company to decide if the price is right to buy in, the target price over the next 12-24 months and is it worth taking the risk?
10. The "trio" factor did quite well for me and I was able to generate decent returns by just investing in Bursa Malaysia. Every year, I beat the market (i.e. Index) with the formulas which I adapted over the years of investment. 
11. It was the years between 2015 to 2018 that I realized that by investing in Malaysian market, I am restricted to returns in Malaysia. I am unable to take advantage of the positive business sentiments in other parts of the world. I had my Unit Trust and PRS license and started serving a small group of investors. 
12. Through the agency, I managed to gain access to some working insights of Fund Managers and of course the fundamentals of Unit Trust. As my fund size grew, I realized that I need to diversify (not only sectoral but also geographical). The important lessons that I learnt from Unit Trust is "Risk Management". All financial products including shares have associated risks which also fluctuate according to market, economic and political changes.
13. I got attracted to Futures trading in 2018 and started trading FKLI, FCPO and Mini-Hang Seng. This trading section of mine got mixed returns where I had made very good bets on certain time and products which gave me extremely good returns but some made some glaring losses.
14. I started to manage my stocks like a portfolio. The views changed as I have >RM1mil in just Bursa Malaysia alone. The understanding of Risk Management and realization that none of us can afford to lose all our hard earned money and stock markets should not be treated as "casino". Having a portfolio will probably not yields you 300% return over a single year but it certainly helps to manage risks. I am still able to enjoy returns way above the KLCI and KLSE Small Cap index's returns. I would strongly discourage someone to put >20% of the investible in a single company to avoid tremendous losses.
15. In the same year, I started venturing out in investing in US Equities. This came in realization as well that as our wealth increases, we also cannot put all our 'eggs' in Malaysian currency only. Also, there is a need for me to build skillsets and expand my investment horizons. 

By sharing what I have done, I hope that it will inspire young aspiring investors to learn investment and not speculate the markets. Yes, speculation does make money but at the end, fundamental will still prevail (i.e. a company which made better profits year over year will see a rise in share price and vice-versa). I humbly say that we all made mistakes and the spirit is that we must always learn from mistakes, not to give up and keep pursuing until we succeed again.

How companies can make more money after an economic crisis?

Have you ever wonder that there is always a economic crisis and it always followed on with a recovery. And the thing is it's not just any ordinary recovery but stock indexes hitting new highs, property prices spiking etc. This probably is a testament of the saying "what doesn't kill you makes you stronger"! 

Now, let's explore why we always have a recovery after an economic storm? And also how can companies make more money after an economic crisis?

1. Companies are allowed to reduce manpower and salaries during a economic crisis. This will bring down the cost of doing business. Staff is not able to jump over to other competitors easily and forced to accept a lower salary.

2. There are many not so efficient companies forced to shut down permanently. Those who survive will have less competitors to compete with. Those mom and pop shops, those already ailing businesses will be forced to shut during the time of crisis as they are unable to sustain (and profit) even during the good times. The ones left will certainly have better pricing power and consumer might not have a choice but to purchase from the companies and businesses that has survived.

3. It's a human psychology thing - during an economic crisis, people cut back on spending mainly due to fear of losing the job. The "fear of losing their jobs" actually caused job losses and slows down the economy. Hence, when in an economy recovery, people are tired of eating at home (to save costs), reducing holidays and buying gadgets etc, they will start to come out and spend. Once spending comes back, businesses naturally have to hire more people. When more people have jobs to do, spending will go up and malls will be full again. It's a continuous cycle.

4. Companies generally will use this excuse to conduct re-organization, reduce wastages, review contracts, rationalize capital programme and spending. If you work with a mid-size company, you will certainly notice that during good times there are a lot of unnecessary spending (think of your photocopier service, allowances, business travels). If you add those things up then you will realize that it'll lead to a meaningful savings. Every penny saved is money earned. 

5. Some companies will take the bold step to explore new market, new demand during an economic downturn. It's a time where the staff will have less work to do and it's an opportunity to utilize them to explore and look at other new exciting opportunities. This might lead to new venture, new subsidiaries formed and new partnership. 

6. Input costs are lower during an economic crisis and many times you can see the selling prices of products rise faster than the input costs, hence causing a surge in profit for businesses. For example, oil refineries, steel millers, plastic products manufacturers all relied on inputs from oil, iron ore etc. During an economic crisis, the raw material price is always low due to the drop in demand. 

7. Most companies does Kitchen Sinking during an pandemic. It is painful and management will grab the opportunity to do so. For those who is unaware of what is Kitchen Sinking, it include write-offs (i.e. stocks that is too long in warehouse) and impairment/write-downs (i.e. asset prices like property, car values which has plunged during an economic downturn). We have seen companies after the dreaded economic crisis, part of their profit actually came from "reverse impairment". Think about this, during an economic crisis, some companies will be forced to value their land and buildings lower to reflect the current market value. When economy recovers and roaring again, the land and building prices will go up and companies will have to revalue them again. This revaluation exercise will lead to additional "profit" as part of accounting requirements.

Review: Element Kuala Lumpur Hotel

As a lifetime Silver-Elite member of Marriott Bonvoy, I always love the experience at the nice ambience that those upper scale hotels offer. My view is that rather than having your own place done up to that standards (which is very costly), we can spend some money to stay at those places occasionally, especially when there is a good deal.

Throughout the months of August till October, I stayed at a few Marriot Bonvoy's properties and one of the happened to be Element Kuala Lumpur (by Westin). You will be wondering that what does by Westin means? Westin used to be a Starwood brand (before they were merged with Marriott) and they have their famous heavenly bed, which costs RM10,000 for just the mattress. Element is a scaled down version of Westin. When I mean 'scaled down' it means that services offered is lower than Westin but on the hardware, they went for the 'simplicity feel'. Instead of more furniture in the room, they offer more spaces but still premium hardware like the same Westin Heavenly bed, Westin toiletries. However, as Element KL is a designed as Green Building, they do not offer bottled water but instead offer 3M Filtered water and plenty of culinary like cups, plates etc.

Some photos:

Welcome gift - Lifetime Silver Elite

Views from the bedroom

Hotel Lobby (downstairs)

King Bed

Bedroom

View of the room

Pantry

Shower Area

Entrance

Art Deco at Lift Lobby

Lift

During my first stay, I was offered a Welcome gift as a Silver Elite Member. Normally it's reserved for Gold Elite Member and above but kudos to them for the membership recognition. The room was very spacious (400 sqft+), it has a sink, lots of plates, fork and spoons, cups and even dish washer. The room deco was actually simple and modern and it's marketed as "studio".

Oh, did I mention that this building is designed by Foster + Partners? It's one of the world's most renowned architecture firms. The hotel is part of Ilham Tower, which the lower floors are all office space and an art gallery (a personal collection of Tun Daim himself).

It has an indoor swimming pool (named Ombak) and it's definitely a plus for Malaysian weather, especially the pool is heated and water is comfortable to swim in. I did not managed to take photos of them unfortunately. In general, the few stays there were perfect (that's why I went back for more nights). Breakfast selection was limited but food quality is fantastic. And imagine sitting right next to the window, enjoy the KL skyline view, what else more can you ask for?

What I like about the hotel?
1. Big spacious room with big bed and 50" television
2. Pretty good soundproofing
3. Good views of KL, Ampang skyline (depending on which room you get)
4. Very good built quality and very comfortable room

What I feel that can be better?
1. Service is inconsistent but some staff are superb (especially if those who used to serve in Westin), enjoyed the check-in process and talking to them.
2. Car park is situated 'behind' and 'in a separate' building. You need to go down to ground floor to access the hotel lobby. Upon arriving at the hotel's lobby, you will still need to take the lift to level 40. During COVID19's season, one lift can accommodate just 1 family of 4 and the wait might be long (considering guests use the same lift from G to Level 40 and later on from Level 40 to their respective rooms).

Overall, it's a hotel that is worth paying for, even for a weekend getaway or staycation.