Thursday, October 23, 2008

Historical Cycles - From Rags to Richest! ( Not Grammer problem..purposely one)

Why must CNBC show Barack Obama and John McCain's election sentiment results on airtime....arrgh! We don't care about Politics...We just care about Ben Bernanke and Henry M. Paulson! They should be the Presidents! Neways..let's talk about why you should start eating bread and drinking water for lunch and dinner. Breakfast skip. And the money go where?....show hand in the stock market loh. Portfolio allocation: 99.999% in stocks...0.0001% in Ezlink card! ( Ok exaggaratting and joking..). Let's look at history, shall we?

Based on the above data from the US government ( legitimate ok...dont pray pray), for the latest time horizon, from 1945 -2001, there were 10 cycles. The average duration from Peak to Trough is 10 months while the average Trough to Peak is 57 months. This is summarised by our cheap artist below:

This means that downturns are fast and furious and upturns are relatively slower. And what does this mean again...my friends... ( Darn Citigroup best man...their commercial has really captured our mind day and night...cannot get the words out of our head!!) But then again..this is unprecedented....yeah!




13 comments:

  1. I love your posts – witty but informative.

    Do you mean we should hold the buying till we are on a steady uptrend since it will always takes a longer duration to reach the peak compared with touching the trough?

    Pls share your thoughts. Tks, mate.

    - grasshopper

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  2. Hi Grasshopper(cute name btw.,any significance? but we digress as usual....),

    You raised a good point. Judging from historical fact above( unless the US gov bluff than we bo3 wei3 gong4), only 8 out of the 32 periods are the downturn longer that the upturn.

    And if you look closely, most of these 8 happened further back,at a time when even our great grandfathers were babies and tulips were worth a house. The last 2 most recent ones happened during the great depression and 1981 period.


    Regarding your question though,take note of the following: 1)This event now is unprecedented
    2)for us, we have been buying in a dollar cost averaging style.
    3)frankly, we think it has more downside to go.. this statement is not factual, its based on GUT for the Spore market as Spore market laggs the US market

    What we subscribe to is..if the company is worth less than it is...we whack... thats all..

    Thanks for your post by the way..it set us thinking!

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  3. Hi there
    No real significance – a nick pick up from the old tv series Kung Fu.
    Very much myself, a novice in many areas esp. investing my modest hard-earn dollars.

    Points noted for 1) and 2). However, I already took a plunge in the stock markets 2 mths back based on guts feeling and analysts reports (crappy stuff anyway and tough to catch). This is before I discovered more interesting stuff on the net with forum, blogs (like yours, eg). Now, I’m more careful with picking up stocks at this uncertain times... partly also, my cash for this investment occasion is running low.
    Ok to share your stock pick of companies which you whacked or planning to whack? We can mail?

    - grasshopper

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  4. Hi Grasshopper,

    We would suggest when picking stocks in this climate..look at the loans refinancing dates and the interest rates being paid and compare it with other company corporate loans. (actually, we have been emphasing on this nearly throughout this lousy cheap blog).

    Anyways, if you read about our sectoral investing article, it is basically our strategy. To let you in, we are overweighting severely on utility based companies now with high dividend yields with good interest rates and whose refinancing dates are at times where the crisis should have ceased. Our apologies, but we dont't wish to show our portfolio.

    A reason for overweighting on such companies are as follows:
    1)Recession proof..as we enter the Spore earnings announcement period. Many companies earning will be severly beaten down. Better news ( or less bad news) should only come from recession proof companies like for example utilities based ones and monwy will flock to these

    2)As these utility based companies have high and relatively constant DPUs, at least some cashflow will be given back to investors during this (supposedly) long recession for reinvestment into other stocks.Instead of letting money lie dead in stocks being beaten here and there and no more cash inflow.

    Our 2 cents worth. In fact, we are considering writing on an article on such a utility company in time to come. Stay tuned and thanks again!

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  5. "Money will flock to this" is a theoretical hypothesis based on logic by the way. No data nor have we researched. Just a conjecture.

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  6. Hi, honestly, i’m no expert in stock investing. And i’m not sure our objectives are the same.

    My main aim during this financial crisis & economic downturn is to pickup some growth stocks at value stock prices (not sure if I’m using these jargons aptly).
    Stay with these stocks for couple of years and sell them when market picks up. If these stocks can turn out sound annual dividends (~4% is good for me), it will be just great.

    My first visit to your blog is on an article here http://sgdividends.blogspot.com/2008/10/similaritybetween-1929-and-now.html. This is what I am trying to emulate. Unfortunately, I started a little too fast and too much. My modest capital is now left ~25%. Like your article said, my dear wifey is beginning to call me a fool (haha..)!

    I am keen on your utilities strategy… getting some good cashflow for reinvestment into other stocks instead of completely letting money dead in beaten stocks.
    I’ll wait for your article on the utilities.

    Anyway, tks for your comments.

    Continue your solid work… and seeking (& posting) the truth, vigilante.

    - grasshopper

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  7. Hi, need your help again. I'm going thru the annual report of this firm in HK. Unfortunately, i do not find the NAV in the report.
    Is there a method for me to derive the NAV from the figures in this report? Or i hv to look for this indicator somewhere else.
    Strangely, some firms like HSBC posts their NAV in the AR while others don't.
    Hear from you soon and tks for your help. Btw, i'm working in HK.
    - grasshopper
    http://www.hkexnews.hk/listedco/listconews/sehk/20080818/LTN20080818229.pdf

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  8. Hi Grasshopper,

    Go to pg 26.
    Total assets less current liabilities MINUS Non-current liabilities = NAV.

    (Basically: NAV = Total Asset(current+non current assets) - Total Liability (curret+noncurrent liabilities))

    But i think you are concerned with the NAV PER SHARE.

    So for PER SHARE. Go to page 35. And look for Weighted avergae number of shares in issue(thousand shares).

    Take NAV divided by weighted avergae..and get NAV per share.

    Hope this helps.

    Btw, are you a Singaporean working in HK? And hehe..Cityspring and Macquarie international Infrastructure in Singapore in similar sector.

    Any reason why u looking at this stock?

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  9. Hi there, yep, i’m a Singaporean working in HK and been here for the last 3 years.
    And you work full-time on the SG stock market? Or you hold another full-time job?

    I’m trying to practice some basic analysis on some stocks and there is no specific reason for CLP.
    Like you said earlier, I will like to pick up a utilities stock in this downturn.

    I hv done some analysis on CLP below (using the same method you did for Ezra). I do appreciate if you can share your comments on my analysis and point out any mistakes I hv made.

    Many tks once again for your time.

    grashopper

    CA : 127,074 (in HK$M)
    Non-CA : 16,017 (in HK$M)
    Total assets : 143,091 (in HK$M)

    CL : 18,032 (in HK$M)
    Non-CL : 56,826 (in HK$M)
    Total liabilities : 74,858 (in HK$M)

    a) NAV : Total assets – Total liabilities = 68,233 (in HK$M)
    b) Weighted shares: 2,408,246,000

    NAV per share: HK$28 (from a/b)
    Q1:
    Currently it is trading at HK$45 which is ~1.6x its NAV per share.
    In this case, what will be considered ‘glam’ in your view? I probably need to compare it with firms in the same industry.
    I see stocks like HSBC is trading like ~9x of its NAV per share in HK.

    Cash on hand : HK$1,754 (in HK$M) [extracted from pg 28]
    Q2:
    Did I get it right on this point?

    c) Revenue : 27,534 (in HK$M) [extracted from pg 25]
    d) Profit before tax : 5,941 (in HK$M) [extracted from pg 25]
    --> Gross profit margin: 22% (d/c in %)
    e) Operating profit : 6,708 (in HK$M) [extracted from pg 25]
    --> Net profit margin : 24% (e/c in %)
    Q3:
    Is it normal to see “Net profit margin” higher than the “Gross profit margin”? Which will be a better indicator to use?

    http://www.hkexnews.hk/listedco/listconews/sehk/20080818/LTN20080818229.pdf

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  10. Hi Grasshopper,

    For Q1
    The logic is correct.
    NAV : Total assets – Total liabilities = 68,233 (in HK$M)

    For Q2
    Its seems expensive when one compares with similar companies like Cityspring and Macquarie. HSBC is a financial instiution right? Banks have a different way of valuing actually. You can check out this website to value a bank. This website has all the things you need to know by the way...its pretty simplified but good enough.
    http://www.investopedia.com/articles/stocks/07/bankfinancials.asp

    Q3:This kind of company normally there is no such thing as Gross Profit.
    Gross profit = Revenue minus cost of goods sold. It applies well to manufacturing company, example. Cost of goods sold includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. In this utility related company, just look at net profit.

    Definitely gross profit is larger than net profit. :)

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  11. Hi,

    Tks for coming back.
    I will hv a look at the website you provided.

    Tks once again..

    cheers
    grasshopper

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  12. Gross Profit definitely greater than net profit . However,at times you will see Net profit greater than Gross..thats when they add for example Exceptional gains (like selling some one off equipment or profit from their joint ventures e.t.c

    Just to clarify..was rereading your reply.

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  13. I guess warren buffet is a houshold name in finance.

    ReplyDelete