Portfolio as at end Sept 2009

This is a post on my portfolio holdings as at end Sept 2009.From Jun - Sep 2009, there have been many changes. My portfolio, as at end Sept 2009, contains the following stocks:
China Eratat
Fabchem
Fujian Zhenyun (FZ) Plastics
Metro
Techcomp
UOA
Valutronics

Sold: Adampak, China Sunsine, China Ziano, Etika, First Reit, Guthrie, Hong Fok, Jardine Strategic and Valutronics.

Etika was sold during the early July downturn as I wish to remove this non-core position during a downturn.

China Sunsine, First Reit, Guthrie, Hongfok, Jardine Strategic and Valutronics are sold to raise cash to buy other ‘better-valued’ (IMHO at that time) stocks.

Adampak is sold to take profit and raise cash for other stocks. China Ziano is sold due to the possibility of weaker fundamentals, as its competitors have slashed prices more aggressively than previously assumed.

Bought: China Eratat, Fabchem, Metro, Techcomp and UOA.
China Eratat is bought on the basis of its very low valuation i.e. around 2 PER. However, I did not buy many lots here as I am wary of its negative cashflow then.

Fabchem is added as a proxy play for mining. Metro is added as it is trading at 0.5 P/B and as a proxy play for China properties.

Techcomp is added due to the possibility of growing sales to other countries in the long run. It is also a possible play on developing countries’ demand for better laboratory equipment due to increasing awareness of health threats from avian flu etc.

UOA is added as an ‘undervalued’ property play. However, I am not very certain presently if my original buy basis on UOA is correct.

Bought and sold: Broadway, Guocoleisure, Kingboard

Broadway is bought as a play on technology recovery. It is later sold to take profit.

I have bought Guocoleisure heavily as it is both undervalued and safe (since it is owned by the Hong Leong/Guoco group). It is later sold to take profit too.

Kingboard is a contra trade, as I feel that my initial buy basis is not sufficiently strong.

During the quarter, I am very active. My portfolio turnover may have exceeded 100%, which may be due to the market bullishness in this quarter.

Presently, the market has become less undervalued. Putting it in another way, the equity-aversion premium has more or less depleted.

Hence, I have adopted a longer horizon in my stock selection. I expect that my latest added stocks above will require longer germination time before they are able reach my target prices. And, due to the longer germination time, I guess that my portfolio turnover rate will decline as portfolio holding period increases.

As for my portfolio returns, it has safely out-distanced the STI returns this year due to the good returns on both the First Reit position and Guocoleisure position.

Belated Portfolio Update

This will be a post on my portfolio holdings as at 30 Jun 2009.

From Mar - Jun 2009, there have been quite a number of changes. My portfolio, as at 30 Jun 2009, contains the following stocks:
Adampak
China Sunsine
China Ziano
Etika (small stake)
First Reit
Fujian Zhenyun (FZ)
Guthrie
Hong Fok
Jardine Strategic (JSH)
Valutronics

Sold: Sihuan, Pfood and Man Wah.

Sihuan and Man were sold because I found better opportunities. Pfood was sold as their Q1 results were abysmal.

Added: Adampak, China Sunsine, Etika, Hong Fok, JSH and Valutronics

Added Adampak and Valutronics as plays on technology recovery. Added China Sunsine as plays on automotive recovery. Insiders' purchase also play a factor in my buy decision here. Etika is a trading buy and it was disposed soon in the Jul downturn. Hong Fok and Guthrie are bought as property plays due to their low P/B value. JSH is bought as a sort of placeholder (temporary place for excess cash) and also due to its low P/NAV.

Trade: First Ship (FSL)
Bought and sold First Ship. This is just a trading purchase (based on technicals).

During the quarter, I have been experimenting with some TA. However, I am apparently a poor TA practicioner. Hence, I guess I will only use TA as a tool to sell my short-term plays.

Readers should not follow my buys here, as my turnover rate is very high during the last 2 quarters. My high turnover rate may be partly due to my internal philosophy of always trying to search and buy more under-valued stocks; and partly due to my guess that there may be a recovery in technology stocks. This guess occurs in end-June, as a result of some reading from newspapers, websites and analysts' reports.

7th lessson

7th lesson: Higher gains are needed to compensate losses (see table below). Well, this is a lesson that I have to re-remember. And since I am likely to inject capital into my portfolio during times of distress, I may need smaller percentage gains to recover from my losses (in dollars terms).

Some Lessons Learnt

While my portfolio has yet to recover from its fall of 70%, it may be a good time for me to revist the lessons I have learn during this stock crisis.

1st Lesson: 90%+ of the stocks fall drastically during a real stock crisis.

This is probably why Michael Leong's advice is to sell all stocks during the onset of stock crisis. The cheap gets cheaper during stock crisis.

2nd lesson: The last-third of the stock crisis tend to be the heaviest decline.

This is pointed out by Kenneth Fisher in this book "The only three questions that count". And this salient observation repeated itself in Oct 2008.

3rd lesson: When quality stocks are not cheap, get out.

This is the lesson I have to learn the hard way. I should have left the stock market in mid-2007 when quality stocks and even sub-quality stocks (e.g. CG Tech) are expensive. I should not have bought into Contel at all. Many regrets here. Low quality stocks can become worthless.

4th lesson: Cash is the best when everything is expensive

A lesson related to the 3rd lesson. A lesson that I am still learning.

5th lesson: Always prefer quality businesses with low debt at low, if not reasonable, price

Quality means a) less cyclical businesses, b) high NTA to price and NTA is in mainly cash and properties, or c) market leader.

6th lesson: See further, Examine deeper

a) where will this stock be one to three years down the road?

b) what is the downside to this stock?

c) what are the factors that will lead to the price of this stock to increase?

I may add on to the above list if I have any more lessons to be shared.

Factors associating with (S-share) duds

In recent months, there is a number of S-shares with suddenly collapsed share price due to non-normal reasons. In this post, I shall highlight a few associating factors on these S-shares.

One, weak balance sheets. S-shares like Ferrochina and China Print & Dye has weak balance sheet. For example, before China Print & Dye collapsed, its current liabilities is greater than its equity. Weak balance sheet increases the probability of the business foreclosure.

Two, to stretch the above further, expansion using lots of debts. For example, Celestial has expanded using lots of debts. While debts do not dilute equity's shareholdings, it increases the probability of the business foreclosure, especially in distressed periods (like now) where refinancing. (This factor also applies to Reits, as a few months ago, people are worrying whether some S-Reits can refinance their loans.)

Three, popular stocks. Interestingly, the S-shares with collapsed share price are more likely to be covered (heavily) by analyst. Notable examples are Ferrochina and Fibrechem. 

Four, founder/majority holder has lower than 40% stake in their businesses. Interestingly out of the 8 S-shares shown below, six out of 8 companies have  founders with less than than 40% stake in the business.

Nonetheless, not all S-shares' prices with any of the above factors will collapse. There are always exceptions. 

Probably, the easiest action one can take in avoiding duds is running away from companies with weak balance sheet. However, it may not be sufficient as one can hardly detect companies with majority holder's shares under mortgage. 

P.S. The above thoughts and figures may be wrong. Read/use with care.

P.P.S. The unscientific thoughts above only look at the dogs that bark. The silent dogs are not examined. 

Re-positioning my holdings

There has been some major changes to my portfolio over the last few months. My present portfolio look like this:

Pfood Fujian Zhenyun (FZ) Sihuan China Ziano First Reit Man Wah

I have been quite active in the past 2 months:

Sold Karin, Sinotech, China Fish, Changtian. 

Bought China Sky due to cash per share higher than share price and possibly low cash outflow in the near future. Sold China Sky after its abysmal fall in cash. [Reason for buying no longer valid]

Added more of China Ziano. Initiated First Reit, Man Wah, PFood. 

I have re-positioned my investing philosophy. That is, to buy and hold high quality businesses with little or no debt. Quality means less cyclical businesses. Little debt means that the business is more likely to survive this recession. 

Karin, Sinotech and Changtian do not meet the quality aspect. China Fish debt levels are too high for my comfort, and it may be affected by the possible risk of falling fish prices. Hence, they are sold. 

FZ may or may not meet the quality aspet, but its cash per share is too alluring for me. And, it seems to be in a positive sector, as pipes are needed in water treatment plants and Sichuan re-building.

Man Wah and Pfood are still showing rising profits. I am hoping that their profit will not fall too much in 2009. 

Lastly, I have bought many First Reit shares (relative to my portfolio). I have looked at a number of S-reits, before making my purchase. Reasons are simple. Non-cyclical business, low debt to asset ratio (15.6%) compared to other Reit, insider purchases, high yield (17%) relative to the risk. Yes, there is re-financing risk, since it has to refinance all its debt by Q2 09. But I guess the re-financing risk is manageable, since Cambridge Reit (has higher gearing) is able to re-finance.  Another bad is limited growth prospect. 

One last reason. First Reit is under the radar. I have not seen any analyst report on this stock since Oct 08. 

Note: Above are just for my record purpose. My thoughts may be wrong. So far, roughly 8 out of 10, I will lose money when I follow other blogger's/forumer's stocks e.g. China Sky