Philosophical Musings - Part XXVII

A Stranger Knocks on the Door



As I lay there
In the warm embrace of my veil
The air suddenly turns frigid
Chills tingle up my spine

I hear a knock on the door
So soft, almost like a chime
So methodical, almost like the
Sands of Time

The veil of Ignorance
Is ripped to shreds
And what is left
Is something awkward?

For who is the visitor
That knocks?
A hooded, shrouded figure
That offers the sweet temptation of Finality

A sense of panic
Courses through my entire body
As I shudder and wake up drenched in fear
What is the meaning of this?

I run away
Grasping at the tattered remains of the veil
But how long can I flee?
And where is the haven that I seek?

Am I Gambling or Speculating Intelligently?

As I observe the market movements of certain stocks listed on our Bursa Malaysia, I begin to discern that the ups and downs of the market are highly erratic and somewhat illogical. In fact, there are times when I wonder whether I have entered into a gambling den where my gains or losses are based on the whims of Lady Luck rather than on my analysis of the fundamentals of these companies.

For instance, look at the shares of Genting Berhad below. The share price has almost doubled within the span of three months from March to June 2009 i.e. RM3 per share to RM6 per share.



However, when one takes a long hard look at the financial results, you will find that there’s really nothing optimistic about Genting that can justify the doubling of its’ share price. In fact, the results are quite disappointing. Why then has the price gone up?



Should you have bought Genting’s shares in March 2009? You would have made almost a 100% gain within three short months.

STOP!

As an investor, I feel that there is nothing more dangerous than venturing from intelligent speculation to outright gambling.

So, what’s the difference? Just stop and ask yourself this one critical question:

Are there any good reasons to buy the shares in Genting at RM3 three months ago?

Gambling?
If there is none, you are merely gambling away in the Bursa Casino. Yes, in hindsight the price has gone up. But don’t forget, the price of Genting shares could have gone down significantly as well.

Speculating Intelligently?
If yes, take a long hard look at your reasons. Are they based on good and fundamental reasons? Even if you hear rumors that the company will secure a large project, consider the reliability of the information first. More importantly, take a long hard look at the share price of the company for the last few days. Somebody might have already purchased the shares in that counter and are looking to sell it to some naïve investors. Don’t be one of them!

Internal Benchmarks
A more reasonable approach is to use look at the PE ratio or dividend yield of these companies. If the PE ratio is less than 10x or dividend yield is 8% or more, it may be a good investment. Further, do your own homework and assess the liquidity and gearing of such companies before investing in them.

Conclusion:
Try not to buy shares of companies just because its’ prices are going up. And don’t sell shares you hold, just because the prices are going down. Following the crowd will get you nowhere except losing your hard earned money. Make sure you have good solid reasons for investing in the first place and equally good reasons before selling the shares that you own.

Stupendous Stocks - Part I

Malaysian Airline System Berhad

In this series of posts, I will be looking at some of the more incredible gyrations of stocks in Bursa Malaysia. For want of a better word, let’s call them ‘Stupendous Stocks’ named after a certain superhero.

Surely, the most stupendous stock today is none other than Malaysian Airline System Berhad (MAS), stock ticker: 3786. On 12 June 2009, MAS finally announced its’ quarter one results for 2009 which was delayed due to its’ early implementation of FRS139: Financial Instruments, Recognition and Measurement. FRS139 is an incredible complex standard which aims to do a simple thing: i.e. reflect the gains/loss in investments by benchmarking them against market prices (i.e. marked-to-market accounting).

And the impact of this fantastic piece of accounting:

1. Quarter 1, 2009: Derivative loss of RM557mil
2. 2008 and prior: Derivative(?) loss of RM3,952mil

The total impact of FRS139 is a net loss in derivatives of approximately RM4.5 BILLION. Is this a lot of money? Hmmm…. Let’s look at the shareholders equity, shall we? Ooops, is there any shareholders’ equity left? Total equity is a NEGATIVE of RM446 million.

Granted, these losses are unrealized losses. It’s the same as me saying that just because I bought Transmile stocks at RM10 in 2006, I don’t have any losses since I haven’t sold any. Even though its’ only worth RM1.46 today, it doesn’t mean it won’t go up to RM10 in the future, right? Right on… it must be this sort of thinking that explains why the price of MAS has hardly moved today. Perhaps RM4.5 BILLION LOSSES is just insignificant compared to the MAS’s cash balances of just over RM2.9 BILLION? For those of you who can figure this out, I salute you!


For the others, welcome to the wonderful world of investing in our ‘Baffling Bursa’!