Small-caps and mid-caps undervalued

I came across an article in “The Edge Singapore” online and it mentioned about Kingsmen Creatives. Take a look at the site:


Supermax Corporation Bhd

At the recent Invest Fair 2010, I set in a company presentation by Supermax. Supermax is Malaysia’s largest Own Brand Manufacturer and the world’s second largest producer of rubber gloves. The company presentation was given by Dato Seri Stanley Thai, Executive Chairman and Group MD. The company seems pretty strong and I feel has good prospects. I have yet to analyse it properly though. I may do it in the future but this post serves as information for those looking to adding another company into their portfolio.

Invest Fair ’10 – Kingsmen

I recently attended Kingsmen Creatives’s presentation at Invest Fair 2010. The company presentation was given by Mr Andrew Cheng, Group General Manager and the talk was entitled “Positioned for Growth”. I will list the key points covered during the talk and the Q&A section, as follows:

  • Generally, looking at past trends, second half of the FY brings about more revenues than first half due to sprucing up of shops and theme parks during year-end period. First half  contribution – 40%, second half – 60%.
  • 70% are repeat customers. Kingsmen knows their client’s style and thus, can cater to their needs easily.
  • Future growths: MICE industry growth both in Singapore and region; Universal Studios Phase 2, 3 and maintenance; theme parks and attractions to be built (eg. Legoland, Universal Studios Dubai, Hongkong Disneyland, etc); mega events like F1; re-making of Orchard Road; Marina Bay Sands Shoppes; alternative marketing programmes (eg. LED billboards); fixtures export – increasing interest from US, Europe.

After the talk, a few of us mobbed Mr Cheng to ask him more questions and he was more than happy to answer them. It was in a more relaxed environment and I felt he was very honest in answering those questions. The discussions are as follows:

  • Universal Studios Singapore project was a first for many companies involved in it. So, the learning curve was very steep and profit margins were slim. In fact, Kingsmen thought of foregoing taking up Universal Studios project as it felt that it didn’t have enough expertise. But, as a shareholder, I feel that Kingsmen did an outstanding job and should be given a pat on the back. In the future, Kingsmen is poised to take advantage of future mega-scale projects like Universal Studios since it already has the experience under its belt.
  • Kingsmen follows a supply chain model where it sub-contracts out the fit-out and because of this, it can be stringent on the quality of the work and rejects any work that are not up to standard without affecting its own business.
  • Recently, the company announcements by Kingsmen were almost non-existent even though they won a couple of contracts. Mr Cheng said that they would rather announce in one go than in bits and pieces. I was satisfied that at least Kingsmen is aware of this.
  • Liquidity wise, there are many buyers but not many sellers in the market. Kingsmen ever thought of doing a rights issue and stock splits to increase liquidity but decided against them. Mr Cheng believes when revenue hits around $500 million, the institutional buyers will become interested and liquidity will be boosted.

I snapped a few pictures of the slides (pardon me for the poor quality of the images):

Below is a brochure obtained from Kingsmen’s booth:

Lastly, if you have the patience, you can hear a recording of the whole 30 mins presentation that I have uploaded at 4shared. The background noise was overwhelming during the talk so you may have to strain to hear the recording properly.

Berkshire Hathaway’s Latest Stock Holdings

Berkshire Hathaway Inc. (NYSE: BRK-B, BRK-A) and Warren Buffett have just released the latest holdings of U.S.-listed equities as of June 30, 2010.  Some may have changed slightly since the end of March.

  • American Express Co. (NYSE: AXP) over 151.6 million shares, SAME AS last quarter.
  • Bank of America Corp. (NYSE: BAC) 5 million shares; SAME AS last quarter.
  • Becton Dickinson & Co. (NYSE: BDX) is 1.889 million shares, UP FROM 1.744 million shares last quarter and was a raised position last quarter too from 1.5 million shares before and versus 1.2 million before that.
  • Carmax Inc. (NYSE: KMX) is 7,725,900, SAME AS BEFORE; had been reduced from 8 million shares the prior quarter and versus 9 million shares a quarter before that.
  • Coca Cola Co. (NYSE: KO) right at 200 million shares, SAME AS BEFORE.
  • Comcast (NASDAQ: CMCSA) 12 million shares, SAME AS before.
  • Comdisco Holdings (NASDAQ: CDCO) roughly 1.5 million shares, SAME AS before.
  • ConocoPhillips (NYSE: COP) is roughly 29.1 million shares, A LOWER STAKE than the prior 34.179 million shares and yet another cut from 37.7 million two quarters ago and 57.43 million and 62.485 million before that.
  • Costco Wholesale (NASDAQ: COST) 4,333,363 Shares, SAME AS last quarter but that is after it had been lowered from 5.254 million before.
  • Exxon Mobil Corp. (NYSE: XOM) 421,800 shares; SAME AS before but lowered from 1.276 million shares originally.
  • Fiserv, Inc. (NASDAQ: FISV) is a NEW POSITION of 4.4 million shares.
  • Gannett Co. (NYSE: GCI) 1,740,231 SHARES; SAME as before, but a decrease from earlier.
  • General Electric Corp. (NYSE: GE) 7.777 million shares; SAME AS before but does not include the huge preferred shares from late in 2008.
  • GlaxoSmithKline (NYSE: GSK) 1.51 million shares, SAME AS before.
  • Harley-Davidson, Inc. (NYSE: HOG) is not listed but was a not common stock so is not included in these filings; Buffett still likely holds the preferred shares and warrants.
  • Home Depot Inc. (NYSE: HD) 2.757 million, SAME AS last quarter.
  • Ingersoll-Rand (NYSE: IR) 5.636 million shares, SAME AS last quarter but way down from the 7.78 million a year ago.
  • Iron Mountain (NYSE: IRM) is 8 Million shares, A HIGHER POSITION versus 7,794,800 shares last quarter, and above 7 million shares and versus 3.3722 million shares in the quarters before then.
  • Johnson & Johnson (NYSE: JNJ) is almost41.1.3 million shares, AN INCREASED POSITION from last quarter’s 27 million shares.  This gets J&J back above the 36.91 million shares before that and on the way back up to the 62 million shares at one point in 2008.
  • Kraft Foods (NYSE: KFT) is 105.21 million, which is DOWN SLIGHTLY from the 106.7+ million a quarter before and down from the 138+ million before he was critical of the Cadbury deal.
  • Lowe’s Companies (NYSE: LOW) 6.5 million shares, SAME AS BEFORE.
  • M&T Bank Corp. (NYSE: MTB) is 5.363 million, A DECREASE from 5.563 million shares before that and down from 6.71 million shares before that.
  • Moody’s Corp. (NYSE: MCO) 30.783 million, which appears to be a decrease from what we listed as 30.83 million last quarter.  This is way down from the 48 million originally before two more quarters of decreases.
  • NRG Energy Inc. (NYSE: NRG) was 6 million shares.
  • Nalco Holding (NYSE: NLC) 9.15 million shares, UP SLIGHTLY from the 9.0 million a quarter earlier.
  • Nestle ADR is 3.4 million shares, SAME AS BEFORE.
  • Nike Inc. (NYSE: NKE) 7.641 million shares, SAME AS BEFORE.
  • Procter & Gamble (NYSE: PG) is 70.071 million shares; DOWN SLIGHTLY from over 78.317 million a quarter before and from approximately 87.5 million and 96.3 million in the quarters before that.
  • Republic Services Inc. (NYSE: RSG) is 10.827 million shares; SAME AS BEFORE but still above the prior quarter.
  • Sanofi Aventis (NYSE: SNY) is 4.063 million, which appears to be higher than what we calculated as being “more than 3.9 million shares” a quarter earlier.  That one could be a rounding difference.
  • Tiffany & Co. (NYSE: TIF) is NOT a common stock… but Buffett still holds the preferred shares and warrants.
  • Torchmark Corp. (NYSE: TMK) roughly 2.82 million, SAME AS before.
  • US Bancorp (NYSE: USB) roughly 69 million; SAME AS last quarter.
  • USG Corp. (NYSE: USG) 17.072 million shares, SAME AS last quarter.
  • United Parcel Service (NYSE: UPS) 1.429 million shares, SAME AS before.
  • Wal-Mart Stores Inc. (NYSE: WMT) is just over 39 million; SAME AS last quarter after it had been raised earlier.
  • Washington Post (NYSE: WPO) over 1.72 million shares, SAME AS last quarter.
  • Wells Fargo & Co. (NYSE: was roughly 325 million shares, which appears mostly static after having been raised in the quarters before.
  • Wesco Financial Corp. (NYSE: WSC) 5.703 million shares, SAME AS last quarter


4 Steps To Creating A Better Investment Strategy

It is no secret that behind every successful investment manager there is a written, measurable and repeatable investment strategy. However, many investors jump from one trade to another, putting little effort into creating and measuring their overall strategies.

Read on to learn four questions that, when answered, will help you create a better investment strategy. The following questions will help you create an investment strategy that is written, measurable and backed by your own strong beliefs. This will lead to more consistent investment performance and help you mitigate emotional investment decisions. Most importantly, it will help you avoid a scattered portfolio of individual investments that, when looked at as a whole, have no overall theme or objective.

  • Can you write down your investment strategy as a process?
    To quote the late Dr. W. Edwards Deming, a world-famous author and management quality consultant, “If you can’t describe what you are doing as a process, you don’t know what you are doing.” Like anything that requires a disciplined process, it is important to write down your investment strategy. Doing this will help you articulate it. Once your strategy is written, you should look over it to make sure that it matches your long-term investment objectives. Writing down your strategy gives you something to revert back to in times of chaos, which will help you avoid making emotional investment decisions. It also gives you something to review and change if you notice flaws, or your investment objectives change. If you are a professional investor, having a written strategy will help clients better understand your investment process. This can increase trust, mitigate client inquiries and increase client retention.
  • Does your investment strategy contain a belief about why investments become over or undervalued? If so, how do you exploit that?
    This question could relate to whether or not you believe that investment markets are efficient. Ask yourself, “What makes me smarter than the market? What is my competitive advantage?” You may have special industry knowledge or subscribe to special research that few other investors have. Or, you may have beliefs about exploiting certain market anomalies, like buying stocks with low price-to-earnings ratios. Once you have decided what your competitive advantage is, you must decide how you can profitably execute a long-term trading plan to exploit it. Your trading plan should include rules for both buying and selling investments. Also, keep in mind that your competitive advantage can eventually lose its profitability simply by other investors implementing the same strategy. On the other hand, you may believe that investment markets are completely efficient, meaning that no investor has a consistent competitive advantage. In this case, it is best to focus your strategy on minimizing taxes and transaction costs by investing in passive indexes.
  • Will your investment strategy perform well in every market environment? If not, when will it perform the worst?
    There is an old saying on Wall Street, “The market can remain irrational longer than you can remain solvent.” Good investment managers know where their investment performance comes from, and can explain their strategy’s strengths and weaknesses. As market trends and economic themes change, many great investment strategies will have periods of great performance followed by periods of lagging performance. Having a good understanding of your strategy’s weaknesses is crucial to maintaining your confidence and investing with conviction, even if your strategy is temporarily out of vogue. It can also help you find strategies that may complement your own. A popular example of this would be mixing both value and growth investing strategies.
  • Do you have a system in place for measuring the effectiveness of your investment strategy?
    It is difficult to improve or fully understand something that you do not measure. For this reason, you should have a benchmark to measure the effectiveness of your investment strategy. Your benchmark should match your investment objective, which in turn, should match your investment strategy.Two common types of investment benchmarks are relative and absolute benchmarks. An example of a relative benchmark would be a passive market index, like the S&P 500 Index or the Barclays Aggregate Bond Index. An example of an absolute benchmark would be a target return, such as 6% annually. Although it can be a time-consuming process, it is important to consider the amount of risk you are taking relative to your investment benchmark. You can do this by recording the volatility of your portfolio’s returns, and comparing it to the volatility of your benchmark’s returns over of periods of time. More sophisticated measures of returns that adjust for risk are the Treynor Ratio and the Sharpe Ratio.

Sun Tzu, an ancient Chinese military general and strategist, once said, “Tactics without strategy is the noise before defeat”. Sun Tzu knew that having a well thought out strategy before you go into battle is crucial to winning. Good money managers have a clear understanding of why investments are over and undervalued, and know what drives their investment performance. If you are going to battle against them everyday in investment markets, shouldn’t you? Great trades may win battles, but a well-thought-out investment strategy wins wars.

(source: Investopedia)

Signs of a doomed stock

How do you find out if a stock you own or want to own is worthy of holding? There are  signs you can look out for that serve as warning bells. They are:

  • Negative cash flows

Cash flow is the lifeblood of a business. The P&L statement are based on accrual and credit basis (due to accounting standards). Thus, not all the profits shown are actually in the company coffers. Some are still not received (as shown in an increase in accounts receivables). So, looking at “cash flow from operating activities” under the cash flow statement shows the real profitability of the company. Profits can be increasing but cash flow decreasing year after year for a few consecutive years is a major warning sign.

  • High debt-to-equity ratio

Debt-to-equity ratio is total liabilities divided by the shareholders’ equity. A high number (above 0.9) equates to high debt levels.

  • Insiders selling

When the company directors and fund managers are selling in huge chunks, you certainly want to flee as well. Add that to the negative cash flows and you have a recipe for disaster.

  • Resignations of auditors and key management

Resignation of key officers especially the Chief Financial Officer without a concrete reason has to be looked into. Resignations of auditors all of a sudden has to be investigated as well.

  • SEC/SGX investigations

When the authorities step in, something really disastrous might be happening for the company. By then, the share prices would have plunged. The first warning sign would already have come from the negative cash flows year-on-year for a few consecutive years.