Well, 2017 was a very interesting year.
For some, it was a fantastic year.
We had the Construction Bullrun at the start of the year, which was coupled with the Semiconductors Bullrun for much of the year as well. And we ended the year with the incredible oil refinery and oil producer bull run, which was primarily due to the widening crack spread.
For many, it will also be a year of pain.
Those of chased high consturction stocks and held till today, would have lost alot of money. There is the incredible IWCITY double limit up and down, and the incredible rise for Ekovest, Gadang, Malton etc, as well as the subsequent slide down.
Its also very funny, how at the start of the year, people thought the RM would weaken against the USD until 4.8 or 5, but now we end the year at 4.08 and predicting that it will drop below 3.8 next year. Just goes to show that when predicting, most people extrapolate the now to the future, with no regards to reversion to the mean. Or how that the markets is dynamic and reactive with natural feedback loops.
On a personal level, i am up roughly 20% this year. However, my stock picks for the 2017 stock pick competition had a disasterous performance with a gain of only 3.2%, with a high of 18% during the year.
If im being honest, i think im incredibly lucky with my personal portfolio, considering how foolish i was at the start of the year. And in my stock picking portfolio, considering how foolish i was when i chose them, whatever stocks that went up, i was for the most part lucky to have picked it. Whatever went down, i wholly deserved it.
However, i think i learned also alot this year, i finished reading 5 years worth of annual reports for every company listed in the KLSE and i also built a relatively rudementary latticework of mental models so far.
It is very important to reflect on out sucess and failures, to understand our decision making process, as well as to determine whether our sucess is due to skill or luck, and if our failures are deserved or just unlucky.
So lets start.
https://klse.i3investor.com/servlets/pfs/70646.jsp
1) AEONCR (Up roughly 45% including Loan Stock
I picked this one back then, mainly because i had a feeling then that it was a good business in a great industry and should be undervalued.
I was right, but my lack of precision and understanding of this company back the was incredible. It was mainly luck to caused it to be in my portfolio.
During the year, i understood how to value financial institutions and banks. Rule of thumb, the fair value of a financial institution with a Return of Asset of 1%, and Leverage of 10 times is 1X Price/Book Value. Back when i bought, it happened to be somewhat undervalued. Right now, it is a touch above fair value quantitatively.
Why do i say its a great industry? Its simple, people like to live beyond their means. People do not know how to calculate effectuve interest rates when buying. All they see is that, by paying RM60 a month for 3 years, they get a new fridge. This company is primarily based in selling of eletronic goods via finance lease as well as credit cards.
Their cost of capital is 4.3% while they loan out at 21% effective interest ratesn utterly incredible.
And by virture of being a financial institition, their business is the borrwing of cash. Which means, no onerous or mediocre capex expansion, no bad allocation of capital etc etc.
I can write alot more about the management, but ill stop here. I had some of it in my personal portfolio, and i sold sometime back at RM14.3 for another better(Maybe) and cheaper (definitely) company.
2) AIRASIA (Up 46.36%)
When i bought this, i knew 2 things, airasia is a fantastic company, with incredible management, and in a fat and weak industry filled with GLC's, and they somehow managed to even build a moat, at least as much of a moat one can have in a cut throat cost based industry.
I knew it was undervalued when i paid. Back then at 2.3, it was trading at essentially 2X EV/EBITDA. Buy the company now, it will pay you back in 2 years.
This was also one of the stocks i got lucky back in the day buying at 0.9 to 1.0, before selling at 2.6.
The funniest thing about this company i learnt, is that markets truly are stupid. It went from 0.9 to RM3.1 in less than a year, before sliding down to RM2.1 and subsequently shooting up to RM3.5 before settling at RM3.3.
Except during these incredible price swings, the company was just as good and fundamentals never changed. Just shows you the incredible stupidity of sentiment, and the power it has in real life.
In my personal portfolio, i bought at 2.4 before averaging down over 3 months to 2.1. A truly painful excercise for a newbie, espeacially when one only knows the price and not the value of the company. I sold half my holdings when it rebounded to RM2.5 and the rest at RM2.9.
So foolish to sell or not top up just because of emotions. I learnt to look at shares a fractional ownership of the company since then.
3) FLBHD (Down 23%)
It was cheap then, its even cheaper now. The only fault i could really say, is that back then i have not yet finished reading the annual reports of all the companies in the bursa. They're cheaper ones.
If i made the decision again, i would have lowered the size of this to soemthing like 7-8% instead of 10% of portfolio, or even changed it completely to another one like INSAS, which really is no metric for comparision, since if i chose INSAS instead of this and it went down, i might say i should have chosen FLBHD instead.
In my personal portfolio i bought at 1.6 and sold in early at 1.8. I sold for a stupid reason, ie, it went up, so i should sell, with no regards to the intrinsic value. Every dog has its day.
4) GAMUDA-WE (Down 3.5%)
I chose this because it was OTB favourite, and OTB pick's has fantastic results.
Again, a mistake, i should have done my own analysis instead on relied on another.
Question is, would i have said the same thing above, if it was GKENT instead and it went up 40%?
Gamuda is a great construction company, but it is not cheap, EV/EBIT it is 19 times. Not cheap at all when compared to other opportunities. Something i found out when i finished the KLSE reports.
One reason why valuations is so high despite being a construction company, is that it has multiple divisions giving some resilience to earnings and it pays our dividends, both of which make this an overvalued stock.
These days, im not keen on any construction company at all, unless it becomes very cheap, because of how difficult it is know future earnings and the complete lack of moat.
5) MAGNI (Up 35%)
I chose this because it was cheap-ish then and it was KCCHONGNZ's favourite.
Well, it worked out, it went as high as 70% at one point during the year. In my personal portfolio, i sold at RM5 to buy AEONCR, watched it go u to RM7.77 before coming down now to RM5.69.
Was i lucky? I think so. Another of my picks PRLEXUS was cheaper than MAGNI, but it instead went down 36%. Despite things like ROA or ROIC being roughly the same if RNAV is used.
The only reason this stock went up was due to results being better than expected (Something i could not predict or know), and that this company does not do any share diluting activities like rights issue. And the owner of this company, truly acts like a shareholder with personal share purchases.
Industry wise, not a fan, cost based etc etc.
6) PBBANK (Up 5.12% not including dividends)
Well, best bank in malaysia, I only bought it a an anchor.
Now that i know how to value banks, im unlikely to pick this again.
Having said that, if one were to pick only PBBANK fo this year, one would have made roughly 8% this year including dividend, more than double my entire 2017 stock pick portfolio.
Makes you think a little.
7) PRLEXUS (Down 36%)
I bought it as it was cheap then at 3.5X EV/EBIT. Business wise, fairly decent, but not a good industry. I also held this in my own portfolio. It went up 1.66 at the middle of the year, making me feel brilliant, and not so brilliant when it fell.
I also held the warrants in my own portfolio, but thankfully, i sold that early, as i didnt want my exposure to PRLEXUS being too high.
I'm still holding some of my PRLEXUS shares.
At 0.86 now, its too cheap to sell, but i like other companies as well, so im not sure i can still buy it.
8) SAPRNG (Down 56%)
By far my stupidest decision. I bought it, because i thought oil was too cheap, and should go up in price in 2017, and being a complete idiot, the only company i could really think of SAPRNG, so i picked it without even looking in the financial statements.
Thankfully, i never touched this in my personal portfolio.
Most indebted company in the Bursa. RM15 billion in debt, and finance cost of more than RM1 bil per annum. Wow.
9) TENAGA (Up 9.5%)
I bought it as it dropped before the year end. Not a smart way to think, but a fairly decent pick.
Utilities are all depressed right now (or were they overvalued before this? I know Malakoff was and still is).
Not the worst investment. The thing i dislike is how inefficient all GLC's are. I know TNB is wasting more money than they should.
10) TMCLIFE (Down 15%)
Great company and hospital, very very overpriced. I made a mistake with this. I purchased this thinking the stupidity of people overpaying for it will continue. I was betting on the greater fool.
Foolish way to buy. Now, i only look at discount to intrinsic value.
http://klse.i3investor.com/blogs/PilosopoCapital/142756.jsp
