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In advising subscribers over the last 20 odd years, i Capital has always advocated or recommended long-term investing. Yes, there will be wrong calls or even costly mistakes (which approach does not have mistakes anyway), but investing long term increases the chances of long-term investing success. As i Capital used to say, do not be short-term greedy, be long-term greedy. Why does i Capital advocate such an unpopular approach ? Why not flow with the crowd ?
Our managing director sees investing from the perspective of a businessman and not just that of a typical fund manager. Seen in this way, one then recognises that it takes many, many years to build and grow a business. Capital Dynamics Sdn Bhd had to endure 4 continuous years of losses when it started in 1989. As an independent investment adviser, these 4 years were really worse than climbing Mount Everest or Mount Qomolangma. There was just no one to turn to for any kind of assistance and most people did not believe that we could survive beyond the first year. Yet, despite the many difficulties, our managing director stayed very focused. The only “assistance” he could turn to was the subscribers. He had to convince the subscribers and potential subscribers that i Capital was a trusted investment adviser. To be a trusted investment adviser meant only one thing. i Capital had to be built upon its 3 core values of independence, intelligence, and integrity. But becoming a trusted investment adviser and for the 3 values to be appreciated takes years. Thanks to the trust placed in us by our subscribers over the last 20 years, Capital Dynamics Sdn Bhd is able to survive and yet remain totally independent. This has allowed us to provide objective investment advice all this while, without any hidden agenda.
Our managing director has studied the experience of Value Line, Inc. and was rather inspired by it. Value Line, Inc. publishes the Value Line newsletter, a product that even Warren Buffett strongly recommends. Like Capital Dynamics, Value Line, Inc. also has a fund management arm. Like Capital Dynamics, it is an independent investment adviser except that it has grown big enough even to be listed on the NYSE. If an independent investment adviser can survive and grow in the US, why not Malaysia, a country that is in very dire need of objective advice ? At the same time, our managing director knew that the trust has to be earned, the hard way. If i Capital does not provide consistently good objective investment advice, then, i Capital will cease to exist very quickly, just like many other investment advisers did a few years back. 20 years later, we are still surviving. Many subscribers who started out with us in our very first year of business are still with us. i Capital has withstood the most cruel test of it all, the market place.
The following passage from the 1940 book, "Where are the customers' yachts ?" written by Fred Schwed is revealing:
"An out-of-town visitor was shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor.
He said, 'Look, those are the bankers' and the brokers' yachts'.
'Where are the customers' yachts ?' asked the naive visitor."
If our subscribers do not have their yachts, we would not even have our sampan. It is as simple as that. Many of our subscribers have thanked us for the immense sums they have made from stocks like Parkson, icapital.biz Berhad, etc. Do not get us wrong. In our website, i Capital has very frankly said that we make mistakes.
A Humble Claim
We do not claim to be 100% accurate. We are certainly not. What the i Capital aims to achieve is contained in the following advice:
Why does Buffett place great emphasis on having a sound framework ? His own experience at the beginning of his investing career was not much different from ours. Like most of us, he had to learn the hard way as he "was spending a lot of time at a brokerage office... following various stocks. But he didn't have a system for investing - or if he did, it was haphazard. He would study the charts, he would listen to tips. But he didn't have a framework. He was searching."
A Sound Framework
So, instead of pretending that we can be 100% accurate, i Capital provides investors with a sound framework. What is our investing framework ? It is built upon very comprehensive analysis.
To arrive at our advice and recommendations, we analyse foreign economies and stock markets, interest and inflation rates, bonds and commodity markets, market psychology, in addition to the local environment. i Capital provides a clear perspective of how markets interact and how this interaction influences your investment. It translates the significance of events and interprets them in terms of the market. We study PE ratios or return on equity or Wilder's RSI, for example. But we are neither chart fanatics nor pure fundamentalists.
Over the years we have certainly made many mistakes. As Warren Buffett advised: “If you aren’t prepared to see your stocks go down 50%, you shouldn’t own them. Be prepared for declines – and arrange your financial affairs such that you won’t have to sell out”. There will be many more mistakes to come. Those who are looking for a perfect score should look at themselves. Those who need a sound rational investing framework will instead find i Capital highly productive. Subscribers need to read every section to gain the maximum benefits.
Instead of hiding its mistakes, i Capital has been brutally self-honest about them. Take Section D2 for example. This highly unusual section was set up in the issue dated 14 Dec 2000. i Capital explained:
“The 2nd Chance portfolio is specially set up, at our own initiative, to help subscribers who may be holding some of our stocks selections’ dead ducks. We are assuming that the investors initially invested RM10,000 (or its percentage equivalent) for each dead duck and the quantity bought is derived from there. Any dividends received have been ignored. We sold some of these dead ducks last week and would then reinvest the proceeds at the right time. The objective is to recover our principal as soon as it is realistically possible. Once this is done, we will close this special portfolio. We certainly have no idea when this would be. As a start, let us pray hard. In buying 6 counters, we started with RM60,000 and when we sold 2559.3 Malayawata shares, 767.36 Wijaya, 1365.65 Fututech, 2605.52 CSM, 2161.79 HLPB, 2335.14 Muhibbah on 7/11/00, we raised RM15,275.69.”
Not every investor or trader will find i Capital useful. We have previously said that i Capital cannot be a best seller. It is not meant to be. Our unique series on Confucius or China on the Move or Depression Watch are aimed at serious investors. Even the entire i Capital or http://www.icapital.biz is structured in such a way that is very different and needs some time getting used to. Newer subscribers may not notice it but i Capital is the only investment adviser that it knows of that discloses its interest in securities, as required by the Capital Market and Service Act 2007. At the end, we look forward to another 20 years of providing sound, independent investment advice to those who want it.
Having built up Capital Dynamics over the years, our managing director recognises that investing in the stock market demands the same commitment as well. It cannot be otherwise. Let us recall the following story, first told in i Capital dated 17 Aug 2000.
“An aspiring technopreneur had come to her office (the CEO of a Singapore IT company) with a business plan for an Internet venture …..The CEO looked at the business plan and noticed it didn’t go beyond Year 3. So what happens after that, she asked. The chap breezily admitted he hadn’t really thought that far because ‘I hope to IPO after the first year’.”
The same long-term commitment is necessary in managing and developing a country successfully. One of the important reasons why Singapore has succeeded so well is because her leaders had this long-term commitment and focus. One important reason why Malaysia has fallen so far behind is she does not have this dogged determination.
KLSE
They say the global economy is not decoupled. Yet, as Japan and Europe contracted in the second quarter of 2008, the US expanded at a healthy rate. Since the simple word of decoupled seems to mean so differently to different people, i Capital would like to share some humorous definitions on investing from the Money Management magazine.
1. Bull market – A random market movement causing an investor to mistake himself for a financial genius.
2. Bear market – A six to 18-month period when the kids get no allowance, the wife gets no jewellery and the husband gets no sex.
3. Market correction – The day after you buy stocks.
4. Stock split – When your ex-wife and her lawyer split your assets equally between themselves.
5. Standard & Poor – Your life in a nutshell (this is our favourite).
Meanwhile, the 1,100 support of the KLSE gave way. With volume extremely low, judging the shorter-term direction of the KLSE becomes difficult. One important saving grace is that the plunging oil and commodity prices would be a welcome relief for many consumers. The expanding global economy would get a boost from this relief and the nerve-wrecking KLSE would eventually benefit from this. After all, why should the state of Malaysian politics affect global demand for palm oil, or crude oil and gas or the semiconductors ? i Capital revises its immediate-term outlook of the KLSE to a range of 1,050 to 1,200. For the short-term, i Capital also revises its outlook slightly at a range of 1,050 to 1,400. For its medium- and long-term outlook of the KLSE, i Capital still expects the KLSE CI to hit 2,000 points. With the 2008 election results now history but with the political comedy still being acted out, i Capital will review its medium- and long-term outlook at a relevant time.
____________________ Don’t Try to Predict the Future / Be In Harmony with the Market / Don’t fight the Market ~Charlie Wright
If one listens to all the doom and gloom forecasts, it would seem that there is no end to the end of the world. The facts point to a welcomed slowdown, not a frightening apocalypse. What do all these mean for the NYSE ? The NYSE should be rising soon, in anticipation of stronger US economic growth rate. Last week, i Capital said that it sees the fall in the NYSE from Jul 2007 as a correction in a long bull market. i Capital retains its bullish short-term outlook of the NYSE at a range of 1,190 to 1,500. i Capital also retains its long-held bullish longer-term target of the NYSE at 1,900 - 2,000.
If one listens to all the doom and gloom forecasts, it would seem that there is no end to the end of the world. The facts point to a welcomed slowdown, not a frightening apocalypse.
Thursday March 19, 2009 China to lead the world out of recession
China-led global recovery will substantially help US export sector
BEFORE the bear market started in 2007, many were worried that the New York Stock Exchange (NYSE) was priced for perfection. In such a situation, any disappointment can cause the market to trip as everything is going smoothly and expectations are high.
Now, the opposite is happening – the NYSE is priced for massive destruction. In such a situation, a series of positive surprises can cause the market to reverse its bearish trend as everything is going wrong and expectations have gone down the drain.
So, for those who are market-timers and top-down followers, what should one be watching for? What can cause the NYSE to reverse its trend?
The current pessimism in the US is very severe. This is not surprising, given the persistent problems facing the large US and European financial institutions.
The basic reason for this deep level of pessimism is that many of those who are bearish see the current US economic problems as being a balance sheet problem – too much leverage and plenty of bad assets – as opposed to the more usual excess inventory, monetary tightening-type.
Those who based their pessimism of the US economy and thus the NYSE on this approach are not wrong. The excess leverage undertaken by the households and financial intermediaries and the declines in asset prices have caused the balance sheets of many economic units to be out of whack. There is thus the adjustment process going on now.
Some of those who are bearish do not see the US economy growing in 2009, 2010 or even beyond. This is already like the Great Depression. Where i Capital differs from the perma-bears is on the severity and duration of the current economic contraction.
i Capital would agree with the perma-bears if the global economy had only the US, Europe and Japan as sources of growth.
The global economy in the 21st century is undergoing its biggest transformation ever, led primarily by China. While 30, 20 or even as recently as 10 years ago, the US economy could ignore the rest of the world, nowadays, it cannot (see Table 1). The US economy has become very integrated with the rest of the world.
Before the Lehman Panic hit in September 2008, the US economy was still growing decently, thanks to its billions of exports to the rest of the world. Since memories are so short, i Capital shows this dependence by the US on the global economy in Table 2.
The most important component of the i Capital Long Boom is China’s once-in-a-millennium transformation. This is still going on despite the US-led financial crisis.
Many are calling a recession for China in 2009. i Capital does not buy into this extreme pessimism. As China and its hundreds of millions of consumers spend their way out of the global recession, this will ensure that China enjoys another decent year of GDP growth.
More importantly, this will benefit the rest of the world, particularly CLEB (China-led economic block), directly or indirectly.
This China-led global recovery will substantially help the US export sector but more importantly, it will provide great confidence to the rest of the world that the decoupling theory is more than still alive.
This new-found confidence in the global economy will permeate many levels and many sectors of the global economy. What is important about this renewed confidence is that it will allow the current vicious cycle in the US financial markets and economy to be broken. Once this negative cycle is broken, a decent and sustained round of economic expansion can begin. Once this happens, the drag from the balance sheet woes will be offset and subside.
Drops in asset prices can be bearable. Not having regular income from having regular jobs is not. The balance sheet recession can be mitigated substantially if the income flows continue.
A major bull run is under way in global stock markets, says the Capital Dynamics group, a fund manager with one of the most optimistic views of the market yet.
Managing director Tan Teng Boo believes that stock markets have bottomed "a few months ago" and that the global economy is on course to a V-shaped recovery.
"The global stock markets are on a major bullish reversal," he told reporters yesterday at the launch of a global unit trust fund.
Economic data in almost every part of the world, including the US, is beginning to look much more positive, he said. Yet, investor sentiment has continued to remain negative.
"I've never seen so much pessimism in my life. I want to go on the record as being bullish, amid pessimism," he remarked.
Tan emphasised that this is not a bear market rally that the world is seeing. With economic fundamentals improving, global fund management firms will realise that if they don't start investing soon, they'll be under-performing the market.
They then start to panic-buy, he said, and this sets the stage for sustainable market rally.
"The current stock market rally will be sustained by the institutional lemmings which are still loaded with cash and the banking giants which have too much hoarded liquidity," he said.
The same will happen in Malaysia, but here, there is the complicating factor of political uncertainty in certain states, he said.
"Politically, Malaysia is still in a very uncertain phase, but what will help the stock market is the global economic recovery," he added.
He thinks the Kuala Lumpur Composite Index (KLCI) will likely test the 1,400 to 1,500 point level within the next two to three years.
The KLCI closed at 1008.87 yesterday, down by 0.49 point on profit-taking activity after three days of strong gains.
Capital Dynamics has been on a stock-shopping spree over the last few months, Tan said. It owns shares in KL Kepong, Keppel Corp, Parkson, Tesco and Bank of East Asia, among others.
The group's recently-opened Australian office Capital Dynamics (Australia) Ltd will manage the iCapital International Value Fund that was launched yesterday.
This is a global open-ended fund denominated in the Australian dollar, meant for retail investors here and Down Under.
Tan said the fund, which will be invested in value stocks in 42 markets, is targetting an annual return of between 15 per cent and 20 per cent. The minimum initial investment is A$20,000 (A$1 = RM3.00).
Capital Group also has offices in Malaysia and Singapore.
On the global financial crisis, Tan said the severe economic contraction can be almost entirely blamed on the collapse of US investment bank Lehman Brothers last September.
"Without the policy flip-flop of the previous US administration in not rescuing Lehman, it would have been pretty much 'business as usual' for us," he remarked.
