Beware of SHORT-TERMISM
Author: Tan KW | Publish date:
Thursday, January 2, 2014
http://www.intellecpoint.com/2014/01/beware-of-short-termism.html
The one thing which I noticed about the market is that how 'short-termed many investors are" and many are trend followers. Even some of the most senior and experienced investors, pretty many of them are short term in nature. However, on the contrary, many great investors - they are looking much longer term in nature - from Peter Lynch to Peter Bogle who created Vanguard to Warren Buffett.
These are the fund managers and investors whom would look into potential undervalued stocks, identify the opportunities early, understands stocks as business and invest early.
The thing about business is that it is never short term - entrepreneurs have to stay through thick and thin - build the business, continue to invest and reinvest - enhancing their processes, brands, customers acquisitions etc. These however are seldom practised among many stocks investors. The excitement of getting in and out are much much more exhilarating.
Why am I saying this?
For a while, I have been looking at "Latitude Tree" for example. It was trading around RM0.60 for quite a while. One would know that with the return in pick-up for US real estate, and with Latitude selling 90% of its furniture to US, it will not have stayed at around 3x PE and market cap during then of RM60 million. US still has young population, and one should know that usually younger populated country like US will have strong demand for properties, despite the setback in and resulting crash in its property market back in 2008 - 2009. Young families will one day definitely be buying its own home although they may be renting for the short term. Today, with the properties market picking back up in US, Latitude is now trading at RM2.20 - almost 3x higher than the RM0.60 back in 2011. And I am seeing much higher volume today than those days when hardly any transactions happened.
Now, on Malaysian economy - what is at danger point? One can notice that at this stage, Bank Negara, government, commercial banks are tightening lending especially towards properties, automotive purchases.
We know that Malaysia is now having one of the highest household debt to GDP among Asian countries. Surely, all the banks are going to go slow on lending especially to consumers going forward. We now have a very low NPL of 1.2%. How much lower can it go?
On the Malaysian property end, you can read many stories of how dangerous it can be moving forward with extended lending for the last few years and ease of getting credit for many consumers. Of course there are some of those who do not think there is a bubble. We do not know who is right and who is wrong. But why buy at the high? And hope to sell higher. Shouldn't one be buying low and sell high , which is a safer route?
A stock should be looked at like a business. If you would invest into a business that is worth RM100 million today and in 5 years down the road, you are confident that it would be worth in your opinion RM500 million, would you invest? What if I tell you that you are not allowed to sell and in fact, you are not able to sell because it is not a publicly traded company. Would you invest? Yes, one may say but this is not what I see in the stock market behaviour today. Many are more concerned over what is the performance in the next quarter, more worryingly next week or next month. Many investors look at today, and discount the investment that a business owner or manager has to put in.
Businesses are never short term. It definitely has its ups and downs. The problem with many investors is that with his / her investment, they expect return next month. Then they move to a new stock. But to find a good company or business that you are confident with is very difficult. The keyword here is "you are confident with" which means a lot of time are to be spent on studying the company, knowing the business to some extent, be faithful and be patient.
However, that is not what I see and many are just falling into the speculation trap.
These are the fund managers and investors whom would look into potential undervalued stocks, identify the opportunities early, understands stocks as business and invest early.
The thing about business is that it is never short term - entrepreneurs have to stay through thick and thin - build the business, continue to invest and reinvest - enhancing their processes, brands, customers acquisitions etc. These however are seldom practised among many stocks investors. The excitement of getting in and out are much much more exhilarating.
Why am I saying this?
For a while, I have been looking at "Latitude Tree" for example. It was trading around RM0.60 for quite a while. One would know that with the return in pick-up for US real estate, and with Latitude selling 90% of its furniture to US, it will not have stayed at around 3x PE and market cap during then of RM60 million. US still has young population, and one should know that usually younger populated country like US will have strong demand for properties, despite the setback in and resulting crash in its property market back in 2008 - 2009. Young families will one day definitely be buying its own home although they may be renting for the short term. Today, with the properties market picking back up in US, Latitude is now trading at RM2.20 - almost 3x higher than the RM0.60 back in 2011. And I am seeing much higher volume today than those days when hardly any transactions happened.
Now, on Malaysian economy - what is at danger point? One can notice that at this stage, Bank Negara, government, commercial banks are tightening lending especially towards properties, automotive purchases.
We know that Malaysia is now having one of the highest household debt to GDP among Asian countries. Surely, all the banks are going to go slow on lending especially to consumers going forward. We now have a very low NPL of 1.2%. How much lower can it go?
On the Malaysian property end, you can read many stories of how dangerous it can be moving forward with extended lending for the last few years and ease of getting credit for many consumers. Of course there are some of those who do not think there is a bubble. We do not know who is right and who is wrong. But why buy at the high? And hope to sell higher. Shouldn't one be buying low and sell high , which is a safer route?
A stock should be looked at like a business. If you would invest into a business that is worth RM100 million today and in 5 years down the road, you are confident that it would be worth in your opinion RM500 million, would you invest? What if I tell you that you are not allowed to sell and in fact, you are not able to sell because it is not a publicly traded company. Would you invest? Yes, one may say but this is not what I see in the stock market behaviour today. Many are more concerned over what is the performance in the next quarter, more worryingly next week or next month. Many investors look at today, and discount the investment that a business owner or manager has to put in.
Businesses are never short term. It definitely has its ups and downs. The problem with many investors is that with his / her investment, they expect return next month. Then they move to a new stock. But to find a good company or business that you are confident with is very difficult. The keyword here is "you are confident with" which means a lot of time are to be spent on studying the company, knowing the business to some extent, be faithful and be patient.
However, that is not what I see and many are just falling into the speculation trap.
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