Looking for opportunities during Market crisis

Taking a break from my normal investment journey posting, I would like to share my thought on the current market conditions, what we should do and hope you can decide on your next trading plans.

Previous major events, Hong Kong protest and the Iran US war tensions didn't really put a dent to the investor's confident. A short dip in selloff and follow by fast V-shape recovery seem like a common patterns. 

However, this time will be different. The market is full of fears now. The coronavirus outbreak strike the heart of world's most populous country causing a lot of uncertainty in the market.

When will this flu epidemic going to end? What is the impact to the economy? Can we justify the current market's valuation with this risk? With so much uncertainty in the air, a major sell-off is inevitable. Human's emotions can flip from extreme greedy to extreme fear like a switch. It will be madness when everyone try to exit the market at the same time.       

You may think the speed of infections multiply at "fast and furious" pace, but that is nothing compare to speed of human's fear during the market selloff. A steep 1600 points dropped for Dow Jones index in just 2 days had become the casualty of human's fear. One thing is sure that "herd mentality" had overpowered humans' rational thinking. Could you still stay calm when others panicking?   

If you follow previous my posting, you notice that I had been selling heavily and raising a lot of cash for the past month. I had been taking the road less travelled. Stay true to my believe, be contrarian when come to investing. I could be at the wrong side of the trade in a bull market, but I definitely don't want to be victimized in the selloff madness later.    

The link to my previous posting:

Resist the Greed, be contrarian ......another profitable trade in Jan 2020

Profit taking Jan 2020...... Recalibrating risks

Investment Psychology....Investor's worst enemy 

There is nothing to be fearful of the market swing. Take this period of human madness as an opportunity to scout for great investments idea. The best quote I learnt from Warren Buffett "Be fearful when others are greedy, and greedy when others are fearful". Sound very logical but it is not easy to follow in reality. You have to tune off all the noise in the market, and be yourself.  

With the current situation evolving fast, here are my advice:

1. Stay calm  - nothing good come out from panicking, you could make mistake that you will regrets later. Separate your emotion from your decision making process.
2. Take Calculated risk - perform risk analysis of the stock that you want to invest. is it worth investing base on Risk Reward ratio (3R).
3. Scout like Eagle - Now is the best time to search for great companies to buy. Only in crisis like this, you can buy great company at cheap valuations.   
4. Get your hands Dirty  - Set your investment plan in motion. You should be greedy when other is fearful. Remember, the market will recover eventually. So, fear not.   

If you can execute this well, you will be very successful in investing. Always stay calm and be contrarian.

- William Cheng

Disclaimer: All investment come with great risk and should proceed with cautious. This is not an advice to buy or sell any stock. It is important to do your own research and analysis before making any investments.

Facebook...... Perfect Playbook (Almost)

Facebook always in my radar for trades. Due to all the bad publicity and scandal surrounding the company, it has created a perfect opportunity to make profit from it. Like Warren Buffett always said " You don't have to swing at every pitch", look for the right moment and hit the home run.

If you referred back to my past posting on my FB position in 2018, you realized that I'm buying at the worst timing when they announced Cambridge Analytical Data scandal. I barely survived the 30% plunge in stock price. A hard pill for me to swallow with my pride.    

You can refer to my past posting about FaceBook in the link below:

Facebook 2018....being poked?

The user growth for Facebook always impressive. I don't see it will saturate anytime soon even thought almost half of the populations on Earth already joined its ecosystem. Minimum age for joining Facebook is 13 years old. Every year there will be a new generations in tens of millions reaching age of 13 years to be potential users joining the herds.   

Perfect Swing in 2019

The perfect moment came when the stock plunged to $130 in January 2019. In the moment of crisis, I saw an opportunity of lifetime to make a profitable trade. And this time it was "personal". As much as I hate to be "wronged" in 2018, I really want to get back even with FB. The pitch came at the right moment. I took the swing eventually at $146 BUY. Few months later, I sold it at $174 and $192. I felt really good not because I making good profit, but I finally make my sweet revenge. No more getting "Poked" by Facebook.   

Personal Notes:

After selling majority of my holding in January and February, I'm now holding 80% cash in my portfolio. I taking a step back and to plan my next game. The market seem to be fairly valuated and it is trading at very bullish sentiment, I would said extremely Greedy level.

At this moment, I will be staying away from market for a little longer to avoid Tsunami of sell down later if the Market correction really come. The recent incidents of Singaporeans rushing to buy "toilet paper" remind me of "Herd mentality" of FOMO rush that we normally see in stock market. It is time to take step back and think before you "swing".  Go fishing is not a bad idea after all.  

Next chapter of my PlayBook

Since I started actively investing in the market, I have been devoting my time developing my own methodology of stock selections and when to make a trade. Most of my trade are based on fundamental analysis and logical guts feeling. I hardly depend on charts and technical analysis is not my field of expertise. I hardly know how to interpret technical indicators. I need to confess that I'm a really a TA dummy.

So this year, I’m making a resolution to learn new trading method base technical analysis. I want to explore new income stream to make even more money (hopefully!) in the year of Rats. Huat arh! In order to do that, I decided to take up a trading course which cost me more than $2,000. I believe the money is well spent for knowledge that I can leverage to make even more money in the market. The course will start at the end of Feb this year.

Hopefully, one day I can retire from corporate world and become full time trader. Keen to leave the Rat race in the year of Rats? I will share more about it in my future blog.

If you interested to know the course that I'm taking, you can drop me a message. Ciao!        

-WILLIAM CHENG

Click on the links below for more interesting articles:

Resist the Greed, be contrarian ......another profitable trade in Jan 2020

Beyond Meat…… Beyond Believe

Profit taking Jan 2020...... Recalibrating risks

Investment Psychology....Investor's worst enemy

ALIBABA HK IPO..... (Investment Profit Overdrive)

Boom and Bust in 2019 revealed

Resist the Greed, be contrarian ......another profitable trade in Jan 2020

Recent world's events had prompted me to activate my stock exit plans. SELL, SELL, SELL. I had decided to expedite the selling in view of US-Iran's war conflicts and the most recently coronavirus outbreak fear.

 I have been reducing my stock holdings for the past weeks. My cash holding had jumped from 5% to 70% within 10 days of fierce selling. SELL, SELL, SELL. The US stock indexes have been performing very well during the 2 major events, only suffered minor dips of less than 2%. It quickly rebound on the next day.

 

 

 

The ignorant of major events and excessive greed in chasing the market bull provide a great opportunity for me to unload stock without suffering much "opportunity cost". I have no intend to sell at the peaks as I'm absolutely poor in predicting the top. However, I did sold some stocks at the peak and that's were just purely LUCK.

I have done selling and comfortable with my cash holdings for now. No intentions to add any positions until the market barometer shift from extreme Greed to extreme Fear. My portfolio now showing ROI of 7% this month based on net profit after selling. This is best ROI in 1 month so far since I started tracking my trading in 2014. It took me 10 months in 2019 to achieve similar rate of return compare to only 1st month in 2020.

Being a Contrarian

I don't like to remain "risk on" when so much confidents in the bullish market. There is not enough fear to counter balance the risk of bubble. I like to stay contrarian when come to investing. That is why my blog is called fifth arrow investment, the fifth arrow always pointing at opposite directions.

 

I could be damn wrong about going against the crowds. The market could continue to climb after I sold out. But that is fine for me as I don't see the Risk-Reward Ratio is favorable to remain in the market. I like to use the quote from Warren Buffet about being contrarian, "Be fearful when others are Greedy, Be greedy when others are fearful".  

I would stand by my guts and take the plunge. I could be wrong side of the odds, but I will take my chances. I will reveal my recent trade details in my following posting. Stay tuned and thanks for reading.

-WILLIAM CHENG

      Click on the links below for more interesting articles:

Beyond Meat…… Beyond Believe

Profit taking Jan 2020...... Recalibrating risks

Investment Psychology....Investor's worst enemy

ALIBABA HK IPO..... (Investment Profit Overdrive)

Boom and Bust in 2019 revealed

KEPPEL KBS US REIT...... Take the JUMP!

      

Beyond Meat…… Beyond Believe

Resource Sustainability are one of the megatrends which taking shape in 21st century. As more consumers demands more companies to play a bigger role in social responsibility, resource sustainability become the focus point in their CSR reporting.

Recently, I took a glimpse at a video documentary titled “Sustainable” (2016) on Netflix. It featured a strong argument why meat eating is not sustainable to the environment and adding strain to the world's resource. The amount of waters and feeds needed to raise a cattle is huge which only feed few individuals compare to agro farming. Chart below shows that 1lbs of meat from cattle required 15x more water, 12x grains/feeds and produce 13x more CO2 footprints compare to 1lbs of soy beans. This is not sustainable for meats demands keep increasing,  draining our precious water resource and adding more CO2 pollutions to Mother Earth. A sure path to self destructions for mankind's, if you believe their theory.

One company that caught my attentions which I think it has huge potential to grow multiple times over, that is Beyond Meat. This is a green field producer of plant-based alternative meats. Beyond meat can be at the epic center catching the wave of sustainable movement demands by millennium consumers.

The company

Beyond meat is Los Angeles-based producer of plant-based meat. Launched its IPO on May 2019 with a price of $25 per share with market valuation at $1.46 billion. After listing in 2019, the stock saw huge demands from publics pushing the price of the stock to all time high of $234.90 in July. That was 10x of the IPO price in very short time. It crashed back to earth and trading between $60-$80 for the most part of the year.

The recent run up due to recent positive announcement by its rival and partners.  The recent spike began on Jan. 7, its arch rival Impossible Burger said it would not be able to produce enough burgers to partner with McDonald. Shares of Beyond Meat jumped up 12.5% that day after the news and have kept climbing. McDonald's also said that it was expanding its test run of Beyond Meat to more locations in Canada. This was a very good news for BYND as McDonald is the biggest fast-food chains in the world, total 38,000 stores.

The numbers

Third Quarter 2019 Financial Highlights Compared to Prior Year Period

•Net revenues were $92.0 million, an increase of 250.0%;

•Gross profit was $32.8 million, or 35.6% of net revenues, compared to gross profit of $5.0 million, or 19.2% of net revenues, in the year-ago period;

•Net income was $4.1 million, or $0.06 per diluted common share, compared to net loss of $9.3 million, or $1.45 per common share in the year-ago period; and

•Adjusted EBITDA, which is a non-GAAP financial measure, was $11.0 million compared to an Adjusted EBITDA loss of $5.7 million in the year-ago period.

Information above taken from the latest quarter posted on the web. This company had posted its first quarterly profit compare to previous year, which means its business is getting more efficient. I believe more good news to follow as its continue to grow its footprints.

The Verdicts - my takes 3 on 3

Here, I’m listing down 3 advantages that I like about this company:

1.       Right product for millennia – Plant based alternative meats can ride the waves of demands from the sustainability megatrends theme for multiple years at the explosive growth potential.  

2.       Strong branding – strong marketing in branding, similarly liken Coca-Cola to soft drinks or Tesla to electric car, Beyond meats is strongly associate with alternative meats. Everyone knows the brands when mentioning “plants based meats”.

3.       Partnership with the Best – The partnership between Coca-Cola with McDonald make them invincible in corporate world, propelling Coke to No.1 positions that no one can overtake. This history can repeat its self with the strong partnership between BYND and MCD. That is the moat that will make BYND invincible.

3 red flags which can be potential landmines for this company:

1.      Unfavorable blind tasting survey- You can find many video at YouTube regarding the tasting survey between Impossible and beyond meat. Most of the people (>70%) preferred Impossible meat as it taste better and texture more closely resemblance the real meat.

2.      Unfavorable financial matrix- at the current share price, the PE would be 2,000x. Even if you consider the projected growth rate of 200% for the revenue growth and the industry projected growth rate of 30% per year for plant-based meat market size of $3.5 billion, it is way too expensive even for “Amazon-hype” standard.

3.      Product pricing- Beyond meat’s products is beyond expensive compare to all other competitors in the market. Eventually, they may have to lower down the pricing and that will hurt their bottom lines. Their razor thin profits margin may evaporate quickly unless they can increase their production efficiency further.

My takes

It has an incredible run up in share price in 2019. I believe it has huge potential to be multi-bagger with the right trends, sharp business executions and perfect partnership (McDonald’s). Taking all the risks in consideration, I think this company is investable in long term when the right price present it self. If you believe alternative meat is the answer to sustainability, then BYND might be the right stock to own.     

- WILLIAM CHENG

Disclaimer: All investment come with great risk and should proceed with cautious. This is not an advice to buy or sell any stock. It is important to do your own research and analysis before making any investments.

Click on the links below for more interesting articles:

Profit taking Jan 2020...... Recalibrating risks

Investment Psychology....Investor's worst enemy

ALIBABA HK IPO..... (Investment Profit Overdrive)

Boom and Bust in 2019 revealed

KEPPEL KBS US REIT...... Take the JUMP!

Profit taking Jan 2020...... Recalibrating risks

Woke up one morning, I was shocked to read about the US killing Iran's top general on Iraq soil. Few days later, Iran started firing ballistic missiles into US Green zone in Iraq. Those event unfold so quickly that it really shook my confidents in the recently bull run. Looking at my portfolio, I was almost fully vested in the market. My huge positions in the market during this "brink of war" posed a risk that I'm not ready to stomach at this moment.

So I decided to sell some counters to rebalance my portfolio. I thought maybe raising cash and wait for better entry moment was a wise choice to make, however the stock market did not yield to the world events. It recovered very quickly when Trump announced no casualty and calm the market.

Keppel. Bought at $5.84 lowest, sold at $6.80.

OCBC. Bought recently at $10.95, sold at $10.95.

Sembcorp. Bought at $2.21, sold at $2.29.

Lam Research. Sold 50% at $294. Cost price at $271.

Alibaba. Sold 10% at $213. Cost price at $172.

At the end of the portfolio rebalancing, my cash holding increased from 5% to 16% in 10 days. Total profit from my completed trade was $13,860.

It may seem like a wrong move to take profit so quickly as the market recovered. It having a very strong start of the year. But I felt too exposed to the tension in Middle East. Raising some cash to manage my risk. I still have about 10 counters in my portfolio, I want to see how far they can run in this bull market before deciding on my next move. Not planning any more trade at the moment. Ciao!

-WILLIAM CHENG

Click on the links below for more interesting articles:

Investment Psychology....Investor's worst enemy

ALIBABA HK IPO..... (Investment Profit Overdrive)

Boom and Bust in 2019 revealed

KEPPEL KBS US REIT...... Take the JUMP!

CAPITALAND....... Land of Capital Growth

Investment Psychology....Investor's worst enemy

Why we are so emotion when come to investing?

Well, that's because "MONEY" is involved when making an investment. All of us has great emotional attachments toward money. Especially when you invest with your hard earned money. That's your blood and sweat hardcore money. Your emotions can influence your decisions in every steps of investing, from deciding what to buy, when to buy and when to sell. People make dumb decisions in investing due to their rational thought was clouded by irrational emotions. You need to be "emotionally intelligent" to mastered the "Game of Investing". 4 deadly emotions that you need to avoid when investing: Fear, Greed, Ego and Affection.

1. Fear. 

"Buy low, Sell high" is the best investment advice that you ever heard on the street. But how many of us really doing that? Instead, most of us are doing just the opposite due to peer pressure. Welcome to the "herd mentality" exclusive club. Chasing the ever rising share into bubble and panic selling to exit the gate of hell. That is the "Psychology of Fear". When the wave of bad news hit the market, everyone started throw in the towels, what would you do? Would you start selling out of fear that you may lose even more, or would you start buying like Warren Buffet did during the 2008 financial crisis? In every market correction, the drop in share price usually started at slow rate. It will continue to accelerate. When the fear reached the pinnacle, that is when the peak of panic selling sank in, the price will dropped the most and usually followed by huge gap down at market open. This phenomenon also marked the end of correction phase if the stock managed to recover on the same or next day. When its happened, I would said that is the worst time to sell your stock. Hold on to your guts, be contrarian. You should start buying instead if you could overcome the fear factor. It is easier said than done when so much fears in the market. When all the analysts start cutting forecast about the economy, would you dare to overcome your fear and to be a contrarian?          

2. Greed. 

Another herd mentality that could be deadly is Greed. If you talk to any technical analyst, they will tell you that a stock price that reached the peak and breakout will go much higher regardless company's valuations. That is because everyone follow the same trading patterns that create demands. Investors like to buy stock that has upward momentum because everyone is making money on the way up. . You are tempted to join the buying frenzy because you don't want to feel left out when your friends are making tons of money from stock market. That is FOMO - Fear of Missing Out. Sometime, the greed will push you to chase higher price, take bigger risk and worst, double down on your bet. That is how the stock's bubble created. You are getting bold to buy at much higher price due to Greed. By now, the stock's fundamental is detached from its lofty share price. Greed create ignorant. The tulip mania is a classic example that explained the greed of man. This is the world's first recorded speculative bubble in investment. This mania started in Holland where the contract price of tulip bulbs continued to rise astronomically throughout 1600s. By 1635, price for 40 tulip bulbs is 100,000 florins (1 florins=USD 13 in today's currency). As compared to a skilled laborer who earn 150–350 florins a year, price of 1 tulip equal to 10 years of his salary. Would you buy a tulip flower with your 10 years wages? That is madness and greed of man chasing the bubble.  

  

3. Ego. 

There is ego in every one of us. We don't like to admit that we are wrong even though the mistake was obvious. That is so true in investing world and it can very deadly state of mind. Said you just bought a stock recently and the share price start to drop. Later, you realized that the company was reporting bad financial results, involved in legal dispute and the CEO just resigned!  Your Ego is preventing you from acknowledging the bad decision you have make and cut losses early. You doesn't want to take the losses as you still hoping for the situation to turn around. The share price continued to sink further, adding more damages to your pocket and confidence. What will be the  worst case scenario? That is when you decided to buy more to averaging down as the price keep failing. This is like trying to catch a failing knife, you could get hurt badly at the end. This is a common mistake make by most investors including myself. We could choose to sucked our thumb and acknowledge our mistake. Be truthful to our self, take action by taking losses early and move on. Remember, Ego doesn't do any good to your pocket. 

4. Affection. 

Never fall in love with the stock just because you like their products or services. Have you ever bought a stock just because you like it's products or the name but later regretted? When you sense something is wrong with the company, don't buy regardless how much you really like the company or admire its products. I remembered many years back, Blackberry phone was very popular. There were many die-hard fans loving it. This stock ticker "RIMM", it was peaked at $150 a share in 2008. I first bought the share at $40, out of strong affection for their products. I thought it was bargain at $40 even thought the Apple was beating them with new iPhone launched every year. I finally muscle enough courage to sell the share at a loss for $30 a share and switched to Apple stock that year. Total damage was few thousands USD. Recently, I checked the stock RIMM is trading at $6 only. I make a grievous mistake by buying a stock out of affection for their products. You need to do a complete "thought through" process to understand the true value of the company and the right price before investing. I love drinking coffee at Starbuck but it doesn't mean I will invest in it if the price isn't right.

"Better to follow your mind than your heart", emotions can be disastrous to your investment strategies. 

Personal notes:

Let me repeat it again. Your emotion can influence your decisions in every step of investing, from deciding what to buy, when to buy and when to sell. People make dumb decisions in investing due to their rational thought was blinded by irrational emotions. You need to be "emotionally intelligent" to master the game of investing.  

-WILLIAM CHENG

"KILL THIS LOVE" - BLACKPINK

   
Other interesting investment articles to read; Click the link below:

Boom and Bust in 2019 revealed

Looking for opportunities during Market crisis

Green Investing..... making impact with your money

Discovering the first Pot of Gold.....

ALIBABA HK IPO..... (Investment Profit Overdrive)

Pre IPO

Alibaba announced second public listing in Hong Kong had got me excited about this stock again. The listing will be the biggest IPO listing in HKSE. I had been "hibernating" since I sold out all my BABA shares back in March 2019 for $180. You can click on my link below to read about this trade back in early 2019.

Other Posting link: Click here:
 ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)

The major Setup

Back in Oct 2019 it was trading at around $160-$170 range, same level as 2017. In my opinion, this stock is way under-value, the company's revenue and profit have been growing at North of 40% every year and yet the share price stuck at 2017 level. For me, this is a perfect setup for major breakout. Just like a pressure cooker, you keep pumping steam (profit) into same pot size never increase (Stock price). It will going to pop anytime when you lift the lit.   

There are 2 major events took place in Nov which I hope will boost its share price before the IPO kick in.

1. Quarter Sep 2019 earning announcement 1.11.2019 - The results was fantastic!  
Revenue was RMB119,017 million (US$16,651 million), an increase of 40% year-over-year.

Non-GAAP net income was RMB32,750 million (US$4,582 million), an increase of 40% year-over-year.

2. Global Shopping Event 11.11.2019 - Voila!

Generated US$12 Billion of GMV in the First Hour of the Global Shopping Festival.

Generated RMB268.4 billion (US$38.4 billion) of gross merchandise volume (GMV) in 2019, an increase of 26% compared to 2018.

So, I put up a huge positions for BABA in Oct, hoping to profit from those events above. It was a gamble, but the risk is well managed with the low share price. Both events had past with much fanfare, but yet the share price failed to lit up. To my disappointment, it bounce around $170.  

Post Mortem

It was a very disappointing indeed. The stock failed to ignite was not due to company's performance. It had done very well on both financial matrix and major sales events like "Single Days". It was mainly due to external factors. 2 major events keep people from investing in BABA and analysts were bearish about:

1. China GDP and companies profitability decelerating - there was concern it might affecting consumer spending sentiment.
2. China-US trade war drag on - the flight to safety was so great to avoid more damage from the tariff increase.

The pressure in the cooker keep building. I double down my investment in BABA, as I think the China GDP had no impact on consumer spending as the middle income class keep expanding and the trade war will resolved eventually given that Mr. Trump need that badly to boost his rating. No turning back for me as I put my wager down. I'm hoping that the new HK IPO will pop open the lit and let the steam out.   

The IPO (Investment Profit Overdrive)

Alibaba Group announced to raise US$12.9 billion from its landmark Hong Kong listing and is set to price its shares at HK$176 (S$30.62) each, start trading on 26 Nov 2019. Shares of Chinese e-commerce giant Alibaba saw a strong debut in Hong Kong surged more than 6% at debut, intraday high of HKD189.50.

Since the HK IPO listing, BABA share surge almost daily hitting it 52 week high within 2 weeks. The cooker's lit had finally popped open, letting the steam out. The truce reached in the China-US trade war back in Dec-14 had bring back much needed boost for this Chinese stock. Turning a "flight to safety" trade, avoid all "Chinese stock" event into "risk on" overdrive. 

Alibaba currently trading at USD215 after 1 month since IPO. Up > 20% since my last bought.  Hey, I'm not popping my champagne yet and not selling my stake. I think the surge is not over yet, there are few more events may add more "boost" to the share price. I'm looking at next 2 major events that will be significantly impact the valuation of the stock price. 

1. Inclusion into Shanghai Stock Connect - this inclusion will open a floodgate of 100 millions investors in China eligible to invest in this HK biggest IPO stock. This will help boost the share price valuation. 
2. Inclusion into the major world Index -  Due to its capitalization size, it will be include into major index such as Hang Seng Index and MSCI China etc. This will drive up the buy side demands from index fund managers' portfolio that require mirroring the index performance. 

Personal notes:

I like to read especially books about investing. However, I didn't read much as I would like to in 2019. One of my new year resolution in 2020 is to read more. This is for my own personal development. Always stay humble and stay hunger for knowledge. I hope I can complete 1 book per month and hopefully I can share some of my read in this blog. Currently I'm reading this book below.

Cheers and enjoy the remaining 2019 before it is gone. Happy New Year 2020 to all. This Chinese drama " The legend of white snake" debut in 2019, I find it very entertaining to watch. Hope you will like it too.

- WILLIAM CHENG

Other Interesting articles to read; Please Click the links below:

ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)      

Alibaba...... Treasure Cave Looting continue 2018

Alibaba....... Great "Treasure Cave" Discovery in 2017

Facebook 2018....being poked?