Icon8888 Gossips About Stocks
(Icon) LC Titan Price Collapse - Shaken Shareholders and Contrarians Scramble In Different Direction
1. Shareholders Scrambled For Exit
Today, LC Titan reported a profit of RM11 mil, significantly lower than the previous quarters’ RM300 mil plus (per quarter). The poor result was mostly due to margin squeeze, caused by high inventory cost and low selling price due to drop in demand. Many investors panic and rushed for the exit. Share price declined sharply from RM4.60 to as low as RM4.14, a drop of 10%. As a contrarian, I scrambled in the opposite direction, picking up some shares at RM4.15.
Why did I do that ?
2. Contrarianism
Contrarianism does not mean that you think the OPPOSITE of others. When a building is on fire and everybody is rushing out, you are not a contrarian if you rush in. It just doesn’t make sense.
Contrarianism, means that you think DIFFERENTLY from others. When something happens, the crowd will move in one direction. They are not necessarily wrong, but the state of commotion will sometime give rise to opportunities. If you can stay calm and think rationally, you might be able to exploit the subtleties and nuances and benefit from them.
One good example is BIMB. Due to spate of recent bad news related to Tabung Haji and 1MDB (not even directly related to BIMB), the stock has been sold down from RM4.20 to RM3.60 despite reporting sterling set of result. The crowd thinks like this : there must be a lot of skeletons in the closet waiting to be uncovered, better play safe just in case NPL spikes in the future. As a contrarian, I take into consideration the exceptional quality of our own banking regulatory system, led by ex governor Zeti. I chose to believe that BIMB’s asset quality should be quite ok. Afterall its NPLs are only 2% plus. So I added some to my portfolio at RM3.60.
It is still early to say that I am right and the crowd is wrong, but BIMB is an example of how contrarian thinks and acts.
3. Structural vs. Cyclical Factors
When companies get into difficulty, the problem they face can be broadly divided into two main types - structural vs. cyclical.
Let’s take George Kent as an example. The day after GE 14, George Kent share price dropped from RM4.00 to RM2.50. Are you a contrarian if you rush in to buy at RM2.50 ? No, you are not. You are merely a fool. The crowd is not always wrong. In George Kent’s case, the share price melt down is justified. The problem confounding the company is STRUCTURAL in nature. This kind of problem is very difficult to be rectified. There is almost no more hope. Rushing in when others are getting out is suicidal.
Cyclical issues, on the other hand, are caused by industry related cycles. It could be due to lower selling price, lower demand, or higher operating cost. For the latter, it was mostly due to rising raw material cost or labour cost, etc. Unlike structural issues, cyclical issues tend to go away in a relatively short period of time, from few quarters to two, three years.
In my opinion, share price collapse due to cyclicality is perfect opportunity for contrarians to act.
4. Be Selective
On 20 January 2019, I wrote an article “What is Investing ?”. In the article, I mentioned the following :
“Anything bought based on careful evaluation of value and proper reasoning, and in the event that things turn sour, can be held until recovery, is considered investing.”
Yup, the key word is “held until recovery”. When you buy a stock, especially when you are acting contrarian, always ask yourself this question, “will the stock ever recover within maximum of two to three years ? Does it have the requisite qualities to do that ?” (According to my definition, anything longer than three years means you have made a mistake).
To answer the question, you need to take into consideration the following :
(a) (once again) is the problem structural or cyclical ?
(b) is the balance sheets strong enough to withstand the down cycle ?
(c) is the stock near all time low ?
If the answers are yes, then you can consider buying some.
But you must be prepared for more pain to come. Famous investor Seth Klarman, who wrote the book “Margin of Safety”, pointed out that “contrarian investors are always wrong initially”. What he means is that after the initial decline, share price is likely to further go south. It will take some time for the stock to stabilise and ultimately recover. You need to have holding power.
5. Concluding Remarks
What is the main message of this article ? Is it about the benefit of acting contrarian ? No. The main message of this article is that if you ignore the negative impact of cyclical factors, a whole new world will open in front of you. This is especially true for raw material cost.
Let’s take 3A as an example. In the past two quarters, its profit has dropped due to higher raw material cost (tapioca). Before this, I will react to this adverse development and sell 3A. But now I think differently. I will ignore it and hold on. As a matter of fact, I will monitor tapioca price closely and jump in to buy more when there are signs that tapioca price is heading south (it is already happening).
Why should you behave in such a way ? Because you are an investor - you buy good quality companies, ignore cyclical noises **, hold on to them until they recover, then sell for a profit.
( ** Why should you ignore cyclical noises ? Because you have no choice !!! Things happen all the time in the world of business. If everytime a minor hiccup happens to the company and you cut loss, how many times you can do that ? Have you ever heard of death by thousand cuts ?)
The benefit of doing so is that you no more need to track latest quarterly result closely. The company's profit can drop, but since you know it can recover, you don’t need to do anything. It is just paper loss. One day you will make money when the upcycle returns.
Once you think and act like that (especially ignoring raw material cost fluctuation), you will suddenly find that many stocks will become investible. Can you imagine the difficulty of predicting the profitability of LC Titan over next few quarters ? There are so many things in flux. Oil price, demand for chemicals, currency fluctuations, competitive forces, etc. These things are so complicated, most retail investors like us will never be able to fully grasp them, let alone predicting them. However, if you ignore those cyclical factors, hold on to the stock with conviction (of course, must be bought at attractive valuation), there is a fairly decent chance that the stars will align one day and the company's profit will rebound. That is when you can cash out.
The same applies to many other manufacturing companies such as Petronm, Hengyuan, Johotin, Perstima, 3A, Petchem and poultry companies, etc.
(Note : I will be a bit careful if it involves forex factor as currencies once move in a direction, can potentially last for many years. For example : Ringgit's weakening since 2015. For me, major currency changes can potentially be structural. Make sure you are not caught in the wrong cycle).
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Discussions
7 people like this. Showing 50 of 75 comments
Look who is here!!! here comes the PLP again!!!!
Months back you are saying Icon article is for him to make money off over the optimistic people......
now u at there smelling people ass? what kind of people are u? Do u have credibility?
If u canot stand on your own principle, your so called unethical motive by those who posting article recommend stock and plug in some figure, then condemn icon instead of puking out some geli words like thanks icon, it really looks like you are licking icon ass seriously....
where is your credibility??? condemn people la....where is your lampa??? your father never give you balls???
Sorry icon, early morning kao zai at your discussion page.
__________________________________________
Choivo Capital Great read, Thanks Icon.
===================================
Stock: [JAKS]: JAKS RESOURCES BHD
Sep 14, 2018 11:43 AM | Report Abuse
I bet you make way more from overly optimistic people who follow you :)
There is a very fine line between being realistic and cynical.
And for the person making money off the optimist, it might be best for him to imply those who are realistic as cynical individuals, and hope that whatever said, does not dampen the exuberance of the foolish optimist.
=======================≠============
Posted by Icon8888 > Sep 14, 2018 10:59 AM | Report Abuse
ok ok whatever...
why are you so cynical ? everything people said you will imagine ulterior motive, cheating, etc... aiyohhhh why I keep bumping into people like you... that means there must be a lot of cynics out there...
good also lah... cynics cannot think straight... easier to make money from them..
I encourage you all to continue your way of thinking ... good good good...
2019-01-31 09:43
can only buy if cyclical if there is low enough to pick
if not why invest and stuck your capital for few years
you can move to uptrend stock ...dont go against the trend also
2019-01-31 10:25
quality is boring, long term is boring. even contrarian can be boring.
Over long term, over a life time, 3iii and Philip method works...
icon888 method also works well.....
They have the character for it.
I am pretty sure.
2019-01-31 11:05
Tan Teng Boo of Icap....fantastic theoretician, fantastic economist, but over the last 10 years cannot execute......there are people like that also.
2019-01-31 11:07
Aiyo yr friend OTB works the best over the last 5 years...got records here one
Not like somebody who simply jump out last Dec to claim he bought QL since 2009
2019-01-31 11:12
KYY is into quarter profit X 4 at the moment....maybe , he gets lucky and Carimin every quarter better than last quarter Carimin $ 3, just like his VS used to be.....
S=Qr
KYY has proven he got the Q...now, what he needs is the r from his chosen stock......
2019-01-31 11:12
I m not sure whether i shall trust him more or Ah Jon's 500% annual return imaginary friend
2019-01-31 11:13
Posted by qqq3 > Jan 31, 2019 11:12 AM | Report Abuse
KYY is into quarter profit X 4 at the moment....maybe , he gets lucky and Carimin every quarter better than last quarter Carimin $ 3, just like his VS used to be.....
S=Qr
KYY has proven he got the Q...now, what he needs is the r from his chosen stock......
I thought u said yesterday that u dont want to promote this currymee?
2019-01-31 11:13
Posted by qqq3 > Jan 31, 2019 11:07 AM | Report Abuse
Tan Teng Boo of Icap....fantastic theoretician, fantastic economist, but over the last 10 years cannot execute......there are people like that also.
Lately i have a different perception on TTB..
How on earth can u put somebody's money into FD and make few millions RM fm doing so? Somemore these investors will go worship him every year in their AGM
Smart leh
2019-01-31 11:16
Posted by CharlesT > Jan 31, 2019 11:13 AM | Report Abuse
I thought u said yesterday that u dont want to promote this currymee?
=========
I am not promoting carimee...I am just saying luck works in mysterious ways......
2019-01-31 11:30
Posted by qqq3 > Jan 31, 2019 11:12 AM | Report Abuse
KYY is into quarter profit X 4 at the moment....maybe , he gets lucky and Carimin every quarter better than last quarter Carimin $ 3, just like his VS used to be.....
S=Qr
KYY has proven he got the Q...now, what he needs is the r from his chosen stock...
This one not considered as one of yr promotion on currymee ah?
2019-01-31 11:32
two of the most argumentative people in i3 are now engaging each other passionately
I have been waiting for this to happen when I posted my article
2019-01-31 11:36
Different...
One otb hates most
Another one otb n h8s twin bro officially proclaimed as the smartest guy in i3
So different class n level
2019-01-31 11:42
When u see ultraman is fighting with monster u cant simply categoried both under the same fighting monster right?
2019-01-31 11:44
At worst he may accidently hentam yr house when u were in toiket n accidently killed u only
2019-01-31 11:48
Weird...i still prefer Ah Jon's photo than Ultraman...
Maybe ultraman can kill monsters only but cannot bring Ong like AH Jon
2019-01-31 11:49
I remove Jon's photo because I don't want to provoke Connie mama
She has high blood pressure. I want to keep her calm
2019-01-31 11:51
Have u observed after u changed Ah Jon's photo yr luck in stock mkt also gone?
Dont play play with fengsui
fengsui plays an important role in my 67 sense investing too
2019-01-31 11:51
Lee Kah Seng also trusted Chan Pak very much in his early days until Chan Pak tok tok chiang many years ago
2019-01-31 11:52
sorry, money come second, Connie mama health rank number 1
I need her to chase away the bad spirit
2019-01-31 11:52
Let's c how it goes...after a while u may need Ah Jon's handsome avatar again...
2019-01-31 11:53
let see what happens to trade talks
if no deal, then switch back to Ah Boy photo
like you say, he Ong me
2019-01-31 11:54
I also seldom make fun on Ah Jon lately....who knows one day i may need his handsome photo if my 67 senses investing go Holland....just in case
2019-01-31 11:55
67 is good...as long as it's hard
I think u have almost forgotten the hardness
2019-01-31 11:57
Haha funny lah you guys.
Personally, when Icon use my picture, my portfolio went up about 10%, when he stop, starting dropping.
As i no cash now (only some credit left) and unlikely to buy stocks for the next 2 months or so.
I would be quite ok with Icon changing back to my picture and letting us Ong and feel nice abit for CNY hahaha.
2019-01-31 14:16
Ha........................ha.........................ha
veli far ni (funny) la u.....
Keep the PLP going, we old already, dr say it is good to have some entertainment to keep the mind active....
would like to see more....
=====≠=========≠======≠======================≠=====
Posted by Choivo Capital > Jan 31, 2019 02:16 PM | Report Abuse
Haha funny lah you guys.
Personally, when Icon use my picture, my portfolio went up about 10%, when he stop, starting dropping.
As i no cash now (only some credit left) and unlikely to buy stocks for the next 2 months or so.
I would be quite ok with Icon changing back to my picture and letting us Ong and feel nice abit for CNY hahaha.
2019-01-31 15:08
Look who is here!!! here comes the PLP again!!!!
Months back you are saying Icon article is for him to make money off over the optimistic people......
now u at there smelling people ass? what kind of people are u? Do u have credibility?
If u canot stand on your own principle, your so called unethical motive by those who posting article recommend stock and plug in some figure, then condemn icon instead of puking out some geli words like thanks icon, it really looks like you are licking icon ass seriously....
where is your credibility??? condemn people la....where is your lampa??? your father never give you balls???
Sorry icon, early morning kao zai at your discussion page.
__________________________________________
Choivo Capital Great read, Thanks Icon.
===================================
Stock: [JAKS]: JAKS RESOURCES BHD
Sep 14, 2018 11:43 AM | Report Abuse
I bet you make way more from overly optimistic people who follow you :)
There is a very fine line between being realistic and cynical.
And for the person making money off the optimist, it might be best for him to imply those who are realistic as cynical individuals, and hope that whatever said, does not dampen the exuberance of the foolish optimist.
=======================≠============
Posted by Icon8888 > Sep 14, 2018 10:59 AM | Report Abuse
ok ok whatever...
why are you so cynical ? everything people said you will imagine ulterior motive, cheating, etc... aiyohhhh why I keep bumping into people like you... that means there must be a lot of cynics out there...
good also lah... cynics cannot think straight... easier to make money from them..
I encourage you all to continue your way of thinking ... good good good...
2019-01-31 16:35
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
CharlesT
I also dare not ask people to buy Currymee with TP Rm1.20 or TP RM2.00 lah
2019-01-31 09:02