You have to be slightly masochistic to manage funds

It’s past midnight on Sunday and I can’t sleep, my mind is just racing through probabilities regarding the market, wondering if our scenarios regarding Europe are correct, if our investments ideas are correct, if our trading ideas are correct, I’m currently doing a quick n dirty quant screen (pe’s, div yields, pbv’s compare vs roe’s roa’s) just to see if anything interesting would pop up so we can add it to our watch list, scanning through financial blogs to see if I missed anything during the week etc etc…. All this despite us still outperforming the market consistently for the past few years, so why aren’t I soundly asleep?

  1. It doesn’t hurt to work just a bit harder than everyone else to give yourself an edge
  2. Clients have entrusted you with funds, losing money is too easy, making it is tough
  3. I absolutely positively hate losing

Managing funds is masochistic, but I love it, enjoy the upcoming week!

What happened this past week

Positives:

  1. ECB shouts from the rooftops saying that they’ll save the Euro
  2. China’s latest manufacturing index rises to 49.5 a 6 month high
  3. Thailand maintains it key policy rates at 3%

Negatives:

  1. German IFO business confidence falls to lowest since Mar ’10
  2. UK GDP in Q2 falls .7% q/o/q, down for 3rd straight quarter
  3. Euro zone mfr’g and services composite index holds at 46.4 but below 50 for 6th straight month.
  4. French business confidence drops to lowest since Feb ’10
  5. Italian business confidence near 3 yr lows.
  6. In addition to Valencia, 6 other Spanish regions asking for help.

LTF tax break is likely to be extended

This is good news for continued fund flow into the local equity market here. LTF’s essentially were created as a methodology for individuals to 1.) minimise their tax bill, 2.) improve domestic long term shareholding in the SET.

Whats startling is still the simple fact that despite retail investors accounting for 60% of daily trading in the SET, the number of mutual fund accounts are still only at 2 million. Perhaps that helps to explain why Thailand has a horrible Gini coefficient…but that’s a rant for another time.

“The incentive for LTF investment will be revised to sustain the demand. Assets under management of LTFs are around 150 billion baht now,” said Mr Sathapana.

According to AIMC, total assets under management of AIMC’s members as of last Friday totalled 2.36 trillion baht.

Of the total, 61.7% or 1.46 trillion baht was fixed-income funds, 478 billion baht was equity funds (20.2%), 70.4 billion baht was mixed funds (2.98%) and 129 billion baht was property funds (5.45%).

Source: Bangkok Post

High PE Stocks are for the brave

First off there’s a massive difference between what is a good company and a good stock to invest in, and here I’ll just simply use BIGC as an example. Its an exceptionally well-run company, operating in a growing industry, and with strong financials. Over the past few months its been trading over Bt. 200/share at a trailing PE of 30x.

BIGC’s 2Q12 earnings had come out during the week and they still achieved growth of 27% YoY and then this is what happened to the stock price.

And this is the issue I have in investing in high PE stocks, the moment that the growth targets set by analysts/investors are missed, even if just slightly, even if its still a great company, even if its still growing at great rates, the stock price can just suddenly collapse within a couple of days.

Telenor restructures its shareholding in DTAC

The foreign ownership law in Thailand has always been a grey area through the use of nominees. Telenor has decided to restructure its holdings within Thai Telco Holdings.

Currently DTAC’s major shareholders are as follows:

Thai Telco before was structured as follows:

And now the new structure is as follows:

So the issue in the past was that because of the percentage holding by Bolero and Telenor Asia, Thai Telco Holding was considered to be a foreign company and post these changes with BCTN as a majority shareholder, a thai co, 51% owned by the Bencharongkul family and 49% by Telenor, the foreign ownership issue which may have been an overhang on the share price and DTAC’s eligibility to participate in the 3G auction has now been removed.

And yet if you do basic mathematics Telenor still owns 59% in DTAC in total ownership, you’ve just gotta love the way Thailand makes things so “clear” :)

Playing the earnings game

Over at Aswath Damodaran’s blog he recently put up thoughts on how to trade earnings announcements. Given that we have been spending most of the month waiting to see if any of our holdings or watchlist companies are releasing earnings and then vigorously updating our models, I thought that this would be an interesting read.

Differences across firms 
There are studies that indicate that the returns associated with earnings surprises are more pronounced with some types of stocks than with others. For instance, 

  1. A study of value and growth stocks found, instance, that the returns in the three days around earnings announcements were much more positive for value stocks (defined as low PE and PBV stocks) than for growth stocks across all earnings announcements – positive as well as negative. This suggests that you are much more likely to get a positive surprise with a value stock than with a growth stock, indicating perhaps that markets tend to be overly optimistic in their expectations for growth companies. 
  2. Earnings announcements made by smaller firms seem to have a larger impact on stock prices on the announcement date and prices are more likely to drift after the announcement. 
  3. As with analyst reports, there seems to be evidence that the market reaction to earnings reports is a function not only of the earnings number reported but also the accompanying management commentary.
  4. There is some evidence that the market reaction to earnings reports is greater at firms with high institutional ownership, with one rationale being offered that institutional investors tend to be more short term in their focus and thus more likely to respond to quarterly earnings reports.

Source: aswathdamodaran

Sector Update – 16.07 to 20.07

Market begun to show some take profit signs last week with foreign investors slowing down their buying in the Thai Equity market and with banks posting +20% YoY earnings across the board, some profit taking happened in the sector as well. Going forward we are looking at what will happen with the commerce sector, its been a major reason for Thai stocks to go up this year but with BIGC off 6% today, as of writing, and just a reminder, BIGC is 30x PE and 2Q12 earnings grew 27% YoY, and the stock still dropped off 6%, I’m expecting to see similar events happening to ROBINS (47x PE) and CPN ( 42x PE).

Continue reading Sector Update – 16.07 to 20.07