Crouching Tiger Hidden Gems – Page 4 – a whole new angle on investing

Trump Triumphs

Wow what a day and what a week.

The man no one thought would become President of the United States of America has done just that.

As the shock waves still vibrate around the world the question for investors is what does this mean to them and how should they invest a Donald Trump presidency?

If you had asked me this question last week I would have said go short equities and buy gold but since Donald Trump has been elected his whole approach has changed completely.

It began with his gracious acceptance speech where he thanked Hillary for her years of service yes that’s the very same Hillary just a few weeks earlier he had said he would send to jail if elected. He then went on to outline his idea of spending big in infrastructure to stimulate growth and get middle class Americans back to work.

The policy of huge tariffs had apparently disappeared and the market was liking the change with the ASX down 5% at one stage to bounce back to over 3% the next day.

While I must admit I do not know if this new approach will last I have been calling for expenditure on infrastructure in both Australia and the US to help economic growth as rate cuts begin to lose their affects.

While I am not convinced President Trump will follow through with these new promises as an investors I can only invest on what I know, and so far Trump is making the right noises.

Tip or New Investors.

While it is tempting to guess which way the market will head with a Trump victory, I have learnt that even the most highly paid analysts are wrong about the future more often than they are right. It is human nature to try to foretell the future but it is better to base your investing on facts and sound economic principles.

Disclosure:

Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

REA Group Limited (ASX:REA) Q1/2017 listings slowing.

REA Group Limited (ASX:REA) has today released its Q1/2017 trading update and the announcement confirms what was reported by Fairfax Media Limited (ASX:FXJ) that property listings in key markets Sydney and Melbourne had continued to fall throughout the quarter. (See announcement below)

rea-01-2017

REA Group is blaming the lack of listings as deterring potential sellers, perhaps this is the case but it sounds an unusual reason not to list a property for sale. Personally I would prefer less competition when selling my home. I dare say uncertainty around government changes to tax treatment of investment properties are starting to influence the market. REA Group does however appear to be coping slightly better than Fairfax’s doman.com.au in the local market.

Pleasingly revenue growth in Q1 was driven by its purchase of iProperty Group Ltd (ASX:IPP).

The good news for investors is that revenue is forecast to increase above revenue costs over the forward financial year but trading on a forward price to earnings ratio of 25 its share price may come under further selling pressure.

Tip for New Investors

As a new investor it is tempting to jump on companies which have grown strongly over a number of years but it is important to remember nothing grows strongly forever. As a company matures and growth slows it is more important to look for value in the share price before entering.

Disclosure:

Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

Can the Melbourne Cup make you a better investor?

This years version of the Melbourne Cup has been run and won some punters have walked away with small fortunes while others well lets just say they are looking forward to the 2017 edition.

As the dust settles it dawned on me that the investors could actually learn a thing or two from professional punters. I know what you are thinking what could an investor possibly learn from a gambler?

The first thing that strikes me as a similarity between professional punters and professional traders is the very low percentage in each “profession” that actually makes money from their chosen job.

As traders or investors we are taught to stick to our plan and wait for the right opportunity, patience being the key. Having spoken with professional punters they have also told me that waiting for the right bet is also the key to success.

This lead to me too look at how professional punters approach their “investments” to ascertain if there is anything investors could actually learn to put into practice.

Form

The first thing a professional punter must do is to look at the form of each horse in the race. I would equate this to an investors doing his research on the fundamentals of a company or trader looking at the past price history of a stock.

What strikes me is that in a race such as the Melbourne Cup there are 22 horses running on which they will need to do the form and rate each horse against the next. As an investor you may like to ask yourself how often would you research 22 companies then rate each against the other before investing? What it says to me is that investors should understand each company in a sector before deciding on which company is the best investment.

Staking

As an investor or a trader how much time do you give to what percentage of your bank or portfolio should you invest in a particular company? Professional investors review all of their past results and continually monitor their success rate and percentage returns so they can fine tune their staking approach.

Traders may like to take a look at the Kelly Criterion which many professional punters use to optimize their bet size and over all returns.

Conclusion

It is easy to get lost in your own world sitting behind your desk getting caught up in the daily share price movements. Truly great investors/traders are able to look outside their own sphere to take their skill set to the next level. Here I have suggested professional gambling as a possible inspiration for new ideas but no doubt there are many other fields we can all learn from.

How to cope with a stockmarket crash

Wow after a rather quiet period on the markets where everything was heading upwards investors are being reminded that markets will do what they want to do, not what we may wish to do.

What can I say about Donald Trump that already been said (mostly by himself) except the US billionaire may have yet another achievement against his name as the guy who sent world stock markets into a spiral. Is that a bad thing? yes and no the market has to crash some time. That is what the market does but at least this time we have a reason and we can see it coming. The worst type of crash is when they come out of nowhere and are only obvious after the event. You might have heard of the term Black Swan. Rarely seen but you know they are out there.

Anyway what’s the big deal if Trump gets in? good question no one really knows, I suspect it wont be as bad as the market wants us to believe a bit like Brexit. A mad panic before everyone settles down and realizes life goes on.

If Trump does get in I can see a slowing down in the US economy if he pushes through his increased tariffs because as much as he might say he’s a great deal maker no country will allow US a free ride on tariffs. If the US puts them on so will every country it trades with. This is see exports slowing out of the US. So while he might prop up domestic manufacturing he will damage other parts of the economy.

Some economist believe the reduced trade with Europe may send them back into recession considering they are experiencing week growth as it is. In my opinion this is a real possibility but of course Trump needs to get any changes through the US congress which will not be an easy task.

So where does that leave us investors in the ASX? good question. Look back at history the higher multiple growth stocks should come back to earth on the worry and may prove to be where the bargains lay. As we have seen flows in safe havens such as gold has begun and should continue.

Is a Trump presidency the end of the world? not really it may upset the market for a while but then life will go back to normal as it always does. I am sitting and waiting hope some great companies go on special if panic sets in.

Disclosure

All of the above are my own ideas and do not constitute investment advice. I will be totally honest I do not know what will happen and I believe no one else does, but I do agree with Warren Buffet betting against the US in the long term has proven to be a bad bet.

Flight Centre Travel Group Ltd (ASX:FLT) Profit Downgrade (again)

The share price in Flight Centre Travel Group Ltd (ASX:FLT) was sent plummeting today down 13% at one point on its now regular profit downgrades.

This is how Flight Centre announced the bad news to market.

So why has this downgrade happened again? Here are the reasons Flight Centre put forward.

If you’re a long term Flight Centre share holder the reasons will sound very familiar. Airline price wars have seen Flight Centre’s profits continue to fall over the last couple of years.

While I believe all of the reasons are valid and do not reflect a problem with Flight Centre’s underlying business I do not see an end in site to their problems in the foreseeable future.

Unless we see a reduction in the number of airlines competing for market share low cost fares are here to stay at least for a while.

I note with interest that Webjet Limited (ASX:WEB) has also fallen in rice over the last week or so but in my opinion it relies on a different revenue model to Flight Centre and as such would be my preference in this space.

Tip for New Investors

Do not be afraid to admit your mistakes. Learn from them and write down each lesson so you can refer to them like a check list when you start assessing a new company for investment.

Disclosure:

Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

Tassal Group Limited (ASX:TGR) or Huon Aquaculture Group Ltd (ASX:HUO)? Fish slaps at 30 paces!

Who to believe? Tassal or Huon?

Controversy is raging over which Tasmania Salmon producer is telling the truth after the 4 corners did a no holes barred look at salmon farming in the apple isle. If you missed the program it can be viewed here.

First let me start off this article by being open and transparent that I own Tassal Group Limited (ASX:TGR) I bought into the company after listening to the current CEO Mat Ryan speak about how the company had transformed and the manner in which it not only produced the salmon in a sustainable way but he chose to keep jobs in Tasmania for the local community. His passion and understanding of salmon farming impressed me the most.

Now don’t get me wrong I am not some greenie or a particularly ethical investor, I will only invest if I believe there is money to be made. I also have an inherent mistrust of all agricultural stocks knowing they are very much prone to disruption by adverse weather conditions.

When researching the company I had become aware how susceptible salmon as a species were to warm water so my first thoughts were how climate change and in particular warming seas would affect the industry. To be honest I thought Tasmania is so cold it wouldn’t be an issue but I quickly found out this was one of the issues I didn’t understand. Fortunately for me Tassal had just gone through a warm water spell and I was able to learn how the salmon harvest had been affected via slower growth and what methods Tassal had developed to counteract this problem. I won’t go into details here by they had in fact developed a unique spray system to maintain the temperature within their fish pods.

Now let’s move forward to the 4 corners program which discussed overstocking of the Macquarie Harbour in Tasmania. Firstly we should remember that this is not a new issue just last year a federal inquiry was conducted into this very issue. You can find the full report here. http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Communications/Fin-Fish/Report

The inquiry chairman wrote

“environmental concerns raised were not supported by expert advice and objective scientific data”

“The evidence provided to the committee about the impacts of the industry in no way justifies extra bureaucratic measures or more onerous regulation,” she said.

“The industry is known around the world for having world’s best environmental practice and is regularly contacted by international companies for advice on sustainability measures.”

So the question must be asked why is the CEO of Huon is claiming salmon farming is not sustainable in Macquarie Harbour while Tassal’s CEO holds the exact opposite view.

To try and solve this disconnect I looked at the prospective results of each company for the last financial year knowing that both companies were farming the same area and both had to cope with the warming waters from the 2016 elnino event. I was surprised to find that While Tassal coped quite well with the conditions Huon had been significantly affected financially. Once again I will not go into detail but Houn chose to harvest early where as Tassal selectively thinned their stocks. Tassal has also spent significant resources selectively breeding salmon resistant to warmer conditions. Once again I need to highlight the fact I am not aware of or if a selective breeding program is also carried out by Huon. I note the four corners program looked closely at Tassals farm set up but failed to do the same for Huon.

So keep all of these provisions in mind if I was a detective which I am not and working on a CSI case I would say the motives for such an accusation may well come from either a sincere desire to protect the environment or from financial perspective where one market participant lays blame for their poor financial performance at the feet of a superior competitor.

If this is the case then we would need to understand who is likely to benefit the most financially from restricting salmon output which we assume would increase salmon prices to consumers.

To be honest I have not delved deep enough to make a decision either way and that is not my intension in this article. My purpose is to encourage investors to not blindly believe whatever news article they read or TV show they watch but to seek out both sides of the investing story.

It is very easy for naïve inexperienced investors to jump to conclusions that suit their own agendas or fears rather than rationally approaching a subject.

My question for the 4 corners program would be

Why was the motives for Huon accusations not explored?

Why was research presented to a parliamentary inquiry ignored?

Why was the Huon farming practices not put under scrunity?

Why did you disproportionally spend time presenting Houn’s case?

Why was TGR not told about the content of the story before it was put to air?

Will you be running a program on the research you failed to mention in the original program?

Tips for New Investors

Ethical investing is a choice that should be made by each investor. There is no right or wrong. What may be ethical to you may not be ethical to another investor.

If you chose to overlay your own ethics onto your investment decisions you need to be aware not to falsely arrive at conclusions because of your ethical bias.

Adairs Ltd (ASX:ADH) price crash!

Adairs Ltd (ASX:ADH) shareholders will be thinking their Melbourne Cup hangovers have come back with Adairs’ share price pllunging by over 40% on today’s trading update.So what exactly when wrong?

Looking at the trading update we can see that they lay the blame at misreading the trends for bedlinen. Disappointingly for shareholders bedlinen makes up 40% of sales but the good new is that non-bedlinen (60%) has been trading as forecast.

adhairs-trading-update

So what does this mean? Basically as Adairs was holding bedlinen which was not considered currently “in style” they needed to sell what they had at greatly reduced prices. So this resulted in a lower margin of profit for each sale. Things are not all bad we also learnt that Adhairs customer base continued to grow. The question is whether this was normal trend or brought about purely by current discounting.

adhairs2

So the question investors must now be asking themselves is this the beginning of the end for Adairs or has the market over reacted to which could amount to a one off mistake?

Taking into account todays fall Adairs now trades on a forward PE of just 11 and a dividend yield of 7% full franked. This is of course if the dividend is maintained.

Conclusion

Taking the update at face value in my opinion the sell off looks over done. It appears to me that with the heightened nervous around the US election the market is taking it anger out on any company it views as underperforming.

Welcome to Crouching Tiger Hidden Gems

Hi, Thanks for dropping by.

Please note my site is currently under construction so some stories or parts are not complete as yet but I am working on them! So please drop back later for more updates. You can follow me on twitter here.

My intension for this site is to bring together a group of like minded investors without the usual fighting and arguing you find on other investment forums. If we can build a group of investors who work together rather than against each other we will all benefit.

As my father use to say I don’t care who I get rich with as long as we all end up rich.

Please note my thoughts should not be taken as investment advice. Each company should be considered as an idea for you to take away and do your own research on before investing.

I welcome all comments and ideas.

Only by working together can we become better investors.