Sunday, 28 June 2015

News by media, view by myself (part 2)

Example 2: Foreign Exchange

If you keep an eye on the global financial market, you will observe that 20 countries have eased their economy policies by cutting interest rates in the first 2 months of 2015. This does not include Australia which cut its interest rate twice (Feb 2015 and May 2015) and New Zealand which cut its interest rate this month.

A currency should fall when a rate cut devalues it, as the rate cut makes it cheaper for banks to lend, and for borrowers to borrow. The following shows the movement of NZD:USD right after the rate cut was announced:

NZD:USD after surprise rate cut

In this case, nobody knows that the rate cut was coming. Because it came as a surprise, the currency movement fell sharply, as it should. You will have no time to sell if you were longing NZD:USD.

Now, for the case of AUD when the second rate cut came in May 2015. Research analysts have forecast a rate cut on May 2015. It was almost a certainty that a rate cut would be announced after the board meeting. The movement of AUD:USD right after the announcement went like this:


AUD:USD after rate cut

This rate cut has not come as a surprise. Everybody knows it. Because of this AUD rises despite of RBA's rate cut. The reason was that the effects have already been "adsorbed" and "digested" by the market sentiment. If you read the news before the rate cut announcement and went to short AUD:USD, then you will become "water fish". When it is something that everybody knows, it just wouldn't go the way it was expected to be going.

Both cases have the same rate cut decisions, yet completely different reactions. Why? The difference lies in whether the news has been made known to the public in advanced. In NZ, it came as a surprise. In AU, it was expected. If you tried to make money based on news that everybody knows, you aren't going to get it.

[to be continued]

Friday, 19 June 2015

News by media, view by myself (part 1)

It is interesting to see how media influences the market sentiment, by "releasing" a particular news "just at the right time". The original purpose of media is to disseminate news to the public. While this may still be true at some time, financial news are highly manipulated. Here are some examples:

Example 1: Stock -- IFCAMSC
(this stock is too hot to ignore, and yea... everything written here and now is in hindsight..again)

This stock was crowned "The world's top software stock"(Bloomberg!) by having a 1321% return in just 12 months. The date of the news was 13 April 2015, trading at RM 1.35. The stock topped at RM 1.87 on 21 May 2015, just over 1 month after the news was released. Now it was trading at RM 1.13.



Something worth noting is that 21 May 2015 is the day just after the release of quarterly report, that the profit jumped 22x YoY. Because of the implementation of GST in April 2015, everybody knows that it is going to be a promising quarter. Yes, it is. And everybody just hoping that it will either gap up, or at least increase a lot after the quarter report. The opposite has happened. In the stock market, things just wouldn't go the way you think it would when everybody else thinks the same. 

Retrospectively, the message given by the media is obvious: the world best performing stock, luring investors to buy the stock. "They" want you to buy the stock, as if there is still a huge return waiting ahead.

My own view: sell on news. Think about this: can the "best performing tech stock" not listed in NASDAQ, London, Hong Kong or Tokyo but listed in KLSE? Why did the news released in April, not any other time? The stock has been climbing for sometime since last year, this is not a coincidence.

[to be continued]

Saturday, 23 May 2015

KLSE: VSOLAR-WA with a negative premium that is too good to be true

Is a warrant trading at a premium of -25% sounds too good to be true? It probably is.

VSOLAR-WA was trading at a premium of -25%. This implies that one could earn 25% by simply buying the warrant and converting it to the mother share, with the condition that the mother share price remains unchanged. A few years in KLSE, I can still see new things by now, how exciting is the stock market?

How can I come to know this stock? Well it occupied a conspicuous spot in the trading platform -- most actively traded counter. While a negative premium is certainly "attractive", let's have a glance at its financial summary first:

VSOLAR financial summary
Financial summary for VSOLAR (Source: Malaysiastock.biz)

As you can see, this company has no fundamental and it is not making any profit. The table below details the price of both VSOLAR and VSOLAR-WA with its premium, and how the negative premium "quickly vanished", turning into positive premium. (Historical price obtained from KLSE.my)

Date VSOLAR VSOLAR-WA Premium
22-4-2015 0.380 0.165 -25.0%
23-4-2015 0.340 0.150 -20.6%
24-4-2015 0.360 0.145 -26.3%
27-4-2015 0.305 0.140 -13.1%
28-4-2015 0.250 0.110 -8.0%
29-4-2015 0.255 0.115 -7.8%
30-4-2015 0.255 0.110 -9.8%
5-5-2015 0.260 0.110 -11.5%
6-5-2015 0.210 0.090 0%
7-5-2015 0.205 0.085 0%
8-5-2015 0.210 0.080 -4.8%
11-5-2015 0.170 0.070 11.8%
12-5-2015 0.155 0.065 19.4%
13-5-2015 0.155 0.075 25.8%
14-5-2015 0.155 0.070 22.6%
15-5-2015 0.145 0.070 31.0%

What is left now? Nothing. If there is no improvement in the fundamental of this company, I do not think the price will go up in the "foreseeable future".

You may want to ask: why does this happen? The big fish wanted to sell the shares. Making the warrant to have a negative premium is very easy to attract people to buy, because everyone is hoping that the warrant will "catch up" with the mother share to its reasonable price. Obviously the opposite happened in this case.

While everything written here is in hindsight, I did not touch this stock though. The purpose of writing this is to alert fellow investors and not to fall into this trap in the future.

Saturday, 16 May 2015

NYSE & NASDAQ: what are GAAP and non-GAAP profits?

As a newbie in the US stock market, a first sight at a financial report will often baffle at "GAAP profit" and "non-GAAP profit". What are they?

To start with, Yahoo finance offers a very convenient avenue of looking at the earning release of listed companies in the US. The date and time of the release of the fiscal report are clearly stated (as opposed to KLSE in which you really don't know when will it be released but within 2 months from the quarter end).

For example, this is the Q1 earning of TESLA (NASDAQ: TSLA). 8-K form is the name of form that contains financial results.

TESLA 2015 Q1 Earnings

GAAP stands for Generally Accepted Accounting Principles. It is the standard norms of how companies should present their earnings in NYSE and NASDAQ. In a simple way, what we see on the balance sheet is based on the GAAP profit, i.e. the common way of reporting profit.

However, a company may write-down an asset or restructure its organisation. These actions usually come with large one-time cost that may not be truly reflected in the GAAP profit. As such, a company will also provide “adjusted” earning figures that excludes these nonrecurring items. These effect, usually is one-off, will be regarded in the non-GAAP profit. And because of this, I personally think that it will more accurately reflects the company's performance.

The balance sheet of TESLA:



We see that a GAAP net loss -$ 154 M or $-1.22/share was incurred according to the conventional way of account reporting. After considering compensation expense, non-cash interest expense and deferred profit, its actual net loss is only -$ 45 M or $ 0.36/share, which is significantly less than the GAAP standard way of reporting.

The above exemplifies the use of non-GAAP reporting to account for a more accurate earning which truly reflects the company's performance. There are good and bad with both measures of reporting in the sense that the report could be manipulated to favour the desired outcome. Which one to look at is then completely up to your discretion.

Friday, 8 May 2015

KLSE: INARI-CA, a "successful" trade

Following the recent failed short term trade, maybe I should also write some "successful" transactions.

If AWC made myself stumbling, then INARI-CA could at least offer me some condolences. It was the "secret weapon" that I bet on for the recovery of my capital since Oct 2014. Never happen before that I will buy call warrant "in quantity", after realizing how much opportunity I have lost since then.

At first I was really reluctant to sell -- want to earn more. But the imminent expiry date (the last trading day was 30 Apr 2015) makes me worried and decided to sell a few weeks before expiry. In the end INARI-CA expired at RM 0.090. I cannot imagine the "what if"? Glad that I have overcome my own "mental blockage" to sell a share.

Perhaps SHH can give me another comfort, that I am actually learning to sell a share at good timing. It is trading at about RM 1.20 at the moment. Again, what if?

What if it soars after selling? Let it be. Maybe I buy another share that has better return?
What if it drops after selling? Then no worries.

Monday, 4 May 2015

KLSE: A failed short term trade in AWC

AWC is definitely a failed short term trade. I could have earned a profit of 10% in 2 days, but at the end of the day I ended up losing 10%.

This time, not only my entry price is beautiful, my timing is perfect too.

AWC


I did set a target at the time of buying, i.e. 10% short term trading. This implies a target price of RM 0.490-0.495. The target price is achieved after 2 trading days, I did not sell. A target without strict execution is useless.

Greed has crept in my mind and I "suddenly" decided to increase my target price. While I keep on reminding myself to not make the same mistake, greed has also buried my previous experience.


I do not know what to say, but hoping that I could at least take this lesson seriously.

Tuesday, 28 April 2015

NASDAQ: Amazon soars after earning release

I fail to fathom the US stock market. Amazon (NASDAQ: AMZN) was trading at USD 445 (24-4-2015), jumped from USD 390 on the day preceding the earning release. The "dumbfounding" thing is, the net profit of the latest fiscal report is a net loss of USD 57M / EPS of USD -0.12 (compared with a net gain of USD 108M / EPS of USD 0.23).

Yes, of course you cannot look at net profit alone in isolation from other figures. The revenue jumped 49% to USD 1.6B. The operating cash flow also increased significantly. The main reason for this is reported to be due to the outperforming cloud services and strong retail sales.

Having bought something from them once, I am very impressed by Amazon. The item is of great value, even after including the "international shipping" (which is really not much) and the weakening Australian Dollar. 50% discount is very common. For example, PNY Turbo 128GB USB 3.0 Flash Drive is now selling at USD 40 shipped to Australia. This is equivalent to  AUD 51.2 (based on the current rate of 1 USD: 1.28 AUD). The cheapest you could find on Ebay is AUD 68. The example goes on and on, and applies for all sorts of items.

Amazon has invested a lot to provide all kinds of new services, with a hope that in years to come, they will gain the "market share" and what they have invested in will pay back in avalanche.

According to the earning forecast, even in year 2018 the EPS would only be USD 8.29, i.e. the PE is still sky high. Perhaps this is something you can only find in a "matured" market, that considering really long term growth of a company, Amazon worths to trade at this price. This is something you cannot find in KLSE, and this excites me to involve in NYSE and NASDAQ, a market that really requires a sharp investing insight.