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Sunday, 29 March 2015

Why we avoid Speculative Penny Counters? Fund Managers Perspective

As per our article prior before this, the item 1 and to 2 to be avoided:

 1. Take out companies that does not have good Fundamentals & 2. Avoid Management team that are not prudent/sincere

First of all, the company does not make money. The company is under the care of their management for the last 3 to 5 calender years, can not make money. What is the reason for you to jump in? Because you love their products or the bosses? We only go in if we see catalysts that will change the future P&L of the company. VISIBLE Few Quarters of Improving P&L. Do not chase when the news or rumors for AKAN DATANG PROJECTS to be awarded. Most of the time, we are wrong, the market is correct. If the management is sincere, he should work hard on his business and not finding money from speculating the market especially his own counter. When this happens, is he protecting shareholders value or damaging it further by playing with it?

Let's look at Fund Managers perspective. 

For you to start an account with any Fund House, your minimum capital injection is RM 1m cash. But normally FM do not do RM 1m, for an account to have a meaningful investment portfolio, we are normally looking at RM3m to RM5m. There will be a Standard IMA to be signed (Investment Mandate Agreement - stating the rules and agreement details). One of the COMMON CLAUSE to be agreed - NO PENNY STOCKS. Why? 
The volatility is high and earnings is not consistent. 

Normally the agreed Return on Investment is about 10% per annum. Anything above they shall be a watermark and the sharing percentage will kicks in, normally in the range of 20% on top of 10% achieved. But some FM also produces negative return during certain years.

Eg: Year 2014 made 15% return 
First 10% no sharing, balance 20% of 5% is shared with FM. 

The world greatest investor Mr. Warren Buffet able to do average of 22% for the last 40 years. But a lot of people of there trying to outdo the Fund Managers by trading speculative stocks. 

Points to Ponder:
Fund Managers have the whole research team to brief them on Market Outlook and Stocks Analysis. They are the so called among the smartest people in our Industry, agreeing on a return of 10% to 15%. 

And we are aiming 50% to 100%? 
I would say before we look at 50% return per annum, perhaps we may stay calm, do our analysis and most importantly eat our Humble Pie first before punting speculative counters. Perhaps we stand a better chance by going to Casino. 

Disclaimer and Declaration

The full content of the article is for educational purposes only and should not be used as investment recommendations. We are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. Examples of specific shares is citied for illustration purposes.

Regards,

Humble Pie




 


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