SYWBS Part 4: Putting it all together

I guess this is a good time to illustrate in a bit more details the stuff that we have been talking on the "So you wanna buy shares" series. It was also opportune that we had a great piece of news of Norges' additional investment into the small and mid cap companies on Bursa Malaysia.

Lets recap.

1. Know yourself and what you want to do

The first thing we want to do before we invest is to get our objectives clear. In order to do that we would need to know our investment horizon: long term or short term. This horizon is not dictated by our preference, really, but rather our constraints in terms of capital, the need for cash (liquidity) and our time to monitor the market.

In this 'simulation' I would assume that the investor (Lets' give our hypothetical investor a name: Adam) does not have the time to monitor the shares hourly. At best daily at the end of the day or weekly. He has a day job that occupies his time. He has some money that he sets aside each month from the paycheck for investment purpose, so he does not need regular cash from his investments. Based on that, the investment horizon would be a mid to long term and by that I would mean he would not need to touch his investment money for at least 12 months.

2. Know what you got to do (strategy)

As Adam does not have the time to punt the market, he would need an alternative investing strategy and that would be building a portfolio. In our previous article, we touched on a top down strategy as one of the thought process that we could apply in trying to narrow down our investment focus.

The strategy may be different if Adam has the time to say monitor the market on full time basis. For the time being, let's stick to the top down approach.

3. Do what you got to do

The first thing that Adam would need to do is decide which market would he want to invest in, i.e. the top of the top. Assuming that Adam is only investing in Malaysia, that would mean he has to select which market sector to invest in. Well, the choice is not as easy as it seems. There is activity-based sector (utilities, O&G,  Banking) and there is cross-activity size-based sector (Large Cap, Mid Cap, Small Cap, Fledgling). So where does he start?

Well, there is where the economic outlooks and reports that appear in the newspapers come in handy. And more tellingly, we have indices to help Adam decipher the health and wealth of a particular sector. Bursa Malaysia, via its index series has the following sectors indexed:

• FTSE Bursa Malaysia KLCI - 30 largest companies in FTSE Bursa Malaysia EMAS Index (FBMEMAS) by full market capitalisation.
• FTSE Bursa Malaysia Mid 70 Index - next 70 companies in FBMEMAS.
• FTSE Bursa Malaysia Top 100 Index - sum of constituents in the above two indices.
• FTSE Bursa Malaysia Hijrah Shariah Index - 30 largest Shariah-compliant companies in
• FBMEMAS screened by Yasaar Ltd and the Securities Commission's Shariah Advisory Council
• FTSE Bursa Malaysia Asian Palm Oil Plantation Index (USD and MYR) - companies earning substantial proportion of revenue from palm oil activities in the Asia Pacific Region.
• The FTSE Bursa Malaysia EMAS Index - constituents of the FTSE Bursa Malaysia Top 100 Index and FTSE Bursa Malaysia Small Cap Index.
• FTSE Bursa Malaysia EMAS Industry Indices - 10 Industries, 19 Supersectors and 39 Sectors.
• FTSE Bursa Malaysia Small Cap Index - top 98% of the Bursa Malaysia Main Market excluding FTSE Bursa Malaysia Top 100 Index constituents.
• FTSE Bursa Malaysia EMAS Shariah Index - Shariah-compliant constituents of the FBMEMAS that meet the screening requirements of the SAC.
• FTSE Bursa Malaysia ACE Index - all eligible companies listed on the ACE Market.
• FTSE Bursa Malaysia Palm Oil Plantation Index - based on FBMEMAS and comprising companies earning a substantial proportion of revenue from palm oil activities.

Now Adam has to bear in mind that these indices would differ from one index provider to another and be mindful to read the fact sheet.

Broad based

Lets assume that Adam was interested with the news that Norges is investing more in Mid and Small cap companies in Bursa Malaysia. He would therefore would like to know more about the companies within this categories that would be on the radar of Norges. But since there are hundreds of companies out there, how could Adam narrow down the list further? His monthly investment coffer cannot buy them all.

But could he? Technically, he can. He can buy the exposure into the sector by investing in a collective investment scheme that invest in the same sector and share the same objective (of course after reading the prospectus). He can look up the unit trust funds that invest in small and and mid cap companies and invest there. There are plenty of unit trust agents who could advise him over a cup of coffee and an EPF form in hand :-).

But if that is not his cup of tea, he could also try investing in a close-end fund. Which is also a collective investment scheme but is close-end (as opposed to the open-end unit trust schemes) and is listed and traded on Bursa Malaysia. We have only one example on Bursa Malaysia and that would be icapital.biz Berhad. Based on its annual report, the investment strategy are : "Your Fund invests in undervalued companies which are listed on the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities) and the ACE Market of Bursa Securities". Well, that investment 'universe' is a bit too wide for Adam's Small and Mid cap strategy hence no can do...sigh.

He can try investing in an exchange traded fund ("ETF"), a passive collective investment scheme that tracks an index. An ETF that tracks the (say) FTSE BM Mid 70 index and FTSE BM Small Cap Index would fit in nicely in this strategy. Investing in ETF, would relieve Adam of the headache of punting in the sector.Let's have a look at the ETF's that are available in Bursa Malaysia:

List of ETFs

Equity ETF

• FBMKLCI-ETF (0820EA)
• CIMB FTSE ASEAN 40 MALAYSIA (0822EA)
• CIMB FTSE Xinhua China 25 (0823EA)

Equity ETF (Shariah Compliant)

• MyETF-DJIM25 (0821EA)
• MyETF MSCI Malaysia Islamic Dividend (0824EA)

Fixed Income ETF

• ABFMY1 (0800EA) 

Hmm... no ETF on Small and Mid Cap indices... so ETF is also out of the question on this strategy. It looked like all the broad based options are not really there, so Adam have no choice but to try to look at the individual stocks and building his own portfolio.

Narrowing it down

In order to narrow it down, Adam would need to have to know the relevant stocks that would be on the radar of the fund manager and other investors. Where could he find the clues?

The first clue would be from the index constituents. If Adam were to look at the FTSE website, he would stumble upon (I choose this phrase for a reason) the fact sheet and reports on the indices we mentioned earlier. Unfortunately the index provider does not release the list of all the index constituents unless you pay them a lot of money. FTSE however did give out this information to the public in the June 2013 report on the indices (all information here are sourced from the FTSE website). 

FMB 70 index had 70 companies listed in it. The top ten (by weight) is as follows:

• Gamuda
• IJM
• Dialog Group
• Malaysia Airports
• Alliance Financial Group
• AirAsia
• Bumi Armada
• IOI Properties Group
• Lafarge Malaysia
• YTL Power International

FMB Small companies index has 167 companies in it. The top ten is as follows:

• Star Publications Malaysia
• KNM Group
• MPHB Capital
• TA Enterprise
• Cb Industrial
• Muhibbah Engine
• Sumatec Resources
• Perdana Petroleum
• Scomi Energy Services
• Kian Joo Can Factory

If you would want to have a look at the report (which contains the best and worse performing of the sectors), please drop your email address in the comment box and I will try to email the pdf copy of the report to you soon.

The second source of clues are from the research reports and recommendations of research houses. For example, the following which appeared in the Star Newspaper recently where it delivered a report by UOBKayHian which said:

“We advocate being selective, picking beneficiaries of compelling investment themes or with specific event catalysts. These include Deleum, Barakah Offshore and Malaysian Resources Corp Bhd (MRCB),”

In order to narrow it down further, Adam should perform the fundamental analysis (and technical too) on these companies before buying the shares.  A topic for next time.

Well, that is all for today folks. Till next time :-)

SYWBS Part 3: The Other Investors

This is the third part of the "So you wanna buy shares" series. You may read the previous two parts here:
1. Part 1: Getting to know the share buying 'battle field' and what affects share price movements
2. Part 2: Getting ready for the opening gambit, a top down approach, and the importance of selecting the right industry to invest in.

Before we get down to narrowing down our stock selection and making our opening gambit, I think is it better that we take this opportunity to get to know the 'opponents' on the field.

As I have mentioned in the previous articles, 'playing' the stock market is not dissimilar to being in a battle of wits with other players on the field.

To quote Sun Tzu:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
― Sun Tzu, The Art of War

So, who are your 'enemy' and who are you allies? Well in this game, no one is your enemy forever and none is your ally forever too. There is no loyalty except to profit and money. So your enemy today could be your ally tomorrow. It is therefore imperative that we spend some time getting to know the others.

The players in the market have been describe in many way and facets.Some categorized them based on their trading activity (passive investors, active investors, speculators), some based on strategy (long term investors, short term investors / punters), and some based on type. I prefer to start with the type of players, which I have dividend into the following categories:
1. Institutional player
2. Retail long term player
3. Retail punters
4. Market manipulators

Institutional players
Who: Unit Trust Funds, Government Linked Investment Companies (EPF, KWAP, Valuecap, Khazanah, Tabung Haji, PNB), Insurance Companies, Takaful companies, Foundations
Size: Very very large. This category of investor accounts for more than 2/3 of the stock market
Ticket size: very very large
Motivation: Keep the job. Hahaha. Although it might sound funny, but this is largely true as the funds are run by professional managers who are paid as long as they have the job.  That means there are other factors than the immediate task of making the trading profit (which is more difficult as when they move, everyone will be alerted).
Investment horizon: Very long term
Investment style: long term portfolio strategy. This is based on a mandate for each fund, like balanced fund, asian equity and the likes. So even if a share is hot some of these investors would not be able to buy it if it is not in the mandate. Likewise, even if a share is cold, they might need to buy them to meet the mandate. This mandate driven strategy is evident when, for example, a stock suddenly gets to be included into the KLCI index (I think SapuraKencana had this scenario). When a share gets included in the index, all the funds that has track the index may need to buy the share just so that they can ensure they track the index well. Likewise, if a share gets thrown out from say a Shariah index, you might see large and persistent selling pressure on the share as Shariah funds seeks to exit from the shares, even if it is making huge trading gain. They simply cannot go against the mandate. Profit is secondary, in a way.

Retail long term players
Who:Wealthy high net worth individuals (or corporations), mostly. They are normally assisted by experienced remisiers, brokers are financial consultants.
Size:  Large.
Ticket size: large. Due to the large size of their capital, they have to trade in larger volume to make up the return.
Motivation: Make long term stable return in terms of trading gains and dividends.Dividends becomes a significant consideration due to the size of their capital
Investment horizon: Medium to long term
Investment style: A mixture of long term portfolio strategy and opportunistic punting. These people are well informed and could take sizeable position. Their trading sometimes large enough to move the share price and could affect the trend of the share that appears on the technical charts.


Retail punters
Who: Wealthy and less wealthy individuals, mostly. Because punting requires a constant eye on the market, they are dominated by traders, remisiers and some career market punters.
Size:  Small to large.
Ticket size: Flexible. As punters wants to ride on the wave, their size can vary  depending on their appetite and risk assessment for each trade. But their size are not normally large enough to create and sustain a price wave, but they can add to prolong a wave. They cannot be too big as that would make it difficult for them to exit the wave without breaking it midstream.
Motivation: Make trading gains and the hell with everything else.
Investment horizon: Short
Investment style: Constantly picking stock on a daily basis. Focus more on trend rather than fundamental analysis.

Market manipulators
Who: These dark shadowy characters exists and sometimes some of the are caught by the regulators. To ignore them is to seek for death in the stock market.
Size: Large.
Ticket size: Flexible. The ticket size would be designed to be large enough to move the share price but small enough to run undetected.
Motivation: Make trading gains and the hell with everything else. These people usually work with inside information in hand and with the financial support of some opportunistic investors.
Investment horizon: Short
Investment style: They work to fool the rest of the investing public into buying (or selling) shares at artificial price which they know is not sustainable once they are out of the picture.Because they need to be able to have control over the majority of free-floating shares with the limited capital that they have, they usually target penny stocks or some fairly illiquid shares.


If you are a beginner in stock market investing, you need to know investors and over time, you would be able to sniff them out with experience. As we mentioned before, these people could be your enemy or your ally depending on where you are when they come in.

See you next time :-)

Invest smart peeps!
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You can read previous articles in the "So you wanna buy shares" series by clicking the link below:
1. Part 1: Getting to know the share buying 'battle field' and what affects share price movements
2. Part 2: Getting ready for the opening gambit, a top down approach, and the importance of selecting the right industry to invest in.

We share as the more we have the merrier, kan?

Making strategic decisions

Every business, big or small, would have a strategy (or more). I found the following strategy action tree very helpful in trying to make sense of the decisions that needed to be made or making sense of decision made by others.

Hope it helps you too. If you have any question, please feel free to post it in the comment box. I will get back to you as soon as possible.

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Yazdi occasionally holds and runs corporate finance workshops, where you could gather the financial sense required to succeed in business or at your workplace. His past participants included senior managements (including a CEO or two) and executives of financial industry (including fund managers, analysts) as well is business practitioners.

If you would like to know more about his upcoming workshop, please free to drop your email at this link, here. We will not spam your mailbox - let's keep it personal between us. We appreciate your support and if you could share this with whoever you think might benefit from this (like friends or colleagues), we thank you a gazillion times.

Pos Malaysia and the fund managers

 An example of how being right is not necessarily wrong:

"The fund manager said the stock continued to be relatively cheap, trading at 18 times earnings compared to international peers trading at the range of 25 to 30 times earnings."

later on the same article article, another manager says:

 “We peg Pos Malaysia to an 18 times 2014 price-to-earnings ratio, which is at a 13% premium over Singapore Post Ltd (SingPost).

“We think this is justifiable, as we believe Pos Malaysia has larger growth potential compared to SingPost, whose current business model is approaching maturity stage,” it said.

No one is wrong, it is all a matter perspective, I guess...

The article from the STAR is reproduced below:

Pos Malaysia shares soar to all-time high on possibly dividend

by choong en han

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PETALING JAYA: Pos Malaysia Bhd’s future growth prospects and possible special dividend could be the reasons behind the counter hitting an all-time high last week and registering an almost 57% jump in share price year-to-date.
The national postal company closed one sen higher at RM5.46, just four sen shy of its all-time high of RM5.50 on Oct 3.
A fund manager said the company’s five-year strategic plan remained on track and that the special dividend due to the tax credit expiring at the end of the year made investing in the company all the more sweeter.
“The special dividend speculated by many could be lower, as management has indicated that it would allocate some money for capital expenditure. Nevertheless, it is still a bonus. Liquidity is what concerns me the most, as shares floated are already held very tightly,” he said.
The fund manager said the stock continued to be relatively cheap, trading at 18 times earnings compared to international peers trading at the range of 25 to 30 times earnings.
In a report dated Sept 6, HwangDBS Vickers Research said the group’s Section 108 tax credits amounted to RM215mil or 40 sen per share as at March 2013, and would expire by end-2013.
“We believe a special payout is possible, given its net cash of RM1.23 per share as at end-June 2013, and strong recurring cashflow from its core businesses,” it said.
An analyst believes the company is primed for future merger and acquisition activities as it looks for opportunities to expand its operations.
“Discussions with the Middle Eastern potential target could bear fruit soon while closer to home, it might also be looking at regional expansion with opportunities arising from the intra-regional courier business,” he said.
RHB Research, meanwhile, is also bullish on the stock, with a target price of RM6.10 based on the company’s growth potential. It pointed out that the company had taken steps to further improve its earnings power by offering new initiatives.
Besides the expansion of its Islamic pawn-broking business, RHB Research also mentioned that Pos Malaysia was venturing into the logistics business very cautiously due to the competitive nature of the industry.
“It has been leveraging on sister company Proton Holdings Bhd to kick-start its logistics business. Since January 2013, Pos Malaysia has been transporting auto parts between Proton’s vendors and its manufacturing plants. Proton is currently its sole client in the business,” the research outfit said.
It added that Pos Malaysia’s prized asset was its landbank, notably, the plot of land located in KL Sentral measuring 117,563 sq ft worth an estimated RM176mil. However, while management intended to develop the company’s landbank, it was in no hurry to do so now, it said.
“We peg Pos Malaysia to an 18 times 2014 price-to-earnings ratio, which is at a 13% premium over Singapore Post Ltd (SingPost).
“We think this is justifiable, as we believe Pos Malaysia has larger growth potential compared to SingPost, whose current business model is approaching maturity stage,” it said.