3rd Quarter, 2012 – Watching them driving by

As the title suggests, we basically did very little to the Partnership’s fund during the months of July, August and September 2012. We did however disposed our entire stake in a machinery equipment business, for reasons stated in my previous post. I should have highlighted too that we added to our existing stake in an auto paint manufacturer, a smallish company, rarely mentioned in the media but has had a steady climb of net profit for the five straight years with an average return on equities at 15%. Further readings of their annual report highlighted their ability to pass the cost of rising raw materials to consumers, while requiring very little reinvested earnings and capital expenditure to grow their business. 21% of the Partnership’s capital are now invested in this company.

The Partnership’s return up to 28^th of September, 2012 is shown in table below. Returns are reported with dividends reinvested, but before advance payment to new capital added by partners during the year 2012 and before any additional capital or withdrawal made by partners.

Year	Partnership	Public Ittikal Fund	FBM KLCI	ASB
YTD 2012	26.7%	8.8%	6.9%	N.A

Sources: Morningstar Malaysia & Citibank Weekly Market Updates dated 1^st Oct 2012

Stay quiet and do nothing

Just to share what I've been doing with the Partnership's money since the last post for Q2 2012 update, quite a while ago.

1. Sell entire stake in one company worth 10% of the Partnership's fund size.
2. That is all.

Yes, that's right. We did nothing to the Partnership's stable of companies (part-ownership, at least) except for selling our entire stake in a machinery equipment business where although the balance sheet is strong with plenty of 'margin of safety' between its selling price against its book value, I failed to notice any long term advantage to its business. I believe it's worth more time and effort to find a company where one can be at least clearer if not entirely sure of its' long term potential, acknowledging my own limit as well. Additionally the said company too has not been really earning above average returns on capital employed (less than 10% - the minimum that we'd like to see our companies do).

I chose to stick to a common investment mantra - invest in the best AND cheapest companies, instead of invest in the best OR the cheapest companies available. All investors are afforded with the ability to have both best and cheap, why choose either one? That being said, since I am unable to find both best and cheap companies available in the stockmarket today, I'd stay quiet and do nothing until the next good opportunity to employ the Partnership's capital in Bursa Malaysia presented itself. We shall wait indefinitely, if we must.

First Half 2012 Commentaries – This can’t go on forever

During the 2^nd Quarter of 2012 I have identified (on behalf of the Partnership) several companies in Bursa Malaysia which basically ‘flew under the radar’ – having a small (if any) number of investors following their stocks. They are simple and easily understandable businesses, attractively priced, and doing the basic things well – sell more of the same product and passing incremental cost of raw materials to customers. We initiated positions in their stocks with a healthy dose of amateurish hesitation from my part. But before long, others took notice of these companies and their stock prices soon moved up quickly and are now beyond our buying range.

Two lessons here – buy big with conviction and if you are a buyer of stocks, you better hope prices won’t skyrocket; else you’ll be priced out. In short term the quick, sizeable return will make you look good and may even lead you to be boastful and overconfident in your investing capability, but it hurts your performance in the long run.

Year	Partnership	Public Ittikal Fund	FBM KLCI	ASB
YTD 2012	22.2%	5.31%	4.5%	N.A

Sources: Morningstar Malaysia & Maybank IB report

The Partnership’s capital standing until 30^th June 2012 is presented in the preceding table, measured against FBM KLCI benchmark index and the largest unit trust in Malaysia in terms of fund size, Public Ittikal Fund. Returns are reported with dividends reinvested, excluding advance payment (new capital) added by partners during the year 2012 but before the pre-agreed advance payment return. Be mindful of the presented numbers, for the return on the Partnership’s investment in Bursa Malaysia equities has to be measured against ASB’s return at year end, over a minimum period of three years.

We now have 85% of AIN Partnership capital invested in Malaysian stocks, the rest we stick to cash. Also worth noting, during the months of April – June 2012, we received RM13,323.15 of new capital from existing and new partners. We treat this as advance payment from each partner, drawing a pre-agreed return per annum which will be added to the partners’ beginning capital for the year 2013.

I personally expect the stocks investment climate in Bursa Malaysia to move southward in coming months. When this happens, rest assured I will remain as candid and you will be made aware of your money’s performance, as much as mine.