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

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.

First Quarter 2012 Commentaries

Mistakes are bound to be made in one’s management of his or her money for investment purpose, especially when it involves emotions and subjectivity. I am not immune to this either.

During the first quarter of 2012, the earlier part of it saw more than a handful of cheap stocks in Bursa Malaysia, which yours truly failed to resist the temptation to invest in many of it. However, this hurted our performance by way of increased transaction costs as a result of my terrible attempt at being the Jack of all trades – trying to grab it all. Eventually I wisened up, but it was already too late. By calculations, all these clumsy ‘trades’ and lack of investing discipline contributed to an opportunity cost of close to 2.6% – means we may have increased our capital value additionally by that much had I not try to be too smart.

From this portfolio update onwards I’d like to share as well, the movement of the largest unit trust fund in Malaysia, Public Ittikal Fund and the FBM KLCI during the same period of year-to-date (YTD). Public Ittikal Fund, with the size of RM 3 Billion has been closed to new investors since June 2011.

These figures shall bear no indication on how we performed, because our performance has to be measured against ASB’s return at year end, over a minimum period of three years.

Year	Partnership	Public Ittikal Fund	FBM KLCI	ASB
YTD 2012	10.2%	3.63%	4.3%	N.A

Sources: Morningstar Malaysia & The Star Online

The Partnership Portfolio

I have explained in earlier post a brief history on the origin of AIN Partnership portfolio and where it stands now. Please take a look:

Stocks of Company	Gross Investment	Market Value	% Profit & Loss	Portfolio Percentage
A	4,300.00	5,360.00	24.65%	22.62%
B	2,562.00	2,820.00	10.07%	11.90%
C	2,660.00	2,725.00	2.44%	11.50%
D	2,552.00	2,640.00	3.45%	11.14%
E	2,453.10	2,509.00	2.28%	10.59%
F	2,384.20	2,429.00	1.88%	10.25%
Others	4,172.50	5,105.00	22.35%	21.54%
Cash	109.42	109.42	-	0.46%
Total Portfolio Value	21,193.22	23,697.42	11.82%	100.00%

* Figures in Ringgit Malaysia (RM)

** Cash includes dividends received and realized gains before being utilized for stocks purchase in the beginning of the year.

Stock A belongs to one of the senior citizens of Bursa Malaysia whom primary business is car distribution and property management. I bought them when the stock price is exactly the same as the amount of cash per share (a staggering RM4.30 per share). I should have bought more instead of placing a restriction of “maximum 25% of portfolio in one stock”. Lesson here – if you did all your research well and you have full conviction that your reasons to buy a stock are right, by all means load up at a fair if not cheap price.

A savings and loans company partly owned by Employees Provident Fund (EPF) is represented as Stock B. They made it big in personal financing in the public sector. I lived in Putrajaya and one can clearly see how these personal financing schemes boomed by the number of leaflets in the mailbox.

Stock C is a clothing brand company with exceptional growth for the past ten years in a competitive retailing industry. I like them so much that I made sure I only buy my working pants from them since I started working. What more can you do to make sure they returned the money to you as dividends?

Stock D is a Sarawak-based infrastructure company who has recorded above 20% ROE for the past five years with above 15% NPM consistently. I find no other reason to own part of the company except for how fair they are selling now relative to their growth and strong balance sheet. And oh, they started their business with swamp land reclamation.

Stock E is a vessel builder company operating out of Sabah. I have been in oil & gas industry for few years with direct exposure to offshore supply vessel (OSV) operations, and I can see the tremendous potential in it. The number of companies entering the business grew, and more Datuks than not tried to get into it. You ought to know who can profit from their ventures – the builder of the vessel that the Datuks buy.

Stock F represented a company whose chief business it acting as agents to their principal in product distribution. In East Malaysia they conquer everything from FMCG products to building materials. I’ve been a salesperson before (still am) and I can appreciate the fact that if you cannot get high margin, seek volumes. The company’s NPM was historically below near 5%, ROE was so-so at 8 – 10%. But look at the East Malaysia map – just how many more consumers can there be? Next stop – Peninsular Malaysia.

The ‘Others’ is collection of stocks that individually does not reach 10% threshold of total portfolio size, so I find it less compelling to share. Most of them were companies whose financial statements I deemed attractive, but not enough studies were made to warrant a bigger position in their stocks.

In total, there were 12 stocks that the Partnership owned as of 30^th December 2011.