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.

Keeping the base covered first

Scouring the Internet nets you plenty of investment lessons and advices, but this article from Forbes.com entice me to publish a very common but important principle central to the Partnership's workings when it comes to investing our capital. To quote:

"Contrary to conventional wisdom, the key to investment success isn’t getting higher returns. It’s keeping your losses within your comfort zone, so you don’t panic and sell out at the wrong times"

We shall keep our capital intact (short-term fluctuations notwithstanding) before we can really aim for above-average return on invested capital. After all, we can't grow the capital if we have none. Yes we can leverage, but aren't we leveraging to have/create the capital?

Very much looking forward to share the Partnerships's first half of 2012 mistakes and lessons.

A thought on the issue of the low participation of retail investors in Bursa Malaysia

Readers of this entry ought to understand I am not against the idea of PNB/Unit Trusts or other professional investment management companies in Malaysia. In fact, I'm very much for investing through a professionally managed funds for the know-nothing or know-something investor in Malaysia, but more needed be done in terms of educating the investing public on the benefits and perils of self/direct investment in Malaysian equities.

To reflect on my personal thoughts on retail investors in Bursa Malaysia, I would like to share a comment I placed in a very good blog on Corporate Governance in Malaysia, in an article entitled Wooing retail investors in Malaysia:

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As a layman direct stockmarket investor in Malaysia, I thought the creation of PNB to increase Bumiputera's (nowadays non-Bumi included) ownership of Malaysian equities via indirect investment through PNB's funds has its good and bad side, from this article's POV. Lets not talk about EPF, they are a 'must'. PNB is an option.

Way before today, investment funds like PNB impressed upon investors of one thing - invest through us, your capital are guaranteed and you get 'good' returns of 8%. (Fine with that, you can't expect much with that low, almost non-existent risk of losing capital).

As time passed by, the offsprings of PNB early investors and young adults have this firmly planted in their mind - "my dad/mom/grandparents lose money when they invest directly in stockmarket in the 90s, why should i try?. Okay, I will open ASB/ASW2020/ASM account tomorrow, ask PNB to invest for me at a 'good' 8% return".

This 'stay safe,stay low' stance eventually distanced investors away from directly investing in Bursa Malaysia. I get the same reaction when I told friends and family I invest directly in Bursa - "aren't you afraid of losing money?" What they don't know is that, the money they placed in PNB or mutual funds were also used to invest in Bursa equities!

To increase retail participation in Bursa, the perception of Bursa as a place to make/lose money easily must be aggresively retorted, against the aggresive marketing of unit trusts and safe-haven investment management companies alike.