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Friday, September 15, 2006

NSE party will end... when?

I expect this party to start experiencing major hiccups!

Why?
  • E.A. Cables (post-split) has dropped to 77/- (15 Sep 2006) from a high of 105/-
  • Valuations are out of whack e.g. P/Es are routinely over 15 even if there is minimal expected growth
  • Speculation seems to be the name of the game. The brokers' offices are packed with folks who don't know or care what they are buying! The "tips" are from inexperienced clerks who can't even read a balance sheet let alone analyse one!
  • The economy, though growing, can't seem to hit the "magic" annual +8% GDP growth
  • The KRA is cracking down on tax defaulters who will have to pay taxes thus leave less for "other" ventures & investments
Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well. - WB
Many are buying stocks coz its fashionable not coz it makes investment sense!

Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years - WB
Well, many current buyers can't wait to sell. They want an instant increase so they can "churn" the funds! 10 years is a lifetime to them!

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. - WB

My favourite quote! Others are getting very greedy so I think I need to be fearful!

WB = Warren Buffett (My mentor - he just doesn't know it yet!)

16 comments:

kenyanentrepreneur said...

I can't believe I'm reading this from you!

What? what? say that again...

coldtusker said...

Say what???
I have always been consistent!

I think current valuations are too high i.e. my "predicted" EPS & PEG (estimates) do not justify most of the current prices! There are always exceptions.

In any event, the mega question remains... when to SELL?
Then accumulate cash then wait for the crash before going back in!

Alternatively, the market will become listless for some time... neither up nor down! That is the worst scenario!

bankelele said...

I think we're at that point where a correction should be expected. There's so much new money going into the market, based on word of mouth (quick Kengen and Scangroup returns) that still pushing it up. Insitutional invesotrs can absorb a correction, but what about first time investors?

mushenzi said...

It appears like EAcables will continue falling for the rest of the week till the excess shares are mopped from the market. Then maybe rise steadily in two weeks time....just a thought

Kudrinketh said...

Certain stocks like EAcables are overdue for a correction, which is not bad if you're in it for the long run(5-10yrs).This is welcome news for investors as it precents buying opportunities once its bottomed(which is tricky to fugure out).

Coldtusker you're such a sucker for the buffett, he's aiight, i do read the chairman's letter on the annual report though. he's made bad calls before like predicting that US dollar will sink(and loosing over a billion,yes no typo a BILLION!) also that aqcuisition of general Re went bad.all in all,i like him,the dude just gave away 30 billion to charity! amazing stuff!

coldtusker said...

Kudri - Ma main Man Buffett ADMITS to errors! Gasp! Here is a guy who can tell you to go suck **** but instead he apologizes for his errors!

That's why (esp after GenRe) he insists on having TRUSTWORTHY Management before looking at the numbers!

Somewhere out there is a write-up on what I think are TRUSTWORTHY Managements among NSE firms! I can attest it is a great way of looking at investing!

He wins most, loses some, thus look at his LONG-TERM record... He made more BILLIONS in one year (I think it was in 2004) than he lost in his entire life in forex dealings/trades!

Like Peter Lynch (considered the #2 investor after Buffett) said if you win 6/10... you are way ahead in the game!

I love his investing principles esp when he asks (before you invest) would you buy the entire company if you could?

Kudrinketh said...

coldtusker

Buffett does admit mistakes but that's not good enough.problem is he's been making too many mistakes lately. so maybe the oracle of omaha is loosing his touch.Evidence?, here goes:

1.book value per equity share of berkshire hathaway has grown at a compounded annual rate of 21.5% for past 41 yrs.that's why he's a legend.however,since 1998, the company only achieved a growth rate of above 20% once,and during 1999- 2005 the company's growth been lower than S&P for 3 yrs.

2.even including the investment earnings of $5 billion, the company's bottom line has not seen much growth over the last three years. Net profits for 2005 were at $8.53 billion as against $7.31 billion for 2004 and $8.15 billion for 2003.

3.admitedly,berkshire was hit hard with last yrs huricane season to tune of $3.4 billion from claims.but how long can he hang on to these loss generating companies.if an investor realises that he has made some bad bets in the past, he would try to exit those positions. berkshire has not revealed any plans to exit under-performing businesses

4. GenRe is still under investigation over shady insurance transactions with AIG.here' what buffett had to say on the chairman's letter;"The hard fact is that I have cost you a lot of money by not moving immediately to close down Gen Re's trading operation. Both Charlie and I knew at the time of the Gen Re purchase that it was a problem and told its management that we wanted to exit the business. It was my responsibility to make sure that happened. Rather than address the situation head on, however, I wasted several years while we attempted to sell the operation". talk about trustworthy management!

5.i also think this berkshire management is not up to task managing such a huge conglomerate.imagine 70 companies with almost 200,000 employees, plus minority holdings in a bunch of companies. and buffett will not appoint a CEO do help him with this,which leads me to my final point.

6. this guy is aging! he's 75 and munger is 82,who's going to succeed him. i dont think he wants to retire,if i were him i'd retire while i'm still ahead coz at the going rate, his genius reputation is on the line.

coldtusker said...

Kudri - I deal with "retirement" first!

There is a succession plan in place. And it ain't Charlie! It will probably be a triumvirate that includes Ajit Jain (the Big Cat guy who Buffett has hinted as being a potential successor).

Insurance - Ajit Jain
Businesses - CEO?
Capital Allocation & Admin - ???

Kagz said...

I Have A Question...(LOL)

With all the IPO hype going on in Kenya, whats the viability of a programme (radio or tv) who's hosts (experts in the industry) discuss IPOs, E-trading and other NSE related stuff...including NSE 101 to first-timers.

Viewers/Listeners can then get a chance to call in and ask all the questions people typically ask on blogs.

PS: A channel in the US called CNBC does this pretty well with progs like Fast Money, Mad Money, Street Signs etc

Why aren't media houses following suite???

coldtusker said...

I think we have hot the inflection point on the NSE. Whereas there amy be surprises, I expect most counters's prices to start dropping to reasonable levels...

Expected to drop:
EA Cables
Sasini
Kakuzi (They DON'T have coffee!)

Kudrinketh said...

coldtusker
I did not mean that munger would succeed him! my bad for not putting the question mark and leading to ambuquity.

coldtusker said...

Kudri - There is a succession plan (read 2005's Letter).

Growth: Forget "book" value e.g. Microsoft's valuation is primarily "intangible"... Similarly, for Berkshire Hathaway where the brands (See's Candy among others) counts for more than book value (Trust is big in insurance).

He calls it Intrinsic Value.

GenRe (& BK Insurance) has the ability to take on HUGE risks thus have a niche where price competition is not as fierce coz take it or leave it!

coldtusker said...

Trustworthy Management:
What is very important to note is that neither Buffett nor Munger benefitted from the poor decisions i.e. they did not get bonuses while BK suffered.

They suffer the same (in their ownership interest) as all other shareholders. They recognized the problems with derivatives & were "burning" them off. Furthermore, they took charges/provided for most of them.

They did not hide the problem, though they did underestimate it. Mistakes are not unethical, coverups are.

pesa tu said...

Hi ColdTusker, I agree that the market is ripe for correction but i think the market will correct after NSE 20 crosses 5000.
The bull run will be longer than we expect and crash when we least expect.
On EA Cables, I think it's overvalued and needs a lot of cash to move its manuafcturing process to the next step.Did anyone see the clip of its Factory where almost all the work was being done manually?

coldtusker said...

The NSE dipped 106 points today BUT I do not trust the methodology or calculations!

Anyway... the prices have started falling on most counters including the recent "stars" like EA Cables.

KQ fell to 134 from 146 (huge drop) but so did most other firms including EAPC (poor results) & KPLC.

The "drop" is good for those looking to get back into the market.

coldtusker said...

Kudri - Flight to Quality

During the good times, folks go to the "sexy" firms or those that offer "cheaper" insurance.

In the bad times, you go to a SOLID insurer. In the aftermath of the hurricane losses (in his letter, WB explains in detail the pricing game) the flight is to the strong insurers who will & CAN pay. Also the "weaker" players go under leaving the stronger who can charge MORE!

Buffett is willing to PAY more upfront if he get a great return on an annuity.

In this instance, Insurance is a reverse annuity... i.e. pay out large thus attracting more customers at higher premiums for the next few years.

Matatus (with short lifespans) are insured by the shady insurance firms who DON'T pay up when there are accidents. The better heeled firms e.g. Jubilee are preferred for LIFE INSURANCE coz you want them around for your family when you croak! Jubilee doesn't compete in the Matatu market.

Banks have the same deal...

For all the hoopla about Equity Bank, if it stumbles... people will flock en masse to Barclays, StanChart & KCB. Reference when the indigenous banks/institutions collapsed in 1980s, the Asian banks in 1990s & a few more along the way e.g. Daima.

The "wealthy" are not like you & me (at least not me!) they use the small guys for loans, trading, etc BUT when its safety... wanatumia Barclays, Stanchart & now KCB.