A good question was posted to me
in the Chat-Box column of stocks-unleashed.com by a familiar regular user
“Oldman”. was referring to a stock called Mercury Industries Berhad.
Oldman asked : How would you
interpret a counter with no volume?
First, thanks for being one of my
readers in http://kassimsthoughts.blogspot.com. I am gladly surprised that my
pageview has been rising gradually by the days.
So if you are an investor going to
invest in a company in Bursa Malaysia, what is the most important criteria one
should be looking for? Or shall I say more than one criteria?
The answer lies in the strong
fundamental business of the company, for without it, the company would be
struggling and could be heading nowhere, but south (meaning the share price
heading that way) eventually. But on the other hand, a company with a strong
fundamental basis would be doing constantly good business, hence transferring
it into good profit and eventually reflected in its stable share price.
Of course, the good quality of the
management and the ability of the company’s business product to stay relevant
are also very important. No point selling a product that eventually becoming
absolute in the future.
When I first set my sight on
Mercury 20 month ago, I also noticed that the trading volume was very low and
the buying and selling bid’s spread was more than 5 sen. Buyers putting in to
buy at 86 sen and sellers wanting to sell at 92 sen. Sometimes for several
days, not a single transaction was done. Even if there is a transaction done,
the volume would be just a few traded lots done. But that didn’t bother me one
single bit. I am a very patient investor. I will wait and wait for days and
even weeks or even months to buy at the price I wanted. We all know that Bursa
Malaysia is full of weak retail investors. At the slightest news of something
bad occurring anywhere in the world and you can see the market is full of sellers the very next day.
Their motto is very simple. Sell first regardless of the good companies’ share
they are holding.
Eventually my patience paid off. I
managed to buy 15,500 shares at around 86 sen in one day.
Fast forward to today, the low
trading volume of Mercury Industries Berhad continues. Hardly any trading done
sometimes for several days. After my blog on Mercury was posted, there was not
a single transaction done for that week. But there were buyers wanting to buy
at between RM1.13 - RM1.20 and sellers wanting to sell at between RM1.25 -
RM1.30. Why is the selling and buying price’s bid now higher than the first
time I bought them?
Fundamental of Mercury is stronger and richer today
than 2 years ago
The answer is simple. The Mercury
of today is different from the Mercury of some 2 years ago. Its cash per share
is now almost 40 sen compared to less than 20 sen 2 year ago. Although it is
business as usual, the company is now a richer one. Its earning has been quiet
consistent at around 16 sen per share. To put it in a simple term, its fundamental
is now stronger and therefore, there are now investor willing to buy at around
RM1.20 (compared to around 86 sen) and sellers willing to sell at around RM1.30
(compared to around 90 sen) two years ago. Mercury’s valuation is richer today.
Another good point the writer
likes about Mercury is its simple business model which is easier to comprehend.
Mercury is not necessary better at making more money than other complicated
business models, but Mercury’s business is much easier to understand. In fact,
its business can be described as nothing special and very boring. But it is
exactly this type of boring stock with quiet predictably earnings that I am
sure the great Warren Buffet would love to have in his portfolios.
I would be very happy if Mercury
maintains that kind of earning for the next several years. Imagine again in ten
years time, with Mercury’s cash per share rising to around RM1.20, if you a
Mercury shareholder and you wish to sell its share, would you sell at RM1.30 or
more?
In conclusion, a good investor
should not be worry at all about the no trading or low trading volume of a
particular stock. The law of nature will always prevail in the end. The new
buying and selling’s price demand will automatically adjusted itself in line
with the new fundamental strength of the company.
Here is a short simple true story
about a low rise three room ground floor apartment in Taman Sri Nibong, Penang
sold for RM300,000 in May 2010. Last year another ground floor unit next to
that unit was sold for RM400,000. In between these three years’ period, no
other ground floor was sold other than this two units. Hardly any buying and
selling volume, right? But see, the price went up by more than 33% in three
years’ time regardless of “any volume or no volume at all”.
The moral of the apartment’s story
(if there is one) is : The new buying and selling’s price demand will
automatically adjusted itself in line with the new fundamental strength of the
property market.
Selling Pharmaniaga Bhd
Regular readers of the popular website stocks-unleashed.com
would have noticed as early as last year when I started posting my personal
views on certain stocks in short paragraph in the Chit-Box column from time to
time. At that time, I was calling for a buy on Pharmaniaga when its share price
has dropped to below RM8 from a high of almost RM11. Since then, Pharmaniaga
has implemented a share split of 1 for 2 and then followed by a bonus issue of
1 for 10 0n May 2013 (Pharmaniaga also implemented a bonus issue of 1 for 10 0n
February 2012).
The writer bought 2,000 shares of Pharmaniaga Bhd at RM4.33
on February 22nd 2010. At that time, it was trading at around RM4.30 plus,
considered a high price. But I felt that it was expanding its market in the
Middle East and Southeast Asia, particularly, Saudi Arabia, Indonesia, Myanmar
and Vietnam.
As its Chairman Tan Sri Lodin Wok Kamaruddin said the
company was looking for growth opportunities in these countries including
through mergers and acquisitions.
Another good point is its good dividend payouts. Around a
total of RM2,682 in dividends must have been credited into my bank account
since my purchase.
On September 12th 2013, the writer sold his 4,840 shares of
Pharmaniaga at RM4.77 (My original 2,000 shares has ballooned to 4,840 shares
following the two bonus and 1 share split exercised).
The proceed is RM23,134.72 (4.77 x 4,840 shares). Minus my cost RM8,723.56 (buying price cost
plus broking fee) gave the writer a profit of RM14,241.40 and plus the
dividends of around RM2,682 received, the net profit is RM16,923.40. Not bad for an investment period of 3 years
and 7 months which earned a return of 194% returns for an original investment
of RM8,723.56.
The writer is positioning himself to purchase other “small”
capitalized companies that he feels are trading at undemanding levels, making
reasonable profits, in a cash-rich position and most important, paying out
regular dividends.
The search for the next undiscovered “Pharmaniaga” or “mini
Public Bank” is still on apart from Mercury Industries Berhad.
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