Ahpek and his "undervalued" Icapital

Ahpek and his "undervalued" Icapital

 

One of the most difficult tasks when buying a property in the secondary market is to "determine the actual value" of the property subject, especially in hot locations. On one hand, the seller is determined to be the next record price seller while the buyer is at a loss of losing out the bid if he does not agree to the seller's price.

Even if that buyer painfully agrees to the sale, he must be prepared for more uncertainties and perhaps "shocks" when he applies for a housing loan. And if the down payment is not much which means he must apply for a bigger loan, he will discover that the loan could be rejected because the bank does not value his property according to the sale and purchase agreement's price. In another words, the bank is undervaluing his property in their own valuation.

How do you feel now that you realised that your purchase is "overvalued" in the eyes of the bank? Hence, the bank will have to "undervalue" your property according to their valuation.

Who is right to say your property should be valued at this price or at that price according to their "so-called fair" valuation?

This brings me to the subject of Undervalued and Overvalued for stocks. Who is right to say that this counter is undervalued or overvalued or fairly valued?

A Google search produced the Definition

of "Undervalued'"and "Overvalued" as below:

Undervalued

A financial security or other type of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's financial statements and analyzing its fundamentals, such as cash flow, return on assets, profit retention and capital management, to determine said stock's intrinsic value.

While Investopedia explains 'Undervalued' as:

Buying stocks when they are undervalued is a key component of mogul Warren Buffett's value investing strategy. Value investing is not foolproof, however. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's intrinsic value - it is basically an educated guessing game.

Overvalued

Definition of Overvalued By Dave Manuel :

What is the definition of the term "overvalued" as it applies to the stock market? What does the term overvalued mean? When somebody claims that a stock is "overvalued", they are saying that the stock is currently trading for more than it is worth.

Overvalued - Definition - FinanceNow, calling a company "overvalued" is obviously completely subjective - some may believe that a company is overvalued, while others might believe that it is undervalued.

The most common way to value a company is through its Price/Earnings ratio. The problem with the Price/Earnings ratio, of course, is that it doesn't properly value fast-growing companies that may be closing to turning the corner and reaching profitability. Is a stock overvalued, undervalued or valued perfectly? These are the questions that haunt investors and traders on a daily basis.

Icapital Biz Bhd.

Back to Bursa Malaysia, one company that has been hogging the headlines recently in the Chat Box of www.stocks-unleashed.com is Icapital Biz Bhd, (Icap) a closed-end fund that was listed on October 2005.

One online user by the name of "Ahpek" has been vigorously promoting Icap for several days. He said that Icap was trading at a  20-25% discount to Net Asset Value (NAV) and also "fundamentally undervalued".

A few other online users hit back . One by the name "Kh" said that Icap is just an average performer, citing that its major holding of Parkson and Boustead as having average capital appreciation. Kh prefers LPI Capital Berhad  which is trading at cheaper valuation than Public Bank Berhad.

Let us ask ourselves some simple logic questions. If Icap is really trading at a discount, why is the market not reacting to it? Why is it still trading at below its NAV for so many years? Is the market full of inefficient players not knowing how to grab this "undervalued"  stock trading at a 20-25% discount? Or is the market knowing something that we do not know?

Ahpek, perhaps one way to boast or stake your claim is to buy a handful of Icap shares at current prices and show it to others. As the saying says, don't just talk the talk, walk the talk and you can surely set yourself up with pride with serious justification of your claim.

Even then, there will still be others arguing/debating with you over this. But at least this time, you can ask them back, have you bought any of your so-called undervalued shares at current price? If they claimed their shares are undervalued, they should also be the first to buy a lot. Yet they are not buying. Why?

Always be brave enough to buy at current price. Then only you have the strongest rights to claim it is really trading at undervalued levels.

So, Ahpek, are you listening now?

Incidentally discussing about Icap, the writer was one of the early bird investors, buying 2,000 shares at RM1.36 on November 15th, 2006. On January 18th, 2008, the writer sold Icap at RM2.53, netting in a profit of RM2,291.06, resulting in a 83% return for a holding period of 14 months. At that time, I felt it was "fully valued" as the market was on a strong rally. I was hoping to buy back when it retreated to below RM2. Icap actually retraced back to below RM2, in fact at around RM1.50 levels. Strangely, I didn't  buy back or else I would be sitting on another round of profit (or paper profit) as at today and watch with amusement the current debate of Ahpek and the rest.

Again in a unrelated issue, the writer also sold 3,000 shares of Swee Joo Berhad at RM1.59 on the same day the Icap shares were sold. The 3,000 shares of  Swee Joo were bought on October 17th, 2006 at 0.86 sen. That day was Swee Joo's listing day at Bursa Malaysia. The writer netted in a profit of RM2,139.14, also resulting in a  83% return for a holding period of 15 months. It was a lucky move by the writer to take profit as we all know, a few years later, Swee Joo was eventually delisted due to its loan problems.

See, luck also plays an important role for us when it comes to investing and taking profits. No particular reason why I sold the Swee Joo shares, maybe I just wanted to feel the actual feeling of real profit in cash rather than just paper profits.

On a lighter, market seems more efficient when it comes to Tuesday at most KFC counters. Unusual large crowds could be seen lining up to make purchase. In case you do not know why or fried chicken is not your favourite, on every Tuesday, KFC is offering 25% off for its Snack Plate! Chicken lovers surely know when to smell when there is a real bargain!