Tuesday, November 24, 2015

Update on the Greedy Dragon Portfolio

Disclaimer: Please do your own research before investing in anything. I’m NOT encouraging you to buy or sell any of the stocks mentioned in this article. Due to the fact that things can change, the reasons I had to buy or sell any of the stocks mentioned in this article may no longer be valid. This article simply reflects what I think at the time this article was uploaded, I could very well be wrong in my thinking.

Greetings value investing badasses and bad bitches. In this article I will quickly go over what I bought and sold for the Greedy Dragon portfolio since my last update in July. Since I don’t have anything in particular to ramble on about today, let’s just get down to business.


Skechers: I added this stock to the portfolio because the company has been experiencing pretty strong growth recently, it’s earning attractive returns on capital, and I think its stock is reasonably valued. 

Oasis petroleum: I bought the stock because I think it was oversold, and because I think that the company has a good chance to survive this crisis.

Northern Oil & Gas: I added to my position in Northern Oil & Gas for pretty much the same reasons as Oasis Petroleum. You read my analysis of Northern Oil & Gas here.

Fossil: I invested in Fossil because I thought it was undervalued and it was a business that generated good returns on capital. Investing in Fossil (and Skechers) also gives the portfolio exposure to the retail industry which is pretty sweet as I wanted to diversify the portfolio from just banks and natural resource companies. 

Banco Santander: I took a position in the bank as I think it is reasonably valued, and it has a healthy dividend yield (even after the dividend cut this year). The earnings of the bank could also get a boost in the event that there is a recovery in the EU and the Euro, and/or a recovery in the Latin American economies and their currencies. I also welcome the geographical diversification my investment in Banco Santander brings to the Greedy Dragon portfolio as much as I welcome an extra egg in a bowl of instant noodles, which is a lot.

Natural Resource Partners: I added to my position in Natural Resource Partners because I think the stock was undervalued. The stock also has a good dividend yield. However, I won’t count on the dividend as the company has been aggressively cutting its dividend so that it has more cash to reduce debt in this tough environment, a move I completely support.

Maybank: I bought shares in the bank basically because I think it’s reasonably valued, it earns a decent return on capital, and it has an attractive dividend yield. I’m trying to set up the portfolio to generate more cash flow, so I don’t have to sell a stock which I think is cheap just to buy a stock that I think is cheaper. You can read my analysis of Maybank here.


Sandridge Energy: Had to cut my loss on this stock, unfortunately I sold way too late. A large amount of protection this company got from its hedges will be gone next year. I think the company will have a difficult time making interest payments and funding its capex program to maintain production without using up a significant amount of its cash reserves. It was a bad decision to invest and hold on to this stock for as long as I did. This will be a case study in my “Investment Screw Ups (as in my own screw ups)” series. You can read about it when it’s up.

Mongolia Growth Group: This investment was another damn train wreck. This decision to invest in this company will be another case study in the “Investment Screw Ups (as in my own screw ups)” series. If you like reading about money being burnt to ash, you will probably like the articles in the series.   

National Bankshares: Sold the stock to raise capital. Although I sold the stock below the price I bought it for, I still made money if you factor in dividends and the appreciation of the USD.

Banco de Chile: Sold this position for pretty much the same reason I sold my stake in National Bankshares.

Part of my position in Comstock Resources: I sold some of my shares of Comstock Resources to raise capital to invest in other natural resource stocks.  I didn’t want the portfolio to have too large an exposure to the natural resource sector; don’t want to go broke because I didn’t manage my concentration risk. In hindsight, I should have sold all my shares in Comstock Resources back then. Natural gas prices have fell significantly recently with all the talk of a warm winter in the U.S. This, in my opinion, makes the stock a riskier investment. If I was running a professional hedge fund, I would have probably offloaded this position by now. But since this is my own money, I decided to gamble a little and wait for a rally in the energy sector before selling (The tiny angel Warren Buffett on my shoulder disapproves of this decision).         

Thank you for following my blog despite me not uploading many articles this year. You guys are awesome. Take care and stay rational.

Tuesday, November 10, 2015

Investment screw ups (as in my screw ups) part I

Sup guys! I’m sure many of you have read articles describing some investment mistakes that you should avoid. The mistakes will probably not be the mistakes made by the author himself, of course. Well, I don’t mind owning my screw ups and looking like an idiot when it’s deserved. And I know no better place to kick off this series than with the Greedy Dragon portfolio’s first (and hopefully last) position to go bankrupt: Alpha Natural Resources, a coal miner.

Lesson number 1: You ain’t no Carl Icahn

I stupidly held on to the stock because it still had a significant amount of cash on its balance sheet. My reasoning was that the cash could buy management time to close down or sell unprofitable mines, buyback debt at sharp discounts to par, and do other neat stuff to get things back on track. Boy, was I a na├»ve little piglet in the headlights of an oncoming 18-wheeler when I learned that management might not actually do the right things for shareholders. I’m not a Carl Icahn who can meaningfully change the direction of a company by investing hundreds of millions or billions of dollars in a company and getting a few board seats. I’m just a small shareholder who has no say in what management does. However, I could still defend myself by simply selling the fucking stock. But because I wasn’t smart enough to sell, I have no one to blame but myself.

Lesson number 2: Markets can remain depressed longer than a company can remain solvent

While the company did have a healthy amount of cash, it was cash flow negative. Unless coal prices recovered, it was just a matter of time before the company went belly up. I was hoping that coal prices would recover before the company burned through its cash. In effect, I was gambling and not investing, and I got caught with my dick out. I should have recognized that I didn’t have a fucking clue when the market for coal would recover. For all I know, coal prices could remain depressed for the next decade. That’s why when investing in troubled industries, it’s important to find companies that are still capable of generating free cash flow despite the shit they have to deal with. After all, you can never be sure when things will turn the corner.  

I’m pretty sure that I’ve read about most of the investment mistakes that I’ve made in some article or textbook. While I’ve forgotten what I learned then, hopefully losing money in real life will burn these lessons into my memory so I don’t forget them again. I hope you guys learned a thing or two from my fuck ups. I know I haven’t written about what I’ve done with the Greedy Dragon portfolio in months, so I’ll work on that soon. Thank you for reading. Take care and stay rational.               

Sunday, October 11, 2015

Analysis of Maybank

“But then there was fire, and with fire came disparity. Heat and cold, life and death, and of course light and dark. Then, from the dark, they came and found the souls of lords within the flame." –Taken from the opening of Dark Souls. Why? Because I think the game’s fucking awesome.

Please read the disclaimer here:http://greedydragoninvestment.blogspot.com/p/about-greedy-dragon.html. Enjoy the article, bitches!

Hey guys, how have you been? I won’t blame you if you thought that I offed myself by downing a bottle of sleeping pills or something, seeing how stocks are getting killed recently. I won’t lie, it wasn’t fun watching some of my stocks drop with seemingly no end in sight. But I just kept reminding myself that a crisis is the best time to set myself up for some real money in the future. So, I added some new positions to my portfolio and played some video games to take my mind off the day to day fluctuations of my portfolio. That’s the main reason why I haven’t been writing new articles lately, I didn’t want to think more about investments than I had to in this depressing period. The markets have been rebounding recently though, so hopefully we’re seeing the light at the end of the tunnel as I’m running out of cash to put to fucking work. Coconut caramel sundae is also available at McDonald’s (in Malaysia anyway), so that’s another bright spot. Now that we’ve got the small talk out of the way, let’s get down to business. I recently took a stake in Maybank. The bank is based in Malaysia and is listed on the Bursa Malaysia under the stock code 1155. While this stock might not necessarily become a ten-bagger in the near future, it’s a solid company with a reasonable valuation. According to Bloomberg, Maybank has a price/earnings ratio of 11.72 based on last Friday’s closing price of Ringgit Malaysia 8.6 per share. Based on last Friday’s closing price and dividends paid/declared in the past 12 months, Maybank would have an attractive dividend yield of 6.63%.

In the first half of 2015, Maybank generated a return on equity of 12.1% which is alright. The group’s capital ratios indicate that the group is in a healthy financial position. As at June 30, 2015, the group had a common equity tier 1 (CET 1) capital ratio of 11.48% (Maybank assumed an 80% reinvestment rate under its dividend reinvestment program when calculating this capital ratio). This gives the group a significant cushion to absorb losses. According to the capital adequacy framework issued by the Central Bank of Malaysia on 28 November 2012, banks are required to maintain a minimum CET 1 capital ratio of 4.5%.

The bank was growing at a decent pace in the past year. As at June 30, 2015, Maybank’s Malaysia and Singapore divisions experienced year-on-year deposits growth of 7.6% and 11.6% respectively (the growth in the Singapore division’s deposits was in SGD terms). Deposits with the Malaysia and Singapore divisions accounted for 63% and 24% respectively of Maybank’s total deposits. Maybank experienced annualized year-to-date (YTD) growth in its Malaysian and Singaporean deposits of 5.1% and -2.9% respectively. The group’s total deposits annualized YTD growth was at 2.5% (if exchange rates are normalized). I think that investors should monitor the group’s deposits growth in the next few quarters to see if the slower growth rate persists. After all, one or two quarters of slower deposits growth doesn’t really tell us much. It’s the long-term that matters.    

As at June 30, 2015, Maybank’s gross impaired loans stood at 1.56% of total loans. I’m not really worried about the group’s impaired loans at current levels. However, I believe that it’s a useful exercise to think of a pretty negative scenario and evaluate whether or not the group can survive in that scenario. I personally don’t think that the following scenario is likely to happen. But what I’ve learned from some of my earlier investments in the natural resource space, which lost me a fuck load of money, is that it pays to be pessimistic. Anyway, here’s the scenario:

Maybank’s gross impaired loans shoot up by another 5% over the next 12 months. Let’s also say that the group’s provisions for loan losses would come up to 70% of the value of the new impaired loans. This would mean that the group would have to absorb losses equal to 3.5% of its loan book or 2.71% of its average interest earning assets. The group had a net interest margin of 2.28% in the first half of 2015. The group’s annualized overhead expenses as a percentage of average interest earning assets was 0.89% for the first half of 2015. I calculated the overhead expense ratio by first deducting fee income and overhead expenses related to Islamic banking operations from the reported overhead expense; I then divide that figure by the average interest earning assets and annualize the results. While the group’s 1-year net interest income falls short of covering the provisions for loan losses in this negative scenario (especially after taking into account overhead expenses), Maybank’s significant capital buffer should be able to absorb the shortfall without any problems.  

Well, that does it for my analysis of Maybank. I hope you guys have a healthy amount of cash on hand and are upgrading the quality of your portfolio when you find the opportunities to do so.  Take care and stay rational.

Tuesday, July 14, 2015

Update on the Greedy Dragon portfolio

Hey guys, I hope your portfolios haven’t got fucked up as badly as mine was recently. My coal and O&G stocks were absolutely brutalized in the past few weeks. Could it be time for the Greedy Dragon to liquidate his holdings and invest in a mutual fund? While I made a couple of mistakes, overall I have confidence in my research and decisions.  I’m investing in businesses, therefore long-term profitability and actual risks to the business as a going concern are all that I care about. I would be lying if I told you I didn’t give a shit about near term share price fluctuations, because it does plant some doubt in my mind as to my ability to value companies and assess risks. However, reason must come before emotions. I’m trying to be rational by using the recent selloff in natural resource stocks to selectively add to my positions. I hope I will be rational enough not to get overexposed to the natural resource sector and to quickly realize permanent impairments in intrinsic value if they occur.      

Anyway, here are the transactions I made for the Greedy Dragon portfolio in the past couple of months or so. I hope I didn’t leave anything out. Please do your own research before investing in anything. I recently added to my position in Northern Oil & Gas, Natural Resource Partners, Cloud Peak Energy and Comstock Resources. I sold my positions in LRR energy, Mercadolibre and National Bank of Greece (NBG). NBG is the first investment in the Greedy Dragon portfolio which I believe has become permanently impaired. Maybe the stock might start to go up soon, but I don’t want to take the risk (I wish I had been more professional with this position from the start and cut my losses earlier). If Greece wants to get out of this crisis, it needs to move towards capitalism. But with a socialist as their prime minister, I don’t think that a Greek economy based on free markets is likely in the foreseeable future.

Well, that does it for this update. Take care and stay rational.

Sunday, July 5, 2015

Analysis of Northern Oil & Gas

Sup, y'all. As I mentioned in my last post, I was trying to create a professional analysis of Northern Oil & Gas to showcase my skills to potential employers. Well, it's finally done and I'm proud of that bad boy. Please click this link to go to my analysis. Please do your own research before investing in anything. As always, take care and stay rational. 

Sunday, May 31, 2015

Drinks with the Dragon, Session 2

Hey, how are you guys doing? No, I didn’t forget about you. I couldn’t really think of anything to write, so I decided to just do another “Drinks with the Dragon” post just to shoot the shit on some investing as well as personal stuff. I’ve been tied up trying to write a professional report (no using of the word bitch, fuck, shit, cunt or Mexican sticky balls) on Northern Oil & Gas, one of the Greedy Dragon portfolio’s positions. I plan to use that report to showcase my ability as an analyst to my potential employers. Hopefully the person in charge of reviewing the job applications actually bothers to read my work. I thought of just putting a link to my blog in my CV, but I think my blog is a little too gangsta for the corporate world. I will post my research on some document sharing site when I’m done so that you guys can check it out, if you want. I know I’ve mentioned that I wanted to get a job for quite some time now, but the fucking wound under my foot took fucking forever to heal up. The wound is much better now. It stopped discharging pus, so I don’t have to worry stinking up the office. I plan to send out my job applications at the end of June. I still have a lot of fat to work off. After all, one reason I wanted to get a job is to get out of the house and find a nice girl to date. I can’t really do that if I look morbidly obese. A Grand Prix for a card game I play (Magic: The Gathering) is also taking place in Singapore at the end of June, and I want to get my geek on and have a fucking good time before starting work.

Update on the Greedy Dragon portfolio: I recently added to my position in Natural Resource Partners. Please do your own research before investing in anything.   

Shale oil stocks have taken an absolute beating recently because of a presentation by David Einhorn (in my opinion, one of the best investors in the world) and horrendous Q1 earnings reports. I can’t really remember all of what Einhorn said, so I won’t try to refute him. The points I’m going to make isn’t directed at him, I’m just saying stuff just to say stuff. I don’t think you can just look at the depletion, depreciation and amortization numbers of shale oil producers and conclude they’re not viable investments. The cost of drilling wells has come down significantly and the estimated ultimate recovery of new wells has gone up significantly as well. Investors should of, of course, exercise prudence when attempting to figure out a shale oil company’s cost to develop its reserves. Shale oil producers may have also overpaid to lease acreage in the past, but that should be treated as a sunken cost. I will admit that my oil investments seem riskier than I initially thought after reading their Q1 results. I should really reevaluate those positions soon.

Coal stocks have also been hit pretty badly recently. I invested in a coal stock which I knew from the start would be one of my riskier investments. Now, I don’t regret investing in it as I knew that I could make a lot of money if it survived this downturn. Where I fucked up is investing too much money in this stock. I had an unspoken rule to never allocate more than 5% of my portfolio to riskier investments. I went full retard and put about 15% of my portfolio in investments that I deemed to be riskier. I believe my investment in one of these positions has already been permanently impaired (not the coal company, although it might if coal prices remain weak for a prolonged period of time). I will try to de-risk my portfolio whenever I can find the opportunity to do so. Maybe even realize some losses, which I fully deserve. Anyway, thank you for reading. Take care and stay rational.