Sunday, June 19, 2016

Analysis of Barclays


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

 


Whaddup guys, how have y’all been holding up? I wasn’t active the past 2 months because I recently got myself a PS4 and I have been playing video games non-stop. I couldn’t hold off buying a PS4 any longer because Dark Souls 3 came out, and my life would feel utterly empty if I knew that Dark Souls 3 was out there and I wasn’t playing it. Anyway, this article will take a look at Barclays, one of the newer additions to the Greedy Dragon portfolio. I bought the ADR instead of the shares listed on the London Stock Exchange because I don’t know how to read a stock’s price in pence or whatever. I guess I’m just stupid like that. Like other UK stocks, Barclays has been hit hard recently by Brexit fears. Them skittish mofos selling out of their UK stocks are acting like the UK is going to suddenly become some fucking third world country once it leaves the EU. I will talk a little bit about this Brexit later in the article. Some other factors which I presume contributed to the stock’s weakness are the dividend cut and losses associated with the group’s non-core division which is tasked with exiting non-strategic businesses.  

Update on the Greedy Dragon portfolio: Other than buying 200 shares in Barclays, I recently sold 300 shares in Northern Oil & Gas, sold 100 shares in Natural Resource Partners, bought 500 shares in Kerry Properties, and bought back 300 shares in Northern Oil & Gas

Barclays is a bank with global operations. As at December 31, 2015, the group’s on-balance sheet credit risk concentrations by geography were as follows: UK 40%, Americas 28%, Europe 23%, Africa & Middle East 5%, Asia 4.5%. Barclays’ adjusted profit attributable to shareholders was £2.69 billion in 2015. According to google finance, the group had a market cap of £28 billion as at market close on June 17. This would give the stock a Price/Earnings ratio of around 10.4. This is attractive especially if you consider that profits are weighed down by a loss before tax of £1.46 billion from the group’s non-core division. The losses from the non-core division should go down over time as the group continues to wind down its non-core businesses and assets. Barclays’ core division generated £4.21 billion in profits attributable to shareholders and achieved a decent return on average tangible equity of 10.9%.

Excluding other equity instruments, other reserves and non-controlling interests, the group had equity of £52.6 billion as at December 31, 2015. With Barclays’ current market cap of £28 billion, it’s like buying a dollar for like 53 cents right? Well, not exactly. There is always the risk that the group’s assets could drop in value and wipe out the equity. The assets don’t even need to drop by £50 billion for shareholders to get wiped out. If Barclays’ capital ratios drop below a certain level, the group could be considered insolvent and shareholders could lose most if not all of their investment. That’s why it’s important to pay attention to shit like asset quality and capital ratios.

As at December 31, 2015, problem loans made up 1.8% of total loans (the annual report calls these loans credit risk loans, but I’m going to refrain from calling it that in this article so people don’t confuse it with credit risk exposure). The group’s problem loans coverage ratio was 63.0%. If you include potential problem loans in the equation, the coverage ratio goes down to 49.9%. Debt securities made up roughly 13% of the group’s exposure to credit risk as at December 31, 2015. Approximately 70% of the group’s debt securities consist of government securities. Barclays has very little net on-balance sheet exposure to Cyprus and Greece. The group’s fully loaded common equity tier 1(CET1) ratio stood at 11.4% as at December 31, 2015. Barclays need to have a CET1 ratio of 9% plus a Pillar 2A add-on by 2019. For 2016, Barclay’s pillar 2A requirement is 3.9%, 56% of which will need to be met in CET1 form. Assuming the requirements stay the way they are, Barclays would need a CET1 ratio of around 11.2% (which it already has) by 2019. Overall, I think Barclays has done alright managing the risks of its loans and securities portfolios. I also think that the group has an adequate capital cushion to absorb losses.

So, what do I think about this Brexit? I think that the UK would be way better off over the long-term if it left the socialist hell hole which is the EU. Sure, the stock market might go down in the short-term. The economy might even take a hit if the EU imposed tariffs on UK goods, and some companies reallocated some of their UK operations. But over the long-term, I think the UK will have a significantly stronger economy without the EU anchor dragging them down. Shieeet, the UK could experience an economic renaissance if it actually started deregulating its industries, lowering taxes and cutting government spending on shit that has nothing to do with protecting individual rights. But who the fuck am I kidding? That’s just a pipe dream right now.

I didn’t know Brexit was going to be as big as it is for the equity markets. Hey, I mostly watch Bloomberg because I find Alix Steel hot. That gal is cute, smart, and I like how excited she gets when talking about oil. So, forgive me for not noticing something like Brexit. Aight guys, thanks for sticking with me till the end of this article. Take care and stay rational.  

Sunday, April 17, 2016

Annual performance report for the year ended April 18, 2016



Disclaimer: There may be errors in my calculations. The purpose of this article is to present the performance of my portfolio. This article does not represent advice to buy or sell any stocks. I may, at any time, sell some or all of the stocks that were presented or appeared in this article.

Sup guys. I guess it’s time to let you guys know how the Greedy Dragon portfolio has been doing seeing as how it has been more than a year since my last performance report. I actually planned on releasing performance reports every 6 months for the portfolio, but things have been so damn depressing that I lost any mood to calculate my losses. But I decided that the time for procrastinating was over, as only a bitch would hide under a rock until he was in the black again. It is time to face the fucking music. Besides, my investing story will be a whole lot more romantic if I come from behind and beat the market somewhere down the road.

Update on the Greedy Dragon portfolio: I recently sold my stake in Hong Leong Industries and took a position in Hua Yang.

For the year (a year and 20+ days to be exact) ended April 18, 2016, the Greedy Dragon portfolio declined from Malaysian Ringgit 200,422.23 to MYR 146,468.09, a 26.92% year-on-year loss. Even if you include the 18% return I earned on the portfolio during the first year and the small return during the first half of the second year, the portfolio is obviously still down (in case anyone was wondering, the portfolio is now 2 and a half years old). I could calculate the portfolio’s IRR, but I don’t feel like doing it right now. It’s late, and I don’t want to go through the hassle of looking up how much funds I withdrew and added back to the portfolio over its life. Just assume it’s down, and that I fucked up. The following table presents my current portfolio:




Purchase price
Current share price
Capital gain/loss
*Cumulative dividends per share (after taxes and fees)
Total return
Current value of holding converted to MYR
First Republic Bank
US$ 46.19 (80 shares)
 $        70.82
53.32%
 $              0.12
53.58%
22095.84
National Resource Partners
Average US$41.1 (300 shares at US$11.19, 300 shares at US$ 7.8, 300 shares at US$ 6.83, 600 shares at US$ 5.65, 500 shares at US$ 4.57, 500 shares at US$ 3.1, 750 shares at US$1.98 and 1,000 shares at US$1.02)
 $        10.16
-75.28%
 $              1.08
-72.65%
16,840.20
Alpha Natural Resources
Average US$1.90  (1,100 shares at $2.23 and 1,000 shares at $1.54)
Bankrupt
Fuck me
Fuck me
Fuck me
0
Northern Oil & Gas
Average US$5.72(250 shares at US$6.50, 200 shares at US$ 8.4, 250 shares at US$6.7, 300 shares at US$5.6, 250 shares at US$4.56 and 400 shares at US$4.09)
 $          4.78
-16.43%

-16.43%
30759.3
Cloudpek Energy
Average US$5.08 (350 shares at US$ 5.93 and 350 shares at US$ 4.22)
 $          2.04
-59.84%

-59.84%
5,569
Maybank
Average MYR8.76 (1,000 shares at MYR 9.02 and 500 shares at MYR8.24)
MYR 9.17
4.68%
 MYR        0.24
7.42%
13,755
Oasis petroleum
Average US$8.61 (200 shares at US$8.7, 150 shares at US$8.49)
 $          8.63
0.23%

0.23%
11,780
Santander
Average US$4.45 (300 shares at US$5.26 and 400 shares at US$3.85)
 $          4.55
2.25%
 $            0.013
2.54%
12,475
Skechers
US$ 24.93 (60 shares)
 $        28.69
15.08%

15.08%
6,713
Hua Yang
MYR 1.87 (3,000 shares)
 MYR    1.82
-2.67%

-2.67%
5,460
Cash





23142.4
Borrowings





2,122
Net portfolio value





146,468.09


Notes to the table

Total return excludes transaction cost & forex gains/losses

The USD/Ringgit exchange rate is taken from Bloomberg (3.903) and rounded down to 3.9.

For certain stocks presented in the table, the cumulative dividends per share underestimate the actual cumulative dividends per share I would have received if I bought my entire position from the start instead of building the position over time. This is the case as I calculate cumulative dividends per share by dividing total dividends received by current number of shares.

Banco Santander’s total return is actually a little higher as I opted for shares when they last had a SCRIP dividend.

Natural Resource Partners underwent a 1:10 reverse stock split. The average purchase price and the cumulative dividend per share are adjusted to reflect the reverse stock split. All purchases were made before the reverse split.


The following table presents the stocks that I sold during the past year:


Purchase price
Price sold
Dividends per share (after taxes)
Total return (excluding transaction cost & forex gains/losses)
Mercadolibre
Average US$ 93.68 (50 shares)
US$ 150.61
US$ 0.08
60.86%
National Bankshares
US$ 35.8 (130 shares)
US$ 30.67
US$ 1.30
-10.70%
Biostime
Average HKD 22.97 (500 shares at HKD 33.85, 500 shares at HKD 25.3 and 1,000 shares at HKD 16.36)
Average HKD 35.12  (1,000 shares at HKD 32.25 and 1,000 shares at HKD 38)
HKD 0.05
53.13%
National Bank of Greece
US$ 2.95 (700 shares)
US$ 0.97

-67.12%
Banco De Chile
US$ 72.82 (50 shares)
US$ 65.04
US$ 5.17
-3.58%
Sandridge Energy
US$1.85 (1,000 shares)
US$ 0.46

-75.14%
Comstock Resources
Average US$3.82 (400 shares at US$5.83, 400 shares at US$3.6, 350 shares at US$3.4 and 500 shares at US$2.67 )
Average US$2.33 (450 shares at US$ 3.9 and 1,200 shares at US$ 1.75)
-39.01%
Fossil
US$ 32.82 (50 shares)
US$ 38.03

15.87%
Mongolia Growth Group
CAD 1.60 (2,000 shares)
CAD 0.68

-57.50%
UOA REIT
MYR 1.39 (9,000 shares)
MYR 1.58
MYR 0.14
23.74%
Hong Leong Industries
MYR 4.4 (1000 shares)
MYR 5.93
MYR 0.29
41.36%
LRR Energy
US$ 7.15 (300 shares)
US$ 7.75
 US$ 0.1
9.79%


Notes to the table
Total return excludes transaction cost & forex gains/losses

For certain stocks presented in the table, the dividends per share underestimate the actual dividends per share I would have received if I bought my entire position from the start instead of building the position over time. This is the case as I calculate dividends per share by dividing total dividends received by current number of shares.


If I were to guess what went wrong, it was that I was slow in getting rid of stocks when they got significantly impaired. I also made some dumb fucking decisions by investing in a few risky companies. Another mistake was increasing my bets on certain stocks too many times, too quickly. As Blaise Pascal once said “All of humanity's problems stem from man's inability to sit quietly in a room alone.” To be honest, I didn’t know who Blaise Pascal was. I heard the quote from mobster Arnold Rothstein on Boardwalk Empire. Anyway, I definitely should have been more structured in my approach to buying more of a stock when its price goes down. Looking back at my transactions, there were times when I increased my bet on a stock when the stock didn’t really go down all that much. I could have waited for bigger discounts before buying more. I also noticed that I increased my position in certain stocks quite a few times within a short period of time. The prudent course of action was, once I already had a significant position in the stock, to wait for more earnings reports and other useful information before deciding to buy more. You can read the more specific mistakes in my “Investment screw ups (as in my screw ups)” series. Here’s part I and part II.

I’m currently not really satisfied with my portfolio as the weighting of natural resource stocks is too high for my liking. I plan to reduce some of my natural resource positions after they recover a little more (I just read that the Doha meeting ended without an agreement to freeze production, so that’s kinda bad for my plan). Certain European banks look absolutely delicious right now. There are also a couple of Chinese/Hong Kong property firms that generate income from both property development and rental of investment properties that I’m looking at right now. If you guys know anything about me, it’s the rental income that I’m really interested in. Well, that does it for the performance report. Thank you for reading. Take care and stay rational.