Subject: Recession Proved Versus Recession Fool

Few days back one of our member shared an articule talking about defensive stocks n I would like to share my own view on the mentioned subject.

Some investors felt that buying defensive stocks are best to hedge against economic downturn becos their earnings are stable n not affected by the economic cycle. Example of defensive stocks included, telco, public transport, hospital, milk powder, firm that provide funeral service, military arm manufacturer n etc. to summaries are product/services of inelastic demand. 

However buying a defensive stock or any other stock can have devastating effect if the price  purchased is above its valuation. One good xample is M1, all the while it' s valuation stood at sgd2 plus but it' s price was trading at sgd4 about one year ago. Those who bought at a high  price n not able to escape from its crash became a recession fool (fool by recession proved). 

Thus, there is no stock that can be recession proved. To safeguard our capital we will have to  buy below the valuation n with an adequate margin of safety. Different company from different industry will command different magnitude of safety margin, even companies of the same  industry can command different safety margin. Example, local telco need 10%, prc telco 20%, local n hk big domestic bank 30%, oil n gas minimum 50%, airline minimum 50% n etc. we will  only be able to identify these margin  of safety after we have scrutinized their financial report. I had made a very silly mistake when I bought two companies of the same industry n I will share  it with everyone n hope that such mistake will not be repeated by anybody.

about one year ago I bought both Macau casino companies named galaxy entertainment n sjm  holding (owned by 何 鸿 森 , the god of gamble of Macau 赌 神 ). I have read extensively of galaxy entertainment last 10 years of financial report n confidently work out its valuation, where else  for sjm holding I have briefly went through its financial report due to assuming that they are from the same industry n thus should not have much different in the way they operate.

My first purchased for galaxy fetched a lucrative return of close to 40% within one month n it' s  valuation was realized. Second purchased earned a return of about 25% n I have also shared my third purchase with everyone recently n currently sitting on a slight profit. Thus galaxy  earned me a return of close to 70% within one year n that' s made me danced happily at home. 

Thinking that my investment for sjm will yield the same result n everyday imagined that I' m  going to count  money until my hand tired, sjm lowest price plunged about 30% below my purchased price. As both galaxy n sjm are good companies with strong balance sheet, it was  unlikely that sjm performance   was so far off from galaxy n I refer back to its financial report n found that I had made a stupid mistake which shouldn' t have made in the first place.

casino income are breakdown into gaming n non gaming revenue n gaming revenue account  for about 90% of the total revenue. Thus when our government said our casino are integrated  resort n not purely casino, is not true but politically they have to assure the citizen. Within the  gaming revenue it further breakdown into mass mkt n VIP. For galaxy it is a 50/50 split n thus I  assumed sjm to be the same n did not read the financial report in detail. In reality, sjm was  70% to VIP becos apart from table game it offered satellite betting for VIP without having to  come to Macau. As the prc economy slow down n the communists are also going after  corruption, sjm operating earning fell by 60% as compared to galaxy of only 50% n my margin  of safety was also 50% for both galaxy n sjm.  After realizing my mistake I did two averaging n  now I' m still sitting at 10% loss. Although it was a silly mistake, it is not devastating mistake becos it' s new casino is completing n going to open in 2h of next year which will increase their hotel room capacity by 5 times, thus it will have positive effect to its earning n valuation will rise. Thus in investment it is totally not beneficial to jump to conclusion or assume the outcome  simply by our own thoughts n not via the concrete info from the financial reports. Thank you :) 

Subject: Recession Proved Versus Recession Fool

Few days back one of our member shared an articule talking about defensive stocks n I would like to share my own view on the mentioned subject.

Some investors felt that buying defensive stocks are best to hedge against economic downturn becos their earnings are stable n not affected by the economic cycle. Example of defensive stocks included, telco, public transport, hospital, milk powder, firm that provide funeral service, military arm manufacturer n etc. to summaries are product/services of inelastic demand. 

However buying a defensive stock or any other stock can have devastating effect if the price  purchased is above its valuation. One good xample is M1, all the while it' s valuation stood at sgd2 plus but it' s price was trading at sgd4 about one year ago. Those who bought at a high  price n not able to escape from its crash became a recession fool (fool by recession proved). 

Thus, there is no stock that can be recession proved. To safeguard our capital we will have to  buy below the valuation n with an adequate margin of safety. Different company from different industry will command different magnitude of safety margin, even companies of the same  industry can command different safety margin. Example, local telco need 10%, prc telco 20%, local n hk big domestic bank 30%, oil n gas minimum 50%, airline minimum 50% n etc. we will  only be able to identify these margin  of safety after we have scrutinized their financial report. I had made a very silly mistake when I bought two companies of the same industry n I will share  it with everyone n hope that such mistake will not be repeated by anybody.

about one year ago I bought both Macau casino companies named galaxy entertainment n sjm  holding (owned by 何 鸿 森 , the god of gamble of Macau 赌 神 ). I have read extensively of galaxy entertainment last 10 years of financial report n confidently work out its valuation, where else  for sjm holding I have briefly went through its financial report due to assuming that they are from the same industry n thus should not have much different in the way they operate.

My first purchased for galaxy fetched a lucrative return of close to 40% within one month n it' s  valuation was realized. Second purchased earned a return of about 25% n I have also shared my third purchase with everyone recently n currently sitting on a slight profit. Thus galaxy  earned me a return of close to 70% within one year n that' s made me danced happily at home. 

Thinking that my investment for sjm will yield the same result n everyday imagined that I' m  going to count  money until my hand tired, sjm lowest price plunged about 30% below my purchased price. As both galaxy n sjm are good companies with strong balance sheet, it was  unlikely that sjm performance   was so far off from galaxy n I refer back to its financial report n found that I had made a stupid mistake which shouldn' t have made in the first place.

casino income are breakdown into gaming n non gaming revenue n gaming revenue account  for about 90% of the total revenue. Thus when our government said our casino are integrated  resort n not purely casino, is not true but politically they have to assure the citizen. Within the  gaming revenue it further breakdown into mass mkt n VIP. For galaxy it is a 50/50 split n thus I  assumed sjm to be the same n did not read the financial report in detail. In reality, sjm was  70% to VIP becos apart from table game it offered satellite betting for VIP without having to  come to Macau. As the prc economy slow down n the communists are also going after  corruption, sjm operating earning fell by 60% as compared to galaxy of only 50% n my margin  of safety was also 50% for both galaxy n sjm.  After realizing my mistake I did two averaging n  now I' m still sitting at 10% loss. Although it was a silly mistake, it is not devastating mistake becos it' s new casino is completing n going to open in 2h of next year which will increase their hotel room capacity by 5 times, thus it will have positive effect to its earning n valuation will rise. Thus in investment it is totally not beneficial to jump to conclusion or assume the outcome  simply by our own thoughts n not via the concrete info from the financial reports. Thank you :)