According to Chat GPT, historically, there has been an inverse correlation between gold and stock prices. But is this true across all stock exchanges? I looked at the case for Bursa Malaysia here. Gold is often considered a safe-haven asset. During times of economic uncertainty, investors may flock to gold as a store of value. You may think that gold prices should be negatively correlated with the stock market. As such you should consider gold as a form of asset diversification for your stocks. But is this true for a long-term investor in Bursa? The chart below shows the trends for the KLCI and Gold Prices for the past 20 years. You can see similar patterns. The correlation is 0.81. I would say that given the high long-term correlation, gold is not a diversification asset for your Bursa

NVR is a US home builder. I would rate NVR as financially sound, with strong performance over the past cycle - 2005 to 2022 (peak-to-peak). But I would not consider it a high-growth one. NVR is a low-growth cyclical company as its performance is tied to US Housing Starts. My valuation of NVR over the cycle showed that there is no margin of safety. The crux of my valuation is that there is no long-term annual average Housing Starts growth. Refer to Scenario 1 in the infographic. Even if you assumed that there is a 1/3 increase in the long-term annual average Housing Starts as per Scenario 2, my analysis showed that there is only a 12% margin of safety if I assumed that it would take 5 years to reach this increased level. There is also not enough margin of safety if you assumed that NVR is

$Summit Materials(SUM)$ is a US construction materials company. As can be seen from the chart, it had achieved considerable growth over the past 8 years. SUM Product Revenue Trends You could be forgiven for thinking that this is a growth stock. It is not. Revenue growth was due to acquisitions that benefited from being in the uptrend part of the construction cycle. Revenue growth did not translate into better operating performance. Without the one-off gains, current ROE would be in single digits. The market is pricing SUM as if it was a growth stock. The market is wrong. I am a long-term value investor looking for opportunities due to mispricing. SUM is not one of them. If you want more value investing insights, visit my blog at i4value.asia,

There is a strong correlation between $Masonite(DOOR)$ revenue and the US Housing Starts. While the historical performance was good, it does not reflect the poorer long-term US Housing Starts cyclical performance. Strong correlation DOOR benefited from being in the uptrend leg of the Housing Starts cycle. When the Housing Starts enters the downtrend leg of its cycle, DOOR revenue will follow the decline. There is a strong correlation between revenue, gross profit margins, and gross profitability. When revenue declines so will these margins and returns. At the same time, SGA appears “sticky. A valuation of DOOR over the cycle shows that there is no margin of safety.

$Alcoa(AA)$ Alcoa earnings would be cyclical given the strong correlation between aluminum prices and Alcoa's gross profitability. It could generate significant operating profits under various aluminum price scenarios. However, over the past 9 years, Alcoa had a very heavy tax burden. There were taxes even if it was loss-making. During profitable years, tax rates ranged from 45 % to 108%. Alcoa is a producer of bauxite, alumina, and aluminum. Aluminum prices are cyclical. Alcoa’s earnings would be cyclical given the strong correlation between aluminum prices and Alcoa's gross profitability. Alcoa could generate significant operating profits under various aluminum price scenarios. However, over the past 9 years, Alcoa had a very heavy tax burden. Th

All investors worry about risks. If you are a long-term fundamental investor, I am sure that if you have been told not view short-term volatility as risk. Rather you should view risk as a permanent loss of capital The problem with permanent loss of capital is that there is very little literature on what to do about managing risk. In the case of volatility, there are tons of literature about how to manage them. We have Modern Portfolio Theory that separates risk into systemic and non-systemic ones. You reduce the non-systemic risks via diversification. You cannot get rid of systemic risk. There is the Capital Asset Pricing Model where you have Beta as a measure of risk. You seek higher returns for taking on higher risk. But when it comes to permanent loss of capital, there is very little a

Ever since coming across an article suggesting that the packaging sector would benefit from the growth of online retailing, I have been hunting for packing companies. My search went beyond Bursa and included US. Why the US? In 2023, the total return (dividend + capital gain) for the Bursa KLCI was about 3%. The S&P 500 achieved 26%. Even accounting for forex losses, you can see why the US is better. But this does not mean buying blindly. You still need to do fundamental analysis. Take the example of Avery. This is NYSE a global materials science and digital identification solutions company. Despite its acquisitions, its revenue only grew at 4.4% CAGR over the past 10 years. While ROE and net margins have been trending up, there were no improvements in other operating parameters, I th

M/I is a small-sized US homebuilder operating in 9 states. In 2022, M/I was a much bigger company compared to that in 2005. Its 2022 revenue was 3 times bigger while its Net Income was almost 5 times larger. Unfortunately, its capital efficiency as measured by the gross profitability did not improve. I would also rate M/I's financial position as poor. About 1/3 of its revenue growth was driven by growth in house prices. As such, I valued M/I as a cyclical company, but with a growth path capped at the US long-term GDP growth rate of 5%. I carried out a valuation of M/I at the end of Jul 2023 different gross profit margin assumptions. It showed that there is not enough margin of safety even under the most optimistic scenario. M/I price was then USD 96 per share. Today the share price has dr

Given the current market situation, many of your stocks would have suffered significant price declines. If you are a trader and you are still holding onto these stocks, you would be an idiot as you should have had stop losses telling to get out before incurring such huge losses.But if you are a long-term fundamental investor like me, you would likely be holding onto them. We don't have stop losses. To help me figure out what to do in such situations, I have established a 3 steps check list as shown below.Hold or Exit Framework The first is to check that the intrinsic value is still intact. Prices may have dropped faster than the intrinsic value. Hold if the intrisic value is still higher than the purchased price. Step 2 is to check against behaviourial biases, especially confirmation bias.

There is a strong correlation between $BlueLinx(BXC)$ revenue and US Housing Starts. Housing Starts is cyclical and BXC should be analyzed and valued as a cyclical company. While the past 2 years’ performance has been record-breaking, it does not represent its performance over the cycle. The Housing Starts has started its downtrend and I would expect the revenue of BXC to follow suit. However, the market is not pricing BXC as a cyclical company. The real valuation challenge is then what to use as the cyclical values. I have shown that if you use the historical averages, there is no margin of safety. But if you ignore the cyclical picture and use some projected values, you can have a margin of safety. The real question is whether it is appropriate t

$Vulcan Materials(VMC)$ is mostly a construction aggregates Group. The US aggregates demand (tonnage) is cyclical which makes VMC a cyclical company. Despite its good results over the past few years, its performance over the cycle is poor. There was no shipment tonnage growth. Revenue growth was due to price increases. Gross profit margins and SGA margins were cyclical with no improvement trends. Revenue and equity growths were low despite the acquisitions. The key predictive metric I used is gross profitability (gross profits/total assets). According to Professor Novy-Marx, this has the same power as Price to Book in prediction cross section returns. You can see from Chart 1 that VMC gross profitability over the past few years was around that in 2

Stelco $Stelco Holdings Inc.(STZHF)$ is a Canadian integrated steel manufacturer.  It was at one time part of the US Steel Group before its divestment and 2017 IPO.Stelco is in a cyclical sector. As such, I analyzed and valued Stelco based on its performance over the cycle. Given that its data was only available post its 2017 IPO, I took 2018 to 2020 average values to represent the performance over the cycle. I found its EPV to be CAD $ 42 per share based on this. It is currently trading at CAD $ 34 per share providing a 24 % margin of safety.It is financially sound with better revenue growth and ROA that its peers. Refer to the charts.Stelco Peer Revenue: Note CLF growth was due to a large acquisition.Ste

The stock market is volatile and risky.  I consider risk as a permanent loss of capital. In determining how much of your net worth to allocate to stocks, you have to consider both risk and volatility. I use a 3 Buckets strategy: Liquid assets eg cash. I have 2 years of annual expenditure here. This serves as emergency funds so that I am not forced to sell the volatile assets eg stocks at the wrong time just to raise cash for unforseen situations. Safe assets eg govt bonds. I have another 8 years of annual expenditure here. These are assets where the principals are protected. I see them as floor net worth in case all the risky assets tank. Risky assets. The balance of my net worth is here equally allocated between stocks and real estate. These are volatile and or risky so you need

If you are investing as a long term activity, you have to be realistic about your returns. The chart below shows the index returns for the top 10 stock exchanges around the world. You can see that the returns vary not just on the holding period, but also where you invest.  There are 2 key takeaways: The best is to have a global portfolio since you cannot forecast which country would do well in the future If you can get a return that is 1.25 to 1.5 times that of the benchmark index in the long run (at least 10 years), you can pat yourself.  Index returns

$Kaiser Aluminum(KALU)$ Management all try to put a positive spin whenever they communicate with investors. So you should take every thing you read in the Annual Reports with a pinch of salt. My motto is "Check and verify." I will share with you an example of this with Kaiser Aluminum (KALU) KALU is a US based aluminum company. Aluminum is of course a cyclical commodity. A fundamental part of KALU's business model is to remain neutral to the impact of fluctuations in the market price for aluminum and certain alloys. The goal is to earn profits predominately from the conversion of aluminum into semi-fabricated mill products. So it tries to negate the cyclical impact with its “metal price neutral” approach using Conversion Revenue as the key top-lin

You can get rich from the stock market through the power of compounding. There are 3 factors that affects the compounding gain: the annual return the investment period how you invest ie regularly or once off  The charts in the infographics below shows the amount you can get by investing $ 1,000 under various conditions. The horizontal axis represents the investment period in years. The verticle axis represent the $ final amount. There are 3 annual returns covered ie 8%, 10 % and 12%. .You can see that with a one off investment of $ 1,000 you can be a millionaire if you can achieve a 12 % annual return with more than 60 years investment horizon. But if you invest $1,000 every year, you can be a millionaire with a 10 % annual return and 50 years investment period. Doable

$United Overseas Australia(UOS.AU)$ The Group comprises 3 listed entities. Although UOA Ltd is dual-listed in Australia and Singapore, the bulk of the operations and earnings are from Malaysia. The Malaysian property market has been soft over the past few years. This has resulted in a decline in revenue and earnings for the industry. UOA performance followed similar downtrends. But while there are signs of a turnaround over the past 2 years, UOA performance has yet to follow UOA is one of the bigger players in the Malaysian property sector in terms of shareholders' funds, revenue, and earnings. It has been able to maintain its performance relative to the industry. While UOA performance had deteriorated over the past few years, I would still rate

$NVR Inc(NVR)$ is a value investing opportunity among the US Homebuilders.In a high inflation environment, companies have to worry not only about higher costs. They also have to contend with the economic impact of the various measures taken to control inflation. So you need a history of product prices increasing at a higher rate than inflation. You also need a history of costs increasing at a lower rate than product prices. The company also has to be financially strong to outlast the lower economic growth period.The US homebuilding sector has these features. Homebuilders that will do well are those with a strong management team and good business economics. This will be reflected by a track record of strong returns, shareholders