Graham's quick checklist

Benjamin Graham, the mentor of Warren Buffet, has his wealth severely depleted during the Great Depression. Thereafter, he came up with a checklist for selecting stocks. Sad to say, performing these checks will not be able to yield us any hidden gems on the SGX today. The criteria:

1. Market Leader (at least 25% share)
2. Current Ratio > 2
3. Long term debt < Net Current Assets
4. Debt to equity ratio < 0.5
5. 10 years profits
6. EPS grow by 1/3 in 10 yrs
7*. 20 yrs of dividends
8*. av last 3 yrs PER < 15
9*. P/B ratio < 1.5

The last 3 criteria are deemed especially relevant by Mr Ooi Kok Wah, MRR Consulting.

Outlook for 2011

If I believe in Warren Buffett, if I believe in John Paulson, then I will believe that the economy will not tank next year, that is, there will no double dip recession. I happen to believe in them.

According to Allan Brown, CIO of Schroeders, we could easily see double-digit returns for equity markets next year. This is due to price-earnings-multiple expansion and moderate earnings growth. He has 36 years of investment experience, and he thinks that there will be no double dip recession.

He is most bullish on emerging markets, and is of the view that equities in these markets are far from a "bubble". Yes, they may be expensive compared to their peers in Europe and US, but that is justified.

He also feels that interest rate hikes will be gradual, and although equity markets could respond negatively for a few months afterwards, they should get back to normal. Interest rate rise is good as it reins in inflation. Inflation is bad for equities. High inflation leads to PER contraction, and low inflation causes high PER.

Brown is most positive on technology stocks in 2011, as a beneficiary of the ongoing capital spending cycle. He is also bullish on agricultural commodities and gold.

The true value of BAC

The price of BAC has kept dropping since the day I bought it. In fact, I was very unlucky to have bought it just before it announced its third quarter losses. I have been holding the stock for almost 6 months now, and am staring at a nearly 30% loss. So, do I cut loss? Never. Because I believe in the American Recovery.

An article taken from the Street:
Bank of America had a noisy third quarter, as the company posted a net loss of $7.3 billion, or 77 cents a share, resulting from a non-cash goodwill impairment charge of $10.4 billion at its FIA Card Services subsidiary. This placed a drag on third-quarter earnings for the entire banking sector according to the Federal Deposit Insurance Corp., but excluding the goodwill charge - which didn't eat into investor capital - the company would have earned $3.1 billion, or 27 cents a share, declining slightly from the previous quarter. Bank of America's shares were trading for 0.9 times tangible book value as of Tuesday's market close, which is a very low level for a company with such a national presence, including Merrill Lynch and Countrywide's mortgage business. Surely the nation's largest bank, which will have tremendous earnings power when the economic recovery eventually picks up steam, is worth more than its liquidation value. Analysts concur, with 17 out of 25 analysts covering the company rating its shares a buy, while the other analysts all have hold ratings. Based on the median price target of $18 among analysts polled by Thomson Reuters, the shares have 62% upside potential from Tuesday's closing price of $11.09. However, most of the analyst targets are for 12 months, which really isn't that long-term an outlook. An investor confident in the eventual economic recovery who is willing to go in for several years, might be in for a fat triple-digit return.

I can start buying

I may think that the STI is only half way through a correction, but stocks are stubbornly refusing to fall further, but instead clinging on to meaningful supports. Of the stocks on my radar screen, Noble is well supported at 1.98 (61.8% retracement), NOL at 2.10 (50% retracement). Genting, a stock I was initially not looking at, is becoming attractive. It is supported at 1.93 (61.8% retracement), and is rebounding from oversold RSI. The last time that RSI was oversold was way back in April and of course, we know, the stock rallied hard by 170% afterwards. So, Genting is my choice, and I will be scaling in my positions on this counter, with an aim to evenually build a 10-lot position for its next peak by April 2011.

Correction is not over

I reckon that the surge yesterday in our markets are more attributed to a technical rebound. Overall, I do think that the "broader market has further to fall over the very near term. We’re in that lull between earnings seasons, and investors are much more likely to pay attention to bad news. If we get a further correction in share prices over the coming weeks, then we’ll have a good entry point for new positions. My best guess is that we’re not quite there yet." (Ahead of the Street Column, by Mitchell Clark, B. Comm)

Stock Market to crash in May 2011?

We have read about many predictions on market crashes since the Great Stock Market Recovery of 2009, but of course, now we know that they are all proven untrue. But of course, now that the bull market is in a more mature state, the arguments for a fall seem more convincing. This article details the reasons that may precitate such a fall in the stock market. It is predicting this to happen by May 2011.

But then again, as a value hunter, it is our mission to hunt for good deals during a crisis like this. So, I await greedily for such an opportunity. But, I may be disappointed again, as so many times in the past, such predictions always did not come true.

Turning cautious on China stocks

Martin Lau's First State Regional China Fund has been generating top-notch performance in recent years. However, he is turning cautious on China. Why? One, the recent wave of optimism about Chinese stocks especially in consumer and pharmaceutical has become too euphoric for his liking. Two, many investors are so passionate about IPOs, and that is usually not a good sign. Three, further raising of interest rates by the Chinese government could cause Chinese stocks to tumble. Lau reckons there will be a series of rate hikes.

Lau has been cutting exposure to overpriced Chinese consumption stocks and remains light on property and financial counters. He is currently vested in property names like China Vanke and China Resources Land, bank China Construction Bank and consumption play Yantai. But all in all, he is not that excited about China anymore.

It is too late for me to take profit on SOHO (a property name) now, but I will sell it during the rally that follows this correction.

Update: I have sold SOHO at 6.32 on a brief rebound for a 29% GAIN IN 3 months.