Emphasize discipline over daring

Emphasize discipline over daring

This has to be the longest blog Bullish Thoughts has done in some weeks. One key lesson of this particular blog is DISCIPLINE. Bullish Thoughts is trying to apply it to self by making sure that the column is consistently run every fortnight at least.

Paul My Foot!

Word has it Paul the Octopus did predict Yakubu Aigbeni’s historic 2010 World Cup miss. Only that he went on to have predicted Yakubu Aigbeni would be given a RED CARD for the miss. No doubt many Nigerians wish the red card had been handed to Yakubu. That’s new football. French referees no longer blow the whistle for handballs after Thierry’s Ireland game misdemeanor. So Fabiano decided to do rugby against Didier Drogba’s Team.

Messi can’t speak any English?

Well, maybe Cesc Fabregas won't be joining Barcelona after all. Too bad for him! Or good for him because he was gonna warm the bench like he did for Spain.

Without him Barcelona will still be the best club in the world (or La Liga World at least) and Arsenal, well, they'll remain where they belong: 3rd place in the English Premier League.

Barcelona was reportedly willing to give Lionel Messi to Arsenal but a language barrier stopped it? That has to be the stupidest thing I've read in a while.

Enough about soccer save to say; “Does anyone know anything about the Major Soccer League or New York Red Bulls?”

To outsmart the market, emphasize discipline over daring

Back to equities which perhaps Bullish Thoughts knows better. In the beloved field of equities literature Bullish Thoughts discovered that there are two things that are the downfall of most investors: a lack of discipline, and overconfidence.

Being disciplined is fully 50% of the job of trading or investing. No matter how good your system is, without the discipline needed to follow it you don't have much of a chance for meeting your goals. It doesn’t matter how great a planner or organiser you are, without discipline your plans will most likely fail to bear fruit. Discipline involves self-control.

Unfortunately a vast array of psychological research suggests that our ability to use self-control to force our cognitive process to override our emotions is limited.

Another thing … we are hardwired to be confident because if we weren't we might never be able to make a decision.

However, we are often too confident in our own abilities. We suffer a great deal from overconfidence. For example, we believe that our own selected lottery ticket has a better chance of winning than someone else’s selected ticket even though all of us know that the odds are the same for everyone. But when asked to give your ticket up for someone else’s, the response is usually — “No way!”

This fact has been tested over and over with the same conclusion: that we believe our own cognitive skills or our own luck is better than other people’s. In the investment world, the path to ruin is full of disasters caused by this sort of overconfidence.

So, when you see a stock with huge upside it may be a good idea to remind yourself to take care of the downside first, before thinking about the upside potential. Just because a stock looks really undervalued as shown by a few numbers or by who else is buying shares, doesn’t mean it’s going to turn out well.

The ZSE board is littered with such stocks some of which have come off by more than 90% on a YTD basis. Just out of interest, on which table did your discipline or lack of it thereof land you?

Top Risers YTD				Top Fallers YTD
Counter	Price (Usc)	∆%		Counter	Price (USc)	∆%
Chemco	80	+77.78		Zeco	0.1	-90.00
Zpi	0.55	+37.50		Redstar	0.05	-83.33
Zimplow	3.20	+28.00		African Sun	2.80	-76.67
M&R	21.00	+20.00		Pioneer	0.07	-76.67
Tsl	7.00	+14.75		Gulliver	0.18	-70.00

Bullish Thoughts is going to let you be the jury.

The good news is that we continue to make brain cells pretty much throughout our lives. Our brains aren’t fixed forever, we can rearrange the neurons. We aren’t doomed — we can learn. Unfortunately, it isn’t easy!

The role that emotions — such as hope and fear — play in trading

The average man or woman buys commodities because they hope they will go up, or somebody advises them they will go up. This is the most dangerous thing to do. Never trade on hope. Hope wrecks more people than anything else. Study the market and determine the trend. Face the facts, and when you trade, trade on facts, eliminate hope.

Fear causes many losses. People sell out because they fear things are going lower, but they often wait until the decline has run its course and sell near the bottom. Often when they have been out of the market for some time, they get in because they fear it is going higher.

Never make a trade on fear.

You will never succeed buying or selling when you hope the market is going up or down. Hope will ruin you because it is nothing more than wishful thinking and provides no basis for action. Fear might save you if you act quickly when you see that you are wrong.

The fear of the market is the beginning of wisdom. Only knowledge that you obtain by deep study can help you succeed. The more you study past records the surer you are to be able to detect the trend in the future.

Love to win or hate to lose?

There’s a big difference between loving to win and hating to lose, which has a lot to do with one’s approach to risk. Someone who loves to win is willing to take a lot of risks because the euphoria of winning outweighs the bad outcomes. If you hate to lose, though, any bad outcome is not acceptable. To be a great investor, I think you really have to hate to lose — Jon Jacobson.

Overcoming the Neanderthal

Your brain has not changed much from the time of the Neanderthal man who hunted wild animals for food and ran from the beasts and neighbouring tribes that threatened his survival. That “rat” brain is still within you — as powerful as it was thousands of years ago. The history of panics and crashes in the financial markets since the inception of trade reflects this ever-changing cycle of fear, greed and hope. To master the art and science of trading requires counterintuitive thinking and a good understanding of your own psychology. The journey within is the most challenging of your trading career. Only when you can recognise the emotions of fear, greed and hope that come up for you, and you are able to resist them, can you begin to trade with authenticity and purpose. It requires discipline and practice.

Don’t let anyone tell you it’s easy. It just plain isn’t. Simple? Yes. But not easy.

How judgments about company management character affect investment success

Below are some quotes that investment gurus know will influence and should influence equities investment decisions.

· Making judgments about management is important to us and something I think value managers tend to underweigh. You can analyse something statistically, but if you expect to own it for 10 years, management is going to make thousands of decisions you can’t predict and may never even know about, which collectively make earnings compound at a rate more or less than they would have otherwise. Those things can add up over time. — Boykin Curry

· The hardest thing is to find management that actually behaves in shareholders’ interest as opposed to their own interest. It’s not what they say, it’s what they do. Take the company that says they are focused on EVA (economic value added) … until they don’t hit their targets and then the board gives management their bonuses anyway, saying “it wasn’t their fault, the economy was bad, why should they get penalised for that?” So you’re looking for managements and boards that actually act in shareholders’ interest, and there aren’t many. — Bill Miller.

· We look first for intellectual honesty. It drives me crazy when you meet with management and there are real issues and they act like they aren’t there. Also important is a contrarian bent, a confidence to go against the prevailing trend. — Jeffrey Ubben

· One red flag is when management sits down with us and right off asks, “What do you think is wrong with our share price?” Any implicit or explicit focus on the share price rather than the business is a bad sign. — Edward Studzinski

· How management communicates about mistakes is very important. No one is mistake-free — as investment managers, about 40% of the stocks we buy end up underperforming the market — and I’d be concerned about any company where shareholder communication doesn’t include a candid assessment of mistakes. — Bill Nygren

· Character is best judged in the proxy statement — what do they pay themselves and how? Is their financial self-interest truly aligned with mine as a shareholder?

· I have absolutely no problem with the people running huge, complicated, global businesses making a lot of money. The big problem we have now is that you’re seeing a lot of superstar compensation for only minor- league performance. — Thomas Gayner

While they won’t always admit it, most investors hold a special place in their hearts for successful and honest corporate managers. That’s primarily driven by the significant role strong management plays in their investments’ increasing in value.

Bullish Thoughts

A Product of Faith Capital (Pvt) Ltd

Tel: 04-292 7658
Cell: 091 344 1674
Email: bulls@bulls.co.zw
Web: www.bulls.co.zw
Skype: Bulls.Bears
G-Talk: zse.bulls

Twitter: http://www.twitter.com/BullsBears2010

Blog: http://bullsnbearszimbabwe.blogspot.com/

_______________________________________________________________________________________________________________________________________________________________________________________________________________

DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report.

IT Investment of the year

Legislating the wealthy out of freedom

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for,that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

That quote was by Dr. Adrian Rogers in 1931. A few case studies are out there for your read.

Glorious Investing

Bulls ‘n Bears (BnB) does a lot of reading, particularly after the Sunday church service. Today's investor has a lot to deal with: constant media hype, talking-heads, pundit prognostications, bloggers, and misleading or misconstrued data etc.

The sheer amount of available information produced by the financial media each day is more than most can manage, let alone hope to emerge with a sound investment strategy.

Going through the financial info maze, a Christian financial ezine did catch the eye.

How does “Christian investing” differ from investing generally?

Is it a matter of avoiding all risk? Of refusing to invest in certain companies like BAT, Delta, Afdis? Of seeking out only “Christian” investments?

Actually, a Christian approach to investing begins with an attitude — an attitude of seeking God’s glory.

The interesting lesson from the literature was the conviction that it is ultimately impossible to self-destruct financially if your decision-making is pointed in the direction of God’s glory.

BnB wishes all Chiadzwa’s Mbadas, Zisco, Air Zim and their investments amongst many will be for the greater glory of the Most High.

Don't Blow This Next Opportunity

Chances are you aren't happy with your investment returns this year. That's bad, but there is a bright side. If you know your stock market history, then you know that just as periods of outperformance are often followed by periods of underperformance, periods of underperformance are often followed by periods of outperformance.

That's the tailwind that will benefit our returns for the next few weeks. And if we play our cards right adding new money to the market, capitalizing on the relatively lower transaction costs, reinvesting capital gains, and focusing on superior companies generally, we should be able to look back at the end of June 2010 and say that we had a pretty good half year, investing-wise.

But -- and this is important -- if you want to make the next 6 months one of the best investing half years of your life, you might consider a minor strategic shift…be an active trader.

Buy stocks with a comfort price for taking profit. For example, buy into Zimpapers @1c and set 1.5c as your exit price. A 50% return in US$ terms is just irresistible to lock in. By now the oscillations should be clear in your mind across the bourse.

What Are You Waiting For?

This is an uncertain time in the stock market. The market is always up and down. History has shown that the best times to invest are when uncertainty reigns, or even just after it has quieted down a bit. Students of Fischer Black and Myron Scholes will confirm volatility enhances value of an investment!

Many times, though, you'll run across the following: "If you had invested $10,000 into Innscor or Delta back then, you would have X today." Of course, X is always a large number like $200,000 or $500,000.

BnB don't know about you, but whenever BnB sees one of those claims, he always get depressed. Why? Because he doesn't have $10,000 to invest all at once!

Like a lot of you, BnB makes a modest salary, pays bills and rent, and save for the future. BnB thinks he’s getting ahead when he manages to save a few hundred dollars each month. Then he reads a statement like the one above and he despairs at ever making it.

So what to do?

Maybe you are in the same position, able to save what seems like just a little bit each month. Is it worth investing that little bit? You tell me. A friend of mine turned a measly $520 investment in CBZH into $5,720 in 2009. Granted, it can take years going forward, but what an X that would be!

That's the way to riches -- starting with just a few hundred dollars and combining it with time. Anyone can do that. If you're a student on internship, now is the time to start. If you've been working for a few years, even many years, now is the time to start. Forget the disappointment of Z$ investments. If you've just retired, given the longer life expectancies today, it certainly can't hurt to start. In other words, get started.

The trick, of course, is knowing which stocks to pick. Analyzing stocks takes time. You have to read the annual and quarterly reports, AGM updates, look at margins and returns on equity or assets, and evaluate management. It's a big commitment, and it can be difficult to fit in between work, family, and watching Chelsea thump Arsenal boys’ brigade.

You might need to visit your Fund Manager today!

Will they ever regain the ART of making money?

In a Q1 2010 trading update, ART revenues amounted to $8m split as follows: paper 16%, converting 34%, batteries 20% and the region 30%. Gross margins declined to 25% from 29% while capacity utilization improved with the tissue manufacturing at 79%, stationary 34%, batteries 22% and pens 62%. Guess everyone knows the $10 for 50 nameless tissue pack at the traffic lights in Harare.

However there was no money made in the quarter following losses due to the closure of Mutare Board and Paper Mills (MBPB). The ever so high cost borrowings amounted to $6m at an average cost of 18%. Some ops were mothballed as well. Recapitalisation plans are under way but will this company ever make any meaningful money going forward?

The market is now tired of labeling stocks recovery plays and worse still going on to lose money as the turnaround never comes.

Why not put your c$$$sh where the money can be made right now and still switch into the recovery plays when they indeed do recover?

Reporting season around the corner: Where is the cash at?

BnB would like to remind all investors and the would-be that that "while earnings are an accountant's opinion, cash is fact."

Technology Investment: Hail the MacBook?

Apple Inc. products have always looked funky.

Two weeks back, the world was awed by the IPad, the tablet between IPhone and MacBook.

It is the MacBook that is the subject of this column. Admittedly the ivory colour or white at times is funky and girls scream at the sight of a white MacBook. All motivational speakers and movie stars own MacBooks.

BnB is looking at replacing the HP Compaq and is torn between three laptops and a mini laptop.

The obvious choice would have been an HP 8730w with all the latest communication accessories to fit a virtual company. The alternative would have been Lenovo Thinkpad or a netbook of sorts.

Then MacBook crossed the mind. This is one sort of investment where you can’t use discounted cashflows, maintainable earnings approach etc. At-a-glance we are talking 13.3-inch LED-backlit glossy widescreen display, 2.26GHz Intel Core 2 Duo processor, 4.7 pounds; 1.08 inch thin, NVIDIA GeForce 9400M integrated graphics and Built-in battery.

The price for a MacBook Air is $1499 before any other costs. Wow!

BnB is used to Bill Gates packages and can’t imagine goal-seeking in Lotus 1-2-3 or in Macntosh!

Can someone tell us why BnB’s next laptop should be a MacBook?

Be free to distribute this report so long it is for legally bullish purposes!

Invest Wisely and learn to love the disclaimer at the bottom. Learning investments also entails learning about risk management!

Faith Capital (Pvt) Ltd

Tel: 04-292 7658
Cell: 091 344 1674
Email: bulls@bulls.co.zw
Web: www.bulls.co.zw
Skype: Bulls.Bears
G-Talk: zse.bulls

Twitter: http://www.twitter.com/BullsBears2010
___________________________________________________________________________________________________________
DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report.

How we almost ended up with Afrofoods Grand Challenge Promotion

Beautiful week for Zimbabwe

The current week could be dubbed the wonder week for Zimbabwe in 2010. Joyce Meyer is in town. If you watch the God Channel, you will know that she is an evangelist par excellence, an epitome of positive women influence. India Cricket team is also around for the ODIs and Zimbabwe is currently ahead by 2 games. Cricket to India is what football is to Brazil. The Samba boys were also in town on Tuesday & Wednesday (never mind the cost of having the Brazilians in the country) though Bullish Thoughts had to see the game on TV. But this indeed was a wonder week. We can only hope that Zimbabwe comes back on the global tourism map. With the Tourism Index at 31.61 points (100 points on February 19, 2009), an improvement in the foreign arrivals and spend would be a welcome development to improve the sector’s financial performance and investor ratings.

How we almost ended up with Afrofoods Grand Challenge Promotion

Bullish Thoughts was convinced that this year we were going to see either an Afrofoods Grand Challenge Promotion (Spar has already done the Tankard) at the Borrowdale race course. Afrofoods has literally taken Harare by storm occupying every square inch of vacant spaces focusing on the convenience shop model. It has even gone further by assuming control of CFI’s Town and Country brand.

When OK and TM Supermarkets were downsizing, Afrofoods was expanding and gaining the loyalty of consumers.

However, OK seems to have found a new lease of life from the Investec underwritten debt placement and rights offer and has come back with a bang. Bullish Thoughts has seen amazing activity at OK First Street. OK is offering 13 Mazda vehicles among other prizes. Afrofoods has taken it further by offering 21 Nissan vehicles while TM Supermarkets is pursuing the 6 hours of extended shopping at reduced prices.

With the intense competition inducing pressure on margins, we wait to see the impact on 1HY2011 results for OK.

The share price has traded in a narrow band for some time now with a support around 6c and resistance at 7c. Not much for speculative trading unless you are peddling at least $500k of the stock. Good counter for exposure to food retail though but the dividend might not come any time soon due to finance charges and squeezed margins.

For the FY2010, OK Zim total revenue was $187.5m and operating profit $2.5m, giving an operating margin of 1.4%. This exposes the impact of high fixed overheads & stiff competition in the retail market space. We wait to see if management can regain the market leadership but we bet that if Afrofoods were listed, it would be a worth buy

.

Not so sweet?

Hippo Valley Estates has a lot of work to do. Bullish Thoughts wonders how in a difficult 2008, output was 170k tones and in a dollarized environment it shrank to 88k tones. Whilst P/E of 7.65x appears undemanding, the market appears to want more from Hippo management because a 50% decline in production during times of high global sugar prices is not so sweet.

CEO dilemma: When everything that can go wrong does go wrong

BP has failed to “plug that damn hole” in the Gulf of Mexico. The environmental cleaning and spill containment bill has exceeded $1bn already. Even if the spill is effectively contained, which could be sometime in September 2010, there will be other penalties from the Obama administration and litigations by affected business owners for lost profits. It seems everything that could go wrong, has gone wrong for BP. Bullish Thoughts feels sorry for BP chief executive Tony Hayward. BP share price has already shed 38% as of 3 June since the spill began almost a month ago with 2,703,000 litres of crude spewing into the sea every day. Will BP recover from this tragedy with fresh crude already on shore in many areas? Some analysts say with a cash balance of $6bn, the impact will be minimal but Bullish Thoughts says the market has already voted with its feet.

Warren Buffet caught flat footed by credit crunch

The Oracle of Ohama, Warren Buffet admitted before a US congressional hearing that he was also caught flat footed by the credit crunch bubble. His firm, Moody’s, gave AAA rating to mortgages that went bust a few months later. Bullish Thoughts says, you can’t beat the market always and reputation alone doesn’t make you the best investor.

StreetDogs: Some vital lessons in the psychology of trading from an old hand

Bullish Thoughts has been reading a lot these days. Here is one of the articles he came across which might be of interest to you:

GEORGE Slezak is an investment advisor with more than 30 years experience in the markets. To assist traders with what he calls the blind side of trading — what you learn only through experience — Slezak has published a 48-page memo titled Principals and Psychology of Day Trading in which he discusses 36 ideas and common mistakes.

These range from common advice to more obscure gems. Among the former: “never add to a losing position”; “buy the rumour, sell the news”; and “when everyone is in, it is time to get out.” Among the latter:

Remember the power of a position. Never make a market judgment when you have a position. It will totally bias your judgment.

Confidence kills. Remember, you really don’t know anything. Expect the unexpected. Always know your position and exit your trade when you feel uneasy.

When you’re hot, you’re hot. When you’re not, you’re not. Don’t stop trading when you’re on a winning streak. Don’t turn three losing trades in a row into six in a row. When you’re off, turn off the screen and do something else.

If the trade isn’t going the way you expected … get out at the market price. Don’t make the mistake of thinking you can suddenly pick a price.

It’s always easier to enter a losing trade. Don’t you just hate that!

News is only important when the market doesn’t react in the direction of the news. It’s the market’s reaction to the news that’s important.

Don’t fret about a missed opportunity. There is always another just around the corner. Besides, several just happened that you didn’t even know about.

Don’t look for market secrets. You will find only those things that no one cares about. Use conventional tools.

Never ask for another’s opinion, they probably did not do as much homework as you.

Never say but. When the market is going up, say the market is going up. When the market is going down, say the market is going down — with no buts attached. You’ll be amazed at how hard it is to say what is going on in front of you when your mind is full of preconceived opinions.

Don’t have an opinion. I’ve never had an opinion I didn’t like. Trading requires flexibility. Do your homework not to develop a market opinion, but rather to understand the potential for both sides of the market.

When you make a mistake of discipline, whine like a fool. Errors in discipline are mistakes you will keep making. Wearing ashes and sack cloth may help extend the time before you do it again.

When you wake up, your instincts are wrong. What comes naturally is usually the wrong thing to do when it comes to trading. If it was the other way around 90% of those playing the game would win as opposed to lose.

If you trade long enough you will recognise that only you, not the market, can make mistakes.

Invest Wisely!

__________________________________________________________________________________________________________________________________________________________

DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other Indices quoted herein are for guideline purposes only and sourced from third parties.

Faith Capital (Pvt) Ltd (c) 2009 Web: www.bulls.co.zw Email: bulls@bulls.co.zw / bulls@econetmobile.co.zw Tel: +263 4 2927658 Cell: +263 91 344 1674