Feel the Fear ... and Do it Anyway!

Recently, I read an interesting article entitled “Release the Condor” written by Jeffrey Saut, a renowned fund manager. In his article, Jeffrey explained how the phrase “Release the Condor” came about. To wit:

A long time ago in a galaxy far, far away, there was an advertising company trying to come up with a video commercial to introduce Buick's new car. After a number of the ad company's proposals were turned down, they came up with the idea of the car cruising on a road down the side of a mountain with an eagle superimposed flying over it. Buick loved it. There was, however, one problem; you cannot capture, or tame, an eagle. Therefore it was decided to use a condor. Here too there was a problem, the ad agency could only find one captive condor in the world; and, it was at a zoo in Lima, Peru.

After arrangements were made, the camera crew showed up on a cliff in the Andes Mountains to film the commercial. With all cameras rolling the call was given to "release the condor." But instead of soaring into the sky, the condor plummeted hundreds of feet to its death because after years of captivity it had forgotten how to fly. Subsequently, any time something bad was about to happen, or something bad had just happened, advertising companies shouted "release the condor!"

The condor story has nothing to do with the rest of this post. I have included it here because I love the story. In the same article, Jeffrey share this gem of investment advice from J.P. Morgan CEO James Dimon, who recently told reporters anxious for news exactly what they didn't expect to hear. In Jeffrey's words:

Everything is fine, so stop freaking out. Indebted Greece is on the ropes and might leave the euro, it's true. China's main stock market index recently went into free fall… Why worry about these things? They won't really change the investing world much. "You have to separate the financial markets from the economy," Dimon said when quizzed about China. "You can't expect any economy to have perpetual growth at 10%." Does Dimon know something we don't know? Yes ... and no. More accurately, he has come to accept a basic fact about stock markets and the news cycle that all long-term investors should recognize - that there is no real link between specific "disastrous" events and the performance of the stock market.

Then, Jeffrey brought in a similar idea from a recent article published by Horizon Kinetics:

This concept espoused by Jamie Dimon is what we attempted to convey in last month's Gleanings report titled "Feel the Fear ... and Do it Anyway." As expressed repeatedly in these missives, "The equity markets do not care about the absolutes of 'good' or 'bad' but only if things are getting better or worse, and things are getting better!" Yet, it is human nature to worry about the "good" and "bad" things that constantly bombard investors. However, as a successful investor, "[You need] to accept a basic fact about stock markets and the news cycle that all long-term investors should recognize - that there is no real link between specific 'disastrous' events and the performance of the stock market."

Meanwhile, back to Malaysia, the political situation, which was absolutely bad, managed to get even worse. Last week, the shit hit the fan when BN-controlled Government brought out a video confession by Lester Melanyi, a Sarawak journalist who claims that the 1MDB scandal is really a conspiracy, built on falsified documents, intended to topple our Prime Minister. This serious allegation runs smack against the earlier serious allegations of the theft of billions of ringgit from the national wealth fund, 1MDB.

The 1MDB story is now moving into high gear. The arrest of directors of 1MDB-linked companies that had allegedly transferred fund into our Prime Minister’s personal accounts and the resignation of Lim Kok Wing as our Prime Minister’s PR advisor seem to suggest that our Prime Minister is having a tough time. On the hand, the police’s threat to arrest those named by Lester Melanyi as well as the travel restriction put on DAP’s Pua & PKR’s Rafizi seem to suggest that the battle is joined.

Despite the current explosive state of Malaysian politics, I couldn’t help but be amazed by the resilience in our stock market. If you look at the index charts below, you could see that many of them – not just the blue-chip laden FBMKLCI - have recovered from the recent low. In fact, almost all of them are pushing against their respective intermediate “downtrend”. This doesn’t look like a market that is unduly worried about a potential collapse of our government. In fact, this market looks decidedly sanguine - unperturbed by our messy politics – and in search of the next investment idea.

 

Chart 1: FBMKLCI's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

 

Chart 2: FBM70's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

 
Chart 3: FBMACE's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)


Chart 4: FBMSCAP's daily chart as at Kuly 21, 2015 (Source: ShareInvesor)

Based on the above mildly positive near-term technical outlook, I think that we can increase our exposure to the market slightly. My preference is for value stocks with good dividend yield, such as BJToto. Hopefully, these condors will fly. Good luck.