Wednesday, February 26, 2014

Bought Kering

Bought 117 shares of Kering @ 153.35 Euros on 18/Feb/2014.  Cost in SGD is 31936.34.

Will write up later.  Kering is the only Luxury company trading at a reasonable (but not cheap) valuation of 14X earnings.  Their main brand Gucci is out of favor right now.  Long term investment.  This is half a position.  Would buy more if it drops to 120+.

Shares are directly managed to avoid counterparty risk.  Held through CACEIS.


Results on the 24th were below expectations, ESRX gapped down on 2X average volume (not shown in the chart) and is now below 50 EMA.  I thought the results were OK, but the market reaction is what counts.  Although it has not broken the uptrend, I am uncomfortable with the reaction and cut loss.  Sold on Tues 25th 360 shares @ $74.34.  Lost about USD 530.

I bought because it was going up.  It stopped going up.

Sunday, February 16, 2014

Bought Express Scripts (ESRX)

Had my eye on this for a while; bought because it did not fall when the indexes corrected (22nd Jan to 5th Feb), and the correction is (hopefully) over:

Bespoke Investment also notes that the Drugs and Biotech has been the strongest industry group since the start of tapering (mid Dec), and Healthcare is one of the strongest sectors in the February's post-correction bounce.

  • ESRX is the largest Pharmaceutical Benefit Manager in the US.  Their business is to act as a middleman between doctors, patients, pharmacies, insurers and employers, to increase efficiency and cut costs (e.g.: by asking a patient's doctor to switch to cheaper generic drug).  ESRX had a 30% share of PBM industry (more after the Medco merger), and 60% of mail order market share.  Their size gives them some competitive advantage against suppliers.
  • Valuation: Although sporting an estimated forward PE of 33, it has a high amortization of intangibles.  2012 income was 1.3bn, amortization for "customer related intangibles and non-compete agreements" was 1.4bn, CFO was 4.7bn.  Morningstar has target price considerably higher than the current one.
  • Risks: Pharmaceutical distribution is a changing industry: The PBMs' roles change over time (from filling out paperwork, to recommending generics, to handling specialty drugs); their previous roles become commoditized.  Contracts with customers (insurers and employers) are renewed every 3-4 years.  The market structure also changes, e.g.: the move to exchange-based health plans vs employer based ones may cut PBM's margins.  ESRX's pricing and profitability is not transparent.  This is a complex and rapidly changing business, definitely not a Buffet-like stock to hold forever.
  • Other information:
Bought 360 shares at $75.77 on 13/Feb/2014.  Total cost USD 27,312.  This is a trade: A strong stock, in a strong segment, in a (hopefully) rising market.


This is currently my only position, I am still 95% in cash.  I may trade a little, or try to buy some reasonably priced stocks in the meantime, but am still waiting for a steep market market decline before I am comfortable with serious buying.

Is the US market correction over?


Long term, we were expecting a correction, but breadth did not indicate the bull market is ending (1) (2).

Friday 24th was a 90/90 day. This Lowry Research paper (from TBP) is worth reading.  "Almost all periods of significant market decline in the past 69 years have contained at least one, and usually more than one," 90/90 day.

They may signify major declines:
  • They "typically occur on a number of occasions throughout a major decline, often spread apart by as much as thirty trading days."
  • Declines containing 2 or more 90/90 down days usually persist until a 90/90 up day (or rarely, 2 consecutive 80 upside days).
  • "Impressive, big-volume “snap-back” rallies lasting from two to seven days commonly follow quickly after 90% Downside Days", but for longer term investors they are a chance to sell.
Or short term corrections:
  • "A single, isolated 90% Downside Day does not, by itself, have any long term trend implications, since they often occur at the end of short term corrections....a 90% Downside Day that occurs quickly after a market high is most commonly associated with a short term market correction, although there are some notable exceptions in the record. This is also true for a single 90% Downside Day (not part of a series) that is triggered by a surprise news announcement." 
Assuming that this is a correction (until we see another 90/90 day), is it correction over?
  • In the bounce back from the 6th onwards, the pattern of down days on higher volume was broken.  Still, there is a divergence as volume trends down while the index goes up.
  • In the bounce back, breadth is wide.  Its not limited to the index stocks.
To be sure, we would need to see more of the favorable price/volume action.  Which would lead to the index making new highs.