Wuhan Virus and Stock Picking

Let's get the usual portfolio returns report out of the way, particularly because it wasn't the best start I hoped for.

Year to Date for the major indices:
STI, 0.3%
HSI, -1%
S&P, +2.1%

I am currently at 0.17%.

My first and only purchase of Jan 2020 is Xinghua Port Holdings, which dropped as much as 8.7% at one point in a single day this week. It didn't hit me so hard then because I have already sold bulk of my holdings last year. Between today and then, the chair and CEO had been buying shares relentlessly, so I think it makes sense to bet along.

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I suspect the Wuhan virus case would be discussed at most CNY eve dinner today.

I am partly pique by the issue myself and draw parallels between stock picking and the statistics that is derived from news reports.

It is human behavior to extrapolate recent events, numbers, and used it to predict future numbers. Charting is the oldest, and most common attempt by the human species to prediction the direction of a stock.

Right up till a few hours ago, all but 1 of the 17 victims are male, and all of them are pretty well-aged citizens. It lead me to think that this virus is fatal, probabilistic-ally, to males that are old. I am afraid that I am wrong, because a 36 year old man has just passed on. There were no pre-existing medical conditions reported with this victim.

I would not be surprised that this would become an epidemic, after all, medical professionals who would take utmost precautions in dealing with dangers, are still getting the virus. It either means that this virus is extremely infectious, or that it is infecting us in a manner that is beyond the usual ways of what we know.

My dad, who is a pro-China guy, said that there is a possibility that it is transmitted to victim via their eyes.

So let's go back to how this relates to stock picking. Obviously some medical stocks are receiving a lot of favorable price movements. Healthway Medical, which isn't anything impressive in both earnings and assets, had a huge surge of over 40% in a single day, followed by a high, single-digit rise the next. It corrected slightly on the last two days of this week.

Too much good things have to happen for Healthway in order to justify this kind of valuation.

Riverstone, another popular medical glove manufacturer, enjoyed a 10% revaluation in a matter of a week.

The stock market is largely about guessing. So it is anyone's guess on how things will work out. But who wins? I don't think any amateurs like myself could outgun a professional at this kind of game, so it is foolhardy imo. The only guys that won are the lucky and the brokerages.

Certain retail stocks suffered. Xiabuxiabu, a hot-pot restaurant chain in China, was particularly volatile. It started the year at 8.92, and was bought up two weeks later to 11.50 (28.9%, mind you). I have no explanation for this movement. The same store sales weren't impressive.

And the Wuhan issue brought everything down in a hurry.  Today, 24-Jan, the value of this stock... is 8.90... The price-earnings ratio of this stock is now 20... still optimistic I feel.

If John Burr Williams' idea that a company's value is the sum of its current and future cashflows, how can a event which is (hopefully) short term, bring about such valuation revisions? If one has done enough Discounted Cash Flows, one would understand that bulk of a company's valuation comes from its future cashflows (5th-20 years).

So realistically, I am not a fan of DCF, or earnings valuation. But I believe in buying companies with short term problems, particularly those who had some form of positive track record. After buying, it is a matter of patience, and some times, we have to stomach a lot of worries. This is why I think value investing is not for everyone.