Readers know I am a believer in glove companies, I always have been and until now I believe that glove companies especially Hartalega & Riverstone are undervalued. My view remains consistent and transparent. There is no flip flop just because the glove sector faced a weaker sentiment in the past few months. This is because as a long term investor, I cannot decide solely based on sentiments. However, my opinion does not matter as the stock market is a collection of diverse views, opinions and investment thesis.
I am writing this short commentary today as I received many enquiries today from retail investors asking the following questions (more or less):
1. Is the glove rally today a technical rebound?
2. Should I re-enter now?
3. I am still holding, should I sell and take profit / cut loss?
One of the more important signal I have been waiting for was local funds flow. For 16 weeks in a row, local funds have been net sellers. From my channel checks, many local funds (except EPF) have been selling gloves since the start of the year. In a large part, the selloff in glove stocks was contributed by local funds. Of course, this triggered some panic selling from retail investors. Foreign funds is a mixture. There are a combination of bottom picking which showed they were net buyers at times, there were also cases of short covering (covering RSS). As the selling momentum outweigh the buying momentum, naturally, share price of glove stocks trend downwards. Today, from the preliminary data, local funds are strong net buyers. It remains to be seen if local funds were the buyers for glove stocks and this will need further data to be out in a few days.
As a fundamentalist, I hold firm to the investment philosophy that for every stock, there is a company behind the stock and for every company, there is an underlying value or intrinsic value. Value investors look to buy a stock when the share price goes below the underlying value. Back to the 3 questions above,
1. I believe if local funds are net buyers of glove, this surge in glove stocks is not a one day show due to "technical rebound".
2. I dont believe in chasing stocks, neither do I believe in going in and out with a short term horizon. Invest in glove stocks if you believe in the fundamentals of the company. Otherwise, just stay away.
3. One should hold for the long term if one have a long term investment horizon and the ability to hold without pressure (no margin / no leverage). One should sell on strength if one is overexposed to the glove sector without sufficient cash on hand or a balance portfolio. One should cut losses if one do not believe in the glove sector.
Lastly, in investing, it is always about buying into good companies with wonderful management and strong fundamentals. It is not about the "theme of the day" or what everyone else is doing now. With that in mind, if you are keen to invest in glove companies, please stick to the good names, avoid the dodgy ones. Back on 2nd March, I wrote a detailed article on whether investors should take off their gloves? My focus in the article is about the underlying value of the company which particularly focuses on "retained earnings" portion of the company.
Whether investing in glove stocks is a mirage or a path to oasis, it is fully dependant on your individual belief and investment horizon.