Previous article on CARLSBG here.
Annual Report Update
CARLSBG published its annual report on 22 March, and reading this over the weekend, I see no major surprises to my long term assessment of this business. To me, the quality of the business remains decent, above average, I can rely on this to deliver at least 8-9% per annum long term returns, and is worth a neutral position size (3% portfolio or more). This remains a business where the lower the price, the more I accumulate up to neutral position at the bottom.
Chart Update
1. After the long bull run from 2009-2019, we are now in corrective wave phase.
2. My guess it if last time took at least 10 years to correct and find bottom, this time will be different.
3. There is the 61.8% Fibonacci retracement, confluence with previous high and previous lows, suggesting the major bottom to be around RM17. For this long term chart, that could take a while (months, maybe even longer).
10 Year Business Updates
1. 10 year EPS CAGR growth is 5.2% per annum - that's decent, and rates a B.
2. 10 year DPS CAGR growth is 3.0% per annum - that's decent and rates a C+.
3. 10 year NAPS CAGR shrink 3.4% per annum - not quite sure why, but that rates a C-.
4. 10 year RPS CAGR still growing 3.6% per annum - that's slightly higher than inflation rate and rates a C+.
5. Latest dividend yield = 5% (93 sen / 18.5 say) - that's high, and since it's sustainable, rates a B+. For a dividend investor, combining long term dividend growth with long term business growth, that has very high odds of beating EPF.
Future Price Required, to earn 9% per annum total returns
My long term investment objective is modest - as you know, I aim to beat EPF long term 6% per annum returns. My personal target is 9% per annum. The question is how do we know if CARLSBG can deliver 9% total returns per annum over the next 10 years?
The truth is we don't know. Noone knows the future. All we know is to align ourselves with probabilities.
One way for long term investors is to ask this simple question. If long term dividends give me 5% per annum, what kind of future prices do I need to see, before it delivers 4.5% per annum long term (to give 0.5% buffer)?
My Future Price Required Calculator shows what kind of prices I need to see, in 1, 2, 3, 4, 5 and 10 years time, if I were to sell after commissions.
It's not a very high ask. To get 9% total returns per annum over next 5 years, CARLSBG needs to get back up to RM23.3, which is not even the peak of the corrective wave (B). Over the next 10 years, CARGLSBG needs to get back to RM29.1, well below it's all time high of RM39.
In short, over the next 5-10 years, I think majority odds, that CARLSBG will deliver 9% per annum, if enter at RM18.54. If you enter at a lower price, the odds increases substantially.
This is not a short term strategy - it's at least a 5-10 year strategy for long term wealth accumulation.
Target Position Sizing
Previously, I shared that my position size is around 2.4% portfolio. Today, it has shrunk to 2.2% portfolio (excluding past CARLSBG cash dividends received), as my portfolio has grown (from other gains and also CARLSBG past dividends received), and CARLSBG price has shrunk.
My target remains around 3% when CARLSBG gets into my accumulation zone where I think the bottom is around RM17 which can take several months, or even 1-2 years to get there. Meanwhile, I'll continue to collect the 5% per annum dividends.
Another reason to limit at 3% at the bottom is because I also own HEIM. Similar target position sizing.
Conclusion
For long term wealth accumulation, the investment strategy is simple and easy to follow for someone who wants to spend his life doing other things than investing or trading. As Buffett says, the key is to "start early".
1. Accumulate quality businesses at fair/lower prices.
2. Have a clear strategy on when to enter and eventually, when to exit.
3. Position size appropriately. Never bet everything on a single business. Ideally, diversify at least 30-50 different businesses when the opportunity arises and we are able to accumulate at the right price.
4. Once we secure them, forget about this stock when after it finds the bottom.
5. Be patient. It is good to collect 5% per annum dividends every year. Doesn't quite beat EPF, but close.
6. For CARLSBG, the strategy to beat EPF even though dividend yield is smaller, is the additional price gains. If previous bull run took 10 years, be very patient and do nothing during the bull run and just wait it out.
7. Eventually, the Price gain in 5-10 years time will deliver total returns exceeding 9% per annum, here, likely by quite a distance if it makes new high (which over next 10 years, has at least a coin toss odds of 50/50). A doubling of price gains over 10 years is 7% per annum, giving total returns of 12% per annum. If it gets there in less than 10 years, the CAGR is even higher than 12% per annum. This is very very good for the long term investor.
This stock is not suitable for the impatient short term trader looking to earn 10%, 20%, 30%, 50% or 100% returns over months (and after 100 trades, see his account dropped or doesn't beat EPF). CARLSBG is a boring stock. Precisely because it is boring, and precisely because there is good management team to manage this business to provide returns to shareholders, that you want to have some of your net worth to partially own this business. Let the professional management team grow your wealth.
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