Friday, October 09, 2020

Charts #35: Cybersecurity

This is one big growth area for the next five years.

Breaches have increased. Old chart - only until 2017. But should have kept going up.


Spending has increased and will continue to do so.

2019 was big. Well, 2020, with COVID, should have exacerbated the need for more security.

Buy HACK US - cybersecurity ETF. But do your own due diligence. Or check for my update here when I get down to do it.

Huat Ah!


Tuesday, September 29, 2020

Trump vs Biden Debate and Lessons for Us

Healthy debate is crucial in investing. This is because we all have blind spots and we need to bang our heads together to check what is wrong with our investment thesis. Did we miss anything? Did we have enough margin of safety? Did we overlook a big risk? I looked at my worst performing names over the years. They were usually stocks that I didn't debate with anyone. I just analyzed on my own and bought it, thinking it was cheap, had a good story and I knew all the risks. I have learnt my lesson. To invest well, engage in healthy debates.

But importantly, the debate has to be healthy. 

Unhealthy debate, which we just saw with Trump and Biden, open a new can of worms or just opened worms that can debate unhealthily amongst themselves. I don't even know which is worse. Maybe watching Trump is worse than a can of worms. If I had to debate with someone like that on stock ideas, maybe I would have lost all my money and my pants hahaha.

Well, back to debate and lessons learnt.

Debate has always intrigued me. We grew up watching debate matches and politicians on TV and it's not about seeking the truth. It is about who can talk well, who can stage a good rebuttal, which may or may not be logical. Sometimes it sounds logical, but if we think deeper, it's just rubbish. Yes, sometimes, it's just outright lies, not just with Trump. There are usually no solutions and no insights. Just a lot of cheap talk. Trump vs Biden was worse. We didn't learn any truths, we didn't even have cheap talk. It was just pasa malam (wet market) rattling and Trump cutting other people off.

So here's the lesson: don't debate with rubbish people. Walk away. 

Joe Biden would have walk away if he could. But he has to fight on. At 78, he certainly still has the grit to keep putting up with shit. If that is what it takes to do the job. Kudos to that. Debating on stocks is also about grit. The desire to seek the truth, to understand the reality, to find out the true range of intrinsic values and then buy at a margin of safety and make money. It's hard work and grit.

Good debating about stocks has to be built on trust. We want to tear down each other's arguments to seek truths. It is not about ego and it is not about arguing who is right or wrong. It is about really seeing what are the scenarios, how they will play out and how to bet such that we can make money. When ego gets in the way, all is lost. 

Questions will be pointing and some with big egos may not take them well, here's a few examples below:

1. You are telling me what the markets know, what everyone knows. Is there a differentiated angle here? What makes you think the market has not thought about this?

2.  What if the stock falls through your worst case scenario? Have you modelled a second and third wave and its negative impact? What will be the risk vs reward then? Can you still say the rewards outweigh the risks?

3. If this is the case, why hasn't the company done what you have just described? Surely the company has thought about it. They live and breathe their business. You just do desktop analysis. What are the chances that you are wrong and the company is right?

4. There are reasons why the stock is cheap and has not rerated. What is different today vs one year ago or two years ago? The market is not stupid. What have you overlooked?

5. You are saying growth will be much higher and hence current valuation is justified. What makes you think you are smarter than all the analysts out there projecting growth numbers? 

The lesson here is to be like Biden. Take it in strides. It is not about me and never mind the tone of the questions. Never mind getting cut off. The quest is to win and make constructive changes to benefit the country. That's Biden. For investing, the quest is to get to the truth. If it means making money, then it's worth it. The struggle makes the analysis better and makes us sharper, better investors. 

Happy Children's Day, Huat Ah!    

Wednesday, September 16, 2020

Charts #34: COVID Economy Pulse Check

 Two interesting charts to share from FT.

Is it just a matter of time for economies to come back or will the world really change and we take many many years to go back to 2019 levels?

Human beings want to go out. Can we really stay at home and WFH forever? We may not see it now, but the world should normalize again and we go back to our old ways with some incremental changes - use ZOOM a bit more, wear masks outside etc.

Friday, August 28, 2020

2020 Dividend List

This year's dividend list is out! Dividend related topics have consistently been popular and this year we would like to introduce Poems screening tool to generate your own list. Poems have been one of the strongest Singapore brokers over all these years, despite it not being part of a bigger conglomerate. Perhaps, it's precisely because it's not part of any conglomerate that it understands what the small investors need.

Here's how the screener looks like (below). There are only a couple of factors to choose from, but it's good enough. For this year's list of Singapore stocks, I have chosen just a few criterias:

1. Market cap of more than a billion

2. ROA and ROE of more than 4% and 12% respectively.

3. Dividend yield of 3%.

Poems stock screener for SGX

This year's list is interesting given the backdrop of the global pandemic. While some global markets have recovered, Singapore has not. Many of our large caps are directly affected by COVID, like our beloved national carrier, and related to that, our aerospace names like ST Engineering and SIA Engineering (both shown here). Next, our oil and gas names are affected. With nobody flying and moving around, oil demand collapsed. Oil prices went negative in March! 

So, Keppel, Sembcorp and Sembmarine were impacted badly. They in turn hit our banks. With these names making up the majority of the STI, this could be why global investors shunned Singapore's stock market. Given our dependency on the big global players for export and trade and tourism, our economy and businesses are also impacted badly. But fear not, QE Infinity will save the day!

With or without QE, there are always interesting individual stock names. 

Jardine Cycle and Carriage is a stock discussed before. There could be an opportunity to buy here given it's now below its rights issue price in 2015! It went all the way to $47 and then collapsed during COVID, since no one's in the mood to buy new cars. The lesson to be learnt here is that Singapore, because of our environment, will have very few long term buy-and-hold stocks. I thought JCNC could be one,  unfortunately, it did not turn out that way. I am glad I took profit when it was doing very well. So, one has to truly stick to Ben Graham's philosophy of selling when these stocks are near its intrinsic values. 

Most of our Singapore names are not compounders, i.e. their intrinsic values do not go up exponentially. In fact, some of them do not go up. So we must sell when they trade near their intrinsic values and we buy only when there is a huge margin of safety to stocks' intrinsic values. Some of the names today might have that margin of safety today: Singapore Exchange, Thai Beverage. These companies have good business models and rarely trades cheaply. So at teens PE and 3% dividend yields, it's worth looking at more closely. 

Poems stock screener for NYSE

For the next list, we have our NYSE stocks. Poems allow for screening for a few exchanges and it is worth going through exchange by exchange. For the purpose of this post, I am doing just for NYSE. Using almost the same criterias, the screen churned out an interesting long list of names. Just to name a few: 3M (discussed here as well), Blackstone, Coca Cola and Kellogg. All of these give at least 3% dividend yield. 

So while markets are near all time high, there are still cheap interesting names. We are seeing the very similar dichotomy seen during the dotcom bubble. IT and tech names populated people's mindshare and old economy names were forgotten. Today, the FANGs stocks make up more than 20% of the US indices and Nasdaq is at all time high. Tesla, making 300,000 cars is bigger than Toyota making 10m cars. Meanwhile, interesting old economy names like 3M and Coke continue to generate 30-40% ROEs but are trading at significant discount to loss-making companies. 

Markets are as such. While they are efficient, they reflect the thoughts of all its participants and sometimes, these thoughts do not make sense. That said, we must always remember wisdom from the greats - John Maynard Keynes quote comes to mind:

"The market can remain irrational longer than you can stay solvent."

Don't bet the house on buying this list of names or go shorting FANGs or Tesla. Be prudent and do due diligence before betting. An investment operation is one, through analysis, provides capital protection and promises a satisfactory return. Anything else is speculation. Cheers!  

Huat Ah!

Sunday, August 16, 2020

Charts #33: Global REITs

 Found a good chart depicting the global REIT space.

The world has changed since COVID-19, but I don't think retail and office will collapse 30-40% over the long run. Humans are creatures of habits and we eventually revert back to our old ways.

Although, travel will take a much longer time to comeback, so hotels need to have sufficient cashflow to tide over the next 1-2 years. Hope this helps!

Saturday, August 01, 2020

Books #10: Ray Dalio's Principles

I have not been able to put this book down for the last few weeks. Even though I read the very first version when it was published as a memo in pdf format many years ago. It was already very good then and I printed and kept a copy. But the book is 100x more awesome. If you have not read it, pls go pick it up today. This is one of the best books written ever.

For the un-initiated, Ray Dalio runs the world's largest macro hedge fund called Bridgewater. He is a multi-billionaire, made from investing and he attributes his success to his principles for work and life. Hence the eponymous book. He has never published his investment track record, but like Warren Buffett, he probably made most of his money in the earlier years. Bloomberg published a league table (below) a few years ago.

Bridgewater's returns

Well, track record aside. The book is a page turner because every sentence just made sense. At the core of it, as Ray puts it, life is about seeking the truth and embracing reality. More often than not, we do not want to face reality. We somehow believe that if we think hard enough, or want things bad enough, we can bend the truth. For instance, we want a nice body. No belly fat, good muscles, ideal BMI of 20. Yet, we do not schedule even an hour per week at the gym. We snack on potato chips, drink alcohol thrice a week and eat ice-cream all weekend. This is not understanding the truth nor reality. 

Yes, we can change reality by scheduling and actually going to the gym. Until then, we must look at the truth in the mirror. The verdict can always change, as Mariah Carey has shown us. The pic below is unflattering but apparently she is now fit again (in 2020).

Mariah Carey: 90s vs 2018

Beating the markets is all about understanding reality. This takes more than one head to achieve outsized returns. Warren Buffett had Charlie Munger and George Soros had Stan Druckenmiller. So at Bridgewater, Ray Dalio made the best and the brightest put all their heads together and debate to seek the truth about markets. But it can be super tough. Smart people all have egos and all of them want to bend the truth to fit their own reality. So it takes time to figure out who's really interested to just seek out the truth.

To Ray, only 100% open minded and yet assertive people to be able to achieve that. These people seek out others to disagree with them, in order to get to the truth. They will suppress their ego to do that. If they are wrong, they admit so, change their mind, reverse bets and make money. Closed minded, egoistic, smart people are the most dangerous. Naturally, nobody will volunteer to tell you they are closed minded and/or egoistic. So it took Ray 40 years to figure things out. Here's just a few best quotes:

1. Beware of assertive fast talkers, they use speed as a way to push their agenda past other's examinations. Slow them down, make sense of things before conceding.

2. Open minded people ask questions, closed minded people always tell you what they know, even if they hardly know anything. They are typically uncomfortable being around those who know a lot more than they do. Closed minded people will just waste your time.

3. Being open minded is more important than being smart. It is hard to be open minded and assertive. Some people are too willing to accept others' views at the expense of their own. One must be both open minded and assertive.

4. Watch out for people who think it is embarrassing not to know. They are likely to be more concerned with appearance than seeking the truth. These people go for style and form over substance.

5. Don't worry about looking good, worry about achieve your goals. Get over blame and credit and get on with accurate and inaccurate. The need for phoney praise needs to be unlearned.

6. Reflect on pain because pain leads to growth. Remember the pain is all in your head. To evolve, we need to confront the pain and see clearly the paradoxes. Reflect, learn and resolve them. The past on longer matters except as a lesson for the future. 

7. Don't be naive, most people will pretend to operate in your interest while operating on their own.

8. Everyone has opinions and they are often bad, including your own. Only listen to the believable ones who are open minded. After making sure they have demonstrated believability, with track record, reason and logic.

There are way too many nuggets in this book. Hopefully I can find time to organize more of them. 

Hope this helps! Huat Ah!

Friday, July 24, 2020

Charts #32: COVID Market and Currency Impact

COVID-19's impact on the markets and currencies provide interesting perspectives. Tech stocks has completely outperformed as social distancing forced people to carry out more activities online. Nasdaq zooming passed its all-time high is exemplary.

Source: Asian Nikkei Review


The impact on currencies tell two tales. Developed markets are doing much better than emerging markets. The virus does differentiate. If you live in a developing country, with poorer social infrastructure, chances of death is that much higher. The economies of weaker countries will find it harder to come back after the coronavirus crisis.

Sunday, July 12, 2020

Is This The Beginning Of The End For Singapore?

Is this a new dawn for Singapore? Or the beginning of the end for Singapore? What does it mean for Singapore stocks? Or properties? Or just investment into the little red dot in general? These are investors' questions. 

Yesterday, we saw the results of Singapore's 13th election and the first held without any public rallies due to COVID-19. It was supposed to be a breeze for the ruling party, the handling of the COVID-19 crisis while having small hiccups was largely successful hitherto. The Government dough out huge payouts to Singaporeans during the crisis. That's helicopter money in SG style! And according to past experiences, Singaporeans always wanted strong and safe hands to steer them out of the woods. 

Yet, Singaporeans voted the most number of opposition candidates into the Parliament since independence. The ruling party lost the second Group Representation Constituency (GRC) after losing the first one in 2011. The Prime Minister in waiting Mr Heng Swee Keat only managed to secure 53.4% of his East Coast GRC votes. This was a body blow to his East Coast Plan!

Singapore Election Results from 1991-2020

The ruling party, People's Action Party or PAP, has always warned that Singapore cannot afford any mistakes. They are the best steward for this Little Red Dot. They have done it for 50 years and they have the track record. If we screw up, global investors will flee on the first flight out, or the first trading week. We will be doomed. No one owes Singapore a living. We have to make our own. That means not opposing the Gahmen (Singlish for Government).

But is it true?

Perhaps so, until the 2000s. But over the last twenty years, Singapore as elevated its position into one of the top global cities in the world. We have one of the world's most expensive properties and one of the highest standards of living globally. We are often mentioned in the same breathe as London, New York, Hong Kong and Tokyo. Singaporeans travel all over the world, see other cities and know this.

Our first few generations of leaders brought us here, kudos to them. 

Our properties prices has risen on the back our status elevation and global quantitative easing (QE) by the large central banks. QE has also been elevated to another unprecedented level in the name of fighting COVID-19. Central bankers simply printed money and shoved it down people's chimneys. This is also called helicopter money.

As such, Sky Habitat did not fall from $1,700psf despite my quadrilogy rambling seven years ago. Prices remained sky high as we became the global playground for the rich and famous. We may never see property prices falling, PAP or not. Well's that is barring a super major screw-up if the Opposition takes over, which is hard to imagine.  Hey, Worker's Party MPs also own properties right? So in short, Singapore property prices will continue to go up, as with Hong Kong and the other major cities. In fact, if Hong Kong properties are not falling, then Singapore should be even safer.

But what about stocks? Businesses? Foreign direct investments? Startups?

Straits Tines Index since 1987

Well the Straits Times Index (STI) has plateaued since the mid 1990s and peaked in 2007. We have not been able to break 3,800 since then. This has to do with our inherent strength as a young island-city nation. In the 1990s, the STI was driven by our SOEs: Singtel, SIA, DBS, Keppel and the likes. As our economy grew, they did well. They became big enough to go acquire other companies in the region. But that was that. Our market today is still dominated by these companies. There are no large home-grown listed companies run by Singapore entrepreneurs. 

Okay, there's probably one or two lah. Like Wilmar, part of the Robert Kuok Group, but the man Robert Kuok himself is more Malaysian than Singaporean. Then there is Thai Bev and Top Glove but these are also not started by Singaporean entrepreneurs. Going further down the market cap list, we have Olam (started by an Indian born in India) and Venture (both not in the chart below though). So perhaps today, it is Venture, our truly homegrown listed company run by a Singaporean entrepreneur. 

There was also Creative, but it is way down the list today at just SGD200+m in market cap. There are a few that went delisted or never bothered to list, like our Popian King. But the moral of the story for the STI is this - we produce a dearth of entrepreneurs because of our Gahmen policies which include education, trade, foreign investments, public service affected everything including our talent pool's career paths, our business mix etc that resulted in the lack of entrepreneurs.

Market Cap Ranking on SGX

So the stock market is not likely to go ballistic from here. I don't think the Worker's Party will make it worse. Neither can the PAP make it better. It is probably gonna be status quo and global investors know this. We do have to continue to do well with foreign direct investments and drive the economy by attracting global talent and tourism. That way, our local businesses can thrive. The Opposition, or maybe the PAP itself, might screw things up here. We may not like it but we have to continue to grow to 8-10 million people. That is the city's evolutionary path, any city's evolutionary path.

What's the point if a city cannot grow? Let alone a city-nation without hinterland.

In the longer term future, we do have to do something with our education. We have discussed education here some time back. Our pressure cooker education system can produce exam smart students but they are not ready for the future. Our students can only score in exams. If they cannot talk well, cannot program and lack EQ, how do they fight children from the US, China and India? How to compete with A.I.? We need innovative students with more entrepreneurial spirit. Did the Sengkang parents bite on this issue and reject PAP? Maybe so. It is truly an important issue. Of course, the Government knows this. We have time to improve. Hopefully we can.

So in short, no. This is not the beginning of the end for Singapore. 

Our property market has the biggest tailwind behind its back called global QE. Neither WP nor PSP can stop it. Property prices will continue to go up. Even properties in Sengkang. Our stock market has plateaued and will stay so unless we make some radical improvement. We can do this by producing more entrepreneurs, and we need to fix our education system to do that. It is imperative we evolve and do that.

Huat Ah!

Saturday, July 04, 2020

SIA at $10...Dream Long Long...

Here's two interesting charts on Singapore Airlines (SIA) that I found doing simple desktop research in late June. It shows the destructive nature of dilution including rights issue and other forms of equity capital raising. These charts illustrate how dilution works negatively for investors and they are great reminders that we have to invest in businesses with strong franchises which require little need for additional capital constantly.

The first chart below is a snapshot from Google showing SIA's share price since 2008 or so. This chart adjusts for the recent rights issue that SIA or SQ (its flight code) did in order to survive. The share count has since more than doubled and as such Google adjusted its share price accordingly. Historical prices now showed that SQ did not trade above $10 for the past 10 years based on the new share count (which is more than doubled before its rights issue).


SQ's price chart from Google

This is the correct representation. Kudos to Google. As old timers in the Singapore stock market would recall, SQ traded above $10 for most of its life as a listed stock. But it will almost never go back there because of the massive dilution/rights issue. 

The new $10 is $5. To reiterate what I wrote previously (in the post "What To Do with SQ's Rights Issue", the range of intrinsic value (IV) for SQ is probably in the vicinity of $3.3 to $5. Simplistically, I did a back of the envelope calculation which put the median of $4.2 as the new IV. As mentioned, if it falls close to $3, then we have a good margin of safety and SQ could be a profitable trade (but hey, we are value investors, not traders right?).

This second chart below shows SQ's share price but it's from Yahoo! Obviously Yahoo's A.I. or whoever is doing the charts hasn't gotten things right. We see SQ's share price showing some old prices, like SQ was trading at $16 in 2010 (which is shown as $8 in the Google price chart above). The Yahoo! price chart goes way back, so we see what the old timers see, SQ trading above $10 for most of its trading history. That's a mirage. A dream long gone. We see how the price then fall off the cliff from $8 to $3.75 today. Which is true, but with the adjustment not factored in, the whole picture doesn't gel.

Maybe that's why Yahoo! is no more and Google rocks!

SQ's wrong price chart from Yahoo!

When a dilution occurs, the share price has to work doubly hard to get back to where it was. Some companies like to do small rights issues in the name of M&A or other capital needs for growth, causing a 20-30% dilution. If we get lucky, or if the company's management is really good, this dilution is justified and the share price can compound growth and generate good returns to come back. 

But more often than not, this doesn't happen and investors get screwed.

In cases of massive dilution such as those we saw this year in Singapore: Singapore Airlines and Sembcorp Marine, investors are forced to cough out a lot more money and those who do not will never see their capital. Well, for those who do cough up, it's still tough. The $3 rights have 75c of profit given that SQ share price is now $3.75, but what about those lots invested previously at $6? It's just throwing money to stay in the game. The verdict is not out. We may see second waves and more rights issues.

So that's just investing. Buyers beware. We have dream long long to see SQ at $10 again. (Translation from Singlish to English: stop dreaming SQ will go back to $10 one day.) 

Caveat Emptor. Happy Independence Day! Huat Ah!

Sunday, June 28, 2020

Book #9: Security Analysis - Chapter 2

Security Analysis is a seminal book written by the grandfather of value investing Benjamin Graham and David Dodd, a professor at the Columbia University. It was published in 1934. I started reading it about a couple of years ago but have yet to reach Chapter 3 (out of over 50 chapters). The book has over 700 pages.

The reason for such slowness is due to the way this book was written. First, it was written by two intellects espousing difficult concepts in investing. The language they used is not common day English and it does not help that it was written over 80 years ago when the usage of English wa probably different. Nevertheless, I believe there is value in finishing this book and as I complete these chapters, I hope to jot down my learnings here.

The first lesson learnt today is about trying to model earnings trend. As it is now vs 80 years ago, analysts like to model future earnings. They could create models for the next 5 years, or the next 10 and based on their model, they believed they can calculate the intrinsic value the stock. This is also what I have done for various stocks on this infosite.

To the grandfather of value investing, this is actually bullshit. The future earnings, in their minds, are not even quantitative numbers. They are merely qualitative assumptions of the future. The way they explained it, only past financial numbers are quantitative. They are track record achieved and they provide an idea how this business can perform and how cyclical or defensive the business can be.

They look for variance in earnings, look at long term (10 years) trends and is very discerning about what is truly quantitative i.e. not disputable. I guess this is simply another verification of how Ben Graham was always looking at hard numbers, net nets and balance sheets because everything else is just qualitative.

So this is it, first lesson from Security Analysis. Hope to come back with more in the future chapters!