Thursday, June 21, 2018

Chart #12: Why Property Keeps Booming


Here's another chart that explains why property keeps rising, globally. Since the Global Financial Crisis of 2009, the central banks flooded the world with liquidity to prevent a Great Depression type catastrophe. But this created heaps of cheap money in the system, which had to find its way into assets.

Hence private equity, bitcoins, art, wine and needless to say, property. $7.4trn into real estate in no joke. This is larger than Japan's economy and almost as large as China's economy. It is a wonder now why Singapore property doesn't correct enough for you to buy?



URA property price index charts

The charts above are published by URA and the last few data points showed how the cycle has turned. At the peak of c.150 (top chart), prices fell less than 20% to c.135 for five long years before turning up again. Did it actually correct? Some might ask. Yes it did, but not in nominal terms. Asset inflation caused by monetary easing and global money flooding into global properties did not allow prices to collapse more than 20% in nominal terms.

See also: 
Negative Interest Rates and Property
Sky Habitat Crashing

Friday, June 15, 2018

Buy Pyongyang Property!

12th of June 2018 in Singapore would go down in history as an important day. It marked the first step for North Korea to modernize. Well, if that really happens say a decade from now. Let's hope it happens, lest our $20 million would have gone to waste and this photograph of them sunbathing in our Infinity Pool would be a joke.

Epic moment at our Infinity Pool

Well, to be honest, it was a joke. It didn't happen. Some internet smart aleck photoshop-ed this and circulated it around the internet and Whatsapp. It was a good one, for what it's worth. Now, with forty eight hours passed, it seemed more like it might just not go the way the world wanted. North Korea media just told their citizens that their Supreme Leader got the better end of the stick. They could de-nuclearize step-by-step, with each step extracting more concessions from the United States. So this de-nuclearization for dinners could go on for a long time with North Korea enjoying sumptuous dinners for decades. 

No more tree barks for dinner! 

In the end, it could well be more of the same trick used by Kim Jong Il. We have seen this before. North Korea played hardball, then soften to extract concessions, get red wine and beef into the country, maybe some watches and diamonds as well, only to renegade on their de-nuclearization promises and then continue to fire ballistic missiles again. Meanwhile their population continues to suffer in poverty, with not enough to eat but as they were all brainwashed by propaganda, they continue to believe that their country is the greatest nation on earth.

I am afraid, that's the likely scenario. The document the two leaders signed in Sentosa had really little meat in it. This is very much like the original bak kut teh served to coolies working along the Singapore River a century ago (not the ones we get today full of spare ribs and a pound of fatty meat). Here's the four points from the Financial Times (FT):

1. The United States and the DPRK commit to establish new US-DPRK relations in accordance with the desire of the peoples of the two countries for peace and prosperity. 

2. The United States and the DPRK will join their efforts to build a lasting and stable peace regime on the Korean Peninsula. 

3. Reaffirming the April 27, 2018 Panmunjom Declaration, the DPRK commits to work towards the complete denuclearisation of the Korean Peninsula. 

4. The United States and the DPRK commit to recovering POW/MIA remains including the immediate repatriation of those already identified.

And here's their signatures affirming the four points:

Signed, confirmed plus chopped!

That's $20m worth of ink.
So much trouble for so little.
Poor Singaporeans...
Poor North Koreans...
Is that really it?

Now, for a moment, let's think out of the box. Kim Jong Un knows his country is shit. His people are suffering. He doesn't even have the money to fly to Singapore. He borrowed a plane from China to come all the way here to play a practical joke for the whole world to see. Then he goes back to his old ways, so that he can enjoy Californian wine and US beef which he couldn't get because of the trade embargo that was imposed since he fired those ballistic missiles. He would then be remembered by history to squander the one chance to lift 25 million of his countrymen and women and children out of poverty, as a great idiot, like his father.

What if he was better than that? What if he took this step to secure a new future for his country? Could he had killed his uncle and his half brother to secure enough power in order to take this step? Or maybe the rumour that one of the nuclear tests failed and destroyed decades of work was true. So he had to take this step. He had to take the risk to fly a Chinese plane to foreign soil to do the inevitable deal. Whatever the case, he knows the bright future that lies ahead if he opens up the country. 

He might lose power but gain so much more in return. He would be immortalized as the leader who enriched the whole nation. Just like China, the Asian Tigers, Myanmar and most recently Vietnam before her, if North Korea opens up her economy and modernizes, she would see exponential GDP growth. This would be like those Korean Youtube sensations transforming themselves with makeup (see pic below). If we take another bold step forward bringing South Korea into the picture, we are talking about a unified Korea. This would be a strong nation with 85 million people, with technology and markets which could become the Asia's third largest economy, behind China and Japan. 

From GDP per capita of of $500 to $25,000

Here's another excerpt from the FT:

At one point in his press conference, Mr Trump provided some insight into his mindset when he asked everyone to “think of it from a real estate perspective”. He advised Mr Kim to imagine the potential of his “beautiful beaches” if he were to stop using them for artillery exercises and built condos on them instead.

If and that is really a big if with caveat lodged, North Korea just made the first baby step to become a free market, when the time comes (usually it would take decades for them to liberalize the domestic real estate sector though, Vietnam just allowed foreigners to buy two years ago), then we must really act!

Buy Pyongyang property! Huat Ah!

Here's wishing Happy Hari Raya to all Muslims!

Tuesday, June 12, 2018

2018 Dividend List - Part 4

The last portion of this year's dividend list sees a hopscotch of companies from various segments of the economy. First up we have Berkeley Group, a property name from the UK. Next, European engineering related firms such as Smiths Group Inc and the French/Italian construction company Vinci. Across the Atlantic, US industrials: Emerson Electric, Cummins and healthcare firms: Gilead Science, Amgen, Johnson and Johnson were featured. There is also a paper packaging company: Mondi, a toy company: Hasbro and even a luxury brand: Coach, which is now renamed Tapestry.

Dividend List Part 4 of 4

Given that the lists were ranked by their dividend yield, we are also seeing valuations getting more expensive in this last portion. Most firms here are trading at mid to high teens PE while a few firms are at 20-22x PE. Emerson Electric, a world class automation play, trades at a rich 22.7x PE given that robots and automation taking over millions of jobs continue to dominate investors' and also the general public's minds.

Alongside the onslaught of automation, tech, internet, we would think that Cisco could be a beneficiary but unfortunately the stock has languished for many years and appeared on this screen multiple times in the past few years. Routers and switches, which were the core bread and butter of Cisco became commoditized and the firm needed to fight competition while reinventing itself. It managed to do a bit of that and the stock had recently started to perform rallying from the twenties to $44 today. 

Cisco is now part of a mega important theme: cybersecurity. 

The cybersecurity threat is real from hacking the government databases to phishing millions of accounts off Sony and Target to ransomware to simple fraud like Facebook friends asking you to buy Apple stored value card at 7-11. Cisco is riding on this tailwind albeit security and related services could be just 5-10% of its total revenue. The better way to play cybersecurity might be to buy the ETF HACK. The official name is ETFMG Prime Cyber Security, but the ticker symbol HACK is just so much easier to remember. 

HACK ETF

The listing history is not too long as the ETF only came about in 2014 but it did show early signs of being a compounder. The list of stocks also look like compounders as they mostly deal with software services and hence capable of generating strong free cashflow (FCF) with the exception of one or two names. The top names are: CommVault (archiving database and emails), Trend Micro (antivirus), Palo Alto Network (network security leader), FireEye (cybersecurity expert) and needless to say Cisco itself. This is really an interesting ETF and I would be a buyer if it falls below $37.

The last stock worth discussing is Coach or rather Tapestry as it is now called. I bought into Coach in late 2014 when the share price languished under heavy selling as investors questioned its relevance in the new era of millennials, internet and Michael Kors and Tory Burch. "Coach was the brand that my mother relates to, not me." says the 20 year old millennial female. It didn't help that Coach would be selling its inventory on discount in outlets all over US and other parts of the world. Meanwhile the internet was filled with fake goods, or maybe real ones that were bought off US outlets and then sold in Singapore, Hong Kong and mainland China.

Its new CEO then, Victor Luis launched an overhaul campaign to restructure Coach. He brought in a new chief designer to bring in fresh ideas to supplement the monogram. He stopped the discounting at the outlets and he revamped stores globally to give them a better look and feel for the millennials. Finally, he bought Kate Spade, the millennial brand and change the company's name to Tapestry. Investors were elated and bidded the stock towards $60. I decided to sell so as to fund other US stock purchases. I still liked the story but the valuations no longer look appealing and it's really tough to say if Coach can become the LVMH of US. 

Kate Spade, adored by Singapore's 
Member of Parliament

Lo and behold, the stock crashed 15% a few days after my sale. It was especially lucky because I decided to sell the entire position rather than a half sale as I normally do. This was because the position was not too big and it would make sense not to leave a residual that needed to be dealt with in the future. So, that's really pure luck, not foresight. There is no foresight in investing because the future is simply not predictable. Perhaps the lesson learnt is that buy-and-hold only works for certain stocks, definitely not fashion or tech. With that, we end this year's dividend lists. Hope this helps!

Wednesday, June 06, 2018

Tangible Thoughts #5: Howard Marks

"The key word is calibrate." - Howard Marks

Investing is not black and white, in or out, risky or safe. The key word is calibrate. The amount that you have invested. Your allocation of capital among the various possibilities. The riskiness of the things you own. All these should be calibrated along a continuum that runs from aggressive to defensive.

Howard Marks

Coming from guru Howard Marks, the words and meanings just come alive much better. Investing is never binary. There are always lingering questions and there is always another answer, a better answer. Futures and outcomes are always a set of probabilities, how do we pick stocks with the lower probability of loss, how do we size our bets, how do we time our exits, these are the important details. 

Some quick rule of thumbs I have established over the years:

1. Size your initial bet small, so that you can scale up over time. This works for me because usually I am too early.

2. Don't bet more than 10% on any single bet unless you are really super sure.

3. If you are wrong, it is much better to find another opportunity with similar or more upside and switch to the new name.

4. If an investment worked out, like it is up 100-200%, then good to trim some and deploy the capital to other names.

5. Diversify across at least 20 names in different sectors if your capital allows.

Hope this helps! 

PS: 6th of June is also known as D-Day, the longest day in history. 73 years ago, on Tuesday, 6.6.1944, allied forces reached Normandy beaches of France and launched Operation Overload against the Nazis. Their victory marked the turn of the tide which led to the end of the WWII. Thousands died on that day. Tribute to all who had given their lives to preserve peace in our world.


Monday, May 28, 2018

2018 Dividend List - Part 3

The third part of this year's list consist of consumer names that we know really well. P&G, Harley Davidson, Unilever, Kellogg, Pepsico, Campbell Soup and our very own Thai Beverage. These are truly global household names and we should really have some in our portfolios. It is very rare for them to be featured here, all in the same year. Again, this is a reflection of the market's one sided view that internet, gaming and FAANGs will conquer the world and become Masters of the Universe!

Dividend List Part 3 of 4

On the flipside, non-tech stocks are now deemed next to worthless and hence we see all these great names all being screened out - a rare phenomenon. Some of these names might have issues, for example, Kellogg and P&G had been mismanaged for years and hence seeing very slow growth. But they are still compounders, both stocks had compounded at low single digits for a few years and if and when they find the impetus to improve, usually with a maverick CEO at the helm again and pushing for change, the stock would again become high single digit compounders.

In our own beloved Singapore market, we have Thai Beverage. This is one powerhouse that has compounded seriously. In 2010, Thai Beverage had a S$5bn revenue and S$450m in net profit. Its market cap was S$7bn and it was ranked somewhere in the teens or even in the twenties in terms of market cap. In 2018, it is forecasted to generate S$9bn in revenue and S$1.2bn in net profit, a 3x increase since 2010. Its market cap hit S$24bn at its peak and it became the largest foreign stock listed on the SGX. With restructuring of its group including F&N and its businesses in IndoChina, there could be further upside, The stock trades at c.5% FCF yield today with FCF at S$1bn and market cap at $21bn.

The stock worth highlighting today though is Campbell Soup. The slide below taken from Campbell's investor presentation deck tells the story well. Campbell today is not just a soup company. While that business segment (American Simple Meals and Beverages) contributes the bulk of operating earnings and has the highest margins, the actual Campbell soup business is pretty small. The segment itself includes sauces and dips with brands like Prego and Pace. It also has organic drinks, energy beverages and other brands acquired over the years. With its portfolio of brands, Campbell dominates the American simple meal and soup market which explains its 26% operating margin.

Campbell Soup Businesses

The two other segments are the future growth engines. Campbell has done extensive survey and research showing that the US consumer (and likely global consumers) are going for more organic and more fresh meals but at the same time, they are also snacking more, albeit with "healthier" snacks like better-for-you biscuits and potato chips. Hence the two segments: Global Biscuit and Snacks as well as Campbell Fresh are seeing strong growth that would provide the compounding effect for Campbell. The market thinks that this would take a lot of time, given that these segments are smaller and also lower margins. But that is exactly where a value investor comes in, when others are fearful!

As this post was in the writing, the stock crashed more than 10% as its CEO Denise Morrison resigned, taking responsibility for failed M&As that she conducted in the past few years, including paying almost $5bn for Synder's Lance. She was also criticized for pursuing contradictory strategies of growing fresh and healthy food while buying more snacks companies. Well, we all love to eat healthy but we just can't give up on potato chips and doritos right? So, Denise was right. But I guess she got played out by politics or was just plain unlucky. Meanwhile, the new CEO Keith McLoughlin and new COO Luca Mignini announced a new restructuring to overhaul the company, focusing on new growth segments (which likely include snacks too!). To this end, the company will form an "accelerator unit" to target selling healthy food (and snacks) via e-commerce.

Restructure, overhaul and upgrade are some of the best investment stories around. The next few months would provide important data points to see if Campbell's plan is really working. The downside is that it fails, but because the stock is so cheap, it would likely just stay flat, although it could be a value trap for a few years. But if the restructuring works, this stock would be up 50-100%! Huat Ah!

This author does not own Campbell yet!

Thursday, May 17, 2018

Chart #11: Ikigai

Renamed Chart Of The Month to simply Chart. This one today is an important one. We are talking about ikigai.

Ikigai

Another way to put it - ikigai is the cross section of your values, the things you like to do and the things that you are good at.

To supplement, here's 10 ways to better stay in ikigai:

1. Stay active and don’t retire
2. Leave urgency behind and adopt a slower pace of life
3. Only eat until you are 80 per cent full
4. Surround yourself with good friends
5. Get in shape through daily, gentle exercise
6. Smile and acknowledge people around you
7. Reconnect with nature
8. Give thanks to anything that brightens our day and makes us feel alive.
9. Live in the moment
10. Follow your ikigai

Thursday, May 10, 2018

Malaysia Boleh!

"Boleh" means "can" or "able to" in Malay.

What a historic day for Malaysia! Dr Mahathir trashed Najib with a snap of his fingers gloved in his infinity gauntlet neatly decorated with the coalition of infinity stones: DAP, PKR, PNA, PPBN and Warisan Sabah. His Alliance of Hope, Pakatan Harapan and its partners convincingly defeated Najib's Barisan Nasional (BN) with 122 seats vs his nemesis' 79 seats. Mahathir's win ended one of the longest reign for a democratic ruling party and renewed hope that Malaysia can one! (i.e. Malaysia can achieve what it wants to achieve.)

Under Najib, Malaysia really suffered with the ringgit falling to a third in value relative to the SGD - one Malaysia ringgit is only worth 33 Singapore cents. The exchange rate was 1:1 in 1965. Also, the market cap of KLCI is at USD 269 billion vs Singapore's STI at USD 440 billion. Given that a lot of its listed stocks are also locked in cross-shareholdings, Khazanah and banks, Malaysia's free float is even smaller at a mere USD 84 billion. This is a tenth of a fruit and smaller than the smallest FAANG which is Netflix at USD 144bn. FAANG stands for Facebook, Amazon, Apple - the abovementioned fruit, Netflix and Google.

The last decade was truly dark for our beloved neighbour.

Ironically, it was partly Mahathir's own doing as he was the one who picked Najib to be the Prime Minister after he sent another of his prodigy, Anwar, to jail. Now he is trying to team up with Anwar by asking the King for a pardon so that Anwar can stand in elections, win a seat and then be Prime Minister. This sounds like a plot from Marvel when your past enemy, who was actually your friend, joins your hero alliance in order to defeat a bigger enemy whom you yourself created. 

Malaysia in a Marvel Plot?

With the country at its brink, real life heroes really assembled to save their Motherland. Teachers, waitresses, workers, drivers in Singapore took leave to rush home to vote. In fact, Malaysians all over the world came to the rescue, dipping their index finger in blood, swearing on their lives to save the country. We hear stories of how everyone beat all odds in order to stop Najib. Strangers car pooling to go home despite vote forms being sent out too late. Vigilantes appeared in front of voting booths to prevent random black boxes with rigged votes getting smuggled in again. It was an epic battle against evil and an amazing race against time. But Malaysians did it!

Malaysia Boleh! 

But Najib is not going down without a fight. It is rumoured that he participated in intense negotiations with other smaller partners in the coalition to coerce them to swing to his side. Candidates are being offered 20 million ringgit each to jump to BN. If he succeeds, he might still hang on to his PM role. After all, his life is at stake - he might get strapped in dynamites and then get blown to bits. Meanwhile, Mahathir declared bank holidays to prevent money being siphoned out of the country. Hopefully, in the end, the democratic process will work, Najib gets justice served and all our Malaysian friends didn't fly, rush, drive back in vain.

Back to the stock market, since Malaysia is closed, nothing much is going on. The ringgit meanwhile weakened after strengthening before the election. With talks of abolishing GST and re-introducing fuel subsidies, investors are also worried about the country's fiscal situation. But never fear, Dr Mahathir is back. Just the face of this legend supposedly made Najib and his cronies squirm like vampires in sunlight. So AirAsia painted all their planes to make sure Najib cannot escape.

A True Malaysian

As to stock ideas, many experts are pitching stocks that benefit from the weakening ringgit while some called upon investors to take advantage of any pullbacks to buy quality Malaysian names. A quick stock list include: YTL, Public Bank, Malaysia Airports, Maxis etc (all Malaysia listed names). Meanwhile, yours truly made a tongue-in-cheek list of stocks below in Singapore with Malaysian stories: 

1. Fraser and Neave: 40% sales in Malaysia
2. Top Glove: World's largest glove maker based in Malaysia
3. IHH: Hospital operator in Singapore and Malaysia
4. OCBC: Teens revenue exposure to Malaysia
5. Silverlake Axis: IT business with Malaysian banks

Malaysia Boleh!

PS: except for F&N discussed in a previous post which is investable (not on Malaysia but on its Vietnam story), the rest are really more for fun, please don't really buy without doing more research.

Sunday, May 06, 2018

May the Force be with Omaha!

It's the Omaha weekend again and this year is special as it also started on May Fourth which is also knowns as the Star Wars Day. In Singapore, someone then decided to organize a Star Wars Run charging people S$80-85 to either join the light or the dark side of the race! The annual Berkshire run, for those investors who are spending this weekend in Omaha, cost roughly S$60 and all are encouraged to invest in ourselves i.e. our bodies, which would be the best investment ever. 

Star Wars Run Singapore!

Well, unfortunately, one run would never amount to any tangible investment that would change our bodies, or our lives. As with everything about value investing, it's about time and consistency, which leads to habit formation, the most important agent of lasting change. The Berkshire Hathaway AGM (annual general meeting) embodies these concepts and this is perhaps one of the reasons why it's so appealing to so many. This year marks the 53rd AGM and a crowd of 40,000 would have descended upon Omaha from all over the world. Many travelled long distances just to listen to the Yoda equivalent of the investing universe utter a few words of wisdom, with the hope that the experience would help internalize some of this wisdom.   

Alas, all sentient beings have a lifespan and Yoda eventually become one with the Force (and became capable of influencing the weather). Warren Buffett, mindful of his own time, used this year's AGM to pass the baton to two of his lieutenants: Greg Abel and Ajit Jain. At the same time, he emphasized that Berkshire Hathaway is a corporation and hence immortal and Berkshire Hathaway's culture had been well established and the firm would continue to thrive without him and his trusted #2 Charlie Munger. So, keep calm everyone!

Keep calm!

It could be said that Warren Buffett's success also boils down to time and consistency, which is essentially habits. The time to form a habit is surprisingly short - just 21 days, according to various research. But to consistently do it for decades would take effort, determination, grit. Warren Buffett pretty much did the same things for 53 years and hence got to where he is today. His essential habits were reading and thinking hard. These are exactly the habits that true value investors must acquire early on in life. Buffett probably spent six to eight hours reading everything from newspapers to annual reports, every day for half a century. 

Thinking is a slightly different exercise. While there are times we should sit down and think alone, most thinking require discussing with like-minded friends, writing down our thoughts and ironically more reading to better understand the issue at hand. It is also important to be calm while thinking and hence many astute investors practice meditation or engage in other activities to calm down our monkey minds. 

It is not clear how Buffett calm his mind from what we know about his lifestyle. Perhaps it's bridge that he plays every night, or simply his meals which is always the same (hamburgers or steaks) and hence maybe when he eats he is really just eating with his mind spacing out. Nevertheless, it's important for serious investors to really find an activity that can help preserve or enhance the clarity of our minds.

So, we are back to running. Running is an activity at its core, very similar to meditation. The mind is focused on breathing and bringing the body forward. There is nothing else. This has a similar effect of calming the mind as meditation does. Maybe that's why we have a Berkshire 5km run and Star Wars runs. Keep calm and keep running!

May the Force be with you always!