Thursday, February 14, 2019

Charts #19: Global Alcohol Consumption

Courtesy from Our World In Data
https://ourworldindata.org/alcohol-consumption

Global Alcohol Consumption Peaked in 1980s!

Happy Valentines' Day!

Monday, February 04, 2019

Happy CNY 2019! Huat Ah! Bcos We Are Singaporeans!

Is it because I'm Chinese? No, sweetie, we are Singaporeans :)

The Year of the Dog is coming to an end. Tomorrow, we usher in the Earth Pig. Yes, while the media always reports that this year is the Year of the Golden Animal, it seldom is. The last real Gold animal was in 2011 - called Gojek, the Golden Jackass. Just kidding, it's the Golden Rabbit and before that the Golden Tiger in 2010.  The next one is in 2020 - the Golden Rat. As there are five elements (Earth, Fire, Water, Wood and Gold) and each element gets two years in a row, we only get to Gold every 8 years.

Meanwhile, as markets move in advance as they always do, gold prices are the move! No autolock here.

Gold prices rushed through SGD 1,680!

The recent rally might be more USD related rather than gold supply and demand. Since the Fed decided to stop tightening, gold prices shot pass SGD1,680 and moved real quick to SGD1,776 (USD1,315). The obvious reason being that the USD should weaken since the Fed is no longer raising interest rates. So all else being equal, gold prices should break loose.

In fact, since 1971, gold has only gone one way - up, up and away. It hit USD60 in 1972, almost doubling and then hit USD200 in 1975. By 1980, it was USD650 (almost 20x return in 10 years) and then ran all the way close to USD2,000 during the GFC. It then briefly collapsed to USD1,000 and we are now back to USD1,200-1,300. If one bought $10,000 worth of gold in 1971, it would be $380,000 today, enough to pay for a lifetime of ERP charges. 

Converting from USD to SGD, it's also roughly about SGD1,680. In Chinese, 168 sounds like one way street to Huat Ah! Translation: one straight way to making lots of money. Hence Chinese really like this number: 168 (一六八 Yi1 Liu4 Ba1 sounds like 一路发 Yi1 Lu4 Fa1). Well, if you are not Chinese, a big Huat to you and your family too! There is no autolock to Huat and gold prices!


All this happened because of the historic event on 15 August 1971. The Bretton Wood system which linked all monetary currencies to gold prices collapsed. Before 1971, gold prices were fixed at USD35 per ounce and all other currencies were also pegged to the USD in tight ranges. This proved to be too onerous because the central banks needed to defend their currencies to maintain the exchange rates whenever their economies come under pressure. 

As with kingdoms issuing gold coins centuries before and the German Mark before WWII and the British pound after WWII, powers that be find it too difficult not to devalue when times are stressed. Governments always devalued their currencies. Put it in another way, the central banks cannot defend their currencies when the world's speculators come together. In fact, the Bank of England lost infamously against George Soros and the British Pound got devalued the second time in 1992. Soros became famous overnight and was since known as the man who broke the Bank of England. This was why UK doesn't use the Euro today and might have to exit the European Union with no deal this March.

So, looking back at the long history with the collapse of Bretton Woods, gold prices can only go up not because gold is a good investment. Gold doesn't have a business model or produce any cashflow. But it will Gojek up because fiat currencies will continue to depreciate. It's like releasing the autolock and letting a hostage run free. Okok, let's be serious. It's because when the link between gold and USD broke in 1971, fiat currencies can move as far as human creativity allows and there is no limit to the human brain and its creativity - see below.


In all seriousness, unpegging gold and fiat currencies allowed businesses to price their products and services without any regard to any base systems and hence by extension, economies and countries would also be free to price anything as they deemed fit. With the passage of time, we lose our sensitivities to the intrinsic value of money itself. Meals go into thousands and tens of thousand of dollars - something unthinkable for our parents and grandparents. Houses in Singapore today are in the millions or tens of millions. Houses in China are 20 to 30x annual incomes. Chinese newly weds cannot afford homes without parent support, Is it because I'm Chinese? Maybe, you know... better come to Singapore.

Hence, as strongly advocated before, it makes sense to have a bit of gold in all portfolios. Gold is the origin of the global financial system built on centuries of human's collective adoration for this metal. Gold has no meaning to a monkey. But to humans, it represents wealth and the most ancient verification as the ultimate store of wealth. It has been so since the beginning of human civilization. It was used by the Egyptians, the Greeks, the Romans, the Aztecs and needless to say, the Chinese.

So buy Gold in 2019! Huat Ah!

For the uninitiated, the various allegories in this post are wrt to this incident that happened a few days ago about a cab driver and a Chinese lady passenger who felt she was cheated by the cab driver.

https://www.asiaone.com/singapore/it-because-im-chinese-go-jek-passenger-gets-doxxed-wake-viral-video

Monday, January 21, 2019

Charts #18: Gaming

Spotted a good chart on FT detailing the rise and rise of gaming.


Pretty amazing how the gaming console had been around for almost 50 years!

Saturday, January 12, 2019

Thoughts #12: Is the World a Better Place?

WSJ published an interesting article titled "The World is Getting Quietly, Relentlessly Better" sometime back arguing that the number of people living under extreme poverty conditions had decreased. The global middle income group is now nearly 50% and many diseases no longer posed threats to lives.



On many counts that is true, but living in Singapore we tend to feel that life didn't get better, don't we? Maybe we started out in Middle Class (defined as earning $10-100 per day) and not enough of us are in the Rich category (only 2.7% of world's population). But even if we are in Rich, we not are necessarily happier.

Singapore passed the generation when children would do better than their parents and progress brought about happiness. This is a developed world problem. Now that we have enough food, good shelter, basic education, healthcare and most of us have some money, what is that makes life fulfilling? It's a tough question.

One possible answer could be sharing and giving. Giving.sg might be a good place to start. When we huat, we should also help others huat too! Huat Ah!

Thursday, January 03, 2019

Goodbye 2018! Hello 2019!

Yesterday was the first trading day of calendar 2019 and we witnessed how the markets "lao sai" (had a diarrhoea) all the way on its first trading day (slightly better today though). It is believed that the first trading day of the year determines the direction for the year. So if that's the case, we can only go south in 2019...

Of course, all these old traders' tales aren't necessarily all true as with most things that concern the markets. The markets are forever unpredictable and no rules of thumb or any other finger ever works. It's different every time although sometimes we can see how it rhymes. 

Let's take a look at what transpired in 2018 and hopefully we can learn some lessons for 2019.

1. Trade war

This was the biggest thing in 2018 that brought the decade long bull market to its end. US decided to impose tariffs on USD200bn worth of goods traded and China retaliated with tariffs on USD60bn worth of goods. But since China exported much more to the US, she was the natural loser here. Her stock market collapsed 25% and the US markets declined in sympathy, so they decided to patch up. The two countries set a truce until 1 March 2019 when hopefully some good news would be announced.

China's PMI

Meanwhile, China's economy continue to slow as the PMI above showed how things had really rolled over. The US is not doing that great as well with Fed's tightening impact reverberating across the system. Global bank stocks fell a good 15-20%. So with the two largest economies in the world slowing down, how can we expect a good 2019? Well, we better get ready for a roller coaster downride!  

2. Tech melting down

Last year this time we talked about a tech melt-up. It didn't melt-up, it melted down. FAANG and BAT * collapsed after their stellar performances from 2015-2017. Apple cracked another 9% last night after iPhone sales disappointed. Google collapsed 30% over the last few months and now looks really interesting as it generates USD33bn in Free Cashflow (FCF) on an Enterprise Value of c.USD600bn. In China, Alibaba and Tencent also underperformed massively. But I am not a big fan as valuations are still not cheap despite falling 30-40%. 

Not forgetting the mega-proxy for new gen tech - Bitcoin. It peaked at USD19,650 around Dec 2017 and fell all the way to USD3,875 as of yesterday. 95% of all initial coin offerings went underwater and many investors lost their shirts. While blockchain technology will change the future, it's decades before we see things coming to fruition. This is very analogous to how Google and Amazon came about in the early 2000s only to make an impact today. Who knows, maybe at some stage, we should own some Bitcoin. It might become the new gold standard.  

3. Forgotten stocks

As the rage went on and then off in the internet and new gen tech space, a large list of brick-and-mortar forgotten stocks got really cheap. Again this is just like what happened during the first dotcom bubble. Automakers are trading at single digit PE and some over 10% FCF yield. Consumer staples are now back to mid teens, some are even at single digit PE. In Singapore, stocks like Overseas Education (discussed previously in 2016) is trading at 13% FCF and giving out 8% dividend annually. Albeit it's micro-cap and hence there's always inherent idiosyncractic risks.

Audrey Tautou in Amelie (2001)

Forgotten stocks are like forgotten actresses (one of my favourite being Audrey Tautou in Amelie featured above). They continue to do their work but after the limelight shone away, they grow out of sight and out of mind. Some do make spectacular comeback but most find a rich husband and get married much like cheap stocks getting taken out at a premium.

There is money to be made buying forgotten stocks, but it also requires a different approach i.e. having a diversified portfolio capable of capturing some of these gains but also capable of waiting things out (Overseas Education had done nothing over the last three years). Buying some of these forgotten names do require a stringent long term buy-and-hold strategy to make money. 

However, if we scrutinize the 5 year performance of the top 50 names by mkt cap in Singapore (list below courtesy of Business Times), we would come to the conclusion that buy-and-hold didn't work. The largest company in Singapore (Singtel) fell c.18% last year and is now overtaken by two banks and a trading conglomerate. Across the board, most Singapore co.s did badly over 1, 3 and 5 years as our economy matured.

Top 50 largest co.s in Singapore

4. Ride the Wave

In fact, buy-and-hold had not worked for most Asian markets starting with Japan in 1989. So again, we come back to the notion that no one rule ever works all the time. Buy-and-hold might make sense for some stocks, usually in the US or the European markets with very diversified investor base. Even so, as internet businesses grow and economies change, it is increasing difficult to hold many of the same stocks for 10 years expecting them to compound. Some would, but most wouldn't. 

This is also reflective of today's disruptive cycles where new businesses make old ones irrelevant quicker than before. A few decades ago, a successful retail model like Walmart had a good 10, 15, 20 year runway to conquer US and then the world. But today, Whole Foods would be taken out by Amazon, Ford had its lunch eaten by Tesla and Zynga Games and Angry Birds disrupted Electronic Arts only to see itself getting disrupted by Supercell and Fortnite in a short span of a few years. 

Hence, I think the value investors of our age would need to rethink buy-and-hold. If necessary, we have to use valuations to guide us to ride the wave. When we find good businesses at reasonable valuations, we should ride on and exit when valuations are exorbitant. One example that comes to mind is Intuitive Surgical (ISRG) - the company behind the surgical robot now commonly used for prostate removal.

ISRG's Surgical Robot

In 2016, ISRG was trading at a reasonable 4% FCF yield (FCF USD1bn over market cap of USD25bn). It surged to 1.5% FCF in mid 2018 (when buy and hold didn't make sense anymore) and now corrected c.20% from its peak. At some point, it might become interesting again, say FCF USD2bn at market cap of USD45bn or c.16% from today's price. Hopefully that gives a flavour of how value investing would be going forward.

5. Hello 2019!

So, in the new era, buy-and-hold no longer means buying and holding the same stock for 10 years. We constantly have to keep a lookout for disruptions. When valuations doesn't make sense, we also have to trade. As for 2019, the bull run is over and we need to be vigilant. There shouldn't be a 2009 Lehman type of meltdown but things should get uglier before it gets better. Meanwhile, we keep our gunpowder dry and look for those high single digit FCF stocks to buy. Maybe some forgotten stocks and forgotten actresses will come back in vogue. My picks are as discussed: Google, Intuitive Surgical and Overseas Education (which I already owned).

Happy New Year and Huat Ah!

* FAANG and BAT are acronyms for US and China's internet giants
FAANG = Facebook, Amazon, Apple, Netflix and Google
BAT = Baidu, Alibaba and Tencent

Tuesday, December 18, 2018

Top Five Myths about Investing Busted!

We had discussed a lot about investing myths in the past and here's a post to really bust them once and for all.

1. Investing can make you filthy rich

I think this notion deserves a lot more analysis and the way I would think of it is to look at the top 10 or even the top 100 richest people in world, in each region and also in Singapore. Investors seldom get featured on these lists. The most famous rich investor remains to be Warren Buffett. In Asia, there is no equivalent. Most of the richest Asians are either entrepreneurs or property tycoons.

The second argument relates more to mundane mortals like us and here the stats don't lie. Over 90% of all retail investors don't make money while 80% of professional fund managers don't beat their benchmark like the S&P 500 which generates 8-10% per annum return over time. Putting these together it means that an average investor doesn't even get close to high single digit returns annually. If that is the case, on average,  how can we expect investing to make us filthy rich?

Getting rich through hard work and compounding!

But having said all that, I would say the fruits of labour awaits the diligent and the intelligent investor and if we do achieve 8% return annually, over a span of 10-20 years, we can increase our wealth by a factor 3-4x. This is the goal! It's achievable with effort, grit and time. There is an early post in this blog addressing this exact topic. In short, investing can make you rich if you are really patient and really trying hard and putting in the effort required. But it’s a tall order to make you filthy rich.

2. Investors spend ten hours in front of four trading screens

Most laypeople probably have no idea what real investors do. We get our notions watching Hollywood or old Hong Kong drama depicting investors as big shots in front of trading screens. Actually, real investors rarely spend time in front of screens reading charts. We spend 80-90% of the time reading. We are constantly reading newspaper, annual reports, business magazines and what other investors write. The remaining 10-20% of the time, we either talk to other boring industry people or watch investment related videos or we write own our thoughts for other investors to read, haha. That's the truth.

3. Investors can predict markets

Well, sorry, investors cannot predict nothing and so does everyone else. The future cannot be predicted. It exists as a set of probabilities at any given time and people who are predicting don't know any better. So don't be fooled. The space-time continuum is one of the least understood physics of our universe. The current way we think how our universe works might be completely missing the point. It was postulated that every action that every single one of us takes might create a new universe and a new reality in a whole continuum of realities. That's like 7 billion universes and realities every split second. It's literally to infinity and beyond! If that's truly the case, then how can anyone ever predict markets? 

So the way to think about the future when it pertains to investing and making money is to know how the big probabilities and the big scenarios would play out. There would be times when the risk-reward is skewed such that in the bear case scenarios we don't lose much but in central and bull case scenarios we make a lot of money. That's when we bet and make the outsized expected returns. This usually ties in with valuation. When we buy things cheap, we protect ourselves against the bear case scenarios. This is why value investing is always about buying cheap, margin of safety and strong business moats.

4. Investing is super exciting

Investing is boring!

Well, this is probably the biggest myth i.e. this statement is the furthest from the truth. Investing is super boring for most people. This is a job that requires you to read and read and read some more, then talk to boring people. Sometimes we get to go visit companies' HQ and sit through meetings after meetings. It's called Death by Marathon Meetings. If we get real lucky, we get resurrected during lunch and then "afternoon dessert" get served - Death by Powerpoint. Hahaha! George Soros said it best - good investing is boring. It becomes fun a bit like how some foodies get acquired taste for certain foods. Like how some Korean food lovers acquired the taste of eating live octopuses or how some people like blue cheese or stinky tofu. 

5. Investors are like Hollywood hotshots

As you would have guessed by now, investors are no hotshots. Investors are mostly boring people with limited communication skills. They talk in their own jargons and have no clue who's BTS or Twice. (BTS might ring a wrong bell as Bangkok's railway system.) Most teenagers wouldn't want to hang out with the best investors in the world. Just look at the two of them below! Again, it's really acquired taste for people who idolize these two cute grandfathers!


There is a new breed of younger investors who can stand somewhat closer to George Clooney and Robert Downey Jr if they tried. They are Dan Loeb, David Einhorn and Bill Ackman as depicted below. But still, they wouldn't be considered your regular heart-throbs. Ironically, their value goes up as they age in the world of investing. So they would really become iconic and super famous and well-known to the general public say twenty years from now, when they look more like Warren and Charlie above!


Alas, there are no pretty investors. That is a sad fact in both real life and in the movies. The closest Hollywood ever managed to depict was a femme fatale serial entrepreneur in The Intern. Such a person doesn't exist, at least in our current universe and current reality :)


So that's the five myth busted. Are we ready for some real boring investing? Anne Hathaway would have this to say,

"I've honestly been really lucky, my only jobs have been babysitting and acting."

Huat Ah! 

Wednesday, December 12, 2018

Charts #17: Billion Dollar Club

Found this recently on WSJ. Most interesting.



The global QE created this. Hundreds of billions of dollars in valuations of companies with no earnings. Surely it would have been unthinkable for Ben Graham. The father of value investing only bought stocks trading below its book value.

His most famous strategy was buying net-nets: companies with market caps that were less than the company's current assets minus its total liabilities. 

Tuesday, December 04, 2018

Book Lessons #4: Best Books Ever

I went through my readings and decided to write down the list of best non-fiction books I had ever read. It spans across genre and is listed here in no particular order.

1. Guns Germs and Steel by Jared Diamonds
2. Sapiens by Yuval Harari
3. The Snowball by Alice Schroeder
4. The Selfish Gene by Richard Dawkins
5. Fortune's Formula by William Poundstone
6. Liar's Poker by Michael Lewis
7. When Genius Failed by Roger Lowenstein
8. The Most Important Thing by Howard Marks
9. Freakonomics by Steven Levitt and Stephen Dubner
10. The Enzyme Factor by Hiromi Shinya

Remember all the book reviews we had to write in school? After compiling the list, I cannot recall the main message in some of these books. I just remember they were good and after many years, I still remember their titles. Fortunately, I did write the reviews for some of them on this blog over the years. The following links would bring you to the relevant pages:

Second Level Thinking - Howard Mark
Gambler's Ruin - Fortune's Formula

An average American reads 10 books a year and CEOs even more. In investing, our job is reading. Do share your lists too and let's hope there would be more titles in the years to come.

Huat Ah!

Monday, November 26, 2018

Minimum Wage vs U.B.I.

This was a planned post for the last General Election in Singapore where some debate surrounding minimum wages sparked my interest. It was stated that 90% of all countries have minimum wages and why is Singapore not in that group. Five years on, the world has progressed and today we are talking about U.B.I. or universal basic income and not minimum wages. So like our beloved SAF still conducting training based on WWII tactics, our economic argument on minimum wages had fallen way behind.

We were very fortunate to have survived as a nation state. Looking back, this was only possible at that exact point of human economic development. If Singapore was founded in any other century other than 19th century, we would simply be absorbed by our neighbours. Further if we somehow gained independence in 1915 rather than 1965, we would had perished. We would just become collateral damage given the global belligerence at that time with WWI and WWII. Similarly, if we gained independence today, we stood no chance competing against Shanghai, Hong Kong, Bangkok and Tokyo. We succeeded because of sound economic policies and innovative growth strategies. Let's hope our new 4G Cabinet led by Heng Swee Keat and our current economic strategies will bring us further.

Singapore General Elections, exciting since 1959!

Okay, let's come back to minimum wages. The original arguments against minimum wages were these:

1. It would cause more unemployment because employers would decide not to employ more workers if being forced to choose between hiring one more worker at minimum wage or loading up more work to its current workforce.

2. It would reduce Singapore's cost competitiveness. We have a high standard of living and by setting a minimum wage, we make our cost base even higher, hence further widening the gap between us and our low cost neighbours.

3. Once implemented, there is no turning back and the minimum wage would just keep rising with inflation. This actually hurts SMEs and the poorest the most. This could be true and hence Singapore had moved to use a levy system instead whereby workers will receive both a salary from their employers and a get levy/subsidy from the government if they worked.

Fast forward to today, disruptions and changes in the past few years have made the minimum wage argument irrelevant.

With robots and automation taking over the world, the risk of 50-60% of the world's population losing their jobs is becoming real. The argument has moved on completely. Prominent economists proposed that governments should start thinking about the concept of Universal Basic Income to be given to everyone, rich or poor, fat or thin. (Or more realistically, every household.)

The idea has the genesis that income is a basic need much like air and water. This is probably similar today to mobile phones and internet. We cannot live without these anymore. To deprive someone of income and internet is much like depriving them clean air and drinkable water. So when robots take over 50-60% of all the jobs there is out there, maybe we should give everyone a basic income. Yes, just as industrialization brought in the welfare state catering for the disabled, technological disruption might need to bring about U.B.I.

We just want basic income!

To some extent, U.B.I. is also the logical evolution for the welfare state. Expenses that are already paid out via the welfare system could simply be transferred into the new U.B.I. Alas, Singapore also never implemented a full-scale welfare system. Maybe that would that bring about another set of major political arguments. But no fear! Singapore is the land of Crazy Rich Asians. Assuming our U.B.I. would be $500 a month amounting to $6,000 per year per household, U.B.I. for all citizen households would only cost $7.2 billion, this is just half of our defense budget. We can fund this easily!

There are two important arguments for U.B.I. The first one is that it would eradicate poverty. No children will go without food or shelter. They would be able to afford education, enjoy basic rights, as all kids should. All our aged uncles and aunties would no longer need to clear trays at kopitiams (local coffee shops serving hawker food). This is just socially and morally great! The second argument: it levels the playing field for everyone. While $500 wouldn't mean much for an affluent household, it would pay for good tuition in a middle income family and change the whole game for the low income family. If the Singapore government implements U.B.I., the opposition party would have to think really, really hard to attack the incumbents!

U.B.I would not encourage people to skive because everyone gets it. It is akin to the basic salary in the army. You will always have that. If you are good and get gold for IPPT* or get promoted, you get more. Super lazy bumps or naturally unfit ones might not get IPPT silver or gold or they might stay as a Corporal for the entire National Service but they are not "skiving" bcos of U.B.I. This is an important point and ties back to the previous one: levelling the playing field. 

Most critics would also point to funding, where is the money coming from? Hence it is also key to set the amount right. It cannot be too much nor too little. World experts believe it should be around $500-1000 for most developed economies. Well, as for our own funding, we answered the question, crazily rich Singapore will have no problem funding it.

Huat Ah!

*IPPT stands for the individual physical proficiency test, a compulsory test in the army for all Singapore National Service men. In 2010, 50% of reservists/NSmen failed their IPPT. The test was recalibrated in 2014.

Monday, November 19, 2018

Chart #16: Millennials

This is a recent chart from WSJ which shows that millennials while carefree and internet savvy faces some difficult problems vs the older generations. They have more student debt and would likely earn less than their parents.



This is a reflection of the higher cost of education as well as pay stagnation. As most types of work get commoditized, we see that only 50% of millennials will get the creative work and get to make more money than their parents. This ratio would continue to go down...