Tuesday, December 05, 2017

Inspecting the Vicom Story - Part 2

This is a continuation of the previous post.

Okay, in the last post, we discussed the basic stuff about Vicom. It is hugely cash generative and we are getting it at low teens PE, 13x to 16x PE for a 30% operating margin, 20% ROE business. This is really not expensive, albeit the growth angle could be questionable. Singapore is a mature economy, our vehicle population is maxed out, we don't have enough roads for more cars. So how to grow?

Maybe Vicom is cheap because there is no growth. Or is there really no growth?

This is where it gets interesting. In stock investing parlance, we call it optionality. Optionality refers to potential upside that is there but we do not know if they would materialize. Usually, if they do, it means a lot more upside but if they don't there is also not much downside. It is said that the best investment portfolio is simply a portfolio of free optionalities.

To delve further, this optionality concept comes from the big branch topic in finance simply called options which were created as early as 600BC by Greek mathematicians but only well understood when two Professors put on their thinking hats and solved the puzzle in the 1960s. Their theory won the Nobel Prize and today, all finance students have to study what they created - Black Scholes Option Pricing Theory. Rings a bell?

Call option chart

The simplest option chart (above) shows how the downside is capped if the stock does not move or in the unfortunate event, even if it goes down a lot, the option buyer only loses his premium (capped at $200 in the chart above) and face no further downside loss. But in the event that the stock price goes up, the option buyer stands to benefit from all the upside. The catch is that options expire and the deal is off once the option hits expiration date.

In a more general context, optionality refers the similar asymmetry in risk and reward but with no expiration date. The catch is that most optionality do not really materialize which is why it is not worth much in the first place and the market refuses to pay for it. The sector with the most optionality examples would be the pharmaceutical sector. Pharma companies are always researching on new drugs and nobody knows which ones would be the next blockbuster drug. The example that comes to mind would be Pfizer and Viagra. 

Back in 1996, Pfizer was just another pharma stock trading at $5. It was not small though (market cap at that time was already USD 40bn!). It generated a billion plus dollars of free cashflow with its huge portfolio of drugs. But in the same year, it filed the first oral drug for erectile dysfunction (ED) - Viagra. Nobody knew how big the market would be. There wasn't such a market in the first place. Men with ED just lived with it, unless it's super serious then they go drink Tongkat Ali or eat oysters or something. There wasn't any medical treatment for ED. If the drug failed, then Pfizer would just continue to make its billion dollar annually with its huge portfolio of legacy drugs and the stock would be $5. As it turned out, Viagra became the biggest hit ever, allowing old men to have sex again and the stock went 5x to $25. At its peak, Viagra sold roughly $3 billion annually. 

Tongkat Ali, herbal treatment for ED in S.E.Asia

So that's optionality. Pfizer was (and still is) a blue chip (now with the blue pill :), if one had bought it then at $5, one could enjoy the blue chip growth (maybe just single digit) and collect a stable dividend (2-3% dividend yield). If Viagra didn't happen, then it's decent growth, or rather, just blue chip growth and dividend. But when Viagra happened, then we are off to the moon. In fact the stock raced very early on as the market simply got excited even before the drug was launched. It more than doubled from 1996 to 1997 despite cashflow being weak in 1997 at only $600m (normally it should be above a billion dollars. Today Pfizer is a $200 billion market cap company.

Let's move back to Vicom. So what's the optionality? I see a few:

1. Price increase for inspection
2. Overseas growth
3. Buyout by ComfortDelgro

The first optionality is just about the timing of price increase. At some point, prices go up like everything else in Singapore. We just don't know if it is 2 years or 5 years. The history shows that the industry had a habit of raising the inspection fee every few years. It was $50 in 1997, then it was raised to $54 in 2001, then $56 in 2005 and then $58 in 2006. Based on its website, current fees are $62 inclusive of GST. This relentless price increase would simply continue bcos first it is nothing compared to the price of the vehicle (more than S$100k in Singapore today for a 1.6L car) and the other costs such as fuel, maintenance and what not. Every price increase again drop directly to its bottomline since there is very little cost in between. So even with the population of vehicle stagnates, Vicom can enjoy revenue growth. This is the beauty. Guaranteed revenue growth. Of course, the cherry on the cake is that Singapore's vehicle population will only go up. We need more buses, trucks, taxis every year. Passenger cars will also just keep growing bcos it is an aspiration to own an expensive car in this warped bubble on a little red dot. The market doesn't see this now, but when it does, that's when our option gets exercised!

Overseas growth is a new angle that is not being talked about right now. But the potential is huge. Singapore, for good reasons, is seen as a leader in standards by our neighbours and a few of them are very happy to bring Singapore companies into their country so as to learn from us. Vicom talks about opportunities in Vietnam. In the same vein, countries like Myanmar, Laos, Cambodia would one day require inspection and testing. Imagine if Vicom could just get 1 or 2 of these markets, or rather just a small slice of one of these markets, the potential is a huge increase in revenue. Vietnam alone has 100m people. Of course, this scenario is still pretty remote. There is nothing concrete yet. 

The last optionality is similarly remote though not zero probability. ComfortDelgro (CD) today owns 67% of Vicom and it is not inconceivable for them to buyout Vicom given that it's such a lucrative business. Why give away that 33% to others? Of course they also want to buy back at a good price which is why nothing has been done all these years after the stock ran from 50c to $5. So the other way to look at this is that if Vicom falls too much, Big Brother CD will just buy it out. Hence there is an inherent floor price to this stock. Our downside is capped much like a call option.

In a red dot not so far away... car wars

But given that Vicom is now a $500m company. CD needs to raise $150m to buy the 33% it doesn't own. With its woes, thanks to Uber and Grab, it would rather put money into this car sharing war to defend itself than to buy back Vicom. (CD only made $100m in free cash flow last year. So it's not a small sum for them, although one could argue that effectively they only need to raise $50m since Vicom has $100m on its balance sheet!) In any case, it might just be status quo for now. Some day they might buy Vicom, but not today.

To sum it up, Vicom has all these optionalities, but it is hard to put them into numbers. So we are paying c.$400m (after accounting for the $100m on its own balance sheet) for a steady $30m free cash flow. This translates to 7.5% free cash flow yield or 13x PE after adjusting for cash. The rest of the options, if it happens, comes free. With bank account interest rate at 1%, property rental yield at 2%, I would say 7.5% yield is pretty decent. In fact, 4% (or more in the future) would come back annually as dividends since they don't know how to deploy the huge amount cash coming annually.

That's basically why Vicom is a buy! Read from the first post.

This author owns Vicom.

Monday, November 27, 2017

Inspecting the Vicom Story - Part 1

Vicom has been one of the most amazing multi-bagger in the Singapore stock market. It was trading at 50 cents 10 years ago, with a market cap of S$150m and over just one decade, it became a $5 stock with a market cap of S$500m, generating S$30m of free cash flow per year on a revenue of S$100m and piled up another S$100m of cash on its balance sheet. Despite such a huge run, I took a look at this stock again and believe we can still squeeze some juice out of it. In fact quite a bit of juice especially if some of the optionalities come true.

Ok, first things first, what are Vicom's businesses?

Vicom is Singapore's leading testing and inspection company with two core businesses. The first is the vehicle inspection business which it has 70% market share across 7 inspection locations in Singapore. For car owners, we know this all too well, as we need to bring our vehicle to these dreadful places every year and get charged $60 for some 20 min routine work which doesn't seemed clear to us why it needed to be done except to satisfy the regulator.



The second business is industrial testing and certification which is done by its subsidiary SETSCO which provides calibration, testing and certification services to various industries. The important ones being construction, oil and gas, aviation. This business makes up 2/3 of its sales but only c.40% of its profits. There is some cyclicality in this business as industries grow or falter with global trends. In the recent years, the slowdown in both the construction and oil and gas sector had impacted earnings. 

So, now that we know more about Vicom, what's the story or rather the investment thesis? The investment thesis is the reason why we want to invest in some company and it should be simple enough for primary school kids to understand. So here's the version for Vicom.

Vicom is a stable, cash generative business (6-7% free cash flow yield) that is under-appreciated by the market. There is floor on its stock price underpinned by its strong cashflow and dividend but yet there are optionalities that would help boost the stock price even higher if they materialize. Vicom is also part of the ComfortDelgro group which might to take it private someday.

The stock market represents the view of all the investors and speculators and they tend to focus on the obvious and the recent events. The consensus view on Vicom is that there are now less cars on Singapore roads and most cars are brand new luxury cars then do not need annual inspections. (Only cars more than 3 years old require annual checks). Since c.60% of its profits come from vehicle inspection, so the stock is not interesting. The other business, as we discussed, is facing headwinds in construction and oil and gas. So, no story. This is why the stock did nothing for the last three years. Its stock price just hovered between $5.5 to $6 since 2014.

Cars are only 37% of Vicom's vehicle inspection business

However, astute investors, we dig deeper. We think at a higher, second level. The pie chart above shows the breakdown of inspection by vehicle type and as you can see, passenger cars only make up 37% of the total pie. The rest of it shows that 63% of the volume actually comes from commercial vehicles which require much more regular inspections. This is the reason behind Vicom's stable cashflow. Inspection is a recurring business. Taxis and buses are required to be inspected every 6 months and goods vehicle annually. There is some volatility due to the economic cycle but by and large, I would estimate that 40-50% of Vicom's overall revenue is very stable. This same argument can be made for its industrial testing and inspection business.

About 15 years ago, this stock was undiscovered as it was too small to matter to most global investors. It also only had the vehicle testing business since it had not bought SETSCO. But when SETSCO came in around 2003, the picture changed and investors took a few years to realize the beauty of its businesses. But still, for the next few years (2005-2009) it was still trading above 10% free cash flow yield. Over time, ultimately, it got bid up and is now at 6% free cash flow yield. 

This strong recurring cash generation capability is what underpins the stock price and hence it is very unlikely that it corrects a lot. To add more colour, Vicom's assets are all fully depreciated, these centres do not need capex, nor much labour, nor marketing or other expenses. Hence the $60 that we pay almost drops directly down to its net profit. That's why Vicom stopped reporting gross margins. But when it did report last time, it reported gross margin it was 96%! That's back in 2013. Today we know that its operating margin is still 30% which had stayed almost unchanged for the past 10 years.

Given such strong cash generation, it has to pay them out or else it would just drown in cash. Actually, it's somewhat drowning in cash. Despite paying 4% dividend annually, the firm amassed S$100m of cash over the years which is 20% of its market cap. They might have to do a big special dividend or something to clean this up. Needless to say, Big Brother ComfortDelgro would probably want it to uplift some of this cash given that its taxi business is really not doing so well and Big Brother really don't mind having a bit of that S$100m buffer.

So even without discussing further, we know that Vicom is a huge cash machine that we can get at 6% free cash flow yield of which 4% comes back annually as dividends. On conventional metrics, it is trading at 16x PE but if we strip out the cash it is actually more like 13x and EV/EBITDA is a reasonable 10x. In today's world of negative interest rates and low returns, these multiples are really not expensive for such stability.

Ok, next post we talk about the optionalities!

This author owns Vicom.

Sunday, November 19, 2017

Chart of the Week #5: Total Business Person!

This came from a book on restructuring businesses with an interesting analogy on how one should improve ourselves as a good business person simply by harnessing our bodies and senses better.



How to improve ourselves as human beings?

(1) Use our senses to first receive all the different inputs well
(2) Use our brains to analyze, strategize, think
(3) Use our heart, elevate our EQ and be able to empathize others deeply
(4) Use our gut, have the courage to make the tough decisions
(5) Use our composure, exhibit strength, character, lead by example
(6) Use our mouth, to communicate
(7) Use our arms and hands, these refer to skills we have learnt
(8) Move! Get into action, stop procrastination

It's quite deep if we want to think throroughly about this. For (1), oftentimes we miss the subtle cues like body languages, the meaning between the lines and hence fail to close the deal. It is about polishing our sensory inputs to the level where we capture good signals. For some this might come as natural but for others, it would take years.

(2), (3) would be pretty straightforward. The ability to use both our left and right brains is key to be a successful business person, or rather, a decent human being. Perhaps EQ is slightly more important than IQ today.

(4), (8) seem to go together as well. Human beings are cowards and sloths by nature. We need to overcome huge inertia to just have guts and to get things started. It is overcoming the daily grind that leads to greatness.

(6) has become very important today because speaking well gives the impression of being more capable of getting things done. That is why ang-mohs always get promoted. This is a skillset our education system should really focus on.

Besides talking, there are other skillsets that would be relevant in different fields such as being able to code, or being able to use special software or hardware. This is (7). In the world of finance, it is accounting, corporate finance, stock analysis etc.

Finally, we get to (5), I would put this as "aura". When we are quite accomplished, we somehow exhibit the composure or aura to be able to lead. For some, it is harder but it is almost a pre-requisite to success. Some people are born leaders, but for most of us, we need to develop all the other seven points to be able to get better at this. I think this is the essence of it all.

So, that's the theory of total business person, corny but deep, I would say. Japan didn't become the third largest economy by chance.

Monday, November 13, 2017

Chart of the Week #4: Singles Day

11.11 has taken a new meaning since it was started in China by Alibaba a few years ago. It's Singles Day! A day where everyone should buy bargain sales online. Somewhat akin to the Great Singapore Sale (which last one whole month in June) but it's just one day.

The same tradition in the US is the Cyber Monday for buying tech stuff and the infamous Black Friday. Here's a chart comparing Singles Day and Black Friday.


In the second year that it was launched, Singles Day sales exceeded both Cyber Monday and Black Friday combined. The sales online has been making new highs every year ever since. In 2016 it was c.USD 18bn and this year it was a crazy USD 25bn! That's more than twice the annual sales of Singtel, Singapore's largest company. It is also larger than the GDP of Iceland.

It remains to be seen if this craziness could continue If Singles Day grows at the average of 30% YoY for the next five years,  it would be bigger than the GDP of Ukraine. One day sales matching the GDP of a country of 45m people. 

Meanwhile, a very belated Happy Singles Day.

Sunday, November 05, 2017

2017 Oct High Dividend List - Part 2

This is a continuation of the previous post.

We are at the second post of this October's dividend stock list. This is the first year that we are doing a bi-annual list. This list has 54 names and we gone through half of those names already. Due to the configuration of Bloomberg, I was only able to capture 15 stocks each, which results in the list being divided into four parts. In the last post, we have Part 1 and 2. Now we shall discuss Part 3 and 4. This is not to be confused with the Part 1 and Part 2 of the posts. So, if each part of the list can contain only 15 names, how many names would there be in Part 2 of the posts? Confusing?

Yeah, that's also how Singapore set exam questions to confuse primary school kids.

The next two lists truly reflect one of the key ideas being talked about in 2017 - the Death of Retail. In the next 20 or so names, we see various retail names like Kohl's, Macy's, Foot Locker and Next PLC just to name a few. As these names get sold down, their dividend yield gets higher but meanwhile they are still generating strong cashflows and margins, well at least that was still true in the last three years, hence they show up easily on these screens. It is hard to say whether they will survive. But what's becoming clearer is that some retail formats are better. Convenient stores and supermarkets will still be around. Innovative concepts (Muji stores, Ikea stores) will still be around. But department stores, hypermarts, undifferentiated malls and shopping centres, these are tough. In short I would avoid these retail names.

Part 3 of 2017 Oct Dividend List

Perhaps the name to highlight in Part 3 would be Harley Davidson. This is a unique brand that has strong appeal to all bikers and its brand image, I would argue, goes beyond motorcycles and is attractive in a few ways. Harley Davidson stands at the pinnacle of motorbikes much like Rolls Royce is known as the most prestigious car every built. It is also analogous to Johnnie Walker Blue Label for whiskey and Patek Philippe for watches. Every biker's dream is to ride or own a Harley Davidson someday. But unfortunately, the draconian traffic regulations and hot weather makes that very much less appealing in sunny Singapore.

Nevertheless, Harley sells 250,000 bikes globally and has a target to reach 50% non-US sales by 2027 (currently at 37%). It has 50-60% market share in the luxury bike segment and generates a significant portion of its earnings from merchandise, customization and financing. These are recurring revenue streams. Harley riders are a unique bunch that won't mind spending a lot on their bikes even when they need to borrow money to achieve that. But there is a limit to such behaviour. Bike unit sales had dropped for the last few years as a result of the collapse of the oil and gas industry (which somehow has a disproportionately high number of Harley riders in the US) and the general weakness of the global economy had squeezed this segment of the population - the disenfranchised workers that would want to own or already owning Harleys. However with such a strong brand name, Harley should bounce back with a vengeance. Having said that, I am adopting a wait-and-see for this stock since there are more interesting names to buy globally. (To be revealed below)

Part 4 of 2017 Oct Dividend List

In the last part of this list, we see a few Singapore names, SATS, M1, UMS, Silverlake, KSH, Cogent and Zhongmin Baihui. Some of these names were discussed briefly in the past but given their small market caps, it would be always be high risk and high return. Much higher than we like it to be. Today, we shall talk a bit more about SATS which had been on this list on and off for many years. There was also a previous discussion in 2016. I had the opportunity to study more about this stock recently and had also visited the newly open T4! Hence it might be timely to give a quick update.

SATS' business is about delivering prepared food in Singapore. It had done a tremendous job in Changi and had expanded quite aggressively to other peripheral markets. It also has some business in Japan and most importantly, it delivers food to the Singapore Armed Forces. There are some issues with the quality of food as every male who had been through army would know, but hey, that's good for investors because recruits can never complain! But the biggest issue facing SATS is always labour cost. It is highly labour intensive and had been squeezed by the clampdown on foreign labour.

The company spins a good story with regard to how it has automated its processes, insofar mitigated the cost of higher labour. In the new Terminal 4, it's all about automated baggage check-in functionality and robot deliveries. These are visuals that sticks and investors appreciate the story better. A good PR and investor relations team is able to add 1-2x multiple premium to a stock! SATS would be in the top quartile in Singapore when in comes to investor relations.

In terms of fundamentals, the firm had also delivered. CEO Alex Hungate had done a great job and we have seen operating margins maintained at 10-13% for the last few years. The company had also delivered revenue and profit growth, which explained the stark contrast between SIA Engineering which had not seen revenue and profit growth for many years. However both stands to benefit from Singapore becoming an aerospace hub with more flights in and out of the country.

Given the strong share price performance over the last 18 months, I would advise buying if only it corrects a good 15-20% from here. SIA Engineering or ST Engineering with a c.5% dividend yields  look like better bets! So that's all for this year's October list!

Here's the past lists:


Monday, October 30, 2017

2017 Oct High Dividend List - Part 1

As promised, this is the first bi-annual dividend list (started only in 2017!) with the first list out earlier this year. As usual, the criteria have not changed over the years and we have used three year average ROE, 4 year average free cashflow and EBIT margin. The dividend yield is cut at 3% and we have 54 interesting names.

They are ranked by market cap. With the largest being P&G at c.USD 220bn. This is the world's largest consumer staples company. While huge in absolute size, it pales in comparison with the internet giants at USD 600-800bn market cap. Apple, the world's largest company today stands at $842bn while Amazon and Alibaba is about $500bn market cap each. Both Amazon and Alibaba has never manufactured anything.

Part 1 of 2017 October Dividend List

The first part of this list also featured some drugs and tobacco companies. The defensive sectors like consumer staples, pharma and tobacco had done very well from 2014 to 2016 and as market goes, this reversal hit them hard. Not in absolute terms but in relative terms. While they did not fall 30-40%, most of these stocks had done nothing in the last 12 to 18 months while their peers charged ahead. The internet names had so far led the way, but the whole rage now is with anything remotely related to tech. Stocks from semiconductors to IT services to IT patent companies had done really well. The only two laggards seemed to be IBM and Qualcomm featured here. 

The current market thinking is that we might see a tech revival not unlike the dotcom era. For the first time in 18 years, we are running out of computer chips. In the past, every IT cycle had a physical demand limit. A few cycles ago, the highest possible number of chips sold would be dependent on the number of  PCs sold, then it was dependent on the number of laptops sold, then the number of mobile phones sold. But this round, there is no physical limit. This cycle would be led by demand for computing power. This is computing power for A.I. or artificial intelligence. Part of the demand would also be for Big Data, which then requires storage, lots of it. Then we have internet of things ie chips in everything from shoes to fridges and also chips for the 900m cars in the world.

Part 2 of 2017 October Dividend List

Speaking about storage, Seagate surprisingly got onto the second part of the list. Perhaps there is a buying opportunity here? Servers today still needs hard disks despite that notion that NAND flash would take over and make HDD obsolete. This was touted more than ten years ago, unfortunately, as prediction goes, it did not happen. We might see a revival for HDD if the storage boom does happen. And the good news is, there are only two companies making HDD nowadays.

The ad agencies like WPP and Omnicom deserves a bit of mention as well. These companies lie in the intersection between the consumer giants like P&G and Unilever and tech. The understanding was the large consumer companies require these agencies to help market their products. They make us think that we need the best shavers and shampoos to groom ourselves. But as internet took over, people are happy to use just any shavers or shampoos. These large consumer firms also failed to engage new users on Facebook and Google. Worst still for the ad agencies, Facebook and Google replaced TV and also became their competitors for ad fees. So, there they are now, looking cheap and looked as if they might be decimated in the new economy. 

The verdict is not out yet. Are they a screaming buy or sitting ducks? We do not know. I have a gut feel they might be sitting ducks. Facebook and Google had simply become too powerful. These old traditional firms might not have a chance. But everything has a price. If they get too cheap, maybe it's worth a last cigar butt puff.

Sadly, I struggle to recommend a good idea from these two parts. If I have to choose, it might be one of the pharmaceutical names. Drug companies in aggregate had done good for the society. Yes, they had their fair share of damages, such as opioid, overcharging and other issues. But they are slowly winning the war against cancer and cured many other diseases that had plagued humans for centuries. Not to mention, Pfizer improved the sex lives of many, many couples. While many readers here are in no need of Viagra and its generic cousins, but hey, we all grow old! Some day, we would all hail Pfizer and thank the great firm for inventing the blue pill!

The miracle blue pill!

Again, they have devalued because they are not part of the new economy. I would say that paying teens PE and receiving a 4% dividend yield for some of these firms are bargains. It might be worthwhile to start researching on some these great drug companies: Pfizer, Merck, GSK and AstraZeneca. Though not on the list, Roche, the world's leader in cancer drugs might be a good candidate to start with. It also has another diagnostics business that is stable and steady.

Next post, we look at Part 3 and Part 4 of this October's list where more Singapore names appear!

Here's the past lists:
2017 Mar Dividend List
2016 Dividend List - Part 2
2016 Dividend List - Part 1
2015 Dividend List - Part 2
2015 Dividend List - Part 1
2014 Dividend List
2013 Dividend List - Part 2
2013 Dividend List - Part 1
2012 Dividend List
2011 Dividend List
2010 Dividend List
2009 Dividend List


Tuesday, October 24, 2017

Chart of the Week #3: Life Cycle of Bubbles

The following are famous charts created by McKinsey (I believe), depicting the life cycle of bubbles as we have seen. This chart had gave a good explanation of at least three bubbles in recent history. The dotcom bubble, the Japan bubble and the 1929 stock market boom and bust that led to the Great Depression.


The chart above shows the phases of development staring with R&D and then moving to first generation products and how early adopters will join first. This pretty much described how the internet and the dotcom bubble had evolved from the late 1990s till today.


This second chart (above) tries to plot various technologies today into the same bubble life cycle. I think this was probably done a few years ago but some of the data points are probably still relevant. It is also worth noting that it takes decades after the initial hype for the stock markets to return to previous highs. 

For the 1929 boom and crash, the US stock market only exceeded the previous peak in 1955 and good 26 years later. For the dotcom bubble, it took 17 years. Japan hasn't surpass the peak of 1990 after 27 years. So never get caught in a bubble!

Hope this helps!

Tuesday, October 17, 2017

Market Trading Tactics - Part 2

This is a continuation of the previous post.

In the last post, we discussed how lessons learnt from traders apply to investors. As market participants, we really have very little control over our destinies unlike most other activities. A tennis player can always decide whether to be aggressive or defensive, to target opponents’ weak backhand or serve to kill. A businessman, likewise, can also do a lot, such as using discount pricing or scale to squash opponents or headhunt the best talent in the market to run his business. But for investors and traders alike, we are in a game where we control only one lever. We pull it to buy, release to sell, and the length of our pull determines our bet size.

Maria, still the most beautiful tennis player.

In other words, as market participants, we can only determine our entry price, our exit price and the size of our trade. This game is really quite restrictive. Hence the lessons from the last post would hopefully serve to remind everyone that in this game, we are our own worst enemies. The crux of success boils down to superior analysis and managing our psychology. I would think that psychology is more important than superior analysis.

Previously, we discussed the first two points about control and style. Today’s final point is about our own emotions. Particularly how our emotions would create what Daryl Guppy (the author of the book Market Trading Tactics) called an emotional stop loss.

In my years of investing, I have not really thought too much about this. Luckily or unluckily, I believe I never hit this stop loss. An emotional stop loss is the amount of money that we cannot afford to lose emotionally. It could be $10,000 or it could be 10% of the portfolio. If we were hit by this magnitude of loss, we feel really bad emotionally and we start to break down. We cannot think rationally and make stupid decisions. We are very likely to just sell out everything, hence cutting loss at the worst time possible, only to see that things recover after that. Obviously, this is different for everyone but we must recognised it’s there.

To make things more vivid, let’s put in some no.s. Imagine that we have a $100k portfolio and our emotional stop loss is $20k. But we did not know this. We put $25k into a pharmaceutical stock hoping to make 20% since our analysis showed everything was great and a new drug would be launch soon. Lo and behold, the company announced the new drug failed and it goes down by 80% in a week. So we lost $20k in a week. This is 20% of the portfolio. We just lost a couple of years of overseas trips at a click of the mouse button and we needed that for the downpayment of a new car. We panicked and sell out, shared the bad news with our spouse and faced the music, only to see the stock recover in the months after.

This is the emotional stop loss.

It is very much similar to a nervous breakdown or a snap. Our psychology makeup somehow works like a rubber band, if we are over-stressed, or over-stretched, we will snap and when that happens, it's very hard to recover. We sometimes see this even in friendships. People who are good friends for years but time after time tension built up and one incident (like a friend refusing to just put a Facebook Like when requested perhaps) can ultimately bring about some kind of a crunch that could simply bring the other to conclude, the friendship bond is broken. It could be repaired but it will not be the same.

Can we accept these friends?

So to make sure this never happens, we need to size really well. We need to think in terms of both absolute dollars as well as percentage of the whole portfolio. We would also need contingencies. For me, the rule of thumb would be never putting more than 10% of the portfolio in any single name. In fact, I would try not to get close to 10%. If the stock rises that much, then it’s best to sell out a portion of it. Of course, starting a position small definitely helps. Starting a new position at 1% and then look to build up as we learn more seems like a good strategy.

Our relationship with money is unique and the way we handle it is also unique in the history of mankind. From the caveman era till modern society, humans always dealt with physical possessions and very seldom the concept of virtual wealth as we do today when trading with screens and computers. Human activities in the stock market only started recently and hence its impact is not well understood. It is famous or perhaps infamous that Sir Isaac Newton lost a fortune in the early British stock market. For a genius like him to lose a fortune, what are our chances if we don't try hard to understand what we are up against?

"I can calculate the motion of heavenly bodies, but not the madness of people." - Sir Isaac Newton

It is said that every trade should be more akin to the decision process we make when we buy houses or for some entrepreneurs, buying and selling businesses. When we are looking to buy our matrimony homes, or a future nest, we really do serious stuff. We go for multiple viewings, we study maps, understand localities, we interview neighbours, we research markets. Well, at least I believe most of us do some of these when deciding to put hundreds of thousands. Yes, while each stock position will be just a fraction of homes or businesses, the due diligence should not be proportionately less. Even for trading, we need to do a lot more work than we think for each trade. I would say that the checklist should be at least 7-8 steps as I have depicted previously. But it's not easy. It takes effort. This is why so few ever succeeded in making huge sums from the markets.

This two part series on Market Trading Tactics hopefully gives us another tool to get there. To summarize:

1. In investing, we control only three variables: the entry price, the exit price and the size. Of these sizing is the most important, followed by the entry price. We get these rights by doing deep-dive analyses, understanding the intrinsic values well and buying way below them. It also means patience. Sizing comes with experience and it's important not to size it too small that it doesn't move the needle. Or size it too big such that it hits our emotional stop loss.

2. We have to know our styles. Some of us are bulls and other bears. Bulls tend to get in too early and bears too late. We have to adjust how we then enter markets. Bulls should enter small and build up. Bears have to enter big and/or try to be a bit earlier but with a smaller stake.

3. We must never hit our emotional stop loss because we cease to function at the high mental capacity to invest or trade. We need to do better analyses and know our own psychological makeups better in order to beat the market!

Hope this helps! Huat Ah!

Happy Deepavali to all!

Monday, October 09, 2017

Market Trading Tactics - Part 1

I bought this book titled Market Trading Tactics for ten years ago and left it on the shelf. It stood there ever since, collecting dust. At the back of my mind, I didn’t want to read it. I couldn’t figure out why I bought it in the first place. I am an investor and as an investor, there was no need for trading tactics. In my mind, traders and investors were enemies. We were the Allied Powers and them, the Axis Powers. The markets were our fighting ground. So how can I read a strategy book devised by the enemies?

I was so wrong!

Recently, in order to fulfil my mission to shift all my reading onto Amazon’s Kindle, I decided I have to quickly finish the last of the few hard copy books left on my bookshelf. Market Trading Tactics begged to be unwrapped. Yes, it was still wrapped in plastic which had turned yellow. So I did unwrap it and read it at full speed. I was done in two weeks.

Market Trading Tactics by Daryl Guppy (2000)

To be honest, the bulk of it was not what I was looking for. These were about moving averages, trading indicators, chart reading etc. I maintain my view that if past prices could predict future prices, then the infamous stats would be reversed: 90% of all market participants would make money by trading stocks and a lot of professional traders would be billionaires. Billionaires not just millionaires. Past prices and trading volumes do provide some information useful to long term investors and traders alike but not to the extent that it can help anyone beat the market consistently. I still believe it is much harder to generate long term 8-10% annual return by trading.

The anecdotal evidence was provided by the author Daryl Guppy who wrote about his own trading career including how much he could make by trading. These were really interesting stats. He shared that in one year, he made $60k profits on a base of $100k, making trades every two weeks (i.e. about 30 trades for the year), while adhering to the various rules that he set for himself, including stop losses, limits on capital risked per trade etc. He also shared that his average trade size was about $30k and his win rate was 70%. Of course, if he could replicate this for 30 years, then he would have beaten Warren Buffett. Since his net worth is still much less than that of the Oracle of Omaha or for that matter, many less famous value investors (yes, I am passing judgement here :), we have to assume that this should be one of his best years.

Having said that, I did learn a lot as an investor and some of this knowledge could actually be applied well to what we do. Here’s three nuggets that I found pretty useful:

1. As a market participant, we could only control three variables, out of many, many variables that goes into generating returns.

2. We need to know our styles, are we inherently bullish or bearish and how we should correct for our biases.

3. What is our absolute emotional stop loss?

You have to cut loss! You have to!

Ok, that's Korean drama style, we are not there yet. Let's tackle them one by one.

The first one should have come as common sense but I never really gave too much thought about it until I read the book. The author described it really well. So he said that in most activities that we engage in, we usually have a lot of control. Be it playing tennis, running a business, cooking etc. In running a business, we decide how to launch products, where to launch, at what price, who to hire, where to do promotions, what to do with e-commerce etc. Successful businessmen made lots of good decisions that propelled their businesses forward and beat competition. But as an investor or trader, we can only control three things. Yes, three. Our entry price, exit price and size of the trade (relative to our portfolio). That’s it.

Yes, there are activist investors that nowadays try to influence businesses, getting great outcomes, but for most of us, that’s pretty much the only things we can control. So, how do we win given what we can do is so limited? Hence what really matters is really psychology which impacts how we control the three variables. We should never be taken for a ride by the markets, buying into euphoria and selling in panic. I would say that for long term investors, the priority of importance is probably the sizing, followed by entry price and then exit price.

Sizing is also related to the last point so let’s keep things simple for now. Every position should be big enough to matter but not too big as to jeopardise the whole portfolio. In my experience, it would usually be 2-5% of a portfolio. For really high conviction bets, it could go up to 10% but that’s really risky. If we are wrong then wipe out a lot of our net worth. Next, entry price. There is really nothing much to add. For value investors, this determines almost everything. We buy way below intrinsic value and earn the difference between price and value. If we are right, there isn’t really an exit per se, bcos the value compounds and over time, we see these become 5 or 10 baggers.

On this note, we move on to the second point which is about styles.

Most of us are predisposed to have some sort of biases. We are inherently optimistic or pessimistic, we have formed our world views earlier in life and we act according to these views. For me, I am inherently optimistic and this comes up in my investing style. I tend to bullish and hence tend to buy easily, usually catching the falling knife too early and the stock continues to fall after my purchase. But thankfully, most stocks recover afterwards as I got the long term story right. I also tend to overstay, even in stocks that I believe I should be exiting. The converse is true for bearish people.

In order to correct this, now I know I should always enter a position small. For instance if this stock should ultimately be a 5% position. I would start with 1-1.5%. Then I have 2-3 bullets to add to 4-5% over time. Usually the stock goes down after the first buy, and the second and third buys allow me to catch the bottom. As for selling, I would need to develop better selling techniques, by setting rules such as never have any positions bigger than 8% of the portfolio. Sell a third or half the position after the stock has gone up 100% etc. However, these tips are also very personal i.e. it differs from person to person. So you have to know your own style and develop techniques to better manage and control the three variables well.

In the next post, we talk about the emotional stop loss!

Sunday, October 01, 2017

Chart of the Week #2: Bitcoin Bubble vs Today's Markets

Bitcoin has been touted as the new currency. Since government legal tender notes may not mean much if they are all bankrupted and we really don't want to go back to using gold to barter trade, one revolutionary solution might be bitcoin which is based on the newest, baddest blockchain technology that ensures safe encryption, traceability and eliminating the need for intermediaries like banks, credit card companies that had creamed more than their fair share of transaction since time immemorial.


Bitcoin had done crazily well over the last four years. It is said that someone who had invested at the start for $100 would be a millionaire today. But again, it looks like this is gonna be a classic bubble where things will become real ugly.


Here is another representation of the classic bubble chart where the final stages of greed, delusion and new paradigm hits. As things turn, one would see denial, fear and capitulation. We have seen this unfold many, many times but it's hard to identify where we are in the midst of things. Bitcoin could see the crash soon but the global markets today might be at the enthusiasm phase, we ought to be careful going into 2018 and 2019.

Source: FT, Dr Jean-Paul Rodrigue, Dept of Global Studies and Geography, Hofstra University and Google

Tuesday, September 26, 2017

Chart of the Week #1

Investment is pretty much about ideas and insights. Ideas about innovation, trends, moats help investors think through their stocks and find out those that could ride the trend while keeping competition at bay. Insights help us see what others are not seeing yet.

A lot of ideas and insights come from charts and hence this series is to highlight charts, tables that bring across these clearly. In this inauguration issue, we look at the demographics of Asia.


The chart above shows that Asia is seeing peak working population in the next decade. With the exception of India, most Asian countries will see a decline in working population. Japan has already gone through this phase and with that its stock market stagnated for 20 years. Hopefully, with Japan's lessons and incorporating US's innovation and capitalism, most parts of Asia can avoid that fate.


The next chart shows the impact of the drag on the economy for the next decade if we do nothing. Singapore will see the biggest drag from demographics, followed by Thailand and China. We may need to import a lot more people than we like. 

Chart source: Nikkei Asian Review

Wednesday, September 13, 2017

Singapore's Conundrum: MOE's Compounding Mutation

Spoiler alert! If you intend to watch Akira (1988).

Once in a while, on this infosite, we discuss Singapore's education system, which, in my opinion, is mutating uncontrollably into something that is ready to implode any time. While researching for this post, it reminded me of this Japanese cult anime called Akira that depicted an apocalypse future where kids with psychic ability (like 100 times more powerful than Star Wars' Jedis) wreaked havoc and destroyed cities. In the scenes below, the kid with psychic ability was not able to control his power and mutated into a huge monster that ended in a la-nuclear explosion (if I remember correctly). The day was saved only (or partially saved) by a miracle. Again, spoilers ahead in case any reader here would ever want to watch Akira.

Scenes from Akira (1988)

In some ways, our education system is really like a monster than had been mutating and mutating all these years and looks like it would further mutate wreaking havoc for Singapore. In some ways, we are seeing some warning signs: more and more teenage suicides, the recent infamous NDP middle finger boy, Amos Yee, just to name a few. So what's happening?

In the past, we discussed these issues, poor working environment for teachers, school rankings, kiasu parents, elitist system, syllabus that was way too mature for primary school kids amongst others. I would say that over the past 20 years, these issues were simply compounded as one detrimental issue added on top of another. It's some kind of compounding mutation like what happened to the kid in Akira. He was actually a fine lad in the beginning.

To better illustrate this point, we look at another manifestation of the problem that is how parents tried to tackle the issue with creative solutions, how the system accommodated and how this got crazier and crazier. I would say that there wasn't a problem 30 years ago, when I was in primary school. Back then, we were just interested in getting kids to school, making sure we got the literacy rate up. The problem really started say some 15 years ago when parents realized they needed to upend the system to gain an advantage for their kids in our small little red dot. So these pioneer mutation experts gamed the system by preparing ahead of the syllabus and/or trying to get into good primary schools on Day One. Back then, there was no need to volunteer to get into good schools like Raffles Girls or Nanyang. It was free for all.

Then some 10 years ago, the good schools started to feel overwhelmed since everyone wanted to get in and they created the damned volunteer system. This was the beginning of the end since only privileged families can afford to do the volunteer hours. Then the hours lengthened. And lengthened. Today, it stands at 80 to 100 hours for the best schools. Other parents, thinking ahead started preparing for GEP to try to game GEP - the gifted education program that allow kids to skip PSLE and also in other ways (direct admission), secure a path to good secondary schools and higher education, even though their kids may not be gifted.

Then there was the huge tuition problem. After years of parents preparing kids ahead of the syllabus, the schools started to teach less and less, outsourcing real teaching to the billion dollar tuition industry. But as the game progressed, it's not just any tuition that would allow the kids to smooth-sail through PSLE. About 5 years ago, polarization in the tuition industry happened, with Learning Lab and lots of other star tutors and star centres paving the way for elite tuition. Only by paying up can students stand a chance to be good at PSLE.

To sum up, over the past one or two decades, our education system didn't evolve to be more robust to deal with these changes. It let the mutations grow like cancer.


Mutation gone wild

Today, the mutation had gone truly wild. In fact, the tables had turned and it might not be feasible to go into the good schools unless the parents are willing to fork out thousands of dollars every month to keep up with the system. It might be better to be in a good class in a good neighbourhood school, with young and energetic teachers. Coupled with tuition, the kid stands a better chance to do well in PSLE. This problem came about because of the lack of good teachers.

You see, MOE (Singapore's Ministry of Education) had been losing the good teachers for years, so the ratio of good teachers in the system could be just 20-30%. These teachers would be assigned to the best classes. So in good school, it is more likely that an average kid would not be in the best classes hence getting the poor teachers. While in a neighbourhood school, the reverse is true. If a kid gets a poor teacher, it takes a lot more effort and tuition to catch up. The kid is also less motivated. In school, he is not taken care of by the poor teachers, and he has to go for lots more tuition which makes him tired. All these further exacerbating the issues, making the mutation worse.

We learnt that compounding is a good thing in investing. Returns compounding at 10% makes our money double in 7 years and quadruple in 14 years, growing 8 folds in 21 years, meaning $100k can become almost a million over two decades. This similar concept works in reverse in MOE. The mutation is compounding and has intensifying the problem for all primary school kids and their parents. Now that MOE is going to preschool, it might be more cancerous compounding.

Some might argue that it's the parents fault. It might be, but we discussed this before as well, we cannot stop an arms race or much less girls wearing higher and higher heels wanting to look tall and beautiful. Similarly, we cannot stop parents from being kiasu. Some also argue this is what it takes to be really good, to win global math and science Olympiad competitions. Maybe, but why drag the whole nation into this race, not every student can be Joseph Schooling. The system cannot just be catered to produce a few Joseph Schoolings while decimating childhood and causing teenage suicides.

Some say it's about building character, building resilience. Again that's true. But we also use that reasoning for conscription. Army sucks, we still dig trenches, something important maybe a hundred years ago to escape artillery bombing during WWI, but today people are bombing with drones. So, we carry ET stick and blade for what ah? Some say, in the army, we learnt almost nothing useful for working life but we say it builds character. Army builds resilience.

Scene from Akira (1988): Nuclear explosion

In fact, the resilience excuse is pretty useful. So a messed up education system builds resilience. Army builds resilience. We got a hardship overseas job posting, it helps build resilience. When we encounter bad bosses at work, they helped build resilience in us. Surviving a nuclear explosion builds resilience. Heck, everything bad builds resilience. But shouldn't we focus on fixing the system?

Alas, the more I think about it, I believe it cannot be truly fixed. I thought we could some years back (see other posts in the Education label). But we have mutated beyond the point of no return. The partial solution could be scrapping PSLE. This could be good enough for the next decade or two. We would spare young kids going through this proverbial MOE's baptism of fire before puberty. Most countries have their students tested at university entrance exams, usually at age 18. Singapore is unique that we do it at age 12. If we scrap PSLE now, we dial back the mutation somewhat, but the trajectory is unlikely to change, we are heading towards South Korea's path.

Here's an excerpt from Wikipedia about South Korea's education system.

The system's rigid and hierarchical structure has been criticized for stifling creativity and innovation and is also described as intensely and "brutally" competitive. The system is often blamed for the high suicide rate in the country, particularly the growing rates among those aged 10–19. Various media outlets attribute the nations high suicide rate on the nationwide anxiety around the country's college entrance exams, which determine the trajectory of students entire lives and careers. Former South Korean hagwon teacher Se-Woong Koo wrote that the South Korean education system amounts to child abuse and that it should be "reformed and restructured without delay." The system has also been criticized for producing an excess supply of university graduates creating an overeducated and underemployed labor force; in the first quarter of 2013 alone, nearly 3.3 million South Korean university graduates were jobless, leading many graduates overqualified for jobs requiring less education. Further criticism has been stemmed for causing labor shortages in various skilled blue collar labor and vocational occupations, where many go unfilled as the negative social stigma associated with vocational careers and not having a university degree continues to remain deep-rooted in South Korean society.

Well again some Singaporean parents are thinking ahead, pulling the kids out of the system if they could. Already, 20-25% of every cohort now go outside the conventional route in secondary schools. They could be in international or private schools and I believe more and more parents are also sending their kids overseas at the junior high level if they could. 

The ultimate ideal model is the Nordic education system where the best teachers (all Masters and PhD holders) are put at the core of the system and they believe in the true altruistic learning philosophy making sure that learning is enjoyable, done at the child's pace and ensuring that no child is left behind. This is the direct opposite of our system that emphasizes about ranking and results, commoditizes teachers and the teaching profession and ensures everyone is left behind except the elites. To be fair this is an Asian phenomenon and no Asian nation had successful replicated the Nordic model.

In Akira, the world averted a catastrophe with great sacrifices and the ultimate reset - a Big Bang that gave birth to a new universe. Perhaps that's the miracle we can hope for in Singapore's education conundrum.

Tuesday, August 22, 2017

SGX's Biggest and Smallest

Once in a while, it's worth doing some interesting stock taking to see rankings, compare charts and tables just to take note where things stand. Today, we want to look at SGX's biggest and smallest, just for the fun of it. We did a partial exercise like this a long, long time ago. Back then there were 700+ stocks listed on SGX. Today, as things stand, we still have 700+ and as per previously, most stocks are not investable for various reasons. We shall look at them later. 


Singapore's biggest listed names

The first table looks at the best and the biggest of our beloved little red dot. Singtel, at S$65 billion market cap is the largest local company. Singtel has been the largest since forever and looks like it would remain so with #2 DBS almost S$10 billion away. Although we could argue that the Jardine Group could be bigger if we add all their companies together. At its peak, Singtel hit S$70 billion and we would likely see it exceed that as long as Singapore continues to grow and its overseas subsidiaries continue to churn out cash. 

Next we have DBS and OCBC and further down UOB making up nearly S$150bn in market cap. The banks and property companies (further down the list: Capitaland, City Development, Ascendas etc) had always been a huge part of SGX and would remain so given our status as a financial hub. What's more interesting is the Jardine Group. Amongst the top 15 names, Jardine Group occupies four slots from Jardine Matheson and Strategic in the infamous binary structure, followed by Jardine Cycle & Carriage, Hong Kong Land. In the next list we also have Dairy Farm, the retail giant and the firm behind 7-11, Guardian, Cold Storage and Ikea.

Then we have the others, a group of interesting companies from Thai Beverage, Wilmar, Genting and some State Owned Enterprises or SOEs (ST Engineering, Keppel, SIA etc). Interestingly, the SOEs provide the highest dividends as they are also being perceived as slower growing. Singapore, by and large, had become a very dividend focus market with the top names all providing decent dividend (except Jardine Strategic which is tied in the binary structure). The next set of names (below) provide even higher dividends with REITs and telcos leading the way - Starhub at 7% dividend!

The next biggest!

To me, this list looks more interesting as there should be room to grow at single digit market cap and some names here have been highlighted a few times on this infosite: Sembcorp, Dairy Farm, SATS, SIA Engineering (not here but in the next set of names ranked by market cap - truncated and not shown on this post). The REITs would also look interesting at 6-7% yield. However do also avoid some companies that had already shown to be problematic: Olam, Comfort Delgro (getting killed by Uber and Grab) and SPH.

Smallest of them all!

Finally, we have the list of the day, the smallest on SGX. The smallest stock listed apparently only have S$1m in market cap, which is very likely smaller than the net worth of some readers here (definitely so if you own a private property!). It's a mystery why some of them are still listed. A lot of names were the once infamous S-chips. Most do not pay dividends, nor have profits. I would just say, don't bother researching them, there are enough other companies to do work on. 

There is this name though that caught my eye - Luxking Group. This is also one of those S-chips and surprisingly, it had generated positive free cashflow for the past 6 years. In 2016, it churned out S$4.5m in free cash while it's market cap is $5.5m hence implying a phenomenal 80% FCF yield. Unfortunately, I know next to nothing about this firm and just by looking at its financials, it's really hard to make a call to say this is an okay business. Even if we determine it's okay, liquidity is too low and it's not really traded, so in short, it's hardly investable. Nevertheless, if anyone here knows more, do share!

Next post we shall look at education (again!) as highlighted in PM's NDP rally speech!

Tuesday, August 08, 2017

2017 First Half Review - Part 2

This is a continuation of the previous post.

The last post we talked about the revival of tech brought about by multiple rounds of quantitative easing (QE). QE flooded the world with cheap money which ultimately went into investments in these tech startups (well, at least some part of it). There is a Cambrian explosion of new ideas and business models. We saw the rise of Grab and Uber, upending taxis. We have AirBnb for room-sharing, then office sharing, then now home sharing for people who don't want to buy properties ever. We have food delivery making waves and other ideas still embryonic but with the potential to further disrupt old economy business models. Then we had gaming taking over the world by storm. 

Gaming is now a $100 billion industry, bigger than Hollywood and music combined and is poised to become a huge sporting industry as well with the advent of e-sports. Already, the number of viewers on Youtube watching e-sports is reportedly more than the number of soccer fans watching the last FIFA World Cup. We might see the day when E-sports teams are worth billions (like soccer teams) and e-sports stars make multi-millions (like soccer stars) and their merchandise and goods are highly sort after by fans worldwide. Tencent and Activision Blizzard would be the stocks to play this secular trend.

Tech brands already started world domination in 2013

However, this tech revival had only benefitted a small percentage of the global population. Tech entrepreneurs and their employees have made a lot of money but not the regular workers on Main Street. In fact. many employees of the old economy had been dis-enfranchised by tech companies. Think how Uber destroyed Comfort Delgro. or how Amazon is killing the mom and pop retail stores or even Walmart. Tech, as with many things that had happened since the Global Financial Crisis (GFC) had widen the gap between the haves and the have-nots and contributed to the rise of populism (the political trend that allowed populist like Donald Trump and Rodrigo Duterte of Philippines to be elected).

There is a polarization between the haves and the have-nots globally. This is one of the huge side effects of QE. You see, Economics 101 tell us that when we print money, we should expect inflation and we did hve lots of inflation. This happened not the normal price inflation which we shall explain why later, but asset inflation. Thanks to the global central banks coordinating global QEs, we had massive asset inflation. That is why markets are hitting all time highs, art and wine and other collectibles are getting more and more pricey and Singapore properties had not decline much despite rounds and round of cooling measures.

With money flooding the global markets, the rich or the haves are struggling to put their money into good investments. Hence they go for stocks, collectibles and properties. They are buying up prime properties in global cities. It was reported that Chinese accounted for 1/3 of all London building transactions in the last 12 to 18 months. Singapore is definitely on the priority list for the global rich to park money. Hence it might be time for Singaporeans to relook at buying condominiums or risk not being able to buy one ever again.

While asset inflation had taken over the world, price inflation had been mysteriously low. This goes against Economics 101. I believe this is linked to the tech disruption that we had discussed. Technology companies, flooded with liquidity, had been able to provide free services hitherto. Think of how Uber and Grab had subsidized taxi fares, how AirBnb made travel affordable and how Amazon made buying stuff so cheap and how much productivity had been gained with the use of technology. Robots are taking away jobs and pressing down wages. This would continue and hence price inflation might remain low for years to come. 

The Gig Economy

The gig and sharing economy had also suppressed wages for the blue collar workers globally and this is generally not good. Without wage increase, we won't get economic growth and inflation. Mild inflation is actually necessary to create a virtuous cycle of economic growth and wage growth. This is now being challenged with the over-extension of QE. Unfortunately, the workers for these gig economies are still thinking they are better off because they can work at their own time and "be their own boss". 

So, what's the solution?

Alas, there isn't a good one. This polarization between the haves and the have-nots looked like it might just continue, until the next Global Financial Crisis (GFC). It is true that the have-nots are protesting. That is how Trump won the US elections. But Trump was not going to help the have-nots. He might just make it worse for them. Hence some believed that the end game could be a mega GFC or WWIII. If that happens, then all that had been discussed on this infosite goes down the drain. Whatever we have in our banks, in custody of other banks or security houses would be worth nothing. Hence I have always advocated that as astute investors, we might want to consider having a good portion of our assets in physical gold.

Well, that's one nightmare scenario if we don't resolve our issues in the next 5 to 10 years. As for the rest of 2017 and 2018, we might see the markets getting healthier as US continues to break new highs, Europe is finally recovering from the Grexit scare and the Brexit uncertainty and China continues to maintain steady growth (despite its shadow banking problems being unresolved). As for Singapore, we should expect the STI to also do well given that 40% of the index is related to banks and properties and we should expect them to rally with the positive outlook of the global economy. 

But the trick is also to sell into strength as valuations don't look cheap and we are not sure how long this party could last. When the music stops and lights come on, we have to face the reality - we did not solve all the problems of the last crisis. 

Happy National Day!

Read from the first post.