Friday, October 18, 2019

Books #6: Shoe Dog

This post contains spoilers for Shoe Dog, if you intend to read the book, click the "x" at the top left or right corner of the browser right now, thanks! Do come back next week!

Shoe Dog written by Nike's co-founder Phil Knight was published in April 2016. It was written in plain English and immediately shot up the bestseller list as one of the best business books ever. Phil described how he tried to build up Nike, the difficulties he faced, the juggles between work and family and the seemingly insurmountable task to beat Adidas, which in 1965 probably 100x bigger than Nike. It's really must-read for anyone who wants to startup a company.

We tend to see only the end result of spectacular startup successes and think we can do it. One tagline to encourage more startups in Singapore goes like this, "Tired of a 9-5 job? Start up your own company, be your own boss!" It is the same trick used to entice thousands to become Uber drivers. It's never that simple. The greater the success, the greater the effort put it to achieve it. Are we actually up to it? What is not said is that working at a startup is not 9-5 but 24x7x365x10. To be really successful, both the CEO and the new team have to work 24 hours a day, 7 days a week, 365 days for 10 years or even longer.

That is what it takes. It's a competitive world. It's the same story in all arenas of spectacular human achievement: gold medalist in the summer Olympics, Nobel Prize winners, Jeff Bezos at Amazon, Stan Drunkenmiller. You name it. Even in Singapore, past President scholars - how many hours did they put into their studies? Robert Kuok. His memoir was also published recently. Gosh, how hard he worked. That's the reality. The greater the success, the greater the effort put it to achieve it.

The story of Nike's employee #1 Jeff Johnson also came across memorably for me. He was Phil's good friend and a reliable worker. So Phil tasked him to do the most difficult stuff like firing people and then sending him across the country to restart the new office that was in a mess, with no advance notice, no resources and best still, no increase in salary. It's usually not a one man show. Great endeavours require great teams.

Nike was fortunate to have such a team. In my mind, Shoe Dog was, in essence, a remarkable story about teamwork. A good team rarely exists. Think of all the organization structures all over the world. People are simply put together based on their CVs. But a real team requires camaraderie, diversity, balance, trust in good leadership and also good advisors. Phil had his coach, Bill Bowerman, the other co-founder of Nike. He was a fatherly figure and the guy who originated the idea of Nike Air. We all need mentors in life to bounce ideas, to guide us towards better solutions. This is one of the most important takeaways for me after reading Shoe Dog.

The contrasting corollary to the above is soft partnerships. We must be mindful of people who were helpful when circumstances were good. In Nike's case, these were the Japanese partners that Phil worked with. It's nothing bad because it's business. These partners are not Nike's teammates. They had their own interest to look after. So, when the winds change, they have to part ways. Phil was good at reading this and moved quickly to secure Taiwanese and later Chinese partners. That's just business. I guess the lesson learnt here is to be able to read people well and where their ultimate loyalty lies

To sum up this post, I would like to circle back on hardwork, intelligence, luck and success. It takes a lot of hard work to start something. But hardwork itself is not enough. Bill Bowerman's quote above comes in right here. One needs to work hard and also work smart. Innovation brings about the step change to rise above the competition. But that's still not enough, Nike's story is full of lucky encounters of how one wrong step would have meant bankruptcy. Behind one successful Nike, there are hundreds of failures. Behind every successful startup, there are many more failed attempts. 

So, it's not just do it. In this internet age, think different, do no evil, move fast, break things on top of just doing it! 

Thursday, October 10, 2019

Charts #25: Trade War Update

Here's another trade war chart from BBC. The last two bubbles are simply increasing tariffs from 10% to 25%.

Interestingly, the cumulative amount of the trade war impact was smaller than Lehman's financial assets at USD 600 billion when it collapsed in Sep 2008.

Saturday, September 28, 2019

2019 Market Review: The Phantom Menace

Eleven years ago this month, Lehman Brothers, one of the largest investment bank in the US, file for bankruptcy protection. It held over USD 600 billion in financial assets. The Fed and the other America banks had already engineered two other bailouts in the prior months: Bear Stearns and Merrill Lynch. Bear Stearns was sold to JPMorgan at $2 per share, along with all its assets and liabilities. This allowed the stronger JPMorgan to slowly clean up Bear Stearns' books which limited impact on the markets. Today, nobody remembers Bear Stearns. 

Phantom of Wall Street

Merrill Lynch got a good deal on the eve of Lehman's collapse, it was sold to Bank of America at a 70% premium to its last traded price. Unfortunately, it was not enough for Temasek, who bought it about a year ago and ended up losing a big chunk of its capital. But most importantly, the dirty laundry was kept out of limelight again and the buyer spent years cleaning things up. Alas, it was not so with Lehman Brothers.

When Lehman went down, its USD 600 billion of assets which was linked to trillions more was exposed. It pulled down the global financial system like a broken spider web and triggered the Global Financial Crisis. It was serious. Many believed that the worst case scenario was the end of our financial system as we knew it if the powers that be did not take the right steps. Fortunately they did.

In the aftermath, AIG, the insurer, was broken up as it insured those who bought sub-prime mortgages, including Merrill, and was on the hook to pay up the losses. The rating agencies were affected. They gave their stamps on approval to sub-prime and misled everyone. The US Treasury was also force to take over Fannie Mae and Freddie Mac, hitherto listed companies.

The GFC indirectly caused the banking crisis in Europe as banks in Greece, Iceland, Italy and UK all held financial assets related sub-prime and were in trouble. Asia was not spared. the Chinese government pumped the now notorious RMB4 trillion into its own economy to mitigate the effect of the global financial meltdown. It would continue to intervene and ultimately added close to USD 1 trillion in economic stimulus which ended up becoming bad debt as the money was inefficiently used, such as building entire cities with nobody living in them.

China's Phantom Cities

Back in the western world, the central banks launched quantitative easing (QE) to try to jumpstart the economies. They flooded the global financial system with money which ended up in the hands of a small segment of the population. These were people on Wall Street, people involved in prime real estate (including Singapore), the private equity folks, bitcoin promoters, people who dealt in art, wine, collectibles and needless to say, stocks and shares - yes all of us reading this. Not forgetting to mention, a few billions also went to Najib and the other corrupted governments around the world. Globally, QE did not benefit the masses. It causes a wider disparity between the haves and have-nots.

In retrospect, the issues today, Brexit, trade war, bitcoin, shadow banking all came about eleven years ago when Lehman collapsed. We are still suffering from the lingering effects of the global financial crisis. 

At the start of 2019, the risk that loomed large was Brexit. In 2016, the gap between the haves and the have-nots played out in the Brexit referendum and the have-nots won with 1.9% more votes (51.9% vs 48.1%). The then Prime Minister David Cameron resigned to take responsibility. But Brexit was a pyrrhic victory. The Brits wanted to leave Europe but did not know how. It was, and still is, a big mess. After two and half Prime Ministers and with one month to go, the probability of UK exiting without deal looked very high. If it happens, UK will go into a recession and millions of Europeans in the country become refugees overnight. It would be a disaster. 

Theresa May, UK's second female Prime Minister

Then, there's Donald Trump. Again he was elected because the have-nots thought he would help level the playing field. He decided that China was the root cause of all the world's issues and waged war against the Middle Kingdom. It started in July 2018 with the US imposing tariffs on USD 34bn worth of goods but soon expanded to more than USD 300bn and China hiked its own tariffs on over USD 100bn on US imports. This caused significant worry in the markets (even though it was actually smaller than Lehman's balance sheet) and global exporters and related stocks in China, Hong Kong, Japan, Germany and many parts of the world were negatively impacted. 

The trade war had also morphed into a strategic war on other fronts with Huawei being the prime example. Huawei is China's lead general in the technology war and must be killed. Cybersecurity warfare had already been fought and real world skirmishes likely occurred via proxies in countries like Syria and Afghanistan. The read should be this: the trade war will not go away, it's a strategic war. Hopefully it would not become another Cold War.

Having said all that, China has not really retaliated with a real damaging blow to the US. It could outright ban all US goods and services. It had already banned Google and Facebook, why not Apple, Hollywood, Microsoft and all other services? Well, China probably has a different thinking altogether. This trade war, while damaging now, is not a big deal in China's own big picture.

At a high level truce meeting held in late August, the delegates on both sides sat at the negotiating table behind a huge wall with a Chinese poem with an interesting allegory. China was a mountain that had been around for thousands of years, while a passing cloud (i.e. US) tried to wage a storm to intimate the mountain. It was a futile effort. In some sense, it's true. Huawei will emerge stronger after this saga. China will continue to gain technological and strategical advantage. Its brands, capabilities will grow stronger and it will have more allies in time. 

Phantom message for the US

So what does this means for the markets?

It just means turbulence will continue. The risk is on the downside rather than the upside. We have to use higher prices as sell opportunities. This situation has not change since our last market update. We are still at the late stages of the bull market. It's hard to spot when things would turn. It could continue to be like this for another 12 months. If the Fed cut rates more aggressively, the market could even rally further. Then we look real stupid selling now. But such is investing. We can never tell. So, we move in incremental steps prudently. 

There are also no signs of weak links could bring us to another financial crisis. Back in 2008, we could see the weak links although it wasn't clear that they would be so devastating. People talked about sub-prime for months before things imploded. Bear Stearns went down first. On hindsight, those were big warning signs before Lehman Brothers' bankruptcy. Today, there's no canary in the coal mine, yet. Or rather, it's still too difficult to spot. One could be Uber and Wework and the likes of startups with their diminishing valuations. The other could be the old shadow banking system in China finally blowing up or a big entity in Europe finally caving in, pulling down things as Lehman did. It's always hard to tell before it happens.

Meanwhile, Lehman's phantom menaces, so we need to stay vigilant and raise cash!

Huat Ah! 

Wednesday, September 18, 2019

Thoughts #17: How much can one spend?

As the 1MDB facts come to light, we caught a glimpse of the capacity of crazy rich people. Or rather, the max limit if you have unlimited amount of money to spend. It was reported that Najib, his wife and several others spent 700m ringgit or close to USD 200m on 12,000 pieces of jewellery, 284 designer handbags, 423 watches and 234 pair of sunglasses.

In my mind, I believe this marks the possible cap for a lifetime of spending for rational people. No rational person would spend more than USD 200m in his lifetime. Note that the key word here is rational. Conversely, we discussed in the first post on this blog what is the lower bound for spending. I believe the numbers had not changed much. But I also came across an interesting concept which is not tied to a fixed absolute number.

According to Mr Money Moustache, if you save 50% of your income when you started work at 21, you can retire by 38. Here's his blog below:

Monday, September 09, 2019

Activision Blizzard - Part 3: Risks

This is a continuation of a series on posts on Activision Blizzard.

In the last two posts, we established the investment thesis and laid out the positives for this stock. Today, we shall delve on the most important topic - the risks. Every investment has risks and it is important to lay out all the risk scenarios. I did not lay out the worst case scenario for Hyflux in 2011 and lost 80% of my capital. So, no matter how positive we are on a potential idea, learning the risks and debating these with other like minded friends would be paramount. Below's the key risks for ATVI.

Risk #1 - Old Franchises

Some of Activision's franchises are old, stale and overmilked. The two particularly at risk are Call of Duty and Candy Crush and together they contribute to c.20% of ATVI's annual revenue. If they do badly, we could expect a similar 20% hit to profits. This would be quite a bit of damage. Let's talk about Call of Duty.

This game came out in 2003 and had 16 titles since then. In the last ten years, ATVI launched a new Call of Duty title every year. It launched so many titles that some titles even have the same names, like Call of Duty: Modern Warfare. It came out in 2005 as Call of Duty 4: Modern Warfare and then relaunched again this year as Call of Duty: Modern Warfare. Spot the difference? 

The other peripheral risk is that Call of Duty is a console game. Together with other games, ATVI has concentration risk with 60% exposure to Sony Playstation and 30% to Xbox (and 10% Nintendo and others). If game console goes out of favour it would further exacerbate the decline of Call of Duty. 

Then, we have Candy Crush. This game came out in 2012 and took the world by storm much like Angry Birds and Plant vs Zombies. It's very simple and everyone can play. It also deployed tactics (discussed in the first post) to get people hooked. People also see through the tricks, it's not so much skill but the algorithm behind that determined whether you can clear the level. After seven years, there is only so many candies you want to match. The franchise is really getting tired and ATVI and King (the original company behind Candy Crush) had not been able to do come up with another game.

As such, ATVI needs to quickly grow other revenue (esports, advertisements, new games) to offset the decline in these two games. It's probably in the works. The management team knows these problem and it is not as if they were in denial. The risk is that these games decline much faster than expected. So, the mitigating factor here is good execution from the team.

This brings us to the next risk.

Bobby Kotick - CEO of Activision Blizzard

Risk #2 - Key Man Risk

Bobby Kotick is the CEO of Activision Blizzard, a position he held since 1991 after he bought 25% stake in the company (then Activision). He is an amazing entrepreneur, having the clear vision that gaming is big business back when gaming was just a geek niche. He engineered the merger between Activision and Blizzard. He was also big in giving back to society. With the success of Call of Duty, he created the Call of Duty Endowment to help war veterans. Then in 2016, he saw the potential of esports and jumped right into it, two feet deep by launching Overwatch League.

Over the last 28 years, he grew ATVI's revenue from USD 28m to USD 7.5bn (with mergers of course) with the best franchises in gaming. If Bob Kotick decided to retire tomorrow, ATVI share price would suffer a huge drop. Having said that, he does have a team in place with both the CFO and the COO having been in the company for close to ten years. 

Sadly, he is also often villianized by gamers for his many comments on how he could exploit games and get gamers to pay more. But that is what it's all about. Just like how we pay up for Disney soft toys and Avengers exhibition tickets. There is a tail risk if these gouging go to extremes like some pharmaceutical drugs, but we are not there yet. In short, this is a risk to watch out for but it's not a high probability event.

Worst case scenario

What is the worst that can happen?

Lastly, we need to discuss the worst case scenario - what can go wrong? Laying out a realistic worst case scenario requires experience and logic. It's not easy. The absolute worst case is bankruptcy, like Hyflux but that's not likely to happen with ATVI. This firm generated USD 2-2.5bn of free cashflow. It had so much cash pouring in it decided to spend USD 1.5bn buying back its own shares last year. It also increased its dividends by 9%.

ATVI also has no debt. It has USD 4.6bn of cash on its balance sheet at the end of 2018 but only USD 2.6bn in long term debt. But it does have USD 9.8bn of goodwill as a result of its past acquisitions. Goodwill arises when acquirers pay more than accountable for tangible assets. These are usually intangibles like brand, franchises, trademarks and synergies. In some cases, it's just bad acquisitions whereby the acquirers overpaid. But in ATVI's case, given how successful it had become, the goodwill is likely to be real and not get impaired. 

Putting things together, given its strong balance sheet, high free cashflow generation capability, the worst case scenario is not going to be bankruptcy. It would be business deterioration as discussed. We might expect ATVI to lose 20% of its profits as some of its franchises faltered. This would bring bring FCF to say USD 1.8bn (0.8 * USD 2.2bn). Over the past 10 years, ATVI's FCF yield ranged from 4% to 10% so assuming that the market then gives it 7% FCF yield (mid range) on this FCF USD 1.8bn, we would get to a market cap USD 25bn and adding back its cash, the worst case market cap could be USD 27bn. This would mean that ATVI's share price is c.USD 35.

As of last week, ATVI traded at USD 42, so that means that in the worst case, we could see another 17% downside for ATVI and if it ever falls close to USD 35, the risk reward would be really favourable. ATVI was trading above USD 80 just two years ago. So we are talking about 17% downside vs more than 100% upside.

Buy ATVI if it breaks $40! Huat Ah!

Friday, August 30, 2019

Charts #24: Malnutrition in Children

It is estimated that 150m children are suffering from malnutrition. That's 30x the population of our little red dot. While we worry about school results and whether our kids are picking up the right enrichment, children globally don't have food to eat. The chart below was really an eye-opener for me. There are malnutritioned kids everywhere!

Asia formed the biggest subgroup with more than 80m children having stunted growth according to the 2019 UN report. Malaysia has 20%. Even Japan and South Korea still has malnutritioned kids. More can be done and more should be done.

Monday, August 19, 2019

Activision Blizzard - Part 2: Positives

This is a continuation of the previous post on Activision Blizzard with ticker code ATVI.

In the last post we established ATVI's investment thesis. It is one of the best gaming companies in the world with eight strong franchises. It has a huge loyal user base across these various games and it is starting its own esports global league with Overwatch. In this post, we shall explore deeply into some of these positives as well as the risks involved (in the next post).

Positive #1 - Innovation

ATVI is one of the rare companies in the gaming world that has continued to create new gaming franchises after franchises. I first got to know ATVI when it launched Diablo which much fanfare in 1996 - 23 years ago. Back then, it was just Blizzard. Activision hadn't bought Blizzard yet. But they really marketed it quite well and we saw on TV how people queued up to buy Diablo cartridges. In Singapore, we couldn't wait to get our hands on it and played it together with friends.

Those were the days where not everyone had a gaming console or a PC, so we would gathered at some friends' place to play Diablo together. Geez, how many would remember those good old days? Then Blizzard launched Warcraft and Activision launched Call of Duty. These games were huge hits, selling millions of copies in the first few days. Then came Starcraft, then Skylanders for the kids. Every few years, it would launch sequels of the old hits and create hypes all over again. It was a formula for success. Years later, Hollywood caught on.

ATVI's biggest game in recent years

Just when the whole gaming industry lacked innovation, ATVI launched Overwatch and revived and expanded a whole new genre. Before Overwatch, gaming genres were pretty much fixed and dead. At the beginning, the old arcade genres had whole games on just one static screen (think Pacman or Space Invaders). In 1985, Nintendo introduced the Super Mario Bros conveyor-type games into living rooms with its home consoles. There was also racing, music/rhythm and sports. Then Street Fighter brought us player vs player. In 1992, Wolfenstein 3D came in as the first first person shooter game genre. This became a really big hit. Around the same time, the Japanese came up with role playing, which was slow but people somehow liked it. There were also strategy games, multiplayer online and others but things were turning stale.

In 2016, Overwatch picked up the online multiplayer first person shooter game and brought it to a whole new level. The game had specific heroes with specific strengths and weaknesses and teams with the right heroes had to train together in order to win. Strictly speaking, Counterstrike created this genre around 1999 but Overwatch made it really big by incorporate the new elements - dyamic gameplay, heroes, character backstory, variety in maps and stunning graphics. It made ATVI more than a billion dollars on its first year of release. Today, 40 million players play Overwatch and seizing the day, ATVI quickly launched Overwatch League in 2017, creating the first 12 competing teams. Overwatch became the the English Premium League / NBA of gaming.

To further enhance its moat in esports, ATVI bought Major League gaming for USD 46m to learn the know-how of managing esports. Overwatch would not be its only esports title. Starcraft had long had esports potential and we would expect more to come. In time, ATVI would be able to create its own World Cup / Olympics for gaming. Think of the revenue potential! As a quick gauge, FIFA made USD 6bn from the last World Cup according to New York Times!

Positive #2 - Ads and Ecosystem

Starting with Overwatch, ATVI had more than 300m monthly active users across all its platforms. Specifically 32m from Blizzard, 56m from Activision and a whopping 262m from King (although 97% of these users don't pay anything, they play Candy Crush for free). ATVI believes it can generate a lot more revenue from these 300m users.

Advertising is the obvious starting point. For Candy Crush users not paying a single cent, ATVI can easily show them 30 second ads as they play. This had become the main model for most casual games. To continue playing, users have to watch ads. It gets a bit frustrating, but hey, there's never free lunches right? ATVI believes that it can generate USD 200m revenue by showing ads to its 300m users.

Building on its eco-systems, ATVI had launched, or rather relaunched its own gaming site This site was already live in 1996 when Blizzard launched Diablo. But with its huge portfolio of games and the advent of game streaming. ATVI decided to use this as a platform for its gamers to play straight from the browser. For now, fans can only play Activision Blizzard games, but who knows, it might become an open platform some day.

Ecosystems are powerful weapons in the era of mobile and internet. Amazon built a huge ecosystem in e-commerce becoming the de-facto online store to buy anything. It fortified it with its Prime membership, putting in video and music. It makes one difficult to unplug. Google has the same strategy starting with search, Gmail, Android and its growing plethora of services. Facebook realized it was losing out and launched its own cryptocurrency for payment, backed by real currencies.

ATVI's ecosystem is still in its early days but more will be done. As a sidenote, it is expanding its franchises into movies. Skylander launched a successful series with Netflix and would have a Hollywood movie in a year or two. The Warcraft movie had a surprising hit in China although it flopped in the US. There would be more movies to come and analysts had put down a USD 50m revenue for 2019 and 2020.

Incrementally, these positives can add USD 250m to USD 500m or more if some of the optionalities like esports materialize. At USD 250m, the lower bound, it's only a small drop in its USD 7.5bn annual revenue, but still it's a good start. 

In the next post, we would discuss the risks and the conclusion.

Friday, August 09, 2019

Three Investing Adages That Are Not True

Adages are fascinating, they are beautiful and usually true. Take everything in moderation, it's universal. There is no example one can think of when this phrase doesn't work. Or better safe than sorry. It's common sense but unfortunately, also commonly forgotten. It is also the basic tenet of investing - don't lose money, look for a big fat margin of safety. That's how we make money. 

But not all adages are true.

I have had problems with the following three, the more I think about them, the more I believe they are not true. Well, to be more specific, I think they are probably not true more than half the time. Yet, there are many who would believe in them. It then reflects their nascent thought processes and maturity in the markets. Would you agree?

1. Those who can do, those who cannot teach.
2. There are lies, damn lies and statistics.
3. Don't catch a falling knife.

Ok let's start with the first one. How many times had we learnt this phrase. But as I come across this phrase time and again, I must say it is only true maybe 10-20% of the time. Teaching is a noble profession. It is as good as any other profession. It takes a certain character and special skills to be a good teacher, a good coach. A good teacher understands how to motivate others but also needs to discipline, inspire, teach and lead. How many of us remember our best teachers? Think about how they have motivated us to be our best. Every great sportsman or sportswoman had a great teacher, a coach.

The world's greatest investor Warren Buffett had Benjamin Graham, his teacher at Columbia Business School. There are also many historically inspiring teachers, Aristotle, Helen Keller, Maria Montessori and in recent times Jack Ma and J.K.Rowlings were also teachers before they became famous in other fields. Warren Buffett said it himself, if he didn't become an investor, he would have been a teacher.

Of course there are teachers who are real CMIs*. But that's likely because they were pigeon-holed into the wrong profession. They simply needed to do a lot more to be a better teacher. It is sad because when a teacher cannot perform, it pulls down a bunch of kids. Unfortunately, most education systems have rigidity that is not able to help these teachers nor the kids.

*CMI = cannot make it, used as a noun 

Scene from popular Singapore serial drama dedicated to teachers - 早安老师

It takes a lot to be a good teacher. Perhaps more so than an investor. So, it's not true that those who cannot teach. Good teachers can both do and teach. They are also the important human catalysts for creating future leaders and entrepreneurs. For Singapore to continue to progress, we need to make sure we attract the best to be our teachers. We can start by paying them well and stop them leaving schools and becoming tutors.

Interestingly, the second adage was made famous by a teacher - Mark Twain. Although he attributed the quote to the then British Prime Minister Benjamin Disraeli whose exact words were, "there are three kinds of lies: lies, damned lies and statistics."Yes, statistics can be used to lie, but data and statistics is the fundamental foundation of any analysis. To say that statistics are lies reflects the shallow thinking of the sayer. It is as good as saying aeroplanes are bad because they can be used by terrorists to crash into buildings.

Data, numbers and statistics are at the heart of value investing, or rather, any kind of due diligence. We rely on numbers and reading through the numbers to get to the truth. Yes, oftentimes, we need to question the numbers, slice and dice it differently to see the picture. But it doesn't mean statistics are lies. If there is any doubt that the people who created the statistics lack integrity, then we can no longer analyse the numbers and we need to change the people. Statistics are not lies. Statistics are tools. They are neither good nor bad. It is important to learn to use them well.

The normal distribution, the biggest subtopic in statistics

Okay and here's the most interesting of them all, "Don't catch a falling knife."

When I was a newbie investor, I totally believed in this. It just sounded so true. When the stock is going down, why would a smart investor want to buy it? Why catch a falling knife? But as I looked back at my investments over the years, this adage began feeling wrong. Even the analogy is wrong. A falling knife would eventually fall to the ground and lay still. But a stock, especially a good stock, would eventually go up. If you had done your work, calculated the intrinsic value of the company, understood the strong economic moat of the company, then you should buy when it's cheap enough. It doesn't matter if the stock is falling or rising.

We want to think we are smart enough to catch the turning point. We buy when the stock had turned up, when the knife is no long falling. Seasoned investors would know that's not possible. This adage plays different tricks to our minds and confuses everything. It assumes we can predict when stock prices had bottomed and would go up, it projects images of suffering huge pain caused by buying falling stocks. The truth is, we can always just buy a toehold position.

We cannot predict stock prices just like we cannot predict the weather. To not catch a falling knife when buying stocks is like never bringing an umbrella outside because we assume we will always only go outside on sunny days. In my mind, this last adage - never catch a falling knife is probably more harmful than helpful to investors. It sounds beautiful, logical and right. But, in reality, it's not.

Howard Marks

This truth also dawned upon me just recently when Howard Marks made it clear himself. Here's an excerpt of an interview about his views on falling knives. Obviously, he said it much better:

Marks: You mentioned catching falling knives, and my vision is that when the stuff hits the fan and there’s blood in the streets most people go like this, they say well we’re not going to buy until the knife stops falling, until the dust settles, until all the uncertainty has been resolved. But the trouble is that once that happens then the price will have rebounded. So we want to buy at a time of upset and while the knife is still falling and I think the refusal to catch a falling knife is a rationalization for inaction. It’s our job to catch falling knives, That’s how you get bargains. But you have to do it carefully.

So, next time someone tells you about not catching falling knives, you know he's a newbie. Tell him or her that our job is to catch falling knives, with gauntlets on. Some of us even have the Infinity Gauntlet. Stones and all. We time-travelled to enough alternative universes collecting Infinity Stones. If we want, we snap our fingers and the knife disintegrates. Refer him to this post and see if he agrees. 

Happy National Day! Huat Ah!

Sunday, July 28, 2019

Thoughts #16: Lessons from Serena Williams' Coach

Patrick Mouratoglou (born 8 June 1970) is a Greek French tennis coach and sports commentator. He has been the coach of Serena Williams since June 2012.

 My coaching method, which I apply to everyone, involves learning to understand the player, how to speak to him/her, how to analyze that player’s game and how to work with each of them taking into consideration their particular personality. I used to say that every player has their own world and their own language, and this is something you need to learn as a coach in order to be heard, trusted and followed.

More coaching tips:

Get input from your athletes - check with your athletes to determine if what you are communicating to them is understood, what they need, and what they want. Remember, if you are asking for input, at least be willing to incorporate something (a suggestion) at some point.

Keep your athletes informed as to when, where, how, and why (and WHY is most important) - people are not generally motivated to start (or finish) a task that is not clear in terms of when, where, how, or why. Take away any questions or doubts that your athletes may have by clearly and consistently communicating your expectations and intentions. Be clear as to when, where, and how . . . but most important, be sure your athletes know "why" they are being asked to do something. 

Create an environment that allows for challenge, recognition, appreciation, and quality - some of your athletes will be motivated by a challenge, some by recognition, some by appreciation, and some by quality of performance. It is important to know your athletes and what their primary motive might be. 

Challenge some (1 v 1 against a teammate), recognize others in front of their teammates (at the end of practice or in the locker room), appreciate others in private (in your office or the hallway), and provide others with a chance to show you a quality performance (quality over quantity of work). Remember, different athletes are motivated by different situations and feedback.

Give your athletes a reason to want to work hard - take the time to develop genuine, honest, caring, and trusting relationships with your players. Athletes will work harder (and longer) for someone they know genuinely believes in them, cares about them, and is committed to helping them achieve their potential. At the heart of player motivation is the quality of the coach-athlete relationship.

Model what you want to see - be motivated yourself. If you want someone to work hard, you better be working hard. If you want someone to put in extra time, you better be putting in extra time. Athletes do what they see. This is why the motivation of the coaching staff is so important and why it is so important to have quality team leaders who can lead by example, hold accountable, and promote a climate of motivation and inspiration. Set a motivational "standard" by what you do, say, and expect. Say it, expect it, but also make sure you do it!

Friday, July 19, 2019

Activision Blizzard - Part 1: Investment Thesis

Gaming has become part and parcel of everyday life no thanks to casual mobile gaming that had captured the eyes and minds of people young and old. The industry, segregated into mobile games, PC, console and others, is today a USD140bn industry which is larger than Hollywood and music combined.

What's more, the growth is accelerating. Esports, games with millions of spectators watching professional gamers play against others, is set to grow as big as traditional sports. This comes with it ticket sales, sponsorships, advertisements and merchandise purchases which would also serve connect the internet and real lives.

Esports gonna be as big as soccer!

At the core of it all stands two companies: Tencent and Activision Blizzard. Okay, maybe not just these two, but they are definitely up there on the league table alongside Electronic Arts, Nintendo, Microsoft (Xbox), Sony (Playstation) and dare I say, Razer, our homegrown mouse powerhouse! Today, we are going to do some deep dive analysis into Activision Blizzard (ticker code ATVI).

Investment Thesis

ATVI is one of the leading gaming company in the world having grown its franchises over the past twenty years across different eras, genres and gaming devices. Today, it boasts 345m monthly active users (MAU) across 8 blockbuster titles including Warcraft, Overwatch, Call of Duty and Candy Crush. Some of these titles has also established esports leagues and ATVI stands to benefit as esports take off in the near future. It also boasts strong track records in both innovation and M&As and should continue to produce and acquire new esports franchises in the future.

ATVI has consistently generated positive free cashflow and analysts had estimated that it could generate USD 2.2 to 2.5bn in FCF in the next three years and likely grow to USD 3bn in the future. As such, at its market cap of USD 32bn today, it would mean that ATVI is trading at 6.9%, 7.8% and 9.4% FCF yield respectively. This represents significantly margin of safety for a gaming leader with strong branding and strong franchises.

So, in essence, that was the investment thesis for ATVI. The investment thesis is the reason why we want to buy a stock. It should be easily articulated and remembered. Then as we research further, we should identify the supporting positive factors and also the risks. In the next few paragraphs, we would describe industry background, business model and the positives for ATVI - brand stickiness in gaming and how it further enhances AVTI's moat surrounding one of the most solid business models on our planet.

Gaming's beginnings and business models

The gaming business started in the late 1960s and early 1970s with arcade games which later evolved into console gaming and now mobile and multi-device gaming. We are also catching glimpses of the future - game streaming, just like what Netflix did for movies and Spotify for music. The business model has a recurring income stream since the days of console gaming. This was the famous razor-blade model whereby users paid up once for razor (the console) and then made further recurring payments for the blade (the games which used to cost $20 but are now costing $50 to $70!). In game streaming, this revenue stream gets further stability as each gamer pays a monthly subscription just like today's Netflix and Spotify users.

The original Gillette razor and razor blade

In the last 50 odd years, scientists had studied gaming thoroughly and had seen the impact on human brains. In short, gaming is a form of addiction, just like smoking, alcohol, drugs, sex, casinos, chasing Korean drama, Facebook and reading investment blogs (just kidding). In the spectrum of various addictions, it is probably not as bad as casinos or smoking but it's definitely worse than losing sleep chasing Korean drama or constantly checking Facebook and neglecting your family. Games are now designed specifically to entice with cues that would trigger desirable actions which would then lead to rewards. This releases dopamine into our brains, making us feel good and hence constantly seeking to replicate this cycle.

In casinos with the slot machines, the cues would be the near misses such as lining up two sevens (while three sevens would mean hitting the jackpot) that would trigger the gamer to keep pulling the slot lever (hence burning a lot of cash along the way). Once in a while, three fruits (not three sevens) would line up and reward the players with a small payout, keeping them hoping for more. Over hours, days, weeks and even years, pathological gamblers become stuck and would squander all their monies and go into debt, leaving their lives in ruins. As this became clear, governments started regulating casinos.

Mobile or console gaming, today is not regulated. Well, first, most gamers do not spend enough to go into debt. But games work with the same principles: cues, triggering actions which sometimes lead to rewards. For instance, Candy Crush, gamers would quickly find out that it happens very often that they will run out of moves and very coincidentally, only one more move is needed to complete the level. To complete the level, one would have to fork out $1.99 for that one move. This is very powerful and 3-5% or sometimes more of the population ultimately falls for it.

Out of moves!

There are many more well research cues that game designers use to ensure that gamers come back for more. We discussed near misses, there's also level progression, rankings, competition with friends, rewarding gamers with awesome story graphics and ending scenes, rare collectors items in games and many more. Guess what, Activision Blizzard knows them all and had been using these for years.


In one of their most successful games - World of Warcraft, the average gamer spend a crazy 22 hours per week in the game. Almost 30% of players play more than 30 hours per week. That's 6 hours from Monday to Friday. In most CBD* jobs in Singapore where white collar workers do 90 minute lunches and multiple coffee breaks, the hours on Warcraft spent beats full-time job hours. Maybe some CBD workers are spending lunch and coffee breaks playing World of Warcraft.

ATVI understands games better than anyone else. But it also understands branding and marketing. The company had successfully generated so much hype for most its top franchises that almost always guaranteed sellouts. In one recent instance, Call of Duty - Ghost sold USD 1 billion dollars on its first day. As such, ATVI boasts eight billion dollar franchises namely: Call of Duty, Warcraft, Overwatch, Candy Crush, Diablo, Starcraft, Heartstones and Skylanders. It constantly rotates new sequels amongst these franchises not unlike what Disney is doing with Marvel, Star Wars, Pirates of the Caribbean, Indiana Jones, Pixar and more recently remakes of old Disney cartoons. This strategy generates some stability in an industry with constant hits and misses.

As such, in recent years, we had seen strong and growing free cashflows (in both Disney and ATVI). In the next post, we shall discuss the other positives and risks. Huat Ah!

*CBD stand for Central Business District.

Monday, July 08, 2019

Charts #23: True Cost of Your Cup of Coffee

Enlightening cost breakdown by FT
2.50 pounds is c.S$4.40

35% Shop cost/rent
25% Staff cost
15% Tax and additional costs
10% Profit
7% Cup, napkins, stirrers
4% Milk
4% Coffee

We are not paying for coffee!

Saturday, June 29, 2019

2019 Dividend List: 10 Years On

We started this dividend list in 2009 and in a blink of an eye, ten years flashed past. The list had since gone global as there are just that many (or few) dividend stocks in Singapore. Some of them had been bought out, some just weren't strong businesses to begin with and faltered and some others go in and out of the lists and a handful of names remained in it to this day. 

Last year, we dissected global dividend companies and discussed a few interesting names: Coach, Cisco, advertising companies. We see some of the same names this year and sadly, there isn't really good names or stories to share. The list tend to capture past business models with no growth such as brick-and-mortar shops without the new crowd drawing experiential retail innovation like Escape Room, Kidzania etc. I believe this is the key limitation of this list after looking at it for ten years. It spits out past business models and also fails to capture the exciting companies like Google, Live Nation and Netflix.

Well, that's value investing though, we want things cheap, so they don't come without caveats. Most would be cheap for some reason and once in a while we can find a gem. Here's this year's first few names:

2019 Dividend List - Part 1

This year's list featured the same retail and tobacco and old economy companies such as Evraz, a steel company that's at the top of the list. It's probably in a distress situation and the 15% dividend is unlikely to be sustained. Rio Tinto is not about to go bust, so it could be a candidate. Although I always like BHP with its pole position and better diversification across different commodities. So besides Rio, there isn't another name that I am keen to spend more time doing desktop research.

2019 Dividend List - Part 2

The same could be said for the second portion. These are another bunch of old economy names with the more interesting ones all discussed in the last few years: Harley Davidson, Tapestry, IBM and Western Union. BAE systems could be the only stock worth more research given the interest in defense growing as China and Russia try to strengthen their military might to compete with the US. North Korea could also turn belligerent again, who knows. But BAE might have its own issues for the stock to appear here. Or it could just UK's issue again. Given how the Brexit risk loomed larger this year, it's no wonder that this list featured so many UK stocks.

Given the paltry list this year, I thought we could relook at some of the interesting Singapore names. They are no longer featured because of either valuations or margins. To pass the screening, companies need to have FCF yield of more than 4.5% and margins of 8% and sadly, 1-2 Singapore companies failed the margin test while those with high margins are not cheap enough (hence failing the FCF yield criteria). Then, there are some who failed to ROE test (must be more than 10%) as they hold to much cash or equity, which dampens the ROE.

Nevertheless, here's my own curated list of the top dividend stocks in Singapore. I have held some of these for more than a few years and they had generated good dividend return (but unfortunately not too good capital return). So these are ideas for anyone trying to build a dividend portfolio but do your due diligence and double check on valuations and make sure you have a good margin of safety. 

Of the stocks in the list, I would think only Overseas Education would be worth buying today, but it's a micro-cap and there are different risks and considerations as well e.g. liquidity and getting taken out cheap if there's a management buyout.

1. SIA Engineering: Dividend 4.8%, Singapore Airlines' maintenance arm.
2. Vicom: Dividend 6.6%, largest vehicle testing and inspection company.
3. SGX: Dividend 4.8%, Singapore's stock exchange.
4. Overseas Education: Dividend 8.8%, international school in Singapore.
5. ST Engineering: Dividend 3.6%, defense and aerospace, also competes with SIA Engineering.
6. DBS: Dividend 4.7%, Singapore's largest bank.
7. Singtel: Dividend 5.1%, used to be Singapore's largest company. Looking to divest out of this. Wouldn't recommend anyone to buy now.

Friday, June 21, 2019

Thoughts #15: Esther Wojcicki's Wisdom

Esther Wojcicki is a panda mum (opposite of Tiger mum) who raise three successful girls who are changing the world as we speak. The eldest, Susan is head of YouTube. The second, Janet is a famous anthropologist and the third Anne founded 23andme - a DNA analysis startup.

Her key message to parents: just relax. Trust your kids to learn well. Her definition success: Being happy with yourself and happy with what you have achieved, and having some kind of goal in life. It should be the same wish for our kids. We wish they are happy and they achieved something meaningful at some point and continue to have some kind of goal in life.

Simple right?

No need to worry about streaming, PSLE, which university they can go, who they marry, what kind of job they would end of with. Just relax...That's how she raised three successful girls and they in turn want to repay her and bring their beloved mother to parties and tours so that she can enjoy.

And here's the irony and the punchline:

“I have been on more yachts than you will ever be on in your life. I have been on more private beaches, more private islands. And guess what? I like being with the regular people more. I like being on a regular crowded beach and watching everybody walk up and down. I find that more interesting.”  

Last but not least:

Ms Wojcicki’s take home message for parents, which is: “Have a good time with your kids. When you have a good time, they have a good time. Life is an opportunity to have fun, why not do it?”

Monday, June 10, 2019

Charts #22: Another Property Chart

Here's another city property chart that looked interesting. How much space can USD 1m buy? Does it really make sense? The record is now held by Monaco at 16 square metre. This is not to say property is a bad investment though.

If we think about it, this is just another greater fool game in a different scale, or as we had discuss, the reflection that the value of money will just keep getting eroded with inflation and QE. If we look at this chart in twenty years, maybe Monaco will be 8 square metre and the rest of the cities will see some positions swapped. The last city will also be much smaller than the 200 square metre listed here.

Saturday, June 01, 2019

Lessons Learnt: Hyflux - Part 2

This is a continuation of the previous post.

In the last post, we summarized the Hyflux debacle and discussed the lessons learnt.

1. Always limit or risk capital to an amount we can lose
2. Map out all the scenarios and probabilities and keep monitoring them.

Today we delve in #2 and share the third and fourth lessons further below. In our due diligence on Hyflux eight years ago. I would say that I did not do this well. Hyflux scenarios and probabilities should have looked like the following:

60% - business as usual, Hyflux continued to operate as successful as it had since IPO. In this scenario, things pan out as we wanted, perp holders get back their money when Hyflux redeemed them in 2018 or 2020. This would be the base case or good scenario.

30% - Hyflux business deteriorates or the external environment changed, causing some cashflow problems. But Hyflux should manage to pull through either with bank credit lines or with the Singapore government awarding it yet another project. Or Hyflux raised equity or debt to fund itself.

As a side note, this was partially played out in 2016 when it raised yet another round of perps. It should have served as a warning sign, but back then, no one suspected anything. Hyflux was going strong and Tuaspring was touted as a gamechanger. 

10% - Hyflux fails for some reason. This is the worst case or disaster scenario. In Hyflux's case, this scenario is playing out now. 

Investors complaining Hyflux's epic failure

In my analysis, I did not pay attention to this last scenario. I would never had ascribed a 10% probability of failure at that time. But maybe it should be a 1% or a 5% probability event. I should have considered it. Let's for learning sake mapped out how things would be like if I had ascribed such a scenario. Say, we ascribe a remote scenario that Hyflux would fail. The probability that Hyflux would fail is higher than say, DBS or UOB would fail. Then logically it means that 6% is not good enough. This was because DBS or UOB perps were at 5%. Between Hyflux at 6% and DBS at 5%, which investment is better? I would say DBS.

Inverting the thinking a bit, the question should also have been asked clearly: at 6% yield, we get back our capital after 16.7 years. Will Hyflux fail in the next 16.7 years? Hard to say but if it happened would this still be a good investment? The answers are clear on hindsight, now that things had happened. It would be hard to answer these back then, but still, these questions ought to be asked. It could meant a different decision: not to invest at all, or bid lower and put less capital at risk, or maybe buy DBS perps instead.

There was also a lot hype when the offering was launched. It was way oversubscribed and hence such risk hedging thoughts were thrown out of the window. So, on hindsight, there is a sub-lesson here (which again, we already know): the crowd is not always right, be fearful when others are greedy.

The other mistake was also the lack of monitoring. After I bought these, I was just happily receiving coupons and occasionally read some annual reports and followed the news. That's it. I didn't even know Hyflux issued more perps in 2016 until a few months later. Then when things really turned south, I still wasn't monitoring as hard. This brings us to the third lesson.

3. Act fast don't hope

As things deteriorated. I held hope that Hyflux could turn around. The perp prices fell from 80c to 50c to the dollar. I could have sold! That way, with the coupons clipped over the years, I would have lost a mere 10-20% of capital rather than 60%. This would prove to be a lesson that I had not learnt well. I had never cut loss well. I cut losses only to see stocks rebound 50% and fail to cut those that go down a lot more. It would likely take more years to hone this skill better.

Hope is a dangerous thing

This has to do with judgement. In Hyflux's case, we had determined that the business model was flawed. It needed to bid for projects and cost overrun could be very detrimental. When they issued another perp in 2016 and when the initial warnings came, I should have paid more attention. Judgement can only be honed over time and experience. It is also about understand the business model, the situation and all that is at stake. When the bond prices finally reacted and fell to 50c, it was supposed to be a big warning. Yet I failed to do more detailed due diligence. It wasn't my priority until everything blew up. Hence there's a last lesson here from Hyflux.

4. Focus on the best businesses

Investing is a full time job. If you want to make money, you have to devote the time and effort. But in today's world, where got time? We have our day jobs, family, kids, friends, social and community activities. It's just so difficult. This is so even when I am passionate about investing. Imagine someone who is not passionate but wants to invest because he or she thinks it's good passive income, easy money.

So in order to be able to invest and sleep well, we can only buy the best businesses because we don't have time to monitor any deterioration. Having said that, good businesses also get disrupted and we need to stay on top of things when we see these happening (Singtel, which I have, comes to mind). If we buy the best businesses, those with strongest economic moats which we had discussed before, generating strong free cashflows at reasonable valuations, then our capital would have more protection. 

In conclusion, here's the four lessons again from the Hyflux debacle:

1. Always limit or risk capital to an amount we can lose
2. Map out all the scenarios and probabilities and keep monitoring them.
3. Act fast don't hope
4. Focus on the best businesses

Hope this would help us avoid future debacles, huat ah!

Saturday, May 18, 2019

Thoughts #14: Hwa Chong or Chinese High?

Are you Hwa Chong or Chinese High? This was a perplexing question for some who attended these schools in the late 1980s and early 1990s. Hwa Chong Junior College (a.k.a HCJC, a prominent high school in Singapore) was established which was a separate entity to the Chinese High School, one of the earliest boys' school in Singapore.

The story goes that Chinese High organized a 100th anniversary dinner in March 2019 and if you are a Hwa Chong student, it's technically not your dinner. So should you attend? However, HCJC was then merged with Chinese High to form Hwa Chong Institute when the through train program was introduced. In short, HCJC ceased to exist and there would be little reason to hold HCJC only dinners in the future.

But from the perspective of proud HCJC students, it's an important segregation. Partly because either they came from other reputable secondary schools (junior high schools) and would want to associate more with their alma mater of four years (since junior college was only two years) or they simply did not want to associate with Chinese High (especially ladies, since this was a boy's school).

In the end, it all boils down to time and perspective. Another 100 years from now, would anyone remember there was this segregation between Hwa Chong and Chinese High? Would anyone care? Flipping things around, would anyone of us here be around to attend the 200th anniversary dinner? If not, then should we attend this one? What would happen if we missed this dinner? It is regret or no big deal? 

Investing is also about asking the big questions. Some of the big questions that I like to ask are:

1. In 5 to 10 years, how would this bad news affect the stock? Is it a critical bankruptcy blow? What is the likelihood that the company ride through this and become stronger?

2. Does this action survive the "newspaper headline" test? (this is both an investing and life option question, when we do something questionable, think of how it would look if the media looks at it.)

3. What happens if I am wrong? What is the maximum loss? Can I sleep soundly at night holding this mistake (if it turns out to be one)? Does it mean critical financial damage? 

Another analogy worth sharing: Omaha Beach in Normandy, France was one of the bloodiest fighting spots during D-Day, 6 June 1944. Thousands of Allied soldiers sacrificed on that day to secure landing sites in order to topple Hitler. They succeeded. As Asians, we would probably shun buying any properties there in the 1950s, given the risks of haunting and what not. But, today, it's expensive beachfront properties. Who cares about D-Day. It's all time and perspective! 

Happy Vesak Day!

Friday, May 10, 2019

Lessons Learnt: Hyflux - Part 1

Eight years ago, we discussed Hyflux perpetual bonds here, putting forward the investment thesis that 6% was good dividend/interest income and how Hyflux had a so-so business model but things should be okay because the Singapore government would support Hyflux as they had done so in the past. That turned out to be a huge mistake. Not only did the government not support Hyflux, she rubbed it in, pushed the proverbial dagger into Hyflux's belly, delivering the fatal blow.

Et Tu Temasek? (Ref: Et tu Brute)

How did things come to such a dire situation? 

As described in the post eight years ago, Hyflux's business model relied on winning water projects, which meant that they had no control over the bidding price and also, in subsequent years, their own future revenue. However, as with most Singapore co.s, we are good at managing costs, which allowed us to beat many others in the global game of winning EPC (Engineering, Procurement, Construction) contracts. This was how Keppel and Sembcorp became so good in oil rigs.

But in order to grow, companies in the EPC field have to bid for bigger and bigger projects. The cost management however gets more and more complex. Once every decade also, someone would definitely screw up and one or two badly designed contract put EPC firms at risk of bankruptcy. Alas, Hyflux was not spared.

Tuaspring, Hellspring

The irony for Hyflux was that the contract turned out to be one in its home country. This was infamous Tuaspring desalination project. Tuaspring became a bomb because of its large scale and complexity. The Achilles' heel in Tuaspring is actually not desalination but power generation. For reasons unclear to me now, someone thought it's a good idea to combine the two. Maybe because desalination requires a lot of power, so hey why not generate power, then sell some power plus water to PUB as well. This definitely developed as the logical train of thought from our admin officers in the civil service and Hyflux went along.

But selling power is not the same as selling water. Cost for selling power depends on fossil fuel, the most important being crude oil, which is notoriously volatile. Meanwhile, power prices in Singapore collapsed as a result of energy deregulation. So suddenly, Hyflux found itself caught in a situation where its power generation cost exceeded its revenue. With a billion dollar debt on its balance sheet, things quickly spiralled downhill. Our admin officers don't give chance these days, just like the new Certis Cisco summon officers.

Hyflux began to run out of options as credit dries up and in an "unthinkable" scenario for investors who put in money in 2001 during its IPO to yield chasers (like me) who bidded to buy its perps in 2011 and more yield chasers who bought its perps again in 2016, Hyflux declared it might go bankrupt. A white knight from Indonesia (Salim group) appeared, willing to put money to save the firm but not the perp bondholders. Alas, that hope is now also gone as PUB decided to push the dagger some more (figuratively impaling Hyflux now), terminating Tuaspring water purchase agreement. 

As things stand, it is likely that bondholders and shareholders will get nothing in the end, barring some kind of miracle. It's neither Oliver Lum's nor PUB's fault. This is just investing. There's always risk. Perils on top of perils. Caveat Emptor.

The saving grace for those of us who invested in 2011 though was that we got a few years of 6% coupon. Not great, as the total loss of capital was still north of 60%. But almost everything is now bridge under the water. So this post serves to help us learn the lessons and move on. Well, it's mostly re-emphasizing the importance of what we already know:

1. Always limit our risk capital to any single name to an amount that we would be okay it if goes to zero. This could be an absolute amount and it could be a percentage of total net worth. What's important is that we can sleep at night. We hear stories of people who put in $200,000 or $300,000 into Hyflux perps and that's a huge chunk of their retirement nest egg or net worth. It's just so sad. So don't make this mistake.

2. Map out the scenarios and probabilities well and keep monitoring them. When we did the due diligence in 2011, we determined that the business model was flawed, one project could kill them. But we also thought that the Singapore government should come and bail them out. After all, this was Singapore's poster child. Little did we expect it would be the opposite! The project was in Singapore and the government delivered the fatal blow! Nobody could have foreseen this. But, on hindsight, we should have put in a scenario that Hyflux would go bust and ascribed a probability. In the next post, we should delve into this!

Caveat Emptor: Let the Buyer Beware!

Wednesday, May 01, 2019

Charts #21: Misery Index

While we live in sunny Singapore and watch Game of Thrones, bask in rich and affluent culture, there are parts of the world where things can be quite different and miserable. Note: Argentina is not the most miserable country, it's Venezuela which has an index reading of 1.7m, way off the chart below.

Inflation is one big cause. Singapore was once like that. During WWII and then the decades shortly after war in the 1950s and 1960s. Our forefathers pulled us through those difficult times with good economic policies, financial common sense: saving money, balancing the govt budget and lots of grit and hard work.

May Singapore continue to huat!

Happy Labour Day!