Thoughts #32: Tharman wins!

Singapore has its first Presidential Election in 12 years and the ruling party's chosen candidate Tharman Shanmugaratnam has won with an overwhelming 70.4% share of the vote. Our First Lady would be Jane Yumiko Ittogi, a lawyer of mixed descent whose father was Japanese but she grew up speaking Teochew in Singapore. Tharman would be Singapore's first elected non-Chinese President by the people. 

As the saying goes, the stock market is a voting machine in the short run but a weighing machine in the long run. We do not vote rationally and most market participants do not buy stocks rationally. Hence we see bubbles and crashes all the time and stocks can trade at 50x PER and people buy them knowing they are getting 2% earnings yield ignoring the fact that they can buy T bills and earn 3+% risk free.

However, in the long run, the dues will always come. The stock market is a weighing machine and weighing machine never lies. Mr Tharman's track record as a formidable politician provided him the win today but will be judged again during his term as President. Hopefully he can propel Singapore to ascend further in the global arena and more of our stocks can trade at higher valuations, validating what he said about Singaporeans enjoying the Singapore premium.

Huat Ah!

T Bills - Fundamentals, Strategies and Risks

This post first appeared on my substack page - 8percentpa.substack.com and I have repackaged and reproduced it here as this idea remains very palatable and perhaps relevant for everyone since T-bills are risk free. Your grandmother should buy T-bills.

We have also discussed T bills below:

Singapore T-bills Full Analysis

Invest in Risk Free Singapore T-Bills!

Only Singaporeans and Singapore's Permanent Residents can invest in T bills. But I did some googling and surfed around at: 

https://www.treasurydirect.gov/

I believe the process is similar and most investors can similarly invest and earn c.4% annual return by buying US government T-bills. This post serves to illustrate the strategy and process to go about doing this investment optimally and how to think about your savings in a broader context. Ok, let's dive into it.

1. Fundamentals

The chart below shows the cut-off yield for Singapore Government T-bills with data going back to 1987, when Singapore was a developing country. In the past 20 years, Singapore established herself as one of the global financial hub and as such, we should pay more attention to data around the new millennium. 

We can see that the last era of high yield T-bills was around 2005-07 when yields hovered around c.3%. China was on the rise and together with her ascent, commodities boomed. At the same time, the housing bubble in the US which subsequently led to GFC started to take shape.

Thereafter, as we know all too well, the GFC broke out and brought our financial system to the brink of collapse. Global quantitative easing (QE) came to the rescue and interest rates stayed low since then. We have not seen SG T-bills anywhere near investable levels although 2018-19 saw it rising to c.2%. This was because the US Fed tried some quantitative tapering but stopped abruptly when the pandemic struck. 

In 2022, the global low yielding investment environment ended when the US Fed raised interest rates to 4% and vowed to bring it higher to tame inflation. We are still seeing higher interest rates as of this writing. We are now in a new regime. 

In the previous regime which started after the GFC, global interest rates were reduced to zero and liquidity flooded the global financial system to prevent it from collapsing. This led to cheap money chasing high returns, which exacerbated booms in private equity, startups and new speculative asset classes like crypto-currencies in the last few years. 

Those days are over. 

This is a new high interest rate regime, where the all important risk-free rate has now reverted back to the levels of 3-4% depicted in financial textbooks, where it should be. Since money is no longer cheap, it doesn’t make sense to chase high yielding dangerous instruments and growth companies with crazy valuations any more. 

This new regime will reset how markets think about yields and valuations. 5% is no longer high yield. We are seeing startups imploding, crypto has also collapsed and we have seen most high PER companies coming back down from the stratosphere. 

Pertaining to the topic today, the optionality of having cash sitting around back then was good and the negative impact was negligible. We can hold a lot of cash and do nothing without losing much. But now we are able to earn 4% on this cash. As such, cash savings with nowhere to invest needs to be put into T-bills to earn returns as much and as fast as possible. We need a good strategy and process to handle that.

2. Strategy and Process

The strategy is really simple. There is an auction every two weeks for the 6 Month T-bills in Singapore. Since the minimum size to invest is $1,000, we can technically split our full investment size into 12 tranches and bid for the T-bills every two weeks. After 6 months the money comes back and you can do everything all over again. The auction calendar is posted on the MAS website and it pays to note down all the dates so that we won’t miss them. 

There are different ways to split the tranches. You may choose to do 6 ie only do alternate auction. But you also stand the risk of not participating if the one you skipped happens to be a good tranche with a very high yield. Therefore, to me, the simplest way is to participate every round, especially since the yields are going up and should remain high in 2023. 

Competitive vs non-competitive bids 

When subscribing, we will be asked whether we want to do a competitive or a non-competitive bid. In a competitive bid, you put the yield you want (say 4%) and you will get full allocation but risk getting nothing if your bid is higher than the cut-off yield. While in a non-competitive bid, you will take what others have bidded as the final offer ie the cut-off yield. The caveat is that when the auction is hot, sometimes you do not get full allocation with a non-competitive bid. 

It is a small point and both ways work. So far, I have always chosen non-competitive. If I do not get full allocation, the money is recycled for the next tranche. This works well for my strategy for having 12 tranches. One last point to note is that the yield is annualized, but the T-bills is only for 6 months. So effectively, if the yield is 4%, you are only getting 2% of the money coming in. As such, it is important to keep the cycle going to earn the 4%. 

In the last few paragraphs below, we shall describe the risk and how this saving enhancement can work for us in the broader context.

3. Risks

We briefly talked about the risk free rate described in textbooks. By definition, T-bills are risk free. The Singapore government will not collapse in the foreseeable future. You will not lose money. So it makes sense to put as much as you can into it. Only when you find a better investment, generating twice or thrice the return you can get here, then deploy part of the money into such attractive alternatives. 

As you can see, how the world has changed since the days of zero interest rate. Unless some other investment can give 8% return or more, it doesn’t make sense to invest. All the REITs giving 5% dividend today are no longer attractive. Why should I risk losing money to get 5% when I can get T-bills for 4% with zero risk? 

But is it really risk free?

I would say that the risk lies with future optionality. You lose optionality for six months when you put money into T-bills. For example, if there is a freak auction, the cut-off yield dropped to 2% for some reason, then we are stuck at this low return for six months. Hence again, it is good to split out to small amounts such that the “damage” is not big every round. Even if we are stuck, it is a manageable quantity and only for 6 months.

More importantly, as the chart with cut-off yield from 1987 to 2023 showed (reproduced above), when we transition to a high yielding environment, it usually lasts for c.3 years. We are at the start of this cycle and this should be a good saving enhancement instrument for the next few years.

4. Savings Enhancement

This is an important point illustrated by Mr. Money Moustache years ago. The big idea was that if you have a retirement stash and your expenses are 4% of your stash / retirement portfolio, essentially you will never run out of money. This has been established in the landmark study called the Trinity Study. The full post below: 

https://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need-for-retirement/ 

Amalgamating with our point today, if T-bills can earn us 4%, what if we deploy all our savings into this instrument? Forget about stock ideas, bonds, innovative trades, mutual funds. Just buy this lah! Isn’t that good enough? Our stash can then last forever as long as the return stays high at 3-4%. I believe that this could be the ultimate saving enhancement strategy. 

To be more conservative, say we are spending 6% of the retirement stash, this means that by investing all the savings in T-bills, we will be only expensing away 2-3% of the retirement stash. So, originally, if we spent 6% of our savings, our stash could only last 16-17 years, this is now enhanced to 33 or 50 years! 

For the older readers here, you will understand, this is way more than enough. We are definitely not around in 50 years. The goal is not to leave a huge stash of money when we pass, so this will help with our saving enhancement. For younger readers, work hard, save a lot more than you earn today and someday the math will work out also ;) 

Huat Ah!

Don't rage, don't take umbrage, pls behave on stage!

Rage and umbrage has become unacceptable as society progresses. Today, social media picks up everything. So, when you want to say something inappropriate, well, better think well!

Two days ago (7 May 2021), SPH CEO Ng Yat Chung took umbrage at a reporter asking a difficult question and the whole thing went viral on internet. This was a classic case of shooting the messenger since the reporter was just asking a question sent to her mobile phone. She obviously didn't ask it for herself and would be wondering why she was getting shouted at.

Don't anyhow take umbrage

Actually, the CEO maintained his composure at the start, introducing to us a new word to enhance our English vocabulary. But his response grew more and more belligerent as he spoke. He denounced himself as a gentleman and then shouted almost savagely. This was the bit that caught the social media's attention. Now, we have umbrage T-shirts, advertisements and what not.

But the real people who really had to take umbrage were SPH's shareholders. SPH's share price had simply rolled downhill all these years. The chart below shows how SPH had always hovered at $4+ only to accelerate its decline after the current CEO took over. Then it got hit by the pandemic and collapsed even further. In the last few weeks, share price started to recover, perhaps because Singapore is vaccinating its population so well, but alas, the umbrage saga took it down by 15%! (Or may it was selling a profitable business at a negative price).

Umbrage strikes back!

It is not entirely the CEO's fault. Running a declining business franchise is a tough job. Newspapers are distributed for free Today (pun intended: for non-Singaporean readers, ironically, this free newspaper is called Today) and I am not sure who still subscribes to the Straits Times. Maybe corporates and rich people who just want it to wrap their breakable stuff after those daily papers pile up. In this day and age, the way people consume news had also completely changed since the days newspapers were invented.

Newspapers were a huge thing in the past. Their economics were so good. They had both subscription and ad revenue and both were raking it in while they simply pay reporters peanuts to write stuff that everyone had no choice but to read. But the internet and social media changed everything because now everyone can be his or her own reporter and they wrote things people really wanted to read. 

When the tide changed like this, it is hard for management in that business to adapt. Newspaper was a profitable business that will generate money even if you put a monkey to run it. Now, it has to fight  declining subscription, declining ad revenue and the social media. Warren Buffett puts it best:

When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.

To paraphrase, if the business is tough, then even brilliant management cannot win. I am not sure how brilliant our current SPH management team is. I hope they don't take umbrage :) But I am sure shareholders have taken umpteen umbrage seeing how their investment has declined c.70% over just a couple of years, not to the fault of anyone though. It's just business.

I don't think there is any easy way out for SPH. It is now a tough business. For the longest time, it was supported by its property business. Maybe there is an angle here by spinning off the tough media business and become a property company. It will take courage, not umbrage, to bring the share price back to its previous glorious days.

Tangible Thoughts #4: Pitiful Pump Uncles

The saga of the week in Singapore was about pumping petrol. For readers not from Singapore, here's the story. A BMW driver drives his car into a Caltex petrol station and said, "Fill Ten" to the pump uncle. The pump uncle then proceeded to pump gasoline to full tank, because he heard "full tank". The driver, realizing his car now has a full tank, became enraged, scolded the pump uncle and refused to pay up. He single-handedly cogged up the whole Caltex station for half an hour. By then, his face, his car number are all up on social media with netizen blasting, "If you can afford a BMW, who the heck fills $10?" Subsequently he explained he was selling the car, hence there was no need to fill more then necessary. But the whole saga just sounded fishy, maybe he is really a crook, who knows. Meanwhile netizens came up with this form to be distributed at all gas stations in Singapore. Haha! 

Fill Ten or Full Tank?

As in investing, it takes a lot to prove accounting fraud, Midas did it for twelve or thirteen years and we only found out recently. At its peak, Midas' market cap reached SGD 1.2bn and it was generating close to SGD 50m in net profits. Well, as experienced value investors, we know too well that profits were too easy to manipulate, cashflow analysis required real kungfu. Indeed, Midas burnt through S$760m of FCF over 10 years and probably used some creative accounting to generate roughly SGD 40m of positive FCF in 2007 and 2017. In the end, the positive free cash accounted for 5% of the total money burnt. So be really careful when you see years and years of cash bleeding.

Back to petrol pumping hopefully we can tell some day whether it was the pump uncle who was hard of hearing or the BMW swindler who had been doing this "Fill Ten" trick for years only to be found out last week. Having said that, this saga pushed me to think about why would someone do such a thing? In the end, it could be a stupid case of trying to get even with Big Oil. Singapore's retail fuel market is an oligopoly, as with most things here. Hence pump prices had remained high despite crude oil prices being super volatile. The following chart (courtesy of TradingEconomics and SPC) showed how pump prices in Singapore trended. we can see that prices had been ranged bound between SGD 1.25 to SGD 1.8 since 2010. 

Singapore pump prices over the last 10 years or so.

The same chart for crude shows some correlation at first glance but from its high, oil fell 70% or more from $100 per barrel to $30. It stayed low for a good 18-24 months but Singapore pump prices never fall more than 50% and stayed low only around the few months in 2016. For some reason there was also this huge spike in 2015 despite global oil prices remaining low. I guess we can say that Singaporean car drivers are pretty much screwed by Big Oil.

Crude prices over the last 10 years

Actually, this is the same story all over. We are also screwed by Big Developers and also screwed by Big Car Dealers (a typical BMW would cost a low to mid five figures in Germany but is at least six figures in Singapore). What's worse, we then have BMW drivers screwing pump uncles. Poor Singaporeans and pitiful pump uncles. Is there a way out of all this? It's really hard as capitalism and economics drive so much of everything these days. We might have to learn from the Nordic countries and develop some form of graceful capitalism if there is such a term. 

Singtel: Becoming A Dumber Pipe?

I have been a long term shareholder as well as a long term mobile phone subscriber of Singtel. The experience had not been great, to say the least, especially in the past three years. Singtel's stock had done okay if we look back in time. It was $2.2 or so in 2007 and today it's $3.7. An investor who held throughout would had made 68% on capital gain and another 40% or so in dividends. But in the last three years, it did nothing. Meanwhile, DBS went from $15 to $25 and became the largest stock in Singapore (overtaking Singtel) for the first time ever!

Today, we try to decipher what happened to the #1 stock in Singapore.

Singtel's investment thesis had been pretty simple. This was a business connecting 600 million mobile subscribers over a huge part of the world. It generated tremendously strong free cash flow averaging S$3bn annually over the past 10 years with almost 2/3 coming from overseas. It is the #1 or #2 player in Thailand, Australia, Indonesia and Philippines. In Singapore, being the biggest brother, it led the way in screwing subscribers and generated huge profits year in year out. What more could investors ask for?

Big Brother - Singtel

For the longest time, it was also the proxy for Singapore. Equity investors looking to buy into countries usually look for proxy stocks. If they believe that a certain country had growth prospect and would like to play on that theme, they would buy a stock to express that view. So Singtel is the proxy for Singapore, just as Astra would be the proxy for Indonesia and Samsung for Korea or TSMC for Taiwan. However, there are also bigger themes at play. Just as Samsung and TSMC are now being associated as core stocks for the new tech wave, Singtel is facing heaps of trouble.

It is becoming a dumb pipe.

The dumb pipe argument on telcos has been around for some time. The theory was that as internet advanced, telcos would lose their relevance in the new paradigm as apps, transactions, gaming take place outside the telcos' dominance. It started with Whatsapp killing off SMS, then voice and now perhaps even data. In order to defend profits, the telcos keep setting up traps to squeeze money out of consumers.

As an example, international data roaming and international phone calls had become exorbitant. Data roaming is easily $25 per MB. If you are reading this on your mobile phone in Afghanistan without an overseas roaming plan, you might be paying $125! It has gotten so ridiculous that we hear about $1,000 phone bills and it goes on Straits Times and Singtel had to come out with some backdating-the-charges-via-a-cheaper-plan way to lower the charges. Meanwhile their call centres get flooded with waiver requests and they have the guts to claim that they are helping customers save money!

Ridiculous overseas charges

So is it just a dumb pipe or a dumber pipe?

But back to the original threat from apps and internet - this is real. SMS revenue fell drastically since Whatsapp came about. Now that voice quality had improve, people are using Whatsapp for calls too. So the only profitable arena left became data, which is why we see exorbitant data roaming charges. Now Google saw this chance and recently decided to jump in with a way to screw the telcos. It is rumored that they might offer phones with flat fees for global data usage. Now this is a gamechanger. It this really happens, it would be goodbye to all telcos, all over the world.

That's what telcos get for screwing subscribers all these years. Remember Google's company motto is "don't be evil". Not that they are living up to it, but they are certainly aiming to eat Singtel or for that matter every telco's lunch.

Singtel knows this is coming. While screwing subscribers they have also been investing in new ventures. Alas, no traditional telco had succeeded in spending money to grow new businesses. Singtel touted its small success in cybersecurity. It claims that it is the #5 player in the world in the field of cybersecurity. But if we speak to the real cybersecurity guys, they would be like, "Huh? Who is Singtel? So, it's a stretch to say they are good here. But who knows, they might make it, cybersecurity is a nascent market, things can change quickly.

Unfortunately, these investments need money and with money going into investments means less money for shareholders. The lines above shows that while dividend per share had been kept constant at 74% of earnings per share, it had shot through the roof as a % of free cash flow. At this rate, Singtel would be borrowing to pay dividends. Perhaps that is why it has been overtaken by DBS in terms of market cap. 

Having said that, Singtel is not going to crash 40% tomorrow. At S$3bn FCF per year, it is trading at a healthy 5% FCF and the market might still give it the benefit of the doubt. It can still become a smart pipe. Meanwhile, it will continue to screw subscribers and squeeze more cash out of everyone of us. Singaporeans pay one of the highest phone bills globally while suffering from poor network quality and exorbitant overseas roaming charges. Not unlike our public transport and our education system, we get the crap underneath the cleanliness and the efficiencies that our infrastructure promises. Geez, that's quite worrisome, isn't it. 

It is a dilemma to be a suffering consumer but a shareholder of Singtel. As a shareholder, some of the pain is mitigated with the dividend and the capital gain over the years. But as we now know, Singtel could become a dumber pipe. With the 4th telco coming up, it might really stir up competition and grab a piece of Singtel's pie. Especially with most subscribers suffering so long and would be more than happy to switch. If the Singapore cash cow is slaughtered, we can easily see cashflow plummeting 20-30%. This is then a serious threat to the dividend and when the dividend is cut for a dividend stock, things get really, really ugly. 

Perhaps its time to seriously think about divesting Singtel!

The author owns Singtel.

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!

Return on Investment for 38 Oxley Road

With the whole Singapore intrigued with the 38 Oxley Road saga, it is hard to avoid the discussion, be it during lunch, on Facebook and Instagram and worst of all with international friends. This saga could be a watershed moment, marking the downfall of a little red dot, if it is not resolved amicably asap. But since this is an investment knowledge infosite, let's leave the politics to others to comment. Today we shall focus on the investment aspect.

The investment story of 38 Oxley Road is also quite intriguing for those who would be interested in investment returns. In this post, we hope to capture the no.s and paint some scenarios, some very rosy, hopefully to make people forget the disgust and disgrace of the whole situation. Oxley Road was named after a certain Thomas Oxley, a Brit who owned a nutmeg plantation in the 1890s. It was then sold to a Jewish merchant which presumably then rented the house to Mr Lee Kuan Yew's family during WWII. In his memoir, Mr Lee Kuan Yew wrote that he rented the place for $80 a month in c.1944. After the war ended he and his wife went to London to further their studies and got married. They officially moved into the house in 1950. 

38 Oxley Road: front gate and the famous basement

It was not clear when he bought the house but based on circumstantial evidence, one could conclude it could be somewhere between 1945 to 1955. For our calculation purposes later, let's put it down as 1950. The value of the house is much harder to determine. In his memoir, he did mention that back then a decent house could be bought for 12 bottles of Johnnie Walkers towards the end of the war as families ran out of things to sell, like jewellery, the motobike or car, or even family heirlooms, so finally they would sell their houses. This anecdote itself probably deserves another post as it is not with zero probability that we would not revisit those days.

Back then, paper money (which was issued as banana money by the Japanese) was worthless and the economy degenerated and people resorted to barter trade in order to survive. So what became more valuable and could be used as currencies were cigarettes, liquor and usable stuff. Of course gold was on a class of its own. While it cannot be used in daily life, its value had been determined and recognized over the centuries which is why I believe all investors should have some physical gold in their portfolios. It need not be a huge chunk, maybe just 3% but in the improbable event that the modern financial system breaks down, the only asset that will hold its value and sustain daily life is gold.

Ok let's get back 38 Oxley Road. Where were we?

Yes, we were trying to determine its value back in 1950. We have a few numbers to work with. 12 bottles of Johnnie Walkers and $80 of rent per month. Today, 12 bottles of Johnnie Walker would cost between $2,000 to $4,000 depending on which label we are talking about. The Blue Label in some kind of limited edition would cost even more. Anyways, translating these numbers back to the value in 1950, based on an inflation of 3%, we get to $300 to $600. Geez, imagine getting a bungalow at $300! That's probably not too accurate. It could be as low as $1,000 but $300 seemed like too much a stretch. Next let's work with the rent. We know today that rent in emerging markets could be a high single digit or low double digit. A quick check on the rental yield in Africa today points towards that as well.

Courtesy of Global Property Guide

So let's assume that 38 Oxley Road also had a rental yield of c.10% back then. This meant that the value of the house would be $9,600 (8x12x10=9,600). That's probably a more reasonable number to work with. But in order to triangulate better. We can pull in other no.s. Based on what was told about the old days, the first HDB built in the late 1960s cost around $8,000 which meant that extrapolating a hypothetical HDB valuation in the 1950s, we get roughly $5,000. This meant that a house like the one at 38 Oxley probably cost twice or maybe 3x more. So we might get to $15,000, nice. Not forgetting the Johnnie Walker number, perhaps we can put a range on the value of 38 Oxley Road at say between $5,000 to $15,000.

Now that we got the value of the house back then. Let's determine the value of the house today. It was reported in the Straits Times that the valuation of the house is $24m in 2015 but developers, wanting to re-develop the whole area, the house could be bought for much more, like multiples of that number. So what's the right multiple? Again we try to extrapolate/triangulate that number with other numbers.

In a recent transaction, we knew that a Chinese developer bought a piece of land in Stirling Road, paying over a billion dollars for 21,000 sqm of land. That's over $1,000 psf for Stirling Road, near Queenstown MRT. Based on just the psf and land size, we can then know that Oxley should be worth at least $50 million since it's around 1,000 sqm of land. Of course, Oxley is not Queenstown and again the right number should probably be multiples of $50m. If it is 3x, then it's $150m. So there we have it, 38 Oxley Road today could be worth $24-150m. 

So based on these numbers, the return on investment for 38 Oxley Road after compounding for 65 years (1950 to 2015) ranges from 12 to 18%. That's a very decent number. Its at least 50% more for this site namesake! It definitely beats 95% of all professional fund managers out there and almost on par with the world's greatest investor, Warren Buffett's record of 20%.

Ok so here's the kicker.

38 Oxley on Google Map

If you look at the map of Oxley Road above. The plot ratio of the whole area is very low because when one of Asia's most important person was living there, we couldn't risk a sniper in a tall building assassinating him. So it was kept incredibly low at 1.4 whereas the surrounding is at 2.8 to 4.9. So if Oxley's plot ratio is relaxed, we are talking about 2 to 4x increase in plot ratio. This meant that a developer would be happy to fork out even more to acquire the hardest-to-acquire land in that whole area. Audaciously, let's say that 38 Oxley Road could be worth 2x of that $150 million number, at $300 million. Also, since we were never quite sure exactly how much Mr Lee Kuan Yew actually paid for Oxley Road, if we assume it's really closer to 12 bottles of Johnnie Walker, say $1,000 back in 1950, we get a new ROI of 21.4%, beating Warren Buffett's record. Furthermore, it compounded for almost 15 years longer than Buffett's reign hitherto. That's never been done before. 

In conclusion, if that turned out to be the true scenario, Mr Lee Kuan Yew, is Singapore's best investor and our answer to Warren Buffett.

Lessons Learnt: Sembmarine and Keppel

Our beloved oil rig manufacturers had suffered a catastrophic decline in the last 18 to 24 months. Keppel fell from $10 to $4.8, a 52% drop and Sembcorp Marine collapsed from $4.5 to $1.5. a 66% free fall. Sembmarine's parent Sembcorp Industries didn't do that well either, falling from $5 to $2.2, again a more than 50% decline from its peak. All three stocks now trade below book, with single digit PE, with no recovery in sight. Apologies to anyone who had took advice from previous posts and bought these stocks.

Investing is as such. 40% of the time we get things wrong. With discipline and experience hopefully our wrongs are just 20-30% drops while our rights are home runs at 2-3x, which makes the overall portfolio return decent. Once in a while we would get these disasters. Then it's vital that we learn our lessons, take down good points and become better investors with them. This is the objective here today.

The original thesis with Keppel and Sembmarine was quite simple: it was a bet on energy, they were top global players in their field and they had exposure to growth in Brazil, US, North Sea, Middle East, which were growing very well not too long ago. Let's elaborate on these points:

1. Energy was the place to bet a few years ago. We have all been taught that we would run out of oil in time. I remember the limit was 20 years when I was a student 20 years ago. My teachers told me that the world would run out of oil in 20 years. Again that prediction did not come true. But it would also be true that we wouldn't have more oil right? Well we now have LNG and shale gas but still, it's not sustainable to just keep digging from our planet. Considering the growth of global economy, it's probably not incorrect to think that we cannot continue to rely on Mother Earth for fossil fuel forever. So the energy bet should be a long term positive return bet, we will run out of oil, oil price will skyrocket, Keppel and Sembmarine benefits from that. In theory.

An oil rig

2. Global #1 and #2: These two firms are the top manufacturers globally with combined 60% market share in oil rigs and they also have the technological advantage to do more. Both firms also started building other equipment like drillships and floating platforms. They also had very good global brand names and won large orders from Brazil, which unfortunately became the major cause of their downfalls. With dominant global share also meant that they had economies of scale, they could procure raw materials cheaper and could built the final products at lower costs vs their competitors. One very important factor that was not talked about was also the designs of the rigs. There are only 3-5 designs globally and both firms went to acquire these design firms years ago to make sure that the important ones would be kept in-house. This meant that future competitors i.e. the Koreans and Chinese would not be able to lay hands on these superior designs. They had to buy from the the remaining 1-2 independent designers out there which meant higher costs both for the design payments and the construction of inferior rigs. So we are betting with the winners, what could go wrong?

3. Betting into Brazil, US, North Sea and Middle East. It's always good to diversify our bets and it came as a good idea to be able to buy Singapore firms that had exposure in some of the fastest large growing economies. Again, that looked pretty good just a few years ago. Now the collapse in oil as well as other issues caused a lot of these economies to face serious growth impediments. It's consensus now not to invest in these markets at least for the next few years. 

So it was really a perfect storm. A metaphorical oil rig blow up like the one BP had in the Gulf of Mexico. Well, so much so for the past, what are the lessons learnt and what could we do better?

The biggest overlook here would be the crude oil price cycle and oil related heavy equipment investment cycle. While it's true that the world is short of energy and would likely be even more short going forward, it's also true that such cycles come and go and across decades. The following chart shows the prices of crude oil going back to the 19th century. We can see that crude cycles last for decades. Of relevance in recent times, one would need to look at the oil shocks in the 1970s and the long lull in the 1990s.

Long term crude oil prices

So analyzing Keppel and Sembmarine's ten or even twenty years of financial statements wouldn't be enough. We would need to see what happened in the 1990s and better to go back to the 1970s during the oil shocks. Obviously, that's a lot of work given that most readers here might not had been born in the 1970s. So while looking at the free cashflow (FCF) for Sembmarine from the late 1990s we see that the firm could do SGD 100-200m per year, this was not enough information. Looking back long enough, we would know that oil capex cycle could be as long as 15 to 20 years. There could be a period of time of maybe five years or more when these firms had mediocre or no FCF. Armed with this info, it looks like Sembmarine could be stuck in this state for the next few years. So that's the first lesson, not going back into history for long enough.

The other lesson learnt would be the most important lesson in value investing: it's not having enough margin of safety or MOS. When it was first proposed here that these are interesting stocks to look at, Keppel was around $8 and Sembmarine was around $3. They had fallen 20-30% from their peaks, FCF was strong based on the last few years, dividend was decent as well. Back then, the thinking was that, for these bellwethers in the Singapore stock market, getting a 3-4% dividend at mid teens PE were probably good deals. This was very gullible thinking with very little margin of safety.

Value investing doctrine taught that margin of safety should be at least 30%. Clearly with only 20% discount from all time highs didn't cut it. It didn't help that these were not staples or software, ie businesses with very low capex needs and high ROIC. These businesses were cyclical with different dynamics. Greed and exuberance in good times were culprits too. 15x PE looked cheap in bull markets, not across cycles. Well, markets are fair and whatever lessons that weren't learnt well enough would be taught again. So with oil prices crashing to $30 and these stocks falling over 50%. This margin of safety lesson come right back to haunt. So it's worth stating here in bold again: the three most important words in value investing is margin of safety.

Investing is as such, the future is unpredictable. Who would have predicted just a few months ago that oil would crash below $30? But having said all that, there are a few saving graces. Oil could easily rebound to $60 with some catalysts: be it Saudis cutting back production or some supply shock somewhere. Punters would drive these fallen angels back up a good 20-30% if oil rallies 100% (from $30 to $60). So that's a short term plus albeit a big "if" for oil to rally back to $60.

Also, other parts of the long term thesis remain intact. They are still the strongest players out there and they will emerge stronger in the next cycle even though it's far away. The Koreans and Chinese would fall further behind given the lack of scale and access to the all important rig designs. There could be value emerging now amidst all the doom and gloom. What's more, the firms themselves are not sitting still. There is now talk that Keppel will be reorganizing the whole group including divesting other parts of its business to unlock value within the group and also to raise efficiency. This would create both cashflow and increase its market value. 

For Sembmarine, it is rumoured that its parent Sembcorp Industries might buy it back and restructure it to become a stronger player. So it could be a buy for both entities. It's a buy for Sembmarine as the parent would likely pay a 30% premium to take it private but it's also a buy for Sembcorp Industries because they would be able to acquire a good business cheap and ultimately extract some value by creating cost and sales synergies. All three firms are now trading at 8-9% FCF yield on normalized FCF, below book and near their GFC lows. As the saying goes, it's the darkest before dawn. Hope that the light shines on our oil rig builders soon.

Last words: Lessons learnt help us become better investors over time. Hopefully this serves to remind us always to look back into history for as long as it takes, have enough margin of safety and think more holistically about cycles and capex businesses.

Cooling Off Day Post

While the global stock markets rocked in choppy waves of unprecedented volatility in the last two weeks, Singaporean investors were probably busy following the campaigns of the current elections. This round to me seemed less interesting vs the previous cycles where we saw various tumultuous sagas involving CCTVs, sweet young things vs sweet young things, Dr Chee shouting at PM Goh like a gangster, Cheng San GRC (for those of us old enough to remember). This round we pretty much got to get excited only about this Titanic poster below.

For the un-initiated, this was an argument using the analogy of cruise ships. PM Goh liken PAP as a solid cruise ship with a final destination while WP is a gambling cruise ship sailing to nowhere. To which Mr Low replied that perhaps the more apt example would be comparing Singapore to Titanic, which sank. PM Goh then replied Singapore had  been sailing for 50 years, while Titanic sank on its maiden voyage. Creative Singaporeans then created the poster. Who says we cannot innovate?

The Father of Value Investing, Benjamin Graham left this quote some 70-80 years ago: "The stock market is a voting machine in the short run but a weighing machine in the long run." Some things just don't change. We tend to vote with our hearts, not our minds. Hence we keep seeing actors, boxers, prominent people getting voted into government all over the world: Ronald Reagan, Manny Pacquiao, Arnold Schwarzenegger just to name a few. But what is really important in both elections and stock picking is really to see through the rhetorics and power acts to the essence and make rational choices. 

In investing, that's about understanding and then selecting really strong businesses and buying them at the right prices. It's an art that would take a lifetime to master. Yours truly is still working on it after 10 years. In tomorrow's polling, it's another kind of selection, akin to giving a Facebook "Like", obviously, much more important and with serious consequences. So give it a good hard analysis as we would when we analyze and look at stocks.

A weighing machine will not lie. It tells you where you were before and where you are now. Humans take about 20 years to grow from 2-4 kg at birth to an optimal 40-80kg. Well, a lot of us continue to grow laterally, exponentially, massively after that but that's another topic. :) Both gaining and losing weight significantly are not easy manoeuvres. Changes will take time to be reflected. Hence the analogy that the stock market is a weighing machine. Over the long run, great companies see their stock prices follow exponential curves, mediocre ones fall flat or slope downwards. Nations follow the same paths. 

Singapore's GDP growth follows an exponential curve

Singapore grew spectacularly in the last 50 years. It will be quite unlikely to repeat the same growth in the next 50 years. Nor do Singaporeans want that at the expense of lower quality of life. A lot of election topics revolved around the price we paid for our spectacular growth: foreign workers, MRT breakdowns, rising cost of living etc. But we do need to keep improving. Growth is the only way forward. It may not be economic GDP growth at 8% but we do need some form of growth: entrepreneurial or perhaps cultural or at the individual level (ie you and me) spiritual growth. 

Our decisions tomorrow would decide the growth trajectory over the next five years. Will it be giving up some GDP growth for better quality of life, or continuing GDP growth at all costs or poorer growth in all aspects? It will be our choices!

Sing First Sing First Sing Sing First! 
I CAN'T HEAR YOU!
SING FIRST SING FIRST SING SING FIRST!

Tribute to Singapore's Titan: Lee Kuan Yew

To me, Lee Kuan Yew and Goh Keng Swee were the best political duos the world had ever seen. Our two Titans who shared tremendous intellect and common goals started with bold ideals to provide for the people, then went on to build a nation from scratch, from a kampung to a global hub, from third world to first. They are true heros. I wrote with intensity for Dr Goh five years ago. Mr Lee deserves as much respect as our first Prime Minister, as our leader, and indeed, as our founding father. However, so much had already been written about the great man, one would barely have new and differentiated views. So I shall focus on his leadership and his team.

The best endeavours in human achievement often see enduring partnerships between a strategist and/or architect and a visionary leader. Zhuge Liang and Liu Bei, Takeo Fujisawa and Honda Soichiro, Sergey Brin and Larry Page. For all the good fortune of Singaporeans, we had Goh Keng Swee and Lee Kuan Yew. The two best brains that generations had seen, deciding to come together and built a nation with no natural resources nor hinterland, not for personal benefits or personal glory but for the greater good of their people. Let's remember the team behind as well, Toh Chin Chye, Rajaratnam, Hon Sui Sen and all our other unsung heroes. This is as much a tribute to all honorable men who played their part in building Singapore.

Mr Lee was the force binding this dream team to execute with his charisma, his foresight, his tough attitude and his commitment. Oh, and he was really committed, here's one of my favourite quotes:

Whoever governs Singapore must have that iron in him. Or give it up. This is not a game of cards. This is your life and mine. I’ve spent a whole lifetime building this and as long as I’m in charge, nobody is going to knock it down.

His goals were simple yet monstrous: to provide a roof over everyone's head, to give everyone a job and a livelihood and to provide top notch affordable education to every Singaporean. And he did all that. He succeeded way beyond expectations. Because he really gave everything for Singapore and inspired every Singaporean then to do the same as well. He was also the orator who convinced the people to take the pain when the going got tough, to delay gratification and to work hard for the future. His grit fueled the people to endure, to strengthen themselves and then to soar to greater heights.

My father's generation adored Lee Kuan Yew and his team. They saw the transformation of Singapore. They saw how their environment changed from a laid back village to a metropolis, mostly in astonishment that so much could be achieved in such a short time. They were the beneficiaries of the shelter over their heads and owning homes they could call their own. They were employed in the stable jobs the Government created, earned their livelihoods and saw better education for their kids. Lee Kuan Yew was their idol, their god. Hence they bought all the books, collected all the newspaper cuttings and mourned when Mrs Lee passed on. Mr Lee, do kindly say hi when you see them as you reunite with Mrs Lee. 

Yes, we have come so far because Lee Kuan Yew gave his life to build this nation. It is now our job to continue his legacy and also to pass on his greatness to our future generations. RIP Mr Lee, thank you. Thank you for all that you have done for Singapore. 

Related posts

Farewell Dr Goh

Hoi Sui Sen

Investing Lessons from Ngiam Tong Dow - Part II

This is a continuation from the previous post.

The second lesson from Mr Ngiam's book is something pretty well repeated in many circles but I think it's worth re-learning. It can be surmised into the following five words: there are no sacred cows.

Mr Ngiam recounted the early days when Singapore was supposed to merge with Malaysia and the economic blueprint of the day was the creation of a Common Market where domestic industries would enjoy protection from imports via tariffs and restrictions. Many countries still practise this today as this was thought of as a good way to let small local players grow without excessive global competition.

However when the merger broke down, the Common Market was gone. Dr Goh Keng Swee, our economic architect quickly realized that Singapore could not afford to remain as a closed economy. We got kicked out of Malaysia but we must continue to fight to live. Nobody owe us a living. Together with our UN advisors, one of the most important persons in Singapore history but rarely mentioned, Dr Winsemius and Mr I.F. Tang, put up an economic plan to open our markets and invited foreign large corporations to invest in Singapore.

Dr Goh then taught Mr Ngiam that there could be no sacred cows. So in one swoop, Singapore removed all import tariffs so that our economy would quickly adjusted to compete in the global arena. This greatly helped prepare Singapore for its next step: attracting MNCs to invest here. In one of the most famous stories about Dr Goh, he designated Jurong, a swamp at that time, as the key site for MNCs to build their factories. Dr Goh himself joked that this could prove to be Goh's Greatest Folly. Of course, it didn't. Jurong today is a major economic muscle powering various sectors for the country.

Time and again, seemingly sacred cows would be slaughtered if that proved to be the solution. Mr Ngiam would say that we should take the bitter medicine in one gulp. So we cut the CPF contribution during the crisis of the 1980s, we drew on the reserves during the Global Financial Crisis and currently we are taking measures after measures to cool the red hot property market.

As with politics, I think investing shares the same philosophy: there are no sacred cows. Or rather, there should not be any sacred stocks in your portfolio and you must open your mind up to all the possibilities.

After investing for some time, you would accumulate a few stocks in your portfolio, some would be making money, others showing red. If you are reasonably good, you should see slightly more blue than red. But as I have blogged before, the winning ratio is probably just 60%. For every 10 stocks you buy, 4 will show red. So the question to keep asking ourselves would be: are we keeping any sacred cows?

As humans, it's very natural to rationalize ourselves into thinking that many of our losing stocks would come back. It's just a bad patch, the business is inherently okay. Or it's the CEO's fault and he's now being forced to leave, so things should turn. We will come up with 1,001 reasons why we should not sell our losers.

Portfolio management is about finding a better stock to replacing an existing one. There is no room for sacred cows. If the stock is not performing for some time, review the thesis to see if it has changed. Sometimes we could be too early and if so, we have to continue to wait. But if the thesis has changed, then it's time to kill the sacred cow.

On the other hand, we should also adopt a "never say never" mindset. Some investors would have certain biases. Like maybe never invest in an airline, or the cash burning semiconductor sector. But if we close our minds too quickly, we might miss out interesting opportunities. The apt example here would be SIA Engineering or SATS.

So while we all know airline is a crappy industry and they burn money faster than you can blink, some of the airline-related businesses are great cashflow generators. SIA Engineering, one of the largest aircraft maintenance and repair company in Asia, operates a great business that generates high return on capital.

You see, airplanes needs maintenance all the time. When the economy is good, they fly more often and needs to be maintained. But when the economy is bad, people travel less and airlines send their idle airplanes to be maintained! It's a recurring business with a relatively strong moat as you wouldn't want any fly-by-night guy to repair your airplanes.

More interestingly, since SIA owns a big chunk of all these related businesses, it could become a sum-of-parts argument ie we are buying SIA because it owns all these subsidiaries and at the right price, we could get its main airline business for free. Of course the argument then becomes whether the main airline business is just free or should it be negative value. That's second level thinking for the seasoned investors here.

Back to Mr Ngiam, I would again highlight that the book is full of interesting anecdotes for Singaporeans to enjoy. Some of these mantras are timeless. There are no sacred cows. Nobody owes Singapore a living. Take the bitter medicine in one gulp. Hard Truths!

In the early days of the founding of modern Singapore, Mr Ngiam, led by Mr Lee Kuan Yew, together with Dr Goh Keng Swee, Mr Hon Sui Sen and the core of the civil service officers contributed immensely to the success of Singapore today. They have my full respect. Salute!

Thank you Mr Ngiam!

This video has nothing to do with the post. 

But it's a nice catchy CNY song by Super Group's subsidiary Owl International. 

Enjoy and Happy CNY to everyone!

Investing Lessons from Ngiam Tong Dow - Part I

I just finished this interesting book that gave a good perspective on Singapore's recent history from the former head of civil service Mr Ngiam Tong Dow. It was published a few years ago but the topics are still pretty relevant: public transportation, jobs, housing etc. I think every Singaporean who has an interest in public policies should read this book.

Ngiam Tong Dow's Book

For me it was especially enjoyable reading the parts about our political leaders Mr Lee Kuan Yew, Dr Goh Keng Swee and Mr Hon Sui Sen. Mr Ngiam described how the trio formed a very formidable team that help transformed Singapore to what it is today. 

Lee Kuan Yew - the visionary leader setting the direction, convincing the public, fighting the enemies both within Singapore during the early days and the external adversaries that were just waiting to see us fail. But of course, we didn't. Mr Lee is still fighting today. He has my upmost respect.

Goh Keng Swee - the economic and overall architect, building up our various institutions and devising strategies to make sure Singapore succeed as a small nation without a hinterland. He created our armed forces from scratch, helped put in place our education system, started countless agencies down to recreational facilities such as our Bird Park, Zoo and the Chinese and Japanese Gardens. He is my idol. Really. This blog has a post dedicated to Dr Goh.

Hon Sui Sen - the implementor or "builder" in Mr Ngiam's words who helped rallied the civil service and rolled up his sleeves and did a lot of the heavy lifting. In my humble opinion (and probably Mr Ngiam's as well), he is one of the most important unsung hero in the history of Singapore. Mr Hon, who contributed so much to Singapore unfortunately passed away in 1983 due to a sudden heart attack while in office.

Mr Hon Sui Sen

The investing lesson here is about management. In a company setup, I would say that there are also three very important positions.

The Chairman - the visionary who understands the big picture and help set the direction for the company.

The CEO - the architect who devises strategies based on the firm's strengths and weaknesses to help create Blue Oceans where the super profits could be made.

The COO - the implementor who is in charged of the day-to-day operations and really doing the heavy lifting while giving instructions to the ground troops.

Of course, some of the roles are intertwined. In a lot of cases, the CEO is the visionary as well as the architect while the Chairman is more of a symbolic figure. And a lot of companies have one person holding both Chairman and CEO positions or CEO and COO positions.

As investors, we should be looking at the management team to determine whether the three roles are duly filled. Lacking one or two of the roles would be very detrimental to the long term survival of the company.

I would argue that Apple, since the demise of Steve Jobs, lost both the visionary and the architect, who were obviously filled by Steve himself. Today the company is being helmed by the implementor Tim Cook who is unable to set the direction and devise Blue Ocean Strategies for the company.

Of course, I could be wrong. Given Apple's ability to attract talent, there could be a team of architects filling in that role but the visionary leader is probably lacking and it would not be easy to find one any time soon.

Anyways, back to the investing lesson here: look out for the three important roles in the management team of companies. Do they have the visionary, the architect and the implementor? That's essential for success.

Part II is out!

How much will you pay for Cecilia Sue?

Well, apparently to some, this woman is worth a career, a family, reputation and scrutiny of the whole of Singapore. On hindsight, it is easy to ask what is going on in the minds of those who would risk it all for a night (or a few nights) of fantasy and thrill? What the hell are those dumb and hum sup (lecherous) uncles thinking?

For those who doesn't really know what is going on, read this link first.

Well since this is after all, an investment blog, we shall leave these juicy details aside first and talk about the investment analogies here.

The analogies I see here are:

1. Due diligence process
2. Choosing the right stock/partner
3. Price and value
4. Risk taking and bet size

A company has financial statements and the ratios for analysts to pour over. Then we do more work by talking to the co. itself, its suppliers, its customers and get more info. Over time, as we look at more and more stocks, we can easily size up a firm and say: ok this is a world class firm (ie a Coca Cola), never cheap, we have to pay up. OR ok this is a bit Enron-ish, wait and see. OR this is crap (like an airline), for some value guys, it is gonna be: I will never touch it. For others, well if the price is right, I will take a punt.

Now I have alluded to that buying a stock as a value investor is like choosing a partner. Well sometimes it might be akin to choosing a prom night date. But in any case, we need to do some due diligence. Over time, most guys (hopefully) will also develop an analytical framework on girls. After looking at how she dress, how she present herself (this is the stage where analysts pour over financial statements), then after talking to her for a while (ie the talking to co./suppliers part), we can size up whether she is:

1) world class - can consider as prom date or partner
2) Enron-ish - like a Cecilia or Wendi Murdoch
3) crap - like a normal Zouk slut

The next question is how much will you pay?

In value investing, price you pay is vital, we must pay a price that is less than the intrinsic value of the firm, or else, there is no upside. For Buffett, sometimes it's ok to pay up, bcos a world-class firm's value grows over time. In fact it grows so big that even if you overpaid slightly, over time, the growth in value more than makes up. This is the power of compounding.

For cases like Enron and Crap, or the better analogy here: Cecilia and Slut, there can be no overpaying. Bcos the value of the firm declines over time. Sometimes, it might already be close to zero but the management keeps telling you there is great value in the firm. For these investments to work, we need a margin of safety. ie we only pay when the price is at a SIGNIFICANT discount to value. ie like at least a 40-50% discount if not 70-80%. Then even if we are wrong about the value, it's still ok, hopefully we won't lose too much.

So back to those hum sup lous (uncles) who paid up too much for Cecilia, what's going on? The explanation has to involve risk/reward and bet size.

In this juicy case, it's first about having a very low probability of getting found out. Most working people hear such stories from time to time, and it's probably happening often everywhere, not just in Govt and IT, but there is no way to prove in the court of law. After all, a business trip out to China, same hotel, only two parties, if all communications are non digital, there can be no trace right?

So the rationale was probably that there is some "perceived" value (her looks probably can fight Fann Wong's), and there is this risk of overbetting/overpaying a lot but the probability of failure/getting caught is quite low. Something akin to picking up pennies on the rail track in investing (buy something for an almost guaranteed 3% return but if things go wrong, -50%, half your money gone). Things are ok until the train comes and you are still catapulting your Angry bird to hit some pig on the iPad, oblivious...

Another case of Wendi Murdoch is also quite interesting. For her full story, just look up Wikipedia. In short she is like Cecilia x 100. Why did Rupert Murdoch, one of the richest men in UK marry this bitch I mean brave woman, knowing fully she spreaded her legs for every promotion up the scale of quality life?

For Murdoch, it's the bet size - he kept it inconsequential. It's something he can afford to lose (like some part of his media empire) and he doesn't care. He just wants to enjoy life while he still can. This is akin to an investor putting pocket money (like 1-2% of his whole portfolio) into some alternative products. If it doesn't work, it is not going to be a big deal. But with buying these products probably come other benefits like alternative research, network, avenue to bounce off ideas etc.

And for Murdoch, Wendi did save him from a tray of shaving cream, yeah that's return of capital already! But for Cecilia's hum sup lous, alas, the worse case black swan apocalypse just happened. Well hope they had had their fantasies come true at the hotel already!

As for lessons learnt for value investing: stick to the world class great co.s, buy them at reasonable prices, they rarely come cheap.

If you are in the mood for some Cecilia and sluts, oops, I mean some less-than-perfect co.s, my advice is don't. Ok... that's not something you will want to heed, then the 2nd best advice is this: make sure you have a good margin of safety and size the bets correctly.

Btw anyone found her pic yet?

On Ministers' Pay

This is sensitive topic that has angered many Singaporeans. Even with a 30% pay cut, people are not happy. So what if the Transport Minister gets paid $1mn instead of $2mn? The train is still breaking down and the taxi fares just went up damnit.

At the risk of getting flamed and BBQ-ed on skewers alive, I would like to chip in my two cents from an economic viewpoint.

There are perhaps 30+ Ministers and high ranking Govt officials that receive on average, say S$2mn in annual package. Let's throw in a generous bonus of another $1mn. So in total, we pay out $100mn to our Ministers plus high ranking officials like Permanent Secretaries, Head of Civil Service, etc.

But our annual Budget is over $30 Billion and our Economy is over $200 Billion. $100mn is a mere 0.3% of the Budget and 0.05% of the Economy. Does it really impact the big picture? In fact it makes perfect sense to pay the best minds to do the job well.

Of course, we can argue if they did the job well. The short conclusion is they did relatively well against most other nations, but not so well against their own track records. Also the benchmark has to be set properly, if they fail to meet - pay cut! Haha! That should satisfy the public.

Yes, our Ministers are the best paid in the world. Much more than the President of the United States, arguably the most powerful person on the planet. So it really doesn't make sense why a PM of a Little Red Dot should be paid more.

My argument here would be that most top officials globally are too lowly paid. It then also says that these people are truly noble, accepting such meagre sums to do such difficult tasks. It then also says that perhaps our leaders are not noble enough.

Of course the other argument would be that Clinton or Reagan can always publish books and give speeches after their term and earn much more. Or retire into a better paying job as advisers, spokespersons etc. And Singapore's leaders can't really do that bcos bestsellers in Singapore at best hit a few hundred thousand copies, maybe over a few years. Not really enough to buy even a cheap condo unit.

And Singapore cannot really afford to wait for noble souls to step up to the task. We need to attract the best talents to do the job. Already being a politician is such a sacrifice (no weekends, no private life, no time for family) that most smart people would shun away, let alone volunteer to step up the plate.

Not to mention, this is a thankless job. How many Singaporeans made the effort to pay their last respects to the late Dr Goh Keng Swee, one of the most important persons that built Singapore to what it is today. A mere 18,000 or so Singaporeans, out of the 3+ million. That's probably lower than the Disney on Ice @ Indoor Stadium ticket sales last year.

Perhaps a better solution would be to provide these Ministers more benefits rather than to give them an enormous paycheck at the start. Say we lower all their salaries to a few hundred thousand SGD, less than the all-important million dollar mark. But they do not need to pay taxes ever. Their healthcare and insurance are taken care of for life. Needless to say, pension would also continue, perhaps sweeten it a little as well.

It might also be useful to simply give retired politicians peace and freedom since monetary benefits wouldn't really matter much for many of them when they are out of office. The late President Dr Wee Kim Wee was happy to revert back as an ordinary citizen and travel with his wife to see the world. Perhaps that was what truly made him happy than all the benefits and huge paychecks.

Farewell Dr Goh

Friday was a sad day for me.

One of the greatest minds in Singapore history passed on. The Chief Architect of Singapore, Dr Goh Keng Swee. To quote Mr Lee Kuan Yew, generations of Singaporeans benefited and will continue to benefit bcos he laid the foundations of modern Singapore. EDB, SAF, JTC, CPF, MOE, MAS, GIC, Temasek, you name it. Down to the SSO, Zoo, Bird Park, Sentosa and even the Chinese and Japanese Gardens. He started everything! And the best part, he was selfless, he was humble and he cared for the people. He put his best 25 years into making Singapore a better place.

Dr Goh was a thinker way ahead of his time. He knew that Singapore has limited chances of surviving without a hinterland after the separation with Malaysia. So he came up with an original plan with Dr Winsemius, Singapore's economic adviser from the UN during the early days, to invite foreign MNCs to setup factories in Singapore, enticing them with tax breaks and cheap labour from Singaporeans. The site would be in Jurong, which was a swamp at that time. It was his most major gamble and he said himself it could be his greatest folly. But it worked. Singaporeans were just happy they had jobs, MNCs got their competitiveness and Singapore prospered. Years later, other countries including China followed his strategy.

He started our sovereign wealth funds, Temasek and GIC, in the 70s and 80s. The term "sovereign wealth fund" did not exist until a quarter century later. He did that because he saw the need to manage such large pools of money with dedicated teams of professionals to ensure decent returns (at least market returns) on our monies. The combined size of our sovereign wealth funds exceeds our GDP multiple folds today.

Dr Goh is truly one of Singapore's finest leaders. All Singapore flags should fly half mast for a week, in my opinion. All our dollar bills should have his face on it. May 14 should become a public holiday. The parliament house should have a statue of him. And yes, Jurong Industrial Estate should be renamed Goh Keng Swee Industrial Estate.

I wish I have the dollar bill with his signature. I would frame it and put it beside my Buffett and Munger dollar bill.

Someone is doing major update on Dr Goh's wikipedia page. Information has improved tremendously over the past few days.
http://en.wikipedia.org/wiki/Goh_Keng_Swee

I guess the sad revelation that I learned from reading his life story over the past few days was that he sacrificed his personal life and his health for the sake of Singapore. Or maybe he just wasn't as lucky as MM. After 25 years of intense innovation, adding immeasurably huge contributions to our society, he was diagnosed with bladder cancer. The fortunate part was that he still lived over 20 years after with his current wife, children, grandchildren and great-grandchildren.

So, live life to the fullest, but also in moderation and take good care of our health.

Just to put down here one of Dr Goh's best quote:

"The only way not to fail, is by not doing anything at all. And that, in the final analysis, will be the ultimate failure."

This quote was passed down to me across generations, from people who worked directly with him. and now it is with me. Thus his legacy lives on in all of us, Singaporeans. And it is up to us to let our children and our children's children understand his greatness and continue to learn from him. Like how schoolchildren today in the US still adore Benjamin Franklin and Abraham Lincoln, benefit from their foresight, worship them and still learn from them. Our children and their children will also continue to benefit from Dr Goh's far-sightedness. This is the least that we should do: pass on the legacy of one of our greatest Titans.

Thank you Dr Goh, thank you for all that you have done for Singapore.