Thoughts #36: 100 Years

As humans continue to live longer, it is not inconceivable that we could live up to 100 years. Monaco's life expectancy is at 89.5 years, with females hitting 93.5 years! It is also well researched that people living in Blue Zones lived more than 10 years longer vs the rest of the world and this brings their life expectancy in the late 80s as well.

In the world of investing, the investment horizon is usually 5-10 years. We create models with 5-10 year forecasts, but we rarely hold them for as long. We trade them. We look for exits in 3 years to boost the IRR. It is a true conundrum.

To be honest, 5-10 years is a very long time. Humans live day by day and we thrive on activity. Therefore our monkey brains cannot comprehend in 5, 10, 15 year time frames, let alone 100 years. 5 years ago, nobody could predict that Taylor Swift could make a billion dollars doing concerts, Jensen Huang could become a demigod giving signatures on bosoms and we may have 10 trillion dollar companies in 2024 and none of them from China.

Looking things from this time frame, anything that happens in 1,2 or even 3 years matter very little. In the moment when the going gets tough, it could be very long. For example, NS is two years. In the middle of it, some wished we were never born in Singapore. But when it is over, we look back and say, it was nothing.

It is very sad when we hear about teenagers taken their own lives. Whatever they were going through, it wouldn't be an issue in 10 years. It is not about belittling their troubles. Even WWII, it was a long and arduous 5 years. But then, things change and improve. Somehow, I think we need to train ourselves to truly think long term.

I heard a firsthand account about a primary school reunion gathering of people in their 70s. The lives that schoolmates lived could really give us perspectives in life. People who did not do well in primary schools could thrive in secondary and then later in lives. 

There are others who fumbled through but succeeded in strawberry farming in their 60s. Conversely, smart teenagers struggled later in their lives because of ego, lack of social skills, lack of friendly support. The morals of these stories are really to live our lives truthfully and rightfully, always. 

Coming back to investing, perhaps we should adopt the same approach, if something is only going to be bad for 1-2 years, then it is not an issue. The crux is then to determine if the issue is going to last 5-10 years. Secular changes and multiple contractions would last that long. So we need to be careful of those.

One example that comes to mind would be the rise of the smartphones and the collapse of digital cameras and before that, how digital cameras themselves replaced film. Today, it could be EVs destroying gasoline cars and renewable energies replacing fossil fuels.

Bayer's share price languishing for almost a decade

The other long term impact that comes to mind is lawsuits. Bayer being the case-in-point. The lawsuit that came with the M&A of Monsanto took almost 10 years and it is still not being resolved. It was difficult to established back then but now armed with such knowledge and benefit of hindsight, let's be careful with lawsuits!

The other point about being long term is really establishing habits that help us compound the quality of our lives over 100 years. In investing, this would be dollar cost averaging, monthly into portfolio opportunities and quarterly into ETFs. In our normal course of work, it would be good daily habits such as exercising, reading, writing to nourish the body and mind.

Hope this helps!

Huat ah!

We are migrating to Substack. Post on this original infosite will be irregular going forward. Please follow us on 8percentpa.substack.com.

 

Thoughts #35: Private vs Public Investments

Investment ideas can come from everywhere but it is important to understand that public and private investments are as different as apples and oranges. Investment ideas from personal connections, private companies and structured schemes come to us. It is very tempting to put money to work thinking that we are getting good risk reward. But we must be very discerning.

Personal and private investments cannot be compared to what is publicly listed or backed by a reputable government (e.g. US or Singapore) or large institutions. For example, we see a private investment which shows 20% annual return on paper. We cannot say that this is better than buying DBS, which can only generate 10% annual return (of which 4% is dividend).

There are a few important reasons:

• DBS is the largest bank in Singapore and the 25th largest bank in the world. There is very low probability it would actually go bust.
• DBS is publicly listed and its accounts are audited by top accounting firms. It means the numbers are real. The cash on the balance sheet is real.
• DBS is liquid, you can sell any time and take the money out if you need it.

In contrast, for a startup setup by your friend, or even and big private investment led by a Temasek linked company in which you have an angle to participte, none of the above matters. The considerations becomes:

• Can I trust the person executing the investment. What if he calls it a day at his startup or at Temasek, move on to do something else? What happens to the money committed?
• Who audited the numbers? Can I trust the cash was used the way it was intended?
• How long is this amount locked up for? What if I need the money some time in the future.

The answers are complex. For the first question, would almost certainly be dunno. Even if you have 100% trust, shit happens. What if the friend gets hit by a bus. Or the lawyer who did the work ran away with the money? With DBS stock, such risks are all averted.

So in order to make a good decision, we need to apply the right discount, we probably have to calculate the expected return here. So for DBS stock, the expected return is the same as the above because the probability that DBS will go bust is near zero and we can take the money out any time i.e. expected return is 10%pa.

But for the private investment, if the probability of default is not zero. For a Temasek led private investment, it could be 30% default probability. For your friend's startup, it could be 70%. So using those no.s, the expected returns drop to 14%pa and 6%pa respectively. Then we need to think about the liquidity needs. If it is locked for 10 years, then I cannot put like 10-20% of the portfolio or something big, like six figures. Who knows when I need that money?

Hyflux

Case in point, Hyflux. It was publicly listed. Strong links to Singapore government and Singapore Inc. Yet, it went bust. Thousands of convertible bondholders lost their shirts. Equityholders know their risks, we buy equity knowing it might go zero but we get the enjoy the upside, if any. But bondholders have no upside. We bought thinking we can enjoy 6%. Yet, it went to zero. So even listed entities are not foolproof. Shouldn't we ask more questions?

 

Full post on 8percentpa.substack.com

Huat Ah!

Thoughts #34: A.I. vs Human Portfolio Manager

Portfolio Management has never been easy. 80% of portfolio managers cannot beat the benchmark. Would it be the case that this becomes 99-100%? There could be a few scenarios:

1. A.I. beats everyone -> all portfolio managers cannot beat the benchmark

2. A.I. plus the best portfolio managers beats everyone, including A.I. These hybrid A.I. + best human portfolio managers make up the best 1%.

3. A.I. competes with A.I. and only the best A.I. beats everything else. 

The chart below shows humans don't really stand a chance...

Huat Ah!

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Thoughts #33: Negotiating Power

Events in 2023 have prompted some initial thoughts about negotiation and how it affects the situations, our lives and the world. Life is indeed a game of chess, and we need good strategies and there is also timing, environment and our fellow community to help. Or in Chinese, 天时,地力,人和.

The Russia-Ukraine war comes to mind. It was reckless to start the war and reasons back then are no longer relevant today. This is very much like life. The person we were just a few years ago, is actually not us today. Events that has happened just last year may no longer be relevant today. The Russia-Ukraine situation has evolved so much that everything can be now at stake. The following factors provide worrisome boost to a bleak future which may further escalate:

• If Trump becomes President, US may stop its aid to Ukraine and Russia can win. This was unthinkable just a year ago.
• The second war in Israel is putting further pressure on US and its allies on resources and political will to fight internal battles.
• China, its allies and North Korea are run by dictators and can move much faster than the US can.

To not escalate this further, US and Ukraine may need to go to the negotiating table faster and from a position of weakness. Without this, there is a real risk things unravel for the worse and pave the way for WWIII. 

In a similar life situations, one must always understand the dynamics so as to move advantageously.

Position of strengths

• The situation does not warrant any third party negotiator
• Options to move in different directions in position of strength (strong offensive power, strong internal defense, strong bargaining chip or chips)

Position of weakness

• The situation requires a strong third party negotiator especially at a critical juncture
• Optionality is restricted, there are no catalysts on the horizon (e.g. Biden continues to be President)
• Nuclear options (literally pressing nuclear button, or more soft approaches like media influence or use of international laws against the enemy)

Shareholders have some negotiating power. Especially in recent years, activists have turned the tables against companies and their management. With just a few percent stake, they can:

• Demand changes in the board of directors, which can decide the fate of the company's C-suite
• Use media to drum up support for their cause, rally other shareholders to vote with them
• Use lawsuits against companies who may do things can give activists the leeway to sue
• Make public strategic campaigns and propose that management execute them to generate higher returns for shareholders

These are strong tactics that have good track record of successes. Sadly, as a minority retail shareholder, we are always in a position of weakness. We have nothing to fight against management. We can go AGM and make noise but it will not change anything. As such we must always remember, there is only one option which is to sell when things are not looking good. Yet, we tend to hold on to losses for too long.

Therefore it is very important to always look for good businesses and good compounders. Check on the quality of management and simply avoid situations that stack the odds even more against us.

Huat Ah!

Thoughts #31: Investment Advice for Friends

As self-proclaimed investment gurus, friends tend to seek us out for investment advice and we tend to give freely, without contemplating the consequences. Most of the time, we share ideas that we are thinking of OR ideas that we already own and as conversations with friends go, there is no in-depth discussion and exact instructions are not provided. For example, a typical conversation will be:

Friend: "Hey, any stock lobang (good investment opportunity)"

Investor: "Yeah, check out Sembcorp Marine,  I bought already."

Friend: "Why is it good?"

Investor: "Energy is in demand, now oil price so high. Sembcorp will benefit."

Friend: "Oh yes, that is true, any risk?"

Investor: "They always need to put in a lot of capex, basically capital expenditure to build rigs and the industry is highly cyclical, so some competitors go bust. But no worries, Keppel will buy them if anything goes wrong."

Friend: "Ok, ok, I go buy tomorrow."

There are a few issues right here. There is no entry price, no target price and as such we do not know when to exit. Also, what is the size to commensurate the risk involved? These important points are all not spelt out. So when things go wrong, the investor sells at a loss and recommends that the friend do so, he or she may not follow because psychologically, loss-aversion is at work. Most people find it very hard to cut loss. Even when things go right, it is time to take profit, greed takes over and when the investor has sold, sometimes friends do not want to sell also. 

Such is the difficulty of providing investment advice on a casual basis.

Well, most friends are understanding and they know, it is always caveat emptor. You cannot fault your investor friend for providing advice just as you cannot fault your makan guru (foodie) friend for recommending you to his favorite restaurant which may not be to your liking. Of course, not all friends are like that.

To continue to hypothetical situation above:

Friend: "Hey Sembcorp died! What happened?"

Investor: "Well, it is highly cyclical, they did a lot of capex in the wrong regions, so when things go wrong, I sold and asked you to sell. Did you sell?"

Friend: "But you said Keppel will buy them."

Investor: "Well they did merge in the end. But did not go too well for Sembcorp shareholders. That is why I sold. Why didn't you sell?"

Friend: "I was hoping can rebound. But now lost so much money. Thanks bro... Guess your stock tips are not too reliable."

Investor: "Sorry... can we still be friends? Can I buy you dinner?"

Over the years, I have come to realize that the negatives of providing investment advice outweighs the positive. If he is serious, maybe he should consider subscribing to my Substack and we can have real in-depth and robust discussions on the Substack platform with other like minded subscribers.

Alas, most people just want stock tips. Not to read a 15 minute deep dive note on Substack or anywhere else. Just gimme the get-rich-quick tip bro!

Well, to each its own, we can still be friends.

Huat Ah!

Thoughts #30: Bitcoin and the Metaverse

This post is inspired by Ray Dalio's book, Principles for Dealing with The Changing World Order.

In page 222 of his book, Ray shared the concept of financial wealth which is different from other types of wealth. To the un-initated, this is confusing, wealth is wealth right? What is non-financial wealth anyways? But there are differences. Importantly, Ray implored us to think about financial wealth, real wealth and in the digital world in the future, digital wealth.

Today, we are wealthy mostly just in terms of financial wealth, money in the bank, stocks, bonds, insurance, fixed deposits. This is actually different from real wealth - like owning a house, car, physical gold and silver, watches, jewellery etc. Financial wealth, including cash, are just "promises" created by human beings so that we can transact more efficiently. 

Financial wealth was created around 1350 in Italy (maybe earlier in China) and for most of human civilization, people value real wealth more than financial wealth. Imagine you are a wealthy merchant in the 1500s, if you have the equivalent of a billion dollars back then, did you put in all in the bank and wear T-shirts and jeans? No, you buy a castle, employ a million slaves to serve you, own horses and what not and flaunt. Well, we still flaunt. But real wealth exists in the physical world, they are mostly real assets.  

Financial wealth is not real wealth. When big regime changes (like during wars and/or revolutions), financial wealth may not mean much because it's usually destroyed. According to Ray, over the long history of human civilization, financial wealth is nullified, confiscated and essentially disappears and rich people either become poor after losing everything or are killed.

Well that's story for another day. Today, we also need to talk about digital wealth.  

18-24 months ago, huge bubbles were formed in the Metaverse. Virtual real estate are sold for millions of dollars or more and NFTs can be worth more than auction-able physical art. It all started with Bitcoin. Then came Ethereum, tokens and big companies like Coinbase and Gemini becoming the gatekeepers of digital wealth. While FTX debacle now calls to question is digital wealth real, the alternative is that we might look back and see this as the start of the age of digital wealth. If the era of financial wealth comes to an end, we either go back to real wealth or we might shift to digital wealth. 

Real estate has a mantra: location, location, location. But in the virtual realm, there is no location, no scarcity, so essential virtual land can be created at will. Will virtual Orchard Road, Ginza or Times Square be worth anything? Food for thought. NFT has its own story as well. If you own the original Mona Lisa in the era of real wealth, it is worth something. So how does that translate for Michael Jordan's MVP moment as NFT or the Nyan Cat? 

The Nyan Cat NFT was worth $600k at its peak

I have no answers, but it might be worthwhile to start to think about owning some digital wealth, which is different from financial or real wealth and might be a good diversifier. Albeit 99% may turn out to be worthless, as FTX has shown us. My original short thesis on Bitcoin in the early days was correct, it grew into a big bubble and popped. It sucked in so much financial institutional money because there is some truth in Bitcoin replacing gold. Then, everything crashed in 2022 but it is still $17,000 today! If enough people believe in it in the next 10, 20, 30 years, it will then become the source and the origin of digital wealth. It might just be a good bet to buy a little today.

Thoughts #29: Little Men Doing Big Things

Warning: this post contains spoilers for "The Crown", please do not read on if you are keen to watch without knowing story plots.

In Season Three of "The Crown", one of the episodes featured one of humankind's greatest achievement - the moon landing and how Prince Philip asked for a session with the astronauts. He wanted to know how they felt achieving what they had achieved only to find out that the astronauts just did what they were told, ticking off checklists, following procedures and just mundanely went and came back. He was very disappointed and then decided to renew his faith in religion.

But I think this episode taught us more about life than Prince Philip's read. The great achievements are sometimes, simply doing mundane things. The success of the moon landing mission was about:

1. Following procedures and checklists

2. Teamwork

3. Safety and contingencies on top of contingencies

4. Keep practicing until everything is prefect and there is no room for mistakes

In many ways, it is very similar to investing. Warren Buffett did all the mundane things for 30 years until people found out how tough it actually was. Then lo-and-behold, he achieved 20% return over that time frame and he just kept going and is still doing it today. That's the path to greatness.

"One small step for a man, but giant leap for mankind."

To me, greatness is about taking the small step every day, being disciplined, being consistent and being kind. In investing, it is about:

1. Reading

2. Debating with friends

3. Being patient and demanding the all-important margin of safety

4. Repeat the steps above

Once in a while, you will get the homerun stock and that's the alpha. Of course, sometimes, we can innovate our way to greatness (like Renaissance Technologies) and then we have to incorporate ways to put innovation into our processes.

Keep walking!

Thoughts #28: Price of a Human Being

While researching for another earlier post, I found this - someone tried to calculate the price of a human being by amalgamating what each and every organ can fetch in the black market. It's USD45m according to the Medical Futurist.

We can put price tags on everything but intrinsic value is not price. The value of a human being is up to us to create and is always far greater whatever price tag whoever wants to put on.

Thoughts #27: Scams and Counterparty Risks

Human civilization has progressed so far that we sometimes give a lot of the benefit of the doubt to be trusting. We buy bottled water, packaged food trusting it is all good. We buy things off the internet like nobody's business today, trusting that our purchased goods will arrive at our doorsteps tomorrow or at worst, in a few days. 

It was not always like this. We have become too trusting and there are scammers out there who are getting really good at scamming in this unique era of ours. Scammers existed throughout history and we simply must always be vigilant. Our parents and older friends and relatives are also usually more vulnerable.

This post is a reminder that sometimes the most important risk is simply the other party or platform across the table. It could also be people we are supposedly working together with. If we have a counterparty who is helping to transact, can we trust him or her? Are we using a reputable broker? Is the Bitcoin exchange setup certified by the MAS? Can we trust the property agent, or the supposed seller/owner of the property? These are simple things that we should make sure that we do not overlook. 

Scams are also everywhere. Some are easy to spot but others may not be so. Bernie Madoff structured his Ponzi Scheme for almost 40 years and no one found out because he was so good at covering his tracks. Jho Low pulled off the 1MDB by registering similar sounding company names. Internet scams are everywhere, so it's better to just buy from the big platforms rather than to try to save 20%.

Needless to say, when we are buying big ticket items, like a luxury watch, a car, or a house, then it makes even more sense to be beware of scams and counterparty risks. We need to double and triple check that everything is in order. A good friend shared this with me some time back:

"When you are about the part with your money, think again and double check. Pay half or 1/3 first if necessary. Things will change when money has been transferred"

Caveat Emptor!

Thoughts #26: Tesla at USD 1 trillion

Tesla became a trillion dollar market cap company last week (end Oct 2021). This is a company that has not made positive cashflow since its inception. Yet, the market is saying this company should be in the exclusive club of trillion dollar companies, of which there are only six members today.

Trillion dollar club

In my view, Tesla meteoric rise is a testament of two factors:

1. QE Infinity

2. We are in the biggest bubble of all times

It is a true irony that I am half-way through reading Ben Graham's Security Analysis and yet living in this moment when fundamentals do not seemed to matter anymore. In Ben Graham's days, he did not even bother to look at earnings because it was not possible to project companies' earnings with confidence. So he only looked at the balance sheet and only with co.s that has more current assets vs its market cap (a.k.a. net-nets).

Value investing then evolved to look at earnings of stable companies. Then we look at good businesses with strong moats. These are companies that can generate stable, growing cashflows. Today, I am not sure what we are looking at. Tesla has very little equity, no earnings, no cashflow and no moat. Yet, the market is saying it is worth a trillion dollars.

Tesla's $1.1trn market cap

 However, stocks will always revert to their intrinsic values. That is the truth like how gravity pulls objects down or how the sun rises from the east. It could be the case that QE Infinity will cause intrinsic values to be recalculated off different risk-free rates and different risk premium (ie like 50x PE for good stocks can be the norm in the future because investors simply cannot get better returns anyways) but stocks will revert to their intrinsic values.

Let's see if Tesla's intrinsic value is truly 1,000,000,000,000 dollars.

Thoughts #25: Lai Xiaomin

News on Lai Xiaomin and Huarong happened some time back but I have been so busy that it took me a few months to finally pay attention.

This guy was the head of Huarong Asset Management, one of China's bad banks whose purpose was to clean up bad debts in the system. He abused his position and did sorts of financial crime including accepting bribes, collusion and invested bad money into bad projects. 

He embezzled USD258m, the highest amount since the founding of People's Republic of China, enough money to fund the lifestyles of 100 mistresses, bought 100 properties and involved over 100 related persons.

As such, he was sentenced to death and executed 24 days after the sentence was passed. The first instance of someone getting capital punishment for financial crime, as the magnitude is big enough to cause societal problems. I guess Lai qualified, as he might also be partially responsible for the downfall of Huarong (happening now).

The lesson learnt for me here is that managing other people's money is not something trivial. Warren Buffett took it so seriously that he sacrificed his family time, partially his health to make things work. Alas, it usually is trivial, for many who are in for a quick buck. As such they are destined to manage small amounts, and to create negative goodwill because they think it is no big deal losing other people's money.

To truly be a good money manager, we must understand from the bottom of our hearts that this is a sacred job. It is more than just accepting the fiduciary duties of managing money. This is the secret of Warren Buffett's success. 

Thoughts #24: Buy luxury!

The pandemic bubble is upon us all. QE Infinity flooded the world with liquidity with the bulk of the benefit going to the haves rather than the have-nots. Let's look at the following few charts.

LVMH share price

This is the 5 year chart for LVMH, the world's largest luxury company and it traded up swiftly after Covid19. LVMH represents the first class haves of the world. Their luxury portfolio includes, well, LVMH itself (the ubiquitous bag), Moet Hennessy (champagne), Mont Blanc (pen), Tag Heuer (watches), Tiffany (jewellery). The really aspirational coveted stuff. There are even more atas stuff like Hermes and Patek Philippe out there but they cater to super uber rich. Too niche. So, LVMH represents the haves. Hence I believe the chart above might be similar to how the wealth of the top 5-10% income earners would look like.

Tapestry share price

This is the 5 year chart for Tapestry. Tapestry used to be known as Coach. The mass luxury brand with a wider reach. It now has Kate Spade and hence the name change. Tapestry is luxury for middle income people. It did well in normal times, during 2015-2018, its share price was close to $60. Then it got hit terribly by the pandemic and the share price collapsed. Well, as things normalized, it came back. In my mind, this chart represents the middle income. We got hit but it's not so bad.

AMC share price

This third chart is the 5 year chart for AMC, the world's largest cinema chain. It wasn't really doing great because everyone is binge watching stuff on Netflix so the footfall to cinemas was already declining. Then the pandemic hit and literally nobody went any cinemas. Well they were closed anyways. So AMC fell like a rock. At rock bottom with share price $1.98, the reddit warriors who bought Gamestop decided they should support AMC too. So they cooked up a storm to squeeze short sellers (hedge funds who represented the haves and the uber rich and famous we talked about). Share price went up to $13 at its peak. Some short sellers did got hurt. But eventually, it collapsed because it's another mini bubble in the bigger scheme of bubbles from Tesla to Bitcoin. To me, this chart represents the have-nots. It is really tough. It's a one way street of dwindling wealth. It could be the biggest issue in our lifetimes - social class warfare.

Glux ETF

The stock idea here though is to buy a luxury ETF - GLUX. It has some of the top luxury traded names and it has done almost as well as LVMH (yes LVMH is also in it). The time is not right to buy now given that it is at all time high. But it is important to monitor this ticker because luxury stuff will get even more luxurious. Reddit warriors buying Gamestop and AMC would have done better buying this since their god - Elon Musk is also represented. Tesla is the largest component of GLUX. That is one risk though and the reason I haven't bought.

Let's keep monitoring and hopefully can huat on this ticker!

 

Thoughts #23: Honesty and Integrity

It is very difficult to hide intent and the truth will always be revealed. This is because we are all sentient beings. We can feel, empathize and understand other sentient beings. That is why even though animals do not speak, we feel for them. Dog owners intuitively know if their dogs are happy or sad, sick or about the face death. 

In many sense, this is very similar to stocks. Truth is intrinsic value. The reason why stocks will always revert to its intrinsic value it because that is the true value. It cannot trade way above or below its intrinsic value forever. If it is way below, someone, someday will take over and benefit from it. Conversely, if it trades above, it will fall. Or in case of an overpaid buyout, someone will suffer. The example that comes to mind is Time Warner overpaying for AOL.

This is the same with lying, dishonesty and doing things without integrity. 

Someone, someday will figure it all out. Well it depends on the scale and atrocity of it all. If you lied about test score and burnt the test paper, maybe your parents will not find out this time. But do it enough, the truth comes out. Good deeds and bad deeds cancel out. You can make amends. Alas, we are just too lazy to do that right? If we got away once, we will do it again. Hence the saying, 

"Don't go down the slippery slope."

There are people who doesn't believe in all this crap. They believe that can forever puff it up and pretend they are something that they are not. Well, after all, Trump did become President and Jack the Ripper did get away. They believe there are ways to be rich, or famous, or powerful, with lies, threats, dishonesty, dis-integrity and Ra-Ra. They believe they can have enjoy the fruits of success without putting in the effort.

Courtesy of Wall Street Club

This is very similar to some stocks that sell some castle-in-the-sky story and skyrocket to the moon. They believe this can go on forever. But sadly when you are judged by the stock market, with millions of intelligent investors, the truth will always come due. You can punch above your weight for a while, but the market will knock you out sooner or later. The Enron story comes to mind (chart above and link below).

https://wscbits.wordpress.com/2012/11/02/enron-wasnt-just-enron/

That is what I see happen to people who ra-ra too much in real life as well. Other people see the intent and the truth behind the puff, smoke and lies because we are all sentient beings. Trump's debacle is playing out. He will go down in history books as the only US President who got impeached twice. I believe we have not seen his bottom yet. If he doesn't hit bottom that can only mean in his life, he had done enough good things to offset the bad that we don't see. 

So, if we adhere to be true value investors, buying stocks below their intrinsic values maybe we should strive to live a life of honesty and integrity, don't ra-ra, punch our weight right, not above and not below. Strive to promise and deliver (not over-promise and under-deliver). Compound our own intrinsic value the hard way, with discipline and effort.

Huat Ah!

Thoughts #22: The Curious Impact on COVID Sectors

COVID-19 has impacted various sectors in dramatic ways and yet benefitting totally different sectors altogether. This post tries to connect the dots and to crystallize some of these thoughts. Hope this helps!

1. Business and long distance travel. This will be impacted for a long time. Some say air traffic will not return to 2019 level even in 2024. As such, airlines are in a lot of trouble. Related to that, inflight meals (SATS), aircraft servicing (ST Engineering and SIA Engineering), hotels, tourism goods, luxury products, demand for gasoline, the whole aerospace industry, in short, the better half of Singapore's listed companies and even business travel solutions - SAP is down 20% in one day!

2. Social distancing. This has impacted restaurants, cinemas, live events, spectator sports, small businesses like massage parlors, pubs and related to that on-premise beer demand, liquor sales, soft drinks and the likes. Auto sales as well bcos you cannot buy a car without touching, feeling, test driving and sitting and talking with the dealer. That said though, Tesla is flying!

3. COVID winners. Conversely, the TMT^ sectors benefited big time. ZOOM, SAAS and remote work solutions took off. Amazon and Netflix benefited from shopping at home and more binge watching. Online learning boomed, together with ZOOM (decimating Pearson, the world's largest textbook seller along the way). Gaming is another big beneficiary and needless to say, vaccine related plays are also commanding sky high valuations.

So what to bet now? I will tend to focus on the beaten down ones to find the gems. Maybe JCNC can be an interesting recovery play when things settle down. People will need to buy their cars, bikes and finance such purchases for their livelihoods post COVID-19. There will be a lot of pent up demand for sure!

Looking back in history many years from now, this would be one of the most unique crisis that people will analyze for years. Let's try can still make some money despite some indices back to all time high! Might have room for STI to chiong. Huat Ah!

^ TMT stands for telco, media and tech. This was a buzz acronym in 2000 during the tech bubble.

Thoughts #21: Venezuela

I have followed Venezuela's cautionary tale with sadness. It is a reminder to me how GFC could have crippled the world. What we see in Venezuela today is what could have happened with we screw up our financial system. Here's a quote from FT:

Nearly 5m Venezuelans have left since 2015 — about 15 per cent of the population — and another million are expected to depart this year. That could make the crisis the world’s biggest refugee emergency, surpassing Syria. Unlike other humanitarian crises, it is a disaster caused not by war or natural disaster but by misrule on a grand scale.

With GDP collapsing more than 60% and hyperinflation rendering its currency worthless, it is a broken country now with no recovery in sight. It is another reminder how commodities (Venezuela has oil and soft commodities and benefitted from the boom 2007-2012) can be the biggest curse.

Thoughts #20: More on Coronavirus

Coronavirus has been around and when kids get viruses, 1/3 are thought to be from the coronavirus family. Hence kids tend to develop some immunity to coronavirus and are less susceptible to this new type from Wuhan. Thankfully.

Coronavirus death rate may not be as high as 2%. As it goes round more humans, it should tend towards normal influenza rate of 0.1% to 0.2%. It is high now partly because it is concentrated in 1-2 Chinese cities whereby the healthcare system is tremendously strained. 

Masks are less effective than handwashing and maintain 1m from others (since the virus is not airborne, only aerosol). According to the WHO website, proper handwashing, avoiding contact of our own hands (unclean) to our eyes. nose and mouth would be more important. 

https://www.who.int/news-room/q-a-detail/q-a-coronaviruses

On investment implications, the virus is likely to bring down economic growth with impact on global tourism and supply chain disruption. The US stock market has not fully factored in this risk. But looking at past experiences (SARS, ERS), the virus is very likely to die down in summer and we can move on with our lives.

So, very short term wise, there could be buy opportunities as stocks correct on negativism and fear. Things are likely to get better from here. But we must bear in mind that we are in a decade long bull market and valuations, especially in the US, are stretched.

Thoughts #19: Carlos Ghosn Escaped! Jho Low At Large...

Over the New Year celebration, we received news that Carlos Ghosn managed to escape Japan using a fake passport to board a private jet. He was willing to forfeit c.USD 15m of bail money and probably used a lot more to get himself to Lebanon in ways and means not available to mere mortals. 

Similarly, Jho Low, the mastermind behind usurping billions from Malaysians is still at large, using the billions at his disposal to find countries willing to give him a safe harbour. Money does makes the world go round the way you want it to.

Could this be another side effect of negative interest rates? With so much liquidity around the world, billions fall into the undeserved hands that much easier and these hands use such financial firepower to get what they want. It might take a lot more to truly dispence justice going forward.

Thoughts #18: Money Flees When You Need It

The recent collapse of Thomas Cook brought about an old revelation: money flees when you most need it and vice versa ie money attracts money until extraordinary investing returns are longer possible. On the former, Thomas Cook's share price below shows the story well.

Thomas Cook, the 178 year old company was not in any kind of trouble until late last year. Its share price was healthy and it even added airline capacity to capture strong demand during last year's summer. As usual, it was the bond markets that first saw the warning signs. Thomas Cook bonds started showing signs of distress when its prices traded down significantly in Oct 2018. Once the rumour came out that the firm might be in trouble, everyone withdrew support...

“There’s been a continuous knock-on effect,” said Richard Clarke, an analyst at Bernstein. “Their suppliers get wary, hotels ask them for more money up front, consumers become less willing to book with them . . . I’m sure that’s why we’ve seen continuous increases in the size of their rescue package.”

The excerpt from FT above captures it all. The financial industry works as such. Not only do suppliers and banks withdraw support when needed, short sellers short the stock, bond traders either sell the bonds or buy insurance against their bonds, further pushing up the price to insure and reinforce the notion the company could be in trouble.

Olam Lives!

It was the same story for Noble. When there's news of trouble, everything just go downhill, fast. The story for Olam panned out quite differently though as it got help from first Temasek and then Mitsubishi Group, two powerhouses that changed its destiny. When there's enough money, it attracts more. Today, Olam trades at a healthy SGD 6bn market cap.

The lesson learnt (or to relearn) here: leverage is a double edge sword. Be doubly careful of companies with too much debt, payables, hidden liabilities. When money smells trouble, it flees. A vicious cycle forms, bringing down businesses quickly. When things go too well, money attracts money, the big gets bigger and the strong gets stronger.

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!

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!