Thursday, September 09, 2021

Charts #40: Meatless market

The meatless market has grown on the back of sustainability theme reaching USD 17 billion in size. The forecast below projected the growth to be flat but it's probably wrong.

Vegetarians used to have a hard time because people cannot understand why they want to stop eating meat. Living things have to eat livings to survive. I see them being ridiculed, sometimes it's not really fair.

With sustainability and vegan movements coming forth, the tide is finally turning. Now eating meat is increasingly a sin. But even if most of us cannot stop eating meat, we should eat less of it for Earth's sake. 

Be a flexitarian!

Saturday, August 21, 2021

2021 Singapore Dividend List using Poems Stock Screen

When we first starting discussing screens more than 10 years ago, there were no good screens out there for retail investors. But technology advances, today we can easily screen for stuff. Just google "stock screener" and you get tonnes of screens. Even screens for ETFs! It is true that most would be made for the US and other big markets. But still, you can get good stuff.

I have been using poems as described in last year's post. This year, I would also be showing the poems screen. Singapore has been hit badly by the pandemic and we do get a lot of interesting results. So, this year's screen will be the first time in a long while we discuss Singapore stocks.

Here's the criteria I used for this year's screen.

I have focused on ROE and ROA (which are proxies for ROIC or return on invested capital) for this year to as these two metrics are really key in assessing both the quality of the business and the quality of the management. ROA of 10% means for every $100 I invested into the asset base of the business, I will get back $10. This is a decent return for most businesses when it's sustainable. 

As such, I would say that ROE and ROA drive the screen, while Operating Margin, Dividend Yield are really just cherries on the pudding. Remember, while we are looking for good dividends, it is what makes good company capable of paying good dividends that is important. Lastly, I have the market cap cut off at SGD100m.

These are the names ranked by market cap: Thai Beverage at SGD17.5bn, ST Engineering at SGD12.2bn and Keppel and so on and so forth. Nothing really stands out in this first part. Some of the names are repeated from last year as well while some others dropped off (Jardine Cycle and Carriage and SIA Engineering) mainly due to their inability to maintain paying 3% dividend. I continue to own Vicom which was discussed a couple of years back. 

First part of Singapore's 2021 Dividend List

The second part of this year's Singapore screen have a few interesting names: Boustead, Silverlake and Propnex. All three names generate extremely high ROEs without using too much leverage. We know this because ROA is also good at high teens. Most importantly, valuations are not stretched. Silverlake Axis trades at 4.6x PER!

That said, Silverlake Axis was issued with a short seller report back in 2015 which caused the stock to crash after that. It never recovered. It has been 6 years now but nothing was ever brought to light. So, did they really commit accounting fraud? If so, then the regulators should have clamped down and got the company delisted. If not, why is the stock price so weak after so many years? Inexplicable. In such cases, perhaps it is easier to just stay away. 

If anyone have any insights, would love to hear more in the comments section.

Second part of Singapore's 2021 Dividend List

I do not own any of these names. So Silverlake is not so great but I have been told many times that Boustead and Propnex are good companies. Boustead was built by a legendary entrepreneur called FF Wong. It was a darling midcap until 2014 when it's share price was almost two dollars. It has since derated quite a bit. I have not looked at it recently, but if its core engineering services business is not being disrupted, it should do okay.

Propnex is just the right business in the right place. Singapore's national pastime is to buy and sell properties. This stock IPO at 50c and is now at 1.5. How I wished I took my friend's advice to look at it seriously back then. It is after all the largest property agent in Singapore. It is not shown here but this is a highly FCF generative business making SGD30-40m against its market cap of SGD500+m. What's more: it has SGD100+m in cash and no debt. If it corrects 20%, I think this is a buy.

As usual, here's the past lists:

2020 Dividend List
2019 Dividend List
2018 Dividend List - Part 4
2018 Dividend List - Part 3
2018 Dividend List - Part 2
2018 Dividend List - Part 1
2017 Oct Dividend List - Part 2
2017 Oct Dividend List - Part 1

Huat Ah!

Sunday, August 08, 2021

The Future of Education in China, Singapore and the ROW

Last week, the Chinese government decided to overhaul its USD100bn tuition industry by declaring that education and tuition companies should be strictly non-profit and will not be allowed to use the now infamous VIE structure to raise capital from foreign investors in foreign markets. Tuition stocks subsequently crashed as exemplified by New Oriental Education crashing 70%. There is no money to be made here. It is unclear if these companies can stay listed. If they do, great, maybe you might be able to make 100-300%. But if not, then you will never see your money again.

New Oriental Education from >USD50 to USD 17

There have always been qualms about how capitalism should not encroach certain sectors like healthcare/hospitals, public services such as waste management and, needless to say, education. If these institutions are run for profits, then they could just go full throttle to make money and fail to provide the necessary public services. In China's education landscape, this has happened. Or rather, it was structured to happen because the rich can always pay up and get their kids onto the best platforms or employ the best tuition teachers for their children. 

Hence the Chinese government decided to do something - by clamping down on education (and also property and internet giants). In this way, you can level the playing field if not the current generation, then for the next generation. The next step is to get the nation's kids off "spiritual opium" - additive mobile games that has glued all our children's eyeballs to those screens. As such, Tencent is also falling like a brick. 

Actually, Singapore and the rest of the world are not that different. Our tuition industry runs into billions of dollars despite our population and economy being only a fraction of China's. Kids from lower income families are losing out in our highly competitive, elitist education system. And mobile games, that's every Singaporean parents' nightmare. We are all smoking "spiritual opium".

Spiritual opium

Addiction is as old as civilization. Our brains are wired to respond to incentives and it requires a lot of willpower to abstain. Think prostitution, tobacco, alcohol, gambling which has caused so much problems despite everyone knowing their harmfulness. What are our odds now to beat addiction when the lures are now right in our palms. It is a huge social problem as with our global education system.

Yes, (*sigh*) the global education system.

It is well-known that our education system is very outdated. When we look at our lives across various aspects, it is really hard to think of system that has not changed. The way we communicate across distances have changed so many times that we don't even know where to start counting. Broadly, maybe it started with human messengers, then letters, then telegrams, phones, emails, whatsapp and now zoom but in between we also had pigeons, pagers, car phones and SMSes. It is a similar story the way we work, the way we consume music, the way we commute and run our governments and so on and so forth. Everything has evolved. It is amazing how the classroom has not changed. 

Classrooms have not changed for 100 years!

Is this really to best way to learn? I have written a lot about Singapore's education system. But as I learnt about other education systems across the globe, the bigger picture remains bleak. Not only has learning not changed much since humans rode horses, it is totally inadequate in preparing our children for the connected future. What is the point of memorizing Shakespeare when you can always just google it? The other day, my kid just asked me did I ever use the solution to the quadratic equation in my adult life. I did not answer him.

Learning has to be made fun, multi-faceted and more about harnessing creativity. It is no longer about memory work and brute force. How do we incentivise our kids to learn when screens, games and Netflix are competing for the same eyeballs? There are no easy answers. It doesn't help when the best brains have also gravitated to work for Facebook and Google to write algorithms that will capture those eyeballs rather than staying in schools to teach.

It's at uphill battle. We desperately need better teachers. We also need to better use media to teach in fun ways and ensure knowledge is retained. Parents have to play even bigger roles. We also need to make sure our kids can learn to relearn, because knowledge keeps getting updated. I remember my periodic table was much simpler!

Today's periodic table

Learning is also about discipline. It takes effort to force the brain to rewire itself as it learns new knowledge so that it gets stronger. Games, Tiktok and Netflix do none of that. It is a different state of mind. It's inducing artificial dopamine kicks after dopamine kicks without the effort needed. As such, Our kids are increasingly addicted, getting used to the effortless lazy mode. In future, they might find it way much harder to get in the "flow zone" of focused studying or training. 

The joy of learning is being taken away.

Learning is for life. It doesn't stop after we graduate. I learnt what's most important in life way after school: human psychology, value investing and valuable lessons from best selling books such as The Selfish Gene and Bill Gate's How To Avoid a Climate Disaster. We are not teaching these in schools. At least not yet. It is pertinent that our schools emphasize that learning never stops. The twelve to thirteen years of core education simply prepared us for the important tertiary learning and then ultimately the University of Life. If kids are taught that learning is about brute mugging and exams and they have to find dopamine kicks from "spiritual opium", then all is lost. 

As parents, perhaps we have to step up and encourage holistic education, induce a home environment of learning, replace spiritual opium with physical stimulus (more sports and physical activities, it's the Olympics fever after all) and enforce the mindset of learning to relearn, discipline and help our kids discover the joy of learning. 

If China is doing something, Singapore should follow.

Happy National Day! Huat Ah!

Sunday, August 01, 2021

Books #14: Daniel Pink's When

I have read two books written by Daniel Pink. Both were simple and good. The recent book was simply title When. This is a book telling us to be mindful of time and think a bit more how we should use it when. There were many gold nuggets. I shall list a few that were quite meaningful to me.

1. Every day, every project and every venture has a peak, trough and a rebound. We should be mindful of our own cycles and try not to make important decisions during the trough.

2. In the context of a venture or a project, the middle is a crucial moment where teams break or breakthrough. It is important to know this and garner all resources to make sure we handle the middle trough well. Daniel has the following four strategies to help us move towards breakthrough:

i) Go for small wins - if the task is too big and overwhelming, break it down and go for small wins.

ii) Moving beats stationery - walk around, exercise, do something. Not doing anything will mean falling down the slippery slope.

iii) Social beats solo - as retail investors, we tend to think alone, it is important to ask friends, seek help and advice. The wisdom of crowds beat solo thinking. This works in life, not just for investing.

iv) Outside beats inside - Daniel advocates that we should always connect with nature. It could be as simple as having plants around us. But nothing beats going to the park for a stroll to clear the mind.

3.  Here's the last bit about timing. There are times when we should go first and times we should not. We should go first when there are few competitors and we can make strong impressions. We should not go first when we are the default choice, or when there are too many competitors and when we are in an unknown environment.

Overall, I really like his style of writing. Simple and clear and hence worth the effort to jot this down for future reference. 

Thursday, July 15, 2021

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. 

Thursday, July 01, 2021

Charts #39: Cybersecurity

 The threats from cyberattack looms large. Cost of cyberattacks is going into the trillions.

Here's an older chart stating the no.s of attacks per year. We should be much higher today.

Cybersecurity will be one big theme in our lives. Buy HACK ETF listed in the US!

PS: just to complete the picture, Singtel, our beloved telco made a push into cybersecurity some years ago. Here's an old article from ST (5 Dec 2018).

SINGAPORE - The Singtel Group has consolidated its cyber security assets and resources under the Trustwave brand, it said on Wednesday (Dec 5), in a move that brings together resources from other arms such as Australia's Optus, and information and communications technology unit NCS. 

With the consolidation, Chicago-based Trustwave now numbers among its headcount the group's 2,000 cyber security employees worldwide. The resource-pooling also brings into the fold the Singtel Cyber Security Institute, a 10,000 square foot facility that opened in Singapore in 2016. The revamp comes with a new logo and a new corporate website for Trustwave. 

Mr Arthur Wong - Singtel's chief executive for global cyber security and also the chief executive officer of Trustwave - said in a media statement that the group will be "uniting the security assets and deep expertise of Singtel, Optus, Trustwave and NCS under one brand and single vision - what we call the new Trustwave". 

Singtel bought 98 per cent of Trustwave in 2015 for US$770 million (S$1.1 billion), excluding net debt, after working capital and other adjustments. It picked up the rest for US$12 million in May this year. Singtel most recently grew its cyber security portfolio with an A$23.3 million (S$23.3 million) deal for Australian consultancy Hivint in October. 

It said at the time that Hivint's services would be integrated with Trustwave's offerings in Australia and the Asia-Pacific. Singapore's larger telcos have been bolstering their expansion into cyber security, especially as their consumer businesses come under pressure from increasing competition. 

StarHub made the news in September when it set up a joint venture (JV) with Singapore investment company Temasek to set up the pure-play Ensign InfoSecurity. StarHub, which has a 40 per cent stake in the JV, merged its Accel Systems & Technologies subsidiary with Quann, which Temasek owned through security services provider Certis. 

 It agreed to buy Accel in several phases in 2017, with a price tag that could go up to $45.6 million. Later that year, StarHub went on to beef up its cyber security business with a deal to buy homegrown cryptography firm D'Crypt for as much as $122 million. Join ST's Telegram channel here and get the latest breaking

Wednesday, June 16, 2021

Lesson Learnt on Capitulation

At the height of the pandemic in early 2020, my portfolio was bleeding red ink (as with everybody else's portfolios) and I thought I should take measures to stabilize the portfolio. I looked across the stocks I owned and assess if there were any names that would have bankruptcy risks. I did own pandemic related names such as SIA Engineering and SATS. Some of which are still being affected today. 

STI's collapse and rebound, as per global stock markets

I took the opportunity to restructure the portfolio, sell out some names in the same sectors and deployed new money into interesting names which I always hoped to own. By and large, I believed I made good decisions and the portfolio has since rebounded. There was one name which I took a major loss because it did have bankruptcy risk. It has debt to equity ratio of more than 300% and net-debt-to-EBITDA almost doubling from 4x to 7x. 

I bit the bullet and sold it, taking losses only to see it rebound 50% from where I sold. Well, that's investing. You cannot predict the future. But this post is not about lamenting how I got whipsaw-ed. On hindsight, it is still the right decision to sell because if it did go belly-up like Hyflux, then I would have lost not 50% of my capital but 100%. This was the second biggest realized loss in my portfolio after Hyflux, which I did lose 100% and with these two painful memories, I hope to write down the lessons learnt on capitulation. Here's the process:

1. Reassess the situation.
2. Cut loss if the situation is bad.
3. Redeploy to a better name playing the same theme.

Reassessing the situation means looking closely at the business and the balance sheet. Has the business environment changed so much or is the business being disrupted such that there is no chance for the business to come back? Do they have the strong balance sheet to weather the storm? In Hyflux's case, it didn't have the balance sheet strength. It was obvious since the day I invested, yet I held hope that maybe the Singapore Government will lend a helping hand to save Olivia. It did not happen. Hope is a dangerous thing in investing.

So the related lesson is also never to hope. When things are looking bad, don't procrastinate. For this second name, which is a small resource company listed in Europe, I did not have the determination to cut fast enough. Thing started to unravel in early 2020 and the share price fell from EUR15 to EUR10. I should have cut then but again, I procrastinated. It fell all the way to EUR6.8 and I decided enough was enough. Remembering my experience in Hyflux, I figured that if I don't cut, it might go to zero.

For a while, the decision looks right, it continued to fall to EUR5 and I felt good. But has the stock market started to rebound, it rally past EUR 6.8 and is now back at teens. So, looking at it now, the outcome is such that even more procrastination would mean earning back a bit of money (it is still below my buying price though). However the business situation has not changed. It is still laden in debt, its position is further weakened by the pandemic. At this moment, my decision to cut was not great, but it could still turn out to be right in a few years. 

But more importantly, was my decision to redeploy the money.

The resource name was invested years ago with an investment thesis that certain niche commodities would be vital as the world develops and China was leading the boom at that time. There are actually bigger names to play the same theme. So while I cut losses and completely sold out of this name, I redeployed the capital into similar stocks. It turned out the be a great decision as these higher quality stocks also recovered as global stock markets recovered. 

As such, reassess, cut loss and redeploy would be a good strategy the next time you made a mistake and would like to move on. Do not let loss aversion cloud your mind. That said, it is much easier to invest a smaller amount to make sure your losses are never too big to begin with.

One final note on resource companies and high debt companies. Perhaps it is just much easier to avoid them. If you have to buy resource, commodities and energy names, then just go for the biggest fish or use an ETF. Hope this helps!

Huat Ah!

Friday, June 04, 2021

Books #13: Chris Voss' Never Split the Difference

Chris Voss was a FBI hostage negotiator turned consultant and I chanced upon his book on Kindle. It took quite a while to finish as I was busy with other stuff. Overall, it was a somewhat satisfying read although I probably need a lot of practice to become a better negotiator. Here's his lessons for winning negotiations.

1. Listen, mirror and label. Chris first lesson was simply these three words. We should listen to what the other party wants. Then mirror and label their emotions. Once they feel that they are heard, we can then negotiate. He encouraged to use phrases like, "it seems like..." and "I hear that you are feeling...". These are labeling techniques to confirm what has been said. It validates the other party and allows for the conversation to progresss.

2. Accommodator, Assertive and Analyst. The next three words are as stated. They should all be read as nouns to describe people. Once we understand their style, it is easier to negotiate with them. Accommodators are people who likes to agree. They tend to be silent when they are actually angry. Assertive people needs to be heard before they can hear anything and analysts can be won by numbers and facts. Most people are multi-facet so it is important to know when they change from say assertive to analytical.

3. Ackerman model. The best part of the book is probably the introduction of the Ackerman model and other tactics to negotiate salaries or when buying cars. There are a few interesting rules like let others go first and then when you state your price, be prepared to raise it just a little each time. The final number should also be an odd number like $35,505 to give the impression you are being squeezed to the last dollar.

It was just a somewhat satisfying book because I felt that it did not capture everyday negotiations. We do not negotiate for the release of hostages in our daily lives. We are negotiating with family members, bosses, colleagues and it takes a slightly different attitude because in the end we want win-win solutions. That said, hopefully the three lessons above are useful enough and can be applied at work or at home successfully. 

Huat ah!

Friday, May 21, 2021

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!


Sunday, May 09, 2021

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.