The Mathematics of Clifford Modern Living...

Disclaimer: Author has a lot of shares in CML

 ...before and after the commencement of trading after the special dividend announcement.

For whatever reasons only known to the owner, management declared a special dividend as well as a final dividend, which total to 0.375 HKD per share.

The last closing price (which is not important, let me explain why later) is 0.59 per share. The last immediate price was 0.56.

Pre-announcement (of special dividend) 

Clifford ML was always cheaply priced as its business wasn't really growing, and it was trading close to net cash per share. Figures are extracted from its latest annual results.

Term Deposits: 120m RMB
Cash and Eq.: 591m RMB
TOTAL liabilities: 121.21m (current) + 50.336m (non-current) = 171.55m

Net cash (net of all liabilities): 539.45m RMB or 583.47m HKD

Total shares outstanding: 1015.75m

Net cash per share = 0.574 HKD

Total dividends declared for work year 2023/4 per share : 0.332 HKD + 0.043 HKD = 0.375 HKD per share

net cash per share AFTER dividends are given out= 0.20 HKD per share. 

Post-announcement of special dividend (02-April-2024)

As I wrote, CML trades at 0.72 HKD a share.

If we assume today it ex-Dividend, that would be 0.72 - 0.375 = 0.345 HKD per share

Out of this 0.345 HKD per share, 0.20 HKD per share is pure cash. The remaining business is now valued at 0.145 HKD a share or 147.3m HKD

If we assume that going forward, the company is going to earn 80m per year, that means that you are paying for less than 2 years of earnings net of all that cash.

Even if we were to conservatively estimate that the ONLY profitable (according to page 9 of the latest result) segment going forward is its main property services company, that would be 60m RMB a year or ~65m HKD a year. That means the current price of CML 'costs' about 2.5 years of earnings.

huh?

The fastest way to show anyone and everyone... that the cash in the books is real... is to give out special dividends... right?

Mar 2024 Portfolio Updates

Topics Discussed:

-Complete Divestment from Central China Management/Central China Real Estate. A short discussion on those service company stocks whose parent (prop developers) are in problem.
-Options
-Investing by Protection or by Projection

S&P 500 (ytd): 12.87%
STI: -0.15%
HSI: -0.57%

My portfolio: 4.48%

The upward momentum from OKP had all but fizzled and the price is now pretty much stagnant. Its annual report is just released this morning. The AGM is scheduled for later part of this month and hopefully I could attend.

The great thing was that TTSH cleared my mum's spots on the kidney as stones but precautions still have to be taken due to its possible complications.

Complete Divestment from Central China Management/Central China Real Estate

Up till a few days ago, I am still holding a small amount (small due to the loss of market price over the last 3 terrible years actually) of Central China Management, a property project management company. A property project management company is asset light, and for Central China Management, had a large amount of cash in its books. During good times, property developers spun out plenty of such service companies (Evergrande and Country Garden does them as well). They are asset light, cash-generative, and hold a lot of cash in their balance sheet.

The owners of these property developers retain ownership of these companies as well.

So when the debt crisis deepen, loans are defaulted, and executives arrested, I am not alone in thinking that these service companies would have its cash siphoned to the parents. The classic way of doing this is to:
a) issue loans to parents and write them off
b) provide working capital to them by trade receivables and writing them off as well.

On the 26-March, the Central China Management, and its sister company, Central China New Life, released announcements on HKEX. For CCMGT, the auditors had resigned and questions were raised about the advances (or trade receivables) made (or held) by these companies. Another auditor is waiting in the wings to take over, but the annual report will be delayed, as well as a possible suspension of its stock due to delay in publishing these reports.

With these announcements, most investors' fears that something insidious could be going on, is coming true.

CCMGT ended on 0.295 a share the night before. On opening, it was 26 and rapidly descended to the depths of hell. I was thinking, farking hell, that is 20 cents now. 50% loss from the day before. I was punching and amending orders more than a couple of times... (and having the wind let out of my gut at the same time), and eventually got my stock sold at 0.16.

I should feel lucky as the price felt to 10 cents not long later. 

Prior to the next trading day, CCMGT released another announcement to detail why the auditors quit. Reading through the announcements, I felt that the concerns raised by the auditors are valid and within reason. 

No auditor/ partner would quit an account with a firm so carelessly. The announcement, which was release pre-market, got a 15% rebound at market open, only for the optimists to get sucker-punched, as the stock fell beyond what it started.

The market is far more merciful to CCNL (as it always is). CCNL counts Zhang Lei, the owner of a very famous Hillhouse Capital as its major shareholder. But as I read CCNL's follow up announcement, words such as "trade receivables" and "impairment losses" do not pacify one at all.

Buffett had a saying that one should bet on the horse and not the jockey. I think some problems are just too big for one, even for one whose reputation is as large as Mr. Hu Baosen, to handle.

The total amount of losses due to Central China make me cry: Just for context, I was handily beating the S&P before this... and now I am way behind. Sigh...

Options

Contrary to my expectations on my Tracker Fund positions getting called away, it didn't. The market went back down before the contract expires. However, my sold calls on Tencent, and a small amount of Anta Sports, did get called away.

As foretold, options are not a surefire way to make money. When the stock price do fall badly, there is nothing you could do. This was the case with my Link REIT positions (> 15% loss) and now no call option could be sold without realizing some capital losses. I would hesitate to sell calls with strike prices lower than my cost, as Link REIT 
a) gives a regular dividend
b) volatility isn't high to make sense to sell options for.

I took the opportunity to sell a few OTM puts on Anta Sport when there is still some volatility post announcement, but they made little difference to the NAV.

As such, the amount of premium collected this month from options is the lowest yet.

Investing by Protection or by Projection

Graham coined this term during his time: One could look up the balance sheet and invest because there is a lot of asset in its books. Hence there is "protection" from "realised" (realised being if the company is eventually liquidated/sold/bought over) downside.

Schloss added that 3 possible good things can come from this approach; one, the owner (or a third party) privatise the company at book value or more; two, the management overcome problems and the stock price rises; three, the management buys back stock. Whatever earnings is less diluted and hence EPS goes up.

So if net asset per share is way more than market price, it is safe to buy such stocks since there is 'protection.' 

Projection is what most people does these days, and those who could do this well would see their portfolio perform very quickly and rewardingly. This is expected: earnings are most correlated with stock prices. 

Such approach are usually nothing more than thematic plays, where the in thing is getting all the hype. Investors pile and step on each other to acquire stocks are senseless prices. I could imagine company insiders giggling as they watch the spectacle, and offload their shareholdings to those fools.

Any idiot could see growth in revenues, order books, and cash flows. The problem is that they think it will continue forever. If one is early, great, but most does not know when to stop.

And the market being a wonderful forward thinking device, would usually sell down before most people have a clue.

I have been thinking about my portfolio and while a good majority of them were invest with protection in mind. With protection I mean protection with assets... even when I bought companies with just  earnings in mind, the multiple is modest, accounting for slow or no growth). I have no idea how to invest with companies having large Price-to-Sales ratios, accompanied with insiders doing nothing but selling the stocks.

This approach hasn't done all that well for me these years. Should I switch? I don't think so. I am not just stubborn... I think I don't have the chops to play the game of projection.

Sellers always know what they are selling, but buyers?

Why options is a necessary evil

The use of options can be as conservative as stocks, or in the mindset of an aggressive man, as dangerous as dynamites. I think of them as ceramic knifes-- awfully sharp, but if you use them as leveraged instruments, you can be undone very quickly. I have a small amount of Tracker Fund (2800.HK) positions acquired since Oct 2022. 

The details as follows: 6000 shares of Tracker Fund, total cost = 17979 HKD 

These positions are acquired incrementally, so the amount of dividends, since the first share was acquired, was a paltry 1840 HKD.

In terms of capital gains, there were... almost none. The Tracker Fund has gone nowhere for a long, long time. 

The use of options to increase position (selling puts, "insurance") or selling calls, brought in a total of 6826.73. That is a return of 38% over the course of a year or so of options selling.

Caveat: Firstly, income strategies with options will perform far worse than directional strategies (i.e. capital gain). But in a sideways market, income strategies are beautiful.

Selling options on Tracker Fund is not attractive because:
a) It has very little volatility (reflective of its price movement)

b) liquidity is poor, and there aren't too many different strike prices (think in 50 cents increments, such as 16.00, 16.50, 17.00).

With the upsurge in prices in recent days, my Tracker Fund positions will be called away (I was selling covered calls on all of them).  I would probably move on to other stocks or to utilize directional strategies (since it has low volatility, it is better to be a buyer of options).

Feb 2024 Portfolio Update

My Portfolio Return: 4.29%

Straits Times Index Fund: -2.44%
S&P 500: +8.38%
Hong Kong Index Fund: 0.23%

Current XIRR: 13.95%

The biggest reason for the improvement to my portfolio returns was... OKP.

OKP had a pretty brilliant and yet dull earnings report for this 2nd half results. The 0.015 per share dividend is nice, but the director remuneration has shot up. This half year alone saw an increase in 6m to its executive directors.

Hopefully this would be the final time we see such a huge payout to the directors. No doubt some activist-minded investor would raise hell in the AGM. I will not be surprised.

This earning release is very surprising; everything positive happened. Be it fair value gains to the investment property, or dramatic increase to its margin, it all came about.

The market probably took note of these abnormalities and did not boost OKP's price significantly-- nothing more than the amount of incoming dividends.

I have never paid attention to the weightage of OKP in my portfolio that closely, but after deducting the bonds component of my mum and my CPF accounts, OKP contributes 43.3%-- an astounding amt.

***

My attention is still on the management of my option selling portfolio, and they are doing quite decent. It makes the expected returns without much assignment/capital loss risk. All the profits are being reinvested-- the starting NAV was 50,000 and realized profits would be 3840 at the end of today.

That would annualized to about 30% if trade progresses peacefully. But there is nothing peaceful about the market.

***

I would be accompanying my mum for another medical in the afternoon and the usual trepidation is consuming me minute by minute. My dad isn't well too... I really don't know what to do but to leave it to the wishes of a higher being.

Jan 2024 Portfolio Update

Portfolio Return: 1.37%

Straits Times Index Fund: -2.48%
S&P 500: +4.2%
Hong Kong Index Fund: -4.8% (sigh)

Current XIRR: 13.27%

Option selling income is not reflected in the investment returns.

Transactions:

Best Mart 360, another somewhat illiquid stock. It has ROIC on the high teens, increasing topline, and a substantial amount of owner-operator ownership.

Given all these years suffering under debt worries, investing in Best Mart is a easy decision: it has 255m of cash, 77m of debt, and 1.8b market cap, which means you are actually paying for 1.7b net. Dividends have been consistently rising and now that a corporate is the major shareholder, it should stay steady. If it continues to earn a free cash flow of 130m, the multiple that you paying for this business is not high.

Much of my attention had been used on my option selling portfolio instead. A mind-boggling 19 transactions was made in this month alone. Underlying companies/funds involved are:
1) Tracker Fund (Tracker)
2) Tencent
3) Link Reit
4) Anta Sports
5) Hong Kong Stock Exchange (HKex)

I have sold ('write') call options on my Tracker positions and given how badly the market is dropping, this trade is safely out of the money. Selling options contracts on the Tracker fund is not a great idea. Implied volatility and liquidity is on the low side. Nevertheless, given the size of my Tracker holdings in relative to my income portfolio, it has generated more than half the amount of premiums this month.

Calls sold that are already deeply profitable are bought-to-close for a few reasons:
a) It has very little theta left-- most of the money had already been made
b) I couldn't sell another call until the current ones are closed. Selling calls when you do not have the underlying is what they call a 'naked' call. It is still possible that the market could surge upwards in the remaining days and you will be force to buy them back at a high price.

Sold puts on Anta Sport, Tencent, and HKex were deeply in the money due to market volatility. The recovery later half this week brought most of them out of the money, which was a pleasant surprise.

So generally, the strategy is

1) Sell Puts for these 'good' companies
2) If I have stock on these companies as well, sell calls if I do not think they are priced cheaply.

This strategy is called "covered-call strangle."

***

(Sell Puts to accumulate stocks) --- Owns Underlying stocks --- (Sell Calls)

If the market turns down, puts are exercised and I own more stock. At some point of time, I would have to stop selling puts.
If the market goes down exceedingly hard, I would be stuck with these stocks and hence it is important to sell puts on only stocks that are good companies (high ROICs).
If the market goes up, there is a good chance my portfolio would be profitable.

***

IMO, the reason why selling calls will make sense is because the market pricing of these good companies are not in bargain bin territory.

Example:

The risk free rate which I have is 3.7-8% on T-Bills. Compared this to a company like HKex, which is yielding about 4.1% (13b free cash flow/310b market cap), the 'risk premium' is 0.4%. If, let say HKex is priced at a yield of 6%-7%, and that the earnings easily grow due to its business  nature, it will make more sense to own stock than a risk-free bond. 

For HKex to yield 6%, earnings has to surge, or the stock has to be sell down. At 240 HKD a share, you need it to be (13b/ x = 0.06, then x is 216) to fall to 216 HKD in order for this purchase to make sense.

Of these companies mentioned, I think Anta Sports has the most favorable pricing, and hence I am quite happy to sell puts on them. It helps that Anta's option pricing has a way higher Implied Volatility, so the premiums are richer.

On an NAV of about 50000 SGD, this strategy yields about 1000 monthly. You need money to make money, and I am not being very aggressive. If I could make 12000 annually on a portfolio of 50000, that would be a yield of 24%, which is attractive. A directional strategy (betting on market directions by buying calls or puts) will beat an option selling strategy WHEN the market is directional. However, I already have positions to capture that area.

Hopefully the market be merciful in the coming days. It has been piss-poor for quite long!

Dec 2023 Portfolio Update: A look back at 2023

Obviously, this will be the final update for the year.

Portfolio Return: +1.99%

Straits Times Index Fund: +1.03%
S&P 500: 24.25%
Hong Kong Index Fund: -15.23%

Current XIRR: 12.6%

Overall, portfolio experienced capital inflows (more buying than selling), significantly more than any other years. This exclude bonds (of which about 1/5 of the portfolio that was used to buy T-Bills for mum).

I am as disappointed as any HongKong stock investor would be. This year marks the third year running which HSI returns negative double digits.

Incase you didn't notice, I lost all my gains against the S&P. It was a very terrible year.

The year started quite nicely for HK actually, +8% in Jan alone. The flickering flame was blown off as the Chinese economy struggled, along with interest rate/inflation worries in the America. 

***

Centurion, which never did have a problem with its business during COVID, increased its dividends at last, and the stock recovered just a little. Unfortunately this is also a year where focus is on interest rates, and its bulging debt is a concern. There was also government regulation coming up soon and given my distaste in its major shareholders, I sold. I remain unconvinced that the owners have OPMI in their hearts.

***

That disdain and scalding from holding companies with debt carried over with Lendlease REIT, and I sold. I disagree with management that they should be acquiring more assets when focus should be getting its Interest Coverage Ratio in check. Long after I sold, Sky Milan revealed plans to downsize their lease. I think this is the only stock that I "escaped." Unfortunately, it wasn't a profitable investment, since I have invested in the rights issue during their ambitious acquisition of JEM.

***

The OPMI issue unfortunately, carried over to my biggest shareholding OKP as well. Its legal windfall was not distributed to shareholders but privately disbursed to management in the form of bonuses. This was by far my biggest anticipation (the legal windfall) and disappointment (when they refuse to give a decent distribution).

Now, OKP's liquidity leaves much to be desired, and letting go of such a large position will take time. I am still convinced that there is value in the company, just that it was suppressed by management. When will management do the right thing? I hope soon.

***

After holding on to the Chinese real estate stock for more than 2 years, I finally craved in and sold all my Central China Real Estate holdings, while selling a respectable portion of my Central China Management (a real estate project management subsidiary) stocks. There is still a large amount left, with painfully deep unrealized losses.

This would might never heal and could be a nice reminder that sometimes the problem is too big for an (honest?) owner/manager to solve.

Alibaba had wanted to spin-off its business and then, given the market conditions, decided not to. The stock promptly cratered. What is new? I have not seen a company that big having to go through so many hurdles. No wonder Adam Khoo sold his holdings in China.

But things have a way of changing when you least expected it. Let's see.

***

Onto the positive points: I have finally decided to put what I learnt from options into practice. 

Some years ago, I had a nasty experience selling puts on Futu (which I thought was easily worth 40+ USD a share). The stock cratered to the sub-20s, and I was looking at a huge loss.

I bit my lips and took the loss. I covered my sell puts, and did nothing more.

Just days ago, I was selling puts on Tencent. I think selling puts on companies which are compounders, is a less worrying proposition. At late morning, the Chinese regulators decided to solicitate opinions  regarding gaming. This brought back all the fear back in 2021. Intraday, Tencent lost 14%and Netease lost 25%. At the end of the day, I think they are not a bargain / steal at this price, but they are compounders.... market hardly offer these companies cheap unless there are huge problems (with the market or the company itself!)

The screenshot above illustrate a few things
- incredible IV%, and very high IV percentile (it means, this volatility is higher than 97.97% of the past)

- Put-Call ratio of 82.87% (everyone is scrambling to buy puts!)

- IV is severely higher than Historical Volatility.

- Again, only 2 days left when market reopens, before contract expires)

So I learnt, instead of just covering my put, I wrote another In The Money contract. Let me explain with figures:

Initial Sell Put of Tencent at strike price 300, premium = 2.8 HKD, implied volatility = ~25%
After the regulator's announcement, the same contract escalate dramatically, premium = 24-32 HKD. Volatility = 60+%

Cover the put by buying a put = 27 HKD. Net loss is 27- 2.8 = 24.2 HKD

Sell another put at 27 HKD, net gain is 27-24.2 = 2.8 HKD

So this "loss" is somewhat neutralized.

Two things can happen: the market calmed during the holidays and the price recover a little. Otherwise, there is only 2 days left in the contract after the market.

So there is a possibility of a implied volatility "crush", massive theta decay, and possibly price recovery. So there are 3 good things that can happen to me. What is the worst that could happen? I have to purchase Tencent at 300 HKD.

It was during this time that I learnt something about portfolio management. Along with some puts sold on Tencent, I have puts sold on HKEX, Alibaba.HK, and bought some Tracker Fund stocks.

I choose to sell calls on these Tracker Fund. This is a bearish trade, and hence it balanced out the sell puts. To illustrate:

Sell Puts = Believe that price will go up = Bullish.
Sell Calls = Believe that price will go down = Bearish. 

If every position in my portfolio is bullish (i.e. just selling puts), this volatility would completely upend my portfolio. 

***

In a couple of days more, my mum would have to go through another medical appointment. As usual, I am worried and could not feel the festive spirit. In fact, I be packing my stuff and going for another shift at food delivery in a few minutes time. Merry Xmas everyone.

Nov 2023 Portfolio Update

Straits Times Index Fund, YTD returns: -0.32% (was -1.26% last month)
S&P 500, +20.3% (was +14%). Wow. I didn't know the US market was so bullish this month.
Tracker Fund, -7.62% (was -8%) 

My portfolio, 0.9% (was 1.4%)

Things didn't go too great for me in November as well. Alibaba had a big intraday drop after announcing a stock sale from Jack Ma's Trust (which in the end did not get executed) and the shelving of hema/AliCloud IPO.

Since Alibaba is my second biggest position and I have already made purchases in the past at this level, the only thing I did during those sell-off days... was to sell puts. I did not sell a single share. More on the options later.

Major Transactions:

Complete Liquidation in YZJ Finance and Centurion.

In addition to the resignation of both CEO and CIO, the legal counsel has decided to throw in the towel as well. Most of my shares are gone at 0.32x. 

As for Centurion, I think the story has pretty much play out and the market is only willing to pay around this level. I can't say that its debt level, as well as my impression that the management is not OPMI-friendly, didn't play a part in my decision.

Most of my attention now is in selling options as the market appear to be quite bearish.

Transaction in options this month includes:

1) Selling two PUT contracts of Alibaba at 67.5 and 72.5 strike price. Both are now somewhat OTM and time decay is working nicely for me. I collected about 150 SGD from providing this "insurance."

2) Sold puts of Link REIT at 35, closing it for a quick gain as it enjoy a bull day, and then sold another 2 contracts at 38 and 40. The put contract at 40 is a in the money put. I was a little confident that the results as well as the approaching dividend (ex-day) will aid in stablizing prices. Total premium collected was 470 SGD without owning a single share. I had more than enough capital to pay in case the other party exercises, of course.

3) Purchase Tracker Funds and sold calls, as well as sold calls for all my Tracker Fund positions previously held. That is a total of 10 contracts sold. Total premiums collected is 330 SGD. 

I expect a portion of these to be called away, 4 of them are having a strike price of 17.00 HKD. The current market price is 17.69, and the premium collected for each of these was 0.6. So if the market does turn bullish next week, it is likely. 

I bought these 2000 units of Tracker Fund this month to sell calls with. (each contract of Tracker Fund is 500 units). This is what is known as a "buy-write", i.e. buy the stock and write (also known as sell) calls.

Inefficient as it is, in terms of ROI when compared to a sell-put strategy, doing a covered call require next to no attention on my part after the trade. Meanwhile, I can sell too much puts and underestimate on margin.

4) Sold Tencent PUTS and covered them after the market has recovered for Tencent. Little to no premium was left... The Tencent call contracts are having a modest profit 250 SGD. They expire next year's June. The plan is to sell them 3 months before expiry before time decay sets in.

Overall, this low risk strategy brought much needed income this month. This portfolio has seen nothing but bad news for more than 2 years... and I am kinda tired to be honest.

Oct 2023 Portfolio Review

Straits Times Index Fund, YTD returns: -1.26% (was 2.35% last month) 
S&P 500, +14% (was 15.45%)
Tracker Fund, -8% (was -7.59%) 

My portfolio, 1.4% (was 4.42%)

Portfolio dropped 3% largely due to OKP sell down from $0.22 to $0.198. Weakness in the HK market does not help, and Alibaba is still #2 in sizing of market value of the portfolio. 

Major Transactions

There were no transaction made on equities, but a handful on options. Let me say upfront that I have capital to buy all these underlying if they all get exercise. DO NOT enter into these trades because you could afford only the margin! It takes money to make money.

a) Sold/Write 6 put contracts on Tracker Funds. Each option (option sizing differs for each stock in HKEX) is 500 shares. All of them expires at the end of this month. As the market began to sell down, my put contracts at strike price of 18 is now ITM, and I expect them to get exercised if this downtrend continues.

While the amt of premiums received is a paltry 200 SGD or so, this is the same amount of money I would get if I work laboriously for food delivery.

As the OCT winds down, it is time to sell more options, as the option market in HKEX is very illiquid. You typically have to act way before the front month (which refers to the next immediate month) approaches.

b) Sold a contract of TENCENT, strike price 290, and bought a long call (expiring end June 2024) at strike price 300.

The average premium received from the put is 4.53, and the cost of buying the long call is 35.8.
There are a few ways where this Tencent trade can go:

1) the price of Tencent continues to oscillate around the 290-300 mark. 

I would continue to sell puts to help pay for the long call. I would stress that this long call would not be held all the way to expiry. I would likely sell this contract close to March to avoid the accelerating time value (theta) decay.

2) Tencent prices plunge below 290
The put options will get exercised, and I will immediately sell a call, and close the long call option.

3) Tencent prices surge beyond 300
Obviously this is the best outcome for me, since I will keep the premium from my short put and enjoy capital gains from my long call.

Along the way, I am trying out spreads and volatility plays on my paper trading account in Tiger. Some were outright disastrous, while one had a fantastic pay-off.

The fantastic pay-off came from a "long straddle", where I bought a call, and a put on Tesla at strike price of 250 before earnings come in the picture.

This is a bet on volatility, as in, I expect the price movement of the stock to go far and beyond what it would cost on my premiums. And it did happen. Tesla gapped down, and the long put became extremely valueable. The long call expired worthless.

BOUGHT Tesla Call 250- it cost me 6.75
BOUGHT Tesla Put 250- it cost me 8.42
Total cost: 15.17 x 100 = 1517

The result was
Tesla Call 250 - expired worthless
Tesla Put 250 - 38.12
End value: 3812.

So the return was more than 100%-- no wonder people love options

Funnily enough, due to work, I forgotten about this option trade and the ITM Put got exercise. Since a put option is simply a right to sell a stock at a certain price, so I had to deliver 100 shares of Tesla to the counter party, and receive 250 * 100 = 25000. 

And since I do not have any Tesla stock in my paper account, the end result is that I am now short Tesla, 100 shares.

Yangzijiang Finance

Unfortunately, I received further bad news that the CEO and China CIO of YZJ Finance has left the company together. This is to me, a huge red flag, and hence I will be liquidating this position.

YZJ Finance started off as a spin-off play, where the stock was heavily discarded after it was given FOC to existing YZJ Shipbuilding share owners. For years, it exists in YZJ Ship's books as an opaque, black-box figure and was always suspiciously look upon.

My faith was rested not on the majority shareholder (Ren Yuanlin), but on the CEO (Vincent Toe), which had sold his company (GEM Asset Management) to YZJ. So why would the CEO quit, with no immediate replacement, along with another high ranking official, just like that? 

Before this news came to light, both YZJ Ship and Finance dropped about 6% on Thursday. Perhaps this is the reason. Another major movement prior to any disclosure... hmm...

Afternote: YZJ Finance fell as much as 16% to 0.285 before recovering to 0.32.. sigh.

I lost count how many double digit intraday percentage losses I have endure over these two years. Bad run continues.

Sep 2023 Portfolio Review

I would like to thank some of the readers here, be it from InvestingNote or otherwise, for praying for my mother. Her scans are all cleared for pancreas (although a spot in the kidney is found, and we will be seeing an urologist one day), and her eye issue was not due to nerve damage from diabetes.

Diabetes is really a tough disease, affecting you day to day. We just had a change of insulin and mum is constantly getting hypoglycemia at certain hours. However, the readings seem to show a bit of improvement.

Thank you everyone. 

***

Straits Times Index Fund, YTD returns: 2.35%
S&P 500, 15.45%
Tracker Fund, -7.59%
My portfolio, 4.42%

Notable Transactions

Disposed and realize >50% losses on Didi Global, which had already delisted. Tiger charges a quarterly fee for holding ADRs, so holding wasn't a sound move. Didi  have very illiquid options-- hence selling call options is not a feasible alternative.

Lets begin with selling puts....

As of 2 weeks ago, I decided to spare some effort in trading of options. I have always been selling puts on Alibaba on a regular basis. To be clear, we are talking about the ones being traded in Hong Kong Stock Exchange, and selling puts over there isn't going to give you any index-beating returns.

Yield = Premium / Margin

An example, below is the screenshot of 9988's option chain at 29-Sep, during the lunch break:

Alibaba.HK was trading at 85.95 HKD as of writing.

A good place to start selling options is a 0.2 Delta.

Delta is a ratio to estimate how the option pricing would move against or along  a 1 dollar of underlying move. Hence a low delta means a lower probability that your options will get assigned. It also used as a proxy to describe risk. A delta of 0.2 means you are "exposed" to 0.2 of a share.

 There is a good chance that the stock will not be assigned to you. Note that, however, the implied volatility is only at 33.3%. The premium, which you can collect is 1.01 HKD. Given the standard way of calculating margin, which is:

(Strike price * 30%) - out of the money component, 

(85.95 * 0.3) - 5.95= 19.84.

This means your "yield" is a measly 1.01 (premium) / 19.84 (margin) = 5%.

Compare this to Intel, which has a higher Implied Volatility, 

at 0.20 delta, we could sell 32.0 puts at a premium of 0.5 (last traded)

= (32 * 0.3 ) - 3.18 = 6.42, which translate into a yield of (0.5/6.42) = 7.8%

The key to higher premium prices is Implied Volatility. IV is the expected volatility (a forward indicator) of future volatility, and is affected by market sentiment/demand and supply. 

There is a reason why selling of Tesla puts could enable one to beat an index returns quite easily...

At 0.2 delta, we could sell put options at 225 strike for premiums of 6.25.

That translate to a margin requirement of:

(225 * 0.3) - (246.38 - 225) = 46.12.

Yield = 6.25 /46.12 = 13.6%

***

Of course everyone has different ways of calculating yield. Would it not make sense to instead, use the assignment cost? For instance, if Tesla is put to you (i.e., you have to buy Tesla at 225$), you need to come up with $22500, and the premium paid to you earlier is $625. That translate to a yield of....2.7%

To save you time, if you compute yield using this method for Intel and 9988.hk, that will be 1.5% and 1.2%

Of course, let's not forget that these are returns from merely a month! But the put cost for Tesla is... prohibitive to most people. Let's just say that nothing in this world is perfect...

-boonsong

Aug 2023 Portfolio Update

It has been two months since I last updated anything on my blog.

My mother's appointment is happening in a handful of days, and the dreaded post-MRI review will be in mid Sep.

Much had happened to the portfolio in those two months, and the lessons it brought.

1) My portfolio gained a fair bit of money, only to lost it and more.

The last update saw my portfolio at 5.x% up ytd.

As the results for OKP inched near, the portfolio gained another 7%, to 12% or so.

OKP results weren't great, but the markets were greatly disappointed by the lack of special dividend (and yet the management rewarded themselves with 2m or so in increase remuneration), and also cost control bites.

OKP was sold down heavily and my entire portfolio gains were wiped off and more. 

The entire portfolio went from +12% to 1.6% presently.

All in a matter of two weeks or so.

From this, I understood volatility, and suffering.

2) I sold off my entire position in CCRE and a good amount of CCMGT.

The two big giants declare bankruptcy (Evergrande) and defaults (Country Garden), and the property sector went down large. It didnt help that the interest rate did not see any adjustments. It does signify unwillingness and perhaps inability by the CCP to change things.

The losses from these two companies combined to the greatest realized loss ever.

I finally understood and tasted what "Bet on the horse, not the jockey" meant.

From this, I understood humility. Never go into debt without cashflows.

3) I also sold off my entire holdings in Lendlease Global REIT.

Pre-rights, I was making a decent profit as I bought them from COVID lows.

I got enamored of the expansion plans (they buying up JEM) and applied for excess rights. The stock went up 15% or so post-rights, and I thought it was a good move.

We all know what happened next. Interest rates went up, and the problems with my Central China positions, specifically its debt, made me very weary and wary of leverage. 

Its interest-coverage ratio were too low for my liking, and with occupancy and reversion rates being good, it is likely to suffer when any of this perfect conditions take a turn.

Perhaps the worries of Central China position spilled over.

Onto the little things:

I have sold off my Activision arbitrage positions as the results from the UK side looks a little uncertain. Whatever 5% worth of gains is going to be stretched over a possibly lengthy period of time, exacerbated by possibly renewed legal battles.

Much earlier on, my T-bills in SRS matured and I dumped all of them into Lion S-REIT funds. 

Centurion released results, and they have finally given out decent dividends (after more than 1 year of prompting). It isn't big enough to persuade some to abandon ship, so the stock went down 8% or so after results. It was expected. Nothing much in my portfolio is doing well. I even sold off a bit of it pre-results, because I kind of knew this year wasn't going to be my year. Perhaps I should be grateful? Centurion is the only one position which I have 20% gain.

I hoped for better days.

June 2023 Portfolio Update

 STI Index Fund returns +0.98% (was +0.55% in April)

Hong Kong Tracker Fund returns -2.38% (was -4.7%) 
S&P 500 Index Fund returns  17.8% (was +11%)

My portfolio returns year-to-date is currently was 5.08% (4.8% in April).

Obviously S&P 500 had a tremendous run up in just one month. There are many happy American Exchange investors out there (Nvidia and Tesla, all over the news really). 

The indices are performing exactly opposite to my expectations. I thought that the American indices were too overpriced and the sell down in Hong Kong was torrid last year. If anything, the lesson here is not to bet on market movements.

There is little positive happening in June. 

Notable transactions this month:

1) Sold off minor holdings in RXO, which was a spin off play, for a 25% gain, which annualized to a nice 58%. I had only 110 shares in it, and my plan was to buy more when the prices fall. I can't say that the sell down in my central china positions hasn't affected my impetuous to act, when prices fall a bit back then. I stalled, and this is the result..

The profit was used to... purchase the Applied Series lectures by Mark Meldrum. I am a few days into the Applied Options section of the course and I really like it. 

2) Purchase a small amt of Alibaba (9988) stock to average down my prices. 

This one bears a bit of explanation, but it will not be a foreign one.

With the spin off story gathering pace, looking at Alibaba from the sum-of-the-parts perspective makes sense each day.

There were only a few things I looked at, looking at the last 5 years of earnings to decide on a ball park valuation of its business arms. All figures are RMB, we will convert them to HKD later.

a) Net cash of all borrowings is 305B 
b) It has an equities portfolio of 223B. We discount this by 50% (!) to 110B
c) Equity holdings in Ant Group. Based on its profit announced in the last interim report, Ant G made 6.1B, if we simply annualized this to 12B, and give it a simple 10x multiple, Ant is worth about 120B.

Now this appears too low but I always been pessimistic about the way bankers estimate prices.

d) The golden goose is China Commerce and it will make 160B thereabouts. Given the slowing, though very respectable revenue growth, an 8x multiple is applied and I think it is worth 1280B

e) The cloud business shows signs of slow down and margin squeeze, and henceforth the annualized revenue of 70B is given a 3x multiple only. Hence 210B. I understood that Goldman given it a 41B USD valuation recently (which converts to 290B). But I never trusted bankers.

The entire business operation sums up to 2025B RMB or close to 2200B in HKD.

Alibaba is worth 1700B as of writing.  Hence a bit of purchase is sensible.

Ironically, this trade brought my average price down to... my fair value. 

I have also sold a contract of puts at 70HKD price mark.

***

There wouldn't be any updates for the next two months or so.

I would be candid about my situation and how I feeling. It does feel like pieces of my life are falling apart and the next ones are really really important ones at stake, . I am constantly worried and with something that happened recently, the self-daunting prophecies that I have been fearing for months does appear to come true. 

I am afraid I can't hold it together and keep a straight face sometimes. I yearn to withdraw into a shell where I am not asked to do anything, not to expect anything, and mercifully, not to hope for anything.

I am not in a happy place, and who knows I might need medication soon.

When bad things happen to people, they react in a cold, selfish manner. They stop whatever virtuous thing they might have been doing, and changed their ways perhaps as a way to get even.
This stop not just the virtuous cycle of things, but perpetuate the evil cycle that made this a poor place to live in.

I don't know what to do anymore.