The Optimism of Medical Stocks in SGX

Source: From Stockfacts, www.sgx.com

Medical needs are non-discretionary and investors might view them as safe companies to invest in. However, it appears that investors are placing too much hope in the prices of their security, as you can see, there are companies that are being sold at more than 30 PE. The most outrageous of them belongs to HC Surgical Specialists Limited, a company currently focusing on colonoscopy procedures, with a PE of 52 (Google Finance says it is 62, well... it is expensive, nevertheless).

This company is less than a year old in the Catalist (secondary board) market, having reported its mid-year earnings on the 3-Jan. A declared dividend of 1.8 cents gives investors a 3.3% yield based on the current price of $0.55

One can dissect its earnings as much as one insist on, but a year of earnings, in Graham's words, "should not be taken seriously." The company did pledge to give away 70% of its earnings as dividends, which is highly unusual since the PE is high (reflective of investors' view on its future growth).

What is puzzling to me is that the company planned to put aside 2.8M of its raised capital on acquisition, and about half of that is spent on its very first acquired company-- it has not even started operation. Among the key reasons stated for acquiring this company (or human resource) is that Dr Julian has a potentially worthwhile network and also credible prior job experience. I leave this qualitative justification to insiders but I seriously doubt anyone can have a huge network given 5.5 years of experience.

Investing in growth is fine if you are an insider to the industry, but be cautious of this one. Few medical professionals (in which its entire non-independent and executive board members, are) make excellent businessmen.

Which investors have inspired you so far?

The very first that left a mark on me is Walter Schloss. The way he run his fund is largely unique, in which he will only take a cut off your profits and no management fees are involved. The way he picked companies seems most plausible to a small fry like myself. He had no desires to communicate with management for research, worked a fix amount of hours a day, and diversified his holdings among many companies. He had little help (besides his son), worked in a humble and tiny office, and had no computer. His philosophy is not to buy companies based on earnings but book value instead, since the latter does not vary much. He displayed courage in buying out-of-sorts companies. A pretty unique man whose responsibility and financial intellect would be hard to match.

The second investor is ironically Dr Mike Burry. He is a master stock picker of turnaround plays as shown in (https://www.google.com.sg/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwizgobCwo_SAhUMtY8KHeMwBYEQFggaMAA&url=http%3A%2F%2Fcsinvesting.org%2Fwp-content%2Fuploads%2F2013%2F07%2FMichael-Burry-Case-Studies.pdf&usg=AFQjCNFZtjDWV5PFznAoEZizA6AXIc8NVQ&sig2=z20lXDc79gki25KRfZXUYQ). This is a guy whose financial knowledge is entirely self taught, and his reasoning behind each trade shows a tremendous amount of research done. Without the fame of "The Big Short," he might be recognized more for his intellect rather than his courage.

The last person in mind is Sir John Templeton. Having read his book (https://www.amazon.com/Investing-Templeton-Way-Market-Beating-Strategies/dp/0071545638/ref=sr_1_2?ie=UTF8&qid=1487073194&sr=8-2&keywords=john+templeton), I think there are very few financial genius like him around. In one particular example, his niece described how he had noticed the tech bubble of 2000s blowing up and decided to start shorting companies close to the time where insiders are legally allowed to sell their holdings. This allow him to short stocks safely without the associated timing risk. He was also the first to venture overseas and picking Japan based on his knowledge of economics, followed by predicting that China would have been the next ideal country to invest in.

"If I have seen further it is by standing on the shoulders of giants."