April 2021 Portfolio Review

(in view of a busy 2 weeks ahead, April update is brought forward)

Straits Times Index Fund: +12.33%
Hong Kong Tracker Fund: +6.93%
S&P 500 Index Fund: +13.7%

My Portfolio Returns: +26.76%

Transactions:
Increase in Centurion for Mum and Dad's portfolio after divesting Emperor Entertainment Hotel.
Increase in Carpenter Tan for Dad's portfolio 
Complete divestment of ES3 for Mum's portfolio

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Returns increase by over 10% since March, largely due to Perfect Shape Medical, which is now weighted at 31% of the entire portfolio.

Is the price increase fundamentally backed, or was it due to the numerous positive announcements by management? Since April, the company has released 4 different "business updates," ranging from expanding market (China, Australia and Singapore) and operational (hair growth, TCM) coverage.

Is this possibly di-worsi-fication? I get a little uncomfortable when management is too busy putting up favorable PR spins like this, even though it benefits me.

The market as usual, decided to reward risk-taking behavior as it usually result in growth. They do not care about the growth quality. Personally, I would want to look at the FY 2021 numbers. If the dividend yield is reasonably high, it might be tough for me to sell and look for another company, which is the only reason why I am still holding.

I always call myself a value investor, and a classic one at that. There is a popular camp in recent years, known as "Growth-at-a-reasonable-price" or GARP investing. It simply means to pay a fair price for quality growth companies.

Paying reasonably for quality growth company is a no brainer, but everyone's idea of reasonable is different. A price-earning/cashflow multiple of 25x, at a growth of 15% or more, is reasonable to one, or modestly attractive to another. Perfect Shape was frightening cheap at the low 2s dollars. The highest price I paid for my shares is 3.14, and I thought it was high. I am extremely conservative.

One has to be reasonably independent in what they feel is consider a fair price. If a stock has always been selling at 20-30 times multiple, and its peers at maybe 40-50 times multiple, it doesn't mean that it is a bargain. It might be relatively cheaper, but it isn't absolutely cheap. I like stocks in the latter camp, and Perfect Shape was one such idea.

By taking its market cap, subtracting its cash on books, assuming a no-growth figure for its earnings put it at 8-10 multiples. I am not enamoured by its tendencies to pander to the media and speculators. I sold some stock at 4.7. Today the stock is 6.5 or so.

I always tell my friends: I am not responsible for others' stupidity. Looking at companies that are priced at triple digit price to earnings, a lot of things has to go right for investors who just bought. It is the favourite past time of the majority to look for possible problems that can happen. Quite often, the problem comes from places least expected. 

I would never adopt such an approach, and it is in fact advantageous for most people to disagree with me. 

I find companies that already have obvious, but solvable, problems attractive. But the management must not be the problem. 

Activist-investing is near impossible in Asia, due to the low float of OPMIs. Looking through my portfolio of stocks, the smaller companies has a definite family-ownership structure. So it makes sense not to buy into companies controlled by crooks.

***

Carpenter Tan's annual report is out at last. This is an extremely cash generative company, with low capex and frequent positive cash flow, comfortably exceeding dividend payout. Until the last three years, that is.

Unfortunately, this is one company that has very limited to no growth, and its management is not capitalistic in nature. So I am glad that they decided to cap dividends to a more manageable 60+ million in payout, something that is more realistic in terms of their cashflows.

Given that this is a special year, I am not too worried, but I certainly will be paying attention. 

***

April is always a difficult month for me. I have to get my appraisal out of the way. In all honesty, it isn't something I look forward to. I like the work, it is good honest labour and trying to solve people's problems. But having to write documents to prove the work that I did, much less to prove that I deserve a higher rating than my colleagues', is something I will never get comfortable with.

Till next month.