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...
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.
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.
STI Index Fund returns +0.55% (was +1.63% in April)
Hong Kong Tracker Fund returns -4.7% (was 0.01%) S&P 500 Index Fund returns +11% (was 8.76%)
My portfolio returns year-to-date is currently was 4.8% (6.98% in April).
Staring into a huge tsunami wave and nowhere to hide-- there is how it feels like.
Just a couple of months ago, I wrote about the colossal sell off by my Central China positions. Unfortunately, the worries and sell down continue, deepening my losses to the region of 70%. Just today, CCRE lost 13% in one day, and Central China Management lost almost 6%.
In a space of one month, CCRE lost 27.37%; CCMGT lost 32.65%
So in the last 3 months, CCRE another lost 63%, CCMGT 52.17%.
I don't know what to think. I am absolutely shell-shocked into doing anything.
***
Over dinner with my 70-year-old mother earlier, she was visibly in pain from her aches. She worked in a factory folding clothes, and she worked a maniac 8am-6pm, breaking for 1 hour for lunch. Throughout the day, she stand and work. With nobody to talk to.
She asked if my hand were cleaned. And then asked me to help massage her painful back.
I am crying inside as I did so.
***
In case you are a young chap, just started your working life, and envious (of any remaining returns) some fool-hardy contrarian might have, this is a side of their life that you don't want to experience, and you don't need to. Start indexing today. Investing is really not easy. I am not here to sell courses. I am not writing to feed my ego. This blog is a record of my experiences and a reminder, in the world of seducing returns and mania, that a sobering side of investing exist.
***
There is no transaction in the month of May. OKP (in value, worth 39% of my entire equity portfolio) is still the only thing that is propping my portfolio up. I know some might say that one should look at the performance of the entire portfolio instead of paying attention to a subsection, but a lot of things don't work in theory.
Looking forward, the next three months will be very tough for me in many fronts. The Chinese real estate looks extremely gloomy. My mother have an important medical in August (to review that hopefully benign spot in the pancreas).
How it feels like to compete against the American indices...
This would be a very brief report.
STI Index Fund returns 1.63% (was +0.25% in March)
Hong Kong Tracker Fund returns 0.01% (was +1.8%) S&P 500 Index Fund returns 8.76% (was +4.95%)
My portfolio returns year-to-date is currently was 6.98% (6.11% in March).
The S&P 500, has yet again, show me up in performance. The QQQ (Nasdaq) is at an astonishing 22% year to date.
This is beyond my expectations-- I thought the Hong Kong index, being depressed as it was last year, would stage a rally. Instead, it return a flat 0 to investors so far.
Key reason would be poor economic data. Even Alibaba, with all its restructuring possibilities, lost all its gains. It lost 16.7% in just one month (Tencent lost 11%, Sunny Optical 12%, Xiaomi 9%)
There were no remarkable transaction bought in April, just a handful of stock in Central China Real Estate.
The OKP Annual General Meeting
I attended the meeting with two main concerns in mind. First, is the 43m in? And second, why is the rental for its local properties so poor?
The second question is far easily explained by the management: Its intention in investing in the property is for capital gains and not yield. It had already put the 2 adjourning shophouses in Kampong Bahru for sale. If the sale does go through, there will be a modest improvement to the company's value.
The first question was not brought up until towards the latter stage of the meeting. The management explained that they could not release any information (other than the sum awarded, because it was material to the stock price; and its legal team cleared them for announcing it).
As for the collection of the sum, I get the impression that it isn't collected yet. Upon asking the Financial Controller (whom I am ashamed to admit, been disturbed by myself every 2 weeks via phone calls), she said that we should see an update in Aug. I surmise that it should refer to the earnings report for 2023-half year.
It was at this point that the CEO smilingly suggest that everyone is likely worried about the collectability of the money, and this brought out smiles all around the shareholders. Judging by the responses from the CEO and Daniel Or, I see no reason to doubt them.
The amount would be subjected to tax; however, the management could not guide for an amount.
A quick buffet lunch (which shareholders were joined in by management, and latter some employees) later, I was on my way home.
OKP, given its capital gains over the month, is now 36% of my total equity holdings.
***
I was unable to attend Centurion Corp's AGM due to work commitments. Judging by the results, particularly the election of directors to the board, I think most people, as usual, vote like sheep.
***
I wrote last month that Clifford's cash in the books has increased markedly. Upon inspecting the annual report, it appears to be due to collection in trade receivables and a sale of its silver bullion. Overall, nothing to worry about as yet.
"stressed, tired-looking middle-aged man painted in Van Gogh's style"- by Dall-E
Year to date,
STI Index Fund returns +0.25% (was -0.52% in Feb) Hong Kong Tracker Fund returns +1.8% (was 4.16%) S&P 500 Index Fund returns +4.95% (was 6.05%)
My portfolio returns year-to-date is currently 6.11%. This excludes a substantial amount of Singapore Saving Bonds and T-Bills which I purchased on behalf of my mum. Bulk of these bonds will be redeemed or will mature in 2H 2023.
The returns look positive due to OKP. The market granted kindly a 23% revision upwards-- largely because OKP had been awarded a princely sum of 43m from its arbitration proceedings with CPG Consultants (market cap for OKP is still only 59m). CPG consultants were ordered to pay up 28 days from 3-March. The last I checked, OKP is still checking with its legal team if they have to make an announcement in SGX, when they are awarded the sum.
The returns were offset by colossal sell-downs by Central China Real Estate (CCRE) and Central China Management (CCMGT). The reason why I am extremely concerned by the wellbeing of these two holdings, due to the substantial amount of capital, valued at cost, invested. The amount represent #2 of my holdings (Alibaba is a distant #3). If the Chinese property sector does not recover, it would also impact Yangzijiang Finance (also a top 5 holding), which hold bonds mostly in China.
In just the past month alone, CCMGT lost 24%, and CCRE lost a blood-curdling 42.1%.
This is the second time in less than 2 years, which I have to endure drawdowns of this magnitude.
During the earnings release for CCMGT on 22-March-2023, the controlling shareholder, Mr Wong Po Sum ("Mr Wong") was extremely upbeat. He declared that the worst is over for CCMGT.
But the market vehemently disagreed.
Within a matter of days the stock fell from 56 cents to 48 cents. That is more than 15% in less than 5 days. While there was a rally of 9% today. I could find nothing to attribute such a market movement, and certainly there is nothing within CCRE's earning (that I just read) release to suggest that all is well.
Last but not least, Alibaba announced that they are splitting the business into 6 separate units, paving the way for spin-offs. The theoretical gap between market price and its sum-of-the-parts value could finally be bridged. I am not overly excited because I think there wasn't a huge value proposition-- too much assumptions regarding the cloud and fintech value (regarding the latter, I placed zero weight to private valuations by investment banks, regardless how prestigious they are).
Alibaba regained 16.41% in the last 5 trading days alone. In terms of cost, Alibaba is #3 in my portfolio, so it helps.
Earnings Release Review
There were many companies in my portfolio which release earnings this month.
I had just digested the release from CCRE and language does not appear to be upbeat, and neither were there any positives to take away. Dividend was withheld, which is sensible. There is a sum of 900m in bonds to be paid this year, and a default in any of them will trigger a cross-default to bonds maturing much latter. How strongly would the local banks of Henan support CCRE? My guess is as good as anyone.
The results from CCMGT isn't positive as well-- they appear to have lost their #2 position in management leadership in central China. The wisdom of the crowd surprises me, the price corrected to a 5% yield. So the market did not over-correct... Market efficiency should usually be respected.
A quick back of the envelope calculation suggest that the current price of CCMGT is at net current assets, with some blunt discounting of its receivables.
I just digested the results from Clifford Modern Living and the IT services segment was the only negative surprise. Dividend is maintained on a yearly basis. Cash in the books has increased, but the cashflow statement is not published in the unaudited release. I would examine it when the annual report is published.
Nanyang Holdings' result was out earlier this month. It has been a year and there is still no land use rights agreed upon for its Shanghai operations. It disappoints me greatly that the management persist in managing its investment in a overly-active manner, and to makes matter worse, the controlling shareholder has decided to rope in his daughter as an advisor (she had brilliant academic credentials but unfortunately is working in a unit trust/fund as well).
The Nanyang Plaza main tenant (of which about 15% of its revenue was attributed) has moved out. While the share prices for SCSB has risen since the rights issue, I think we may mistake symptoms for the cause. Only time could tell.
Despite the downcast report, Nanyang Holdings' price did not move at all due to illiquidity.
Transactions in March
I made a huge increase in OKP after earnings release. I think two things are probable here: 1st, CPG Consultants should be able to pay up; 2ndly, OKP's earnings should improve with its biggest order book in the last 5-6 years, since the incident.
There are areas which I am dissatisfied with this company (nothing is perfect in this world). I hope to be able to discuss this with management or like-minded shareholders next month during the AGM.
As of now, OKP is 33% of my entire holdings.
Comments
While I am grateful towards the increased share prices for some of my counters, the intellectual satisfaction was not there. I have held OKP for good 5-6 years since the incident, and Alibaba is a popular holding. I can't help feeling bitter by the manner which TTJ and Centurion owners treat its shareholders..
I find it deeply ironic that since young, I have a special place in my heart for the downtrodden, and this was a minor reason for buying such shares (the big reason is that they are undervalued, have problems, and have plenty of avenues to recover). It is regrettable that the attitude of these two companies management is no different from the market's as well.
If authors of investment books were to look for examples where management could be attributed for the poor share price performance of their companies, Centurion and TTJ would currently top the list.
Despite sleeping very early these days, I was feeling perpetually tired throughout the day. That explains why this post is late.
I did a presentation some weeks back on value investing with Boon Tee:
STI Index Fund returns -0.52% (was 2.93% in Jan) Hong Kong Tracker Fund returns 4.16% (was 7.84%) S&P 500 Index Fund returns 6.05% (was 4.19%)
My portfolio returned a measly 4.25% (was 7.15%), largely due to another round of correction by Alibaba and Central China positions. This was very much inlin with expectation; the overhang (of property worries) should continue for years. Alibaba isn't doing so great, in terms of market price movements, but it does look like they have managed to control cost. However, Alicloud and International Operations continue to be loss making. There is still no clarity in how one should value Alicloud and the (potential?) Ant Group IPO.
Transactions:
Purchase 2000 shares of Nanyang Holdings for my portfolio.
Nanyang Holdings is just a very cheap stock which main operations are good old rental and investment. The main investment is of course their Shanghai Commercial and Savings Bank, which is mainly based in Taiwan. I would readily say that banks and financial institutions are far beyond my circle of competence. However, the value is still apparent in other aspects of its balance sheet. I am just uncomfortable with their investment process-- it is too active for its own good.
Discussion on OKP, Centurion and YZJ Finance, as they had released full year (FY) earnings during Feb 2023.
OKP:
While revenue is definitely higher, so are costs. The balance sheet looks far more fragile than a year ago, so now the investment thesis has become one of projection instead of protection. It was also revealed that 3m was spent in the arbitration with CPG Consultants. I believe, if OKP is successful, would bring significant one-off 'earnings' to the 53m market cap company.
********
Centurion:
As usual, the dividend is a joke, and the stock price corrected a fair amount (8% intraday at one point). The only bright spot is that the debt is getting reduced. Amusing enough, I think it is far better to be a debt holder in Centurion than a stock holder. It had been 2+ painful years.
Perhaps Centurion should do a major rights issue to bring down debt? Since the cost of equity (in dividends) is less than a Singapore Savings Bond? It wasn't that business was poor; things are actually picking up. So do the major rights issue, let's clear the debt in the books. In the mean time, management should show that they deserve to be management by:
a) Not increasing their remuneration, or best: be paid with stock options instead. Strike price should be significantly higher, lets say 25%, than prevailing market prices.
b) Voluntarily purchase securities in the open market.
On 22 Feb 2022, I wrote:
Results were much better, and the debt level was pare down by a modest 20 million. However, the dividend proposed was a paltry 0.005$ a share, much lesser than the expected 2 cents a share. The company put up a resolution to restore director and management pay for voting as well. This news depressed share prices, and whatever paper profits from profit alert, prior to announcement, were all but vanquished.
It is disappointing that 1 year from today, the narrative remains unchanged.
Let me put the numbers into context. Centurion is earnings between 70-100m in free cash flow over the years. The figures for 2016-2023 as follows:
2016
2017
2018
2019
2020
2021
2022
Free Cash Flow (m)
65.037
54.263
54.986
66.554
59.146
70.256
101.679
Dividend Declared (m)
7.399
7.957
8.408
8.408
0
8.771
8.412
Interest payment
21.383
21.545
23.929
28.759
23.319
22.734
28.341
Total Remuneration of Directors
(Retrieved from Annual Reports, Sect. 9)
0.38
0.422
2.113
2.422
2.68m
3.277m
2.971m (from earnings release)
I think the numbers above does not justify why dividends are suppressed over the years!
********
YZJ Finance:
has finally released its full year earnings. Examining the balance sheet reveals:
-620.6m of cash
-2264.6m of debt investment, which are current
407m of debt investment which is non-current.
This is the most important of the lot.
It is noted that 536m of those investments were transferred to YZJ Ship-Arm (parent) before the spin off. I thought initially that it was a protective move by the parent to relieve the child (YZJ Finance) of potentially bad assets. I also viewed the reduction of debt investments in 2022, of 1.7b from 4.57b, to be favourable. Management also stated that the interest income was 312m (see below). I think a yield of 10% for its debt investment is sufficient given the risk.
-413m of financial assets, which are mostly unlisted China equities (see below)
-322m in investment on associated companies. This associated companies are not disclosed, but likely related to YZJ Ship-arm.
On the liabilities side, there is a total of 332m, of which 228 are deferred tax liabilities. These are tax which are not paid and will be paid in the future.
Let's relist the assets and do some brunt discounting.
-620.6m of cash
-2264.6m of debt investment, which are current
407m of debt investment which is non-current.
413m of financial assets, which are mostly unlisted China equities
322m in investment on associated companies
With cash, there is no discounting needed. The amount of interest income (20.5m) represents 3.3% which is likely reasonable.
With the debt investment, the management presentation slides indicate that about half was performing, with the majority of the other half being non-performing:
One would look at 2021's performing loans of 3.16b and wonder how did it turn up to be only 1.35b this year? Well, 1.6b was redeemed (refer to the first screenshot of this post).
However, I going to be brutal and write off the existing under-performing and non-performing portion from its assets. That would mean the debt investment would be worth only 1348b instead of the stated 2264m.
Obviously this is going to be too conservative since
a) There might be reversal of NPL, and given that management guided earlier that there is collaterals.
b) There is some residual income from the performing loans. Stated amount in the book is merely principal, and does not include interest.
I going to reduce the unlisted Chinese equities by 75% (overly conservative) because there is no way to look at those numbers (since they are not listed!)
I will also reduce the value of the investment in associated companies by 50%.
That sums up to be ...
Asset
Stated Value
Discounted Value
Cash and EQ
620.6m
620.6m
Debt Investments
2671m
1348m
Financial Assets (Investment in Chinese Equities)
470.072
138m (unlisted equities are discounted by 75%)
Investment in associated companies
322m
161m
Total
4083.6m
2267.6m
... a total of 2267m, and if we take away 332m of liabilities, the remaining value of YZJ Finance would be about 1.9b.
YZJ Finance, is listed at 1.46b. That represent a margin of safety of about 25%. Since my average price for YZJ Finance is about the market price, I would refrain from buying more stock. The dividend yield, based on a distribution of $0.018 per share, would be 4.7% for my holdings.
Charlie Munger: "I would agree. I would also say what we did 40 years ago was in some respect more simple than what you have to do. We have it very easy, compared to you. It can still be done, but it is harder now. You have to know more. Just sifting the manual until you have something that is two times earnings. That won't work for you anymore"
Buffett: "It will work if you can find any"
***
There was a question on telegram some time ago with regards to this matter, and I spent about an hour thinking and writing a response.
Question: Buffett says if his portfolio is small, he is sure to able generate 50% return. What is this 50% return method he talk about? How to go about it?
Having being somewhat familiar with how Buffett invest during his before and during his partnership years, I guess:
-information advantage. He was willing to comb through Moodys and S&P manuals from first page to last, looking for cheap companies (either by book value, such as valuable investment portfolios/bond holding; or cheap by earnings, Western Insurance was one example). Sanborn Maps cost $45 and had $65 in its investment portfolio.
-intelligence. Able to see unobvious aspects of an obvious deal. The Rockwood deal was an example of this. Instead of arbitraging for 5.6% gains, he held on to the stock for a gain of 560%.
In the foot notes: it adds:
-(My opinion) He was willing to coat-tail (follow) the successful investors of his time. His ultimate objective was making and compounding wealth. He doesn’t care about the intellectual challenge of investing as much as his mentor, Graham did.
-doing the legwork (or getting someone to do it) for very obscure, thinly traded stocks. Example: Dan Monen helped to travel around to help buy National American Fire Insurance (a company that was a fraud until a turnaround by William Ahmanson). It was earning $29 a share and selling for $30. Unfortunately it was thinly held by non-insiders, who are scattered around the countryside. Some of them paid for $100 a share for the now much forgotten stock they have. Dan Monen went around, and by word-of-mouth, accumulating shares and eventually offering up to $100. They eventually hold 10%, versus the Ahmanson’s 70%.
-Willingness to concentrate heavily into ideas. He had, after speaking to GEICO future CEO, put ¾ of his net worth into its stock. In the Sanborn Maps idea, he put 1/3 of the partnership money into the idea, and during the American Express crisis, he plough in capital of similar proportions.
Quote from “The Snowball” (AXP wasn’t the only idea capital was concentrated on)
-He had a very good spouse in Susie, who attended to his every needs outside his investment work. E.g., besides the kids, Susie took care of Buffett’s dad during his last years.
***
The spouse part was not written in jest-- I believe that women have a huge hand in how men acts, and perhaps vice versa (I can't comment on behalf of women for obvious reasons).
Hinderburg in Adani Colours. Art generated by Dall-E
As of 1st Feb 2023,
STI Index Fund returns 2.93% Hong Kong Tracker Fund returns 7.84% (wow) S&P 500 Index Fund returns 4.19%
My portfolio, excluding bonds (Singapore Savings Bonds ("SSB") and 6 months T-Bills) which I invest solely for my mum, returns 7.15% or 4.75% with it.
Performance trails the Hong Kong Tracker Fund, which is expected since it had a terrible, abysmal year. In terms of cost, 44.7% of my funds are invested in HK stocks, 48% in SGX and the remaining in US.
Current market sentiments towards the Chinese recovery remain positive to some what cautious. The main focus so far seems to have shift from the property debt crisis to what America is currently doing.
I do not believe the property crisis is behind us, just because the market prices has recovered some what. Bond prices for Central China notes are still very much below 50% of face value. The following screenshot taken from Bondsupermart:
We are only 2 months away from the next call...
The current favor of the moment are Artificial Intelligence plays. The acquisition of OpenAI by Microsoft was the catalyst. The writing on the wall is that Google's search could be displaced, and Google's implementation does not impress.
Stocks which took a beating last year staged a strong recovery. IMO, I don't give a rat's ass how they do because they still look overpriced, and I would not change my game just to suit the market's taste.
I have not purchase any stock this year as yet. I have wrote a modestly priced call for Alibaba at 135 HKD, and for a while that position was in the red. This was due to how volatile and positively charged the market was. Nevertheless, it expired out of the money.
As most of my HK holdings are not large market cap stocks, an options market does not exist for them. Hence option selling (and buying) is not a big part of my portfolio.
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Hinderburg Research had released a short report on Adani's Enterprise and its various subsidiaries. Unsurprisingly... the focus in the local papers were the impending stock purchase of the said enterprise by Temasek. Temasek's bad run seems to continue. I believe many would question the amount of due diligence, esp after the FTX incident.
IMO, shortist such as Hinderburg are formidable-- not only are they riding on the prospect of infinite losses, they could be threatened with legal muscle, viewed with skepticism (because of vested interest).
The outcome of this episode should follow the usual playbook: a heavily in-debt company tries to raise funds cheaply by issuing bonds or stocks that have the lowest cost of capital. It seems inevitable that great wealth generated by leverage would eventually face a moment of reckoning.
At the end of the day, the rich would be less well off, but it is always the poor that suffers. Labourers working in these firms face retrenchments. Politicians rarely makes a decision that overrides their self interests, be it to stay in power or to enrich themselves.
My expectation is that unless someone could prove that political connections are involved, nothing will happen. On the contrary, if political connections were present, I would expect the accused be swiftly put to his/her place, and any previous political relation be severed just like a ballast weighing down an airship.
Somewhere in the middle of 2020-21 when FANG (Facebook, Amazon, Netflix, and Google) stocks were enjoying popularity, a good deal of investors (even in the "value" oriented camp) preach about the virtues of buying "good" companies at reasonable prices. We call them GARP for short.
The exact stocks in question isn't crucial, but the kind of stocks is.
The idea of buying GARP companies is that you do not have to buy them at dirt cheap prices. This bear elaboration: cheap usually refers to its price to earnings multiple, or its current price point in a historic 5-10 year chart.
The idea is that the price is not crucial for GARP because the value of these companies compounded at a good rate, which means the value would eventually catch up with the purchase price even if the purchase price was not at modest levels.
Henceforth, the key question GARP investor have is whether there is a "runway" (is the company reaching market saturation?) or has it neared the TAM, or Total Addressable Market? Would its moat (and thereafter, their usually high ROE numbers) be breached by competition?
If we were to invert our thoughts a little on these companies, surely a few other conditions would make purchasing such companies a lot easier on the stomach.
For instance, if the target company in mind is not a well known titan in the industry, there would usually be the following (advantageous) features:
a) The stock would not be well followed, and therefore not "efficient." It has the added possibility of increased institutional ownership, which can boost share prices. b) It is simply easier for a small company to grow than a large one. Apple would have to invent another amazing product to boost its already large revenue. c) It would help that these companies are not in highly popular, competitive industries.
I believe that the fortunes of well known ideas, especially those as large as FAANG and Tesla's, are fraught with friction. I have only one-and-a-half idea in my portfolio that are invested with the expectancy of moderate growth: FuShouYuan and a spin-off called RXO.
The rest of my portfolio consist largely of stocks that are "cheap by assets." I describe the title of this post as "Sisyphean," as the act of buying and selling such stocks is not too dissimilar from what Sisyphus was condemned to: roll a bounder up the hill, only to have it roll down when it nears the peak, and to repeat this act endlessly.
My approach is Sisyphean because when you buy a stock that is cheap by asset, something happens to the company and cause the stock price to go up. You would then sell it to buy another one that is cheap. This continues endlessly.
That is absolute returns, which is deceptive. What about annualised figures? With the exception of CrossHarbour, and Wheelock Properties (for which were realized in a matter of weeks/months, both were >1000% annualised which makes no sense other than luck), the figures for the rest are:
What about the ones which have not been realized? OKP, which is a significant position, is still at a moderate loss (-10%). So is YZJ Finance (-7%) and Central China Management and Central China Real Estate (arguably not a "cheap by asset" position; -27.5% and -0.5% respectively), Nanyang Holdings (-21%), Clifford Modern Living (+2%), and Frasers Hospitality Trust (-15%). These figures include dividends.
During a discussion with colleagues about investing (I was merely urging them to adopt a dollar cost averaging plan with world index funds), one of my smart (but ignorant in investing matters) friend remarked that your job is your best investment.
This is arguably right and wrong: it is wrong because you have to be physically-abled in order for this "investment" to work.
However, I drew parallels with that fault and my investment style: I have to be "around," or make very active investing decisions, to ensure that it will be profitable. Let's assume that I were to fall into a coma of 5 years, these stocks could enjoy a revival, but I wouldn't be able to sell! ; and by the time I am conscious, these stocks could possibly return into bargain territory again. I witness such fate in my short 6 years of investing.
One of the things I envy about Buffett is his Coca-Cola and American Express holdings. Both had, as compounders, grew rewardingly in share prices, and providing meaningful dividends that beats the average returns of an index. What can be better than that?!
Investing in cheap stocks has its rewards and it is emotionally draining. It is not the easiest, but the most simple form of technique. And unless there is a huge market downturn (which could cause these compounder stocks to fall dramatically cheap in price), there is no foreseeable changes to my portfolio going forward.
