September 2020 Update

S&P 500 Index Fund 3.27%
Straits Times Index Fund -23.84%
Tracker Fund of Hong Kong -15.36%
My Portfolio +14.19%

Notable Transactions Made:

1) Total Divestment of LHT

I first purchased LHT in May 2019, before selling most of them pre-COVID lockdown in order to secure some gunpowder. My feelings at that point of time is simple: it is always possible to find cheap companies all the time, but it takes a once-in-a-life-time disaster like COVID-19 to bring down the prices for some good companies, particularly Perfect Shape and others.

Nevertheless I would comment that LHT's management are honest folks and tries their best for shareholders.

Part of the reason for divesting LHT is that I have too many companies in my portfolio. Ideally, I want less 15. At the moment, it stands at 16, inclusive of an arbitrage holding in Xinghua Port Holdings.

No matter how big your portfolio is, I have difficulty understanding how you can have 27-30++ holdings, unless you are doing it like Schloss. The Schloss way is to simply buy cheap-by-asset companies and diversify widely. The target is to better the index by small but meaningful percentages yearly. Over long term, these become extremely meaningful. 

 

But is it possible for one to have 27 well thought-out and researched ideas? Does the market seriously throw up such fine opportunities? I have no idea. Combined with serious amount of churning/turnover, it could means huge fees. The amount of fees I incur shocked me yearly, and I dread to be in the 27-30+ camp.

2) Huge increase of Cross-Harbour & Subsequent divestment

Cross-Harbour's selldown reached a 3-year-low this week. No new announcements were made, and the only event was that the stock went ex-dividend.

Again, the rationale for buying this stock is that its liquid assets far outweigh its share price, with little or no value attributed to its current business. Unlike an investment firm like Value Partners (which is selling above its book value), buying into Cross Harbour by asset value is a very comfortable approach. The lower the price goes, the better the odds of price-to-value discrepancy in your favor. Value Partners is after all an investing firm, and the value of the company comes from its earning power and fund returns.

Fortunately for me, in a space of less than 2 months from my initial investment, Cross announced a privatization deal. Given that it has a large amount of holdings in Evergrande stock, I guess it is good to sell out and move on.

Gains are in the region of 40%.

3) Complete Divestment of ChangShouHua

Without having to read through the announcement too thoroughly, it appears that the Bloomberg article is spot on-- the sale of ChangShouHua is to finance payment for its parent's debt. The offer price of 4.19 HKD is not well received by the market in general. Quite honestly, I am fairly disappointed by the price and the market's reaction to reluctance to tighten the spread. IMO, it is better for me to sell out as the odds of a failed deal is higher than normal. 

Sold out at 4.0 HKD recently. 

4) Initial Investment in Emporer Entertainment Hotel, Haw Par and Centurion

A small amount of investment is in EEH for book value reasons. I expect dividends to be paid and this is as much desperate for yield as I can get. This stock has a decent history of dividend payment, and payout % to earnings/cash earnings is not on the high side.

Haw Par is priced cheaply based on book value. Current price reflects a modest discount considering its investment portfolio and the margin of safety is provided by its cash and medical business.

Centurion's debt will come calling in 2 years so I treat this as a LEAP of some sorts. High risk high rewards, so I am not going to put in a huge amount unless I see a "variant perception." Interest Coverage is on the low side, and management's clout will determine if they are able to re-finance. I do believe that if the yield is on the high end, it will get subscribed.

These are cigar butts. One last puff. Don't hold them forever.

5) Huge increase in Perfect Shape Medical

Stock is reasonably cheap on earnings adjusted for cash. It doesn't seem justifiable that the stock should suffer-- reason being that it is a very cash efficient business, and I am not paying for growth.

This stock is currently my biggest holding based on cost.

Investing Dad's Money

Recently, a part of my dad's fixed deposit has matured and it took me a while to convince him to invest in stocks instead. My reasoning is simple: If his long term plan is to re-invest in fixed deposit no matter how the stock market does (which a person like him only heard about the bad news), then a period of 3-5 years means a small amount of it should go to stocks. 

It is to me a pretty decent amount of cash but he is quite worried, constantly reminding me to be careful with it. I could not convince anyone that the approach I used is sound and careful, without forcing the subject to a 1 hour lecture which includes blowing my own trumpet, neither which I am fond of.

So about 50% of the funds went back into fixed deposit, yield a paltry 0.5% for a year. Unfortunately, that is the way risk-free investment goes now. The hunt for yield drives normal folks to take risk. Stocks are inherently risky investment because

- it takes some work to find ideas

- it takes guts to hold on to them during sell-downs

- and you constantly harbor self-doubts during these sell-downs.

For those who are reading, and are frustrated about not having a place to grow your money... may I suggest that you turn your attention off the market itself and concentrate on reading about investing instead. I just bought Value Investing in Asia for fun. It is a truly well-written book.

Softbank's Whale Option issue

The investing community is reeling from the news that Softbank had bought major call options for quite a bit of tech firms. The speculation is that their counter-parties has in turn, bought positions in these tech companies in order to cover their positions, which in turn drives the prices higher. I think this rumour is believable.

Again, I am not impressed by Softbank ever since the days of "blitz-scaling", its boasting of the size of their Vision Fund, and now, the Whale Option saga. Blitz-scaling is truly silly idea-- to scale up the business, no matter how much cash burn it is, in order to monopolize the market, is damn silly. First, you could be underestimating the stamina of your competition. Secondly, the companies that are ordered by Softbank to blitz-scale, couldn't care less if they lose the money (it is another thing if the manager-owners were investing with their own cash). 

If I am given a sum of money to invest, and the only way I am going to earn more is that I spend that money very quickly.... well.... I am sure I would make a lot of stupid decisions very quickly. The Vision Fund is overwhelming in size, but underwhelming in its smarts.

"Disruptive Investing"

Combined with Robinhood traders, the rise in tech stock prices, we are living in a crazy but foolish period of time. We have idiots thinking that companies like Tesla will grow 40% yearly, and no price is too high for it. No PE is too high if their earnings increase-- that is true, but you are depending on too much good things to happen-- and the prices are already reflecting the hope and dreams of far too many people who 'invest' into companies just because they are disruptive.

It is difficult for others to accept my way of thinking: find stocks that are reasonably or attractively priced so that not too many things has to happen for you to make money. I am not looking to make 300-400% in short order-- no amount of intelligence with value investing methodology can give you that. I am aiming to beat the index and profit in a consistent and easy manner.

To play devil's advocate, I do believe in the CANSLIM method. William O'Neil do believe in paying for high PE companies if they are worth it. But I just feel that the CANSLIM way is just too difficult, and I could not convince myself of their belief: that a company is now more attractive because it has become more expensive.

Opinions vs Facts

In your day-to-day life, you're bound to read or hear ideas from others. Quite often, these ideas are presented so strongly and confidently as if they are facts. However, one should think slowly, and critically, if they are actually just strongly-worded opinions.

Consider a little over a year ago, I was involved in a snooker (that is a table-game/sport, for the uninitiated) match with pretty high networth individuals. We were talking about investing in general... and soon we were talking about opportunities.

One of those discussed was First REIT ("First"), which had its stock price fell from 1.4x to 0.9x. This particular individual was quite confident that it was a good idea. My first reaction was that the shareholding changes involving Lippo group/OUE would mean that any future rental arrangement (First is on triple-net lease, and do not have to suffer from currency-risk as all rental is collected in SGD) would tilt towards Lippo's favour. 

His conviction arises that "the price is below book value already, and management would have to acquire income accretive properties for the sake of shareholders."

Let's go through the points very quickly

---My Points---

1. Major shareholding changes in favor of Lippo/OUE - fact.

2. Cash crunch in Lippo group due to problems with overly ambitious development in Indonesia (Meikarta?) - Fact.

3. Rental arrangement that would be less favourable for First, given that Lippo now enjoys a larger shareholding now in the REIT management than before - Opinion (though likely)

--- His Points---

4. Price is below book value- fact. 

5. Management would acquire properties that are accretive- Opinion. 

The key point is #5. There is an obvious conflict of interest between rentee and landlord here.

My view is that when a company is in trouble, the management must not be part of the problem. Management can think of one hundred and one ways to tilt things in their favor.

Today, First's share price is a paltry 0.46 a share. One should be open-minded and evaluate it...It might be an opportunity.