//I am posting this up ahead of time due to family reasons.
//as of 17-Dec, 11pm Singapore Time, I have sold out of Futu Holdings.
2021 has been an incredible year due to 1 and only 1 stock: Perfect Shape Medical. Returns has been monetarily rewarding but intellectually lacking. I am not proud of the idea as much as perhaps Xinghua Port. Realized P&L from Perfect Shape represented 80% of total returns.
Here are the numbers, screen captured from Stock.cafe. The portfolio currently has a time weighted returns of more than 10% over SPY, and hopefully should remain this way at the end of the year.
Dividends returns % in total returns
Dividend returns is only 8% of my total returns this year.
This is significantly lower (~30%) than last year's returns because of the complete divestment of Perfect Shape /Medical. Perfect Shape Medical is currently yielding 0.427 cents of its 5.94 HKD price. The median price of my holdings back then was about 2.5 HKD, which means it is 15-17% yield had I held on. But could I stomach the loss of 50% opportunity to sell had I held on?
The answer is a strong no. The management seems to cheerlead its stock far too much, and the other reason for selling the stock is potential di-worse-ification-- it could be spreading its resources far too thin across too many fields. I don't regret selling Perfect Shape one bit.
That doesn't mean that the management is wrong-- perhaps they could pull it off and this article would not age well.
My investment strategy is mainly towards capital gains. Dividend is just salary for the waiting.
Looking Forward to 2022
This is the section which is going to get me into trouble.
In terms of expected returns, I would repeat what I said in 2020's year end review: I pretty much doubt I could do better than what I had in 2021. 2020 was a great year, 2021 was incredible. I would be very happy to beat the index by a meaningful margin, and that is all I wish for.
Some bold hopes and projection for 2022:
OKP
I hope that OKP would value revert soon. The company is back to winning contracts and hopefully earnings will return to pre-accident levels. There are a few ways this can happen, besides increase profitability:
a) Increased share buy back
b) Going private: I would be happy with a 40% premium, although that is actually a good deal for whoever is buying over OKP at this price. Given the Or's majority stake, they are the only possibility of this happening.
c) Acquisition of a more "interesting" business (unlikely)
d) Special dividend (also unlikely)
At this moment, I am looking at my portfolio and thinking about my position sizing. It is unlikely I would increase shareholding in OKP. In the event that a market crash of 30% and upwards, I would likely to purchase local bank stocks and index funds as I am generally out of ideas at the moment.
China Property Sector
I am not optimistic of the Chinese property market as a whole. There will be casualties. This is a classic case of leverage gone wrong. Yes, one could make a case that the Chinese government is responsible for issuing the 3 red lines policy, hence introducing turbulence in this sector. I would argue that leverage has been adopted too freely, and the G was right to bring this to heel.
My bets on the Chinese property sector is marked by sizeable and meaningful investments (17% of total portfolio) in Central China Real Estate and Central China Management. The latter is very cheap on cashflow: but if the market does suffer a meltdown, the biggest casualty would not just be the highly-leveraged, but the banks. I would expect the G to inject capital, and perhaps nationalize the debt in some manner.
Perhaps they could force the companies into some kind of convertible debt issue (i.e. the ones some auto had made with the US Govt in 2008-9), or replace the managements. But as of now, I still believe that in the worst case scenario, CCRE is one of the better ones around, and CCMGT is probably more than priced in, in the event of a meltdown. Both have been backed by adequate insider buying, which is comforting to me. These two companies represent the best chance I got when recovery takes place.
Alibaba
I am going to offend a lot of people in this section.
Returns are likely to be lackluster at best. I do not expect permanent loss of capital. As it stands, I am about 14% down. The market is very generous to growth; and punishing when it doesn't. I think Alibaba as of now is fairly priced, but moderate growth should bring about market-equaling returns. There is a strong possibility of the Ant Group IPO, but that is in the mercy of the markets. Surely during a bear year, no one would be in the right mind to IPO? Would they be so kind of distribute Ant Group in the form of a special situation, such as a spin-off? Unlikely.
So I am going to put my head out there and value it using my layman understanding:
The e-commerce business, in the latest interim, contributes about 12B USD. The cloud computing and entertainment branch, as well as its "innovation" branch are still loss-making.
They could possibly spin off the cloud computing branch. The cloud computing segment contributes about 5.6B in revenue for the last six months (or 12B USD annualized). It appears to grow 30%, so let say if we give it a 5x-10x Price to Sales ratio value, that is 60B-120B.
33% of Ant Group belongs to Alibaba. If it had gone through its 35B USD IPO then, Alibaba stake would be worth ~11B USD (~452B HKD). Its latest interim earnings was 1.7B USD
To guess-timate very, very conservatively,
Alibaba current market cap is 339B USD
-E-commerce, if it contribute 24B in annualized earnings, on a P/E of 10-15= 240B-360B
(There were whispers that at current valuation, one is only paying for the e-commerce business and everything else is free. That is only the case if e-commerce is valued highly. I am not sure, going forward, if there is sufficient margin of safety)
-Cloud Computing= 60B to 120B, average it and give it a 90B.
-Ant Group IPO= at 1.7B USD interim, is worth about 3B USD x 15 PE= about 45B. If Ali owns 1/3 of it, that is about 15B.
Sum it up, Alibaba is worth between 315B - 465B.
So very conservatively, we are looking at about fair value for Alibaba. I shall discount the other business segment from Alibaba as they are generally loss-making and prospects are dim.
What can change the narrative? I believe there has to be a reasonably large growth in the e-commerce sector (which is facing competition), a very blissful valuation for Ant's IPO (more likely since the G has a share in it), and AliCloud...well I have no idea how much AliCloud is worth.
Centurion and TTJ (combined weightage of 17.4% as of writing)
I do not expect anything from these. TTJ could possibly raise dividends if business improves, but not much. Centurion has too much debt but would stand to prosper if COVID is a thing of the past.
The Rubbish: Pershing Square Tontine Holdings, Futu Holdings, and Didi Global
These stocks are call the rubbish because they are generally so badly hated by existing shareholders. Rightfully so, all of them probably saw losses of 50% and more.
PSTH has little to no down side and I am holding on to it using LEAPs. Every other day, I would log in to Reddit r\psth and look at the despair. I am more optimistic than the typical tontard (term used to self-deprecating Tontine + Retard, I suppose?)
Futu Holdings: I believe that unless regulatory backlash is overly shocking (which will result in cash outflows), Futu is currently fairly priced based on very conservative growth projections. This is a high risk, high reward play, and the G could take its time. Betting with options is risky, and the last time I check, they are costly due to its implied volatility. I am holding a small amount of stock and have written put options. Even if the puts do get converted, it does not represent a huge sum of money on my portfolio.
Sold out of Futu. I think valuation would be severely affected (by possible regulation by China authorities) and hence I am sold out.
Didi Global: I have no idea when the G will decide, and how it will be delisted. As such, a small amount of money is riding on the outcome. As mentioned the previous post, I am holding the stock after the option buyer exercised the put option. I am still holding the stock today. I think it is a bit risky to buy options for this. I do not expect a windfall, probably a modest gain at most. The possibility of a loss is still prevalent as I had mention in my previous post.
Unrealized losses: Which stocks am I bagholding?
In terms of percentages, 3 of my holdings contribute to the most amount of unrealized capital losses are:
-Alibaba Group (-14%)
-Carpenter Tan (-13.2%)
-Fu Shou Yuan (-11.54%)
In terms of absolute unrealized loss, in descending order,
-Carpenter Tan
-Alibaba Group
-Central China Real Estate Limited (CCRE)
Alibaba and Fu Shou Yuan are my only growth at an reasonable price (GARP) stocks. Ironically they are beaten down the most. I have no idea why FSY is down (although 11.5% isn't a big deal). I have already said my piece about Alibaba above.
Carpenter Tan is proof that the market is based on growth and nothing but growth. The top line of this little company has experience little to no growth over the years, but it yields an astonishing returns on invested capital. I think Carpenter Tan would have been valued more kindly if it was privately held.
Net income margin is 28, 33 and 36% for the last three years. The company has not been in red since IPO.
Free cash flow ranged from worst, 60m to best, 120m. The average is about 96m.
The company is selling at only 892m HKD as a whole in the market. Dividends is on the generous side, and even this year (which is definitely its poorest year) is yield just under 5%. The company bears no debt. Cash position is 78m RMB (~95m HKD), 253m RMB (~309m HKD) in financial assets (mainly in low risk, principal guaranteed financial products). That is almost 400m HKD in liquid assets.
You are paying only 500m HKD for a business that pays you 96m of free cash flow every year. That is a cash yield of almost 20%!? The business would have paid for itself in 4 years.
So the market is betting that the fortunes of this company would only go downhill from here.
Investing in Carpenter Tan as a stock market participant has not been fruitful. Capital loss is evenly covered by dividend returns. The stock market is a funny place. But I do wish Carpenter Tan had not been so generous in its dividend earlier on, else the value would had been very evident today.
Carpenter Tan has a weightage of 10% on my portfolio.
Should I have Index?
I started my investing journey at the rip old age of 36. That is a tremendous disadvantage, since I have lost 10 years of precious compounding. Back then my meagre salary would mean that I could only invest perhaps 600$ SGD every month. If had start passive indexing, assuming a 5% CAGR, back then, would I have done far better than my efforts in the last 5-6 years?
It turns out that I done pretty well investing actively... I would have to index 23 years to get returns like this. But friends have remarked that I aged pretty much these years too. So, I would have to be 26+23 = 49 years old to get returns like this from passive indexing if I started at 26 years old. I saved 8 years of life at least.
I still believe that indexing is the way to go. Firstly... the returns is actually better than 5% long term (I am very conservative). Secondly, indexing consumes less of your time, allowing you to focus on your other cash flows-- your career (salary), or business.
I earn way lesser than the median salary, so I have virtually no choice. You wouldn't be able to tell from reading this, but I am just feeling so grateful now, looking back at my results, that I wasn't punish for starting investing so late in my life.
That is all. Hopefully the rest of the year and next would be kind to us. I am only hoping that my parents be well.
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