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Saturday, February 13, 2016

Who Are The Real Robbers?

Let me start off with a story I read on the web.

There was a robbery incident that took place in a bank one evening. The gang leader shouted to the crowd:

Gang Leader: "Don't move. These are money that doesn't belong to you. Move and I will shoot you."

This is called Mind Thrust Changing Concept.

The robbers knew exactly how long the police would arrived and they would finish their job before the police could come to the scene.

This is called Being Professional and Doing Due Diligence.

When the group of bank robbers returned home, the youngest robber (with a MBA trained degree in one of the prestigious institution) told everyone:

Youngest Robber: "Let's count how much we have and split them accordingly."

This is called Education.

The Gang leader replied:

Gang Leader: "You are so stupid. It'll take a long time to count those money we stole. Tonight, the news will tell us how much money we robbed from the bank."

This is called Experience and Thinking Outside The Box.

Meanwhile back at the scene, the bank manager attempted to call the police after the robbers have fled the scene. But the bank supervisor interrupted:

Bank Supervisor: "Wait!! Let's take some of those money left behind by the robbers since the police would suspect those robbers."

This is called Swimming with the Tide.

After the event, the court was asking for witnesses to testify against the incident but many of those who were there were unwilling to volunteer.

Witnesses: "Don't get me into anymore trouble. I have many things to handle on my plate already."

This is called Mind Your Own Business.

The police, knowing that there isn't sufficient evidence to arrest the robbers and hence crack the case then proceed to close the case as unresolved.

Police: "Let's not waste anymore time on this case. Let's move on to crack the next available case."

This is called Just Another Day Doing My Job.

The question to the story is who are the Real Robbers in this case?

Didn't we see this happening in our everyday lives?

In the context of investing, what behavior do you see now that is different with what you see exactly a year ago?

I hope you enjoy the story.

Thursday, February 11, 2016

Where Are We On The 10-Year Treasury Yield?

When you are investing in treasury bonds, you are essentially lending money to the government that issued the bond. Treasuries are considered to be a safe haven in times of economic crisis because riskier asset classes like equities usually gets hammered downwards. Of course, there are treasury bonds that can default if the countries are facing bankruptcy like Greece and Portugal but the flight to safety is usually to an excellent rated bond like the US bond.

It is interesting to note that just a couple of months ago, the US Fed was bullish about their economy and inflation target and they were upbeat about raising the interest rate. This sends the treasury bonds yield upwards upon announcing the news. A couple of months now and it is incredible to see where we are on the treasury bonds. With the ongoing crisis happening across the oil sector, China landing as well as Euro crisis, we have plenty of investors who are abandoning the riskier assets and flight to safety to treasury bonds and gold as safe haven.

In fact, as of today, risk-off sentiment saw heightened demand for safe haven treasuries, with the 10-year US government bond hovering around 1.56%. This is incredible considering where are on the history (which I will present later) of the treasury yield and the intention to raise the interest rate further. It almost feels like there are already fear in the market.

If you look across the historical yield data of the 10-year US treasury bond all the way from 1912 to 2016, the lowest yield it ever goes down to is 1.40%, which is not far away given where we are at 1.56% right now.

This is indeed a historical moment that we are witnessing given that Japan, Germany and Sweden Central Bank all have historical low yield (or negative) that can be a very dangerous tool to implement since this might result in a currency war.

At the end of the day, this is simply an indication tool that we can analyze from but if everyone is willing to put their money where they think is "safe" right now, then you and I can bet where we are on the economy for sure.

Wednesday, February 10, 2016

"Feb 16" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Ho Bee Land
China Merchant Pacific
ST Engineering
Fraser Centerpoint Trust
IReit Global
Dairy Farm*
City Development
CapitaCommercial Trust
Keppel DC Reit
Nam Lee Metals
First Reit
Total SGD

Feb continues to be a volatile month as we experience plenty of drama with ups and downs over the past few days (or weeks). Nevertheless, for those who sees this as an opportunity to pick up some bargain stocks at a more attractive price would certainly love the market. I certainly do because time is on my side and I know these investment would pay good dividends for as long as I live.

I've accumulated a bit of my core position in recent times so you can see where the focus I'm putting right now.

I added another 1,000 shares of OCBC since my last update as it continues to trend down and I, on the other hand continue to pick up the bank stock at a bargain. I understand that there are many who are awaiting for the banks to reach the 2008 low, that's totally fine with me. If it ever reaches there, I'll add even more to it but if not, I'll be a happy man anyway. Either way the market goes, I am contented.

I also accumulated 5,000 shares of Ho Bee since my last update. This has quickly become my second biggest holdings after OCBC and I blogged a few times about why I'm confident in this counter. I think there are plenty of catalyst to note from this family owned business and I won't be surprised to see them announcing a strong full year results upcoming.

I also added 1,000 share of ST Engineering since my last update. Whilst this year and next year results will be weak, in particular for contribution from the marine side, I remain confident that this is a strong defensive yield play and they have segments that can uplift the other when they are not doing so well. It won't be a strong rise towards where it used to be but I think this should be a decent hold towards the long run.

I divested all my holdings in Stamford Land as I plan a shift towards the more blue chips since market is down. Stamford Land announces some pretty decent results recently but cashflow is rather poor since they need plenty of cash to redevelop their main gem. Their main play would be next year when the redevelopment plans will be recognized on their books. I will continue to monitor and see for this one.

The portfolio for the month has dropped from the previous month of $345,601 to $342,083 in Feb (-1% month on month; +18% year on year). The drop did not particularly worried as I know these are temporary falls and the more important thing is to look out for any opportunities that I can get in the market. Expected simulated dividends are at $18,254/year, which translates to about $1,521/month. I better buck up and start working on reaching my $2k/month dividends by this year but most would have to depend on how the market would go.

I hold about 14 positions right now which I am vested in.

Some of my fellow friends have lamented on the idea of slow bleeding in today's market. I actually like it a lot. It actually allows me to add a couple of positions every month while waiting for my salary to come in so the longer the market stays this way, the happier I am. All I have to do is stick by my strategy while keeping some warchest on the sideline in case there are further sales.

Thanks for reading.

What about you? Do you like the current slow bleeding or fast capitulation in the market?

Thursday, February 4, 2016

Vicom FY15 - Steady Dividends Growth Play

This would be my last coverage for the company since I have divested in the company recently and thought I'd just finish the full year as part of the series. I'll still be keeping a close look on the development of the company but unless I decide to get vested again, I won't probably be reporting on their results.

You won't see much surprises coming in from the company. I think over the years it has been pretty one way direction on where the earnings are going but with the recent slow growth for their vehicle segment and slowdown in the setsco segment, it may be worth to take a look if the trend for the future would reverse back. From the very least, that's what I decide to do when I divest the company recently and looking at where the other opportunities are.

I highlighted in the previous quarter 3 results (link here) that there are slowing signs that the company is facing. This isn't purely just this company alone but across all other sectors many are facing difficulties as well.

FY revenue came up to $106m, a small 1.3% decline as compared to the previous year. The good news is, as I had highlighted in my previous post, they are able to reduce their staff costs correspondingly by a similar amount. I think this is something that many companies would envy and are struggling to do because for most of the times, it isn't that easy to reduce your workforce or reduce their pay. Net profit attributable to shareholders edged up 4.2% at the end of FY15.

If you look at their balance sheet, they continue to grow stronger with cash burst through the $100m mark now and almost 57% of their overall asset value. Capex remains within the range and FCF continues to be strong at around $32M.

They continue to pay out good dividends growth over the years and this year was no exception, despite the topline slowdown. Dividends has increased to 28.5 cents, up from 27 cents the previous year. Based on current price, they provide a nice 4.9% yield to investors.

Final Thoughts

It'll be nice to have this as a pure yield play now giving you 4.9% return every year.

However, with some of the other opportunities out there, I feel there may be a better risk reward elsewhere since there are other stocks which has come back down to earth.

The other thing to note is also on their topline slowdown, evidently from the slower 0.25% yearly growth as set out by LTA and also how their non-vehicle segment are playing the weaker economy out.

*not vested as of writing but may look to be vested again someday, at the right price

Tuesday, February 2, 2016

Bespoke Trance Opportunity

If you had watched the movie "The Big Short" which is currently airing in theatre, you would have noticed that at the end of the movie, it quickly highlighted Bespoke Trance Opportunity as the next possible bubble to be burst which will cause another financial crisis greater than what we experienced in 2008.

Some of you may have been curious about what they are about, so I'll try to describe and put them as simple as possible in layman terms.

Bespoke Tranche Opportunity is basically a synthetic CDOs which the banks are currently selling to the world which resonates to the same underlying portfolio that crashes the financial crisis in 2008. I will not have to go further to what happened back then but if you are unsure, the movie will help to explain in a very layman way of understanding it.

As part of the bank's financial engineering to package this deal to make it attractive to investors, they put in a couple of assets (bonds, securities, derivatives) with different credit quality to entice investors to put their money in the bank with a specific targeted return and risk. In doing so, they attract a chain of compounding effects on people who bet on the products and this will create a bubble until the day it bursts (we never know when).

For example: You offer a bundle of mortgages to me for $100 with 10-to-1 odds that they will default. I accept your offer and buy them from you for $100 with 15-to-1 odds that they will not default. Whether or not they default or not at the end of the day it does not matter. The bet was realized one way or another. We would have a binary outcome of someone who lost and someone who won. This is the "synthetic CDO" which I was talking about. If the train of baseless transactions stopped at some point in time, then the damage would have been contained in 2008. Unfortunately, it is hardly the case. The problem would compound and easily become "atomic" when bets were made on our bet and so on and so forth. This creates a chain of events when the bubble burst.

You might wonder why history repeats itself despite the past warnings or incidence that has happened. The reason for this is simple. We have been living in almost a decade of low interest rate environment which has been kept low by the Federal Reserve until the recent hike so if you are working in an investment banking department, you would need to think of ways to come up with a customized product which will boost demand and earnings for the company. After all, your bonus would be directly impacted if otherwise. You certainly can't do "enough" with simply selling mutual funds or treasury bonds. That is not the diamond you want to be working in investment banking.

If you had watched the movie, you would also have noticed that only one high profile leader by the name of Kareem Serageldin gets punished severely with jail term from the consequence of all the hazards they caused to the world. This is a far cry from giving sufficient warning to those greedy bank leaders and future participants because seemingly "everyone gets away from it" anyway. In other words, there are simply a lack of accountability on all these that matters.

There are plenty to learn from the history but there's a huge tendency for history to repeat itself again because the financial structure is not build to last. At the end of the day, be wary of what is happening around you and protect yourself. Things are not going to be pretty if you are a victim of it.

Friday, January 29, 2016

Keeping Up With The Joneses

We are early into the year so this is one concept which I wanted to reiterate again to readers on the importance of personal finance and not keeping up with the joneses. This strategy helps me a lot in my personal finance, especially in my younger days when everyone was partying away with their youth and money while I kept a distance to keep my balances in check. I'm glad that it's a habit that keeps me going until today.

Spending money on status symbols and brands has been overly emphasized by the media and society as a symbol of success. The media called this the conspicuous consumption, which means the ability to keep up with whatever is in the trends right now. The lesser the supply of these branded good circulating around, the greater the demand because everyone wants to be the person everyone else looks up to apparently.

I wrote an article last year which redefines the conventional wisdom of success. As a society, we need to have a better sense of understanding of what measures the true wisdom of success. Is becoming a doctor a symbol of success or is it the role they play that makes them a success? Does the car a doctor drives need to be defined differently than what a normal office employee drives? 

The truth is these trapping definition of success weighs aplenty on people's mind that they are willing to pay multiple times the value to get what they want. This leads to the problem of personal finance when you are not disciplined enough and your finances are not able to accommodate to your wants.

The following images you will see below shortly speaks volume to what happens in our everyday's lives. We can be at any of the positions at any point in time but the same thoughts will occur. Just think the last time you see a branded car on the street, do you see the car or do you remember the driver's face? 

Everyone will be in a situation that we will envy the better person because he has more of something but that something has better got to do with something useful, not just branded material stuff.

Which one are you?

Tuesday, January 26, 2016

Why Most Analysts Report Fails To Deliver?‏

Many retail investors are usually not trained or equipped with the right skills to do analysis of a company. Because of this, they don’t usually draw an analysis of companies more in-depth than those analysts working in the sell-side. There may be an exception of one or two who does provide a balance view in their analysis but they are mostly rare. 

Analysts’ reports provide retail investors with an easy access to understand about the background and facts of the company they research in as well as their financial information in a summarized table. Interestingly, what is being focused in the reports by readers are always the analyst' recommendations and their 12 months projections outlook and target. I'd say most of the information and thesis regarding what the analysts put in their financial model and outlook remain valid, so I will not dismiss them straight away. 

There are many investors who lack on their own ability to analyse the companies, tend to rely on these analysts’ reports for their investment decision. This is where the stem of the issues arise. When these people look at the recommendation's buy or sell, they’d think they must be right because they are after all professionals who had more educational background than most of us did. 

These were the problems we had when analysts were calling a consensus buy call on Keppel and everyone believed their story. The problem with these consensus call is none of these reports consider the potential risk the company may be undertaking. In other words, we are talking about projections that may create an illusion of apparent precision, bullishness and when these gets extrapolated 3 to 5 years into the future, we get an intrinsic value or target price that are discerningly “attractive” to the naked retail investors’ eyes. The same problem occurs similarly to banks when everyone was dead sure that rising interest rate environment would benefits the banks without any doubt. Buy DBS. Buy OCBC. Buy UOB.

The duo strength of Berkshire founders, Warren Buffett and Charlie Munger, sums it best when they explain how these analysis could be miskewed when it comes to assumptions and projections. 

“We never look at projections. Projections are put together by people who have an interest in a particular outcome, have a subconscious bias and its apparent precision on the assumptions makes its fallacious. Projections in America are often a lie, although not intentional, but the worst kind because the forecaster often believes them himself.” 

While the above statement may resonates with some of us, it is important to note a proper due diligence of the company and an analysis is still important, as a closer look on hindsight often suggests that the decision process to come up with a certain assumption is the more important aspect of investing, than the result itself. 

For instance, when we consider the growth in earnings when a company launches a new product, have we considered the impact of how a competitor might react to the changes or whether there are cannibalization to the existing product. Have we considered the unexpected in both aspect of systematic and unsystematic risks involved in a particular decision? Often, it is too easy to suggest a biasness in upside because we are an optimistic creature in nature, hence creating an intrinsic target price which points to the upside, not downside. 

I am guilty of this myself, as shown from my first Kingsmen analysis on hindsight and am paying a dear price for it. Obviously, I failed to consider the risks back then which can happen to anyone or to any companies.

The need to understand our own fallacy and weaknesses will resonate with the way we interpret the goodwill of the analysts’ report. They are as fragile as we are and we need to admit that no one in this world are able to predict the movement of a share price accurately most of the time, not a CFA graduate, not even a Nobel Prize winner. We need to be able to identify the main villains that disrupt our decision making and improve on it, for if not we will always be grounded in similar situations despite paying a heavy tuition fees to the market. 

  • Confirmation Bias – People likes assurance and they tend to look for positive things or news that may resonate with the individual. Think about the last time you do a research or analysis on a company you are very interested in (or vested). Were you looking more for positive news on contract wins and management key optimistic outlook or do you consider the risk that comes with it? 

  • Narrow Frame of Mind – Do you look at all angles and consider each prospective objectively? Are you open to constructive feedback and criticism from your fellow investors or peers or are you deep in your own world thinking only you and you can be right. 

  • Emotional Attachment – Are you emotionally too attached in a particular stock and were not able to justify your buy or sell objectively. Some companies may be in your portfolio for 10 years but do you have the ability to cut loss when you need to? These are not easy decisions and if you think they are easy, then it is because you are looking at it on hindsight. 

Now that we know why most analysts are just like us, perhaps we can remind ourselves the next time we read these reports. After all, the fallacy of human's perile is something that makes the market more interesting isn't it?