Thursday, July 19, 2018

Wheelock Privatization Shows Why Deep Value Investing Is So Difficult To Execute For Perfection

After a few days of trading halt, there's finally news that Wheelock Properties will be privatized.

Wheelock Properties have been a deep value asset play for a very long time especially for investors who buy based on the premise of a net cash position, their relative valuation to the one listed in HK and waiting for a privatization offer.

The Offer Price values the company at $2.10 per share, which represents a premium of over 20.7% over the last transacted price of $1.74 per share on the 13th Jul.

While this seems like a no-brainer win for most people, one has to look over their real long term return over the last 10 years after recovery from the GFC.

In fact, if we look at the offer price of $2.10, that actually only presents 0.78x of the Price-to-NAV which is way lower than the intrinsic value of the company itself.

Of course, the company tried to present it nicely by relating them to the historical Price-to-NAV trading multiples which is typically between 0.65x to 0.71x but that doesn't change the fact that as minority shareholders, you are being disadvantaged when it comes to takeover play.

If we compute the long term return for Wheelock for the past 10 years since the recovery from the GFC, your return today inclusive of dividend would be only around 4.35%. That is not attractive at all in my opinion and even that, a large percentage of that is due to dividends that they pay out (~3.2%).

We can see similar pattern in the past on privatization cases which most of the offer price are lower than their intrinsic value.

Singapore Land is one particularly the case that I recall which caused quite a bit of news in the market due to their "low" offer - only 11.2% premium to the last traded price but way below their intrinsic value to the NAV.

This usually happens when there are stronghold ownership (e.g family owned) who already owns majority of the shareholding.

Does Deep Value Investing Works For You?

In this particular case, the deep value investing clearly lies in the assets they owned.

When you pay 50 cents for a dollar worth, people tend to call it deep value investing and downside risk is more protected.

But over the long term, it may not necessarily play out well based on different circumstances and to simply buy based on their discount to the assets (even if it is tangible assets) can be detrimental to your portfolio.

It is almost you are market timing when these assets will get fully valued and most of the times it might not be the case from the example we see above.

Some of these returns over the long run can be very poor and you are better off putting your money in a Singapore Savings Bond. After all, the idea to having invested in equity is to get that risk premium over a risk free investment and that clearly doesn't play out in this case.

Deep Value Investing can of course take in other forms too besides assets such as the free cash flow and other things, but again, for as long as the company does not use it for either dividends or growing the company, then as investors we are at risk we will be screwed the longer "no one knows when that" day is.

Thanks for reading.

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Tuesday, July 17, 2018

Getting Superior Returns From The Only Two Companies Thanos Has Yet To Destroy

Let's assume a scenario where Thanos uses his infinity stones to destroy all the universe but two companies remain.

These are companies that remain in sgx listed where one company possess the best growth character in terms of large cap and another company that has the best defensive character.

The two remaining companies in the universe are DBS and Vicom respectively.

Why Choose DBS?

The reason why we choose DBS is because they're a beast. In short, they're our proxy for growth.

DBS is a player that shines in the face of strong economic growth.

In the face of strong economy, they prosper based on increasing SIBOR rates, NIM and loan credit.

They have diverse businesses local and overseas in different multiple geographical areas which reported very strong growth numbers over the years.

Their earnings yield have consistently gone beyond 10% yield and their return on equity have averaged at about 10.5% for the last 10 years. They also gave out dividends of about 4-5% which is decent for such a strong growth play.

Their only problem is they are always expensively valued and will be impacted a lot more than other stocks during the downturn. 

The GFC in 2008, Euro Crisis in 2011, China debt in 2014, Oil Crisis in 2015 all proved that as a case.

Why Choose Vicom?

The reason why we choose Vicom is because they are a defensive player.

Vicom has monopoly moats that owns 7 out of the 9 inspection center in Singapore. 

They also have businesses in other areas that are contributing one-third of their bottomline which is undisclosed.

Vicom is chosen because cash is such a poor generator of returns that over time it will drag our returns unless they are being utilized optimally.

While Vicom has their own risk being an equity in nature, their 6% unlevered yield from their free cash flow makes up much of the rewards in return.

Rebalancing Action

I'll have to make this real simple so that a 9 year old kid or 70 year old grandmother can understand and execute the strategy.

For the purpose of diversification, let's assume we have to hold these two companies regardless of any situation and we only play around in the percentage allocation between the two. 

My example would have only binary decision: 80 - 20 or 20- 80.

There's no other permutation that are allowed because my grandmother demands simple solution or she would be giddy.

The only key criteria that would require a rebalancing act is when the Price to Book value of DBS falls above or below -1SD their 10 years rolling mean within their P/BV band.

What this means is assuming the 10-year rolling mean in 1.29x, then you should you should allocate 80-20 in favor of DBS whenever the current P/BV is below -1SD the average mean and you should permutate switch to 20-80 in favor of Vicom whenever the current P/BV above 1.29x.

If we follow this rule, this means we will allocate ourselves 80-20 in favor of DBS in the cusp on the Great Financial Crisis in 2008 (Sep 2008), the Euro Crisis in 2011 (Nov 2011), the Oil Crisis in 2016 (May 2016) and everything else we would be holding on to the other scenario.

For example, today the current valuation for DBS is 1.40x, which means you should technically switch already to 80-20 in favor of Vicom.

Sure, this idea means you would never catch the bottom neither can you catch the top, but that's where your defensive company play a big part that your cash cannot.


Of course there are limitations with this approach.

One limitation is that the figure for the last 10 years is always rolling, so that would be a moving target on its own. I guess it's up to individual preference on the valuations to see which cut-off makes the best sense.

Another limitation is that in the face of economic downturn, Vicom as a defensive company would also be impacted given the equity nature of the company. However, the advantage over cash is it gives out a higher yield and also participates some levels of growth during the good times.


My test only includes the data from the 1 Jan 2008 to 30 Jun 2018.

The only time the rebalancing act takes place is during:

  • GFC in 2008 (Sep 2008), Euro Crisis in 2011 (Nov 2011), Oil Crisis in 2016 (May 2016), where the allocation of 80-20 would be in favor of DBS; and
  • Recovery from GFC in 2010 (Feb 2010), Increased Rates in 2017 (Nov 2017), where the allocation of 80-20 would be in favor of Vicom.
Everything else is a status quo hold during the period in between before the rebalancing.

Surprise.... Surprise...

The returns over the last 10 years (inclusive of dividends) spike to 29.67% per annum which beats the standard comparison of the STI ETF which yields around 6.7% returns over the same period.

Final Thoughts

I'm only half joking when I say earlier that Thanos destroys all but left with these 2 companies.

I am seriously looking into the aspect of this strategy but with further smaller minor modification to that. Obviously, holding two companies inside the portfolio lies the risk in having too little diversification in itself so I will probably be mixing it around with some Reits play in between to make up the numbers and also to spread the over-exposure on one sector a bit.

The two companies chosen have strong moats and are a proxy representatives to how the Singapore economy is doing.

While there may be some biasness in relying for past historical returns, I don't believe this is simply a look on hindsight.

I think this strategy could work really well if they are being executed properly.

Thanks for reading.

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Sunday, July 15, 2018

"Jul 18" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Frasers Logistic Trust
Far East Hospitality Trust
Starhill Reit

It's time for another month of updates.

Investors Exchange 2018

First up, I wanted to update quickly on how the investors exchange talk went yesterday.

I thought it was heartening to see so many people turned up and very serious about taking charge of their finances so I think the event is moving into the right direction.

I received some development feedback on the talk myself so big thanks for that too.

There were very little time to mingle around especially that it was only during the 30 min break (which includes light bites) so I can understand if folks have further questions pondering.

I'm more happy to clarify and answer if I have the answer to them. Sometimes I may not have them myself. So keep the questions coming.

One question which I received quite often is on my "so little warchest" as compared to others in the allocation section. I think I've answered it pretty extensively but if you are still unsure you can read my latest position and take on cash here.

Great Turn Out Event @ Investors Exchange 2018

Project Cost-Saving 

This is something which myself and my wife are undertaking for the moment.

We are currently challenging ourselves for a project cost saving and the first thing we wanted to cut down is on transportation and restaurant costs.

Sometimes, with 2 kids, it is too easy and tempting to sell ourselves to the idea of "it is so inconvenient" and hence many times we ended up taking taxi or grab even to near places.

This project aims to cut that sort of mindset and we hope to take more public transportation soon and so far the project has been going excellent. In fact, our recent example of going to Science Center by bus is a good exemplary of that.

While COE has reportedly come down, I don't think the household would need a car given our mobility and high challenges adaptation.

We should see some good reduction in our monthly expenses.

Another way we are doing more saving is to get through every buy that we can associate with "Shopback".

I'm a big fan of Shopback and their cashback are amazing, given that we buy groceries and daily needs on a daily basis without them anyway.

Extra money does indeed helps.

If you are interested you can sign up via my link below. You'll get $5 upon signing in and I'll get a referral of $5 as well.

Click Here

These cashback is not bad at all!!!

Portfolio Updates

There are not much update on this except that I have moved around my portfolio a little bit by divesting some in favor of Singtel.

The recent flush down in Singtel is a no-brainer to me.

They are obviously an action of institutional sell-off rather than further fundamental impact and so I went to take big chances when they dived down and I added a lot of positions at $3.11, $3.09 and $3.08. Too bad my warchest are exhausted, otherwise I would have galloped much more closer to $3.02.

I ended my position for Ho Bee Land just right the week before the news surrounding the ABSD kicks in so my selling position was relatively unscathed hence I could switch to Singtel. Ho bee is very much still in my radar given their fundamental position and I think they'll still continue to do well over the next few years but with blue chip like Singtel offering close to 6% when they dived down, it was simply a case of too good to miss.

Net Worth Portfolio

The portfolio has increased from the previous month of $671,320 to $673,590 this month (+0.3% month on month; +10.7% year on year).

This is also the sixth time in the seven month this year that the portfolio has broken a new all time record high.

Given how the STI market is doing in general (I think down about -2.47% inclusive dividend), I am pretty satisfied with the return of my portfolio so far this year.

I think we'll see a much improved second half performance in the year.

Family Portfolio

This is to update the part of family's portfolio which I managed together with mine.

The goal is to ensure the portfolio grow at a steady rate especially the children's portfolio until they turned semi-adults, which I will then have it transferred to their own account.

1.) Wife's Portfolio

No changes to the previous month update on this.

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Sasseur Reit
Total SGD

2.) Baby B1.0 Portfolio (Age: 4 years and 3 months)

No changes as well to the previous month updates after I reinvested the dividends.

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Total SGD

3.) Baby B2.0 Portfolio (Age: 1 year and 6 months)

No changes as well to the previous month updates after I reinvested the dividends.

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Total SGD

4.) Mum's Portfolio

No change to the portfolio.

Still owe my mum $220 dividend cash payment for month of Jun dividends for FLT.

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Total SGD

Final Thoughts

It's earnings season starting this month so I'll be putting more focus on watching potential development on some of the companies in my portfolio and in my radar.

Between this time and next month, it is also interesting time as many companies are announcing interim dividends which means another bumper months next month.

Meanwhile, I'll stay with my strategy for now since it's working pretty fine.

Thanks for reading.

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Friday, July 6, 2018

This Is The Reason Why People Fear The Stock Market

The stock market is not a place where everyone gathers and make money.

The market is brutal and can hurt those who does not take it seriously.

Today's brutal session in the market shows why people generally fear and avoid the stock market.

The STI index drops about 2.1% today on session close and it is one of the larger drop I have seen in this year.

One of the main cause of drop is due to the announcement made last night by MAS in a bid to tighten the mass retail market demand by raising the ABSD and tightening the TDSR.

Everyone processes the same common information and outcome and you can see how folks went to rush into buying a unit before the official tightening kicks in.

No, it's not a bak choy sale at NTUC for $1.10, it's a freaking condo worth $1m and above!
Demand from last night units sold alone was this for the 3 main condo launched:

Park Colonial Total = 310 units sold
Riverfront Total = 511 units sold
Stirling Total = 187 units sold

When the market opens this morning, investors were treated to a rude shock when large strong cap companies dropped as much as 16% easily.

We are not talking about some crappy companies but a conglomerate with multiple geographical assets and division.

Even companies like Bukit Sembawang which has a strong balance sheet were not spared, dropping a massive 9% in a day.

This is not just about competency we are talking about here.

Property valuations were cheap and they continue to become even cheaper from now here.

I have a couple of friends who were caught by this news and their portfolio suddenly look heavily in red. 

Some of these people are value investors who are depending on Fundamental Analysis to come up with their decision.

I call this day a black swan for property investors, a definition used by Nassim Taleb to determine an unknown-unknown factor that investors cannot avoid from apart from being sufficiently diversified from the sector.

As an investor myself, I can feel such pain when you have to wait a long 5 years of 3% dividend from these developer, only to have it get wiped out in a single day.

This is also the reason why I tend to prefer going the dividend strategy method. Money in the pocket is worth the sum of parts more than paper profits.

This is why folks generally tend to avoid the stock market.

Think of folks that are new to the market and they are exposed to such brutal market in a day.

This is the reason why people fear and avoid the market.

It'll attack the clueless but also the knowledgable folks.

It'll attack the poor as well as the rich.

It'll left scars throughout our body.

Thanks for reading.

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Tuesday, July 3, 2018

"Hold On To Cash For Crash" Theory

Cash has always traditionally been pegged against the real adjusted inflation rate of return and has been touted as a poor class of asset class over the long run. The idea that cash will always return below the long run average return of inflation means you will lose out in the race of compounding the longer you held them.

But still cash does have their own usefulness.

For one, everyone who's holding on to cash in their portfolio are doing some sort of hedging one way or another, especially against asset classes such as stocks which has direct relation to the market condition of the economy.

But that's the irony.

Theoretically speaking, if the world is full of companies or investors who's holding stashes of cash trying to deploy capital during dark times, then prices wouldn't go down.

For retail investors like you and me however, it is a different story.

Most retail investors who are holding on to warchest and subscribe to the cash for crash theory will face multiple decision when it comes to deploying them.

The three musketeers decision of Market Timing, Margin of Safety and Cashflow come into question for someone who's holding on to the cash for crash theory.

Market Timing

First, you are technically playing market timing.

The fact that you are waiting for a full blown economic cycle means you'd have to have patience in holding them for longer period of time while accepting the much lower return for your cash during these periods.

Because of the much lower returns you've lose out on these years, you have to make it up during a market recession by seeking a much higher stellar return to make it up for all the past years. This means you won't go for mediocre returns of 8% to 10% on a company you've identified but rather companies that can give you 30% to 40% sort of returns.

The whole idea of holding cash in the first place is that option call that you have.

The longer you hold them, the more expensive they've become.

Margin of Safety

Folks who subscribe to the cash for crash theory also often remembers the number one rule in investing and that is not to lose your capital.

During market recession, market tends to behave more irrationally and that usually leads to mispricing on asset classes or companies.

It is during these times that investors can seek to invest in companies that is trading much below their expected intrinsic value.

Even if some of the computation for the intrinsic value are off, there's still some margin of safety to play with and the probability of losing your capital is much lower. 

Hence, in essence, you are protecting your capital.


I once read a financial book that says:

"Cashflow is King, Cash is Queen"

Alright, you probably get the idea.

Cash is technically a stagnant asset class while Cashflow provides that moving parts that leads to increased cash.

Both are equally important in their very own aspects and they complement one another in pushing each to get higher.

During a bull market, cashflow can help to compound your wealth faster by having them reinvested in the growth of the company while cash play a role during recession to slow things down.

Think of them like a husband and a wife.

Final Thoughts

There's no right or wrong to determine how much you should be holding on to cash as part of your overall portfolio strategy.

I can mathematically cast out statistics using historical data to prove that either one strategy can be better than that another but that will all only be on hindsight.

In present and future form, they are only as good if they help to produce the kind of results you are expecting. If not, holding cash for a crash is just a theory that won't be crystallized in your returns.

Thanks for reading.

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Friday, June 29, 2018

Guest Post - Gambling in World Cup vs Investing in Stocks

The World Cup fever is here and we are through the group stage so far, which sees some surprising results such as Germany being eliminated.

The fever means there are plenty of gambling options to participate in the fun side of things, but things can get bad if one treats it as a long sustainable sort of investment.

I've made my fair share of losses in the group stage when I bet for a draw for England against Belgium yesterday but they are all entertainment for the fun part of it.

Here is Chris Susanto, a good friend of mine who runs the blog Re-ThinkWealth who shares his side of things on his experience between gambling as opposed to investing.

Hi my name is Chris. 

Looking at the relationship between risk and reward is fascinating and interesting to me. 

I am sure you are familiar with the terms "odds" and "payout"

In stocks, when the odds that the business is going to be bankrupt is low, the chances of a dividend and cash flow cut is low, I have higher odds of winning and higher payout as the price of the stock goes lower - assuming I am right. 

In stock investing, we call this, margin of safety. 

I've always thought that betting is different, the odds are always against us. 

The odds are with the house, with the banker. So I knew that the amount of money I put in - if ever - to bet, is the cost of "fun". 

But I hadn't experienced betting myself before, so I am not really sure if I am right. 

Hence, I decided to do something new. 

Something I had not done before. 

I bet money on soccer, for the world cup 2018. 

I wanted to see if I make money. I wanted to see if I will have a positive return on "investment" on it. I placed $100 into Singapore Pools account and after less than a week and 5.5 matches of consecutive losses, I lost 100% of my money. 

Well, I've got to say that Singapore Pools have a very seamless verification process online for opening an account. Kudos to them. But this is a painfully good and rewarding experience for me to have gone through the emotional ride of betting money on soccer. 

I am grateful for it. 

The main mistake that I did was that I focused too much on the potential payout that I could get. 

I was greedy. 

I betted for games or stakes that give me lower odds of winning but higher payouts. That explains the consecutive losses. I just could not stand on betting $1 and winning 17 cents if I am right and losing $1 if I am wrong - which was the odds for the Brazil vs Costa Rica match on 22 June 2018. 

I picked Costa Rica and I was on the verge of winning, if they drew with Brazil. But during the last 6 minutes of added time after full time, Brazil scored two goals. I lost. 

Here's what I learnt: 

1. Soccer is very unpredictable - The ball is round. as of 28 of June 2018 in qualifying round, Germany is out of the world cup. Who could have predicted that? Not UBS and Goldman Sachs, that's for sure, who predicted Germany would win the cup and go to the final respectively. 

2. The more the potential payout, the lesser the odds - I tend to have a tendency to want to go for the higher payout. This is greed taking place. But most of the time, going for the higher payouts like "pick the score" is throwing money into the drain. The odds are really against us. 

3. Do not focus on making money when betting - When we focus on making money, we get emotional. When we get emotional, our brain do not function properly and we lose money. 

4. Money management is vital - do not double your bet - Generally speaking, because soccer can be unpredictable, its all a luck game. So put in the money you can afford to lose every time (by mentally being prepared to lose it). Do not double your bet, you will double your losses. 

5. Do not bet for the sake of betting - If you want to make money, get a serious vocation outside. 

6. Only put in the money you want to lose - for the fun of it - Let's just enjoy and have fun. Any money gain, is a bonus. Besides that, its the cost of "fun". 

When investing in the stock market, there is more certainty. 

At least that is the case, when you pick the right company. Example, if you invest in Macdonald, there is more certainty that even one month from now, two years or five years from now, people are still going to eat Macdonald. There will still be cashflow coming in for the investors. 

Not with betting in the world cup. 

Based on world ranking and other statistics, Germany should have beaten Mexico. But Mexico won. Argentina should have beaten Iceland, but they drew with them. 

Unlike soccer bet, in stocks, you do not have an estimate on the potential payout. 

You have potential dividend payout for certain company. The more the dividend yield, the higher chance that there will be a dividend - cut if the cash flow cannot support it. 

Both in soccer bet and in stocks, we need to be careful on a high potential payout. 

When we are greedy, we forgot that we could lose it all because we are focusing too much on the potential payout. Note the word, potential. In soccer bet, money management is vital because it is so unpredictable. You cannot put $10 on the first bet and $20 on the second bet just to regain the money you lost. The odds of you losing are still high. I think that all bets should be equal weighted. If we want to lose $100 and we decide to bet in 10 games, I think $10 each for 10 games would be best. 

Do not get too emotional and double down every time we lose. 

In stocks, for certain companies during certain times, there is more certainty. We still need to manage our portfolio well by knowing when to buy and sell. But during over-pessimism, it is good to average down on high certainty stocks. 

Last but not least, in stocks, I am so good at doing nothing. I do not invest for the sake of investing. I do not know why when betting, especially after I lost, I feel the need to bet again. This is a mistake. I am reflecting on it now and I will not repeat it in the future. In conclusion, being a good investor requires the same skill needed to be a good better. 

My definition of a good better is someone who can manage their emotions well and able to control themselves. I do not believe that gamblers can profit from betting consistently for decades to come. For a good investor, that is more likely. 

And for me, I better stick to investing in stocks. 

Thanks for reading.

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