I was reading the winning habits of warren and soros. Rather disappoint, but it sets me thinking.
Do note that I do not question the wisdom of these legendary great, I question my own understanding of them. So here goes:
Circle of competence.
How long have u been seriously investing? Few years? A decade? Do u have a circle of competence to start with? I know I don't, I am still experimenting and learning. I have tried recovery plays concept, dividend play concept, value-investing concept. I am no master in any of them, so should I stick to any defined circle? I think not. Staying in that circle, will cause me running in a circle, not circle of competence. But I do know my circle of incompetence. 1) Penny trading. 2) trading in gnerally. 3) TA 4) investing based solely on numbers and ratios
Be greedy while others are fearful.
Well, u have to be very careful when applying the above. U could be catching falling knife and be stupid when others are fearful. I thought I am greedy when others are fearful of s-chips, I am actually stupid. Thanks goodness, the heavy loss of s chips are offset by decent win too. I never brush off schip. I was vested inYZJ till recently, I wil buy back if the price is right. Just have to know that we are dealing with s-chip, even alpha s- chip with solid dividend records must be seen differently from others.
The most dangerous words are "this time is different".
Someone just slap me with these 4 words when I posted in a forum about Venture. I replied another forummer who is skeptical about its recovery, I explained my thoughts and another forummer slap me with this famous quote without explaining the details why is it not different. Hmm... If it always not different, then what is there to invest?
Diversification vs concentration
Many legends "hood" big big in several concentrated plays and scorn at diversification. Buffet, Soros etc. u have to ask yourself if u have a circle of competence to start with before u try concentration strategy. In the boxing ring of Mr Market, some of these legends know how to wait for a knock out blow. I am happy to survive and learn to take snipe at him first. If I "hood" big time and I missed my footing, and think the knockout punch will be on my face instead!
Never follow others blindly.
The key word is blindly, not never follow others. If u do your research blindly, follow your own gut feel, u will not be any better off. Do your due diligence, but if u know someone has done his due diligence, and u did yours but checking on his work, because he has a more robust framework of analysis, why the problem of following smartly? Our ego should not stand in our way, if we recognize someone superior, just dun follow blindly, and check your own ammo level and risk appetite to decide to follow or not.
My conclusion:
To rephrase Graham words, since I cannot remember his actual words. U are right not because many agree that u are right, u are right because of facts and research. My take: I am only partially right when I exited with profits. I am totally right only when I made net gains beating inflation or whatever targets u have,nice CAGR for years to my coffin or senile. Yes, u can only be totally right when u stop investing totally, most likely because death do us apart. LOL
Thursday, June 12, 2014
Monday, June 9, 2014
Random thoughts: Company prospecting is like reading a drama script sometimes
I was looking around for counters, a recovery play in particular. I used my usual screening tool.
http://sillyinvestor.wordpress.com/2013/10/10/2-things-that-shaped-my-screening-of-companies-cdw-as-a-example/
I keyed in criterias: Companies that showed lower earnings, but gave some dividends. I will then see if I would like to read up more.
GP industries stand out
It has a yield of more than 6%. Earnings is poor due to exception write down. But what really caught my interest is the structure of the business. GP industries is 81% owned by gold peak industries, a company listed in HK. GP industries in turn own a 49% stake of GP batteries. There is constant shares buyback. Just 5%, and the minimum public flow will be less than 15%. Isn’t it very obvious that a GO is on the cards? Especially since the parent company Gold Peak Industries has GP industries as the sole company, why not save on the listing fees?
All the companies are in net debt position, but debt has been low in term of net debt to equity ratio. It was loss-making last year. But if you look cash flow, both GP batteries and GP industries and doing quite well, and that explain why they can continue to pay good dividends.
Hmmm…A privatization play with decent dividends and low debt. GP batteries, hmm, I know that brand too, business is rather easy to understand. Then the Drama starts.
I read valuebuddies for input, GP batteries go for a rights issue recently, when they have a lot of cash and just exited a loss-making venture. Hmm… why? "Hey, maybe to push down the price!" I thought. Maybe the discount of rights might put a stress on the stock price, also if not all wanted the rights they can subscribe the excess rights cheap. Given that GP industries own half of GP batteries, they need to fork out a fair amount of money too. All the rights were fully subscribed, excess rights subscribed too.
Both GP are traded at a discount to their NAV, so a GO is not impossible in terms of valuation too.
The rights issue makes me uneasy, then I read the VP committed suicide at their HK building! What the… the reason cited is work-related stress? Huh? I mean, there are dozens of loss-making companies, many have much weaker balance sheet. What the…
I stop digging further. Rule 1, when in doubts, don’t invest.
Saturday, June 7, 2014
Random thoughts: CPF, the minimum sum
I read with shock and disappointment the protests at HongLin. I understand their grouses, knew the flaws of the system, but the placards and messages on them are outright ungracious.
The main bug, the high minimum sum. The system benefits everyone disproportionally. The middle income whose CPF is not dump on property, should have a amount in excess of minimum sum and has a fat life plan, thus this group should be contented with it.
Those not able to meet the minimum sum should still be better off, given That 90% of Singaporeans own a property, and hence could pledge that property. Assuming they don't die in the early 70s, they should be better off than if they are allowed to take out all their CPF money.
Why then the amount of angst?
1) trust, and connection. Cold hard cash is always easier to understand than projection of returns.
Shifting of goalpole further erode trust. Minimum sum need to account for inflation, and minimum sum is raise several times from 30000 to 80000 and then to 120k in 2003 dollars. Even I feel uncomfortable about that. The fact that the powerful PAP can changes the rules easily, although for the greater good and with valid reasons is scant comfort to the lower-income earners.
Personally, I feel the issue is not so much the merits or lack of the system, but the lack of connection and respect of people's money.
First, acknowledge the system benefits the poorer less. Forget about the rebates in property etc. payout more in cash when they turn 55 for the lower income, top up by government.
Allow CPF interest free loan for those unemployed after a period of time say 1 year. Allow half of last drawn pay subjected to a cap, this could act as unemployment insurance for 6-12 months. When they find their job, they can return the debt with the govt and worker co- repaying it over a longer. Period of 5 -10 years. The debt limit can be set to prevent abuse.
Let people see cold hard cash is a good start to establish trust.
Lastly, next time a change is going to be made to CPF, no matter how well intended, allow a longer gestation period, and prepare to watered down the changes. If Ex PM Goh can says employer's contribution reduced to 10% just by informing parliament, it is scary. Any changes to CPF, should allow whip to be lifted in parliament, robust debate and concerns addressed before moving on. Not just Maths and number, but people angst and distrust. Respect people savings.
The main bug, the high minimum sum. The system benefits everyone disproportionally. The middle income whose CPF is not dump on property, should have a amount in excess of minimum sum and has a fat life plan, thus this group should be contented with it.
Those not able to meet the minimum sum should still be better off, given That 90% of Singaporeans own a property, and hence could pledge that property. Assuming they don't die in the early 70s, they should be better off than if they are allowed to take out all their CPF money.
Why then the amount of angst?
1) trust, and connection. Cold hard cash is always easier to understand than projection of returns.
Shifting of goalpole further erode trust. Minimum sum need to account for inflation, and minimum sum is raise several times from 30000 to 80000 and then to 120k in 2003 dollars. Even I feel uncomfortable about that. The fact that the powerful PAP can changes the rules easily, although for the greater good and with valid reasons is scant comfort to the lower-income earners.
Personally, I feel the issue is not so much the merits or lack of the system, but the lack of connection and respect of people's money.
First, acknowledge the system benefits the poorer less. Forget about the rebates in property etc. payout more in cash when they turn 55 for the lower income, top up by government.
Allow CPF interest free loan for those unemployed after a period of time say 1 year. Allow half of last drawn pay subjected to a cap, this could act as unemployment insurance for 6-12 months. When they find their job, they can return the debt with the govt and worker co- repaying it over a longer. Period of 5 -10 years. The debt limit can be set to prevent abuse.
Let people see cold hard cash is a good start to establish trust.
Lastly, next time a change is going to be made to CPF, no matter how well intended, allow a longer gestation period, and prepare to watered down the changes. If Ex PM Goh can says employer's contribution reduced to 10% just by informing parliament, it is scary. Any changes to CPF, should allow whip to be lifted in parliament, robust debate and concerns addressed before moving on. Not just Maths and number, but people angst and distrust. Respect people savings.
Friday, June 6, 2014
Random thoughts: Why am I blogging?
To answer this question, I need to answer when and what.
When I first started, it is for advertisement fees. Later, that reason disappeared.
Now the what. When I blogged random thought series, I just speaking my mind, hope to find some like- minded people, get some comments, get some discussion. It is really a telecast of talking to myself, which I enjoyed, but rather difficult to make it to friends' conversation.
The second part of what and when. When I blogged about companies, initially, I wanted affirmations, discussion of companies, blind spots, and also so call spread the wealth. I huat people also huat.
Now when I blogged about companies, I know there are usually very little comments, so discussion on companies might be better served as valuebuddies forum. As for sharing of info, so that other can huat, I know I don't have a good record, people who huat under me would most probably lose their pants too. Following bloggers call is a dumb thing isn't it.
The final when, recently, I am very clear. Writing about a company is a very effective way of consolidating my thoughts, and crystallization the stance, it is still a compelling buy or wait and see? I also want to see if my blog has a influence on stock price, hahaha, I it would have impact just like an analyst report.
Finally, blogging is a way to escape boredom. Go party? Hmm.. What's that next counter that I am interested in...
When I first started, it is for advertisement fees. Later, that reason disappeared.
Now the what. When I blogged random thought series, I just speaking my mind, hope to find some like- minded people, get some comments, get some discussion. It is really a telecast of talking to myself, which I enjoyed, but rather difficult to make it to friends' conversation.
The second part of what and when. When I blogged about companies, initially, I wanted affirmations, discussion of companies, blind spots, and also so call spread the wealth. I huat people also huat.
Now when I blogged about companies, I know there are usually very little comments, so discussion on companies might be better served as valuebuddies forum. As for sharing of info, so that other can huat, I know I don't have a good record, people who huat under me would most probably lose their pants too. Following bloggers call is a dumb thing isn't it.
The final when, recently, I am very clear. Writing about a company is a very effective way of consolidating my thoughts, and crystallization the stance, it is still a compelling buy or wait and see? I also want to see if my blog has a influence on stock price, hahaha, I it would have impact just like an analyst report.
Finally, blogging is a way to escape boredom. Go party? Hmm.. What's that next counter that I am interested in...
Thursday, June 5, 2014
Self-advertisement: Return with a "Venture"
(Vested interest)
This time round, I look at Venture competitors, mainly Jaibil, Plexus, and Benchmark electronics.
First, I wanted to know if competitors are doing brisk business when Venture is floundering. Generally, all 3 competitors have revenue that are generally increasing or stable over the last 5 years.
Next, margins.
Venture has the best net margin of sub 6%, over the last five years. The three competitors have margins of 2-4% over the last five years. Jaibil is the biggest, with almost 18 billion of revenue, but margin is also the lowest, this is partly due to the it having 3 business segments,within the EMS. In terms of margin, Venture wins. But given the competition of the sector, the niche of design most be accompanied by costs, otherwise, there is no need to outsource the manufacturing by the customers. So lofty margins are unrealistic. With better revenue and scale, Venture margin might improve, but I think it would be a tall order to expect it to return to 7%.
Next, ROA, ROE.
With the exception of jabil, the others are in netcash position, and Venture, Benchmark, and Plexus both have rather similar ROE; 7.7%-10.3% ; 8.7%-15%; 4.9%-9%
ROA; of Venture, benchmark and Plexus; 5.2%-7.4%; 4.5%-6.9%; 3.3%-6.3%
I would say Venture is comparable to both, but Plexus does stand out quite strongly.
FCF
Almost all 4 companies has strong FCF capability. In terms of FCF/rev;
Venture is most volatile over the past 5 years, from 1% to 9%, Plexus is stable at around 4%, excluding a year of negative FCF, Benchmark is around 2-4%, with 2 years of negative FCF
Well, Plexus again stand out, but Venture has only 1 year of negative FCF in the 13 years of history
Let look at DCF(10 years.. ), one of the valuation tool:
Apply 3% growth and 9% discount with 20% MOS (IF you believe they are comparables, I do, comparable rev, ROE, ROA and margin)
Current price premium over DCF price:
Venture=5.5%
Plexus =281%
Benchmark= 83%
For Benchmark to justify current price, they need discount rate of 6% and growth 3%, and Plexus need even more lofty assumption.
PE valuation over the past 5 years.
Venture= 7.7-18.9
Plexus = 8.6-22.5
Benchmark= 7.9-21
Again comparable.
Dividend Yield (from Maybank research)
Jabil=2%
Plexus and Benchmark= 0%
Many of the industry the customers of the 4 companies are in overlapped. Network/comm, industry, life/medical science, computer etc.
Venture, is the only one with significant number of customers from the printing and imaging segment. The one that is dragging Venture down, but also the one with promise of rebound due to the growth of 3D printing.
Conclusion
I have completed what I wanted to look at Venture.
1) Internally, FCF stable, valuation reasonable, competencies increasing, customers increasing (Does not show in Rev though)
2) Customers,
POS customers doing well, Oclare should ramp up production soon, lifescience sector has shown across the board growth, Jabil, Plexus, Benchmark all register positive growth from this segment. Printing will show short term pains but longer term growth.
3) Competitors
Not actually a mickey mouse when compared with their global cousins. Only losing part is declining revenue when peers are holding up well. But Venture outlook is improving. In terms of valuation, 2 out of three, in terms of dividends yield and DCF, show cheaper valuation. In terms of PE, comparable. Other comparable like ROE, ROA, margins etc are ok.
Venture should return with a vengeance? I don't know. I decided not to wait anymore. The next few quarter could be lumpy due to tax rebate issue, but revenue and gross profits should show QoQ improvement. Watch those numbers.
This time round, I look at Venture competitors, mainly Jaibil, Plexus, and Benchmark electronics.
First, I wanted to know if competitors are doing brisk business when Venture is floundering. Generally, all 3 competitors have revenue that are generally increasing or stable over the last 5 years.
Next, margins.
Venture has the best net margin of sub 6%, over the last five years. The three competitors have margins of 2-4% over the last five years. Jaibil is the biggest, with almost 18 billion of revenue, but margin is also the lowest, this is partly due to the it having 3 business segments,within the EMS. In terms of margin, Venture wins. But given the competition of the sector, the niche of design most be accompanied by costs, otherwise, there is no need to outsource the manufacturing by the customers. So lofty margins are unrealistic. With better revenue and scale, Venture margin might improve, but I think it would be a tall order to expect it to return to 7%.
Next, ROA, ROE.
With the exception of jabil, the others are in netcash position, and Venture, Benchmark, and Plexus both have rather similar ROE; 7.7%-10.3% ; 8.7%-15%; 4.9%-9%
ROA; of Venture, benchmark and Plexus; 5.2%-7.4%; 4.5%-6.9%; 3.3%-6.3%
I would say Venture is comparable to both, but Plexus does stand out quite strongly.
FCF
Almost all 4 companies has strong FCF capability. In terms of FCF/rev;
Venture is most volatile over the past 5 years, from 1% to 9%, Plexus is stable at around 4%, excluding a year of negative FCF, Benchmark is around 2-4%, with 2 years of negative FCF
Well, Plexus again stand out, but Venture has only 1 year of negative FCF in the 13 years of history
Let look at DCF(10 years.. ), one of the valuation tool:
Apply 3% growth and 9% discount with 20% MOS (IF you believe they are comparables, I do, comparable rev, ROE, ROA and margin)
Current price premium over DCF price:
Venture=5.5%
Plexus =281%
Benchmark= 83%
For Benchmark to justify current price, they need discount rate of 6% and growth 3%, and Plexus need even more lofty assumption.
PE valuation over the past 5 years.
Venture= 7.7-18.9
Plexus = 8.6-22.5
Benchmark= 7.9-21
Again comparable.
Dividend Yield (from Maybank research)
Jabil=2%
Plexus and Benchmark= 0%
Many of the industry the customers of the 4 companies are in overlapped. Network/comm, industry, life/medical science, computer etc.
Venture, is the only one with significant number of customers from the printing and imaging segment. The one that is dragging Venture down, but also the one with promise of rebound due to the growth of 3D printing.
Conclusion
I have completed what I wanted to look at Venture.
1) Internally, FCF stable, valuation reasonable, competencies increasing, customers increasing (Does not show in Rev though)
2) Customers,
POS customers doing well, Oclare should ramp up production soon, lifescience sector has shown across the board growth, Jabil, Plexus, Benchmark all register positive growth from this segment. Printing will show short term pains but longer term growth.
3) Competitors
Not actually a mickey mouse when compared with their global cousins. Only losing part is declining revenue when peers are holding up well. But Venture outlook is improving. In terms of valuation, 2 out of three, in terms of dividends yield and DCF, show cheaper valuation. In terms of PE, comparable. Other comparable like ROE, ROA, margins etc are ok.
Venture should return with a vengeance? I don't know. I decided not to wait anymore. The next few quarter could be lumpy due to tax rebate issue, but revenue and gross profits should show QoQ improvement. Watch those numbers.
Tuesday, June 3, 2014
Random thoughts: just curious, what come to your mind?
Look at these 2 videos, tell me what come to your mind?
coke happiness 1
coke & Singapore kindness movement
Do let me know what u think ok?
My colleague send me this link, and wanted us to see the creativity behind it. He ask us to think why would coke do something like this is remotely related to the business.
Another colleague's response: its a CSR exercise- Coporate social responsibility.
I am worse. It's a marketing exercise to build up the brand. Relating the experience of happiness to coke. Not unlike what Disney, Starbucks and macdonald are trying to achieve with their advertisement. I agree the marketing and CSR exercise is done very creativity and meaningfully, but I think the underlying motive is still profits.
Cold? I think I am cold too. For those whose first thoughts are " so sweet, so touching", let me piss you off further of what I thought when I saw the first video.
A bottle cap for 3 min of overseas call? A coke cost perhaps $1. If so many are Calling, it could only mean 2 things:
1) the telephone booth is there only for a short period of time, after the exercise is over, it will be removed. (But better than nothing)
2) Maybe it can be cheaper than a bottle of coke, that means the telcos are charging an super super high rate for broadband or whatever line to connect people.
My apologies. Investing might have made me a little... Can't find the adjective. What's your first thoughts? Same as mine? Totally different? Would like to hear from u.
coke happiness 1
coke & Singapore kindness movement
Do let me know what u think ok?
My colleague send me this link, and wanted us to see the creativity behind it. He ask us to think why would coke do something like this is remotely related to the business.
Another colleague's response: its a CSR exercise- Coporate social responsibility.
I am worse. It's a marketing exercise to build up the brand. Relating the experience of happiness to coke. Not unlike what Disney, Starbucks and macdonald are trying to achieve with their advertisement. I agree the marketing and CSR exercise is done very creativity and meaningfully, but I think the underlying motive is still profits.
Cold? I think I am cold too. For those whose first thoughts are " so sweet, so touching", let me piss you off further of what I thought when I saw the first video.
A bottle cap for 3 min of overseas call? A coke cost perhaps $1. If so many are Calling, it could only mean 2 things:
1) the telephone booth is there only for a short period of time, after the exercise is over, it will be removed. (But better than nothing)
2) Maybe it can be cheaper than a bottle of coke, that means the telcos are charging an super super high rate for broadband or whatever line to connect people.
My apologies. Investing might have made me a little... Can't find the adjective. What's your first thoughts? Same as mine? Totally different? Would like to hear from u.
Sunday, June 1, 2014
Yangzijiang HTM
A reader asked me to elaborate about YZJ HTM. I am quite sure Ren every HTM is different, but maybe I can shed some light on this Tianjin GuoHeng event.
Tianjin GuoHeng ex-controlling shareholder, lets call it A. Owned B money, and pledge its shares to B. A is supposed to transfer the shares to B, or any company B appoint. B appoint YZJ to take over the shares. The shares are like collateral for a loan. A is supposed to pay YZJ interest and will redeem the shares in 1 year, failing which, the shares will belong to YZJ. Since A pledge to buy back the shares in a year time, YZJ promised to, in the meantime, pass an attorney of management rights to A, subject to various terms and conditions so that the shares remain of value.
Once this agreement is in forced, and shares are transferred, B is out of the picture. Ren then add another layer to this agreement, the shares is bought over from B using Ren investment co, C. YZJ then provide the HTM service to C, in the form of loans with interest for C to buy the shares.
Why bother to add that additional level? I speculate, after chatting with city farmer from valuebuddies, (my own understanding, might not be what he thinks ) is YZJ is still Ren biggest baby, with the shipbuilding business being its lifeline of cash generation. So it is highly unlikely that C, which is also under Ren to default. If C did not receive interest from A, it will then proceed to recover its collaterals and in the meantime, the YZJ HtM can roll over it, without declaring a default. Also, given now that A has sue Ren, the buck can stop at Ren and C, without affecting the shipbuilding business.
I wonder if all these make sense. If there are readers who are able to point out mistakes or misconception, please do so, and share your knowledge so that everyone learn.
Tianjin GuoHeng ex-controlling shareholder, lets call it A. Owned B money, and pledge its shares to B. A is supposed to transfer the shares to B, or any company B appoint. B appoint YZJ to take over the shares. The shares are like collateral for a loan. A is supposed to pay YZJ interest and will redeem the shares in 1 year, failing which, the shares will belong to YZJ. Since A pledge to buy back the shares in a year time, YZJ promised to, in the meantime, pass an attorney of management rights to A, subject to various terms and conditions so that the shares remain of value.
Once this agreement is in forced, and shares are transferred, B is out of the picture. Ren then add another layer to this agreement, the shares is bought over from B using Ren investment co, C. YZJ then provide the HTM service to C, in the form of loans with interest for C to buy the shares.
Why bother to add that additional level? I speculate, after chatting with city farmer from valuebuddies, (my own understanding, might not be what he thinks ) is YZJ is still Ren biggest baby, with the shipbuilding business being its lifeline of cash generation. So it is highly unlikely that C, which is also under Ren to default. If C did not receive interest from A, it will then proceed to recover its collaterals and in the meantime, the YZJ HtM can roll over it, without declaring a default. Also, given now that A has sue Ren, the buck can stop at Ren and C, without affecting the shipbuilding business.
I wonder if all these make sense. If there are readers who are able to point out mistakes or misconception, please do so, and share your knowledge so that everyone learn.
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