Random thoughts: Jason Zweig's concept of mind control

I have Just finished reading the book, The Little Book Of Safe Money, by Jason Zweig.

What really intrigue me is the chapter on mind control, listing a series of unconscious biases that may hamper sound decision making. I was thinking through about it and realize I make several such mistakes/ tendencies. I wonder if there are others like me.

Anchors.

I always feel a stock is cheap after it break a new low from recent low. for example,  when sembcorp Industries keep breaking new low, and then rebounded. That low then became an anchor and I might disregard other quantative research I might have done.

The same as ST engineering. I bought at a low of 3.24 a year ago. It then did rather well and stay above 3.4 for a considerable period of time. And when recently it went to 3.15 with pending CD of 5 cents, I jumped on it. With black Monday it went to 2.77. I made a bid at 2.65 but it was fat hope. Why is 3.15 cheap? Because I thought 3.24 is already cheap. But most importantly I think achor  effect is at play here with the new low appearing after a long hiatus

The cure? Had a rough valuation and stick to it. I thought I will get CCT AT 1.2. I didn't move when it was 1.23. I was stupid. 

The reverse of Anchor can work against one too. It raises so quickly and break a new high. It then dropped from that high. The next time it went back to that high one will be tempered to sell for no good reason except the fear of it falling again. That's how I let go of Venture when it gave me 2.5 years of dividends when all along my concept of taking profits is 3-4 years of advances of dividends. 

Lesson: stick to target buy and sell price, and reason for changing it should not be due to achor effect

Framing 

I dun really have this problem because I always look at the risk and what it entails and how much I could lose than the profits. Even the calculation of dividend gains is part of risk calculation for probability of eventual capital loss. So I dun get into the trap of looking and think a glass is half full, I will think it's half empty 

Magnets in mind 

I understand this as bias of familiarity. I dun buy household brand name for the sake of it. But I do only buy Singapore shares. 

This seems countertuitive to circle of competence but actually it just mean we should keep expanding our radar.

Halo effect 

I dun usually track "star CEO" although u do have some respect for Ren YuanLin, but I generally do not think "anyone can do no wrong"

But the halo effect manifest itself in my over-confidence on GLC to deliver. While I do not want to pretend that I know the industry better than them or I can be a better CEO on hindsight, all CEOS SHOULD BE judge by results and track records. Sembmarine foray into a Brazilian yard on hindsight is a mistake at the worst possible time. Compare this with Ren YuanLin steering of YZJ. If results is the only yard stick, Temasek should employ Yuan LOL

Also, Keppel is in a similar mess, but they merge the property business unit to offset some of the weakness and they didn't build a new yard in Singapore. I not sure what Sembmarine is doing to address all the problems.

Indirectly vested in Sembmarine through sembcorp industries 

Prediction addiction

Thinking we are predict the short term movement of Market. I do not think I fall into this. Although I predict at least 2-3 years future earnings, and where are the sources of earnings.

The book asked us to write down our forecasts and track our success rate. The purpose is to show that it is futile. 

I think my prediction on earnings of companies has a 50% success rate, not too bad I think. But I could be right about the earnings of a company but still wrong about its price ... Lol 

Examples: Sembcorp industries, lee metals, venture etc etc... 

The blind spot 

We see ourselves too flattery or too kind to our mistakes. In the pure investment context, I see this everywhere. Value investors or self-proclaimed value investors poking at traders and traders poking at "long term" investors.

So to avoid this, avoid halo effect too. Show me the money. A trader who can consistently make money. Respect! A value investor who can consistently make money. Respect! A hybrid who can consistently make money. Respect!

Can I consistently make money? So Far in the last 2 years, think I am still happy with my performance but dun ask me my returns because I dun track it. 

But I am quite sure I never peddle "my way" since I know my limits. Lol

So... What's your bias?

LMIR Q3 results

It is important to look at results at QoQ angle rather than YoY angle. This is because Kemang is bought in Q4 2014.

Operating numbers wise, it is a job well done. The good numbers is somewhat offset by the weakening IDR

It's have a been 3 quarters since Kemang. It has proven to be a good buy, but since Alvin took over there is no more break down of occupancy by malls. So when overall occupancy falls from 2Q, it is hard to pinpoint is it due to the wretched Pulit Village and if Kemang occupancy is further improving.

But I expect interest cost to stay status quo or go down given Lippo is now rated, and the last loan was of the lowest interest rate.

So, LMIR should actually command better valuation, beside the stink reputation of doing a right when price start to recover.

So, am I adding? Nope. Although I did consider when it is nearer 30 cents 

Ng and Ng portolio update

Never mentioned my wife maiden surname is also Ng. LOL

It has been more than 3 months since I last update my portfolio. During this window, black Monday occurs and with the Fed poised to raise rate in December due to strong employment numbers. Expext volality. I will just include the companies we had, no spreadsheet, in order of capital vested, if I remembered correctly. (^ Means owned by both accounts, * means by my wife account)

^Sembcorp Industries

*APTT

^ST engineering

*HPHT

*M1

*LKH

*SPH

^MIT

Ascendas Reit

Cogent

CMPH

Accordia Golf Trust

^Gold ETF

^Singapore Shipping Corp

*Ascendas Hospitality

*OCBC

Since my last update:

I have sold Nothing but accumulate Sembcorp Industries, ST engineering, bought back ascendas REIT, CMPH and newly added Gold ETF, accordia Trust and cogent

She has bought back SSC and added OCBC and MIT

Excluding my wife, I am effectively 90% equity. I can't take advantage of downturn if it comes now and fast and furious.

But I am still sleeping well

随心笔：幸福

什么是幸福？

幸，就是累积一点一点的辛苦，

然后了解了十分辛苦的感觉，

就有幸了，

什么是有幸？

幸运啦？

因为你有机会得到幸福了，

你已经离幸福不远了。

差什么？

差祝福。

即使感到十分辛苦，

心里还是能祝福别人。

做到了，你就开始幸福了。

图案出处:zensoul.org

Company Prospecting: Cogent

Cogent is a logistic company. I will not describe its operations, but you can read it here

I was first attracted to it due to its high dividend yield which includes a 1-off special dividend due to its disposal of asset.

My first attempt at analyzing the company didn't really excite me, although company is generating FCF most of the time, its short track records as a listed company see a U-shape yoyo in terms of revenue and profits. "Highly cyclical" I thought. Also, debt is not low.

When I read further, I got really interested.

There are 2 catalysts which I like.

1) The LOI for further expansion in Jurong Island. The deal if materialize will increase gross floor area for operation by almost one-third

2) The Contribution from one-stop logistic hub containers operation. (Details here)

But truth be told, what really wow me is really the qualitative story rather than hard numbers.

First, one logistic hub has a patented design, which I thought really value-add to customers in terms of both costs and time.

There is no need to move the empty container to a warehouse somewhere else, it can be stored.

There is also synergy in the 4 business. I investigate what cause the dip in earnings in 2010 and the main factor was increase in rental. Cogent like other players, rent warehouses from JTC and provide the services and earn from the services.

With the new logistic hub, it has "retired" 2 warehouses and might not renew a third in 2016. 

Another reason why I like it is Grandstand. I felt it has turn around a ghost town rather impressively, although I am sure the reason why it got involved is for the Used Car bus Businesses there, which should be providing some business for its automobile segment of business.

It has also start expansion to Malaysia Port Klang although I would rather not count on it. Malaysia is the only overseas operation contributing less than 10% of revenue. I actually prefer local operations which I felt is less volatile in terms of regulations.

Other things I like, the family owned about 80% of the business but liquidity is not too bad. Remuneration is clean and without options. The Family owned 70% of the business when it just IPOed. and there were frequent buying back of shares. Qualitatively, it seemed like a serious family (Son made CEO and Dad Chairman) with a succession plan. It was the son's concept for 1-stop logistic hub.

Since the logistic hub is the main draw, I calculate for the remaining lease of about 25 years, it need to generate 5.5 mio of NP for the next 25 years to get its cost back. Looking at the Q1 and Q2 results as compared to past year, assume results is generally the same for all segments and the steady improvement of 6 mio for both quarters from a year ago is due to contribution from this hub. Return of asset is about 10%. Nothing to shout about if u ask me. 

As for risks, there is plenty of warehouse supply coming in from

Now till 2016. Reading the prospectus, the concentration of a few major shipping customers for their business is a very real risk too. Both might affect earnings 

Now the numbers:

Cogent's Warehouse business numbers is "contaminated" by property development of Grandstand, it makes it Gross Margin of about 30% look super high when compared to peers like Vibrant, PTC and CWT. Margin for transportation services is 10%, comparable to the bread and butter of PTC.

ROE is 15-20%, good enough for me.  

2Q NP is already 11 mio, according to prospectus, containers and warehousing segment usually enjoy higher business activity in Q4. But just annualized the results it will be a improvement from last year 3 running record year of profits (17 mio excluding disposal profit of 7 mio)

At 22 mio, its EPS is close to 5 cents, which gave it a PE of 6-7. Not too bad

Final dividend is 2.58 cents last year. Which gave 7.3% yield. Special dividend will not be repeated.

Assume 2 cents dividend instead, they will need to pay about 9 mio which thought it will be rather sustainable.

What do you think? Being a long time since I had this luxury of time to do prospecting, and I am enjoying it.

(No vested, yet)

 

Random thoughts: Q3 sembcorp industries

Q3 results is bad, but it was expected.

I expected it to get worse going forward. 

Sembmarine will be the biggest drag, the delays just started. Utility biggest drag comes from Singapore and was NOT offset by overseas operations YET. India, ASEAN and Australia market bottom line is improving QoQ but nowhere contributing at level where I expects. I send an enquiry to IR asking about the gestation period of India operations before it contribute to bottom line. There is no reply yet, if they do reply, I will update this post. 

As a random thought series, I am not going into the nitty gritty of the numbers or projects. 

It's my reflections. Some of it based on hindsights.

1) I expect weak numbers from

Marine and Singapore Utility market but expect overseas market to offset some of it. Because I believed Mr market might have been over pessimistic, I bought into it, thinking I got it at a low. 

2) I saw the ability to clinch contracts from Municipal governments as a plus point. 

3) I believed that are catalysts such as injection into reit or selling of mature asset

Am I totally off the mark in my assessments? Not actually, 2015 will be ok given its earlier wise allocation of capital.

Will marine winter lasts longer than 2016? I have no idea. Sembcorp will be in trouble if the marine problems drag beyond 2016. 

4) Vietnam land sales is slower than I expected given how "hot" the media is blowing in its direction.

I am not adding. Am I selling? Most probably also not. I remembered Sembcorp was trading at $3 during its recent low, and I slept well, not thinking of adding or offloading.

My strategy was to collect during down cycle and enjoy the upcycle. But if the down cycle is super far from what I believed it was, think this strategy will fall apart. But it do not think it is going the way of dodo and neither do I think they are suspending dividends ... So I will need to endure in the meantime.

How about people who have not got in?

Well, well... I have no idea myself LOL

Oxley Bonds

One thing that screams at me is the high debt ratio.

Debt is at about 2.4 billion.

Equity is only 650 mio. 

Scary debt to equity ratio if u ask me. 

The cash is 290 mio but current financial liability is 520 mio. Of course, current ratio is rather healthy at 2.5. But personally I  like to think of cash and perhaps receivables as more "current" as compare to development properties.

I took a look at their projects 

And used square foot research to check on sales. I prefer this portal than URA. If u want details let purchase price etc, u need to pay a subscription or do it manually at URA site. But for me, I just wanted to ascertain if they have many unsold units because that would mean even more troubles.

Surprising, their local residential projects are quite well sold. I did not look at their industrial project, but u can do the same at square foot research. Go for tower view, it is easier to get a sense of how how sales are

So, all in all. 

If execution goes well, and no buyers back out, then cash flow should sustain itself and this bond is safe. 

I am not buying bonds as my CPF is like my bonds allocation. 

Another way of calculation margin of safety for bonds is to used Graham method which is demonstrated by "The boring investor"

Cheers.

Do note that bonds are not necessarily safer than equity, it is relative less volatile but volality cannot be view as risk when solvency is ignored