Review of Current Portfolio – August 2017

In the past month, I have capitalized on the opportunities to divest counter that has reached its target price as well as to add counter that showed some price weaknesses:

  1. Divestment of Shell – With the recent price run-up of Shell, I’ve taken the opportunity to divest my entire holding at US$57.2 and recognized 14% capital gain. Inclusive all dividend received, it would be slightly above 19% return for a holding period of around 12 months. Not bad, Chris. Not bad.
  2. Average down Teva Pharmaceuticals – the recent price drop was unjustified. On August 3rd, Teva has announced an ugly earnings result for second quarter 2017. It has declared EPS of (US$5.94) due to goodwill write-off of its recent acquisition on Actavis. Indeed the company has overpaid its Actavis acquisition (US$33B cash + 100 millions of Teva shares worth approx. US$6B at that time of acquisition). However, the market seems to have overreacted by judging that the entire Teva company is only worth US$17B. Teva’s share price has dropped over 50% this year alone, reaching 10 year low. The company itself is doing fine. It remains the number one generics drug manufacturer in the world, and its products are always in demand. Since I believe generics drug will be doing just fine, I have decided to capitalize this opportunity to add more positions. Teva is now holding the largest share in my portfolio.
  3. Decrease of warchest – With the recent purchase of Teva, my cash level has now dropped below 10%. Will have to look for more opportunities to increase this to at least above 10%.
  4. Acquisition of M1 share – the market seems to be concerned with the upcoming 4th telco company in Singapore. There’ll be some impacts to the pure local players such as M1 and Starhub. We have decided to nibble a bit of M1.

20170817 Aug2017 review

This is one of the rare months where as an investor, I have to make my stand & decide against what the market says. Not an easy feat, because you are swimming against the tide. Warren Buffett himself once said, “Be greedy when others are fearful, be fearful when others are greedy.” Psychologically, when market feels fearful, we also feel that. It is not an easy feat looking at your portfolio being crushed to the extreme. There are only two choices: either you get out or average down. Staying still doing nothing would not cure the misery.

How to grow our money

Recently one of my friends asked me about my opinion on endowment fund and unit trust as she wanted to invest some of her spare cash. I fully understand her concern. I recall myself doing all sorts of things to grow my money too. Cash in bank generates paltry, if not, negligible return. Some expect the return can be big enough to supplement their main income, or perhaps contribute to their retirement savings. While some others who are savvy enough are able to leverage the concept of passive income & use it to fully pay their annual expenditures – in other words: being financially independent. Ultimately, the main goal here is how to make our money work, as hard, or even better, work harder than us.

At this point, I think it’s crucial to introduce several key concepts:

  1. Time value of money & compound interest – Time is money. Albert Einstein once said that compound interest is the 8th wonder of the world.

    “He who understands it, earns it … he who doesn’t … pays it.”

    In short, interest as a double-edged sword. Most people on the streets like to borrow money from banks to purchase consumption goods, such as the latest IT gadgets or HDTV set. Yet, credit card companies encourage us only to pay the minimum sum monthly instead of fully pay our bill. There’re too many stories on people trapped in debt unable to even settle their interest charges. On the other hands, savvy people would know that every $1 invested with 10% annual return compounded would double our investment in 7.2 years. This leads us to the next concept:

  2. Rule of 72 – the rule simply says that in order to double your money, it would take (72/x) years, where x is the compounded annual rate of return (%). If you manage to find an investment that gives you 6% annual return, it would take 12 years to double your money. Ultimate question is how much is your expected return? Also the key here is where to find such investment vehicles. Most importantly, it has to be a safe vehicle. This leads up to yet the next concept:
  3. Risk and assets volatility – risk is generally proportional to the reward. The higher the risk we’re willing to take, the higher the rewards. That’s why fixed deposit generates higher return than regular savings account. And that’s why unit trust is expected to generate higher return than fixed deposit.
  4. Different types of asset class & their corresponding fees – I believe there is no such thing as free lunch in this world., management fees & transaction costs are the expenses that we need to consider when choosing our investment vehicle. Some unit trusts charges as high as 2% for initial fee and between 0.5% – 2% for annual fees. In addition, usually there will be some costs incurred as well for every buying or selling transaction we make. We just need to ensure that our annual return does not get eaten out by these fees.
  5. Differentiate between investment and insurance – There are some products in the market that claim to give us both insurance protection and good investment return. However, most of the time, the reality doesn’t paint the same picture. We have to know what we want to achieve from the beginning.

At the end of the day, we should not delegate our money management to someone else. Fail to adhere to this and we will learn some expensive lessons guaranteed. It is much better that we learn slowly by accumulating sufficient knowledge & then dipping our feet into the market rather than being too rashly aggressive chasing for the highest return available. There is no one else in the world who cares about our money more than we ourselves.




Review of Current Portfolio – July 2017

This is my second month doing portfolio review. There’re some additions into the portfolio table to make this review more meaningful.

20170715 July2017 review

First addition is the year of establishment & company age. As mentioned in the previous post, one way to check whether company’s business is sustainable is by looking at how long it has been operating. Generally speaking, companies with long history of operations (such as Shell and Teva) tend to be more stable as they have gone thru the ups and downs of the industry. Keppel is also considered having long history knowing that it was established back in 1968 – just three years after Singapore was founded.

Second addition is the portfolio gain/loss. It is incomplete to analyze without knowing how well our portfolio performs. Overall, it is a mixed bags of gains & losses across the various counters. Recent spike-up in Hotung share price has made its weightage swell to 14% of entire portfolio. Partially, this is due to new coverage and analysis published by few brokerages. One broker is even putting $3.38 as the target price. Market is so bullish!

20170715 Hotung
Recent run-up of Hotung share price

Looking at the portfolio table above, there are three significant changes I made:

  1. Divested most of Lippo Malls Trust (LMIRT) – after recent share price run-up, I decided to divest most of it at $45 cents and recognized 28% return (or 14% annualized return, excl-distribution) over period of two years. Including distribution, annualized return would be in the north of 20%. I think this is a good selling price, considering the NAV of LMIRT as per 31 March 2017 is $37cents. With current P/B of 1.2, there’s not enough margin of safety left. There’s more downside than upside at this point. This is in spite the trust giving high yield of close to 10% based on my entry price.
  2. Chipped in New Toyo – as the counter experienced slight pull-back. The company has tremendous exposure to growing market in Indonesia after its acquisition last year of  PT Bintang Pesona Jagat (Bentoel Group’s packaging manufacturing arm). Bentoel itself is part of British American Tobacco plc (BAT)
  3. Increased the cash portion – to 18% after the LMIRT divestment. This is in line with my objective to “keep the power dry and keep some bullets ready”. There is no specific cash level that I prefer. However based on past experience, it would be a pity to just stand on the sidelines when suddenly there’s a market action just because you have no more bullets left.

In summary, there are more opportunities to do portfolio rebalancing in the upcoming months – by looking at the current winners and losers. Psychologically, letting your winners run is equally as difficult as cutting your losers. This is where having the right trading strategy plays a part by taking the feeling out of the equation & let the mechanics take full control.

How to Identify Fraudulent Companies

20170711 thief

The last thing investors wants to see is losing their hard-earned money in the stock market. But wait, there’s an even worse situation. That’s when they lose their hard-earned money invested in fraudulent companies with no way to recoup their investments. We have witnessed many examples in US stock markets, who doesn’t remember about the Enron & Worldcom scandal?

Closer to the region, in Singapore, there are many vivid cases on how failed companies ruined people’s life, mostly their minority shareholders. The so-called retail investors are always at the receiving end of the bad news when it imploded. Sometimes without any avenues to reclaim their original investment. Who are these fraudulent companies? For the uninitiated, more than 90% of frauds are caused by S-Chips. Hence, the ultimate question for investors is: “How to detect for any red flags?” In other words, how to leave the “parties” before the music stops abruptly?

Firstly, let’s do a quick line-up on what are the list of proven fraudulent companies in the context of SGX (Singapore stock exchange) universe. They are as follows:

20170711 Schips

Secondly, how can an investor detect for any red flags in any of these companies mentioned above? The following are the top 13 identified – in no sequential order:

  1. Significant levels of cash & cash equivalents, yet unwilling to pay dividends
  2. Dividends not declared despite net profit position
  3. Major shareholder selling off shares below IPO price
  4. Right issue at a price way below cash value of the company
  5. Right issue despite significant huge cash balance in the balance sheet
  6. Draw down of bank credit lines even when there is a positive cash balance
  7. Net non-cash settlement of trade debts and payable
  8. Trade receivables long outstanding (not converted to cash)
  9. Non-proportional increase of trade receivables compared to increase in sales
  10. Significant capital expenditure with no apparent upgrade in P&E or increase in production capacity
  11. Profits generated not translating to “net cash from operations”
  12. Sudden resignation of independent auditor in the absence of any disagreements with management
  13. Sudden resignation of CFO

Finally, as an investor, how can we avoid such pitiful situations in the first place? There are few critical steps here:

  1. Look at the company history… generally companies with longer history (>20 years) are less-susceptible to such fraud
  2. Look at the independent auditor’s report at the Annual Report… whether auditor issues any qualified opinion. We need to dig deeper in case the auditor issues qualified opinion.
  3. Look at the company’s customers profile… are there any big company names? Big companies generally already have a due-diligence process (i.e. KYS – Know Your Supplier) in place for their suppliers.
  4. Attend its AGM (Annual General Makan), I mean Annual General Meeting… whether the CEO and board of directors are willing to answer shareholders’ questions? Are they friendly or hostile? Or, they don’t even bother to attend the AGM?

These are the four easy steps that a beginner investor can use to avoid putting themselves into such mess. In the end, it’s our hard-earned money. If not we ourselves, who else will look after?


Analysis of investment in Accordia Golf Trust

Accordia Golf Trust (Accordia) is a business trust which assets are golf courses across Japan. It forms a small portion in our portfolio. Accordia’s financial year ends on 31 March. For the latest financial year (FY16/17), it distributed S$ 6.04 cents DPU (distributable Income per Unit). Based on current price of $ 69.5 cents, this represents a distribution yield of 8.7%. The ultimate questions here are:

  1. Is the DPU sustainable?
  2. Based on current price, is there any possibility for capital gain?
  3. What is its future prospect?

20170624 Accordia 01

Company Background

Accordia owns 89 golf course (and related assets) located across Japan, valued at approximately S$1.9 billion. Close to 90% of the initial portfolio golf course are located in three largest metropolitan areas in Japan. An investment in Accordia provides exposure to Japan golf course industry. The increase in number of senior golfers in Japan and the coming Olympic Games 2020 in Tokyo are two main factors that will enhance Accordia value. Another catalyst would be the potential for privatization as Accordia’s sponsor (Accordia Golf Co.,Ltd.) was recently taken private by South Korea private equity firm MBK Partners in late 2016 for US$760m (its stock got delisted from Tokyo Stock Exchange in March 2017). The business strategy of Accordia is primarily focused on the middle class, loosening the strictures of golf in Japan and encouraging the “casual golfer” with the promise of a cheaper day out.

Revenue and Cost Structure

Accordia derives its revenue from three sources: golf course revenue (~65%), restaurant revenue (~25%), and membership revenue. While majority of its costs incurred are labour & outsourcing expenses (~37%), golf course management fee & maintenance fee (~20%), SG&A (~18%),  and merchandise & material expenses (~8%).

Listing History

Accordia Golf Trust was listed in Singapore Exchange (SGX) back in August 2014. Ever since it got listed (IPO price of S$ 97 cents) till today, its share price has dropped 28% (~S$ 27.5). On the other hand, those IPO investors have received S$ 18.38 cents of distribution from IPO to date. Hence overall, IPO investors are still 9.4% underwater. The lesson learnt here is IPO may indeed stand for It’s Probably Overpriced. With close to 1.1 billion outstanding units, the IPO valued Accordia Golf Trust at S$1.1 billion.

Distribution Analysis

Income varies based on seasonality.  Unlike the normal REITs which are able to collect rental fees from their tenants rain or shine, Accordia’s performance may be detrimentally affected by weather condition, such as earthquake, heavy rains or typhoons. Distribution is paid on semi-annual basis. The DPU tends to be higher on 2H (Oct – Mar period) due to better weather. The 2H DPU is usually distributed in the month of June. FY16/17 dividend (S$ 6.04 cents) is 8.9% lower than the previous fiscal year FY15/16 (S$ 6.63 cents). A 2.4% decrease of operating income at the same period causes a 25.6% drop in operating profit. Accordia only has 3 year history of distributions – hence it cannot provide sufficient data whether future distribution will be stable.

Entry Price

The decision of entry price can make or break the investment. During IPO times, the company provided guidance of 7.0% distribution yield (~S$ 6.79 cents) based on normalized DPU excluding non-recurring items (based on IPO price S$ 97 cents). Since the latest FY distribution only stood at S$ 6.04 cents, we can’t be sure whether next year distribution can be maintained. Although the company has a policy to distribute 90% of its distributable income, and assuming that SGD/JPY exchange rate doesn’t fluctuate that much (currently it stands at 80.2 Yen vs 81.52 Yen during IPO Prospectus time), we still need to put some buffer assuming our case goes wrong.


Is current share price worth it to add position in Accordia? At current price S$ 69.5 cents per unit and distribution yield of 8.7%, there’s still likelihood that distributable income may fall another 10%. Looking at how operating profit drops 26% although top line only marginally decreases by 2%, we need to be realistic in setting the valuation. Assuming “stabilized” distribution at S$ 4.65 cents (or equivalent to its EPU) and expecting 9% minimum annual return (purely from distribution), we arrive at calculated entry price of S$ 51.5 cents. Price has to drop another 26% to reach our target entry price. In summary, a prudent investor would wait until the share price has reached or even dropped below his target entry price. Meanwhile for existing unit holders who bought at current market price (S$ 69.5 cents), it may be prudent to exit the position (and forgo the 8.7% yield) while waiting for price to further drop before re-accumulating at lower price.

20170624 Accordia 03
This year’s EPU is much lower than DPU – there’s a likelihood that DPU is not sustainable

Suggestion: SELL (Accumulate at S$ 51.5 cents or lower)

Chris’ approach in managing personal finance

20170623 budget

Back in 2007 when I first started tracking my personal finance, I created a simple excel file called “Monthly Personal Budget.” It was meant for me to track my monthly spending in more systematic way. I did not realize it back then. But later on I discovered that the method I used was actually mimicking how corporations, big and small, manage their financial health too.

In the corporate world, every division lives by its own P&L (Profit & Loss). Every team is given its own budget to manage every year. How much to spend, how much sales target they need to achieve. Performance is measured based on what they achieve (actual) versus the initial target set at the beginning of the year. To summarize the ultimate benefit of doing budgeting: it helps you plan & prioritize your spending. After all, you cannot control what you do not know.

Looking back, these are the steps I took:

  1. Start from something, then improve it – my starting point was one simple table that shows how much I earn monthly versus how much money spent. Subsequently, I started to categorize the type of earnings: whether it comes from salary, or from other sources (such as interest, dividend, so on). On the expenses side, I tried to split the expenses into four categories: Fixed, Other Committed, and Discretionary. Recently I’ve added one more category: Child Related & Education. “Fixed” are basically all expenses that we can’t live without (housing, food, tax). While “Other Committed” refers to those that we always spend monthly but we have certain degree of control to reduce it (such as groceries, electricity bill, clothes, hand phone bills, medical bills, and transportation cost). “Discretionary” refers to expenses that we can live without. They are things that make us feel good, such as: eating out, cinema, books/magazine subscription, vacation, personal care.
  2. Be disciplined – This rigorous method might not work for other people. But I receive some degree of comfort by knowing that I do not overspend each month. By tracking how much $ I spent on each purchases, I’ll have some idea why on certain month I tend to splurge and on which items I splurge. After doing this for a year, I knew that I used to spend a lot on eating out in fancy restaurants especially during birthday months.
  3. Keep exploring other areas – Monthly budgeting is the foundation. Then I move on to other areas: preparing my personal balance sheet and calculating my net worth (by listing all assets & liabilities), creating the investment portfolio, tracking their performance, calculating the tax payable, planning for house purchase, etc.

In short, we all know that someone is sitting in the shade today because someone planted a tree a long time ago. It’s never too late to start. Start tracking, or start saving. No matter how small it is our effort, with time and effect of compound interest, it will grow bigger and bigger.

20170623 oak tree

My Investment Objective

I always believe that things happen for a reason. I still remember back in  year 2005 – 2007 when I purchased a huge sum of Chinese Renminbi (huge sum for a penniless fresh graduate back then). That was right after I came back from my four month stint in Beijing for language study. Back then in late 2004, 1 RMB can buy approximately 1000 worth of Indonesian Rupiahs. As of today, RMB has strengthened so much that 1 RMB now can buy IDR 2k.

My reason to invest in RMB back then, was because I felt things in China were so cheap. I remembered on my first day in Beijing, we went for dinner at a fancy Chinese restaurant, just opposite our campus, BLCU in Wudaokou area. When I stepped in, I could almost feel the sense of regret. Regret knowing that this could be a huge mistake. Imagine, a penniless young graduate with limited budget had to spend some huge amount for money for a dinner. In my mind, I always thought that such a fancy dining like that would cost us easily close to S$15-$30 per head. After our sumptuous dinner, I was shocked to read the total bill. My share of dinner was less than RMB 8 (equivalent to US$1) back then.

Ever since, I discovered that Chinese Renminbi were definitely extremely undervalued. That’s when I decided to buy a lot of Renminbi. Hoping that I could just keep it and perhaps use it again the next time I return to China.

I discovered the world of investing from reading various books. It started with Rich Dad Poor Dad (by Robert Kiyosaki) during my university days. Then Unlimited Power (by Anthony Robbins), then Think And Grow Rich (by Napoleon Hill). And subsequently, I discovered Intelligent Investor (by Benjamin Graham) back in 2008. Ever since, I’ve read more books on value investing & other various investment methods.

My investment objective is simple, to make money. The objective can be simple, but the execution cannot be too simplistic. In other words, we also need to consider all the pitfalls of various investment methods. The key here is to simplify the complex world of investment without losing the essence. You don’t have to invest in a complex investment vehicle. You also don’t need to have an IQ of 160 in order to be successful in investing. But it takes a huge dose of common sense. Understand the business model. How does the company make money. Understand time value of money and compound interest. Understand that time is money.

My medium term goal is to generate passive income large enough to cover our family’s annual expenses. There are many ways to generate passive income, however what I will cover in this blog is mostly on generating passive income from stock investing. Why do I need to generate passive income enough to cover the annual expenses? Because that is the definition of being financially independent. This is the first step towards being financially free.

I’d like to leave you with this note… “Success is a process not a destination.” By enjoying the process along the way, we won’t lose our soul when reaching our destination some day.

Tortoise and Rabbit