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Archive for the ‘Investments’ Category

Warren Buffett: Planet wrecker investor

In Environment, Investments on 18/02/2012 at 5:19 am

His investments are wrecking the world

http://www.huffingtonpost.com/r-paul-herman/warren-buffetts-billions-_b_1251884.html

2012: Not so bad leh?

In Economy, Investments on 09/01/2012 at 5:41 am

The outlook for 2012 is neither promising nor hopeless. Collapse of the global financial system, a return to the 1930s, a new depression, deflation – each threat to the world economy since 2008 has been real and has so far been averted. Euro collapse is the next threat. Policymakers will have to be resourceful again. That the world is still just about recovering shows that unlike in the 1930s they haven’t got everything wrong.

http://www.breakingviews.com/2012-another-year-of-living-euro-dangerously/1621498.article

Strategy for 2012: Same as in 2011

In Financial competency, Financial planning, Investments on 05/01/2012 at 5:54 am

Go buy stocks that pay good, sustainable dividends http://atans1.wordpress.com/2011/08/12/a-broker-who-almost-got-it-right/

BTW same as for 2010 http://atans1.wordpress.com/2009/12/31/investment-strategy-for-2010/

Also read

http://atans1.wordpress.com/2011/12/12/primer-on-yields-of-reits-biz-trusts/

http://atans1.wordpress.com/2011/01/02/investing-in-reits/

http://atans1.wordpress.com/2010/11/10/high-yield-low-pay-out-stocks-are-best/

http://atans1.wordpress.com/2010/08/24/buying-for-dividends-know-the-cos-balance-sheet/

http://atans1.wordpress.com/2010/06/30/buying-for-dividends-diversify-too/

Primer on Yields of Reits & Biz Trusts

In Investments, Reits on 12/12/2011 at 5:57 am

The u/m is an extract from a BT article written by Teh Hooi Ling. Senior Correspondent and CFAer, published on 3 December 2011. It gives some very interesting insights on the yields offered by the various types of Reits, shipping trusts and other business trusts*. (Note some bad news for shipping trusts) 

Thanks BT,  Ms Teh and the unnamed fund manager, “Merry Christmas and a Happy New Year”.

For investors who are keen on Reits and other business trusts, here is some advice from a fund manager friend on how to go about picking the right ones.

Industrial properties usually have 30-year leases, or 30+30. Assuming a 30-year lease, it means it depreciates at a rate of 3.3 per cent pa, versus one per cent pa for a 99-year lease for a retail or commercial building. So the yields for industrial Reits have to be up to 2.3 per cent pa higher than retail or commercial Reits. Usually however, it is less due to the time discount factor.

‘Ships are usually scrapped after about 25-30 years. I think typically they are depreciated over 15 years or so. Even if ships are scrapped after 30 years, shipping trusts should command a higher yield than industrial Reits because the ship lessee can ‘disappear’ with the ship, but not the industrial building tenant.

‘Hospital Reits like Parkway Reit is a rare breed as its revenue is based on a consumer price index formula. You can think of it as having zero vacancy rate (but the main issue is counterparty risk). So given the same counterparty risk, it should trade at a lower yield than retail Reits, which should trade at lower yields than commercial Reits, given the same tenure (because it’s easier to lease out retail units).

‘In turn, commercial Reits should trade at lower yields to industrial, which should trade at lower yields to hospitality (as vacancy rates of hotels/service apartments can be quite high during recessions).

‘Hospitality Reits should trade at lower yields to shipping.

‘But note that industrial can trade at higher yields to hospitality as the former has shorter tenures.

‘As for Hutchison Port Holding Trust and SP Ausnet, I would value them as companies rather than Reits, as usually the rates they charge are prone to fluctuations – unlike Reits and shipping trusts which usually lock customers up for years.

‘SP Ausnet is not structured even as a business trust and pays its dividends out of net profit rather than cash profit. I think every year, it pays out the same dividend per share even though its earnings fluctuate. I would value it the same way I value SingPost.’

Note that unlike a company, a Reit cannot maintain payouts if it hits a bad patch because, at least, 90% of net income has to be paid out. While this is not true of biz trusts, their attraction is that they promise to pay out most of their free cashflow. Companies usually pay out only a portion of their net income, hence there is something in reserve, if they hit a bad patch, and dividends can be maintained for a while more. Hence the importance to investors of what analysts call “dividend cover” which shows how many times over the net income could have paid the dividend. For example, if the dividend cover was 2, this means that the firm’s profit attributable to shareholders was two times the amount of dividend paid out. Not true of Reits, and biz trusts. Got problems, payouts get cut.

*Related post: http://atans1.wordpress.com/2011/12/10/reits-and-business-trusts-similarities-differences/

Equities: Sluggish Recovery?

In Economy, Investments on 09/12/2011 at 5:52 am

Jeremy Grantham, chief investment strategist of GMO, writes in his latest quarterly letter that the bursting of the two most recent equity bubbles was historically unusual in that stock prices soon recovered to their trend. The next bust, he writes, may not be as forgiving.

http://www.gmo.com/websitecontent/JGLetter_ShortestLetterEver_3Q11.pdf

Another way of looking at the situation is that these two recoveries were bear traps.

Note he called the 2008 crisis before it was fashionable, and he was never someone who was forever and a day prophesying the end is nigh.

Fifty / Fifty Approach in Investing

In Financial competency, Investments on 08/12/2011 at 5:13 am

 Some research from America, and how it can tried out here.

Vanguard created a model portfolio divided equally between stocks and bonds, and compared the returns in periods of economic expansion and recession. It found that “the average real returns of such a portfolio since 1926 have been statistically equivalent regardless of whether the U.S. economy was in or out of recession.”

Vanguard’s founder, John C. Bogle, popularized index funds, and the study tracked the stock and bond markets using indexes that mirror the broad markets. Individual stock and bond selection wasn’t involved at all.

http://www.nytimes.com/2011/11/27/your-money/half-stocks-half-bonds-a-solution-for-turbulent-times.html?src=me&ref=business

What accounts for these results? Put simply, bonds tend to outperform stocks when a recession is on the horizon, while stocks tend to rally when an economic expansion is in the offing. “The financial markets themselves tend to move in advance of the economy,” Mr. Davis said.

Predicting the economy’s direction is famously difficult. So unless you have substantial bond holdings in your portfolio well before a recessions begin, you’ll miss upturns in the bond market. And unless you’re holding stocks before an economic recovery has started, you’ll miss those big rallies.

By holding stocks and bonds in equal proportion — a portfolio that’s easy to construct by using index funds — you won’t need to be prescient; you can stick to your portfolio and ride out the storms.

Of course, a 50-50 stock-bond division is relatively conservative. Alter those proportions and the results will shift significantly. During recessions, for example, a portfolio containing 60 percent stocks and 40 percent bonds fared worse than the 50-50 portfolio, with an average real return of 4.9 percent annually. In expansions it did better, with an average real return of 6.8 percent, according to Vanguard’s calculations.

That points out the allure of market timing. In an ideal world, if you knew in advance where the economy was heading, you’d be a market wizard. You would shift your entire portfolio into stocks during expansions, for example, and put all of it into bonds in recessions. If you could actually do this, the results would be impressive. In expansions, Vanguard found, stocks have gained an average of 11.9 percent annually, after inflation, while the comparable figure for bonds in recessions is 7. 2 percent That kind of timing is ideal.

BUT it’s easy to shoot yourself in the foot. Get the timing wrong and hold only stocks in recessions, for example, and you’d have an annual average gain in those periods of 3.3 percent, after inflation. And if you hold bonds in expansions, you’d lose an average annual 0.7 percent, also after inflation.

 Want to try this here? http://www.nikkoam.com.sg/files/documents/funds/phs/phs_homebalanced.pdf

 The term sheet says, among many other things:

WHAT ARE YOU INVESTING IN?

You are investing in a unit trust constituted in Singapore that passively invests its

assets primarily in S$ denominated fixed income securities and Singapore-listed

equities in the proportion of approximately 50:50 respectively (proportionate

allocations are subject to a 5% variance).

The Managers intend to invest all or substantially all of the Fund’s assets in the

following exchange traded funds (“ETFs”), namely the ABF Singapore Bond Index

Fund and the Nikko AM Singapore STI ETF (the “Underlying Funds”).

Both of the Underlying Funds are managed by the Managers.

The base currency of the Fund is S$.

This is for yr further study. I’m not recommending either the 50/50 strategy or the product.

Diagram to remember

In Financial competency, Investments on 07/12/2011 at 8:45 am

Too many Black Swans

In Investments on 07/11/2011 at 7:00 am

Gd piece explaining that the term “Black Swan” is often misused, even by the coiner of the term.

http://www.bloomberg.com/news/2011-10-23/many-black-swans-make-metaphor-meaningless-commentary-by-alice-schroeder.html

S’poreans get justice in US?

In Investments on 04/11/2011 at 7:37 am

A US court has decided that it would hear a lawsuit brought by Pinnacle Notes’ investors (see below for extract of BT report).  It ruled that “generalised warnings of risk and of the possibility of adverse interests” between Morgan Stanley and the Pinnacle Notes investors were not sufficient to protect Morgan Stanleyagainst all allegations of fraud.

Meanwhile the S’pore court of appeal has told DBS High Notes 5 investors to bugger-off: “In view of our decision in this appeal, we think it apposite and timely to remind the general public that, under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract … The principle of caveat emptor applies equally to literates and illiterates.”

Wonder why the investors never alleged fraud by DBS? The S’porean legal system (like that of the English) requires a very high standard of proof if the plantiffs’ allege fraud. And if they fail to prove fraud, the consequences for the plaintiffs can be very serious in monetary terms. The US system is a lot more lax.

Poor DBS HN5 investors: their Hongkie cousins were treated better by DBS http://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/

Read the rest of this entry »

The next bubble

In Investments on 02/11/2011 at 7:44 am

Farmland

http://www.project-syndicate.org/commentary/shiller76/English

Bond funds are not BONDS

In Investments on 01/11/2011 at 6:43 am

There is an ad from a very reputable fund manager advertising its Asian bond fund. If you find the idea of buying into a bond fund attractive, read u/m which I posted some time ago on the difference between buying a bond fund and a bond.

————————————————————–

In search of safe and non-volatile returns, retail investors globally have invested heavily in bond funds, often thinking they are as safe as investing in individual bonds: with the added advantages of diversification (of interest rates, maturities, and default risks); and lower investment costs.

Sadly, they are not the same.

When you invest in a bond, you know the interest rate and the duration (maturity date) of the bond. When interest rates go up, the value of a bond goes down. But you will  get the promised interest and if you  hold the bond until it matures, you will  get your principal back. Bit like a fixed deposit.

You will only lose your principal if you decide to sell it before it matures.

But a bond fund doesn’t work that way because it invests in many bonds, hundreds, possibly thousands. There are many different interest rates and maturities (durations).  So you don’t have a defined interest rate or a maturity date. You have an average interest rate and average duration for all the bonds in the fund.

This may seem an esoteric difference, but believe me, when interest rates rise you will regret not knowing the difference earlier.

You could lose serious money because for any percentage point change in interest rates, the value of the fund will change by the amount of the duration. This sounds complicated but the following illustration will make clear the inconvenient truth.

If the fund holds bonds with an average duration of 10 years, and 10-yr interest rates go up by one percentage point in the capital markets, the value of your fund will drop by 10%. If the fund before the interest rate rise was worth $100m, after the rise, the fund is only worth $90m. BTW, the longer the average duration in the fund, the bigger should be the loss. If the average duration was 40 yrs, the loss would be 40%. Buying shares is safer neh?

Going online to complain to Tan Kin Lian or protesting at Hong Lim Green claiming that you have been cheated is a waste of time. It’s yr fault.

So think twice about investing in a bond fund, if you want safe, steady returns. It may not work out that way.

Finally, came across this interesting quote. “People would rather overpay for bonds than underpay for stocks,” says David Kelly, a strategist for J. P. Morgan Funds. “It’s a function of years of very miserable stock returns. And just a general fog of gloom over the country right now.”

What if there is stagnation?

In Commodities, Economy, Investments, Property on 21/10/2011 at 6:49 am

A few days ago, I blogged that were three scenarios for the developed world. Growth — buy equities; inflation — buy property and commodities; and recession — buy government bonds.

Thinking about it again, there is a  fourth scenario: stagnation. There will be shallow recoveries and recessions in quick succession.

In that scenario, one should be looking at buying equities for their dividend yields, and the corporate bonds of super blue chips.

Where be the next winner?

In Commodities, Economy, Investments, Property on 17/10/2011 at 7:00 am

Depending on where the developed world heads, equities, commodities and property, or government bonds could be the investment.

There are three scenarios for the developed world (remember the BRIC and Indonesia etc still are dependent on the developed world to drive their economies). It can

– grow out of its debt burden,

–  inflate the debt away, or

–  fall back into recession, marked by the occasional default.

Each of those outcomes leads to a different portfolio.

Renewed growth would favour equities, but at the moment, this looks too hard to achieve. An attempt to inflate would be good for commodities and property but would be disastrous for government bonds. Selected equities might do well: those that can pass on the cost rises to customers. Those bonds would do best if the developed world goes into a  recession.

Hope this explains the extreme volatility of markets.

Investing in the noughties: matter of timing?

In Investments on 06/10/2011 at 1:51 pm

Over the past 10 years, investors have experienced a stark divergence of fortunes, with some making substantial amounts of money whilst others have suffered losses.

Timing, picking the right investments and employing the right strategy have determined their fate.

http://www.bbc.co.uk/news/business-14853222

He bot preferreds, stupid

In Investments on 01/10/2011 at 6:57 am

Or the perils of trying to copy Buffett by buying ordinary GE and Goldman Sachs shares. http://dealbook.nytimes.com/2011/09/14/buffetts-not-so-golden-touch/?nl=business&emc=dlbkpma21

Goldman is worth breaking up?

In Financial competency, Investments, Uncategorized on 13/09/2011 at 8:10 am

Masterclass in back of envelope calculations.

http://www.nytimes.com/2011/09/08/business/breaking-up-could-be-good-for-goldman.html?nl=business&emc=dlbka23

Haw Par: Rediscovered yet again

In Investments on 05/09/2011 at 2:00 pm

So another investor and blogger discovered last yr that Haw Par is undervalued and blogged abt it recently. Welcome to the Haw Par Tan Kuku club brudder.

If you read the latest annual report, you will know that Cundill and Eagle Investments are substantial shareholders. Both are value investors. Cundill has held the shares for over 10 yrs. Yes, the valuation gap has existed for at least that long.

I bot the shares more than 10 yrs ago and the gap has has narrowed, widened, going round and round. Some brokers recommend buying it when the gap is historically wide and selling it when the gap narrows.

But I don’t mind holding onto the shares. I looked at it, and still do, as buying into a listed investment trust that invests in the Wees’ financial empire (UOB, UOL and UIC). The operating businesses I get for almost free, and the dividends are decent. True there is a big gap between the share price and valuation but so what? No such thing as a free lunch.

And who knows? If the Wees’ empire is broken up, the valuation gap closes.

Another way for the gap to narrow, is if one or more of the operating businesses hits a winner, and the market recognises the value of the business or businesses. Actually 20 over yrs ago, people bot Haw Par because of its operating businesses.

My 2009 post http://atans1.wordpress.com/2009/12/11/hidden-tiger/

Masterclass in analysis: Buffett’s BOA deal

In Banks, Financial competency, Investments on 28/08/2011 at 8:08 am

When Warren E. Buffett invests in a troubled company, he gets a good deal. Dealbreaker’s Matt Levine crunched the numbers on Mr. Buffett’s Bank of America investment and estimates that the bank’s implied stock price in the $5 billion deal was $5.28 per share, more than $2 lower than where it currently trades. Note the way he uses less than precise assumptions to avoid getting into complications.

http://dealbreaker.com/2011/08/how-much-did-warren-buffett-pay-for-bofa-anyway/

Why MU is listing here

In Investments on 19/08/2011 at 1:49 pm

Unlike in HK, a loss-making co can list here.

Uniquely S’porean.

A broker who almost got it right

In Economy, Investments on 12/08/2011 at 9:21 am

In late January 2011, I posted this giving the views of UOB Kay Hian. It argued investors will be best served by having a balanced portfolio comprising firstly of counters that promise high and sustainable dividend yields.

S’pore equities: Can’t argue with this safety first approach

In Economy, Investments on 20/01/2011 at 5:31 am

UOB Kay Hian says that with the prospect of slowing economic growth and reasonable stock market valuations in 2011, investors should balance their portfolio with a combination of high-yielding large-cap and mid-cap counters that offer a higher margin for growth.

Despite the moderate earnings [8%} outlook for Singapore compared with its regional peers, we think Singapore’s safe haven status will continue to attract selective investor interest amid the uncertain external outlook.

Investors will be best served by having a balanced portfolio comprising firstly of counters that promise high and sustainable dividend yields.

These would be local telcos StarHub and M1, along with real-estate investment trusts K-Reit, Sabana Reit and CapitaCommercial Trust.

And’laggard’ large-cap stocks that offer good growth prospects eg. the banks. Its top pick in this segment is OCBC, followed by DBS. (I prefer Haw Par because of its stake in UOB).

Investors should also be on the lookout for the so-called Garp (growth at a reasonable price) stocks in both the mid-cap, like  Ezra and Ezion, CDL Hospitality Trusts, First Resources and Super Group, and large-cap space.

Its ‘sell’ calls include Keppel Corporation, SingTel, Tiger Airways and CapitaLand. Surprised abt Keppel call because the offshore marine sector is looking gd, what with firm oil prices and offshore projects in Brazilian waters.

Losing serious money is easy

In Financial competency, Investments on 07/06/2011 at 8:12 am

In Minding the Markets, the author argues that contemporary economics, with its neat mathematical models and fully rational robot-like decision-makers, fatally under-estimates the importance of emotions.

Tuckett’s insight, based on in-depth interviews with more than 50 investors, each managing more than $1bn, is that stocks, shares and derivatives are a special kind of asset, and decisions about whether to buy and sell them are particularly subject to stories and emotions.

– the value of financial assets is prone to extreme uncertainty: thousands of unpredictable events can affect the profitability of a company, for example, from the collapse of a key supplier to a sudden change in the cost of commodities to a natural disaster many thousands of miles away.

– the owner has nothing they can eat, drink, live in, or even hold in their hands: they have to weave a story, a narrative, even to understand why it’s worth buying the asset in the first place, let alone hanging onto it when its value has soared to once-unthinkable heights.

Given these special characteristics, Tuckett argues, financial assets tend to become what he calls “phantastic objects”, which their owners invest with extraordinary powers and think about in ways that are unavoidably emotional.

Guardian article

Stop worrying, start buying

In China, Investments on 15/05/2011 at 9:45 am

Jim O’Neill, chairman of Goldman Sachs Asset Management, said investors should shed their pessimism and stop hoarding cash amid prospects for a global stock rally that could start in China.

Bloomberg story. Note Goldman is setting up a yuan-denominated fund to invest in China.

Q&A with Warren Buffett

In Investments on 26/04/2011 at 11:54 am

He answers questions from MBA students. Worth a read. Some gd questions.

http://blogs.rhsmith.umd.edu/davidkass/uncategorized/warren-buffetts-qa-with-university-of-maryland-mba-students-march-11-2011/

Helping retail investors: the HK way and the S’pore way

In Investments on 01/04/2011 at 9:39 am

The speculation in the MSM that MAS’s MD had resigned  so that he could join MAS board members GCT, Tharman and Hng Kiang in the cabinet reminded me of the different ways HK and S’pore helped retail investors affected by the default of structured products connected with Lehman Brothers .

Sixteen banks in HK have recently agreed to buy back the minibonds that they sold to 31,000 (out of 43,000 investors) for up to 96.5% of their face value. Bloomberg  An estimated 4 percent of note holders would get at least 90 percent of their investments back, and 65 percent of those eligible would get 80 percent to 90 percent.

In S’pore, 1088 investors  (12.2% of minibonders) received the face value of their minibonds. So percentage-wise, the government here did better in getting the distributors to be more compassionate: to the elderly and those with only a primary six education.   Read the rest of this entry »

Another dangerous year

In Investments on 30/03/2011 at 7:48 am

As the Economist said, This was supposed to be a stress-free year for the global economy. By January the financial crisis had faded and Europe’s sovereign-debt crisis seemed less acute. America’s economy was resurgent. Investors piled into equities and sold some of the government bonds they’d bought for troubled times. If there was a worry, it was that emerging economies would grow too quickly, inflating commodity prices.

The year without crisis is not to be. First, Arabian upheaval put oil markets on edge. Then earthquake, tsunami and a nuclear accident clobbered the world’s third-largest economy.

The flight to Western stock markets from developing markets is not looking so smart because higher oil prices could lead to a recession in the West. Investing in developing markets remains problemtic because higher inoil prices will make it more imperative for the governments in the developing countries to fight inflation,

Bonds don’t look the safe havens because there is the belief that whether they like it or not, developed countries have to raise interest rates.

Time to go go into cash? Err what currency? S$ is a safe currency but interest rates are “peanuts”.

Heck, I’ll leave with the CPF the funds I can withdraw (I’m past 55). Juz hope that the rules don’t change, and these funds become “frozen” to provide me with more old-age protection.

Whoever said investing is easy?

Protection against Black Swan events

In Insurance, Investments on 28/03/2011 at 7:07 am

Financial institutions that were peddling subprime loans and derivatives thereof have moved on. They are now peddling products that will lose you money each yr (say 15%), but which they claim will make it up and more when a Black Swan happens.  And BTW, they use derivatives.

But there are people in this business that have gd track records. Nassim Taleb, author of “The Black Swan”, has a fund which has grown from uS$300m in 2007 to around US$6 billion today.

And, bond funds, PIMCO and BlackRock (who largely avoided subprimes) have similar funds. They also advise clients on this issue.

The worth of a financial adviser

In Investments on 14/03/2011 at 7:00 am

The study … found that the value of investment advisers was not in the stocks or mutual funds they recommended but in their ability to restrain investors from impulsively trading at the wrong time … data showing that aggressive orders by individuals can cost them about four percentage points a year.

“Enlightened behavioral investors ought to be more willing to pay on the order of one percentage point to an investment manager who will prohibit or at least impede aggressive orders than to pay nearly four times as much for the privilege of excessively and detrimentally trading their own account,” …

BUT

… advisers can be subject to the same myopia as the investors they advise. … an article called “The Third Rail” … that questioned the whole notion of advisers being the rational counterweight to investors’ more irrational behavioral tendencies.

NYT article

Watch this blog. I intend to explore this issue further.

S’pore equities: Can’t argue with this safety first approach

In Economy, Investments on 20/01/2011 at 5:31 am

UOB Kay Hian says that with the prospect of slowing economic growth and reasonable stock market valuations in 2011, investors should balance their portfolio with a combination of high-yielding large-cap and mid-cap counters that offer a higher margin for growth.

Despite the moderate earnings [8%} outlook for Singapore compared with its regional peers, we think Singapore’s safe haven status will continue to attract selective investor interest amid the uncertain external outlook.

Investors will be best served by having a balanced portfolio comprising firstly of counters that promise high and sustainable dividend yields.

These would be local telcos StarHub and M1, along with real-estate investment trusts K-Reit, Sabana Reit and CapitaCommercial Trust.

And’laggard’ large-cap stocks that offer good growth prospects eg. the banks. Its top pick in this segment is OCBC, followed by DBS. (I prefer Haw Par because of its stake in UOB).

Investors should also be on the lookout for the so-called Garp (growth at a reasonable price) stocks in both the mid-cap, like  Ezra and Ezion, CDL Hospitality Trusts, First Resources and Super Group, and large-cap space.

Its ‘sell’ calls include Keppel Corporation, SingTel, Tiger Airways and CapitaLand. Surprised abt Keppel call because the offshore marine sector is looking gd, what with firm oil prices and offshore projects in Brazilian waters.

Forecasts are rubbish? What to do?

In Financial competency, Investments on 16/01/2011 at 8:29 am

It’s the time of yr when forecasts are a dime a dozen. What shld be our attitude towards them? Treat them to way many netizens treat MM Lee’s pearls of wisd0m?

Byron R. Wien, the veteran strategist who has been issuing market forecasts for decades … says the quick answer is this: Don’t take these forecasts too seriously, and don’t view them as the literal truth.

“Few people get forecasts right very often,” he says. “I certainly don’t. I don’t even attempt to make a literal forecast. I try to come up with some ideas that are provocative, and worth thinking about.”

Benjamin Graham, the late Columbia professor and path-breaking value investor, gave some thought to market forecasts. He didn’t dismiss them entirely, but he didn’t place much store in them, either. In his classic Read the rest of this entry »

Investing: Five easy steps

In Investments on 06/01/2011 at 6:38 am

One of the authors  of “The Investment Answer: Learn to Manage Your Money & Protect Your Financial Future” was a top bond trader but after he retired, he found out that he knew little up until that point about basic asset allocation among stocks and bonds and other investments or the failings of active portfolio management is shocking, until you consider the self-regard that his master-of-the-universe colleagues taught him. “It’s American to think that if you’re smart or work hard, then you can beat the markets,” he said.

The book asks readers to make just five decisions.

First, will you go it alone? The two authors suggest hiring an adviser who earns fees only from you and not from mutual funds or insurance companies …

Second, divide your money among stocks and bonds, big and small, and value and growth. The pair notes that a less volatile portfolio may earn more over time than one with higher volatility and identical average returns. “If you don’t have big drops, the portfolio can compound at a greater rate,” …

Then, further subdivide between foreign and domestic. Keep in mind that putting anything less than about half of your stock money in foreign securities is a bet in and of itself, given that American stocks’ share of the overall global equities market keeps falling.

Fourth, decide whether you will be investing in active or passively managed mutual funds. No one can predict the future with any regularity, the pair note, so why would you think that active managers can beat their respective indexes over time?

Finally, rebalance, by selling your winners and buying more of the losers. Most people can’t bring themselves to do this, even though it improves returns over the long run.

NYT article

Whatever you do attend Fisca’s talks

Investing in Reits

In Investments, Property on 02/01/2011 at 5:29 pm

BT published a long piece that could serve as a primer on how to invest in Reits. Reit Primer.

Two complaints abt piece.

One is that it doesn’t talk abt buying Reits that trade at big discounts to latest reported RNAV. True there may be gd reasons why some Reits trade way below RNAV. But savvy investors can make $ buying Reits that they think shld not trade way below RNAV and holding them until they trade above or juz below RNAV, while getting good payouts while waiting. Useful Reit table for yields and RNAVs.

Those who bot Ascendas India Trust (trumpets pls) when it was trading way below its RNAV have made gd capital gains. I should have sold  out but the yield is pretty decent.  And India is now hot and RNAV could rise.

The other complaint abt the piece is that Reits can use the low interest environment to refinance their debts at lower rates and for longer tenures. Analysts from DBS and OCBC are saying this is happening.

BTW, high-yielding Reits  courtesy of ST scan0004. Declaration of interest: I own units in three of them. (Update on ^ January 2010: Now own four of them.)

Update on 4 January 2010

Must read — a summary of Soro’s piece (many yrs ago) on the danger of buying a Reit trading above RNAV (and attraction).

Another gd Reit table.

Key signs of mkt top

In Investments on 01/01/2011 at 7:18 am

Interesting reminder of what to watch out for.

Gd fortune in 2011.

Kenny Rogers & investing

In Investments on 29/12/2010 at 6:58 am

You’ve got to know when to hold ‘em
Know when to fold ‘em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done

The full song

Bond funds are not BONDS

In Investments on 30/08/2010 at 5:43 am

In search of safe and non-volatile returns, retail investors globally have invested heavily in bond funds, often thinking they are as safe as investing in individual bonds: with the added advantages of diversification (of interest rates, maturities, and default risks); and lower investment costs.

Sadly, they are not the same.

When you invest in a bond, you know the interest rate and the duration (maturity date) of the bond. When interest rates go up, the value of a bond goes down. But you will  get the promised interest and if you  hold the bond until it matures, you will  get your principal back. Bit like a fixed deposit.

You will only lose your principal if you decide to sell it before it matures.

But a bond fund doesn’t work that way because it invests in many bonds, hundreds, possibly thousands. There are many different interest rates and maturities (durations).  So you don’t have a defined interest rate or a maturity date. You have an average interest rate and average duration for all the bonds in the fund.

This may seem an esoteric difference, but believe me, when interest rates rise you will regret not knowing the difference earlier.

You could lose serious money because for any percentage point change in interest rates, the value of the fund will change by the amount of the duration. This sounds complicated but the following illustration will make clear the inconvenient truth.

If the fund holds bonds with an average duration of 10 years, and 10-yr interest rates go up by one percentage point in the capital markets, the value of your fund will drop by 10%. If the fund before the interest rate rise was worth $100m, after the rise, the fund is only worth $90m. BTW, the longer the average duration in the fund, the bigger should be the loss. If the average duration was 40 yrs, the loss would be 40%. Buying shares is safer neh?

Going online to complain to Tan Kin Lian or protesting at Hong Lim Green claiming that you have been cheated is a waste of time. It’s yr fault.

So think twice about investing in a bond fund, if you want safe, steady returns. It may not work out that way.

Finally, came across this interesting quote. “People would rather overpay for bonds than underpay for stocks,” says David Kelly, a strategist for J. P. Morgan Funds. “It’s a function of years of very miserable stock returns. And just a general fog of gloom over the country right now.”

One Big Thing We Don’t Know About Stocks

In ETFs, Investments on 08/08/2010 at 6:54 am

Sumething to think about if you are investing in equities for the long term, esp if you are doing it via ETFs or other low-cost index funds.

The only reason we invest in stocks is to earn more than we would get from cash or bonds. The amount you are supposed to earn by taking the additional risk of owning stocks is called the risk premium. If you don’t get paid more for taking the risk, you should put your money in bonds.

Over the last 207 years you got paid 2.5 percentage points more each year (on average) to invest in stocks than you did in bonds.

But you know what they say about statistics, right? In the real world, we have to deal with the fact that, like all averages, this one has some serious problems. Sometimes the risk premium is higher than 2.5 percent, and sometimes it goes away or is hugely negative (say, in a bear market).

Until recently, most of us thought of bear markets as those three- to five-year periods where you grit you teeth and hang on. But recent experience is more painful than that. Read the rest of this entry »

Buying for dividends: diversify too

In Investments on 30/06/2010 at 5:25 am

Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable.

Again and again, we’ve seen out-of-nowhere scandals and crises and accidents bring big companies to their knees. Why, given the overwhelming evidence that these things do happen once in a while, would you not extract your dividend income from a low-cost, broadly diversified mutual fund that specializes in dividends?

The moral of the story, as always, is to diversify within each asset class you own, whether it’s dividend-paying stocks or municipal bonds or the emerging-market countries where you’re rolling the dice for big gains. Then, diversify your retirement income, too. The more sources the better, whether it’s dividend income, interest income, annuity income, rental income or periodic (and tax-savvy) outright sales of stocks or other assets.

Even this sort of diversification might not have protected you from the pain in 2008. But it can shield you from the ruin of betting too heavily on a single security like BP.

NYT article

Value investing: Ask the right question stupid

In Investments on 07/05/2010 at 5:16 am

Those who consult Kwan Im and other deities, know that asking the right question is the key to a successful consultation.

Likewise in business, asking the correct question is the key to success. Google did, Yahoo didn’t.

In the mid-nineties, Yahoo! tried to figure this [what web search is] out by asking of every website “where does this belong?” They created categories, then had an actual live human look at each site and make a judgment, like a librarian. … But the web grew exponentially, and there weren’t exponentially more librarians for hire. Google beat Yahoo! by asking a different question: instead of “where does this belong”, they asked “who linked here?” A link became a proxy for a human decision; to link to something is to decide that it’s in some way relevant. Google reads links as human intent i.e. web search is an attempt to figure out what people want, not what librarians say where something belongs.

So in investing prior to and during the recent crisis, Buffett (“Is there value?”), Paulson (“Is sub-prime over-valued”) asked the right questions, GIC, Temasek and many others didn’t.

SWFs’ big equities bets underperform

In GIC, Investments, Temasek, Uncategorized on 01/05/2010 at 6:16 am

Companies do badly after foreign sovereign wealth funds buy their shares, according to”Sovereign Wealth Fund Investment Patterns and Performance” by Bernardo Bortolotti, Veljko Fotak and William Megginson, reports the FT.

When an SWF invests, the target company’s share price often jumps in the days surrounding the investment, the research found, but over the following year or two, the share price significantly underperforms its peer group.

SWFs usually take significant stakes in companies – the median stake, according to the research, is 8%, the average 14% – and frequently buy the shares directly from the companies rather than on the open market. After two years, the average investment had lagged its peers by 10%.

“They’re giving cash to the companies and taking a large passive stake. All the literature shows this is a bad idea,” said Prof Megginson. The exception that proves the rule is the Norwegian Government Pension Fund, which makes small scale investments in publicly traded shares.

When its results are stripped out of the data, the negative impact of SWF investment looks worse, with an average underperformance of 13.55%.

The findings support the academics’ “Constrained Foreign Investor Hypothesis”, which predicts that foreign investors, particularly SWFs, will find it difficult to hold directors of companies to account because political considerations make them reluctant to antagonise management.

Political concerns may also deter them from selling shares in companies that are not performing according to expectations, removing another possible feedback mechanism that might improve the management of a company.

The underperformance that follows such passive ownership is a problem for other shareholders as well, said MrPeter Butler, chief executive of Governance for Owners.

“It’s the free-rider problem. SWFs are relying on other shareholders [being engaged owners] and holding directors to account. Either they get something for nothing, or nobody does it and the shareholders suffer,” Mr Butler said.

The new research will likely cause some debate, particularly as it flatly contradicts other studies that showed companies benefiting from SWF investment. Nuno Fernandes, professor of finance at IMD and a Lamfalussy research fellow of the European Central Bank, recently published a paper showing SWF investments led to a significant outperformance by the company. Prof Fernandes reported that further research led him to conclude SWFs were actually very good at monitoring companies where they had invested, as well as opening up new markets for the companies and helping them lower the cost of capital.

So Temasek and GIC be warned.

Our SWFs: What our MPs are not asking II

In GIC, Investments, Temasek on 30/04/2010 at 9:52 am

Do they even know that, Norway’s finance ministry will tighten risk controls over the country’s sovereign wealth fund but has rejected calls for an end to active management?

The scope for active management of the NKr2,757bn US$456bn) oil fund will be limited  after criticism of its performance during the financial crisis.

Norway has been reviewing its investment strategy since the fund lost 23 per cent of its value in 2008, doing worse than the decline in the benchmark portfolio against which it is measured. Initial calls for a shift to passive management have become more muted as the fund recovered most of the previous year’s losses in 2009 and outperformed the benchmark by 4.1 percentage points.

However, the report proposed the scope for active management, measured in terms of expected tracking error from the benchmark, should be reduced from its upper limit of 1.5 percentage points to 1 point.

Other proposals included limits to leverage and tighter regulation of risk concentration.

The fund, officially known as the government pension fund, recorded a return on investment of 25.6 per cent in 2009, the best in its 13-year history, on the back of its worst performance the year before.

As the Norway Fund went into the crisis underweiged equities, it used the opportunity to load up on equities last yr.

Our MPs should be asking ministers why S’pore is not following the Norwegians?

Fat chance as they never asked these the questions in this posting.

m/2010/03/15/our-swfs-what-our-mps-are-not-asking/

FYI

In Marchm Carl Heinz Daube, the head of Germany’s formidable debt management agency, travelled to China and Singapore for a meeting with two of the world’s biggest investors – as part of an attempt to tap a new pool of investors, such as sovereign wealth funds – who might be willing to buy German government bonds.

Sumething that the FT said “that would have seemed almost unimaginable – or unnecessary – five years ago.”

Great excuse for telco to buy bank stake

In China, Investments, Telecoms, Temasek on 10/04/2010 at 5:07 am

Some time back, China Mobile agreed to buy 20%  of Shanghai Pudong Development Bank for 39.8 billion renminbi (US$5.8 billion) to expand its electronic payment business.

The reason for the telco to buy such a big stake in a bank:  China Mobile and Pudong Bank will form a strategic alliance to offer wireless finance services including mobile bank cards and payment services, according to a statement  filed with the HKSx.

Wonder if  the corporate communications departments of TLCs, M1, SingTel and Starhub have filed away this excuse. Their company might need to adapt it if it ever has to buy a stake in a bank in the Temasek stable.

Why?

In late March according to a Reuters report, Bank of China, China’s fourth largest bank, said it was in talks with Temasek, to set up a rural business bank in China. The bank under discussion would have 40-60 branches, President Li Lihui told reporters at a media briefing to discuss Bank of China’s 2009 results

Now wouldn’t such a bank need wireless expertise and don’t StarHub and SingTel love to do dumb things? Fooie fans still don’t know if we will get World Cup coverage.

Value in China stocks: Indexation guru

In ETFs, Investments on 03/04/2010 at 3:53 am

Princeton University economist Burton Malkiel, the author of  “A Random Walk Down Wall Street”, a book that introduced many to the idea of investing via indexed-linked funds, sees value in Chinese shares, he tells the FT.

The FTSE-Xinhua index of the 25 largest Chinese stocks quoted in Hong Kong (”H” shares) is different [from the Shanghai "A" shares which he thinks overvalued], he says. This year, while the Shanghai has gained 53.8 per cent, the FTSE Xinhua is up 6.8 per cent – less than the S&P 500.

A “matched pair” study – comparing oil company CNOOC with ExxonMobil, its equivalent in the S&P, and so on – shows that FTSE-Xinhua price/earnings multiples are higher than in the S&P. But their rate of earnings growth is also higher. Crucially, their “PEG ratio” (the earnings multiple divided by the growth rate) is actually lower. So, Malkiel says, Chinese “H” shares are “moderately priced” compared to the S&P.

That is why he is buying China. But Malkiel is not selling his principles. He recommends investing in “H” shares via exchange-traded funds tied to the index – and not backing anyone who says they can beat the market. (Note there is an ETF traded here that tracks  the FTSE-Xinhua index of the 25 largest Chinese stocks quoted in Hong Kong (”H” shares): DBXT FTChina25.)

Bubble or collapse in China?

He would not be surprised if China took a near-term hit. But long term, he believes it is the place to be … He is concerned about asset bubbles forming in real estate, banking, and in the stock market. “This is bound to occur wherever economies grow fast, and China’s expansion over the past decade has been unprecedented in the history of industrialisation.”

But will the economy collapse if any of these asset bubbles burst? “Absolutely not,” says Mr Malkiel. “They will correct, and restart because of the strength of the underlying story and the country’s extraordinary balance sheet.”

He does not think the country can continue to rely on export-led growth for both geopolitical and economic reasons.

“China potentially has the largest consumer market in the world, but its consumption is less than 40 per cent of GDP, a ratio that has not changed over the past decade. In the US, the ratio is about 70 per cent.”

But key reasons for low consumption remain extant: people need to save because there are virtually no government safety nets; and the one-child policy makes it difficult for children to adequately care for their parents.

The divide between the Haves and the Have Nots is what most worries Mr Malkiel. “There are seismic gaps in China between rich and poor, especially seen in the affluent east versus the impoverished central and western regions.”

This has already led to some unrest. Potential instability is a great danger. “But that’s why the government is developing infrastructure, education and a nascent social safety net,” he says.

He contends that a purchasing power-adjusted gross domestic product weighting, which adjusts for the renminbi’s significant undervaluation by this measure, suggests equity exposure of between 6 and 12 per cent.

So how does he (and his clients) invest in China?

As chief investment officer of China-focused AlphaShares, he is certainly helping investors find their way into the mainland. He has crafted a series of indices, some of which are trading as ETFs, that provide specific sector exposure (infrastructure, consumer, technology and real estate) and market exposure (all cap and small cap).

But his firm has also developed a set of private actively managed funds. These include a China-linked fund, which invests in non-Chinese companies that are directly benefiting from China’s growth, and an enhanced index fund – a broad-market fund with an enhanced weighting of small and value stocks. A buy-write fund aims to exploit Chinese market equity volatility by going long the highly liquid FTSE Xinhua 25 Index and writing options against it to pick up premium income. AlphaShares may take these funds public.

Mr Malkiel squares this active management with his long-term embrace of passive investing by citing the inherent inefficiencies in the way the Chinese market functions and is tracked. He believes unprecedented growth, trifurcated shares [mainland, Hong Kong and foreign classes], and volatility present special opportunities that cannot be captured through traditional indices.

Finally, it should be no surprise, he is a bull on emerging markets, and equities in general.

For a 40-something US investor with a family, he is recommending a portfolio with 80 per cent equity exposure. And he thinks half of that should be foreign stocks. He believes long-term investors will be best served with half of this international exposure being in emerging markets such as Brazil, India, and China.

He remains a believer that passive exchange traded funds are the most efficient means of gaining market exposure around the globe. His recommended 50 per cent US exposure is close to the MSCI All-Country World Index weighting of 44 per cent. However, he deviates significantly in his exposure to so-called EAFE countries, the developed world ex-US and Canada. He recommends 25 per cent EAFE exposure versus the global weighting of almost 41 per cent, in the belief that Europe and Japan will not experience significant growth in the coming years.

He departs from market-cap benchmarking even more materially in recommending 25 per cent equity exposure to emerging markets, twice the All-World Index’s weighting.

Mr Malkiel justifies this by citing a perceived fundamental shift in growth away from developed to emerging markets. “My portfolio strategy remains passive, I’m not picking stocks,” he says. “I’m adjusting for economic realities. And we see the need for such investment modification in China where a low free float [on which most indices are based] undercounts China by at least a factor of four.”

Connected post

http://atans1.wordpress.com/2009/12/08/bull-in-a-china-shop-but-will-he-find-value-in-s-chips/




Value in Japan?

In Investments on 02/04/2010 at 5:58 am

Been reading that quiet a few reputable strategists and fund mgrs are saying that Japan’s the place to be.They include Byron Wien of Blackstone Advisory Services and Edinburgh-based Martin Currie.

Two related reasons are the  large sums of cash held in Japanese bank deposits and the changing attitudes of depositors towards equity investments. This cash could set the stage for a domestic stock rally.  True these are old arguments, but they could finally happen this time. After all the Japanese have elected a non-LDP government. The LDP had been in power since the late 1950s except for a few months in the 1980s.

Another reason is managements’ new focus improving corporate governance and return on equity.  The focus used to be on market share and everybody except shareholders.

Then there are  the strong balance sheets of companies. Japan is also exporting more to China and the rest of Asia, and less to the US.

Finally there is issue of relative valuations. FT reports,”Michael Katz of Glenrock Global Capital Partners says he likes Japan on a relative basis. The market is priced for “every known calamity” and clearly is not a momentum play for those looking to make a quick buck.

‘For those seeking value, if not Japan, what?” he asks. “Look around the world today and you’d find countries that depend on government largesse to keep themselves going. Stock markets are in their own little world. ””

Err last bull point puts me off: when someone talks of relative values, I tend to rush to the toilet.

Good Easter break.

Perils of buying on NTA III

In Corporate governance, Investments on 01/04/2010 at 5:20 am

Today, five companies no longer are listed after posting losses for five straight years: General Magnetics, Chuan Soon Huat Industrial, ASA Group, Fastech Synergy and Ionics EMS.

These delistings show yet again the danger of buying on NTA.

One, even if a firm has the cash for a buyout, most shareholders will not benefit. Ionics EMS’s exit offer of 1.5 cents per share, for example, was a 23.86 per cent discount to the 12-month volume-weighted average price (VWAP).

And as BT reported on tuesday, “With most of the companies experiencing drastic sell-offs since the de-listing notice was issued on March 2, their counters’ last-traded prices have fallen significantly below net asset value (NAV). General Magnetics’ case is the most vivid, with a $0.19 NAV per share against its last-traded price of $0.085.”

And as BT pointed out,  “Should VWAP feature more prominently than NAV in determining the exit offer, the price may end up being ridiculously low and shareholders of the five companies that face de-listing may find the options to stay or to go are not really options at all.”

But some gd news for value investors:  the investors in Lion Asiapac have gotten something — 15 cents a share via special dividend. Gd for them and great that they stood up and shouted for the money. And all without that self-proclaimed small shareholders’ champ.SIAS

http://atans1.wordpress.com/2010/03/18/perils-of-buying-on-nta-ii/

Perils of buying on NTA II

In Investments on 18/03/2010 at 5:33 am

It was reported in Today that ” Minority shareholders of Lion Asiapac are making another push for the company to pay out special dividends. Previous calls for such distribution were ignored.”

‘Mr Mano Sabnani, a Lion Asiapac shareholder, said: “The company has got more money than it needs. It can easily pay out 20 cents a share and still have a big cash hoard for new businesses.

‘Shareholders had previously petitioned Lion Asiapac’s chairman Othman Wok, calling for the distribution of special dividends to boost the stock price, which is trading at a heavily-discounted 33 cents to its cash value of 47 cents.”

The problem is that the company is a subsidiary of Lion Group, a M’sian listco, which means that Lion Group has the votes to block any such resolution.

Buying on a deep discount to NTA only works if the value investor can see some catalyst that will unlock value. Where there is a controlling shareholder or shareholders, this catalyst often does not exist. Witness Haw Par http://atans1.wordpress.com/2009/12/11/hidden-tiger/,

Chemoil http://atans1.wordpress.com/2009/12/16/when-a-controlling-stake-goes-at-a-massive-discount/ and

UE http://atans1.wordpress.com/2009/12/17/the-perils-of-buying-on-nta-calculations/

And bear in mind that such a discount could also be a sign that investors are concerned that the cash or assets  could be used up in unprofitable businesses, rather than given back to shareholders. Again where there is a controlling shareholder or shareholders, this is more likely to happen.  Not because the shareholder wants to screw the others but often because his time horizon is very, very long.  And he has other reasons for his holdings say sentimentality.

Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders. They were right.

OCBC: Value to be unlocked, cash returned to shareholders

In Investments on 08/03/2010 at 5:41 am

[Note on 26 April 2010 11.30 am, this piece was updated as the 2009 annual report was made available on website]

If OCBC mgt wants to unlock value and return cash to shareholders, this is how to do it.

First by reading the FT. “Prudential, trading at roughly 1 times embedded value, appears to be overpaying by offering 1.7 times EV for a business [AIG]with lower-quality profits. The valuation appears less outlandish, however, when compared with prevailing multiples in Asian markets of about 1.7-1.8 times”. EV means embedded value.

At its present share price (S$15.90), OCBC’s GE Life is trading 21% above its 2009 embedded value because GE LIfe’s free float is tiny: OCBC has 87% of GE Life.

At 1.7 X EV share price shld be 22.35 or 41% up.

And in 2009, AIA had 5% growth at operating level. Based on GE’s annced results, GE’ s is several times that. So given GE life’s smallish size and profitability, 2 X EV would be fair (even taking into account its very weakish presence in China: but then it is building up mkt share in Indonesia) .   At 2 X embedded value, share price is almost $26.30 — 65% up.

OCBC mgt:  Time to call, Allianz or Aviva? Or Temasek? That bull on Asian financial stocks.

After all, OCBC  can keep the bankassurance model (OCBC retains exclusivity in branch selling insurance where it has a decent branch network) ), and can buy shares in an insurance co that is buying GE Life (to participate in growth of insc biz). And remember OCBC has no access to GE Life’s cash flow. It can only equity account GE Life.

The sale would bring in around S$10.5 billion in cash to OCBC or $3.15 a share.

But I doubt whether mgt or the controlling shareholder would want to do this deal. The downside is that OCBC would shrink and be smaller than DBS once shorn of GE Life. Its engine of growth would be gone and it would be a takeover target. So long term, one could argue that deal would be bad for OCBC.

Still if I were the OCBC Lees, $2.8 billion(assuming all the proceeds are paid out)  is not to be sneered at.

Wondering why writing abt this fantasy deal? Showing off that my CF skills as gd as my writing skills. Hoping that sumeone will contact me offering me some freelance analytical work instead of word spinning work. Here’s hoping!

Why my “obsession” with TLCs in China

In China, Investments, Temasek on 09/02/2010 at 5:12 am

No, I’m not a member or covert supporter of Dr Chee’s SDP, always looking to run-down S’pore.

I try to be a “special situations” investor: looking for situations where the conventional wisdom is wrong. At present, the conventional wisdom on China is “Short-term bear, long-term bull”. So CapitaLand is punished by the market for their US$2.2 billion deal while, the seller, OOIL’s share price is stable in a weak market.

But CapitaLand and DBS already big in China, want to be bigger: and KepLand are rumoured to be thinking of doing a big( S$186 million) property deal. Temasek have big direct investments too. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank*.

They are going against the consensus view that the least one can do is to be cautious in China.

If the listed TLCs get China right, they could be 20-baggers.  Hence my interest in whether they are right. As for Temasek getting it right, Temasek, as its CEO says, belongs to us S’poreans.

——————————————————

Additional tots — 15 Feb 2010

But what are the odds of them getting it right?

Adam Smith (the economist. not the great US financial commentator of the 80s) wrote, “the chance of gain is by every man more or less overvalued”.

This more or less explains why great investors (defined here to include traders) like Buffett, Soros, Paul Johnson, Jim Rogers, Peter Lynch, Anthony Bolton and the old Kuwait Investment Office are so rare. They are better at judging the odds of getting things right.

And why the smart people in Temasek and GIC make mistakes. They are just like the other ordinary smart people managing money in SWFs, endowments, collective funds, pension funds, insurance companies and other institutional investors.

And why the smart people in CapLand and KepLand could be wrong. They could be like the smart managers in Time Warner that decided to merge Time Warner with AOL, or the managers at Sembcorp when they decided to go into property and Delifrance.

———————————————

Incidentally, a BBC Online article examines what is driving the  Chinese property market:

Demand for housing

Louis Kuijs, an economist at the World Bank in Beijing, says China still needed more houses, despite several years of fast-paced building, “In a rapidly growing country like China that still has a low stock of housing, there is a fundamental demand for new homes.”

Developers looking for sites

“In Beijing the search is still on for new sites for development.”

People still buying hses as an investment

One man  says he has accepted an offer to relocate. He already has two apartments in Beijing and he is going to use the compensation to buy a third.

Full BBC online article

CapLand (and KeplLand?) could be right abt China.

*’We work really closely with Sasac, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of frankly defaulting loans already in China that no one is doing anything about,’

Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference last week. ‘At some point, there’s going to be a reckoning for that.’ — quote from BT.


Three risks

In Investments on 02/02/2010 at 10:36 am

These three risks apply here too especially the earnings and valuation risks. Note  that they are not the same.

As to political risk, the risk here is not in Singapore but in Malaysia and Indonesia.

If religious tensions escalate; or the Malaysian government cracks down on dissidents or is seen as weak, then foreigners will sell their Malaysian shares, and S’pore will be caught in the backwash.

In Indonesia the issues are the corruption and the unhappiness about it. Thousands of demonstrators have taken part in anti-government protests. Protesters say President Susilo Bambang Yudhoyono has not delivered on his promise to eradicate corruption during the first 100 days of his second term.

These issues could affect the perception of investors about Indonesia (a darling of emerging market investors), again causing spillover effects here.

SingTel: Did you know?

In Investments, Temasek on 26/01/2010 at 5:53 am

SingTel is in the news because of reports that its successful bid for EPL rights made FIFA up the price for the World Cup rights for S’pore.  Great screw-up: sabo Starhub, end up saboing S’poreans?

But S’poreans might want to know (not reported in MSM) that its 32% owned associate in India has just issued a set of bad results. Dominant operator Bharti Airtel announced a 2% (‘peanuts’ Mrs Goh Chok Tong would say) year-on-year increase in earnings in the fourth quarter.  Bharti’s average revenue per user dropped 30% over the past year to US$7 per month.

Twelve companies all with big ambitions and plenty of cash are fighting a price war. Worse more players are coming.

So while the value of its Indian investment is in peril, it is focusing in S’pore on the entertainment biz.  No wonder it is trying to sell a 25% stake in Optus at a highish valuation. It got to look gd somewhere.

Low Growth Era thesis

In Investments on 22/01/2010 at 5:18 am

Two of Fidelity’s top fund managers subscribe to this theory.

One is Adrian Brass the manager of  Fidelity American Special Situations fund. He is optimistic the rally will continue in the short term. He points out that corporate America has taken a bigger “knife to costs” than at any time in its history.

But longer term he is less bullish, gradually rotating his portfolio into stocks in sectors such as healthcare and IT services that can grow even as consumers and governments retrench, and out of cyclical stocks.

His colleague Anthony Bolton has said that the cyclical recovery would “run out of steam” in the first half of this year as investors came to terms with the subdued economic reality. This is the guy who is relocating to China because he is a China bull.

NOL: Don’t buy it for the wrong reasons

In Economy, Investments, Temasek on 21/01/2010 at 5:27 am

NOL’s and other container lines’ shares are in demand, with the recovery in world trade expected to lift freight rates despite the surplus of ships. “[M]ore than a tenth of the vessels that transport the world’s manufactured goods in containers are idle. For most, orders to sail will not come for some time.”

(Aside, NOL tried not order new ships when David Lim returned to NOL, after a stint as an acting minister. He tot the other liners were crazy to order new ships despite a surplus. But in the end, NOL too joined in because the ordering frenzy continued. Sadly, it did so  juz before the market turned, but didn’t order as many ships as its bigger competitors, though as it ordered late, it paid higher prices.)

Buy into NOL because of its operational gearing into a recovery, not because it is a highly geared financial play into shipping (it isn’t) or because it can buy cheapish assets and gear up (it’s not a buccaneer).

Short of plans to buy assets, NOL did not need the S$1.4b in raised last year. NOL, which had then S$400m in cash reserves, would have almost less than 2% net debt (45% of equity at the end of 1Q of 2009) against container sector average between 60 and 6 then

NOL intended to use about S$700m  for investments and working capital, the remainder to repay debt.

So NOL was in a good position to buy ships at bargain prices from highly leveraged shippers in distress, and shipyards. And increasingly its gearing again in the process.

Imagine going into the next cycle with cheaply acquired ships and a gearing of 45%. Wow Bam. This didn’t happen. NOL is one of the most conservative container lines and took a higher proportion of its ships out of service than other lines to tackle over-capacity.

Moral of story –.

And one hopes it doesn’t try to fly by buying ships in a rising market.

There are the Greeks and Chinese buccaneers out there too on the prowl for ships. The only problem is they are geared above the safety lines on the sides of their ships. But in a rising market, they can borrow more. And a rising market means ship-owners and shipyards will be reluctant to sell.

(Writer has some NOL shares in his CPF portfolio.)

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