Portfolio Updates – 23/08/2016

Divestment of 70,000 shares of Dutech Holdings

This was done just yesterday at $0.51. I still own 500,000 shares of Dutech. This in no way, reflects any bearishness on the company’s prospects. (I still own 500,000 shares anyway)

I felt compelled to divest partially as the share price has risen almost 100% since I first vested less than 18 mths ago.

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I felt that the rise has been too rapid, and that part of the rise has been attributed to the latest analysts’ reports. I do agree with the analysts’ reports and their target price of $0.61 is fairly close to my own fair value estimates.

As always, I’m always reminded that there are many other participants reading the same reports as me, and while my fair value is a tad higher, I’m happy to take some profit now.

Holding 500,000 shares reflects my optimism about the long term prospects of the company. It also reflects the lack of opportunities for me to deploy capital. Having divested several of my major holdings, I am holding a disproportionately high amount of cash while looking for a home for this capital.

A gain of 85.5% in 16 months (first vested in April 2015) is one of my best ROI thus far. Hopefully, in time to come, I’ll be able to report figures even higher than that. Again, I’d emphasize that all investment returns have to be time weighted, so hopefully it won’t be too far away.

Hock Lian Seng & Metro Holdings

Since my divestments, the share price has hovered below my divested price (Even after accounting for dividends paid), and thus far, my decision to divest seems to be correct.

(Post-mortem of Metro Holdings DivestmentPost-mortem of Hock Lian Seng Divestment)

In addition, I predicted that HLS’s share price would likely hover around $0.35, and thus far, that has been true (+- $0.02).

I don’t take any particular pleasure in being right though, since it doesn’t add an iota to my returns. I’d rather be wrong and HLS crashes to $0.2, giving me an opportunity. Doesn’t look like that’s going to happen though.

I’ll keep my eye on these 2 divested companies though, and hopefully  maintain a level of awareness about these 2 companies that’s higher than existing shareholders.

Valeant

WOW. In the past 2 weeks, Valeant single handedly added approximately 47%, and generated a quantum of close to $80k.

I’m pleased with how it’s doing, but I still think the true value is far far far FAR away from the current share price. I’m still in the red in this, but selling of both call and put options have brought my break even much closer.

The one lesson I’ve learnt last year (see my disastrous return in 2015, caused single handedly by Valeant), is that in the US markets, once a company loses the confidence of the general markets, the fall can be quite crazy. Volatility is certainly much higher than in SGX.

I’m still highly confident of my research though, and am sticking to my guns. Going forward, I think the risk is on the upside rather than the downside, so I’ll be only selling far out of the money call options, while being comfortable selling closer to the money put options.

Chesapeake Energy

Another great performer these past couple of weeks. Lawler is still performing magic, and their productivity is the top of the industry. They’re drilling the longest laterals amongst all comparable peers, while cutting costs to the bone.

I was somewhat disappointed at their recent divestment for $0, but it did cut their future obligations greatly. I can only trust that Lawler knows what he’s doing.

SPY Shorts

This has not worked out thus far. I shorted at around the 217 mark, and have watched it trudge higher on a daily basis. It’s almost ridiculous to me.

Company earnings have been terrible, yet the S&P 500 adjusted PER is currently 25.15 as I type this. All because of money printing.

I really wish I knew how it is going to end, and how to capitalize on it. I only know that someday, all this is going to hell and we’re going to have to pay for it. I still cannot figure out how best to capitalize on it.

Shorting is only good if you have an idea of the time frame when it might occur. I have no idea when the chickens are coming home to roost.

I’m still holding my shorts as I believe the Fed will have to raise rates at least once this year, and going by the bullishness, when they do, it might take the  markets by surprise.

Miscellaneous

2H2016 is shaping out to be a monster half for me in terms of ROI for my portfolio. If this keeps up, I’m likely to beat my benchmark this year (STI ETF) by a healthy margin.

Thus far, my limited experience in deep value investing is exactly how I envisioned it to be: Huge volatility marked by periods of extreme under performance, and  at other times, periods of extreme over performance.

Having hunted for opportunities for the past 2-3 months (Ever since divesting HLS), I think I’m close to finding one. I’m currently working on one of the ideas, having narrowed it down from a few. It’s going to take some time to complete though, and yet longer to accumulate a sizable position, so I won’t be writing about it here anytime soon.

I intend to engage management on this with some suggestions.

On a personal note, I’ll be off for a long trip to Europe in 2 weeks. (The recent terrorist activities is starting to make me a tad worried). While I’ll still be connected, it’s unlikely I’ll be putting up any in depth analysis during this time.

Thanks for all the emails, TTI always strives to reply all of them promptly and to the best of my knowledge. Honestly, sometimes, answering your questions also helps me to consolidate my thoughts.

As always, I always welcome counter arguments (politely please), ideas that you may have and any suggestions to improve. Cheers.

TTI’s 7 Golden Rules Of Stock Investing For Beginners – My Personal Experiences

Having suffered some knocks in my investing journey thus far, I feel I am sufficiently experienced enough to share some of the lessons I have learnt with those who are just starting out on their investing journey. Hopefully, you’d avoid the mistakes I’ve made.

Of course, there are many different styles and many different routes to Nirvana. These are my general rules, I think they’d apply for almost any type of investing you choose, whether it is bottom up or top down, fundamental or technical, sector specific or geography specific, clever or dumb.

Before I start though, I’d just want to say that starting, is already way better than those who have not started at all. Here’s a little bit more about my personal experience.

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Growing up in a not-so-well-off family, both my parents were the typical rank and file workers. I saw how both worked these asses off to put food on the table for 3 kids. My parents were the typical, traditional, low to no risk kinda savers.

Their attitude stemmed from the CLOB saga back in the 1990s, when Dad lost literally all his savings when the Malaysian government suspended CLOB. I don’t know the specifics of it, but one can google to read the stories.

I suspect many Singaporeans have painful memories of it.

My parents were badly burnt by the saga. Wiped out in fact. From then, they’d not bother with anything that sounds even remotely risky. Absolutely nothing. Probably the riskiest thing they did was to put money in fixed deposits in the bank. To put things in prespective though, in those days, banks paid 5% interest on FDs.

They’d scrimp on every cent, and that’s no exaggeration. I mean, every single cent. Both worked long hours, and for many years, mum had to work shift hours for extra $$$, meaning we’d never see her as she’s off to work at night and we’d be off to school by the time she’s back.

Money was tight, and every cent had to be accounted for. While their wages grew, the increment was barely enough to match inflation. Yet, I suspected my parents never understood inflation in the true sense. They’d be happy with the quantum rise, never bothering to check that against inflation.

While other kids saved their pocket money, I never had any pocket money to save. Any cent that’s not used on food, has to be returned back to my parents. Allowances were only for essentials, not for savings and certainly not for luxuries that many kids take for granted these days. Even the Edusave scholarship that I won every year in school, which granted me $500, was given to my parents. Nothing was spared.

Looking back, I felt my parents made several money mistakes that I believe many people still do. IMO, working hard at your job, although a good thing, doesn’t get you very very far. Most jobs have a ceiling or a cap of some sort. Which is why in SG, workers are encouraged to “upgrade”.

I read a line in a book once which described how many workers are not as wealthy as they would like to be. Why so? Simply because they’d worked very hard at their jobs, but they didn’t work hard at getting rich. In short, they’d forgotten to take care of themselves.

millionaire

For the budding Buffetts out there, here are my personal golden rules:

Rule 1: Research, Research, Research……. Then Research More

Frequent readers of this blog would’ve understood my style of investing by now. As mentioned previously, investing is hard. Many people are doing it. The only way to be truly successful, is to be different, to do things that most other normal people wouldn’t do, or to do it longer while others give up.

Up to now, whenever I devoted time to researching on a company/industry/trend, there hasn’t been a moment when I haven’t learnt anything new.

Working harder than others means you’d get a deeper perspective, more insight and ultimately, a more accurate picture. All that translates into a PROBABILITY (not certainty!) that you’d make a better informed decision.

Knowledge is power.

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As mentioned many times before, I’ve always felt the need to ask myself, what do I know or what have I done, that others have not?

If you think company A is going to do well because the news and analysts reports say so, well, there are many other individuals who are thinking the same thing, and the share price always reflects it.

But if you think company A is going to do well because you have studied many years of the company’s financials, you identify a catalyst when nobody has heard of the company, when you cannot find a single analyst that reported what you have found… now that’s something different. But that’s still not the ultimate.

The holy grail, the absolute ultimate, is when you think company A is going to do well after your research, when everyone else thinks the company is NOT going to do well, when the news reports disasters after disasters about the company, when analysts have written off the company for dead… and you’re right.

That would be the holy grail.

Rule 2: Listen To Everyone, But Trust No One

Form your own opinions. Listen to others’ opinions of course, their thoughts, their advice, their experiences, but ultimately, decide if it’s correct. Find out the details yourself. Verify everything yourself. Even whatever is written here at SG ThumbTack Investor!

Be skeptical about everything. In my experience, in the world of investing, it pays more to be skeptical, maybe even cynical, rather than trusting.

The fact is, many things that you may accept as fact, may be wrong. These facts can be wrong for many reasons. People make mistakes, or they may have an ulterior motive. Most of the time though, they simply don’t know better than you.

Independent thinking is a virtue that’s rare. It’s in our genome setup. Humans are social animals. Like monkeys. We find comfort in being in groups. That’s great for staying safe from predators, not so great for investing.

Rule 3: Forget about IPOs!

When times were good, IPOs were simply fantastic. We have all heard of stories of *00% gains in a single day for new IPOs.

Yet the entire structure of IPOs are meant to screw the retail, gullible investor. During an IPO, the underwriters and the owners listing the company inadvertently try to get as high a valuation as possible.

I have never heard of an IPO process where they try to lower the valuation. The underwriters give an initial range of valuations, and ultimately the final IPO price depends on how much they deem the markets can accept, in order for a certain % of take up to occur.

I feel doubly qualified to talk about this, as I currently have a front seat in what is likely to be a huge IPO that will take place in SG in the near future.

Now, many people who have made substantial $$$ in a short period of time during the IPO frenzy would beg to differ with this point. To these guys, I’d say good for you. But that ain’t investing. That’s akin to the guy who goes to the poker tables and made a bunch of money. That’s not investing as well.

In any case, I suspect most people do not read the IPO prospectus anyway. (which brings us back to Rule 1)

Rule 4: Be Arrogant

Quick qn: What do these guys have in common?

We have established that being truly successful in investing means one must be different, contrarian and independent. In other words, you’ve to really believe that you’re right when everyone is wrong, and have the guts to stick to that conviction.

That’s arrogance.

Regardless of what you do, some arrogance is required to succeed. Of course, without the ability and the hard work, the arrogance will just make you fall flat on your face.

Without any arrogance though, how would an investor stand up in the face of opposing views and stick to his guns?

Bill Ackman’s short bet against the now defunct MBIA in the early 2000s is a fine example. In 2002, Bill Ackman shorted MBIA by buying credit default swaps (CDS) against the mortgage debt that MBIA held. Now, MBIA at that time, was a AAA rated bank. Ackman was ridiculed many times by literally everyone. Nobody was on his side despite his multiple presentations on this short bet.

A triple A rated bank would be kinda equivalent to Singapore’s DBS equivalent. Imagine if you’re a hedge fund manager and you shorted DBS saying that DBS is going to $0. You’d get a lot of ridicule for that.

Now imagine, how long would you hold on to these shorts in the face of such ridicule? Bearing in mind that there’s holding cost for shorting.

Well, Ackman stuck to his guns for 7 years(!!!) before he was finally proven right.

He finally sold his CDS in 2009 for a huge profit. I honestly don’t think most people would’ve lasted 7 days.

Rule 5: Track Your Time-Weighted Returns Closely

This is actually a rather important point. I think most retail investors don’t do this. Those who do so, may be doing it wrongly. Why is this important?

Because it tells you in the long run, whether you’d be better off going for a passive type of investing (like indexing) or whether you should stick to active management.

Most investors look at the quantum gain. That’s erroneous. Which is better, making $100k on a capital of $1million, or making $10k on a capital of $10k?

Most people would be way happier with the former, although a true investor would choose the latter.

153) coins and time

Having a time-weighted consideration to your returns is also important. Afterall, if you put $10k into your portfolio at the start of the year, that’s very different from putting it at the end of the year.

An easy way to track time weighted returns that I use is via the XIRR (internal rate of return) function in Excel. This gives an accurate picture of when I have the funds and the exact returns on the funds, according to the duration.

With such long term data, one can then check against your benchmark. Typically, a benchmark would be some index. Personally, I have chosen to utilize the STI ETF (inclusive of all fees) as a benchmark as most of my portfolio in in SGX listed companies. The rationale is to find out if I’m better off managing my own money, or whether it makes to simply put it into STI ETF.

Privately, I also benchmark it against some of the best fund managers in the region. I only benchmark against managers with a value bent though, to compare and see where I stand. That means global macro managers like the famous Danny Yong would not be included.

Again, I can’t emphasize how important this is and how many people either don’t do it, or do it wrongly. I did a quick scan online and realized that of the few who do openly publicize their returns, few compare it against a benchmark, and even fewer consider the impact of time (time weighted).

Rule 6: Patience is a virtue

Regardless of how right you are, in many cases, you simply have to wait for the markets to come around to your thoughts. The above mentioned example of Ackman vs MBIA is a great one. How many of us are willing to wait for 7 freaking years?!

On top of that, bear in mind that Ackman’s an activist investor. He didn’t just wait. In many interviews, he was asked that even if he’s right, what would be the catalyst for his thesis to come true? His reply was that he IS the catalyst.

Ackman publicized his thoughts. He milked the media and shouted out his thesis from the roof tops for the world to assess. Still, it took 7 years before he’s proven right.

Beginner investors would probably find Rule 6 very hard to stick to. Many “investors” want to see immediate results. It’s human nature to want to create activity. In investing though, too many transactions kill you. Being patient on a right call is what works.

Which brings me to the concept of the Thumbtack Investor. All the activity (represented by the head of the thumbtack) has to revolve around the research. When the opportunity is identified, the only activity is simple, short and sharp, much like the pin of the thumbtack.

Personally, I have tempered or gotten around this destructive  need for activity by taking a small amount of funds for more active trading. Certain things like forex trading or options trading by their nature, simply require more activities.

Thus far, these activities fortunately, have been beneficial to my portfolio returns. As the quantum is deliberately kept small though, the impact on a ROI basis, has been small too.

Rule 7: Have Fun!

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…. Not try to love what you do…

Different strokes for different folks.

Dancing is not for everyone, neither is football, or rowing. So why should investing be for everyone? Not everybody would find this their cup of tea.

If so, there’s no point trying to force yourself to invest. Instead, put your funds in the trust of abled people who can manage them, or put them into a broad index fund. (I mention broad because these days there are numerous index funds that track very narrow stuff)

If Rules 1 to 6 don’t agree with you, chances are you wouldn’t be very good at this. If you aren’t having fun, place your funds in an appropriate index and leave the headache behind. Ironically, your returns may actually outperform many active managers in the long run.

At least they’d have fun. I hope.