Tay US Fund NAV Update March 2013


Accurate as of 17 March 2013

Initial Net Asset Value: $10.00

Net Asset Value as of  17 March 2013: $12.85


Hypothetical Growth of $10,000 invested since September 2011 (NAV at September 2011 was $9.71)

* A total return index is an index that measures the performance of a group of components by assuming that all cash distributions (dividends) are reinvested, in addition to tracking the components’ price movements

* I have changed the benchmark to the iShares S & P 500 TR Index to reflect the fees of a index fund. NAV is calculated net transaction costs and tax.

* Portfolio Net Asset Value will be updated quarterly at the end of the third week of each month.

Apple – A History Lesson in the Making

I have been following Apple for quite a while now, and its trading history for the past year reflects the fickle sentiments of the market.

There was little doubt that under Steve Jobs, Apple was a fantastic company: a poster child of innovation, brilliance and cutting edge technology, combined with incredible returns on capital and a solid balance sheet to boot. I recommend reading Steve Jobs by Walter Isaacson to see the incredible amount of influence Jobs had on the corporate culture of Apple.

2012 was a challenging year for Apple. The emergence of Samsung as a dominant player in the Smartphone industry and the bumbling of key releases such as iOS 6 and the maps fiasco were just some of the challenges it faced. For me, the transition in leadership was the most pivotal.

Apple is unique in many ways: it enjoys an unparallel following, not only by its customers, but by those that purchase its stock. Following on from forum chatter and reports from industry analysts, it’s not hard to deduce that Apple has some of the most ardent supporters in the industry.

For me, the decision to not invest in Apple was quite simple. I think that Apple is a brilliant company. My family owns a number of devices: the iPhone, various renditions of the iPad, and I personally understand Apple’s appeal. It has an unparalleled track record at allocating capital and for persistent growth, despite operating in a highly competitive and notoriously unstable industry.

What worked against it as an investment were two variables: valuation and the sentiment surrounding the company. Around this time last year, the projections of Apple’s growth were absurd in my opinion, with rumors and news stories flying around about whether Apple was going to release the next version of the iPhone, the iPad mini etc. Furthermore, Apple’s touching a market capitalization of $500 billion was another red flag to me.

Jim Rogers once opined that very few people make money by buying at historical highs. While this alone is not a conclusive factor, it does weigh heavily. Logically it is much harder for a company to go from $500 billion to $1 trillion than it is for a company to grow from $1 billion to a $100 billion. At some point in time, you run out of customers to sell to and your economies of scale disappear. Whether Apple had hit this point is up for debate, but the probability of this certainly weighed against the company.

Finally, the growth projections that were laid out were in my view highly dubious. I have a very low opinion of projections into the future considering that analysts do not even know what products are definitely going to be released. My worry, as with all growth stories, is what happens with companies who fail to meet growth projections. No company has ever consistently met projections and for that very reason, history is littered with businesses that failed as opposed to those that have succeeded. The odds are just heavily skewed against your favor if you choose to invest with the tide.

Fast forward to today, the sentiment in Apple has swung to the other side. Analysts are no longer as bullish as they once were with margins being squeezed. And yet it is in this that to a contrarian investor such as me the greatest opportunity lies. While I am not longing to invest in Apple at the point of writing, it certainly is far more attractive at $450 than at $700, and I will certainly be watching closely as events further unfold.


Tay Fund Portfolio NAV Update Dec 2012


Accurate as of 22 December 2012

Initial Net Asset Value: $10.00

Net Asset Value as of  22 December 2012: $11.43

Hypothetical Growth of $10,000 invested since September 2011 (NAV at September 2011 was $9.71)


* A total return index is an index that measures the performance of a group of components by assuming that all cash distributions (dividends) are reinvested, in addition to tracking the components’ price movements

* I have changed the benchmark to the iShares S & P 500 TR Index to reflect the fees of a index fund. NAV is calculated net transaction costs and tax.

* Portfolio Net Asset Value will be updated quarterly at the end of the third week of each month.

Tay Fund End of Year Annual Review

The Tay Fund Portfolio returned 10.69% for the Financial Year 2011, trailing the S&P 500 Total Return Index which returned 22.63%.

The disparity in performance thus far is a result of our concentration on businesses that have most recently fallen out of favor and have yet to return to what we believe are their intrinsic values. The underlying motivation for our investments remains intact and we believe that in time, they will provide for a greater return than the market averages in the coming years.

The current economic climate has improved significantly since the inception of the fund. Although the Eurozone Crisis is yet resolved, it appears that for now, with the backing of the European Central Bank and with Germany on board, that the appropriate steps are being taken to resolve it. Still, the eventual outcome remains uncertain and the situation is still far from settled. The Eurozone will most likely survive, but the form and matter in which it re-emerges will be very different from what its founding members envisaged.

I thought it appropriate to review the lessons learnt from the previous year.

While it is always good to learn from your mistakes, it is far better to learn from the mistakes of others. With that in mind, I believe that constant learning is the key to success. A multitude of materials available both in print and electronically are in existence, most of which are accessible for a small fee. A single good idea or concept can repay itself multifold as I have personally witnessed time and time again.

Secondly, the key to success lies in recognizing mistakes and taking the necessary steps to correct them. Anthony Bolton, one of Fidelity’s best asset managers, once said that in his career he was right about 55% of the time. Investing is far more an art than science and it is important to recognize the impreciseness and inaccuracies of the business.

Following on from that very last point, there are no absolutes in investing. I may have specific probabilities and certainties of different issues, but what I am sure of is that nothing is set in stone. It is always important to evaluate different investment opportunities and to pick the ones that coincide with the “sweet spot” of what you are most intimately familiar.

Finally, conviction to your reasoning and research are paramount. Contrarian investing may be simple in theory but it is far harder to carry out in practice, especially when you are swimming against the tide. My most profitable investments have often been amongst the most downbeat stocks. It is hard to know when your theories will play out, and it can often taken months if not years for them to do so. The time spent waiting can be lonely indeed, but my humble opinion is that it is well worth it. The illusion of the safety of the herd is often revealed at the most testing of times and without conviction of your beliefs, it is easy to give in to the madness of the crowds.

To conclude, the fund will stay on its charted course. I believe that the current portfolio of businesses we own are significantly undervalued and that they will outperform the market averages in the years to come.

Tay Fund Portfolio NAV Update Sep 2012

Accurate as of 23 September 2012

Initial Net Asset Value: $10.00

Net Asset Value as of  23 September 2012: $10.75

Hypothetical Growth of $10,000 invested since September 2011 (NAV at September 2011 was $9.71)

* A total return index is an index that measures the performance of a group of components by assuming that all cash distributions (dividends) are reinvested, in addition to tracking the components’ price movements

** Unfortunately my computer crashed and I lost the data for the 3rd Week on June. The month of June reflect the closing prices on the 5th July 2012.

Portfolio Net Asset Value will be updated quarterly at the end of the third week of each month.

Opportunities in Secondary or Little-Know Issues

This post is based on Chapter 50 of the Sixth Edition of Security Analysis – ‘Discrepancies between Price & Value’. It’s an invaluable chapter that provides a systematic method for investors to seek investment opportunities in the market, something that is not covered extensively in The Intelligent Investor.

Most financial analysts and investors expend the greater part of their time and effort on determining the future prospects of selected companies; that much is a given. What most people fail to note is that Graham’s method was different. His focus was on the previous performance record of the business itself, and he placed little emphasis on attempting to predict the future performance of the selected business. Although this distinction may seem subtle, it carries significant repercussions for the way an investor should shape his research process.

Although Buffett and Graham shared a common way of thinking, the method by which each investor implemented his strategy was poles apart, as is night and day. Whilst Graham was content to focus his efforts on finding statistically cheap companies that had a high probability of generating a return greater than the market averages, Buffett concentrated his research on finding businesses with sustainable competitive advantages since he was buying into the future cash flow that the business would generate.

There is no “right” method per-se; each investor has to contend with the strengths and weaknesses of each approach. For the purpose of this discussion, I will be focusing on what Graham refers to as “secondary issues” as this is the key area of my investment research.

During normal markets, where prices are neither too high nor too low, there are more often than not a great number of “secondary issues” i.e. small-to-mid capitalization companies which possess:

1) High current and average earnings relative to market price

2) Reasonable satisfactory exhibit of earnings, selling at a low price relative to their net current asset value (NCAV) whereby NCAV is defined as Current Assets – Total Liabilities

Indeed Graham had such success with (2) that he made the systematic buying and selling of businesses vending below their NCAV his main priority.

The benefit of investing in these issues is that they are often overlooked and ignored by most institutional and retail investors. One must realize that institutional investors by sheer virtue of their size, can only invest in a small number of businesses listed. It would not be cost-effective or practical for them to build up stakes in smaller capitalization companies. Furthermore, with such little attention focused on them, many of these companies are often mispriced, therefore providing ample opportunity for exploitation by astute investors.

In a nutshell, you can be sure that the majority of investors will expend the best part of their effort attempting to locate the next Apple or Microsoft by means of predicting the company’s future prospects. These investors will then try to purchase company shares at unattractive valuations in the process.

Those who choose to invest by making a commitment to a diversified group of “bargain issues” with only moderate prospects are few indeed. However, my own personal view is that such a technique has provided investors with more than a satisfactory return since its inception and I have thus made it the foundation of my own work.

I highly recommend my readers to pick up a copy of Security Analysis to enjoy a fuller discussion of the points made by Graham & Dodd.

Further Reading:

A Test of Ben Graham’s Stock Selection Criteria by Henry R. Oppenheimer

Benjamin Graham – Wiley

Value Investing: Tools and Techniques for Intelligent Investment by James Montier [Book]


What Do You Want In Your Life?

For those who know me, I recently made the decision to switch courses from reading medicine to reading law. This decision was not made easily. However, I believe that it is one that puts my life in the right direction.

When I started this site close to two years ago, I had no idea where this would lead to. What began as a curiosity and interest soon developed into a full blown passion. The ideas that Benjamin Graham introduced, curiosity, honesty, a wilful disregard for the conventional norms and his generosity reverberated with me, providing to me role model to inspire myself towards. They were concepts that not only applied to investing, but life as well.

No matter your age, I am sure that you understand the importance of passion. As children, we have boundless curiosity and a thirst for knowledge. With time, these traits ebb away as we are told to adapt to the “real world” where conformity and results are far more treasured. As current student, I understand the pressure to conform to the pressure of society – to take up a degree or job that you have no real interest in for the money.

And yet, there is a real danger in giving in, in deciding that you have to listen to others. If you start to compromise on your beliefs, there is no end to it. It is no surprise that so many people are unhappy with their jobs. How contented can one if you hate what you are doing?

When I look at my role models, people like Steve Jobs, Richard Feynman, Carl Sagan, Warren Buffett or Richard Branson, they all share one trait – they love their jobs and wouldn’t trade a dime in the world to do something else.

When I was young, I used to admire the smartest and brightest people around me. Those who effortlessly scored top grades, who aced their exams, who made everything look like a breeze. As I grow older, I noticed a change. The people who were succeeding the most in life weren’t these people at all. The people who were excelling in life (not exams mind you) were those who were honest, who had a determination to never say no, who never compromised on their convictions even if no one believed in them. The ability to excel in an exam, or superior intellect while useful, was not pre-requisites to success at all.

Living in Singapore, I understand full well the importance of material wealth. Money gives us a real power and ability to do the things we want to do in life. However, focusing on money alone will not make one happy. In order to do great work, you need to have the passion to sustain you throughout your journey. I know an abundance of friends who are jaded, discontented and am unhappy with their lives despite landing prestigious degrees or jobs. I truly believe that if you can do great work, and offer a valuable service to others, the money will follow. Life simply does not work the other way round.

Inspired by Benjamin Graham, I believe that I have found something that I intimately connect with, that gets me excited everyday to wake up to, and something that I believe that I can excel in professionally in the future. To those who have not found something that they love, please keep looking. While it is not easy, take solace that you are not the first in this journey. Ultimately, if you can believe in yourself, that’s all it takes for you to succeed.