Archive for December, 2011

I was very lucky to meet a good friend of mine, Daryl Chia, for tea to pick his mind and share ideas. He’s a very talented and hardworking investor who was featured in the Business Times. You can check out his site here. You can expect great things to come from him in the future.

Even though he and I share different investment philosophies, having a chat with him is refreshing. I focus on investments on a much more “micro” level whereas he takes a much more “macro” approach to investing, which leads to interesting discussions.

To me, there is nothing more important than someone who is willing to take the opposite view point. It forces you to compose you own thoughts and articulate your views to defend your viewpoint. If you can’t do that, than you need to think twice in whatever you’re doing. There is nothing I find more important in investing than logic and critical reasoning. Defending your view points forces you to think with clarity to elucidate your argument. The same rigorous thought process should be involved whether the sum involves ten thousand, a hundred thousand, or a million dollars.

What I love about investing and financial markets is that there are so many ways to go forward. As a value investor, I naturally gravitate towards fundamental data regarding the companies in question. However, for the serious investor, this does not give one the right to ignore the macro picture. One only needs to look to 2007 – 2008 to see the folly in doing so. Many prominent value investors such as Bill Miller were burnt badly as they failed to estimate how the macro factors would impact their investments in financial institutions.

Moving onto financial institutions, we share differing viewpoints. My own personal view is that the financial sector is severely undervalued whereas Daryl see’s more pain in store for financials. I do agree with Daryl’s assessment that in the next few years, all bets are off especially if the EU faces a breakdown of sorts. One of the things I learnt is that unlike conventional companies, financial institutions have a nasty habit of reacting in unpredictable ways and its close to impossible to predict what might happen. Conventional wisdom was turned upside down in 2008. There is an old saying that tells us that those who forget history are condemned to repeat it.

However, with that in mind, it’s easy to extrapolate past events and assume a similar fate awaits us. In my view, there are some bright spots that allow me to be optimistic about the future:

  • The US banking system is recapitalized and in a much stronger position than before
  • Just about everyone is on the edge trying to resolve the crisis with 2008 still seared into our memories
  • Valuations for healthy banks are historically attractive levels
  • Intense regulation will decrease profitability.. but force banks into more traditional and safer forms of revenue generation that discourages excessive risk taking. Just don’t expect to see the out sized returns on equity that you saw in 2005 – 2008

This isn’t a post where I dive into the nuts and bolts of the financial industry but consider the following facts. For years, people have paid for the right and privilege to own Goldman Sachs for 1.5x – 2.0x tangible book value. Now, you can own Goldman Sachs for 0.7x tangible book value. Bank of America, according to the news, somehow single handly caused the financial crisis and represents just about everything that’s wrong with America apparently. Today, you can purchase a much leaner, better capitalized and well run Bank of America for close to 50 Billion.. just about the same price at its bottom in 2009. The current share price does not take into account that the Bank of America you see today is a much different company than it was two years ago. You can check out my investment thesis in my early post.

I believe that the returns for these companies are bright for the long term investor that’s willing to wait it out 3 – 5 years. However, that being said, I only recommend that you look at financials if you’re already familiar with these companies generate their revenues and how they work, and that you do your due diligence when combing through their  financial data. Investing is all about knowing your circle of competence, and at the end of the day, you don’t need to invest in financial institutions to earn a good rate of return.


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Hi guys, just a quick update on my previous post on HLF. I am afraid that I have left out certain information regarding how banks work etc, and that it might be new looking at the balance sheets & profit and loss statements of bank.

There’s an active discussion at Value Buddies, a local investing forum, which I recommend you check out if you need clarifications. I have already covered some key points over there such as:

  1. How HLF generates its revenue
  2. What drives the earnings of HLF (and other banks)
  3. Why book value is used as a approximation of intrinsic value
  4. Ability of HLF to pay out dividends
  5. Impact of property cooling measures on HLF
With regards to point 5, I will include a post another day to detail my views.

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Here’s a presentation I prepared personally outlining the compelling case for investing in Hong Leong Finance. It’s my second best idea with regards to Singapore equities this year and I hope you enjoy it.

The underlying idea is simple, Hong Leong Finance (HLF) trades at a significant discount to book value. If you look at the long term track record of the company, it is not unreasonable for us to expect the company to earn at least a 1% return on assets, and trade at at least tangible book value. Check the presentation out for more info.

Disclosure – Long HLF





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Here’s a quick update on NAV of the fund and its current holdings. There will be a follow up post in the coming week where I discuss the changes in the portfolio and the general market condition.

Accurate as of 18 Dec 2011

Initial Net Asset Value: $10.00

Net Asset Value as of  Dec 18 2011: $9.76

Hypothetical Growth of $10,000 invested since September 2011

* 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


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