Posted by: donmihaihai | February 26, 2018

Another letter, another writing

BH’s shareholder letter got shorten in 2017. Disappointed because I don’t read the K but anyway the only thing I am losing out is getting ideas on how to study businesses and industries.

There are a lot of “market talk” in the letter.

A kindergarten- like analysis produced an outsize return for what it should be fixed amount for charity. It happened because opportunity dropped right in and obvious to those who are prepared and would likely not happened if the guarantee to make up any shortfall wasn’t given. I thought he was going to do just that while reading and I smiled when he did. Investment decision is about knowing/ analysing the expecting outcome and weighting the probability of it happening.

Talked about how BH share price dropped between 37% to 59% for 4 times in 53 years. Duration of the drops last from less than a month to almost 2 years. Not as if there is no other drops in share price but these were the significant drops. Is it scary? I have experienced 90% dropped from purchased prices myself so the peak to valley dropped will be > than 90%. Not that I have lost sleeps because of it.

Sharp drop get more attentions but it is the long slow drop that is the killer. Imagine the share price drop slowly for a year and while you are holding on to a 50% lost, share price swing around 40% to 50% lost for the next maybe 3 years. It will kill most of you and I will bet on it.

Take this as a warning. I don’t know when but I am almost certain that you will experience it if you invest long enough. I have experienced both. And yes this is a kindergarten- like analysis on market.

WB always talk about return on net-tangible assets/ net worth/ shareholders’ equity in yearly letter and usually once at the beginning of the letter. Sometime he mentioned more. This year more.

The annualized increased in book value is the annualized return on shareholders’ equity of BH over 53 years since only one dividend payment and little share count dilution. ROE is the measure of how successful the company is able to generate return. How the company generate this return is the qualities side.

ROE plus price purchased and sold will be the return investor has on the stock. Assume I was there to buy BH in 53 years back at exactly 1 X shareholders’ equity and sold 1 X shareholders’ equity 53 years later. My return will be 19.1% annualized.

So there are only 3 things. ROE, purchase and sale price. In fact sale price is not as important as ROE & purchase price. Think about probability and outcome. The probability of purchasing at above valuation, getting below average ROE and selling at below valuation is really low. By probability alone, most are unlikely to lose money by investing in stock. Nah, it is not true. Math is correct but look around, most people are trying so hard to get into that small probability. It is human at work.

Investing is about being rational.

Posted by: donmihaihai | December 24, 2017

Hottest and Most storied

At the moment, that will be bitcoin. Or maybe I can include the gang of cryptocurrencies. Doesn’t matter, they are the same. And doesn’t matter how many cryptocurrencies are out there,

These are what someone just said new money and what we are using is call old money. new money is associated with well, they call high tech start up. Smart people who are changing the world.

The rise of price make Bitcoin hot, very hot. Medias start reporting them. More people read it, greed feed on greed, medias feed on news. And here we are, getting one of the hottest and most storied return of the year with many people talk about it without knowing exactly it is.

There are people who know that they don’t know and there are people who don’t know that they don’t know. I am trying say I don’t know but telling people that I know, that is contradicting.

There is no way, these cryptocurrencies will become real currency or alternative currency just by looking at the price chart. Currency doesn’t move like that. How can we use it as an exchange medium when move like that? If these are currency, these price chart make zero sense unless there is a hyperinflation going on in the cryptocurrencies world.

CM says it the best. “You know it is one thing to think gold has some marvelous store of valve because man has no way of inventing more gold or getting it very easily, so it has the advantage of rarity. Believe me, man is capable of somehow creating more bitcoin… They tell you there are rules and they can’t do it. Don’t believe them. When there is enough incentive, bad things will happen.”

This make prefect sense. The incentive is there. We can see it from medias daily. So what next? When shops are selling the hottest thing in town, and can’t find enough to sell, they will try to sell alternatives. cooked up stories to make alternatives as good as main. Now, alternatives is still alternatives. By hook or by crook find more main, some shops might think…….. Human nature.

What about when a shop is selling hottest thing in town, other shop will rush to get alternatives out. And someone will create fakes.

When the whole thing ended, someone will die. People love to say uncle and auntie losing lot of money when manias ended. But it doesn’t sound right, throughout history, rich are better educated, and they are smarter because of education. And they are the majority playing with investment because they have extra and richer. I don’t see how much we changed.


Posted by: donmihaihai | May 14, 2017

Dual class shares and quarterly reporting

It is in the news that Singapore Exchange is looking at them and seeking feedbacks. In my own bias and personal views, the direction is correct.

Dual class shares structure is a non- event. It doesn’t matter if the listed company has single or dual class shares, it will still be valued as what it is not what I wish it to be. On a positive note, it will be more fun. Maybe fun is not the word, but more challenging. Something that I welcome.

Saying no to dual class shares is like protecting minority shareholder. Protection or protectionism usual don’t ended well in history. I don’t need this protection. Neither will I cry baby if my investment failed.

Dual class shares also opened up the management. Currently we are trying to fit them into something. What will they do if we don’t? Their choice say a lot about themselves. Of course it will not be like they are good if choose single class share and bad if choose dual class. But we will know more about the management if they are given a choice and I want to know their choice and perhaps the reasons behind.

In the beginning of 2016, someone wrote “for serious investors, if monthly reporting is available, they will vote for it”. Look like I am not a serious investor since I will vote against it.

There are listed companies in SGX where quarterly reporting is not required. Few members of Jardine Group do 6 monthly reporting as they are following rule of their primary listing. Hong Kong Land is one of them. I do not know if  not reporting their financials quarterly cost their share to underperform the market. But you see, I choose to use Jardine Group because their share performances are good. Anyway in short, do I feel short changed? The answer is no. Do I need quarterly reporting to tell me how well the company is doing? The answer is no. I am not running the company.

Practically, I do skip quarterly reporting. It is a choice I made. I don’t need to go through all quarterly reporting of the companies I invested in. I know what kind of numbers I am expecting. But well, I will read them if I want to feel “good” about the company. Other than that, it freed up lot of time for reading annual reports. I have a full time job after all.


Posted by: donmihaihai | April 15, 2017

Micro Mechanics not a dead stock anymore

Share price dead for many years, hardly move. That was the last few years. Price surged and Micro Mech is trading at around their highest price and I get to read about them here and there. Not everywhere yet but pretty close.

No one love a dead stock. Current price is certainly not cheap and quite fair actually.

2 things needed for stock price to do well. 1st is profitability improve from current range. 2nd is trade at higher valuation.

I believe the odds for 2nd to happen is higher than 1st. I believe the odds for Micro Mech to trade at a lower valuation is even higher.


Posted by: donmihaihai | March 7, 2017

Confident Hong Kong Land

Current management sound very confident.

Debt level is not a function of policy but operation. 100% agreed.

Property development is each country is not a result of opportunistic development but building up long term presences despite being small and will remain small for a long time. Referring to outside Hong Kong, Singapore and China. Like it this way too.

Posted by: donmihaihai | February 26, 2017

No dilution no fun

“Despite that cautious approach, I made one particularly egregious error, acquiring Dexter Shoe for $434 million in 1993. Dexter’s value promptly went to zero. The story gets worse: I used stock for the purchase, giving the sellers 25,203 shares of Berkshire that at yearend 2016 were worth more than $6 billion.”

BH shareholders’ letter 2016.

REITs just love to do the opposite and has to issue shares for addition of property, yield accretive mostly. The logic is good, issue share at lower yield to purchase property at higher yield. Look good as long as market allow it.

Is it really so? issue of unit is forever, once issue never cancel except spending money to buy back. A single year yield is a measure for justification of investment and more? Of course not, how can it be. I know the answer before I ask. But really?

Beside the love of paying investment with units, REITs love to pay expenses with units too. Unit holders love it too. why not, I get higher dividend per unit if expenses are being paid by units.

Since listed CMT issued 80.4M units for expenses. while 80.4M units is only 2.3% of outstanding unit as at 31 Dec 2016. It is 11% of outstanding during IPO. Now both percentages doesn’t tell the whole thing, But few things are certain, it 80.4M worth 157.7M base on current share price. 80.4M will be collecting dividend yearly. The cost of expenses paid never end.

Conflict of interest
There is a huge conflict of interest when a manager is able to decide whether they are getting paid in unit or cash.

Which side are they on when share price is high, and they decided to get paid cash?

Which side are they on when share price is low, and they decided to get paid unit?

Anyway who care.
As long as dividend per share increase yearly, share price don’t drop much. No people care.

But it might change soon where dividend per share no longer able to increase yearly, and about time dilution bite back.

Posted by: donmihaihai | January 30, 2017

Number never lie.

Aim my gun at the best and brightest.

Some say CMT is the best managed REIT around SG. The number suggest well….

CMT listed in 2002 with portfolio of 3 properties namely, Tampines Mall, Junction 8 & Funan IT Mall

IPO  valuation  SGD895M.

Dec 2015 valuation SGD2,299M

Increase in valuation – 157%

NAV per share at IPO – SGD0.97

NAV per share at Dec 2015 – SGD1.86

increase in NAV per share – 92%

157% vs 92%. Management destroyed shareholders/unit holders value.

Dividend per share at 2003 -SGD0.0803

Dividend per share at 2015 – SGD0.1125

increased in dividend per share – 40%

Net property income for 3 malls in 2003 -SGD78.4M

Net property income for 3 malls in 2015 – SGD121.5M

increase in Net property income – 55%

55% vs 40%. Management destroyed shareholders/ unit holders value again.

Some say REIT learned the lesson in 2008. so REITs are creating value since then.

Portfolio value(less property not in the list in 2015) – SGD6,287M

Portfolio value(less property not in the list in 2010) – SGD8,424M

Increased in valuation – 34%

NAV per share at Dec 10 – SGD1.54

NAV per share at Dec 2015 – SGD1.86

increase in NAV per share – 21%

34% vs 21%. Same story.

It is the same for dividend.

The management or external fund manager is the one that benefited.

Some say their yields is high, range from 6% to 10%. Where can you find these yields?

True dividend yields look high, not easy to find stock paying this kind of yields. Unlike REIT, stock usually don’t pay out 100% of earnings. So it is back to same valuation, ROE. Even with revaluation, REIT hardly pass the 10% mark. But those at the upper range start look cheap. Maybe there are reasons behind.

But REIT pay out cash yearly or even quarterly. Cash in hand is worth more than in the hand of management. True. this is attractive. But as above, REITs destroyed unit holders value. It is a small pie and many hands are helping on that pie.

Well REIT is safer than stock and history say so! underlying any REIT, stock is a business. All businesses are risky in natural. REIT traded just like any other stock in SGX.

So what is really different? Hit me a good reason.

I have not look into CMT in details, but will never invest in a REIT at book value with an ROE of 6% and a manager screwing unit holders yearly.

Posted by: donmihaihai | November 27, 2016

Strong Cash flow. What is that?

Take Boustead Singapore 1HFY2017 results

NPAT was SGD22M.

Cashflow from operating activities was SGD77M.

Cash increased from SGD259M to SGD297M

Use NPAT rather than profit attributable to equity holder of the company for good reason. What in concern is cash and cash has to be look at in this way.

Wow Boustead Singapore is generating load of cash, 55M more than NPAT, cash generating machine. you might say! True it is generating lot of cashflow but cashflow can’t be look into on a single year basis. Cashflow before changes in working capital basically just above PBT. That say there isn’t lot of one-time non cash item. So basically, the cashflow of the company is just about Net profit. The “pop” is due to changes in working capital which can be easily explain by saying timing differences.

From FY11 to FY16. Boustead Singapore generated SGD375M NPAT and SGD408M Cashflow. Sound just right. Depreciation would explain the reason for the higher cashflow. That SGD55M will be not continue for sure.

What about SGD297 cash? Well SGD134 sit in Boustead Project and the remaining SGD163 sit in companies other than those in Boustead Project. Most are wholly owned subsidiaries. That SGD134 can be say as restricted by Boustead Project and is not available for Boustead Singapore to use it as like ATM. The easiest way to think about it is ask shareholders of Boustead Project, “Are you going to let Boustead Singapore to use your cash?” Some shareholders might just say, “No way. They have no rights and what do I get”

So what is strong cashflow? Cashflow is strong when the company is generating good return. ie good ROE. Nothing more nothing less and of course I am assuming cashflow is almost the same or just above NPAT.

Free cashflow is another thing and for some industries, growth require heavy investment in working capital.

Talk about working capital. Recent times is pretty bad for many companies. More decent company will see increasing cashflow despite reducing revenues. This is just changes in working capital and is not a sign that company is doing well. Of course they are not doing badly as well. As the lousy companies will not see the “pop”.


Posted by: donmihaihai | November 13, 2016

Last time writing about ARA?

Might be the case. Privatization on the card at S$1.78 per share.

Almost a non event for me as I have few shares left. What about offering price? At S$1.78, it is just above 3XBV with a long term average ROE of 28% (12 years exclude FY16). ROE of 28% is boosted by earlier years. From the look of it, a wild guess on forward ROE will be around 20%.

Valuation part is easy. The price is not extremely undervalue or overvalue. Look fair. Considering the future of ARA, S$1.78 should be a little more than fair price.

Talk about growth. ARA is growing and one of the better way to look at the growth is AUM and ROE. In the last 5 years(FY2011 to FY2015), AUM increased by 50%. ROE reduced from mid 30s to my wild guess 20%. This growth is not cheap. If I use actual ROE rather than wild guess, ROE dropped from mid 30% to between 15% to 20%. Straightly from this, fair valuation of ARA dropped by half at least. Lets not forget, the 1st 15% to 20% ROE is not as valuable as the next 15%.

Lets not forget AUM is growing at single digit. And this single digit growth causing the company to put up more capital. Negative. Perhaps the company was laying down ground work for explosive growth going forward. But can it do so without even greater capital? If it does need that capital, recent Rights issue won’t be the only one. If that happened, consider all the broken dreams of investors, share price might drop to a bargain if ARA remains listed.

ARA has a lot of financial assets. It make no sense to invest in these as they generate less return than their fund management business. But it is there. Why don’t sell them all, even for non-listed financial assets. Here is the problem, if those are sold, I wonder what will happened to AUM in the next 5 years. Forget about growth, think about survivor mode.

This is no longer the same ARA when I invested. My selling was correct and lucky. ARA might not stay private for long if it does get delisted. Might look at Strait Trading in the future.

Posted by: donmihaihai | November 2, 2016

Financial PR and what I avoid

Financial PF subsidiary Shanghai Shihua Financial Information Service listed in Beijing OTC stock exchange. Doing pretty well to get listed but what kind of business is investor relationship?

Hate it when company engaged company like Financial PR. Or should I love it. Basically what it try to create can be summary as below.

The results: A share price performance of 184% year to date, which is more than any company can hope for.

Nice pop! Who doesn’t like it? Ask Swiber, what will happen to Swiber if it got such a pop post announcement of almost a billion of project? Some companies might be desperately need that pop. By hook or by crook………..

Back to investor relationship business. It will be interesting if Financial PF gained a reputation for “effective communication” or “performance investors relationship” without getting any spotlight from regulatory. And this is not the result of one or two “star player” but many star players and can be re-created if one left just like investment banker. Financial PF will be a very interesting company if this is the case.

I am always trying not to get sold by listed companies. Financial PF is one of the tool. Names that appeared in are companies I would not look into. But I read those articles, trying to get how they are selling. My feel is NextInsight is doing pretty well as selling these companies.

Other than NextInsight, I feel the best when the company I am looking at does not appear in The Edge Singapore, BT, valuebuddies & SG investment blog.

When will I kick this habit of checking and reading valuebuddies and SG investment blog? They do not serves the purpose anymore.

NextInsight, The Edge Singapore and BT are a must. They provide the news, interviews and most importantly gossip.


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