Monday, June 25, 2018

The sky is falling!

Expansionary monetary policy by the Chinese. Trade wars, tariffs. 1997, 2001, 2008, and now maybe 2018?

Is the bull market over? Are we going into a great recession that will leave our stocks destroyed, our savings burnt, our retirement plans over?

Sell, sell, sell, sell everything!

Just kidding.

Price is what you pay, value is what you get.  Frankly, at this point, I see many of my stocks going into the red, and personally, of course, I am slightly concerned. At times like this, I have to wonder whether I have purchased the right stocks, at the right price.

It isn't fun to see the money that you have worked hard to save burnt on the whims of someone's twitter account (*cough*). Funds are slowly retreating and withdrawing and building up their cash reserves, preparing for the bear market that hundreds have predicted for awhile. It is quite evident that the market of 2017 is probably not going to repeat itself in 2018. Or will it? 

The point of all this is that at all times, we just have to remember this : do not let our emotions get the better of us. If the fundamentals of the stock one has purchased is still there, valued properly and with decent enough analysis, one just has to remember that emotions get in the way of our wealth.

I will refer to this white paper by Barclays that showcase the issues with emotional investing:

In a bull market, it can be such that it seems like you can close your eyes, randomly choose a stock and it will shoot to the moon. It may not be so as stock prices are overvalued, going to astronomical levels without financial justification for the numbers.

At this point, I would just suggest to people to remember that even those who, if they had held on to their stocks in 2008, and just added more as time went along, would not have bore the brunt of the market's nastiness, but may have recovered from it and even did pretty decently with their portfolio.

In fact, it might be good that the market is now finally correcting itself. There might be more good value purchases and one might find great stocks at great prices, something that has not been that possible for awhile now. 

Buy the right stocks, and close your stock watchlist app so you don't panic and make the wrong choices. Doing nothing may often times be better than trying to do something when it comes to investing.

The Great Singapore Sale is coming soon!

Wednesday, June 20, 2018

On investing principles (Peter Lynch)

Over the course of my learning in stocks investing, I have a few people that I look up to a lot in understanding their investing methods.

Today's post will be about Peter Lynch and a brief summary of parts of his investment strategy.

As an investor, one should definitely learn about Peter Lynch and his Megallen Fund, which during his management between 1977 and 1990, had an annualized return of 29.2%. By the rule of 72 (it takes you 72 over %returns = number of years for initial investment to double), your money with him would have doubled every 2.5 years. He has thus gone down history as one of the legendary investors of our time.

Lets take a look at some of his core investing principles.

#1: Buy what you know.

Peter Lynch believed in purchasing stocks you will know about well. Inherently, he believes, that if one was working in a company, such as in logistics, for example, one would be better suited in understanding a logistics/3PL company and hence would have an advantage over other investors in this sector. Alternatively, if one uses Netflix, per say, one would probably understand the product well and benefit from it. I will expound on this a bit, as Peter Lynch, of course, did not just meant this in the most basic of terms.

#2 The "Story" behind the company.

Another aspect of his investing principle was that of tackling every nuance of the company to understand what is their appeal over another company. Each company has a story to tell, in terms of its product, its sales, its managers, even the target segment. In line with this, he believed that one's stock investments can be divided into different segments, namely:

The slow growers, the stalwarts, fast growers, cyclical companies, turnarounds, and asset opportunities.

Slow Growers : Large and aging companies, likely to be paying large dividends as growth has become stagnant. I would give an example of Singtel in the Singaporean context. Lynch is not particularly fond of these types of companies.

Stalwarts: Large companies that are still able to grow at 10-20%, in large because the companies have great products but have penetrated the market very well. I would consider a company like Alphabet as a company to put here.

Fast-Growers: the feisty small to mid-cap companies that grow fast, and may not always need to be in fast growing industries. In fact, Peter Lynch prefers that they are not, mostly because attention on a company can push prices up to unreasonable rates (more on this in awhile).

Cyclicals: companies that have cyclical stock prices. An example I would have thought of was that of Micron, but the stock gains by the company in recent months may have relegated it more to that of Stalwart.

Turn-arounds: companies that have battered stock prices, due to many reasons that might or might be temporary. The ability of the stock to turn around may cause the stock price to shoot up. I would consider Design Studio as a company that is in this area, in my own personal opinion.

Asset Opportunities: companies that have great asset opportunities that is hidden from a Wall Street analyst, perhaps found in medical drugs, metals, etc. Lynch has opined that this is where the "buying what you know" comes in best, as one may know about the opportunities inside a company that might help one to benefit from it.

On top of the above, Lynch also believes in finding out more about the opportunities, the pitfalls and to investigate a single stock as much as possible until the story is fleshed out. Even if it is, one has to consider whether the story is able to be played out, or there could be possible problems that will make the story an awful one.

#3 Reasonable prices
Truth be told, as much as the story can be perfect and all that great, there needs to be the right environment for an investment to enter. While Lynch may be considered by some as a growth investor, one can see when reading further that people tend to look at #1 and #2 that they forget that Lynch looks heavily into value as well. As much as he is much more of an active investor than Warren Buffett, both of them agree on the need to find reasonable stocks at reasonable valuations. Even if the story of Amazon may sound amazing, even if the story of Netflix, Tesla, may be so, one has to consider the aspects of earnings and be wary of buying in too late. Never forget the 2000s, when highly valued tech stocks ended up crashing due to unreasonable valuations. As much as I personally am a fan of Elon Musk, for example, I am reluctant to invest in Tesla due to its valuations.
Ultimately, as much as one may understand how Starbucks can sell their coffee, or its atmosphere, we should never just take that as a reason to buy a stock. There needs to be a bigger in depth look into the company, even for a layman investor.

Boring stocks are a favorite of Lynch as well. There is an added benefit to buying boring stocks, such as companies selling cement, elevator manufacturers and etc, as "ugly ducklings" tend to have that reflected in their stock prices, allowing for cheaper bargains.

Ultimately, when one choose to invest in stocks, whether you may be a fan of Buffett or Lynch, always remember that price is what you pay, value is what you get.

Monday, June 18, 2018

Let the Future You Be Happy

Many have questioned my goal on retiring by 35. Some consider it ludicrous and some may smile and nod but think that it is impossible.

I think otherwise, of course. Why else would I commit to this journey?

Yet, there is a part of me that nags at me about whether its possible. Self doubt, you see, can be a great impediment to choosing to retire young. That, and of course, many people who have failed to do so. 

Money talks. Thats the name of the blog. I like this particular explanation of the phrase, which is that of "Money gives one power and influence to help get things done or get one's own way." While some people may scoff and wonder if it is actually possible to retire so young, the whole point of me being on this investing journey is that I want the future me to be glad I did this, so that when future me wants to do the things he desires, he can choose to do so. 

In life, there are so many objects, activities, luxuries that call out to you every second of the day. We are attracted by the Rolex watches, the Kate Spade handbags, the Adidas kicks, and yet we fail to realize that at the end of the day, all these things don't matter. Spending a few thousand dollars, possibly a majority of your salary, to buy luxury goods oftentimes seem crazy to me. I cannot fathom working 40 hour work weeks, day after day after day, just so I can have a watch that tells me time, (or honestly, for many, to show off their "wealth"). To me, money is essentially obtained by trading our time. It does not matter whether we have a job being a cleaner, or earning tens of thousands as a banker, but time slowly ticks away, and by the time we might want to spend the money we have earned, it may be too late.

We trade time for money, and we end up spending our time on random things that most of the times don't really add value to our lives.  The rich man does not need to flaunt his wealth; it is obvious most of the time, through his actions, his command oftentimes in his business. Honestly, why the need for a Rolex?

Many love shopping due to the fact that it can be a good escape from the humdrum of working. Some like to eat at expensive restaurants, because it can be a great escape from working hard for the week. I will not deny that there is an appeal to shopping and dining my days away; they are luxuries, and can be enjoyable to a certain extent. I just, however, would want to ensure that my future self is happy too. I would buy a cheaper watch, if it means that the money could be used in buying my house. I would skip a expensive meal, if it means I had the time to sit back and just relax at home because I have retired early. To me, retiring early is the essence of choosing to no longer trade time for money, and to better use this time to enjoy my life. In the mean time, though, I choose to invest, to use my money as prudently as I can, while still spending enough to make myself and my loved ones around me happy. Someday, hopefully, with the dividends and the returns from my portfolio, I can retire and sit, and just have a nice cup of tea at 3pm somewhere that is definitely not my office.

I would spend enough to make my present self happy, but always make sure that my future self will be satisfied too.

Thursday, June 14, 2018

Shopping Spree

I must admit that I have been on a purchasing spree lately. I have added another new stock recently and also added to a previous position. The new position is namely Design Studio Group (SGX:D11) , a SG company, and also adding to my position in Daimler AG, at 61.5.

Design Studio Group was bought because I believe that the company will recover from the issues it had last year, in which it had financial losses for the first time in many years. Other than that, the free cash flow available to the company, together with the little debt, would ensure that the company is worth purchasing. The intrinsic value of the company is high, while the stock is at an all time low, understandably because of the bad financial year it has had.

However, I still believe the stock has a ways to go up; namely because of a few things. Firstly, the new CEO of the company seems competent and has a strong background in high end designs for joinery. The losses was also due to writing off nearly 8.2 million for a fresh start. They have also already gotten many projects that account for at least half their revenue last year, going halfway in. This stock price is definitely not justified. Another possible factor which might seem small is the fact that Kim Jong Un stayed at the St. Regis Hotel, which Design Studio participated in. In this particular aspect, I believe this is in part speculation but I believe that having this ability to boast of its ability to create high end, luxurious designs is great for its reputation going forward.

With the current margin of safety one can enjoy from purchasing the stock now, I believe this is a great stock to purchase for the long run.

The other position that I have added heavily to is that of Daimler, more commonly known for owning the Mercedes brand. Mercedes has outsold many other luxurious automobiles and earnings has been going up, yet has been undervalued for awhile now. There are several reasons for this, one of which is that Daimler has invested large capital expenditure into autonomous vehicles as well as electric ones. The free cash flow available to the company has dropped a lot recently due to this. In addition, the recent scandal similar to the one encountered by Volkswagen has resulted in the stock crashing nearly 10 percent (unfortunately, my first position was badly affected by this). Nevertheless, it is my opinion that the company's strong position in the autonomous vehicle race, together with its strong earnings ( the recall of vehicles required by the EU will be but a temporary drop in profits), and its strong brand has allowed it a very strong moat to tide over these temporary problems. Time will tell if the autonomous vehicle race will have Daimler as a winner, or a laggard, but in my opinion, with the prices as it is now, I have decided to add more to my already large position in it.


Wednesday, June 13, 2018

New additions

I recently added to my positions in Frasers (BUOU) due to the issuance of new stock by the REIT. In doing so, it allowed me to add to the position slightly with the purchase of 10 percent more stocks (originally, that was 450 stocks at the cheap price of 0.967, lower than my first entry of 0.985), but due to the ability to buy extra shares for those who did not choose to use this option, I actually got 1500 shares in total instead of just 450 at that beautiful price of 0.967. This was a pretty good approximately 6% growth in capital gain just from being able to purchase at this price.

Going further, I am looking into another Chinese stock that has seen it stock price drop for the past 12 days. As to why it is so, I will investigate further. Nevertheless, based on my quick analysis, I have determined that it is falling to very tempting prices.

Now, based on the readings of Benjamin Graham, I have tried my best to build a very simplified version of a DCF model, just to determine an approximate intrinsic price and apply a margin of safety to it. As per the words of Buffett, the stock should just "scream" at you. In my free time, I would want to accumulate a few stocks that has interesting business prospects, and find my MOS price to attempt to enter.

This is also something I have learned from the readings of Peter Lynch, another famous investor. In looking at stocks, he always tended to look for the "boring" ones, stocks that may be overlooked just because the items they sell or the business they are in are plain out... boring. I am talking about things such as selling cement, wires, everyday commonplace items that are necessary but does not elicit much excitement, unlike the companies such as Tesla, and admittedly, Alphabet or Alibaba.

As such, I am attempting to purchase more value stocks as I believe strongly in the arguments for value investing, yet have to admit I stray sometimes due to some of the compelling aspects of growth stocks. Nevertheless, I believe the stocks I will keep for the long run to provide me steady dividend and my path to my financial freedom would be the value stocks.

Monday, May 28, 2018

On my investing journey

I started this investing journey fully a year ago. I have determined that one of my main goals in life currently is to be able to retire at the ripe old age of 35, as mentioned in my previous post. This blog will serve to highlight my decision making, my learning from my reading, and some observation of the stock market as I go along.

Critical to ensuring the investing returns reach my required amount includes the need to study intensively both literature on investing and the stocks I have invested and will invest in. I believe in the teachings of value investing and the ability to buy undervalued stocks. To that end, I would recommend some books that any hopeful value investors should definitely read. These include : The Intelligent Investor, by Benjamin Graham, Margin of Safety by Sleth Klarman and also Security Analysis, another book by Graham. Graham, as value investors may know, was the teacher of Warren Buffett. I have tried my best to follow the teachings of these masters of their craft, yet I must admit I differ sometimes when I go into my investments. Gradually, however, as I learn more about value investing, I see the advantages over speculations into growth stocks, which inadvertently, I had done.

My first stock I purchased was actually 4/5 years ago. Then, knowing nothing and thinking the stock market had no place to go but up, I invested two thousand dollars into a 400 dollar loss, into FJ Benjamin. Looking at the stock price now, I think it was evident how ignorant and lost I was while investing. Nevertheless, as I go along, a value investor converted, I will do my best to explain my logic behind my stocks, and also perhaps pen down some thoughts and ideas for later revision.

Friday, May 25, 2018

Choose to be financially free.

This blog will highlight the start of my 10 year long journey to do something that many may deem ludicrous; that of retiring by the age of 35. In order to do so, I would need to ensure a few things are in order. Firstly, I would need to keep at least 50% of my salary and utilize it to purchase stocks.
Secondly, I would have to obtain at least 12% returns annualized, with injections every half a year.

For me, retirement means a house to live in, enough income to live comfortably and to do what I like. It would not require me to have a condominium, a yacht, nothing of that sort. As I joke with my friends, I just want my daily chicken rice.

A little about me. Although I am a business graduate, from SMU, I chose not to major in finance and took other majors instead. However, my interest in stocks, especially in value investing, has grown significantly since I chose those majors. I believe that I have the ability to beat the market as much as I can; and if I legitimately cannot, I will choose passive investing and put  my money into ETFs, keeping in mind, however, that there is still a dividend tax if I choose to invest in a US ETF.

Now for the interesting part. My methodology for investing is 80% value investing and 20% speculation. I have to admit, that once or twice I have deviated and bought growth stocks (Alibaba and Alphabet), as examples, while the rest of my investments are in value stocks.

Let me highlight the stocks I am currently holding on to right now.

Stock Name
No. of Shares
Price Bought
% of Portfolio
Bank of Zhengzhou (6196: HK)
Barclays PLC (BARC:LN)
Frasers Logistics and Industrial Trust (BUOU:SP)
JPHCL Bio-Pharmacy Company
(HK 8049)
Daimler AG (DAI:GR)
Singtel (ST:SP)
Alibaba (BABA:US)
Alphabet Inc (GOOGL:US)
Annualized Growth

I will elaborate more about my reasoning for the choices above in further posts , and my annualized growth includes a previous stock purchase which I had made on BYD (1211:HK) which I had liquidated. I started this portfolio in April 2017 and this is how far I have gotten with my investments. Going further, I hope to accquire more value stocks and perhaps even some growth stocks, in a mostly 80/20 ratio (value stocks to growth stocks).

Onwards towards my goal. I choose to be free.

The sky is falling!

Expansionary monetary policy by the Chinese. Trade wars, tariffs. 1997, 2001, 2008, and now maybe 2018? Is the bull market over? Are we ...