Tuesday, April 29, 2008

Amazing annual report

I've never been more impressed by an annual report than this.

The chairman and the management believes that a good annual report is one that teaches the owners of the company how to interpret the results. And boy, they did enlighten me! They mentioned that for a good analytical review of a business, the balance sheet classifications and other non-profit number indicators should not be an 'art and science' to understand - it must be easily interpreted. He did exactly that.

This forms a very very interesting reading as he goes on and tell the owners (yes, he calls the shareholders that) how to interpret their results and why they do certain things. He even explains the terms of the balance sheet for the owners, so that they know how to interpret it themselves. The managing director's statement goes on like that for 8 pages, which he explains with crystal clarity how to interpret the numbers and what it means for the business. I'm thoroughly washed with his sincerity and desire to educate owners.

Take a look at the chairman's message below.

Amazing right? It's also interesting to note that the founder and now non-executive chairman is a senior craft teacher, so perhaps he finds great satisfaction in educating owners for a win-win relationship. Why win-win? It's because while teaching others, you will also learn from your students if you keep an open mind. I think he managed to pass this philosophy to his son, the present Managing director.

Have you ever seen a consolidated balance sheet which is as easy to read as this?

I think a close fight will be from china milk. China milk's annual report is such a classic, with its own mascot talking and explaining to shareholders, that everyone should at least browse through it, regardless of whether one finds it of investing interest or not.

Of importance is that this kind of style is not only for the FY07, it goes all the way back! Their clarity and desire to educate owners are amazing. I browsed through the FY06 and was suitably impressed by it too. Here, they are trying to educate owners what higher EPS, higher ROE and NAV means to everyone. I must read all their annual reports - I do find their insights refreshing. It's akin to Berkshire's style of explaining their annual report to shareholders.

I have more to say, but I think I'll stop here, lest I'm accused of promoting this company. I have no investing interest in it (not yet anyway, though my interest and curiosity is piqued) and have no vested interest in it. I did bought long long time ago and sold for a mere $180 back in 2006 as it is one of the few stocks I bought when I started this investing business.

When I have a listed company in which I have to write the statements, you can be sure that I'll follow their style. Such is the effect of their enlightening report on me.

So here's the riddle - which company is this?

HSBC 1 yr chart

HSBC chart

Added a new company to my portfolio today, can you spot it?

Sunday, April 27, 2008

Of bonds, yields, stocks and PE

I was inspired by Mike's posting on the stock vs bond deal to do a little more research on my own. From what I can gather, the chart below seems to be the latest updated yields for treasury bill/bonds by SG govt (I'm not sure!)

Quite pathetic right? I'm not sure if I can find any bond yield longer than 20 years old, because the website where I got the data didn't have such an option for me to choose. It seems like the 20 year bond gives us a yield of 3.40% - not exactly impressive, though it's the safest form of investment. The highest the bond yield ever went up to was 5.19%, back in 1990, for 5 year bond rate.

3.4% means a PE of 29
5.2% means a PE of 19

Since current 20 yr bond yield gives us a PE of 29, does it mean that once PE of STI reaches around 29, that pretty much forms the ceiling of the upsurge, since the inflow of money should rationally go over to bonds?

Not sure :)

Friday, April 25, 2008

Time waits for no man

Another week passed...

Seems like the older you get, the faster time passes. Anybody who experienced this phenomenon? I was walking home from work today and I felt a sense of urgency to do what needs to be done before time slips through my palm like sand.

Time and tide waits for no man, so hurry up and do what you need to do. Prioritize your most important tasks first so that they will be done first :)

CSC and YN contract wins

No wonder CSC and YN suddenly revived from inactivity.

There are two announcements related to these two companies:

1. Yongnam and KTC secured a S$81.4 million contract for Marina Bay Sands IR to design, supply, install and remove temporary decking, steeling waling, strutting and excavation works. This is a 70% (YN) - 30% KTC joint venture for the South podium at the IR. They stated that this contract needs to work 24/7 basis to deliver the objectives within a tight timeline.

2. CSC won a contract in the energy related industry worth S$47 million. This contract is to do foundation works for Norway's Renewable Energy corporation ASA (REC) to build the largest fully integrated solar manufacturing complex here. Contract is for a period of 9 mths.

I managed to sell off 60% of my stake on CSC today too. Going to pare of my holdings for YN and CSC, join me? :)

Wednesday, April 23, 2008

Charts for CSC and YN

Charts for CSC and Yongnam - for my own reference.

Singpost will be posting their fourth quarter results for the financial year ending 31st March 2008 on 30th April, 2008, after the close of trading.

Tuesday, April 22, 2008

Are you a fighter, a mage or a fighter-mage?

I was talking to dream and musicwhiz last night when the idea of using Dungeons&Dragons (D&D) as an analogy to the two streams of thought for investing/trading was discussed. I did some research on found that, well, not only does D&D analogy applies to investing/trading, it also applies to web development. I got most of my information from the site, which I think all in IT should at least read it - it's damn interesting!



Not the flashiest or most prestigious role, Fighters have the lowest barrier to entry. They accumulate experience quickly, and don’t have a lot of class bonuses. But their simplicity belies a focus and strength that is crucial. The fighter is the guy in the party that protects the more “thinky” types from anything that might get in their way. There can be honor and satisfaction in bashing orcs one at a time.


I do agree with the author that fighters are not the most flashiest of the lot, but they certainly have the lowest barrier to entry. Almost any races can join to become a fighter. Fighters act as a tank to protect the weaker wizards from monsters, especially during the earlier stages of their 'career'.

Personally, I think fighters represents technicians. This is based on 2 reasons:

1. Chart reading is the more accessible than reading annual reports and financial statements
2. You can accumulate experience fairly quickly (don't flame me on this!) because you need less knowledge before you can start reading charts



The mage is the general purpose wizard. They are resourceful and possess a broad understanding of all types of magic. While not specialized in their studies, they are deeply theoretical, research oriented, and possess incredible focus and discipline. Their power comes from being able to summon a wide variety of spells, but they tend to be weak and vulnerable in the chaos of melee, since they must prepare spells ahead of time.


There are more specialized classes of magic users - like wizards, so don't be too harsh when they wrote 'while they are not specialized in their studies'. I think FA will fit into this role because:

1. Mages will fit into the researching type that fundamentalist seems to exude.
2. Mages are weaker at first (short term might not do well) and as they level progresses (as time goes on), they are gain more and more powerful spells. I think this fits into the long term perspective of fundamentalist.

Haha, but it depends on your reasonings.

I think dream gave a very good counter analogy. He said that since mages are more nimble and agile, dodging monsters and casting spells, mages will be most like TA :) Perfectly reasonable! So what do you think?

Thursday, April 17, 2008

Important realisation

Buffettology is really a good book. I think I'm going to get this book for sure, as I think I'll re-read 12 times. I made an important realisation when I'm a quarter into the book. This realisation is handy to quickly get a rough value of a business entity that sounds promising. First of all, I need to assume 2 things:
1. When I buy shares of a company, I am a partial owner of the business entity, hence I'm entitled to get a part of the earnings generated by the entity. Hence, EPS (earnings per share) of the company is also my earnings, though the earnings can either be put back into the business to generate more future earnings, or it can be distributed to shareholders like me as dividends.

2. The market will someday price the company at the right value.

We can calculate the earnings yield of a business, which is also the inverse of the P/E ratio. Supposing that the PE of a company is 12, then the earnings yield will be 8.33% (1 / 12 = 8.33%). This will be like a bond where you pay the price of the stock and expect to get an earnings of 8.33% with 2 major exceptions. First is that you might not get the principal back at the end of the period - which is both a good or bad thing because you might get more or less than the principal you put in. Second, the returns of 8.33% per year can vary - it can go up or down.

Of course, when we're investing, we will want the earnings per year to go up. Based on assumption 2, this means that the price will also go up. Conversely, if earnings go down, the market will also price the stock accordingly.

Let's say I want to get a returns of 15% per annum. Let's say the EPS (forward) is $0.23, it will mean that I will have to buy at $1.53 (0.23/0.15 = 1.53). If I pay:

$2.00, my earnings yield becomes 11.5%
$1.00, my earnings yield becomes 23.0%

In other words, the lower the price, the better the yield becomes. For me, I'll be happy with a earnings yield of 15%, which means a PE of 6.7 (1/0.15 = 6.7). If I buy a company with PE greater than 6 or 7, that will mean my earnings yield becomes lesser than 15%! That's an important realisation!

Of course, this is a simplistic case. What happens if the earnings keep on increasing? That will mean that my yield will increase and increase, even though the price of the stock remains the same! I finally understand why price is irrelevant, except when you're going to buy or sell, because earnings is what matters at the heart of this. But if we can assume assumption 2 to be true, then eventually the price of the stock will also increase as long as the earnings do too.

Okay, what happens when company gives out dividend? If profits earned are either put back into the business to let it grow or are given out to shareholders are dividend, it will only mean that when dividends are given out, future earnings will not grow to its greatest potential. Responsible companies that have no confidence of being able to maintain or generate higher earnings will give out dividends to shareholders. For those companies that can generate higher returns, why ask for dividends? Can shareholders generate returns higher than the ROE of the company themselves?

I'd rather let the company compound the earnings for me.

A few things must be put in place here.

1. Companies must be capable and responsible to handle the earnings efficiently. Otherwise, mismanagement of earnings into less worthy avenues will erode the value. Hence, an efficient, capable and candid management is crucial.

2. Inherent economics of the business must be sound. Some business/industry are just better than others.

3. Companies must have an economic moat so that their earnings will not be eroded by future and present competitors. This will ensure that earnings are high, consistent and growing.

This is going to be an exciting journey :)

Tuesday, April 15, 2008

Books came over!!

I'm extremely delighted today :)

First of all, I've been hunting for Philip A.Fisher "Common stocks and Uncommon profits" for some time already. I've chanced upon it a few weeks ago, only to go back home in disappointment because the book cannot be borrowed due to some technical problems. But this time, I found it nestling between the shelves. It's a bit old, but I'm too happy to find it to care much :)

The second thing is that the 2 books that I've been waiting was mailed over to me today! I've been waiting for the free copies of the books after completing the pop quiz by Wallstraits. Been 2 long weeks! I'm even beginning to suspect that it was somehow lost in the mail till it came over today.

The books are in excellent condition - hard covered and smells of 'new'-ness, enticing me to read it. What's more impressive is the fact that both the books are signed by the author, Curtis J. Montgomery, with a short encouraging phrase addressed to my name. I was both touched and impressed by this act of generosity and sincerity that I promised to myself that when I have such a day that I publish my own books, I'll do the same to pay it forward.

Thank you Wallstraits! You not only delivered my free books to my doorstep, you've also received a promise by La papillion to pay this kind act forward.

Monopoly rules - Milind Lee

Monopoly Rules by Milind Lee was a book that I completed reading last week. I didn't have time to publish what I thought about this book last week, so this is a bit long overdue.

In a nutshell, I think this book is very interesting. The author talks about the wrong focus on SCA (sustainable competitive advantage) whereas they should first focus on whether their business have a monopoly. Let me explain. Monopoly, according to the book, isn't exactly the definition that text books gave. To state it simply,

Monopoly is an ownable space for a useful period of time.

There are 2 aspects of monopoly, space and time. Space is talking about the product uniqueness, service uniqueness and price difference. You find that those 3 that are mentioned are actually something tangible space - that can be seen. There are other intangible space, namely custom/tradition and emotional involvement. Perhaps I need to explain a little more on custom/tradition and emotional involvement by giving some examples.

Some companies, by virtue of them having been around, will have what I call brand presence. The book quoted Standard and Poor, having been around for so long, will be the first place a newbie will look for to find out about a company or a unit trust. Emotional involvement will be those that Warren Buffett owns...coke, see's candy and so on.

Time will be the other aspect of a monopoly. There only 2 things to talk about it - either we know the length of time of the monopoly (trademark, regulation, patent, copyrights etc) and unknown (how long will ebay monopolise the online auction trade).

These are the different types of monopoly.

1. Asset monopolies

This is based on tangible assets or brand (yea, i know brand is intangible, but that' how the book classifies it under. A brand is something that can be seen, hence it's classified under asset by the author)

Limited natural resources, unique products/services, breakthrough in technology, license/patents/technologies/copyrights are all examples of this type of monopolies. The author sees this type of monopolies as old-schooled and will be less and less relevant in today's fast changing economy. These are easy to see and hence they are easier to erode by competitors.

2. Situational monopoly

This is one that exists because there is a need that no other companies met or even discovered. Even in generally bad industry (like airlines), certain companies can still find a little need that is totally unmet by others can carve a situational monopoly for itself.

Monopolies need to be protected by 3 havens:

1. Regulation haven - controlled by legal rights such as patents and government controlled.

2. Technological havens - such as the difficulty to do, copy, reverse engineer or it simply costs too much

3. Customer islands - these are network effects such as high switching cost and loyal customers. Think ebay.

I think this part of the book is most interesting. It talks about how to identify monopoly in companies so that one will know when he/she sees one. These are the 5 questions he/she ought to ask when searching for one:

1. Do your customers see only you if they are looking for this product or service?

2. Are you invisible to your competitors?

Some companies are in denial and/or are complacent and arrogant, thinking that this and that companies poses no threat to their business until it's too late. It happened to AT&T and Bells, long time ago in US.

3. Are the true competitors outside the dotted line?

By dotted line, the author means that these competitors are classified outside the definition of your industry. For example, when thinking about the competitors of airlines, sometimes the competitors are not other airlines, but are other modes of transportation. By looking outside the scope of your immediate industry, perhaps more can be said about the strength of the monopoly.

4. Can you price like a monopolist?

5. Do you earn unusually high profits?

Quite a good reading as I learnt more about this aspect of analysing my own business and other companies :) Next time you evaluate any company, think along this line:

1. Where is the monopoly?
2. How does it came to be?
3. How long does it last?

I think it'll be quite a good guide to analyse any companies qualitatively :)

New new new

Here's the screenshot of the old bullythebear website:

Here's how the screenshot of the newer bullythebear website looks like:

Personally while the older one will be missed sorely by me (and some others too!), this new one should be the new phoenix that the ashes of the old one had turned into. The background is a brownish-black colour. What I liked about the new one is the colour scheme. The red/orange combination signifies confidence and power.

I totally revamped the Newbie's FAQ section to make it easier to update and to have the option to include questions as well. Here's how it looks like:

Where can it be found? You can find it below the header and above the chatbox, by clicking the button "NEWBIE'S FAQ". Please help me spread the word around for this newbie's faq. It's supposed to help those who are new and had questions to ask, so help me do them a favour? :)

Those who want to link up or use the faq, just drop me a mail or use the chatbox, thks!


Note: I decided to control the comments as a measure to counter those idiots who are flooding my comments page with virus or spyware laden websites, and as a precaution to those who might innocently clicked on it. Please do not click on any of those!

A new look!

I've outgrown the older template.

It's time for a new template. This must be the 3rd time that I changed a new template and it could only get better and better. I still remembered that my very first one was from the standard classic template from blogger itself. Not very inspiring at all.

After some time, I switched to a new (and now old) one, with 2 columns. Not too long ago, I configured it to work with 3 columns. In the process, I learnt lots of html codes myself. No doubt, it's rudimentary, but I think I can still do the standard editing and managing of my website. With the new and latest template, I've graduated one more level with html coding.

There's much more features in this latest template. I think I should list them down:
1. Tabs near the header just above the chatbox. These are quite handy to me and possibly to others as well. Though we have several links, we only click a few of them. And those should be placed in the most accessible places so that time wouldn't be spent trying to locate those links. The tabs can be fully extended to include more quick links as and when I want it.

2. The colour matching is done on a more conscious level. Nobody would want to visit an unpleasant website, even myself. It's important to have a certain level of aesthetics in order to fire the little neurons in my mind for productive work in the blog.

3. It's a 3 column template, so there's a better use of the web space available. This blog is not used mainly for advertising (though who would mind if there is). In fact, it is my own philosophy that interests comes before money. I removed those things that are jarring to my philosophy and only include one advertising source - nuffnangs.

Sorry for all the disturbances and inconveniences while doing the changes. Do bear with me in this period of transition :)

Wednesday, April 09, 2008

Successful Value Investing in Asia - Tony Measor

I've not done a book review for some time, but this book that I read beckons me to review it, so that I can share with more people and also that I can remember the lessons taught.

This book that I'm talking about is: Successful Value Investing in Asia - 10 timeless principles by Tony Measor. To be frank, I saw this book from major bookstores before but I rubbished it away. Perhaps in the past I saw this book with a different light than what I saw now. When I finished reading it yesterday, I was wowed by the sensible insights of the author who wrote it.

In a nutshell, here's the 10 principles by the author:
1. Invest, cash is not king
2. Be your own fund manager
3. Learn the basics
4. Looking for dividend income
5. Focus on growth
6. Buy and keep
7. Beware of the quick profits of IPO
8. Gamble to win
9. Enjoy the ride with the market
10. Buy property for living, not for investing

I really learn a lot from chapter 3: learn the basic. Here, I found out that there are 2 ways to value a company. One is through its earnings and the other is through its assets. There is of course a compromise between the two. That statement alone makes me think about a lot of things already.

Without any doubt, the author is bullish on the banking sector as the ultimate growth stock. His favorite, which appears time and time again in the book, is actually HSBC which is listed in HK. He cited a very interesting insight - that HSBC forms a major component of HSI (from the charts, I agree with him). HSI might go up or down but overall, the direction is still up if you give it enough time to mature. It's the same for HSBC.

He mentioned that while valuating shares with earnings, one must also back the valuation with asset values. Asset values will form a safety net in case earnings fail to meet expectations. I would classify the author as a dividend value investor, someone who values dividend more than capital gain.

In the book, he mentioned several companies several times, and thus I think these are worth investigating further:

2. Manulife
3. China mobile
4. China light & Power holdings
5. Hang Seng Bank
6. AIG
7. Huaneng Power
8. Cheung Kong

It's really a good interesting read for me, I might consider getting this book :)

Tuesday, April 08, 2008

Mozzies attack!

What's the difference between a fly and a mosquito? A mosquito can fly but a fly cannot mosquito! A pretty lame joke from my student. But it didn't mask the fact that it's not durian season, it's dengue season now!

I can always tell because somehow, these irritating blood suckers will fall in on the mirror of my bathroom every morning. When in season, they will also fall in after every few hours and I would have to clear them every now and then!

Don't tell me to call NEA or ENV or what nought. They came they went, and they educate and they checked. Nothing. Will report it. What else can they do? They did told me that it's aedes mosquito alright (great). Luckily, my area (Bedok/Tanah Merah) is not a dengue hot zone, otherwise with the sheer amount of mosquitoes gathering at my bathroom everyday, it's amazing that I'm still here blogging!

I did some research on Aedes mosquito, as any curious person would do. I found out these:

1. Aedes mosquito usually bites in the daytime (spot on, as they usually leave me alone at night). Malaria mosquitoes, those commando that live in Tekong, usually bites in the evening and nights.

2. Mosquitoes in generally drink nectar from flowers for food. Only female mosquitoes need blood for the proteins and iron needed to develop the eggs. Female blood suckers!

3. Mosquito usually don't venture far from where they are born. Since I live in the highest floor, and I'm sure that my home is not a breeding ground, it must have come from possibly the roof? Or neighbors? I highly suspect the roof.

Hence, as a community message from Bullythebear.com, I decided to track the number of mozzies I kill per day and add up the total. Perhaps I can keep the dead carcasses instead of washing down the drain, keep it in a bottle and start mailing to ENV or NEA for some serious action by them.

PS: Despite my hatred of these irritating blood suckers, I pity them too. I once, out of curiosity, fed one of them to a spider which I saw lying in ambush at the corner of my room. Guilt still washes over me... I won't do it again.

Friday, April 04, 2008

Civil engineering vs value investing

Oh my, how time flies...Friday already and another week gone by. As KK would have said, only left XXXX weeks more to go :)

I realised I didn't blog much this week, so since I have both the energy and the time to do it now, I shall try to post some thoughts that are in my mind. It's about margin of safety.

I did civil engineering before, so the concept of margin of safety isn't new to me, except that it wasn't known in the engineering jargon as margin of safety - it's called factor of safety. Different words, same meaning. Thus, you can imagine that my eyes lit up when I first read Benjamin's Graham classic book - The Intelligent Investor. The concept of having a safety margin is EXACTLY the same as designing something bigger - a bridge or a building or what other things that civil engineers do.

I'll illustrate with examples..

For stocks,

1. We analyse the business and see if it's worth taking a closer look. Hence there is a screening procedure, otherwise all the stocks in the world will require 10 lifetimes or more to scrutinize closely - not possible.

2. Having ensuring a business is worth re-looking, we analyse the 3 financial statements to check that it's worth taking a shot. Step 1 and step 2 are closely related, since the screening procedure also involves numbers and ratios taken from the financial statements.

3. Calculate the intrinsic value or fair value of the business. Many methods to calculate - P/B, P/E, DCF, DFCF, DDM and other 3 letter words

4. Apply a margin of safety. This is not a fix margin for all the stocks, but rather it depends on how sure you are of the value you used for estimating the fair value. In essence, the more unsure of the input (hence the business), the higher should be the margin of safety.

5. Go buy it

That's investing with a margin of safety for you. I find that this approach parallels the design procedure in civil engineering works. Alright, granted that I lost 99% of my civil engineering knowledge. In fact, I only remember 1% of all that is taught, which is the concept of the factor of safety. Interestingly, I asked myself immediately after I graduate what I learnt from the extremely value packed (read: packed to the brim with courses and lab work spreading over 6 workdays per week) 4 year course.

What I learnt is this: Always apply a factor of safety. But if you apply too much, you'll pay too much for construction built to stand an extremely harsh condition that has a very low probability of happening. Apply too low, you'll pay less for the construction of a structure which cannot take unexpected conditions.

So how does a civil engineer design their works?

1. Do a survey of the land based on the map. Do a site visit to find out unanticipated conditions before designing. Do soil testing with a few drill holes. A 'few' meaning enough to find out reasonably what the soil conditions are yet not be overburdened with cost. Most of the time, civil engineers do not have the luxury to choose the site and deem that a particular site is not worthy of construction. Engineers will have to make it work, given any site.

2. Look at the survey results and the soil testing results. Get the working parameters of the site to facilitate design. Forecast the load that the structure is going to take given reasonable conditions. For example, to build a bridge, the average weight of a normal car is taken. A forecast of the traffic condition is made for both directions and then we'll get the load. Have to look up a engineering code book to multiply the first factor of safety to get the design load. This is because what is forecasted might not be correct, so we have to multiply the forecasted load with a safety factor to get a higher design load, in case the calculation is wrong.

3. Design the structure based on the design load. When designing the load that each beam and column have to take, we apply another factor of safety to account for a myriad of conditions like earthquakes, wind, soil settlement. In other words, the structure can take unexpected load conditions which is not forecasted, but up to a certain degree only.

4. The key is that if the factor of safety is too high, the cost of construction will be too much because we are over designing the structure for a load which is probabilistically low. Yet if the factor of safety is too low, we are stressing the structure too much and it won't be able to take in unexpected load conditions. Very dangerous as it can lead to catastrophic failure and lead to loss of lives.

You go figure what's so similar about this two disciplines :)