Saturday 26 May 2012

Investment Philosophy: Part 1


"Put all your eggs in one basket, but watch that basket carefully" - Warren Buffett
     

I first encountered this phrase when I was attending a Value Investing course conducted by a prominent stockbroker Mr Robert Tay in 2003.
I treated this phrase with some scepticism at first because till then, mainstream investing media always promotes diversification in order to protect your capital and prevent you from making a significant loss.
Now this philosophy is saying we should risk it all in one or two stock picks!?
Isn't it dangerous!?

SGX




In 2003, I spent hours researching this company analyzing its fundamentals.
It was a monopoly with great cashflow, management and prospects.
The current price was a steal!
Thus, I decided to buy SGX @ $1.10 and managed to sell at $2.20. A 100% gain!

But i only bought 1 lot, even though I could have bought more.
Looking back, my amount of research truly increased my probability of making a profit in the stock.
Shouldn't i have bought more to do justice to the hours spent on my research?

Thats when this philosophy came back to me.
Since then, I have decided to put a significant proportion of my net worth in an investment once I have thoroughly analyzed it.


SPC




One of the times I applied this philosophy was in 2006.
I put a significant % in SPC (privatised 2009).
Oil prices then were thrashed badly.
However, SPC's stock was sold down unjustly.
I bought in batches from $4 to $4.50.
Soon after, oil price recovered.
I sold all at $6.55 in 2008, making approximately a 50% gain.
Though % gain was lesser than my SGX trade, the amount I made was more!

This example, coupled with many others I seen over the years have convinced me that this philosophy has its merits if applied correctly.
Caveat here is you MUST HAVE THOROUGHLY ANALYZED the company.
Investing is ultimately hard work, not gambling.  :-)



Further Reading:
This same philosophy is repeated in an Investment Classic titled THE ZURICH AXIOMs written by Max Gunther.
It is located under the section "Always Invest for meaningful gains" - Minor Axiom I.
I would highly recommend this book for anyone who wants to start out investing.

Book Review --->
http://20smoney.com/2008/07/08/how-the-swiss-got-rich-the-zurich-axioms-part-1/




Review of FY 2012 Results: Stamford Land

Stamford Land announced their FY11/12 results last Thursday.
Chairman Ow announced the highest ever 4Q dividend of S$0.04 per share.
My annual dividend income from this co alone will reach five figures!
Based on my buy price of $0.50, it works out to be 8%. A nice bonus while waiting for ultimate value unlocking (my target price $1.00).
But this is likely a one off and i believe my analysis on its recurrent earnings in my previous post still stand.

Stamford Land's key assets on its balance sheet are now as follows:
1) 8 four/five star hotels in Australia, NZ
2) Dynon's Plaza in Perth
3) Unsold apartments from Stamford Residence Auckland & Sydney (the latter accounting for more)
4) Cash of S$87m (of which $35m will be paid as dividends)

Stamford Land's only key liability on its balance sheet now:
1) Bank loans of S$350m

*Stamford Grand Adelaide (picture taken from Stamford Land's website)

Outlook:
1) Potential listing of more Aussie hospitality assets(e.g Ascendas Hospitality REIT) in SGX might trigger a re-rating of Stamford Land
2) Weakening of Aussie dollar actually makes Aussie assets cheaper than 6 months ago. Hotel Buyers might take advantage of this and make an offer.
3) Possible writedowns in Stamford Residence Auckland should more apartments be sold below cost
4) Debts are much lower now. Profit margin might increase, ceteris paribus.
5) No big projects in the works

I will continue to hold out this investment over this year while enjoying the dividend.
That is, unless another more compelling investment that I can understand easily comes along.
Meanwhile I am working hard on discovering other discounted gems to add to/rebalance my portfolio. It is too skewed towards property.
Will update my blog in due course! :-)


Note to my readers:
I'll be starting a new series in my Blog titled: Investment Philosophies.
It is done with the intent to share my knowledge of some fantastic ideas I came across over the years which impacted my investing methods. Most of it came from books I read and courses I attended.
I will strive to give real life examples too to show that some of these good stuff works! :-)

Monday 21 May 2012

My thoughts on Stamford Land Corp.

Stamford Land Corp.

This company is my largest holding to date, which I acquired at S$0.50.


Qualitative Analysis:
-Family owned ~ 35%

-Willing to pay dividends regularly over the years

-Good track record of owner unlocking value in stable of companies like SG Shipping/Cougar Logistics

-Owner is a reputable businessman

-Unlocking of value might take indefinite years (opportunity costs)

-No visible catalyst moving forward


-Hospitality is a cyclical industry, though the shortage of rooms in Australia might mitigate the magnitude of falls in revenue.


Quantitative Analysis
(based on my estimation using financial statem data @ A$1 = S$1.25):

Cost of Hotel Portfolio: S$488m
Probable mkt price of Hotel Portfolio: ~S$768m (based on recent offers)

Recurrent Earnings from hotels and Dynons Plaza: ~ S$26m/yr
Projected EPS: ~ S$0.03/yr (based on 864m shares)
Projected sustainable dividend: ~ S$0.02/yr (excludes special dividends)

Note that my above analysis has a combination of assumptions, one of which is the recurring income are performing as per  2009/2010 (year when no ppty was sold)
Assumptions are necessary, and I do believe investing is an art, not a science, to a certain extent.

-----------------------------------------------------

Projected Dividend Yield is not fantastic @ 3.7%
I am holding it solely for the value of its hotel portfolio.
Its current book value is based on the cost price paid by the company in the 1990s to early 2000s. The market values of the hotels are substantially higher today.

Saturday 19 May 2012

Creating Sustainable Income


Have been wanting to document my Investment Journey in a Blog to both remind myself of the lessons I have made, as well as the accomplishments (i hope) that I have achieved in my life.
Finally took the first step today!!  :-)

Well, since my university days in 2004, I wondered why so many people in their 30s and 40s generally spend such long hours at work, to the extent of neglecting their family, while complaining about being stuck in jobs they hate.
I made a decision that I do not want to be like them at their age.


Alot of my observations over the years led me to conclude that if one has sustainable income to support their basic lifestyle, they would have more time to think about creative ideas to make a difference in the lives of the people around them, making our country a more harmonious and constructive place worth living.

One of the methods to get there I believe was to achieve proficiency in Stock Market investing.
Hence, in my early years, I read many books and attended seminars regarding Value Investing.
Most importantly, I took the plunge and started trading in the Singapore Stock Exchange.
Can still recall some stocks I traded in those days have become 10-, 20-baggers today whereas many got delisted because of company fiascos, privatisations, etc. Retrospectively, several lessons were learned. I got my fair shares of profits which made me feel "invincible", but also my fair share of losses that humbled me and brought me down to earth.

Since 2004, I grew my $20k capital to $300k (mkt value) today.

Today, my investment philosophy is long only, preferring to hold companies for years.

I will sell them only in 3 scenarios:
a) Times of irrational exuberance
b) There is a more compelling investment
c) The company's fundamentals deteriorate irreversibly

My strategy ultimately gears towards purchasing good quality companies' stocks that give sustainable dividends (5% to 8%).

I shall begin this first post by sharing my stock portfolio as well as my annual dividend income in 2011.

STOCK PORTFOLIO
                   
Frasers Centrepoint Trust (retail malls in SG)
Mapletree Commercial Trust (commercial/retail malls in SG)
Stamford Land  (australian hospitality assets)   
United Engineers (ppty developer/engineering/hospitality in SG)
Wing Tai (high end ppty developer/retail business)

Annual dividend 2011:   S$16,000 




Going forward, I will periodically do writeups on these individual companies, and share my views on the individual companies' prospects.
Your comments and views are greatly appreciated!
Hope I can find more bloggers/investors of similar mindsets through this avenue.  :-)