Benjamin Graham

Hong Leong Asia Ltd – Notes From My Investing Journey

Hong Leong Asia  On the 27th of November 2016, I noted an entry into my investing journal. My modus operandi is to create a master folder of companies that I am interested in. And within these folders contain the information with which I do my research. The folder may also contains annual reports, links to news articles in the media and any filings related to the company. Within 1 of these master folders contained a company called Hong Leong Asia Ltd, a holding company of various subsidiaries operating in diverse industries. It has a total of 5 core business segments. They are: (more…)

Case Study

This Is One Of The Reasons Why Chinese Billionaires Are Buying US Companies

Chinese billionaires have been on a buying binge in the US. This is partly due to slower economic growth in China and a perception that the RMB will continue to devalue.

Looking at the USD/RMB chart here, the strengthening of the  USD to RMB can be seen to have begun from 2014 or so. And so the acquisition of US companies began. Some of the acquisitions that have occurred so far are:

  • ChemChina's acquisition of Syngenta
  • HNA Group buys Ingram Micro for $6 bill
  • Blackstone to sell Strategic Hotels & Resort for $6.5 billion

and more...


Case Study

Countering The Simple PE Ratio

The simple PE ratio, an extremely basic calculation, is a measure of valuation which is easily comprehensible to many retail investors. It is simply the price per share divided by the earnings per share. One could also take the market capitalisation of equity and divide it by the total net income of the company and get a similar figure.

A PE that is too high is an indication of overvaluation. A PE that is too low may mean undervaluation. But this is not true in every instance. A high PE stock may still be undervalued while a low PE stock may very well be overvalued. The value of a company is dependent on the future cash flows that the company can produce going forward from this point in time to the future. As such it is important to assess the value of a company by looking at things wholistically.

The corporate actions and decisions of management, the sustainability of earnings or the earnings power and the ability of the company to earn a return in excess of market rates of return all have a part to play in determining the value of a company.

A company whose earnings are cyclical may show up as a low PE stock in your screen. If you were to buy that company today, you may have overpaid for the company. Typically, cyclical companies appear cheapest when they are at the peak of their earnings cycle and expensive when they are near the trough of their earnings cycle.

One way to counter this is using a cyclically adjusted price to earnings ratio which adjusts the PE for these ebbs and flows in the earnings of a company.


Case Study

Disney’s Star Wars Acquisition Was Brilliant!

Disney's Amazing Purchase

I find it hard to fathom that an idea in someone's mind could blossom into a business empire spanning more than 4 decades. That idea of a quirky universe filled with 17000 characters and a few thousand planets was borne out of the legendary film maker's mind, George Lucas. Like Harry Porter, its success would be considered by any means a positive black swan.

George Lucas's Big Bet

At a point in time when movie executives did not believe in the power of the franchise and its characters, George Lucas took a bet, and a big one at that . In 1973, instead of a pay raise offered to him, he opted to receive $50,000 and all the rights to all the sequels of star wars plus all the rights to the merchandising.

What fascinates me about George Lucas was that he wasn't in it for the money. He was thinking about protecting the creative integrity of his project from what I believe. As I read these articles about George Lucas, it sure reminds me of the "why" that one should stay true to himself and not be a follower merely another has attained success in a particular way. Those values sure do speak to me as a person, as an investor.

Back to George Lucas. Those decisions made a huge dent to his life. As the franchise of star wars grew exponentially, so did the sale of merchandise, earning George Lucas hundreds of millions of dollars. The moral of this short story so far is thus this : Stay true to yourself and express yourself honestly.


Case Study

AEI Corporation : Attractive Risk And Reward


AEI Corporation is not new to me. In fact, since my days in university, this did pop up on the screen then. And that was more than a decade back. Incorporated since 1983, the company's operations include the import and export of aluminium products used within the electronics industry and also in the buildings and infrastructure segment. As you can guess, it should be considered a cyclical, moving and ebbing with the flow of economic activity. However an operational history of more than 30 years tells an inferential story of management doing an at least okay job at keeping the business alive through 1997 crisis, the dotcom bubble and the subprime crisis of 2008.  

The price to book value currently stands at a paltry 0.35 at the time of this writing. Since then, it has moved lower to 0.27.  This is not going to be an in depth analysis. Neither is it going to be a recommendation to buy or  sell. I suppose what I am trying to drive at is that bargains are beginning to appear and this could be a possible bargain since the advent of the decline in oil prices. The market is always forward looking and of course, not to mention a manic depressive, which should work to the smart investor's advantage. That being said of course, it is up to investor to recognize opportunities around them.  The recognition of potential opportunities, putting them on watchlist, studying them and waiting for the right entry price which represents a margin of safety is what all investors ought to do. But many don't.