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…)
Swing Media Technology Group I spend my days looking at companies and their annual reports. And what I do on a daily basis is to try and understand the businesses of these companies from these annual reports. The annual reports, the financial statements and the notes to the financial statements can give you an understanding into the operations of the company that one is researching. Amongst my favourite places to search for undervalued securities are stocks which are trading below book value. (more…)
There has been a lot of talk in the media regarding Chip Eng Seng of late. I know. The story sounds good. Before I go any further, let me start off with a brief introduction of Chip Eng Seng's business. It's main business segment is construction where it operates as a contractor. Also over the last decade or so, it has also ventured into the property development business, hospitality and property investment businesses. Its construction and property development business makes up more than 90% of its revenue. On the whole, I think that management is forward looking and industrious.That is also the reason why Chip Eng Seng has branched into hotel ownership and property development. The operations of a hotel business do provide a recurrent revenue base which would act to bolster returns. But even so, the hotel business is a cyclical one. So is the property and construction business. As investors, we should take note of that fact.
Let us get back to the numbers, the after tax reported earnings of Chip Eng Seng.
"All that glisters is not gold; Often have you heard that told: Many a man his life has sold But my outside to behold: Gilded tombs do worms enfold Had you been as wise as bold, Your in limbs, in judgment old, Your answer had not been in'scroll'd Fare you well: your suit is cold.' Cold, indeed, and labour lost: Then, farewell, heat and welcome, frost!"
I had to do this.
A quote from William Shakespeare. About how all that glitters is not gold. Or what seems to be gold on the outside may not be gold on the inside and what seems to be gold on the inside may not be readily apparent to others on the outside. The depth of this man's wisdom is timeless and such is William Shakespeare, a man remembered for his profound literary works.
This idea that not all glitters is gold can also be applied to sensible investing. The glamour stocks of today will be the down trodden of tomorrow due to the reversion to mean, a mental model borrowed from statistics.
I would have to say that in a small subset of glamour stocks, the above may not hold true. Some glamour stocks continue to be glamour stocks because of the strong moat which they posess. And this is the realm of Warren Buffet and Charles Munger. From my experience, it is very difficult to spot such opportunities. And even when you find a company that is moat-worthy , how does one determine the price to pay for such a company? That is absolutely the reason why Warren Buffet mentioned that to be successful in investing, one need only find 20 such companies in a single lifetime and sit on it. Personally, i have not reached that utopian situation. I am still working on it. But I have developed my own mental models to deal with this issue but that is beyond the scope of this article for now.
At some point recently, I looked on interestingly at Qian Hu. At a price of 9 cents, many investors felt uncomfortable with it. Well for one, its profitability had decreased drastically over the last 3 years from 0.39 million to 0.07 million. On a price to earnings basis, investors would have been turned off by Qian Hu, looking instead to blue chips such as SIA,Singtel, Starhub and maybe SPH. SPH by the way is having the time of their life right now. Maybe, I will detail this in another article. Do look out for it.
In another article, I spoke about glamour stocks versus beaten down stocks. This is an apt example of what I was trying to convey. Buying beaten down stocks, if you have the mettle and the stomach for it, may prove more profitable than buying the blue chips, the well known and the well loved by all.
So what happened?