Sunday, June 30, 2019

Portfolio Summary for June 2019

As of 30 June 2019

Cash Equity

Security# SharesPricePortfolio %
DBS Group400$25.9635.60%
OCBC900$11.4035.17%
LHT Holdings15,500$0.54528.96%
Old Chang Kee100$0.780.27%
Portfolio Market Value = $29,169

SRS Equity

Security# SharesPricePortfolio %
SGX1,300$7.9221.58%
OCBC900$11.4021.50%
Sheng Siong Group8,700$1.1020.05
SingTel2,000$3.5014.67%
CapitaCommercial Trust3,000$2.1713.64%
Frasers Commercial Trust2,446$1.678.56%
Portfolio Market Value = $47,721


June was an uneventful month for me.  I had to set aside cash to pay my insurance premiums and income tax.  I kept a close eye on the market, but did not spot any favourable opportunity to buy stocks on my watchlist.  (I missed the chance to pick up SATS when it dropped to $4.93, because Credit Suisse downgraded the stock to 'Sell'.  Sigh.)

On the other hand, I offloaded two of my REIT positions.  The S-Reits have run up in price, some to heights that I wonder whether the valuation is justified.  My reason for selling is multi-fold.  First, I have changed my investment focus to operating companies instead of REITs.   While REITs provide sizeable dividend income, there is the perennial issue of ownership dilution, because the managers keep issuing new units to themselves as payment for management fee.  Slower global growth may make it tough for the landlords to justify a rental hike, as we recently saw Starhill Global REIT deciding to keep base rent unchanged for the Toshin master lease at Ngee Ann City (news).  Lastly, the capital raising and leveraging up of some REIT counters has made me uncomfortable.  A ballooned debt load and an economic downturn can be a lethal concoction, as we saw during the Global Financial Crisis (GFC).

Trade Actions

Frasers Centrepoint Trust
I let go of my FCT holding at $2.44 apiece, only to see the price blast off to a high of $2.63.  I could not fathom the acquisition of 1/3 ownership in Waterway Point and 17.1% stake in PGIM Real Estate Fund would have such a multiplier effect on FCT.  Are investors getting overly jubilant about the fund's prospects?  Rating agency Moody's did mention 'both acquisitions - of Waterway Point and PGIM Fund - improve FCT's earnings resiliency and geographic diversification' (news).  However, it also cautioned - as with all REITs - that FCT 'faces inherent liquidity risks, due to its high dividend payout ratios and minimal cash balances.'

AIMS APAC REIT
I sold off AIMS APAC REIT at $1.45 apiece.  I had held the position for a long time, probably since the GFC.  It had served me well, providing a constant stream of income over the decade.  Management had consistently engaged in AEIs to improve the rental potential.  But it was time for me to move on.

Savings

Next month's Singapore Savings Bond (SSB) has an average yield of 2.16% p.a (link).  It is as good as it gets.  Investors holding out for a better yield may be disappointed. 

The yield on 10-year Singapore Government Bond dipped below 2% during mid June.  It is puzzling that investors are bidding up stock prices and bond prices - hence the yield decline - at the same time.  It looks like the average SSB yield will only get worse.  (I am guessing 2.01% for the August issue.)

I am not in favour of purchasing SSB at this rate of return, unless you have excess liquidity and you are not keen on stocks. 

Looking Ahead

My wife came across an article forecasting a recession next year (news).  I have my doubts, as there is no clear indication of the global economy tanking at the moment.  The last time I checked, the US Conference Board Leading Economic Index (LEI) is just flattening out (link).  (The LEI is said to be an accurate predictor of US economic health.  It declined rapidly months before the GFC struck.)  

Moreover, during the G-20 Summit, President Trump and President Xi agreed not to impose new tariffs, and for US and China to restart trade and economic talks (news).  While this does not mean a resolution of the trade row between the two superpowers, this is likely to be seen as a positive move and give investors confidence to take on risk.

End July also heralds the start of the earnings reporting season.  I will be watching to see how much an impact the US-China trade row has had on local companies.  

Friday, May 31, 2019

Portfolio Summary for May 2019

As of 31 May 2019

Cash Equity

Security # Shares
DBS Group 400
OCBC 900
LHT Holdings 15,500
AIMS APAC REIT 2,189
Old Chang Kee 100
Portfolio Market Value = $31,185

SRS Equity

Security # Shares
SGX 1,300
OCBC 900
Sheng Siong Group 8,700
Frasers Centrepoint Trust 3,000
SingTel 2,000
CapitaCommercial Trust 3,000
Frasers Commercial Trust 2,408
Portfolio Market Value = $51,652


It is no wonder the clique goes, "Sell in May and go away". The Straits Times Index suffered a 8.3% drop for the month. While the benchmark is still up 1.6% year-to-date, there is scant comfort in the global economy. The US and China have yet to iron out a trade deal, so tariffs will continue to eat into corporate profits. US President Donald Trump's latest tweet threatened to raise tariff on Mexico, if the country fails to stem illegal immigrants from crossing the border (news). Looks like "tariffs" has become the new weapon of mass (economic) destruction.

In my previous summary, I mentioned that I was keen to take on some new positions. A few micro caps on my watchlist had released favourable annual results. Unfortunately, those stocks were also monitored by others in the market. On the day after the result announcement, those stocks jumped in price significantly. Oh well, such is life. I'd be patient and wait for another buying opportunity.

I did load up on two bank stocks though, taking advantage of the selloff in the last week of May.

Trade Actions

DBS Group
Finally, I had succumbed to temptation and bought 400 shares of DBS Group at $24.25 apiece. The price is still high in my opinion. Would have preferred to load up at the 52-week low. Nonetheless, I believe the business is still intact. An annual dividend of $1.20 is a good aspirin for the volatility in its share price.

OCBC
I added 900 shares of OCBC at $10.84 apiece. The Business Times recently quoted a Citibank report stating, "OCBC appeared interested to raise its 20 per cent stake in Bank of Ningbo over time as and when regulations allow." (news) This could potentially explain the rationale behind the lower-than-peers dividend payout. The article echoes the same sentiment shared in my earlier blog post (here), that something - positive or negative - may be brewing for OCBC that requires significant capital outlay. Taking a longer term perspective, I am confident the local banks will continue to be profitable, and the dividend will be increased or sustained.

Savings

Next month's Singapore Savings Bond (SSB) has an average yield of 2.13% p.a. which is on the low side compared to historical precedents. I have decided to stay out, in favour of the stock market.

Looking Ahead

June will be a 'dry' month for me, as I need to pay income tax and my insurance policies. Most probably I will only be a spectator in the stock market.

Thursday, May 9, 2019

To Diversify Or Not to Diversify?

I often ponder about portfolio diversification in my mind.  

On one end of the spectrum, there are investors like Warren Buffett and Charlie Munger who believe in concentrating their funds on their best ideas:

"Once you are in the business of evaluating businesses, and you decide you are going to bring the effort and intensity and time involved to get that job done, I think that diversification is a terrible mistake... If you can identify six wonderful businesses, that is all the diversification you need and you can make a lot of money and I can guarantee you that going into a seventh one is going to rather than putting more money in your first one, it's got to be a terrible mistake.  Very few people have gotten rich on their seventh best idea." 

- Warren Buffet's 1998 Florida University address


"The idea that very smart people with investment skills should have hugely diversified portfolios is madness. It’s a very conventional madness. And it’s taught in all the business schools. But they’re wrong."

- Charlie Munger


On the other end, there are investors like Peter Lynch, who held thousands of positions at certain times in his Fidelity Magellan mutual fund.

Personally, I limit my watchlist to no more than 15 companies at a time.  But I wonder if I should cut it down to 10.  Or even 6 (best ideas) for that matter.

When you run a concentrated portfolio, other issues start to creep in.  For example, I find it challenging to build up a position in micro caps.  On some days, the bid-ask spread is so wide, that simply lifting the offer will cause a run up in the stock price.  Perhaps that is the reason why most investors stick to the bigger companies.

Then there is the nagging concern whether you have done all of the homework required - the effort, intensity and time involved as Buffett said - to invest in the right company?

I figure it all boils down to faith.  Faith in my own stock picking skills.

To diversify or not to diversify?  What are your thoughts?   

Would you concentrate your funds on your few best ideas, or spread it across multiple positions?

Tuesday, April 30, 2019

Summary for April 2019

As of 30 April 2019

Cash Equity

Security # Shares
LHT Holdings 15,500
AIMS APAC REIT 2,189
OCBC 900
Old Chang Kee 100
Portfolio Market Value = $23,996

SRS Equity

Security # Shares
Sheng Siong Group 8,700
Frasers Centrepoint Trust 3,000
CapitaCommercial Trust 3,000
Frasers Commercial Trust 2,408
SingTel 2,000
SGX 1,300
Portfolio Market Value = $41,449

In April, I did a few trades to reposition my portfolio with a new investment focus.

Trade Actions

Keppel Corp
I sold my position in Keppel Corp at $6.81 apiece. I bought the stock a few years ago, before the company entered the oil price crisis. Thankfully, Keppel managed to climb out of the mess without permanent damage. I was able to exit with a small profit, and a few years of dividend.

SembCorp Industries
I sold my position in SembCorp Industries at $2.68 apiece. I am disappointed with the company because of the dividend cut, presumably to conserve cash. It is unknown whether the management could have taken more drastic steps to curb the loss in SembCorp Marine. After years of hoping for a turnaround miracle, I decided to throw in the towel and move on.

Singapore Exchange
I bought 1,300 shares of SGX for my SRS portfolio at $7.38 apiece. I had expected the lacklustre performance in the equity trading revenue, but was surprised by the strong showing in the derivative trading revenue. With a sizeable cash hoard and zero debt, I believe SGX is robust enough to sustain the dividend payout, and at the same time develop new growth segments.

LHT Holdings
I bought 15,500 shares of LHT Holdings for my cash portfolio at an average price of $0.645 apiece. LHT is a Singapore based manufacturer of wooden pallets, boxes and crates. It also produces related products such as timber flooring and doors. This is a micro cap with a dull but stable (and profitable) business.

Savings

The May 2019 Singapore Savings Bond (SSB) has an average yield of 2.16% p.a. What is particularly attractive about this month's issue is that the bond offered an interest rate of 1.95% p.a. for the first three years - on par with the best fixed deposit rate in the market. While I did not participate, I helped my Mum to subscribe for her inaugural issue of the SSB.

Looking Ahead

While market prices have generally soared, pockets of opportunity still abound. I will be looking to take on a few more positions in May 2019.

Thursday, April 4, 2019

eBook on Avoiding Troubled Companies

Well-known local corporate governance advocate Professor Mak Yuen Teen had released an eBook titled "Avoiding Potholes in Listed Companies".  Inside the book, Prof Mak and his co-author NUS Business School Adjunct Associate Professor Richard Tan listed several red flag and warning signs that retail investors can take heed, to recognize companies in trouble.

I am still reading through, but thought it would be good to share.  If you are interested to read the eBook, you can download it from Prof Mak's website www.governanceforstakeholders.com.

Sunday, March 31, 2019

Trade Action - Sheng Siong Group


A week ago, I initiated a stake in local supermarket retailer Sheng Siong Group (SSG) for my SRS equity portfolio.   I have been lazy to pen down my reasoning for this investment, but here it is at last.  This post summarizes my thoughts about investing in this company.

Pros for investing:

One of top three Singapore supermarket retailers
Sheng Siong Group is one of Singapore's top three supermarket retailers, according to a 2018 report (link) by the USDA (yes, the United States Department of Agriculture).  The other two are NTUC Fairprice Co-operative and Dairy Farm International Holdings, who owns Cold Storage, Giant and Market Place.  According to a chart by Maybank Kim Eng (link), Sheng Siong Group is the one of two retailers - the other being NTUC Fairprice - who has been consistently growing their market share over the past five years, from 16.9% in 2012 to 18.9% in 2017.  From a humble store in 1985, Sheng Siong Group now owns 54 stores across the Singapore heartland, with a retail space of nearly 500,000 square feet in 2018.

Operational discipline
Of course, aggressive growth without operational discipline is unsustainable over the long run.  This does not seem reflective for Sheng Siong Group.  In 2018, the company opened ten new stores, but saw two store closures as the buildings occupied were taken back by its owners for redevelopment.  SSG management is mindful to segregate new store sales versus same store sales, so that they can track each revenue growth carefully.  In its FY2018 report, SSG management astutely observed, "since the beginning of 2019, six HDB shops which were won by the competitors via online bidding in 2017 and 2018 are now vacant and have been released for re-tender."  Learning from your competitors' missteps is telltale sign of a sound management team.  SSG management is also focused on growing their fresh produce sales mix, which commands higher margins.  (That gets another score from me.)

Zero debt, stable equity base
For a company that operates a brick and mortar business, this company has ZERO DEBT.  Not even an auto loan for its delivery trucks.  Would you believe it?  Moreover, the shareholding base has been stable for the past few years.  No hanky panky stock options for management, no complex convertible instruments and definitely no need to reach out to its owners for more money now.

Healthy company fundamentals
Increasing market share (positive YoY revenue growth over past five years)
Healthy gross margin (26.8% in FY2018)
Zero debt (I can't emphasize it more)
Stable shareholding base (ditto)

Cons against investing:

Competitive retail landscape
When one is grabbing market share, you can be sure the peers will not be resting idle either.  There have been young upstarts (U Stars) and the rise of niche organic grocers, catering to health conscious Singaporean shoppers.  Moreover, traditional brick and mortar retailers face a perennial challenge from online retailers (RedMart, Honestbee).  Even market leader NTUC Fairprice Co-operative had recently revamped its e-commerce platform (Fairprice On) to fend off the challengers.  I have not seen SSG management take a serious stab at growing grocery sales on the web.  Perhaps the threat is not that serious...yet.

Price premium
Sheng Siong Group is covered by a few sellside brokers and is well researched by the market.  At the current price of $1.04, you will be paying a hefty 500% premium over NAV (19.30 cents).  This is not your typical hidden gem, but a polished jewel at the store front.  Per Buffett speak, would you be willing to pay a fair price for a good company?

China foray
Many local companies seem fixated with China as the ultimate sales nirvana, and Sheng Siong Group is no exception.  In November 2017, SSG opened its first overseas store in Kunming.  It recorded a loss of $0.7 million in FY2018.  In January this year, SSG entered into a lease agreement for a second store, expecting it to be operational in 3Q2019.  The road to China supermarket supremacy is laden with battle wounded foreign retailers (Wal-Mart, Carrefour, Tesco), and even dead carcass (Lotte Mart).  Hope SSG management has been copiously taking notes to avoid the pitfalls and potholes.  Understanding and localizing the sales mix will be key to survive - let alone thrive - on this land.

Final Thoughts

In May 2018, a value fund manager Mondrian Investment Partners bought 99,000,000 shares from Sheng Siong Group founders at $1.01 per share (link).  I have been watching the stock tussle at $1.08 for some time.  When it came within striking distance of my ideal price, I pulled the trigger.  I will surely load up if the stock price falls further to the dollar mark.  Now I have another reason to shop more at my neighbourhood Sheng Siong supermarket.

Summary for March 2019

As of 31 March 2019

Cash Equity

Security # Shares
OCBC 900
Old Chang Kee 100
AIMS AMP Capital Industrial REIT 2,150
Portfolio Market Value = $13,132

SRS Equity

Security # Shares
Sheng Siong Group 8,700
Frasers Centrepoint Trust 3,000
Keppel Corp 1,000
SingTel 2,000
CapitaCommercial Trust 3,000
SembCorp Industries 2,000
Frasers Commercial Trust 2,408
Portfolio Market Value = $42,932

March is another happy month for me. My company's long term incentive plan finally came to fruition, and I received a small sum as reward. Just in time to bolster my war chest for investment.

The market is rolling along nicely, even when US and China haven't agreed on a trade deal. Recent talk of the town was about the US Treasury yield curve inversion, though it didn't last very long. An inversion is said to be the harbinger of a recession. Looking at the mood in the market, a recession seems to be the last thing on people's mind. As we head into another earnings season, Wall Street is betting the US Fed will cut interest rates this year. Hard to see any justification for the Fed to do so in the near horizon.

Trade Actions

OCBC
I bought 900 shares of local bank OCBC for my cash equity portfolio at $11.06 per share . I have written out my reasoning in a previous blog post here.

Sheng Siong Group
I bought 8,700 shares of supermarket retailer Sheng Siong Group for my SRS equity portfolio at $1.05 per share. I've yet to pen down my thoughts for this investment. Will try to do so soon.

Dividends

There is no dividend event for my holdings this month.

Savings

The April 2019 Singapore Savings Bond (SSB) offered an average yield of 2.16% p.a., which is unappetizing to me. Granted, it is still better than most fixed deposit promotions out there. But I'm not going for it.

Looking Ahead

This week marks the start of the Qing Ming Festival, where Chinese folks will make their way to pay their respects to the deceased. It has been three months since my dad passed away, and I still think of him from time to time. Sombre mood aside, I'll be ready to pounce on any buying opportunity when earnings season (hunting season?) starts.