Saturday, 7 April 2018

Things I learn from Jim Cramer's Get Rich Carefully

Sector ETFs overpower Individual Stocks
Why does the sector pull matter? Stocks are hostage to them, even if individual companies don't deserve to be. That's because of the immense popularity that sector indices and the ETFs that mimic them have gained among huge institutional money managers. To put it bluntly, they would rather play with big, liquid ETFs than mess with trying to get in and out of individual stocks. These baskets, designed by firms to, once again, give big-portfolio managers large and quick exposure to a group of stocks instead of one stock, fulfill the same role the S&P 500 futures play for the entire market. How do they impact stocks on a day-to-day basis? Let's take the oil service group, one of the sectors most keenly dominated - I would go so far as to say it has been wrecked - by ETF trading.

The power of bonds and the Fed on stocks
How you might ask, can you figure out when a run on the stock aisle into the fixed income section of the supermarket might occur? How do you stay on top of this process so you can profit from it? I could say,"Just keep an eye on the stock market at all times." But I have a better way. I monitor the action by following the TLT, the iShares 20+ Years Treasury Bond ETF. This security goes down when interest rates go up, and vice versa. When the TLT goes down, you can expect the stock index futures to go down soon after, as stock index futures react to every minute move of this security.

How fundamental is important to investing
When I started investing I cared only about fundamentals and focused on traditional sector analysis. The most important fundamental influence is the company's growth rate. While a company's past - how much revenue and earnings it has booked historically can be very important, it is not the most significant factor when we are determining how much to pay for an individual stock at any given moment. What is important is how fast a company's sales and earnings are growing, especially in the context of what is expected of the company. The expectations are set by the analyst community which is why we have to pay so much attention to the consensus of those expectations.

At all times we are trying to figure out how fast a company can grow, compared to both all other stocks and stocks in its sector. We need to know how to assess how a company performs in times of not just domestic but worldwide economic acceleration and deceleration.

We are always on the lookout for companies that can better both their sector's growth and the economy's growth as a whole. If we can profit from secular growth companies, that's terrific but we may have to pay for an expensive price. In other words, the price-to-earnings multiple, what we will pay for that stream of future earnings is higher or more expensive that what we might be willing to pay for a stock with a far more variable, economically dependent earnings stream. Many companies which are the classic growth stocks include Kimberly-Clark, Procter & Gamble, Johnson & Johnson, General Mills, Coca-Cola, PepsiCo, Kellogg and Clorox. These stocks are trading at historically high levels because they can deliver consistent, albeit slow, earnings growth in a tepid economy. If you own Caterpillar, Ford, General Motors, General Electric or Cummins, you have to be on top of world events, particularly in China, pretty much every day.

Some stocks like 3M, Honeywell and Emersons are what we call growth cyclical, hybrids that have both kinds of stocks. They hold up at times of mild acceleration and stability.

Of course, some companies are levered to individual cycles. Deere, Monsanto and Potash (acquired) are all about the farm cycle, chiefly whether or not the farmers are flush. Boeing and Precision Castparts (acquired) and to some degree United Technologies hug the aerospace building cycles and track worldwide aircraft demand.

But all stocks, whether they are cyclicals, growths or hybrids, get graded the same way by analysts: Are the underlying fundamentals of enterprise better or worse than expected, as expressed by he consensus of the analysts' estimates? Many people are fixated on the top line, I think the bottom line is more important, what a company has left after it takes out the costs of all of those goods sold, expenses, taxes and depreciation. Bigger earnings can lead to bigger dividends. Profits matter even in this new crazy world because profits can put dividend checks in your hand and help propel stocks higher over time due to those ever-increasing dividends.

How to Grade High-Growth Stocks
1st Test: Is there potential for multi-year growth that we can put a value on, a clear growth path that provides long-term visibility with multiple revenue streams?
2nd Test: Is the total addressable market big enough for the companies to sustain their growth?
3rd Test: Does the company have the ability to stay competitive?
4th Test: Is there a possibility for the company to return capital over time, through either dividends or well-timed buybacks? Or does the company have such as well-defined growth plan that it can just continue to pile the money into the business to get consistent or accelerated revenue growth?
5th Test: Can the company expand internationally?
6th Test: Can the balance sheet support strong growth?
7th Test: Is the stock expensive on the out year?
8th Test: Does the company have the right management?
9th Test: Does the company need macro growth to meet the numbers?
10th Test: Can the company maintain or grow its margins?
Understand which hidden metrics really matter in each sector, as they won't necessarily be the earnings per share. Know the best of breed of each sector if you want to invest in it.


















Friday, 30 March 2018

End of March personal review

In March, I spent time on career discovery with Finexis Advisory, Phillips Capital and IPP FA. I sat through a few of the sales training, personality test, financial planning process and team meeting in Finexis Advisory EXO. From all the sessions, I find that EXO has one of the most comprehensive system which will prepare the new financial consultant to succeed in the business. I think EXO has a good team culture, with senior managers having specialized skill sets to complement the team knowledge. I attended one of their investment training which explains the importance of diversification and how Finexis harness their team of researchers' knowledge to advise on investment products. The session helps me to understand that instead of spending so much time on researching stocks to purchase, sometimes you spend some money to engage a specialist to invest and manage on your behalf has its own advantages such as freeing up your time. Definitely it is still your money and you should look closely at the performance of the fund. On the other hand, value investors feel that stock picking is a game, when you are enjoying what you are doing, it is not work.

I believe in my future career, I will have a stint with one of the independent financial advisory.

I was offered a new role with an offshore support vessel company. However, the salary was another 20% cut from the previous role. The below is the snapshot of the income statement. I will not comment further but I will do my best to stay as long as possible in the company to put food on the table.

I realized that I was too spoiled on the pay because the industry was experiencing high growth for the last ten years. I was able to command high pay at an age of 27 years old (2009) till 2017. Now the pay has reverted to the mean.

I attended an executive workshop at e2i and I got to know a few friends. Some of them were from the marine industry, one gentleman is looking for work since end of 2016, one gentleman suffered from depression a few years ago and back on track to look for work, one gentleman was retrenched when he was 40 years old in 1999 and has been on various contract work till now. Sometimes when we did not go through tough times, we will never know there are a lot of people out there who are in need of help and they are facing different and unique challenges in their lives too.

I pray that my new friends will be able to find new placements within six months and they can remain healthy and positive in life. Life is not just about financial freedom and money. I thank God for humbling me through the various situations he put me in. Stay authentic and humble to myself.





 

Sunday, 11 March 2018

General reflections on 11/3/2018

It has been about 2 months since I stopped working. Time passes by very fast. In today's church sermon, it is about time. There is always a season for rest, teaching me to learn how to be still. I think I have a different type of rest. I have rest from work, rest from difficult and nasty people, commuting long distances, traveling for business acquisition. For the last two months, I have spent my free time in the National Library, doing my own research, reading, studying and meeting up with friends. I met one of my industry friends in the library using the Regus business lounge. I met my MBA classmates. I met my high school friends. I was able to attend weddings, baby birthday parties, and dinner. More importantly, I was able to spend quality time with my family.

At the same time, I am worried for money every time I took out the wallet and withdraw either the credit card or cash. Why should I be worried? I am financially independent. I should be able to cover my family basic expenses. I do not know why there is this fear. I feel that I need to work. I feel that I need to accomplish something more. I feel that I need to contribute to the household income. I did contribute to the household income, I sold some shares and made some money. I just have this sense of insecurity. I have a lot of "what if" scenarios. What if the market crash and draw down of 50%? What if I don't have sufficient money for retirement because I am spending money and not making more money? I feel that I can provide more for the family.

I have more time to think. Think about my present portfolio and how will the business perform in the future. Some of the businesses worry me. Most of them will be fine. I also have time to think about what I will like to do for another 30-40 years of my working life. I cannot forecast 5 years into the future. I can only plan 1-3 years ahead.

1. I will like to join the wealth management industry
2. I am interested in equities (bottom up approach)
3. I am reading up on the macro business news (top down approach) to appreciate currencies, bonds, commodities, employment and interest rates.
4. I want to serve the mass market. I was never brought up in a rich family, my parents save and scrimped to put food on the table. I save money through giving tuition during army days and working guard duties for people to pay for half of my university tuition fees. I continued to teach tuition from 18 years old all the way till 28 years old. I worked every single semester holidays from store man, QA/QC technician, dress up as an elf to give brochures in Raffles Place, zoo facilitator, etc to make and save money. You get the idea. I am very thrifty and always have been an underdog. I have an achiever mentality and want to prove to my primary school friends and people who undermine my capability that I will strive to be better. I believe the underdogs can win the race too if they believe in themselves and continue to work hard for their goals. I want to help them to increase their financial literacy and financial well beings. Yes, I know the money is made from the wealthy but my heart goes out to the mass market. I derive satisfaction from helping few of my friends to improve on their financial well being through financial planning. I want to reach out to more people to understand their needs and how to improve their life.
5. I want to spend quality time with family

Sometimes I will have this gambling mindset, wondering if I have placed $1 m when Creative share price is at $1.25 and sell it at $10, how will my life be. This mentality is same as what if I strike lottery. Stupid and greedy me.

Friday, 9 March 2018

Early Retirement vs Semi-Retirement

Early Retirement
A study conducted by Melbourne University shows that after working for intense long hours will cause brain damage. For workers age 40 years old and above, the ideal number of working days should be just 3 days per week. This will keep the brain active yet will not over exert oneself due to undue stresses.

Seriously, who does not want to work just 3 days a week? I always believe in there is a price to everything. If you work for 3 days a week, I will think this is considered a form of part time work or sharing of work. Part time work can be considered as a subset of semi-retirement. Be it semi-retirement or early retirement, you need to be financially and psychologically prepared. Before you think about early retirement, you need to envisage what sort of lifestyle you want to live when you are retired. With this in mind, then you can work backwards to decide what is to be done to get you there.

Step 1 - Set your retirement goals. When will you like to retire? At what age, will you like to retire? How long will you be retired for? During your retirement, what sort of monthly income or draw down from savings will be required?

Step 2 - You need to work out your personal balance sheet to understand your personal assets and personal liabilities. You can also make use of CPF retirement calculator or some of the online retirement calculator tools to make some simplify forecast and estimation. You can also determine the differences to make up for in order to achieve your retirement goal.

Step 3 - If there is no gap to fill, congratulations, you are well prepared for retirement. If not, proceed to Step 4.

Step 4 - You may want to increase your time frame for wealth accumulation, delaying your retirement age.

Step 5 - You may want to reduce your post retirement monthly income or draw down amount per month.

Step 6 - Reduce your present monthly expenses to increase your monthly savings.

Step 7 - Increase the rate of return of your investment. Remember higher return comes with higher risk.

Most of the people feels that to retire is to stop all forms of work, they will depend on their passive income to maintain their lifestyle to enjoy the finer things in life. If your definition of early retirement is to lead a more prudent lifestyle, reducing your expenses which is more practical and sustainable.

Semi-Retirement
Most of us in their mid-life will strive to have work life balance to have more quality time with the family. I am sure you too will like to have early retirement. The age group between 40 - 50 years old will be commanding the highest income level during their working lifetime. However, this is the age group where their family expenses will be  highest as well due to children education, ageing parents and home mortgages.

If you will like to maintain a certain level of lifestyle and your savings cannot last for the entire duration, you can consider another form of retirement. You can find a part time job to keep yourself active while maintaining your lifestyle.

Many Singaporeans are over dependent on their CPF as the main source of retirement fund. However, you can only draw down after an age of 65 years old. If you wish to retire before 65 years old, then you need to have other source of income.

For early retirement and semi-retirement, the expense will be at a similar level compared to your working days. Early retirement is to enjoy the same level of lifestyle, usually people will not reduce their expenses. In the worse case scenario, it will be even higher than before.

In order to retire earlier, you need to do the following:

1) Be very thrifty
2) Invest alot

When it comes to investment, do not have a gambling mentality in order to make money in the shortest time, thinking this will allow you to retire earlier. What if you are wrong? This will set you back in terms of your retirement fund and retirement age.

If you are 40 years old this year and will like to retire at 55 years old, you have 15 years to save and invest to lead the retirement life you desire. If you have already accumulated sufficient CPF, you can consider contributing to your CPF voluntarily to earn a higher interest and reduce your taxes.

3 Tips towards Semi-Retirement
1) Ensure that you have sufficient savings to cater for retired lifestyle. A part time job will have lesser income than your full time job. You can depend on your part time job to save up on your retirement fund.

2) Part time employee may not have health and medical benefit, you need to ensure that you have sufficient health and medical insurances. A drastic medical event may wipe out your retirement fund if you are adequately covered by insurance.

3) Part time income may not be stable and as high as full time employment. Therefore you need to change your spending habits. For example, cook your own meals or eat mixed vegetables rice instead of going to posh restaurants.


Tuesday, 27 February 2018

China Port Industry

Stock Code: 00144.HK
Company Name: China Merchants Port Holdings Co. Ltd

Business
CMPort is the largest and a globally competitive public port developer, investor and operator in China with investments in China, Hong Kong and overseas. Its nationwide port network includes coastal hub ports in Hong Kong, Taiwan, Shenzhen, Ningbo, Shanghai, Qingdao, Tianjin, Dalian, Zhangzhou, Zhanjiang and Shantou. It is growing its presence in South Asia, Africa, Mediterranean and South America. In 2017, the total throughput handled reached 100 million TEU.

CMPort's Ports in China
Hong Kong modern container terminal co., Ltd (MTL) was established in 1969 was the first container terminal in Hong Kong, and is one of the Hong Kong's largest container terminal operator. China merchants international owns a 27% stake in the company, the container terminal in Hong Kong tsing container terminal has seven container ship berths and two feeder berths, along a total length of about 2432 meters.

China Merchants Container Services Limited (CMCS) is one of CMHI's wholly owned subsidiaries. It is a mid-stream service provider, owns quay resources, equipped with rail mounted gantry cranes. Located in Tsing Yi island, the company can access to an array of transportation infrastructure.

In port related business, there are Tianjin Haitian Bonded Logistics, QingDao Bonded Logistics, China Merchants Bonded Logistics (Shenzhen), Shenzhen Haiqin Project Management Company and Asia Airfreight Terminal.  Asia Airfreight Terminal is an air cargo terminal based at Hong Kong International Airport for premier passenger and cargo hub. 

Financials 
In the latest interim 2017 report, the ports operation increases by 1% from HKD 12,161 million and HKD 12,043 million. Bonded logistics operation dropped by 16% to HKD 281 million from HKD 335 million. Port-related manufacturing operation increased by 40.4% to HKD 9,265 million from HKD 6,599 million. Total revenue increased from HKD 3,847 million to HKD 4,055 million whereas cost of sales increased from HKD 2,206 million to HKD 2,291 million in 2017. The operating profit doubled in 2017 to HKD 2260 million. This is due to other income and gains. Dividends increased due to special dividend.

Current Assets is HKD 19,590 million and Total Liabilities are 34,743. 

Cash and cash equivalent increased to HKD 15,424 million from HKD 5,263 million. There is a disposal of subsidiary which amounts to HKD 8,543 million. CMPort raised capital as well. 


Overall, CMPort is operating profitably and has the scale of operations. 

Counter: 01199.HK
Company Name: Cosco Shipping Ports

Business
Cosco Ship Port's network of terminals extends to 31 ports worldwide, covering the main five port clusters along the Chinese coast, Southeast Asia, Europe, the Mediterranean and the Black Sea. In 2016, throughput reached 95 million TEUs.

Financials

In the interim 2017 results, the cash dropped from HKD 834 million in 2016 to HKD 332 million in 2017. Long term borrowings increased by HKD 130 million in 2017 compared to 2016. 

From the Income Statement, the revenue is relatively flat while cost of sales has increased slightly from HKD 167 million in 2016 to HKD 177 million in 2017. The company made a gain on disposal of a joint venture which amounts to HKD 283 million. Subtracting this from the Profit is HKD 200 million which is still a good improvement from 2016. 

On 24 March 2016, the company disposed all issued shares in Florens Container Holdings to China Shipping Container Lines (now known as COSCO SHIPPING Development) for a total consideration of USD 1,241,032,000. Upon completion of disposal, Floreans Container Holdings ceased to be a subsidiary of the Company.

The Group's net cash generated from operating activities amounted to US$70,129,000 (1H2016: US$167,844,000) in the first half of 2017, of which included capital gain tax of US$39,365,000 in respect of the disposal of Qingdao Qianwan Terminal. 

The net debt to total equity ratio was 20.1% (31 December 2016: 14%) which is still healthy.

There's a lot of re-organisation within the group through sale and disposal of entities, this will shift money across individual entities.

Operations Review
According to International Monetary Fund, global trade volume in 2017 is estimated to grow at 4%, an increase of 1.7 percentage points compared with 2016. Buoyed by increasing international trade, China's foreign trade continue to improve. According to China Customs, the country's total import and exports (in RMB) in first half of 2017 recorded a growth of 19.6% compared with last year. The throughput of container terminals in China increased 8.8% to approximately 115,000,000 TEU which was 6.3% higher than same period in 2016.

The rise in international trade, as well as launch of mega-vessels, all increased calls at hub ports will enable the Group to achieve encouraging results in container terminals business.

The recovery of international trade and the increase in calls by shipping alliances enabled Yantian Terminal to achieve a satisfactory performance for the six months. The co-management of COSCO-HIT Terminal and Asia Container Terminal effective from 1st January 2017 served as an additional growth momentum to the terminals leading to a surge in the throughput of the two terminals by 42.8% to 1,694,130 TEU for the period.




There are other ports such as CIG Yangtze Ports 01719.HK, Xinghua Port 01990.HK, Dalian Port 02880.HK, QHD Port 03369.HK, Xiamen Port 03378.HK and Qingdao Port 06198.HK.




Sunday, 25 February 2018

Warren Buffett's advice to survive a market downturn

For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic,"Buffett wrote. "Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips. Here are the gory details."

March 1973 to January 1975 - 59.1% decrease
10/2/87 to 10/27/87 - 37.1% decrease
6/19/98 to 3/10/2000 - 48.9% decrease
9/19/08 to 3/5/09 - 50.7% decrease

All four of those big drops coincided with major market moving events.

59.1% plunge from March 1973 - January 1975 occurred when the US economy was mired in an ugly recession resulting from the oil crisis and fallout from the Bretton Woods agreement. The benchmark S&P 500 lost as much as 44% during that time.

The 37.1% drop during October 1987 happened after Black Market stock market crash. The S&P 500 bottomed out at a loss of 34%.

The 48.9% slide from June 1998 to March 2000 occurred just ahead of the dotcom bubble's burst. The S&P 500 actually gained 27% during this period.

The 50.7% plunge from September 2008 - March 2009 occurred during the darkest days of the Great Financial Crisis. The benchmark S&P fell 44% over this time.

"This table offers the strongest argument I can muster against ever using borrowed money to own stocks,"Buffett wrote.

There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

Buffett concluded that big drops are great opportunities for those who are not in debt.

To reflect on his words on the February minor correction, I was straddled with a huge debt in AAPL options position which cause me to lose focus on the bigger picture. It was a good opportunity to buy into undervalue companies then. Never be in an over leveraged position.

If you can keep your head when all about you  
    Are losing theirs and blaming it on you,  
If you can trust yourself when all men doubt you,
    But make allowance for their doubting too;  
If you can wait and not be tired by waiting,
    Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
    And yet don’t look too good, nor talk too wise:

If you can dream—and not make dreams your master;  
    If you can think—and not make thoughts your aim;  
If you can meet with Triumph and Disaster
    And treat those two impostors just the same;  
If you can bear to hear the truth you’ve spoken
    Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
    And stoop and build ’em up with worn-out tools:

If you can make one heap of all your winnings
    And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
    And never breathe a word about your loss;
If you can force your heart and nerve and sinew
    To serve your turn long after they are gone,  
And so hold on when there is nothing in you
    Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,  
    Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
    If all men count with you, but none too much;
If you can fill the unforgiving minute
    With sixty seconds’ worth of distance run,  
Yours is the Earth and everything that’s in it,  
    And—which is more—you’ll be a Man, my son!


Source: A Choice of Kipling's Verse (1943)

Hutchison Port Holdings Trust FY 2017

Overview
Global trade outlook remains positive due to continued growth in economic activities in the US, Europe, China and India. Shipping lines are moving into mega vessels to attain capacity and fleet optimization to achieve cost efficiency. In addition, focus has shifted from port performance to supply chain performance to drive competitiveness and operational efficiency. Hong Kong remains a strategic transshipment hub and a preferred gateway to the Pearl River.

Financial Performance
Revenue in 2017 dropped 3%, HKD 11, 551 million compared to HKD 11,912 million in 2016. In 2017, 64% of the revenue is derived from China.

The total CAPEX sheds by 52% to HKD 841 million in 2017 compared to HKD 1,765 million in 2016.  The CAPEX in 2015 was HKD 2,042 million. In 2014, the CAPEX was HKD 1,106 million. I think the CAPEX should be considered a normal level at HKD 1,000 million level.

The Distribution Per Unit (DPU) has dropped to HKD 20.6 for the overall year.

From the Income Statement, the key item for me is the Interest and other Finance Costs, it has increased by 22% from HKD 701.2 million to HKD 856.9 million. The overall operation is seen to be undergoing cost cutting measures but the profit is still lower than previous year. The Profit after Tax drops by 30% to HKD 944.2 million from HKD 1,356.6 million. Rising interest rates environment coupled with increased new borrowings (FY 2017 was HKD 11,736.8 million and FY 2016 was HKD 9,426.6 million).
  1. Payout Ratio is 200%.
  2. Dividend will continue to drop as revenue drops and interest expenses increase. Double whammy situation.
7% price correction on 2nd February is too steep

Based on 1st February 2018, the National Development and Reform Commission has reduced the tariff rate for origin and destination foreign trade containers at Shenzhen - Yantian ports from RMB 1400/TEU to RMB 980/TEU. Through Yantian International Container Terminals which contributes 64% of HPH Trust's revenue, it contributes less to the bottom line as a 50+% owned subsidiary of HPH Trust. YICT's Average Selling Price is already lower than the new tariff rates, this will allow the port operator to negotiate for better terms. I don't think this will affect HPH Trust.

I will conduct a study on the China ports to understand the competition HPH Trust is up against. I will dispose HPH Trust when the price has reverted back to the mean (when my losses are less significant).

Latest Post

Things I learn from Jim Cramer's Get Rich Carefully

Sector ETFs overpower Individual Stocks Why does the sector pull matter? Stocks are hostage to them, even if individual companies don't...