JC Fund and JC Options Fund - personal review

The Singapore and Hong Kong markets closed today at 12pm and I was looking at the results of Thaibev. I knew the acquisitions will make the results look nasty but did not expect to be this bad. I sat there thinking about the next 1-2 years outlook for Thaibev. I am worried of its over leveraged position and rising interest rate environment. In the short run, the stock will not perform well but the business is consolidating to grow from strength to strength.

I was wondering why I chase after bad investment such as HPH Trust USD, double down on my losses and did not cut this counter last year. In fact, there was a window of opportunity when it was even profitable.

I was thinking of this recent market correction when there were opportunities for me to switch out laggard IBM shares to acquire AAPL shares. I done my homework and I was convinced that AAPL was mispriced. Why I did not do it? There are a few other companies which provide that window of opportunity to switch and move my money into a faster lane. I seem to prefer status quo (maybe I have a fear of losing money) or I have no confidence of my own valuation?

My portfolio consists of mainly dividend stocks and only 1 growth stock. I am playing a defensive role here. Maybe I believe that now I am jobless and there's no income coming in from my side, I need income from dividend. I just want to be prudent and to be paid while waiting. I think everyone has different investing approach and as long as the same objective is been achieved, it does not matter which route you take. I am just thinking whether I should move away from net-net stocks which sometimes can be value traps.

As of 14th February post market share price of AAPL was USD 168.93, maybe on the 16th February, my AAPL sell put options will expire with share price above USD 170 (20th February when I review this, the option expires worthless and share price closed at USD 172 on 16th February 2018). On hindsight, I could be profitable instead of pocketing the huge losses. However I should remember the important lesson learnt. What if a huge bear wakes up and share price drops by 50%? Will I have money to top up margin maintenance call? Nope. It will be a worse scenario resulting into a very unhappy Chinese New Year.  Thou never gamble with leverage and trade within your cash and cash equivalent. Always follow the checklist. If it is a huge gain, there is bound to be another larger loss later on (this applies to me, I suffered twice on this - a total loss of USD 32k on two trades). If I follow a small gain of 1% per month, this will be a safer approach in the long run.

Overall, as of 15th February, JC Fund and Option Fund portfolios have recovered to a neutral position with no paper gain or losses. Let's think of a strategy on how to shift the stocks around and what sort of mistakes to avoid in the future.

• Rebuild watch list - understand beta of each stocks, moat, intrinsic value and margin of safety
• Re-balance portfolio towards end of Q1 and review again in Q3.
•  Withdraw some profit every quarter to spend on the family

FB:NASDAQ Facebook

Introduction to Business
Facebook does not require further introduction as it is one of the most powerful social media platform in our times. Actually, I was using another social media platform - Friendster during my university days. That was the Tinder back then.

Facebook is a social media platform, it monetize through digital advertisement through its huge database of Facebook users. Gaming revenue is decreasing. Facebook takes 30% of purchases, with balance going to likes of Zynga. Facebook also acquired Whatsapp and Instagram.

Strengths:
Leading social platform
2 billion of active facebook users - network effect

Weakness:
Dependent on cyclical ad market - 98% of quarterly revenue came from advertising
Lack of alternative source of diversified income

Threat:
Facebook members growth decline or stagnate
The new/younger generation may not wish to use Facebook, they prefer SNAP or other platforms.
Reputation damage (loss of trust) which may lead to downfall of Facebook
Users will grow numb to ads
New Social Platforms may enter the social media industry but the eroding effect will be very slow

Opportunities:
With big data, can harness them into other business ventures other than ads
New products such as Oculus virtual reality headset and workplace office software
With big amount of cash can make new acquisition or build stronger moats to retain users

Financials

The revenue has been growing since 2013. I just heard from my friend who is running an eCommerce store using Facebook advertisement during last year November and December, the ads cost more for a campaign. I believe this is due to the holiday season. In January, the ads cost is back to normal. There is a lot of algorithm Facebook is using based on seasons, demand and supply, target audience group, etc. You get to sell to an audience group with specific interest, hobbies, family background, profession and income level. This is targeted marketing. This makes Facebook's advertisement a very powerful tool for internet marketer. I have run Facebook ads, mobile advertisement and Google campaigns. My personal experience for eCommerce and apps download, Facebook is by far the most superior marketing behemoth.

EPS is increasing since 2013. You can calculate CAGR. However, I do not think this type of growth rate is sustainable.

The interest expense is decreasing over the years. Free Cash Flow is increasing over the years, building up a strong hoard of cash.

Valuations
My calculation on EV/EBITA is at 20.33 and I took a very conservative approach to discount the growth rate, placing an estimation on the targeted price between USD 190 - 200 in 2021.

Conclusion
When I am writing this, FB share price is USD 176. There is not enough margin of safety for me to buy this company. I will need a good 30% margin of safety before I will buy FB. Personal take. DYODD. This is not a buy or sell call.

00517.HK Cosco Shipping International

Introduction to the business
Business is divided into two main business segments.

Shipping Services
Cosco shipping International

• Provision of shipping services
• key customers include ship owners and operators, shipyards and container manufacturers
• Tangible products such as marine equipment and spare parts, marine coatings, intangible services such as consultancy services for buying ships, marine insurance, ship financing and related information support, as well as provision of value-added supporting services for vessels operations such as supply of marine equipment, marine fuel and ship supplies, and ship management.
• One stop shop which enhance the core competencies of fleets

Business Scope
1. Ship trading agency services
Providing agency services relating to shipbuilding , ship trading and charting for all types of vessels.

2. Marine Insurance Brokerage Services
Offer insurance intermediate risk assessment, designing insurance program, placing insurance cover, loss prevention and claims handling to
vessels insured worldwide.

3. Supply of Marine equipment and spare parts
Sale and installation of marine equipment and spare parts, as well as equipment and of radio communication systems, satellite communication navigation systems for ships, offshore facilities, coastal station and land users, and marine material supply and voyage repair

4. Production and sale of coatings
Production and sale of container coatings, industrial heavy duty anti-corrosion coatings and marine coatings

5. Trading and supply of marine fuel and related products
Provide marine fuel supply services, as well a trading of marine fuel and related products.

Shipping Services are beneficiaries of shipping capacity
Demand for shipping services are driven by shipping capacity growth and ship owner's fleet restructuring activity. As distinct from shipping companies the revenues of shipping services are either direct or indirect costs of shipowners or ship operators, and are not affected by short term fluctuations of freight rate.

COSCO shipping international has a diversified business mix of shipping services which are complementary to each other without obvious cycle.

As seen from the above image, for ship trading agency, marine insurance brokerage and marine equipment and spare supply, Cosco Shipping International is the "sole agent" to provide a centralised procurement to Cosco Shipping Fleet. This means in simple terms left pocket pass to right pocket. They do not want such a high value and margin business to benefit third party, instead they are passing the meaty part of the business to an internal party.

On the marine insurance brokerage, 40% of revenue comes from external customers and they are growing this segment, moving into non-marine insurances. This could be a growth factor.

Marine insurance, equipment for maintenance, marine bunker, crew changes, logistics and marine coatings are OPEX of a shipping company. They can be reduced in times of downturn but can never be reduced to zero. Moreover, now with the global economy recovery in place, the China Containerized Freight Index is recovering from 2016 low, standing at 836.6 at the time when I was writing this.

In essence, I felt that Cosco Shipping International has certain level of moat. The business is sheltered by the parent company and it has given some autonomy to grow other aspects of the business. However, need to monitor the growth and decrease rate of each individual segments in the next financial report.

Valuation
Based on June 2017 results, Net Cash per Share is HKD 4.19 and NAV is HKD 5.09. As of today, the share price is HKD 3.09 which is approximately 25% safety margin. Recently, I read this book Deep Value Investing by Jeroen Bos. It gives me a good insight on what he looks for in deep value investing.

Conclusion
I am invested in this company. There are certain risk as shipping is cyclical business. Please DYODD. This does not constitute a buy call.

Finding Value in Today's Market

We are officially in a correction which can go up to 19% drop in terms of share prices. If the market price drops >20%, then we are into a bear market. What should value investors do at this moment?

Let me share some of the thought processes:

1) The Sale that you have been waiting for is here, it does not mean that you need to enter the market but with cash seating on the sideline means you can deploy them when the stock price comes to your ideal price range. This means that you have done your homework, created your watch list of stocks and understand what are the intrinsic values. I am going to deploy the last 100k into different tranches to absorb China A50 ETF and Tracker Fund to focus mainly on China and Hong Kong market. The dividend will allow my wife to settle some expenses such as charity and bills. I will not deploy margin money for correction. I will only deploy it when there is a bear market and there is a strategy to peg to margin to make it work.

2) Investor Mindset - Investing is all about managing your emotions. That is the reason why the gurus always say a good temperament is essential for investment. Everyone likes to think they can be a contrarian but when the fire is here, everyone shit in their pants. Especially with the past 1 week, there is so much volatility in the market, the market can drop 1000 points on alternative days, you will not know how to react. I will like to take this as a form of training. You need to be calm and see this as an opportunity to re-enter the market. We need to control our natural human instinct to flee when there is danger and avoid the herd mentality to follow everyone to sell when the market prices hit low.

3) Be like an ostrich - I recalled just 2 years ago when I thought with the rising interest rates environment, OCBC should benefit from it and I took a huge stake in OCBC (about 30% of my portfolio back then). Then OCBC started to drop till $8+ as Singapore STI took a correction. It was very painful to keep looking at your price and your total portfolio value. The pain of losing money is much more severe than the feeling of winning money.  Prices will not miraculously increase in a downturn just because you keep pressing the refresh button. The only thing that holds is Value which is not based on market pricing. For example, Apple has its ecosystem of products and services in tact and a share price of USD 100 or USD 200 does not affect the business. In a market downturn, people are still buying iPhone X (maybe lesser). Focusing on value instead of just price itself, you can sniff out undervalue stocks and rebalance your portfolio. Mr Market is offering you a good price for these coming few weeks as a form of Ang Bao for Chinese New Year. For example, if you are yield player, Singtel is offering a pretty awesome 5% yield. Unfortunately, I have already deployed my cash into the market but the bulk of SGD 200k is been bet on a specific counter. I was lucky to consolidate the money before the correction into this defensive counter. So far it has corrected 7%. I will switch out to AAPL or a few other stocks depending whether there is sufficient margin of safety.  I have learnt in times of downturn, I will be like an ostrich, I will not check the prices and unrealised profit/losses. I continue to build my stocks watch list.

4) Find a Hobby or Things to do other than spend time looking at the screen - Do something that keeps your mind away from the market. It can be in the form of exercise such as cycling, running, swimming, etc. It can also be working hard at work. It can be spending more quality time with the family.

There are companies which counter the down trend and there are bargains out there. Hope you can find value stocks and enjoy life! Stay healthy, stay wealthy. Health comes first. Do not let the market affect your health. Close the screen and go exercise now!

Run a home based business

The decision to start a home-based business - to begin a new business within walking distance of your kitchen! - will be your second decision as a new entrepreneur. Your first decision will already have been made: The decision to become an entrepreneur and enter the fast growing world of the self-employed. It is a decision which thousands of ambitious, confident people make each working day.

As a home based entrepreneur, you will be setting out on a journey designed to improve the overall quality of your life by taking control of your working life. It will be journey by taking control of your working life. It will be a journey filled with enormous challenges, unexpected obstacles and the possibilities of significant financial and emotional rewards!

You will have to make certain that you are endowed with confidence and with patience; that you are prepared to cope with the inevitable ups and downs which will occur as you build your home-based business and that you have the support of all the people in your life who matter to you.

Every new business entails considerable risk, but you have already skewed the odds in your favor: By electing to start your own new business at home, you will be beginning your self-employment career with the right attitude.

Home-based Benefit No 1: Low Overhead
Accountants designate them as "fixed expenses." By starting your new business at home, you can save on one of a business' most onerous fixed expenses - the rent.

Thus you are starting out with an enormous financial advantage. Maintaining a low efficient overhead is a sound, conservative business practice. Rent is frequently the largest single fixed expense. By eliminating it, you have given your new business a significant advantage.

Home-based Benefit No.2: Your ego is in the right place
If you were to ask a venture capitalist what single element causes him to back away from a prospective deal, he would probably tell you that it was an entrepreneur who ushers him into a large flashy office from which he then proceeds to attempt to convince the venture capitalist that he will prudently manage the money which he is seeking to raise.

The point is obvious: the intelligent entrepreneur has a strong sense of priorities. He knows that his limited funds have to be spent as carefully and productively as possible. His sense of personal satisfaction will come from the success of the business, not from the elegance of his high rent corner office.

Home-based Benefit No.3: Efficiency
If you live an hour from where you work, you spend two two hours a day commuting. That's ten hours, 500 hours a year! To the new entrepreneur, time is money. By working at home, you will be saving time and money. It is an irresistible combination.

All of your working hours will be productive ones, and your sense of purpose will be heightened. There is no more satisfying bottom line and working at home will provide you with that priceless sense of satisfaction every working day.

Home-based Benefit No.4: Your Self Discipline
One of the most critical characteristics of the entrepreneur is self-discipline. He has to be able to motivate himself. He has to be able motivate himself, to provide his own sense of direction and determination. There is no "boss"or time clock to keep him in line.

Working at home requires enormous self-discipline because of the endless potential distractions. When you are working at home, you have to be able to resist the bed and get to work.

By working at home, you are putting that self-discipline to test every working hour of every working day. It is a test which you cannot permit yourself to fail - and there it becomes another of the many subtle benefits of starting a home-based business.

Home-based Benefit No. 5: Quality Time
The home-based entrepreneur quickly develops a useful sense of "quality" time - because he has to make time based judgement all day long in the same environment where he works and lives.

Quality time is admittedly difficult to quantify but like many positive events, most of us recognize it when it occurs. It is a dimension which can improve the quality of our lives - and home based entrepreneur often develops the ability to create it because he has to.

Self Sabotage to JC Options Fund

This is a dire situation. Forecast loss will be at least USD 10k. Many mistakes made in this AAPL trade. I am going to list the following mistakes. In addition, my mistakes were further aggravated by the timely market correction.
"Owning stock is like having children. Don't get involved with more than you can handle."

1. After cutting loss, you need to gain your grounds and be able to think before you jump into another trade.
2. Do not over-leverage.
3. Stick to your cut loss rule. No emotion at play.

I got an email from thinkorswim that I need to top up cash to cater for the maintenance margin call. That was the first wake up call that I have an over-leverage position.

How do you know that you have overextend your position? That is when you cannot sleep in the middle of the night. For the last two days, I woke up at 3 am to look at the market. I have never in my life gone through this when I was investing.

On the other hand, on Friday wee morning, US market has wiped out a lot of my paper profit for JC Fund but I did not fret because they are cash position. I understand this is a market correction before the market can reach a higher position.

I have two incidents when the share price returned to 168 and I did not manage to minimize my loss. I was praying that it will go further up beyond 170 which is my strike price. On Thursday after post market, the stock price did reach 173 temporary. I have discussed with my wife to close the position at below 165 and I fail to execute this as well.

I am going to pause any new trades after 16 Feb 2018 and review my temperament. There is a serious issue with it and I need to rectify this. Don't need to beat myself up for this but I need to learn from it. Many things to unlearn and learn.
I have made a simplified checklist.

Sell uncovered PUT

1. Does the company have consistent increasing or positive EPS over the long run say last 5 years. Better still, if last 10 years.  If YES, move to Step 2. If NO, kill this idea.
2. Does the company have MOATS If YES, move to Step 3. If NO, kill this idea.
3. Is there any interim results or annual results announcement? If NO, move to Step 4. If YES, kill this idea.
4. Now, go to the chart www.tradingview.com , whether this stock is at the support line If YES, move to Step 5. If NO kill this idea.
5. Before you execute the trade, check did you click SELL PUT? It should be red colour with -1 or -X amount
6. Did you negotiate for a better price? The market is there to serve you. Have more margin of safety is good for you. 
7. To decide the quantity of Sell PUT, run a quick check, is the NUMBER of CONTRACT x 100 x SHARE PRICE < your CASH BALANCE? If YES, move to Step 8. If NO, reduce your quantity now! Save the headache, you can sleep better instead.
8. Execute the trade and wait for it to be filled.

7th February 2018 - I closed 15 contracts of AAPL and accepted a loss of USD 18k which wiped out all my profit from options. I want this to be a very painful lesson for myself.

00101.HK Hang Lung Properties Annual Report 2017

Brief
30th January 2018, Hang Lung Properties announced annual report results. I estimated based on underlying profit a fair value of about HKD 18.6 - 19.00 disregarding the revaluation of the properties. I did not sell immediately when the share price was at HKD 20.7 when the results were first issued. I have my own justification why I believe this company will do well in the long run.

Introduction
Hang Lung Properties Limited (00101.HK) is the operating arm of the Hang Lung Group (00010.HK) is in the business of real estate development, owns and manage world class commercial complexes in key cities in the Mainland since the 1990s.

Hang Lung Group was founded in 1960 by Mr Chan Tseng-Hsi. The business grew rapidly building residential complexes along the Mass Transit Railway (MTR). On January 1991, Mr Ronnie Chan took over as the Chairman of the company and venture into the Mainland. They took the opportunity, acquiring a lot of land and investment properties to position itself for the future.

Present Properties Portfolio
Hang Lung Properties owns Shanghai Plaza 66, Shanghai Grand Gateway 66, Shenyang Palace 66, Shenyang Forum 66, Jinan Parc 66, Wuxi Center 66, Tianjin Riverside 66 and Dalian Olympia 66 in the Mainland.

Hong Kong's leasing portfolio includes Kingston in Causeway Bay, the Peak Galleria, Kornhill Plaza in Hong Kong East, leasing properties in Mongkok includes Grand Plaza and Gala Place and Amoy Plaza in Kowloon East.

Offices are in Central, Causeway Bay and Mongkok. Residential and serviced apartments such as Kornhill Apartments. Properties for sale include The Long Beach, houses at Blue Pool Road and The HarbourSide.

Property Development and Capital Commitment
The total aggregated value of investment properties under development was HK$21,592 million. They comprised mainland China projects in Kunming, Wuhan and remaining phases in Shenyang and Wuxi. The portfolio consists of malls, office towers, hotel and serviced apartments.

The construction work for Kunming Spring City 66 is progressing, total gross floor area of the entire mixed use development is 432,000 square meters, comprising a world-class mall, a Grade A office tower, serviced apartments and car parking spaces. The mall is expected to open in min 2019.
Wuhan Heartland 66 covers a total gross floor area of 460,000 square meters. This prestigious commercial project will house a 177,000 square meter mall, a Grade A office tower, serviced apartments and car parking spaces. The project is planned for completion in stages from 2019.
The conversion of top 19 floors of the office tower at Shenyang Forum 66 into a Conrad Hotel is in progress. This five star hotel will be expected to open in 2019.

The construction work for the second office tower at Wuxi Center 66 is progressing as planned. In May 2017, Hang Lung Properties took a piece of land of 16,700 square meters for Wuxi Phase 2 development. This will be used to build serviced apartments.

With conversion of existing property into five star hotel, grade A offices and serviced apartment, I believe Hang Lung Properties is well-positioned for the rise of China in the next decade. The recurrent income will help to grow the company and allow it to acquire future lands in the inner China. The revenue from these will only be recognised in 2019 and 2020.

Financial Strength
Hang Lung Properties has a Net Debt ratio to Equity ratio of 1.9% and Debt to Equity Ratio of 17.4% which are both healthier than 2016 results. Net Assets Per Share is HKD 31.60.

Key Risks
This is an age of disruption, the co-working era is coming and grade A offices will face its challenges as well. I cannot predict whether co-working will replace the traditional office setting but I think this erosion factor will be slow.

Malls are challenged by eCommerce making traditional retail more difficult than previous era. Malls have evolved into social places for entertainment, services and food & beverage. The trend is to cater to experiential tenants such as cinemas, online to offline stores, mobile payment and smart parking to entice footfall and retail sales. Hang Lung Properties is said to be in talks with smaller eCommerce players to collaborate on some of the malls.

The progress in China's economy will continue to play an important role.

Conclusion
I will continue to hold on to this company, I have only 12,000 shares and my average price is about HKD 17.98. If share price drops below HKD 18.6, I will acquire more of this company. To review half a year later.