In reflection, I take stock of the aspects of life, learning and investing.
Of Life
Life is fleeting. A year in which I saw many people passed on. A dear friend passed on, a professor (Clayton Christensen) I often listened to and respected, an actor (Chadwick Boseman), an athelete (Kobe Bryant).
A horrible year indeed as deaths of those we esteem and hold dear ring a bell to our mortality and makes us count our blessings that every day we are breathing, we still have a fighting chance.
Indeed, every day is a gift. That is why it is called present.
Of Learning (about virus, leadership, e-learning, meditation)
A year where disruption of work, lifestyle and every thing happened. Covid-19 started in China and spread across the entire world because of the network of airlines/shipping and human interactions.
- It is a virus like no other, in the words of Dr Fauci - his greatest nightmare in the fact that a virus could have no symptoms. It is like pilots flying blind in a fog and having to fight an enemy.
- Even an immune system that is too strong or too weak will succumb to the virus - so it is really an ultimate enemy like no other. Its survival rate is literally the strongest and it continues to evolve.
- Nevertheless, I am grateful for being in Singapore where the government has been able to course-correct where mistakes are made and put us on the right path. To be frank, as we open up to phase 3 while the world is going down into fighting the 2nd variant (23 changes in the B117) of covid-19, that is quite a crazy thought.
But what made Asian countries able to handle the pandemic better, I would give it to decisive leadership and a more subservient population (listening and respectful of government and law).
As John Maxwell said it right - Everything rises and falls with leadership.
In a year where I am mostly home (WFH), I started paying for online learning, I begun to see the value of investing in myself. It returns many many times.
First, I signed up for VIA Club (Value Invest Asia) where I learned a lot of quality articles from Stanley Lim and the community (ideas populating around are often a good source of investing for success.)
Second, I signed up for a lifetime of CALM - a meditation app that gives me peace and focus. It centers my inner sanctum and allows me to plan and go about the day - purposefully and focused. I daresay it helped me win my competitions at the Toastmaster Competitions this year.
After all, Asics said it best in its logo acronym - Anima Sana In Corpore Sano which translates as "A Sound Mind in a Sound Body".
Lastly, I signed up for masterclass. A billion dollar app with learnings from the likes of Bob Iger, Gordon Ramsey, Malcolm Gladwell, Howard Schultz to name a few. If you want to learn any skill on business, leadership, knowledge - why would you not learn from the best in their industry, the titans that rose to the top?
Of Investing
This was a year which I panicked. I didn't keep to a process, I was all over the place. I think human instincts tend to kick in when you begin to fear the unknown.
So very much it was a process of learning, I read and re-read books by Benjamin Graham and Pat Dorsey (The intelligent Investor, Interpretation of Financial Statement, 5 Rules of successful Investing), I followed blogs by The Good Investors / Compounder Fund (Chong Ser Jing and Jeremy), Morgan Housel, podcasts by Motley Fool (Rule Breakers) and of course the VIA club as mentioned above. I watched the entire investment valuation series by Professor Damodaran (NYU) and built a FCF model to model stock prices.
Thoughful learning, which came quite useful. These are 2020's 6 best investment lessons.
1. In investing - Growth matters more than anything else. What business is the company in? What is their TAM (Target Addressable Market)?
- Alibaba for example has many growth opportunities across the commerce space. A bet on alibaba is a bet on china as they are so embedded in the chinese business and consumer economy.
- For REITs, look for growth in DPU, cashflows, NAV.
- For most stocks, look for growth in topline, customers, cashflows (operating and free) and if available bottomline too.
2. What is the valuation metrics you should be using?
- I used to stick quite closely to P/E ratio but you really can't value super growth companies with P/E as you would have missed out on Amazon over 20 years. P/S ratios may be more appropriate. Other metrics like P/FCF, FCF yield helps to give a more comprehensive picture of things.
3. Volatility is a given
- Think of price fluctuations as a fee rather than an immediate loss. If your thesis remains intact, stay the course. The best time to buy is yesterday, the time to sell is (almost) never because winners can keep winning.
4. Think big and consider earnings power
- If you only keep fishing in Singapore, you are limited to a smaller opportunity set. There are many innovative companies, talented individuals and groundshifting technology that the Singapore market is not exposed to.
- When you consider an investment moat, you want to consider how wide, how deep and how sustainable is the moat that allows the company to continue earning its superb net profits.
a. If a company is able to keep competition away by widening the moats (e.g. Apple with new products, being a leader in new market - that strengthens their investment story)
b. If a company has depth, it means they are great in one competitive advantage (think a company with good products but in one segment - e.g. Garmin for navigation)
c. Sustainability - the longer a moat can be sustained (either through R&D, consumer brand recognition, patents etc.)
5. Every Crisis is different
- A pandemic crisis did not hit all industries the same. Unlike the GFC which most stocks collapsed, tech was not affected, food producers were not affected. Manufacturing actually flourished while the services sector collapsed (GFC was the opposite).
- We can't really time the market and predict the future, anyone who tells you they can is being foolish. That being said, we could pay attention to the 200 day MA as to when is a broader decline or broader rising about to come.
- And since we can't predict, we can only prepare. Holding cash at 0% interest rate is actually ok. Cash gives you optionality, it gives you the opportunity to buy quality stock at cheaper prices when the opportunity arises (think Alibaba in recent days).
6. Be Ready
- Risk is what you don't see and the truth is that we must learn to make wise bets (Annie Duke - Thinking in bets) by thinking of outcomes in probability and seek out alternative opinions that we may be wrong.
- Be anti-fragile (Nassim Taleb). In life, things are fragile, robust and anti-fragile. The anti-fragile gains from being stressed/pressured. In some sense, humans can become smarter, better and fitter as a result of the body undergoing stress - think a gym workout. That being said, too much and we will break down so it is pertinent to keep things in balance and know our limits.
When will the next crisis come? Nobody knows - my guess is that it is something that we all don't see. But the right process and the correct mentality would set apart the winning investors from the losers and the former camp is where I definitely want to be.
Blessed Christmas to one and all. Stay safe and we will overcome the pandemic together.
J.Siew
