Investing - Criteria and Macrotrends

What should an investor look out for?

Building your criteria .

Namely, I have listed a short 5 point criteria that people should follow with regards to investing, this would give them a safe metric to follow for the less financially savvy

1.  > 4.0% dividend yield (p.a.)
2.  > 500m market cap (USD)
3.  > 5 years of listed status (for forecasting and book building)
4. < 40% gearing (D/A)
5. EV/EBITDA < Industry Average by 1 standard deviation

Macro trends are your best bet to outperforming the market.

Just as I spotted the strong ability of Keppel T&T's Data Centre (30% net margins) and its really unique ride on the digital age. I believe that macrotrends are still the best play in the long run. What is important is whether you recognize this trend early, build up a sizable position, and that it would be realized in the future. The follows are some macrotrends that I think would be fairly alright. Do take note that a substantial risk may be involved for some of them especially frontier investments, commodity types and the turnaround stories.

Singapore/ Australia Markets

a.  Short Term Macro trend – Interest Rate rise
     Beneficiaries – DBS / OCBC / UOB
b.  Frontier market story – Myanmar
     Beneficiaries – Yoma
c.  Urbanization
     Beneficiaries – Keppel Corp / City Development / Capitaland / Sembcorp Industries
d.  Commodities recovery
     Beneficiaries – Wilmar International / BHP Biliton Ltd
e.  REIT plays
     Beneficiaries – Capitacommercial Trust / Starhill / Mapletree GCC / Keppel DC reit
f.  Turnaround stories (with high risk)
     Beneficiaries – Noble Group / Vard Ltd / Sembcorp Marine / Boustead Ltd / Super Group
g.  Steady Companies
     Beneficiaries – CWT Ltd / United Engineers

Bubble, bubble, toil and trouble - A world in volatility once more

The past 6 months were almost crazy. If you are still lost at what is happening, let me give you a quick round up of what happened.

1. China encourages retail investors to join the market

• The chinese index never moves. So it was pretty shocking/interesting to see it rise for the first time and at such a rapid rate. Nothing that goes up quickly ends very well
• More greed fed into the market. students, teachers, farmers - you name it, they all joined the investment business and started feeling like genius when they made money. 
• High usage of margin trading. Increasingly, as the 'margin' in the main island was not enough, mainlanders went over to Hong Kong to open accounts for trading HSI shares.
• It all ended in tears when the chinese index started plunging, and swinging in volatile directions (Aug 24 Marked the Black Monday of China- http://www.bloomberg.com/news/articles/2015-08-25/chinese-stock-index-futures-slump-as-market-rout-seen-worsening)

2. China devalues the RMB

• This took the icing off the cake. Basically, all companies with strong exposure to china saw massive cuts from their market capitalization. The local banks (DBS, OCBC, UOB) were all not spared due to their exposure to that market
• Property companies all with high exposure to china and emerging markets all started seeing their share prices fall

3. Capital flight to safety

• Fear, whether rational or irrational is a dangerous thing. One may jump the gun way too early and miss out on buying at a good price. Greed on the other hand, makes one 'miss out' on selling at a high price
• Capital has left the emerging markets in search for safer assets - the recovery play of both USA and Europe is beginning to show the strain on the surrounding markets in the APAC.

We have 3 key lessons to learn here

• My finance professor once told me, as a trader one should be wary of two emotions - fear and greed. Master the two and you be unstoppable both as a trader (and an investor)
• When it is not based on fundamentals (i.e. prices moving up purely due to trading and not earnings growth), we need to be very wary
• Lastly, when those who do not normally want to invest start to invest, its probably time to get out.

Where do we go from here?

• Since the Black Monday of China, stocks have rebounded and seen a good run. While it is anybody guess which direction the market will go, I believe we need to watch out for certain macro factors that will impact overall portfolio return:

1. China policies and its key macro numbers (PMI and GDP growth)
2. USD and the impending interest rate rise
3. The return of commodity prices

Tips and what to buy

• Logically, the best plays would be interest rate rising (banking) and stocks with proxy to USD (e.g. Venture Corp, ST Engineering)
• The next best plays to pick up would be stocks with have absolutely no relation to the economy - this are the defensive battle pieces (e.g. CWT Ltd, ARA asset management, Sheng Siong and Singapore Shipping Corp)

Am I vested? Yes. 60% Equity / 40% cash and bonds

What am I bullish on? DBS Bank Ltd / Singapore Shipping Corporation (I have yet to accumulate a substantial portion) / ICBC  

Flight to safety (credits to OCBC)

I noticed this recently and took it down. It utilizes the power of 3 to classify where a company falls under and interesting, you can see some notable names from the singapore stock market.

Personally,  I am very excited about the recent cheap prices - I think Keppel Corp, Sembcorp should be on most investor target. I am also interested in Yoma.

Noble Group on the other hand is dismal. I sold it after Michael Dee's scathing attack and warning he send to. Full letter here - http://www.sharesinv.com/articles/2015/05/29/open-leter-noble/
While I bought at 0.95 average and sold at 0.72. Its nothing compared to its 0.44 current price.

Is the end for noble? I don't believe so...but I think the company has to consider seriously how it should run its business and Michael Dee is quite right.
1. Become cash-flow positive
2. Fix your high leverage
3. Increase your transparency

I still own 500 shares, didn't sell it properly. I will hold on to this. And see how it all plays out.

Passed my CFA level 2!!

What a night it has been...I waited 2 hours and finally received the good news that I passed! :)

All those hours of squeezing time out. Being anti-social. Doing exams when I would rather be sleeping. Study until feel like sleeping etc etc.
Thank God for the result. I felt the peace that I felt during this exam was so special, I felt once again that I just had to do my best and trust him. And indeed he made things special in his time.

海底捞 － A distinct mark in service quality (game-changer)

Interestingly. When a game changer enters a market - it makes everything pale in comparison. The company builds brand loyalty, commands higher margins, keeps people happy and does it all right.

The entire experience at 'Hai Di Lao' from start to end was tended to ~ this was not just a dinner session where you sat down, order food, paid and leave. 

Taking a queue number at 6pm, the waitress informed us it would be about an hour wait, pretty reasonable given the crowd size and the stories of booking (2 weeks to 1 month in advance).

The entire experience starts the moment you take your waiting ticket.

Waiting area:

1. Manicure for girls
2. Fruits and snacks for everyone
3. Constant service staff attention to provide more food and drinks
4. Ipad ordering with pictures, prices, table number etc. (Menu in both English and Chinese). 
5. Crane folding session taught by one staff which can earn you some discount

Dining area & Staff

1. The layout was so posh you wouldn't think you were in a suburban mall, sparing no expenses to treat you like "royalty", we were promptly seated and our food orders started arriving shortly.
2. Throughout the meal, the staff constantly filled our drinks (expected experience)
3. Key attention to detail: There was a ladle hook that held your ladle in place so that your food would not be "lost" in the soup
4. Ziplock bags for handphones and aprons for customers would prevent soup from splashing on them.
5. When the staff topped up the soup, she covered the upper part of the kettle nose to prevent the soup from splashing on customers.
6. Even when we feedback/complain on some noodles being made too thick, they quickly offered to make a free set and offered it with a smile.

Fresh food and vegetables

Food quality

1. Soup was a tasty broth of Szechuan and chicken broth (was an interesting tasty mix and the spicy taste was not too overwhelming)
2. Generous portion of fresh food (beef, pork and fish) and vegetables

Overall experience

While the bill came up to $38/pax which can be considered quite pricey for meals, I could certainly see why this place was so unique. They truly knew how to build brand loyalty through reinventing the dining experience. It would be great for all Singapore service companies (Banking, F&B, Retail, Hospitality to consider learning from this 5 star steamboat restaurant who gets it right on almost all accounts). I would definitely be back some other time.

Red Tilapia

Tracking list - 7 stocks I am looking at

I am currently tracking a few stocks. Each has some level or underlying themes to back it for the next macrotrend. The global spectre of a crisis is looming while interest rates are probably going to rise in September.

Personally I am considering Keppel Corporation and Starhill Global Reit deeply. This will be purchases for a long term perspective of at least 5 years and I would like to add to this positions over time. In the meantime, I am waiting for attractive opportunities. Here is some that I see on the Singapore Market.

1. OUE Limited (2.16)
- OUE C reit and OUE H trust allows for capital recycling and investment in better assets
- Expected > 5% dividend p.a.
- P/B at close to 0.5
- Urbanization theme

2. Keppel Corp (8.78)
- Triple crown trust structure allow for Build-Operate-Stabilize-Inject model (Keppel Reit, K Infra Trust and Keppel DC reit)
- Expected >4.0% dividend p.a.
- Potential logistics trust
- Yield accretive deal and value buyout of Keppel Land
- Underlying macro theme of urbanization, energy and infrastructure.

3. Sembcorp Marine (3.00)
- Turnaround in oil prices will allow for return of oil rig deals
- Busy docks till 2019
- Energy theme

4. Vard Limited (0.62)
- Innovative design and synergy with parent may allow for more deals to come in the future
- Energy theme

5. Starhill Global Reit (0.86)
- Deal accretive acquisition of Prime CBD mall in Australia
- Optimizing capital structure at 0.35 leverage
- NAV: 0.93 provides some upside
- Asset Enhancement Initiatives allow for a potential upside (think more leasing space)
- Urbanization theme

6. Keppel DC reit (1.04)
- Basic bread and butter for the future data industry
- 6.12% return
- Big data theme

7. Starburst Holdings (0.55)
- Strong Profit Margins
- Scalable model
- Defence industry/theme

Lee Kuan Yew - a highly admirable man

No story would be complete without its end. I was only in the same room with LKY once in my life - that was in the NTU ministerial forum in 2011. What struck me then was that here was a man who had spent his whole life on Singapore. If anyone was to creditably say he succeeded in life - it was lky. Yet here was someone who always felt his work was never done. He famously said the statement "Rest on our laurels? No, you rest when you are dead!"

His work ethics is incredible too, stories of his red box and his sole dedication to making Singapore work went viral as we learnt more about a master politician and visionary leader who was able to gather data, listen to opinions, yet have the guts to take the best pragmatic choice.

He was also driven by the very fact that he cared deeply about Singaporeans. His primary motivation was never about money or luxury. He practiced frugality and focus purely on how this country can progress in this ever changing world. Even when he stepped down as PM, he pushed for the liberalization of the banking sector and mergers of banks such that they become global players - today 3 banks of Singapore are regional players (DBS, UOB and OCBC).

Perhaps the best testament to this was the very fact how nearly half a million Singaporeans queue day and night to simply say goodbye to this gentleman lying in state - myself included (queuing for 9h30min!).

What I truly learnt from him is that when you primary motivation is not money, when your primary motivation is pure passion for doing what is right, what is good for your fellow countrymen and putting your full heart and soul into that - you can achieve great things.

Goodbye Mr Lee. You be dearly missed. Singapore will live on for you - your spirit will live on through us - A nation that will never say die, that against all odds - find a way to triumph and become the best we can be. Simply because we are One People, One Nation, One Singapore