Sunday 31 August 2014

What Happens When Your Shares Are Compulsorily Acquired?

Two months ago, I had blogged that I would not accept fully Capitaland's privatisation offer for CapitaMallsAsia (CMA). I wanted to have a taste of being a shareholder in an unlisted company. Unfortunately, Capitaland managed to acquire enough shares to compulsorily acquire all the shares, even from dissenting shareholders like myself. How was the compulsory acquisition carried out?

After the close of the privatisation offer on 9 Jun 2014 when Capitaland announced that it had acquired sufficient shares to exercise its rights to compulsorily acquire all the shares, Capitaland sent a letter on 16 Jun 2014 informing all remaining shareholders of its intention and the rights of minority shareholders. In an unlisted company, the minority shareholders can be categorised into 2 groups, namely, dissenting shareholders who refuse to sell their shares to the acquirer and non-assenting shareholders who want to sell their shares to the acquirer now that the company is no longer listed. The rights of both groups of shareholders are described respectively in Forms 57 and 58 that came with the letter of compulsory acquisition. For non-assenting shareholders (Form 58), they have the rights to require the acquirer to buy their shares in the target company at the same terms and conditions of the offer within 3 months of the notice. A copy of Form 58 is shown below.

Form 58 for Non-Assenting Shareholders

For dissenting shareholders (Form 57), the notice essentially informs shareholders that their shares will be compulsorily acquired at the same terms and conditions of the offer. However, dissenting shareholders may request for a list of all dissenting shareholders within 1 month of the notice. During this 1 month, the acquirer cannot take actions to compulsorily acquire all the shares. And in the event that a dissenting shareholder asks for the list of all dissenting shareholders, the acquirer will need to delay the compulsory acquisition until 14 days after releasing the list of dissenting shareholders. This is presumably to allow all dissenting shareholders to group together to discuss the next course of action in response to the compulsory acquisition. A copy of Form 57 is shown below.

Form 57 for Dissenting Shareholders

For CMA, no such post-delisting drama took place and the shares were compulsorily acquired on 16 Jul 2014, 1 month after the notice of Form 57. The sales proceeds were received on 21 Jul 2014. Thus, the story of Capitaland's privatisation of CMA has ended. This post is for the information of anybody who intends to reject a privatisation offer in future. 

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Sunday 24 August 2014

An Advice for Myself

A reader left an interesting question after reading my post on Investing Is A Life-Long Learning Journey. His question was "28 years is almost 3 decades, if you can start all over again, what would be your best advice to the past you?" This is by far the most thought-provoking question I have ever received on my blog. I replied with a short answer, but after thinking more thoroughly about it, I decided to post a fuller answer to this question.

There are many investment strategies that work, be it value investing, growth investing, dividend investing, index investing, etc. We have seen many highly successful masters in investing, each adopting a different strategy. In value investing, we have Benjamin Graham and his many disciples, including Warren Buffett. In growth investing, we have Thomas Rowe Price, Jr.. In index investing, we have John Bogle. We also have a number of other equally legendary investors whose investment strategies do not fit nicely into any of the investment strategies mentioned above.

However, although the investment strategies mentioned above work, they do not always work. If value investing works perfectly, there would not be any value-traps. If growth investing works fully, no price is too high to pay for growth stocks. If dividend investing works forever, we would not have the Mini-bonds saga. Yet, the presence of value-traps, overpriced growth stocks, Mini-bonds, etc. do not negate the fact that these time-tested investment strategies work. They just do not work all the time. There is no need to be too dogmatic about an investment strategy and continue to average down as the stock declines, believing that the investment strategy will turn out well at the end. There is a Chinese saying, "成也风云,败也风云", which translates to "the same factors that brought you prosperity could also lead to your downfall". Do not be dragged down by the dogma of sticking to an investment strategy that has worked well. Occasionally, it is important suspend your belief in your "winning" investment strategy and let risk management measures take over. There is another Chinese saying, "留得青山在,不怕没柴烧", which means "live to fight another day". It is no shame to make mistakes and learn from them. Many famous investors have recovered from mistakes early in their investment journeys and become stronger as a result.

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Sunday 17 August 2014

The Bounceback Portfolio of STI

One of the good things about blogging is that you get to learn from your readers as well. A reader introduced me to the Bounceback Portfolio and requested me to carry out a review of it in Singapore's context. The idea of the Bounceback Portfolio is that a portfolio of the 10 worst performing FTSE350 stocks in one year has historically beaten the index in the first three months of the following year. 

However, when I apply the idea in Singapore's context, I faced 2 issues immediately. Firstly, the corresponding index to FTSE350 is actually the FTSE ST All-share Index. Unfortunately, I am unable to find the component stocks of this index. The next best comparison is the Straits Times Index (STI). However, it has only 30 stocks. Selecting 10 out of 30 stocks might not reflect correctly the concept of the Bounceback Portfolio. On the other hand, if going by proportion, the Bounceback Portfolio should only contain 1 stock, which again is not reflective of the concept. A compromise is taken to select only 5 stocks from the STI. The results are shown below.

Performance of Bounceback Portfolio in the 1st Quarter of the Following Year

Highlighted are the 5 worst performing stocks in the STI in the preceding year. The results shown above are their returns in the first quarter of the following year. Based on the above results, the Bounceback Portfolio returned an average of 6.3% in the first quarter, beating the returns of 0.8% for STI, 2.9% for an equal-weighted STI and 3.7% for STI without the heavy weights (i.e. DBS, OCBC, Singtel and UOB). Thus, on the surface of this information, the Bounceback Portfolio beats the STI and a number of STI-based portfolios. However, do note that the above analysis is conducted on a modified version of the Bounceback Portfolio, i.e. 5 out of 30 STI stocks versus 10 out of 350 FTSE350 stocks in the original Bounceback Portfolio. Hence, the results may not reflect the actual performance of the original Bounceback Portfolio in Singapore's context.

Comparison with Dogs of Dow

Nevertheless, on a conceptual basis, we could compare the Bounceback Portfolio with the more well-known Dogs of Dow investment strategy. The comparison is shown below.

Dogs of Dow
Bounceback Portfolio
Stock Selection Criteria
10 highest yielding DJIA component stocks (out of 30)
10 worst performing FTSE350 component stocks (out of 350)
Holding Period
1 Year (Jan to Dec)
3 Months (Jan to Mar)
Theoretical Basis
A stock that is higher yield than average would most likely be near the bottom of the business cycle and the stock price is likely to recover more than that of lower-yielding stocks
A portfolio of the 10 worst performing FTSE350 stocks in one year has historically beaten the index in the first three months of the following year
Average Holding Period Returns
10.8% (1 year)
5.8% (3 months)
Same-Period Benchmark Returns
10.8% (DJIA)
9.6%   (S&P500)
3.8% (FTSE350)
Benchmark Comparison Period
20 years (ending Dec 2011)
2 years (ending Mar 2014)

On the theoretical basis, the Dogs of Dow is based on assumptions about the company's economical performance whereas the Bounceback Portfolio is based on assumptions about the company's stock market performance. It should be noted that the Bounceback Portfolio is held for the first quarter of the following year only. This period includes January, which is traditionally the best month for stocks.

On portfolio performance, the Dogs of Dow performed better than the Bounceback Portfolio. On the other hand, the Bounceback Portfolio beat its benchmark index by a larger margin compared to the Dogs of Dow. However, the Bounceback Portfolio is a much newer concept with only 2 years of history. Thus, this comparison is not a fair one and more history is needed on the Bounceback Portfolio for a fairer comparison.


The Bounceback Portfolio is a very new concept with only 2 years of history. More data is needed to evaluate the Bounceback Portfolio better. However, it may not be suited for implementation in Singapore due to the small no. of component stocks in the STI.

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Sunday 10 August 2014

Investing Is A Life-Long Learning Journey

It is often said that it is important to start investing early, so that the magic of compounding can do its wonders. For investors who are keen in active investing, there is another reason for starting early, which is that it takes time to learn about investing. Thanks to my father, I was introduced to investing at the age of 11, and yet after 28 years, I am still learning about investing. Below is an account of my learning journey in investing.

The Growing Years (1986 - 1998)

From 1986 till 1998, I was helping my father monitor stock prices while he was away at work. Through this, I had learnt about the buying and selling of stocks, lotteries of Initial Public Offerings (IPOs), leverage of warrants, arbitrage of Malaysian stocks listed on both the Central Limit Order Book (CLOB) market in Singapore and Malaysian stock exchange, etc. It was quite a fascinating period. There was no scripless trading then. When you buy a stock, you get a share certificate delivered to you on settlement date. But the name on the share certificate is not your name. When the company pays a dividend, the dividend does not go to you, but to the person whose name is registered on the share certificate! You need to register the share certificate in your name in order to receive the dividend. Through this loophole, you could sometimes collect dividends even after you have sold your shares!

IPOs then were not always conducted by ballot. There were a couple of IPOs which were conducted via Dutch auctions. In this method, you could indicate the highest price you are willing to pay for the shares. At the close of the IPO period, the IPO manager would determine the highest price at which all the shares could be sold. Every successful bidders would pay the same price. For example, if you bid $2.10 for 10 lots and the successful bid price is $2.00, you will be allocated all 10 lots and pay only $2.00 per share. Conversely, if the successful bid price is $2.20, you will receive none of the shares. A tranche of Singtel IPO in Oct 1993 was conducted via the Dutch auction, with the successful bidders paying $3.60 compared to $1.90 for the discounted share tranche.

Along the way, I had witnessed first-hand the stock market crash of 1987 (crash for no good reasons), 1989 (yet another crash for no good reasons), 1990 (Iraqi invasion of Kuwait), 1997/98 (Asian Financial Crisis) and between them, the super bull run of 1993/94 (Singtel IPO).

During this period, I had also figured out that IPOs were not a good way of being introduced to investing. The reason is very simple. IPOs are packaged to sell. After it has been sold, buyers have to live with whatever quality they have bought. It is similar to job interviews. All potential applicants would put their best foot forward, but after the "best" applicant has been hired, he might not perform to the level he had shown during the interview. You may wish to read The Initial Public Offering for more info.

The Wild Wild West Years (1998 - 2001)

By 1998, I had graduated from university and was ready to invest with my own money. You might have thought that investing would be a breeze for me with the wealth of experience I had built up. Actually, no. During this period, I thought that there were 3 ingredients necessary to be successful in the stock market. The 3 ingredients were: Brains, Guts and Capital. You need the brains to figure out what nobody has yet to figure out, the guts to act on your conviction at a time when the whole world was acting against you, and the capital to profit from your insights. Unfortunately, I realised later that the same 3 ingredients of Brains, Guts and Capital were also the recipe for failure in the stock market! If your analysis is incorrect, having the guts to act on it can be a mistake. Hence, for a while, I had both hits and misses. My portfolio was getting nowhere.

The Game Plan Year (2001)

In 2001, by sheer luck, I had picked up a second-hand investment book titled "Buffettology" from a book fair. It described the methods Warren Buffett used to analyse stocks. The methods in the book became the model that I used to analyse stocks to this date. This was an important development, as it taught me the importance of having a system for investing. If I were to use the analogy of baking cakes, during the Wild Wild West Years, my recipe of baking cakes would be to "add some flour, some sugar and some water". At times, it would turn out well. At other times, it would turn out burnt. I had no idea whether the next cake would turn out well or burnt. With a system for investing, the recipe becomes "add 400g of flour, 10 teaspoons of sugar and 800mL of water". If the cake turns out burnt, you could change the amount of flour, sugar and/or water in controlled amounts and observe the outcome again. After sufficient iterations, you would probably figure out how much flour, sugar and water to add to bake a sufficiently good cake. Of course, there is always the unpredictability of the stock market, but at least you have some factors related to the companies' performance under control.

With a system for investing, that became the improved Brain component of the investing recipe. Sometime during this period, I also developed a plan for allocating the amount of capital to stocks. This became the improved Guts component of the recipe that I had used more or less to this date. The plan essentially institutionalised the contrarian way of investing by tying the level of stock allocation to the stock market index inversely. When the index is high, the level of stock allocation would be lower. Conversely, when the index is low, the level of stock allocation would be higher. By following this plan strictly, it forces me to buy shares when the index is low and sell shares when the index is high. You may wish to read Have a Plan for more info.

Finally, after working for several years already, I had built up sufficient capital to make meaningful investments in the stock market. The improved Brains, Guts and Capital recipe had served me well. I began to see some positive direction in my portfolio gains. While they have not made me a highly successful investor, at least they made me a competent investor.

The First Crash Years (2000 - 2003)

The years from 2000 till 2003 were quite bad for the stock market, having to navigate through the dot-com bust in 2000, September 11 terrorist attacks in 2001, US accounting scandals in 2002 and Severe Acute Respiratory Syndrome (SARS) in 2003. I thought I would manage quite well during this period, having experienced several market crashes already. The truth is that it is one thing watching a crash on the sideline and another thing experiencing it yourself. The losses, although only on paper, were very real. And when you run out of capital (which I did then), you are subject to the full force of the absurdity of Mr Market. If he wants the market to drop 50%, you just have to accept it since you have no more capital to take advantage of him and fight back. Thankfully, I had preserved some capital in my Central Provident Funds (CPF). That was the only period when I had to draw on my CPF reserves. I had learnt to set aside some reserves to save my portfolio during severe market crashes. You may wish to read Behind Every Successful Bear Market Recovery is A Cash-Like Instrument for more info.

The Back-to-School Years (2004 - 2006)

When you survive a crash, you will only get back stronger. After the crash years of 2000 till 2003, the stock market made a recovery in 2004, which was when I made my first pot of gold with the investing system and plan mentioned earlier. It was time that I thought I should receive a proper education in investing, having read through financial statements without fully understanding them previously. Using part of that profits, I enrolled myself in a part-time course in Masters in Applied Finance, graduating a year later. I also sat for the Chartered Financial Analyst (CFA) examinations, passing all 3 levels in 2006.

You might have thought that having academic qualifications would make me a better investor.  Again, no. My first wipe-out (i.e. stock whose company went bankrupt or was delisted with no exit offer) came in 2010, when JTIC went bankrupt after having some accounting irregularities. It was followed by 2 other wipe-outs earlier this year with Hongwei and Sunray. Having said that, I did managed to avoid Mini-bonds (narrowly) after reading through their prospectus. So, the academic knowledge helped to some extent, but not totally. The market does not give you additional respect simply because you have a degree in finance or passed your CFA examinations.

The There-Is-No-Spoon Years

I am not sure when this period started. After several years of investing, finding and fine-tuning investing formula and coming back from crashes, I somehow reach a state of "confusion". Confusion because of a realisation that there is probably no such thing as a sure-win investing formula. Of course, the investing system and plan mentioned earlier still work, but they only make one a competent but not a highly successful investor. There are probably greater forces at work that I have still not figured out after 20+ years in investing.

When you are not tied to any particular investing formula, you will try all sorts of formulas. I started a Dollar Cost Averaging programme in unit trusts in 2007, growth investing in 2012, passive investing with portfolio re-balancing in early this year and turn-arounds also in early this year. The objectives were not to find a winning formula, but a recognition that there is no winning formula.


Investing is often a life-long journey. It takes time to learn and unlearn about investing. After 28 years of investing, I am still learning it. I will probably keep on learning throughout my investing journey.

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Sunday 3 August 2014

Confessions of a Serious Investor

Investing is a fascinating subject. It has the ability to captivate millions of investors and make them willing to watch stock prices on monitor screens for long hours. It also has the powers to galvanise investors to comb through long pages of financial statements filled with financial jargons without getting tired. You could be investing for 30 years and still not get sick of it. Yet, this passion for investing could present both joys and heartaches for many investors in their investment journeys.

The Awakening Moment

I cannot speak for all investors, but I think some investors will have early in their investment journeys a moment when they realise that the stock market was destined to be a part of their lives. I call this the "awakening moment", similar to the moment when Neo, the main character in the movie "Matrix", was told that he had all along lived in a world different from what he had known. It could be the moment when you struck your first Initial Public Offering (IPO) lottery, or made your first pot of gold on the stock market. For me, the awakening moment was on 20 Oct 1987, the day after the stock market crashed in US in 1987.

At that time, my father had just started investing about a year ago and I was 12 years old then, helping him to monitor stock prices when he was away at work. Perhaps because of ignorance, confidence and/or delays in communications, stock prices on the Singapore stock market opened as they had closed the day before, unaware that the US stock market had crashed by 22.6% overnight. It was not until after the lunch break that the crash on the Singapore stock market began. I remembered vividly there was a particular stock we were monitoring which normally traded at around $0.60 during that period. Before the lunch break, it was still trading at around $0.60. After the lunch break, the buyers started to withdraw their morning bids and submitted much lower bids at $0.40 while the sellers continued to offer at $0.60. I thought to myself that it was probably an entry error and very soon, the bid price would return to where it was before the lunch break. Yet, instead of converging back to the offer price, similar large gaps between the bid and offer prices appeared on other stocks. Soon, the prices started to transact at the much lower bid prices. The stock market had crashed. It was a sight that I had never seen before. At that moment, I realised that the stock market was no longer a child's play but a serious business where fortunes could be made or broken. From that moment, I knew that the stock market was destined to be a part of my life.

The Search for a Winning Formula

Once the stock market becomes a part of your life, it is very difficult to shake it off. You would spend a lot of time on it and do a lot of things to improve your investment skills and returns. The "Money" section of the newspaper becomes the first few sections that you would read everyday without fail, hoping to understand what is happening to the stock market, the economy and individual companies. You would google for the latest developments whenever your stocks have unusual price movements. Your ears would straighten up whenever you overhear any conversations on the stock market. You would learn to read all the financial jargons in financial statements and/or cryptic technical charts in the hope of finding the next winners.

I actually did not spend much time brushing up on my investment skills from 1987 till 1998, as I was still studying then. But I had time to experience the crash of 1989 (crash for no good reasons), 1990 (Iraqi invasion of Kuwait), 1997/98 (Asian Financial Crisis) and between them, the super bull run of 1993/94 (Singtel IPO).

In Jun 2001, about 3 years after I graduated from the university and was investing in the stock market with my own money, I had picked up a second-hand investment book titled "Buffettology" from a book fair by sheer luck. It was written by the former daughter-in-law of Warren Buffett and described the methods Warren Buffett used to analyse stocks. The methods in the book became the model that I used to analyse stocks to this date. Equally importantly, the book triggered my thirst for investment knowledge. I became a regular visitor to the investment section of the National Library, reading investment books ranging from time-tested ones like "The Intelligent Investor" to more contemporary ones carrying fascinating titles like "Dow 40,000", "Dow 100,000", etc. It was like Forrest Gump who kept on running non-stop while I kept on reading. Eventually, I stopped reading. But by the time I stopped, I estimated that I had probably read half of the equities investment books in the National Library. As for the other half, I had read the summary on the back covers and figured out that the content was similar to the half that I had read.

Along the way, I tested my new-found stock analysis model. The first stock that I had bought based on value investing was ASA Group, which has since been delisted from the Singapore Exchange (SGX). It was in the business of producing ceramics in China and was virtually unknown in the stock market. It was a great leap of faith into value investing by buying into a virtually unknown company. I bought it at an average price of $0.227 in Jan 2002 and sold it at $0.295 in Aug 2003 for a 30% profit. It was a small profit, but it was enough to know that value investing worked. Value investing became my winning formula.

The First Pot of Gold

Once you have tested, fine-tuned and kept faith with your winning formula, you will eventually make your first pot of gold. For investors who invest for capital gains rather than dividends, some of you might, like myself, wonder whether you would make a very good fund manager, making loads of money for your clients. You might also wonder whether you could write a best-selling investment book for the investing public. You might also want to challenge yourself and sit for the Chartered Financial Analyst (CFA) examinations.

In early 2004, I made my first pot of gold with my winning formula, generating a realised return of 33% on my invested capital. Using part of that profits, I enrolled myself in a part-time course in Masters in Applied Finance, graduating a year later. I also sat for the CFA examinations, passing all 3 levels in 2006. It was actually quite fun studying, since I was studying to improve my investment knowledge rather than for the degree to enter into the financial industry. The things that mattered were not the grades on my transcript, but how could I apply what I had learnt to make more money from investments. In any case, I became too old at the age of 30 to enter the financial industry.

The Unravelling of the Winning Formula

The problem with winning formulas is that they do not always work. Value investing was a time-tested winning formula, producing many famous investors such as Warren Buffett and Walter Schloss. For me, it had produced 18 multi-baggers over the 16 years since I started investing with my own money. But it also produced 3 wipe-outs and 8 write-offs (collectively called the "salted fishes"). It is sobering to note that I had 18 chances of doubling my money, yet, how many salted fishes do I need to encounter to lose it all had I steadfastly held on to my "winning" formula, averaging down as the share price dropped? Just one. And there were 11 of them! 

Many years later, when I looked back at this period of time, I realised that the pot of gold was probably a result of a rising tide lifting all boats rather than some truly "winning" formula that I had. At that time when you were winning in the stock market, you would feel that your "winning" formula was working well, not realising that there was probably a greater force at work. Occasionally, it is important suspend your belief in your "winning" formula and let risk management measures take over. It is no shame to make mistakes and learn from them. Many famous investors have recovered from mistakes early in their investment journeys and become stronger as a result. It would be truly wasted if you got burnt so badly that you stop believing in investing.

The Bailout

If you got burnt too badly, you would need a bailout from your parents, which I hope will not happen to anyone. For me, the bailout was a virtual one, happening before I started investing with my own money. It was during the Asian Financial Crisis in 1997, and I was one year away from graduating. Being the "smart" guy in the family, I recommended to my father to buy a financial stock that had fallen from $3 to $0.75. Unfortunately, we never saw the money on this stock again. I never mentioned about the stock again, and he never reprimanded me for it.

The problem with regrets is that they do not hit you straight away. Many years later, when the incident has long passed and you are in the comfort of your zone, you begin to wonder how did your parents managed to find the money to bail you out. Did they have to eat the humble pie and seek help from relatives and friends? As a son, you would want to do everything you could to provide them with a comfortable retirement, yet, instead of contributing to their retirement, you had to take away a part of their retirement nest-egg and/or make them suffer the humiliation of seeking help from others for your investment mistakes. You wished that your parents had reprimanded you harshly or beaten you. No, they did not. They did not grumbled nor barred me from investing further. They took it on their chins and moved on, as if the investment mistake was theirs and not mine to begin with. If ever there was any take-away from this blog post, it is this: Never, ever, put yourself in a position where you might need a bailout from your parents, no matter how good you are now in the game of investing.


You might be wondering why are you listening to rumblings from an investing old-timer who is probably jealous of your investment success. This is written for those who are willing to listen to the heartaches I have encountered so that you could avoid them. After 28 years of investing (including the 12 years I was monitoring stock prices for my father), I have been through the excitement of reading practically all the equities investment books worth reading in the library, dreamt the fantasies of becoming a successful fund manager and writing an investment best-seller, and gone through the regrets of requiring a bailout from my father. I am now just a boring investor.

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