Sunday 28 January 2018

Bye Bye, GLP!

Global Logistic Properties (GLP) was delisted last Mon after being successfully privatised. It is a growth stock, and I had hoped to hold on to it for 15 years or more, but alas, some deep pocket investors recognised its potential as well and privatised it before I could see it mature into a globally recognised name.

GLP has the potential to become similar to Uber in the global logistics industry. See The GLP Story for more info. During the shareholder meeting to vote for the privatisation, a few minority shareholders recognised its potential and spoke out against the privatisation. Although I was sad to see GLP go, I voted for it anyway. The privatisation vote was not an isolated event; it was the culmination of a series of events that started way back in Feb 2014 when shareholders voted to sell 34% of the China subsidiary to a group of Chinese investors. Having tasted the sweetness of the purchase, it was only a matter of time before the Chinese investors came back to have a bigger bite of GLP. Moreover, the Chinese consortium had the support of the CEO, Mr Ming Mei, who is the key architect of what GLP is today. Even if the privatisation were to be miraculously rejected, the process was no longer reversible. The CEO could jump ship to another logistics company, and GLP without Mr Ming Mei is not quite the same GLP, just like Apple without Steve Jobs is not quite the same Apple. Our journey with the CEO together had ended, and the best I could do was to wish GLP and Mr Ming Mei well in their future endeavours.

GLP was my largest stock holding, hence, the profit was quite large. Although I would like to think that the successful investment in GLP is solely due to stock-picking skills, the reality is that a huge dose of good luck was involved. 

Given its Uber-like potential, I could have bought GLP at any time since its listing in Oct 2010. It rose to as high as $3.13 in Nov 2013. As the maximum price I would pay for any stock is 1.8 to 2.0 times book value, this price is easily within my purchase range (GLP's book value was US$1.71 in FY2015; hence, the maximum purchase price was S$4.16). However, I did not notice it until Jul 2015 when it was trading around $2.50. The first trade was carried out even later, in Sep 2015 at $2.10. Even so, the position size was a typical stock holding of 1%. As I read further about GLP after my initial purchase, I began to like it more and more. So much so that I pushed up the stock holding to as high as 22% of my capital in a matter of weeks!

There is also another factor that led to the 22% concentration in GLP. In Oct 2015, OCBC announced that it would redeem its 4.2% preference shares in Dec 2015. I had around 13% of my capital in it. The preference shares served as a cash reservoir, meant for use in the event of a stock market crash. With the redemption, I had lost a reliable cash reservoir with no good replacement. If I were to invest the 13% capital into stocks, I would need to find 13 new good stocks that I had not already bought. Given the rage of privatisations in recent years, there was simply no way to find 13 new good stocks. Hence, I put all the money from OCBC 4.2% preference shares into GLP.

There are a lot of things that I learnt from my investment in GLP, including the differences between a financial investor (for small stock holdings) and a business investor (for large stock holdings). See Being A Co-Owner of GLP for more info. The latest lesson I learnt from it is that you cannot just have skills; you also need luck. Could you imagine what would happen had I invested 22% of my capital when it was trading at the all-time high of $3.13? In Feb 2016, GLP dropped to around $1.60, representing a 49% drop from the all-time high. GLP would easily had become my biggest loser, not my biggest winner. In fact, the more than $0.50 drop barely 2 months after I had built up the concentration in GLP to 22% already caused a lot of emotional roller-coaster, so much so that I had to reduce the concentration from 22% to 16% at a loss, before increasing it again to 19%. See My Roller Coaster Ride with GLP for more info.

This is a lesson that I remember well. Thus, when it was announced that GLP would be privatised at $3.38 in Jul 2017, I began to search for potential replacements. The closest replacement would be Capitaland. But I asked myself if I would have good luck if I were to buy Capitaland at $3.50. The answer was neutral, hence I did not buy it.

It is not just skills that matter in stock investing, you also need good luck!

Thank you and bye bye, GLP!

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Sunday 21 January 2018

As A Contrarian, You Will Always Walk Alone

A lot of investors have posted good results for last year. However, if you were like me and had been worrying that the stock market could crash in 2017, a year that ends with 7, you would have missed out on a stock market rally in which the STI rose by 18% in 2017. When everybody else is posting good results online, it does feel depressing occasionally.

I was not totally out of the market last year. Having participated in the stock market for 32 years, I will never be totally out of the market, even though I respect the folklore that the market would experience a crash whenever the year ends with 7. I took a defensive stance, ensuring that I had around 45% to 50% cash to deploy in the event that a crash were to materialise. As I sold stocks that were rising, I continued to invest in stocks that were forgotten by the market. Below are some of the stocks that I bought, did not buy, and sold last year, including the reasons.

Stocks that I Sold

Electronics stocks, especially semiconductors, were the rage last year. Nevertheless, I sold them. Needless to say, they went much higher after I sold them. For the semiconductor stocks, Sunright, sold at $0.305, is now $0.895; ASTI, sold at $0.056, is now $0.084; and UMS, sold at $0.78 on average, is now $1.07. For the electronics stocks, Frencken, sold at $0.515, is now $0.59; and Valuetronics, sold at $0.795, is now $0.93. All these were sold to shore up defence for the crash, if any. On hindsight, they were sold too early, as I did not expect the electronics recovery to be so strong. To-date, I still have not figured out what is behind the strong electronics demand, which will determine whether the strong demand can continue or will fizzle out soon. 

There were also some buying and selling of Oil & Gas (O&G) stocks. A notable sale was Keppel Corp at $6.16, as I was concerned that new orders were not coming in fast enough to replace old orders. Furthermore, existing customers are not collecting their vessels (and paying for the delivery) even though the vessels have been completed. See What Keppel Offshore & Marine's Order Book Can Tell Us for more information.

Stocks that I Did Not Buy

Other than electronics stocks, banks and properties also rose by a lot last year. I had an opportunity to buy OCBC at $8.56 in late 2016, shortly after the US presidential elections. However, I gave it a miss, as I was concerned that O&G losses were still mounting. Although rising interest rates would increase banks' profits, there are also risks that their customers could not cope with the increasing interest expenses given the lacklustre business environment. In the longer term, there are also concerns whether fintech would chip away the traditional profits that banks make as financial intermediaries. In short, I had not figured out the banks.

The only major property stock that I had was Global Logistic Properties (GLP). To be honest, GLP made a lot of money for me last year. But with the privatisation of GLP, I had to find a replacement. Potential replacements were Capitaland and Frasers Centrepoint (FCL). Learning the lessons from GLP, I decided that Capitaland at $3.50 was not cheap enough. As for FCL, I was concerned that it had too much debts. I watched it rose from $1.66 before finally buying at $1.92. Still the lingering concern did not go away and I sold it at $2.07.

Stocks that I Bought

If you had read Howard Marks' famous memo "Yet Again?", he mentioned 6 options that investors could take in the current low-return investing environment. These options are reproduced below for easy reference (please read his original memo for a complete understanding of the 6 options):
  1. Invest as you always have and expect your historic returns.
  2. Invest as you always have and settle for today’s low returns.
  3. Reduce risk to prepare for a correction and accept still-lower returns.
  4. Go to cash at a near-zero return and wait for a better environment.
  5. Increase risk in pursuit of higher returns.
  6. Put more into special niches and special investment managers.
His preferred options? A combination of no. 2, 3 and 6.

The equivalent of option 6 for me is distressed assets and stocks unloved and forgotten by the market. There were 2 distressed asset plays last year. The first was Triyards, which I tried to take advantage of Ezra's troubles and potential sale of a controlling stake in Triyards. Unfortunately, this did not pan out and I lost $33K as a result. See Know Your Customers Well! for more information. The second was First Ship Lease Trust (FSL). Unexpectedly, FSL did not manage to refinance its debts and had to seek a moratorium on debt repayment. Nevertheless, it has been selling ships to pay down the debts. If it can successfully liquidate all its ships (or until the debts are fully paid off), there is residual value for shareholders. See Valuation of First Ship Lease Trust for an estimate of the liquidation value of FSL carried out in May last year.

There is actually quite a no. of unloved industries and stocks. The first is telcos, with concerns over whether the entry of the fourth telco would increase competition and erode away the handsome profits and dividends that telcos used to earn. However, my view is that the fourth telco is fairly irrelevant. Already, the existing telcos are competing fiercely against each other through SIM-only plans, data upsize plans and Mobile Virtual Network Operators, etc. See Do Telco Investors Need to Fear the Fourth Telco? I bought into Singtel and M1. 

The second unloved industry is O&G. Here, it is a little tricky, because some parts of the industry value chain are recovering while other parts are still declining. The recovering part is the upstream Exploration & Production sector with the rise in oil price, while the declining part is the ship/rig building sector, as discussed in Is A Recovery for Oil & Gas Shipbuilders Near? The ones in the middle, the Offshore Support Vessel (OSV) sector, is probably entering a trough as new vessels enter the market and increase the supply glut. I decided it was about time to enter the OSV sector, buying CH Offshore, Ezion warrant (it got suspended the day I bought it), Mermaid and POSH.

The third unloved and forgotten industry is the shipping industry. After the bankruptcy of Hanjin Shipping in late 2016, conditions have actually improved a little, with the Baltic Dry Index and World Container Index slightly higher in 2017 than in 2016. I bought Samudera, Singapore Shipping and Uni-Asia.

Another unloved and forgotten industry is hotels. Investors love hotel business trusts that pay distributions regularly, but not hotel companies like GL and Stamford Land. After being alerted to their undervaluation by Mandarin Oriental's spectacular rise and City Developments' privatisation of Millennium & Copthorne, my analysis shows that there is hidden value in hotels. I bought GL and Stamford Land. See Some Hotels Could Be Very Valuable! for more information.

Needless to say, these stocks that I bought have not risen much compared to the electronics, bank and property stocks.


As contrarian investors, it is sometimes difficult not to be depressed when the market moves in the opposite direction. However, we are the ones responsible for our own money. We carry out analysis independent of the market and invest according to our beliefs. To all fellow contrarians out there, I will leave you with Benjamin Graham's advice to Warren Buffett:
"You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right — and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."

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Sunday 14 January 2018

No, the Stock Market Did Not Crash in 2017

A year ago, I blogged about the trend that the stock market usually experiences a crash whenever the year ends with 7 (see Another Year That Ends with 7). As it turns out, not only did the stock market not crash, it rose significantly. The STI rose from 2,880.76 to 3,402.92 for a 18% gain! 

So what happened? Instead of lacklustre growth like the years before it, the global economy in 2017 staged a synchronised recovery. Locally, the government relaxed property cooling measures and both banks and property developers gained. The strong growth caught many people by surprise, including myself. So, what do I still think about the folklore that the market usually experiences a crash whenever the year ends with 7?

A year ago, as mentioned in my post, I had experienced the crash of 1987, 1997 and 2007, so it is a folklore that I respect. However, to believe and act on it, I need evidence that either the stock market is at dangerously high levels or the economy is on the brink of a collapse. Back in late 2016/ early 2017, I was concerned that the massive liquidity pumped by central banks around the world was propping up asset prices, but that did not help the many companies in many industries that were facing poor business and/or low margins. See What Have We Got After 8 Years of Easy Money? for more info.

A year later, as I revisit the above blog posts, the situation has improved for most of the industries mentioned, particularly for banks and properties. However, other industries have only seen modest and/or uneven recovery, such as Oil & Gas and shipping. In addition, there are industries that are still in decline, such as shipbuilding. Even though the consensus economic outlook is promising in 2018, I remain on the defensive. My own assessment of the financial market and economy plays a more important role in my investing decisions than whether the year ends with 7 or not. Certainly, I am not rushing to invest in the stock market just because the market has safely passed 2017.

Even though the market did not crash in 2017, the folklore that the market usually crashes whenever the year ends with 7 is still something that I respect. But to believe and act on it, I need evidence. That viewpoint has not changed.

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Sunday 7 January 2018

The Dogs and Puppies of STI for 2018

The Dogs of STI replicates the investment strategy of the Dogs of the Dow. Since 2014, I have been analysing the performance of the Dogs of the Dow strategy as applied to STI (known as the Dogs and Puppies of STI) for the past year and identifying the new Dogs and Puppies for the current year.

The Dogs and Puppies of STI for 2017 are as follows (see The Dogs and Puppies of STI for 2017 for more info):

Puppies of STI 2017
  • A-Reit
  • Capitaland Comm Trust
  • Capitaland Mall Trust
  • HPH Trust
  • Yangzijiang
Other Dogs of STI 2017
  • Keppel Corp
  • SingTel
  • SPH
  • Starhub
  • ST Engineering

How did the Dogs and Puppies of STI perform in 2017? The table below shows their performance relative to STI.

Price 31/12/16 Price 31/12/17 Div Div Yield Return
(excl. Div)
(incl. Div)

  A-Reit $2.27 $2.72 10.07 4.4% 19.8% 24.3%
  CapitaComm $1.48 $1.93 9.25 6.3% 30.4% 36.7%
  CapitaMall $1.89 $2.13 11.14 5.9% 13.0% 18.9%
  HPH Trust $0.44 $0.42 3.35 7.7% -4.6% 3.1%
  YZJ $0.82 $1.47 4.00 4.9% 80.4% 85.3%

  Keppel Corp $5.79 $7.35 20.00 3.5% 26.9% 30.4%
  SingTel $3.65 $3.57 20.50 5.6% -2.2% 3.4%
  SPH $3.53 $2.65 15.00 4.2% -24.9% -20.7%
  ST Engg $3.23 $3.26 15.00 4.6% 0.9% 5.6%
  Starhub $2.81 $2.85 17.00 6.0% 1.4% 7.5%


5.3% 14.1% 19.4%

5.8% 27.8% 33.6%
STI 2880.76 3402.92 101.00 3.5% 18.1% 21.6%

As shown above, the Dogs (both Puppies and Non-Puppies together) underperformed the STI whereas the Puppies outperformed it. Inclusive of dividends, the Dogs returned 19.4% while the Puppies returned 33.6%, against STI's returns of 21.6%. The same trend is observed for the performance excluding dividends.

This is the first time when the Dogs and Puppies as a whole neither outperform nor underperform the STI. In all past years, both either outperformed or underperformed the STI. So far, since 2014, STI has won twice (2014 and 2016), the Dogs and Puppies have won once (2015) and 2017 is a draw, with the Puppies beating the STI while the Dogs losing to it. The performance (inclusive of dividends) for the past years is summarised below.

Year STI Dogs Puppies
2014 9.0% 6.2% 6.1%
2015 -11.5% -8.6% -4.0%
2016 3.2% -1.9% 0.1%
2017 21.6% 19.4% 33.6%

The strong performance of the Puppies in 2017 is due to the rise of Yangzijiang and the REITs. The REITs and business trusts (i.e. HPH Trust) are regulars in the Dogs and Puppies due to their high dividends and low prices. What would happen if we exclude the REITs and business trusts from the Dogs and Puppies? Would the No-REIT Dogs and Puppies perform as well? Their performance is as shown below.

Price 31/12/16 Price 31/12/17 Div Div Yield Return
(excl. Div)
(incl. Div)

  ComfortDelGro $2.47 $1.98 10.40 4.2% -19.8% -15.6%
  SPH $3.53 $2.65 15.00 4.2% -24.9% -20.7%
  ST Engg $3.23 $3.26 15.00 4.6% 0.9% 5.6%
  Starhub $2.81 $2.85 17.00 6.0% 1.4% 7.5%
  YZJ $0.82 $1.47 4.00 4.9% 80.4% 85.3%

  Keppel Corp $5.79 $7.35 20.00 3.5% 26.9% 30.4%
  OCBC $8.92 $12.39 36.00 4.0% 38.9% 42.9%
  SGX $7.16 $7.44 28.00 3.9% 3.9% 7.8%
  SIA $9.67 $10.67 21.00 2.2% 10.3% 12.5%
  SingTel $3.65 $3.57 20.50 5.6% -2.2% 3.4%


4.3% 11.6% 15.9%

4.8% 7.6% 12.4%
STI 2880.76 3402.92 101.00 3.5% 18.1% 21.6%

Both the No-REIT Dogs and Puppies collectively underperformed the STI and the original Dogs and Puppies. Thus, for 4 years in a row, the original Dogs and Puppies beat the No-REIT Dogs and Puppies. Perhaps the original Dogs of Dow theory should not be tinkered with.

Moving on to 2018, the table below shows the dividend yields of STI component stocks in descending order:

Counter Div
Div Yield Remarks
HPH Trust US$ 3.35 $0.42 8.06% Puppy
Starhub 17.00 $2.85 5.96% Dog
SingTel 20.50 $3.57 5.74% Dog
SPH 15.00 $2.65 5.66% Puppy
ComfortDelGro 10.40 $1.98 5.25% Puppy
CapitaMall 11.14 $2.13 5.23% Puppy
CapitaComm 9.25 $1.93 4.79% Puppy
ST Engg 15.00 $3.26 4.60% Dog
SGX 28.00 $7.44 3.76% Dog
A-Reit 10.07 $2.72 3.70% Dog
GoldenAgri 1.33 $0.37 3.59%
SATS 17.00 $5.20 3.27%
OCBC 36.00 $12.39 2.91%
Capitaland 10.00 $3.53 2.83%
Keppel Corp 20.00 $7.35 2.72%
YZJ 4.00 $1.47 2.72%
HKLand US$ 19.00 $7.04 2.70%
ThaiBev 2.47 $0.92 2.68%
UOB 70.00 $26.45 2.65%
DBS 63.00 $24.85 2.54%
JMH US$ 152.00 $60.75 2.50%
SembCorp 7.00 $3.03 2.31%
Genting SP 3.00 $1.31 2.29%
Wilmar 7.00 $3.09 2.27%
SIA 21.00 $10.67 1.97%
JC&C 74.00 $40.67 1.82%
GLP 6.00 $3.37 1.78%
UOL 15.00 $8.87 1.69%
CityDev 16.00 $12.49 1.28%
JSH US$ 30.50 $39.58 0.77%

Just to recap, the Dogs of STI are the 10 highest-yielding dividend stocks in the STI, while the Puppies of STI are the 5 lowest-priced stocks among the Dogs of STI. Thus, the Dogs and Puppies of STI for 2018 are as follows:

Puppies of STI 2018
  • Capitaland Comm Trust
  • Capitaland Mall Trust
  • ComfortDelgro
  • HPH Trust
  • SPH
Other Dogs of STI 2018
  • A-Reit
  • SGX
  • SingTel
  • Starhub
  • ST Engineering

There is an interesting observation for the Dogs and Puppies of 2018. A-Reit, which has been a Puppy for many years like all other REITs given their relatively lower prices, has risen from a Puppy to become a Dog after rising 19.8% in 2017 while SPH has dropped from a Dog to become a Puppy after falling 24.9% over the same period. Is this a sign that the REITs have run up too much and due for a correction? We shall see in 2018.

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