THERE ARE smiles all round, finally. As 2008 ended, and after two months of the Stock Challenge, our participants’ portfolios are either holding steady or moving up nicely.
No more heavy bleeding!
As of Dec 31, Sebastian was leading with a 20% gain.
Another participant, Level 13, was down by about 5% - because he has been shorting stocks. He is a bear who is not persuaded that the bear market is over – or that he cannot make money as a bear.
Details (as of Dec 31):
|Stock||Number of shares||Purchase price ($)|| Dec 31
closing price ($)
|Value of holding ($)||Percentage change (including dividend*)|
|| + 4.5%
|CapitaRetailChina Trust||10,000||0.565||0.60|| 6,000
|12,580 – 5,800 –6,000 + 300 + 40 = 1,120|
The STI closed at 1,761.56 on 31 December 2008 (1,732.57 at the last reporting date of 28 November 2008). While the portfolio value was up 17.47% on 28 November, it is now up 20.1% since the inception of the Stock Challenge game on 28 October. I have not sold any of the portfolio components since the game started. Indeed in the past month, I used up most of my cash balance to buy 10,000 shares in Ascott REIT at 55.5 cents and Capita Retail China Trust (CRCT) at 56.5 cents. The sponsor of both Reits (real estate investment trusts) is Capitaland, a Temasek-controlled property giant. Ascott owns many blocks of serviced apartments in Singapore, China, Japan, Australia, Vietnam etc.
There is a growing trend for both business and holiday travelers to stay in serviced apartments rather than in hotels because of the homelike feeling - partly because each unit of between one to three bedrooms come with a living room and a kitchen. Serviced apartments have guests that stay for as short as one night and for as long as a few years.
Ascott is very well managed and its long term growth prospects are very bright. Ascott REIT is ridiculously undervalued compared with its net tangible assets per share and considering its historical dividend yield of 13% at current price of 58 cents and prospective dividend yield of at least 8%. Its 52-week high was $1.47. With Ascott, you can have the cake and eat it. High dividend yield plus a potential multi-bagger in share price terms. CRCT owns retail malls developed by Capitaland in Chinese cities.
The malls were sold to CRCT in 2006 by Capitaland. The 52-week high was $2.12 and the historical dividend yield at the current price of 60 cents is 11.2 %. The malls are in excellent locations with very high human traffic and have key tenants like Walmart, KFC etc. Most of the malls are 100% tenanted out with the lowest occupancy rate at 97%. High rentals have mostly been locked in since 2006, 2007 or first half 2008.
Even for those tenancies expiring in 2009, I doubt if the rental rates will drop significantly or even drop at all since the mass market retail sector is about the only sector in China that is still enjoying high growth even during this current economic slowdown. Hence the prospective dividend yield is unlikely to go lower than 8% based on current share price. In view of the high dividend yield and low price over NTA ratio, CRCT can be said to be stupidly priced by the market.
Just visit the malls owned by CRCT in China and you will be convinced by the excellent location and quality of management of those malls. For long term investors, we can expect the rental rates to go very much higher within the next decade and hence this is another potential multi-bagger. With hindsight, I could have taken profit on many of the counters and tried to buy them back at lower prices. But I don’t have hindsight and I do not wish to look at the computer screen much of the time and end up with eyestrain, backache, and additional stress.
I am adopting the value investing buy and hold approach. I am still bullish on equities in the weeks and months ahead even though the real economies of the US, Europe, China, Japan and Singapore are likely to worsen in the next two or three quarters. The US and Singapore should bottom out in Q2 or Q3 on a quarter-on-quarter basis. I do have confidence in the abilities of the governments of the US, European countries, China, Japan and of course Singapore in implementing the financial and economic stimulus measures already announced and the additional measures yet to be announced.
The world’s population in the Americas, Europe and Asia now have a much higher level of education, knowledge and skills than during the Great Depression of the 1930s during which the unemployment rate rose to a high of 25%. There is no way that we will see another great depression in the coming years. This is the time for managers, professionals and other workers to upgrade their skills.
This is the time for retrenched people to upgrade themselves and to become entrepreneurs who will create new jobs in the coming years. The growth of the new SMEs (small and medium enterprises) in Singapore and the transformation of existing SMEs will take time but it is important to view this recession as an opportunity for Singapore to become more innovative and efficient. The first round of significant new job creations will come more from the infrastructure spending projects to be launched by governments including those of Singapore, China, India, other Asian countries, the US and Europe.
It is common knowledge that the equities markets always move ahead of the real economies by six to nine months. The Dow and the STI have already bottomed out in late October and the S&P 500 (measuring a broad spectrum of US listed stocks) bottomed out on 20 November. Let me stick my neck out and say that the bull cycles of most equities markets have already begun in November 2008 and they could last for the next five years at least. There will be lots of minor and major corrections on the way up for the STI during 2009. Just pick your stocks wisely and always leave about 30% to 40% spare cash in your financial investments portfolio so that you can accumulate even more equities in the unlikely event that the STI goes back down to its October intraday low of 1,474 points.
In fact, if STI ever pulls back to 1,600, it would already be a great time to pick up lots more bargains. The above views about equities in general are based entirely on publicly available information and on my personal judgment and on the assumption that will be no mega natural or man-caused disasters in the coming weeks, months or years.
There is also a risk that any specific stock in the above stock portfolio may be hit by a nasty surprise causing a drastic price crash or a sudden suspension of trading that lasts for a long time. And that is exactly why I believe in an adequately diversified portfolio. Five stocks for a portfolio of $100,000 is too risky unless you have lots more in spare cash or if you have several other portfolios of equities listed on other exchanges.
|Stock||No. of shares||Price bought at $||Dec 31 price||Total shareholding value $||Vested dividend
Inclusive of Tat Hong dividends, the portfolio’s total value was $112,541, which represents an increase of 12.5%.
It has been a traumatic year for many investors including myself. Just when things looked like stabilising in the middle of the year, various financial institutions suddenly went into a tailspin, with panic feeding on itself in a death spiral.
I guess we all know now that among all industries, the financial industry is the most vulnerable to what George Soros calls reflexivity, where prices can affect fundamentals, when conventionally we are taught that fundamentals drive prices.
The second main takeaway point is the importance of cutting loss. Bearing all this in mind, I see no reason to take profit on any of my four positions. They haven't risen that much, and anyway the price action over past months gives me some assurance that they are basing.
They reflect my favourable views on four themes:
* SMB --> resilience of local construction
* CH Offshore --> deepwater exploration
* Celestial --> China consumption
* Tat Hong--> infrastructure buildup across Asia
|Stock||Number of shares||Purchase price ($)||Dec 31st
closing price ($)
|Value of holding ($)|
Swiber: Had previously sold my holdings as I was awaiting more visibility on the auto industry. A collapse in the Big 3 in the US is going to cause a fundamental shift in the economy's recovery. I have since bought back into the company as I believe that the demand for oil in the mid-long term is still fundamentally sound and Swiber's recent MOUs with various important agencies in the private and government sectors will prove to be beneficial to them.
China Taisan: Its revenue relies more on the domestic market than on exports. The company has also been able to establish a reputable brand name for itself. Furthermore, the Chinese government's recently announced stimulus plan coupled with the increased tax rebates for textile firms will be very beneficial to their profitability. China Taisan’s fundamentals look strong with very low debt and it’s currently sitting on net cash, which will aid it in tiding over this period of tight credit.
|Stock||Number of shares||Average Purchase price ($)||Dec 31
closing price ($)
|Value of holding ($)|
China Milk: I've always like this company and have been watching it for a while now and when the melamine scandal broke, I thought that it would have been a good inflection point for the company since it came out with flying colors. However greater macro economic concerns outweigh the prospects for this company's shares which is a total disconnect from the fundamental value of this company.
The forward PE ratio of 3 is not exactly low by S chips standards but it is a great business and long term (5-7 years out) this is probably a ten-bagger. This is a typical Buffet buy - great business at a fair price with a big moat.
China Taisan: This is probably the most under valued of all the S chips by comparison. It is essentially a Taiwanese company with manufacturing base in China. Given that it supplies to most of the top sports brands, the valuation it is fetching from the market is absurd by any given standards. I would call it a proxy to China Anta and Lining with both given much higher valuations.
China Zaino: Probably the "Li Ning or Anta" for backpacks and its foray into the luggage sector bodes well for its future. Its forward PE is well below 3 and I'm confident that the even with a gloomy retail outlook China Zaino can sustain a 10% growth for 2009.
1. Trading at Net Current Asset - what else can I say...
2. PMP prospects in FY09
3. Supplier to government organizations People’s Liberation Army and others.
|Stock||Number of shares||Average Purchase/Short price ($)||Dec 31
closing price ($)
|Value of holding ($)|
|Number of shares||Average Purchase/Short price ($)||Buyback/Sell
|Value realized ($)|
Level 13 is a 31-year-old investor and a business analyst with 4 years of investing experience.
Check out his blog for insights on financial matters (mainly equities).
Why I closed my position on Wilmar:
I find Wilmar’s price is quite resilient even though crude oil price is now quite low. Being an index stock and one of the world’s largest palm oil companies, Wilmar has strong support at the current price. As mentioned earlier that this would be a short-term trade, I have decided to take profit on this position.
DBS announced that it would be issuing rights to raise net proceeds of approximately SGD4 billion. Pursuant to the Rights Issue, 760,480,229 Rights Shares will be offered at SGD5.42 per Rights Share on the basis of one Rights Share for every two Shares held. The signal I am getting from DBS is that they need cash badly because their core business has slowed down tremendously and the cash flow is expected to be poor.
Non-Performing Loans are on the rise and a huge write-off in the near future looks necessary. If not, why would anyone want to raise capital in this uncertain and turbulent time? Also, the rights are being placed at such a huge discount to attract investors to take them up, which indicates a red flag. More comments at my blog.
How I calculate my value of holding in DBS:
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