Sunday, August 05, 2007

Some scattered thoughts on Investing

Just some passing thoughts on investing as we pass through another weekend. The maco-economic factor which are dogging the market currently is of course, the USA sub-prime mortgage loan crisis. Unless you were living on another planet these few months, you would probably have heard of the problems this is causing and why DJIA has crashed considerably these past few trading sessions. This also explains why there are more threads in forums now stating “I lost $xxx in the market”.

On Books

I had the fortune of staying in a bookstore for most of today and browsing through several books on value and long-term investing. I also quickly flipped through Phillip Fisher’s “Common Stocks and Uncommon Profits”. Needless to say, my view is one of “ever-increasing knowledge is good for the soul”, but this knowledge also must be the “right” sort. No use aspiring to be a value investor then reading all you can about warrants or technical analysis, for instance.

I managed to cover key principles on value investing including rationality, sloth and patience just to name a few; as well as how to tell if a company is a good buy (from Phil Fisher’s book). One of the points I stayed on was the profit margins portion, as it reminded me of my investment in PAH and how the company was not generating a very high profit margin. However, Management has undertaken efforts to improve the margins through the elongation of super-trawlers and buying up more Peruvian companies to enhance economies of scale. Thus, this would still qualify to be a growth company as Management is still actively seeking opportunities to enhance shareholder value.

Another book offered insights into bubbles: how they are formed and how they will eventually burst. I read with interest on the tulip blub craze in the 1600’s, the South Sea Bubble in Britain and of course the now infamous “tech bubble” which massively inflated the NASDAQ to 5,000 points. It is interesting to note that during the market bubble for Internet stocks, analysts came up with all sorts of innovative ways to measure the “performance” of these loss-making companies, such as “eyeballs” to indicate how many people visited a website. Obviously, these companies could get away with making zero profits as long as they got tons of “eyeballs” on their websites. That is the problem with analysts – they see where the tide flows and adapt accordingly, adding almost no value to the investing process except providing basic information on the company. How many times have we seen a company being continually upgraded during bull markets, only for the same analysts to remain silent when the company’s price starts going downhill during a correction or crash ? To me, they all seem like hypocrites.

On Patience

Somehow, bull markets bring out the very worst in all of us, greed and avarice ! During the weekend, when we all have time to think, it strikes me that greed is an ever-growing part of our lives. Singapore is a place which is getting more and more materialistic by the day, what with the Sunday Times running articles on super-expensive items to purchase and the Straits Times running another article on how new the cars on our roads are. As I approach the age most commonly associated with “middle-age” (i.e mid-30’s), I realize that more and more of my friends and associates rate themselves based on their financial worth, car, property etc. Why this should be so continually stumps me: A person’s worth, to me, should be a reflection of his moral character, attitude towards helping others and his zest for life and living; rather than being measured based on monetary terms. In an increasingly capitalistic society where even the press continually bombard us with being rich and getting rich, one can get totally drowned and lose focus of what’s important in life.

On important things in life

I know this may sound a little preachy and philosophical, but for those readers who think material wealth and money are closely linked to success, think again. Ask yourself how much money can you bring with you when you pass on ? Money is the means to achieve stability and peace of mind, but it should not be seen as a means to an end. We can NEVER have enough money, so one should settle with being comfortable with what they have and turn their attention to doing other useful things in life. My important aspects (called the 4 “Fs”) are listed below:-

Family – The most important aspect of my life. Spending time with my family and loved ones is immeasurable in terms of satisfaction. Remember: money cannot buy happiness, especially with your loved ones.

Friends – Someone to share your interests, pains, joys and sorrows. Humans are social animals and need to find solace and comfort in having a social circle. For me, friends are important not just for sharing common interests but also for helping each other out in times to need, not to mention having someone to chat with.

Fun – Take some time off making money and have some well-deserved fun ! Cut back on that overtime at work, take your mind off the stock market and indulge in a pleasurable weekend playing sports, doing some shopping, going for a short trip or just basically going to the beach to hear the waves ! Having fun is important to me as it means I can sooth my soul from the worries and stress from work.

Freedom – When I say freedom, I mean freedom to make choices without duress or pressure. This is the freedom to make choices on my own and without influence from others. Continually throughout our lives, we get bombarded by media and peers telling us how we should live our lives and what we should do with our money. For me, I truly relish the freedom that comes with planning my own life, instead of letting others dictate it on my behalf.

On Research and Mistakes

Sorry for the delays in writing on the research series and investment mistakes. As readers would know, I have been traveling frequently these past few weeks and have little time to write a proper article on each. I would rather promise readers a quality article than one which was hastily thought up just to “fill the space” in my blog. So dear readers, please be patient as I endeavour to write a good post on doing research. In the future, I plan to start a new series on investment sins and how to avoid them, so stay tuned for that too !


Anonymous said...

Hi MW! Your points are valid but investors tend to get slightly philosophical when markets get bumpy. I recall, during the Sars period, I gave up on looking at my portfolio. I even took a day off. Brought my mat and my books to a quiet spot at the East Coast Park. Yesterday, uncannily, I did a similar thing. I brought my partner to this quiet open air Chinese restaurant, off Eng Neo Ave. We had a great meal and the views there were unbelievable. I couldn't believe I was in Singapore. It was more like the rolling hills of southern England. Think I might go there a bit more now..hehe.. and "sloth" out...

Take care. You blog's a joy to read. I thought I'll just come in today to give all readers some moral support!

musicwhiz said...

Hi Anonymous,

Thanks for sharing one of the places you go for relaxation. I am glad to know that there are such places available for us to relax our mind and soul. Sometimes life just passes too quickly and as Singaporeans, our schedules are so hectic that we don't have time to stop and smell the flowers.

For me, I use the time on the plane (while travelling on biz trips) to reflect on my life and loved ones. I tell myself I must allocate more time to them because money can be earned back; time cannot.

Thanks too for your compliments, I will continue to strive to provide quality information and a personal touch to value investing. Don't worry too much about the 3.7% drop today though; it simple represents a good opportunity to load up more of a good company.

Cheers !

Anonymous said...

Hi MusicWhiz,

PAH net profit margin is 7.2%, compare to SGX (over 40%) this is meagre. However, big DJIA company such as Wal-Mart is about 6%. So, not bad for a company that is not even in STI.

Phil Fisher noted that management efforts other than simply increase sale volume or product/service prices as valuable steps to improve the margins, which as you mentioned: elongation of super-trawlers (efficiency) and buying up more Peruvian companies (economies of scale), fishmeal (new biz)... still qualify her to be a growth company that enhance shareholder value.

Of note, the minority interest gain, which has even over taken PAH core biz (frozen fish) gain over the last 2 years, has been deployed as part of the financing activites for PAH growth instead of distributing as dividends.

My observation, as also detailed in Phil Fisher book, is that the financial community has overlook PAH biz and has not given the company the correct PER. You and me, if I may stress on patience, could be awarded many folds once they give this gem the right appraisal, and by then, it will be to late for anyone to take advantage of the situation. Regards.

musicwhiz said...

Hello Anonymous,

Thanks for pointing out Phil Fisher's points and summarizing them. Yes, assuming PAH is successful in executing their strategy, I see a lot more value to be unlocked in the future as their business scales up and their new revenue source (i.e. fishmeal) comes into play.

I am actually glad PAH are not paying a large dividend as they need the cash now to expand their Peruvian acquisitions and take hold of a larger fleet of vessels in order to grow the business. If they can justify the efficient use of cash, then why give it back to shareholders ? I would rather have the value of the business being enhanced ! Keep an eye out for more acquisitions which are earnings accretive over the next few months as I think Management will not rest on their laurels.

Yes, apparently this fish has been overlooked as compared to peers in Hong Kong which can trade as high as 40-50x PER (amazing eh ?). Patience is the key to realizing value in the market, this I heartily agree on. Over time, the market will recognize the value of the business. I am in no hurry and am willing to wait as long as it takes for true value to crystallize.

Regards, Musicwhiz

Anonymous said...

Hi Musicwhiz,
I am new to your blog.
Thanks very much to your sharing, the information did enrich my financial knowledge. I appreciate very much that you use your personal time to educate layman like me. I have recently retired from the corporate world and will definitely spend more time on your blog.

I also echo to your value system. Look forward to read more of your positive thinking.

Early retiree

musicwhiz said...

Hello Early Retiree,

Hey thanks a lot for dropping by and leaving your comments. I am glad you can obtain some useful information and knowledge from my blog.

Wow, did you really manage to achieve financial freedom early so that you can retire early ? That is my ultimate goal; to build up my nest egg using insurance, savings, frugality and investments so that I can retire early and provide enough for my family. Please share, if you would, how you managed to achieve this. Thanks !