Friday, September 30, 2011

September 2011 Portfolio Summary and Review

September 2011 reminded me of the September back in 2008, when the troubles brewing from the sub-prime crisis boiled over and turned into a major headache for developed economies in the world. The problems seem to be a repeat of the past, but it is merely the players in the pantomime which have changed – instead of USA sub-prime mortgages turning sour we now have European sovereign debt going bad, and whole economies such as Spain, Greece and Italy threatening to go belly up. So if one were to extrapolate on the situation into October, could the same blow-up occur similar to the sub-prime crisis back in 2008 which would cause valuations to fall off a cliff? This would be the golden opportunity for an investor to accumulate shares of companies which he has been eyeing for some time.

What has me puzzled is the amount of time and attention devoted to the word “volatility”, and how it has literally frazzled the nerves of even the most seasoned veterans from the numerous columns being penned in market commentaries. Many investment newsletters have also advocated the wisdom of “staying on the sidelines” to wait till “more clarity emerges” before committing money to equity investments. My view is that uncertainty will always be a part of the investment landscape, and this is something which investors have to deal with; and it will form part of one’s investment philosophy. So an investor should not be scared off by volatility and uncertainty, but instead make use of it to gain an edge in investing intelligently and prudently. Volatility does not equate to risk and uncertainty would open up opportunities for the astute investor, provided he does his homework and understands his investments.

As expected, September is traditionally not a month for news flow, and the companies within my portfolio have been their usual quiet self, which suits me just fine. There was only one dividend received from Kingsmen during the month, and I would not be receiving any dividends for October, which is traditionally also a “dry” month.

Below please find my portfolio as well as corporate summaries for September 2011:-


1) Boustead Holdings Limited – Interestingly, there were two contract announcements made by Boustead during the month of September 2011, and both were from the Real-Estate Solutions Division under Boustead Projects. On September 7, 2011, Boustead Projects announced that they had been awarded a S$11 million contract to build an Asia Pacific Regional Data Centre for a Fortune 100 healthcare corporation (the specific company was not named). This was their fourth industrial real estate contract secured since the beginning of FY 2012 which commenced April 1, 2011. With this contract, their order book has grown to $282 million. Then on September 15, 2011, Boustead Projects announced the award of an S$18 million contract from Shinko Plantech to design and build a Y&C chocolate processing factory (sounds yummy!). This fifth contract takes Boustead’s order book past the S$300 million mark as at end-September 2011. Note that these two contracts are design and build ones and thus there will be no recurring revenue or cash flow generated once the contracts are completed. Just to recap: Boustead’s current portfolio of Design, Build and Lease properties take up about 90,000 sq metres, and it is my hope that this can increase to 200,000 sq metres or more by 2013.

Separately, the Company also announced on September 28, 2011 that it was holding an EGM on October 14, 2011 (Thursday) at 3:30 p.m. to appoint Mr. John Lim as director (he was inadvertently left out during the AGM, apologies were given), and to vote on a Boustead Restricted Share Plan 2011 to replace the Employee Share Scheme. Depending on whether I am available, I may make it down for this EGM to enquire more about how the business is faring.

In addition, Boustead has initiated a series of share buy-backs beginning September 22, 2011 and continuing till today. A total of 410,000 shares were purchased over five trading days, and Boustead spent about $340,000 buying back the shares (average price of 83 cents/share). Total treasury shares as at September 30, 2011 stand at 12,427,000 shares.

2) Suntec REIT – There was no news from Suntec REIT for the month of September 2011.

3) MTQ Corporation Limited – There was no news from the Company during September 2011, except for the announcement of the issuance of scrip shares on September 19, 2011. I received my allotment of the final dividend of 2 cents/share entirely in scrip.

4) Kingsmen Creatives Holdings Limited – There was no news from Kingsmen during September 2011. There was, however, a news article announcing the opening of the new H&M store in Orchard Road, and how it was thronged by people queuing to enter on the first day of operations. Kingsmen was the company in charge of doing the fit-out for H&M, as well as the soon to be open Ambercrombie & Fitch store at Knightsbridge. The interim dividend of 1.5 cents/share was received on September 22, 2011.

5) SIA Engineering Company Limited – There was also no news from SIA Engineering for the month of September 2011, making it two consecutive months without any newsflow from the Company. I have, however, been reading up on the global aviation industry and how it may impact SIA Engineering to get an idea of the prospects of the Company should there be a sharp recession, and on its potential ability to continue paying its dividends. I believe this should form part of the ongoing “homework” which an investor must undertake.

6) VICOM Limited – There was no news from VICOM for September 2011.

Portfolio Review – September 2011

Realized gains have increased to S$67.4K due to dividends received from Kingsmen Creatives. A total of $2.2K was received in dividends for the month of September 2011.

For the month of September 2011, the portfolio has decreased by -4.5% (using XIRR in MS Excel to compute) against a -16.1% fall in the STI; thus my portfolio performance has outperformed the STI by +11.6 percentage points. This was an improved performance compared to August 2011, when the portfolio out-performed the STI by +7.1%, but I do not expect to be able to keep this up for long and the “gap” should close sooner rather than later on this seemingly good performance. Cost of investment has remained at S$238.7K and unrealized gains stand at +4.7% (Portfolio Market Value of S$249,900).

October 2011 is poised to be another slow and uneventful month as the companies in my portfolio will not be releasing results, with the possible exception of Suntec REIT (3Q 2011 results) and SIA Engineering (1H FY 2012 results). For SIA Engineering, I am keeping my fingers crossed for the same interim dividend as per 1H FY 2011 of 6 cents/share.

In the meantime, as can be seen from my portfolio review, I am busy accumulating cash for my opportunity fund in case Mr. Market throws up more opportunities for me to purchase companies at attractive valuations. At the same time, I am continuing my own personal “education” in terms of investing – re-reading Benjamin Graham’s “The Intelligent Investor” to dig up more gems regarding equity and (possibly) bond investing, and reinforcing my notions of investor psychology by browsing through other useful tomes on this subject. It is always good to refresh our understanding of how proper investing should be conducted and how we should conduct ourselves as investors, with steely determination and steadfast fortitude.

My next portfolio review will be on October 31, 2011 (Monday).

10 comments:

Teo Soon Kiat said...

Hi, I would like to ask you some question.

When calculating for quick ratio, should we include the held to maturity financial assets, derivates financial instrument and financial assets at fair values ? Are they considered short term investment?

Casey said...

MusicWhiz

Suntec has come full circle for you.You bought it at $1.11. It went as high as $1.50 and now it $1.15.Would it not have been better for you to have sold it at it $1.50 and to buy it back now at $1.15?

Rgds.Casey

Musicwhiz said...

Hi Soon Kiat,

I'd say for convenience, just include all immediately liquid assets, which means that if there is a ready market for their liquidation then they should be counted under quick ratio. For instruments which do not have a ready market or the market maker may be absent, or if the bid-ask spread is too wide, then I would not consider them "liquid" enough. So it really depends, and you will have to assess each instrument on its own.

Yes, some of these are considered short-term instruments, while others are used for hedging.

Regards,
Musicwhiz

Musicwhiz said...

Hi Casey,

I think what you're suggesting is a classic case of market timing, and also hindsight analysis. If everyone knew where prices were going to move, then no one would need to work anymore. I say this in all seriousness, because often when one looks back it seems a lot easier to tell when one should have bought and sold. To look forwards into the future, though, is a completely different scenario.

To quote a famous saying:"It's hard to predict things, especially when they concern the future".

Cheers,
Musicwhiz

Createwealth8888 said...

Hi Casey,

Sell and buy back is not that easy. I am still trying very hard to do that.

Professor V said...

Hi MW,

My two cents worth.

Do you want to consider a liquidation option, like for example, now with the ECRI saying that US is in a recession Oct 3, 2011?

Is this a good time to get out of stocks into cash?

Regards

V

Musicwhiz said...

Hi Createwealth8888,

Thanks for your comment. I don't really have much more to add.

Cheers,
Musicwhiz

Musicwhiz said...

Hi Professor V,

After assessing the business of my companies, I have to say that when Mr. Market is in a such a pessimistic mood, the correct thing to do would be to purchase shares from him, rather than sell to him right? Owning good businesses at good valuations is not easy, and it's not everyday that Mr. Market gets manic-depressive.

Hence, I should stand ready to capture this opportunity should it come by. Cash flows from my investments would sustain me througout the downturn, even though admittedly dividends may be cut in some cases.

Thanks,
Musicwhiz

hyom said...

Hi Musicwhiz,

I think this is quite impressive performance when one considers the outperformance over STI. Since the STI beats most fund managers and you beat STI, you did very well indeed :)

May I know if you include dividends in your gains? Do you count the cash holdings as part of the total investible funds?

Musicwhiz said...

Hi Hyom,

Thanks. Dividends are included in Realized Gains, not under unrealized gains. The XIRR does account for the effects of dividends as they are a form of investment return.

The cash holdings are segregated into emergency funds (cannot be touched for investment) and opportunity funds (to be deployed for investment).

Though I may be ahead of STI for now, I think it's important not to get complacent and to stick to principles. I shall be reviewing my companies' businesses in the next few weeks.

Cheers,
Musicwhiz