Saturday, August 18, 2018

A Long Hiatus......

And so, I am back. Blogging again once more after an absence of 6.5 years, but it feels good to be able to express myself through writing once more. Much has happened in the intervening time - I obviously got much older (I am in my 40s now, and in danger of suffering from the dreaded "mid-life crisis" which everyone talks about), fatter (a consequence, no doubt of being married and corpulent) and hopefully, much wiser. At least the years have been kind enough to leave me with most of my hair, seeing many of my compatriots and peers with balding pates is enough to make me thank my lucky stars!

So what happened to me during the six and a half years? In a nutshell, I was recruited into the investment industry (yes, the day of my very last post was the day I started work) and was not allowed to blog due to conflict of interest, and also because of MAS requirements. While in the industry, I enhanced my knowledge significantly through on the job learning, training with financial modelling and meeting more companies than I could ever imagine. The experience has been humbling, to say the least, as I also encountered scores of very sharp and smart investors along the way. Networking events and many a cocktail have exposed me to the myriad ways in which one can invest, across all asset classes, and with many different strategies (some obviously worked better than others!).

My aim in joining the investment industry was to build up my knowledge to become a much better investor (OK, part of the reason was also because the money was more attractive than my previous role, but not a whole lot more). In the process, I found that even trained investment professionals suffer from the same biases and mental shortcuts which afflict retail investors; and that relationships matter more than performance alone when it comes to dealing with high net-worth clients. I also found out just how competitive the investment landscape was - everyone and anyone would start a Fund, attract around USD 10 million and then start marketing aggressively. I must have met at least more than a hundred Funds (some with very colourful names, no doubt) in my course of work, and also learnt from numerous fund managers and IR personnel on how they size positions, analyze companies and businesses, observe management, manage their cash positions (to avoid cash drag) and turn over their portfolio.

The really good funds are few and far between, and have a track record of >10 years (dating past the GFC) and returning low teens % every year, on average. Most Funds are new and the managers are excited to shout out their performance to the world, but these will tend to fall flat on their face amidst a crisis or fizzle out and under-perform their benchmark after a while. After a while, I learnt that those which stuck to a good, consistent and rigorous process tended to do well over time, and beat those with arcane strategies as well as those with more bluster than substance.

But even though much has changed, a lot has also stayed the same. I am still living in the same HDB flat (no "upgrade" to a condo), still do not own a car (yes, I still commute using BMW "C Series - Bus, MRT, Walk and Cycle) and my family still generally frequents the same cafes and restaurants over the years. My daughter is older now and attending a primary school instead of kindergarten but essentially our lives have stayed fairly constant - just the way I like it.

Portfolio Changes

As I have not been updating my blog for such a long time, readers would naturally be curious as to how my portfolio has changed. My philosophy remains the same as it has been before - I would even venture to say that it has even strengthened further over the years as I learn more and cultivate a stronger, more consistent mindset for value investing. Some friends whom I have been communicating with regularly in the investment blogosphere even think I am rather "staunch" as I strictly believe in a "no speculation" policy, refusing to do any short-term trades and also staying away from crypto-currencies (the current "hot" fad") and lottery (yes, including the recent World Cup, where I did not place a single bet). I guess I believe in being disciplined over the small stuff, so that I can remain disciplined on the big matters.

In a nutshell, my portfolio has changed quite a bit from my last update as at 31.01.2012. I will be revealing my latest July 2018 portfolio in the next post, but right here I would like to fill the gap by providing a list of what I had divested, along with reasons and with a summary of profit and loss numbers.

Below is a table showcasing each position, the divestment date and price, dividend received, adjusted gains/losses and also CAGR on the position. I had started measuring CAGR for each investment position in order to ascertain if each individual investment decision was made correctly and if it would yield a decent return. This would also be displayed in my first portfolio showcase since I stopped blogging, but subsequently will only be updated on an annual basis.

Explanations for the three divestments are as detailed below:-

SIA Engineering ("SIAEC") - A starting position was taken in this blue chip, large-cap company in 2010, with additional positions taken in 2011 to average down on the position. The original thesis can be found in the older posts within my blog and thus I will not repeat myself again. The position was divested in 2014 when the Company reported weaker earnings, and also lower cash flows from JV and associates. I did not merely act on one quarter's results, as this could have been a one-off event and an aberration or temporary phenomenon. A second quarter of weak results and also commentary from industry reports confirmed my suspicions though - aeroplane engines were becoming more efficient and newer models needed less checks, and checks may not have to be so comprehensive. This meant that the cycle for checks would lengthen, and this would have an impact on SIAEC's earnings and cash flows. In addition, there was also more competition as MRO players started to expand and muscle into SIAEC's turf and territory. These two phenomena were structural changes occurring within the MRO industry and did not seem like temporary cyclical headwinds. Hence, the decision was made to exit the position.

Including dividends received over the 3-4 years, a total gain of +38.4% was made on this position which represented a CAGR of 9.6% over the period of time I was vested.

MTQ Corporation - This can be considered a very "old" position as it was first taken in 2009. MTQ is an oil and gas services company which is servicing blow-out preventers from the oil and gas industry. It also has an Engine Systems division which supplies engines and turbochargers to the motoring industry. This position was divested in August 2015 as MTQ was severely affected by the downturn in the oil and gas industry when oil prices crashed from around USD 150/bbl to USD 20-25/bbl (at the nadir). Though the Company had good FCF and also a strong Balance Sheet, the downturn was very sharp and looked to be protracted, and their cost base was apparently too high to be able to sustain profitability. During good times, during my visits with Management at AGMs, it was mentioned that the Company could get orders and still be profitable if oil prices fell to USD 40. In hindsight, that was probably too optimistic a projection as the reality was that even when oil prices are hovering at USD 60/bbl, the Company is still making losses. Compounding the problem was also the purchase of Binder in Indonesia just before the oil price crash, and this proved to be a drag for Management. MTQ eventually sold off their Engine Systems division (something which I was lobbying for during many an AGM), but they still needed to announce a 2-for-5 rights issue at 20 cents/share to beef up their Balance Sheet. There were also free detachable warrants of 1 warrant for every 4 rights shares at an exercise price of $0.22/share as a method to potential raise more money for the Company. Needless to say, this corporate move was dilutive to earnings per share and the warrants would have also significantly increase the issued share capital base if fully exercised.

My action to divest MTQ was already considered belated, as I read the (bad) news on the sector at the time with growing consternation without taking any action, mistakenly thinking that the Company I invested in would be somewhat immune or protected from the troubles plaguing the industry. In hindsight, I was probably wrapped up in a cocoon of invulnerability and failed to see that the Company I owned was just another player suffering from the growing malaise afflicting the oil and gas industry. Lesson learnt here - don't be complacent and also don't behave like a rabbit caught in the headlights - freezing and not doing anything is not going to help when the business world is dynamic and ever-changing.

Fortunately, I managed to divest MTQ at a profit despite the thumb-sucking, netting a total gain of 52.8% after dividends which worked out to be a CAGR of around 8.64% over my holding period.

The Hour Glass - This one deserves a post on its own, and it will be detailed in a subsequent post as to the rationale for making the investment; as well as the reasons for the eventual divestment and recognition of the loss. This investment unfortunately generated a return of negative 8.35% over the holding period. The key, of course, is to learn from the mistakes and avoid a repeat of his sad situation.

Whatsapp Chat Groups - Boon and Bane

To end off this post, I would like to state a major difference between the way I was communicating prior to stopping the blog, versus currently. I started using Whatsapp to create chat groups for investment some time around 2015, and it has been both a boon and a bane, I would think. A boon in that it is now much easier to communicate ideas on investments to like-minded people, and also to receive interesting ideas with which I can act upon and do more intensive due diligence. The bane is when there is a lot of noise generated, short-term thinking along with a trading mentality (yes, stocks as inventory rather than assets) and also the problem with "Group-think" (which is much more pervasive than I had ever imagined).

So, sometimes it is better to distance yourself from groups and just have some quiet time to think over investment theses and ideas, and to make sure that the logic and reasoning and both sound and defensible. This is not to say that I eschew the idea of using chatgroups, it is just that I feel there are limits to sharing deep due diligence ideas through a chat platform (not efficient for typing and also somewhat too informal) and also that people do not tend to provide constructive criticism whenever I say something, probably either because they do not want to antagonize me or that they had not read deeply enough into a Company to be able to comment. I will probably say more on this in due course but will just end off here for now.


WTK said...

Hi MW,

Welcome back. I will be looking forward to your new posts.


Passive Income Farmer said...

Welcome back!

Createwealth8888 said...

Welcome back!

Sillyinvestor said...

Welcome back,

What do u think of SIA engineering now? Granted the second risk is still around. But with some tracking, one would know that the number of new planes are consistently increasing and even the D checks which can be done 6-8 years interval now,have to be done sooner or later with the new planes mandated by law to do the checks.

Given SIA engineering JVs, while margin might be affected, it would seem it's another 1-3 years from the next up cycle?

Musicwhiz said...

Hi Sillyinvestor,

My view is that SIAEC is sitting close to the trough of the cycle, or at least somewhere near the bottom. But the problem may be that the cycle is being stretched longer than it used to be, as engines become more efficient and require less checks. Of course, the law mandates that checks have to eventually be done, but the question is what would the competitive landscape be by the time that occurs? Knowing that there is more competition muscling in is another dampener on the thesis for SIAEC.

I agree with you that we may see an up-cycle soon for SIAEC, for which they would definitely benefit. But it also requires the investor to be intimately familiar with the cycles within the industry, and to be cognizant of exactly where SIAEC sits within the cycle, plus to be able to tell if the worst is over and the cycle will turn up, and how long the upturn will last. It's not impossible to do, but I realize I have neither the interest nor the affinity for it (somewhat similar to how I view the commodities cycle, which is basically too tough for me), so that is why I would probably not revisit the SIAEC thesis anytime soon.

Hope that was helpful. Have a good Sunday!

Singapore Man of Leisure said...



You left the industry?

Musicwhiz said...


Yes, taking a break for now and evaluating my options. But in the meantime, hope to get a few more posts out.

Thanks for asking.

Unintelligent Nerd said...

Hi Musicwhiz,

Welcome back. I have been a silent reader of your blog.


Anonymous said...

Hi MusicWhiz,

Read your old posts on Kingsmen Creative.
Any new insights on the company?

Seems to me that the management is slow in reacting to changes in the industry and is struggling to restore the company to its former glory. Not sure why they did not pounce on the opportunity in the past to secure exclusive IP rights to showcase movies exhibitions (all have been taken up by Cityneon)


Singapore Dividend Collector said...

Cool post. I look forward to reading more.

dpang88 said...

Welcome back!

INTJ said...

Hi musicwhiz

Part of the reason why I started to blog about my investment decisions / transactions stems from your articles. You demystified the line of thought one should follow and provides much clarity for a buy and hold decision in a very complex investment landscape.

Welcome back and looking forward to your future posts!

My Sweet Retirement said...

Hi Musicwhiz, looking forward to your new blog posts and especially your analysis of The Hour Glass. Please help to provide comments and tips as well on my stocks and personal analysis as well as I may not have deep insights like you.

Musicwhiz said...

Hi WK,

Thanks for dropping by. Yes, I do have a comprehensive updated thesis on Kingsmen Creatives, and am ready to post it up in sections (as one post would not be sufficient to explain the current state of the business plus new initiatives taken since then). A lot of the new information was gleaned from detailed notes which were taken during my AGM visit back in April 2018, and this includes chats with both Benedict Soh and Andrew Cheng (CEO).

As for their foray into the IP (Intellectual Property) segment, I admit I did feel that Kingsmen were slower to react and also much more conservative; hence they may have missed out on being the "first-mover" when it came to adopting such IP. But as time passed, they gave the impression of being careful and cautious for a reason - wanting to ensure that they got the IP segment right and also not rushing into things and also borrowing (too much) money just for the sake of mindless expansion. While Cityneon has obviously established their niche in movie franchises with their 4 IPs (Avengers, Jurassic Park, Transformers and Hunger Games), Kingsmen is taking a different direction by signing an agreement with Hasbro for the NERF FEC franchise (which is toy-based, not movie-based).

But more on that in later posts, probably in September. And I will try to split the detailed analysis up in parts to make it easier to read, while trying to be as objective as possible. For info, I had added more Kingsmen in early 2017 and also early 2018, and as recently as July 2018 for my CPF Investment Account as the share price drifted downwards.

Musicwhiz said...


Glad to know that I inspired you to blog about each investment decision taken! It's really a good way to crystallise and organize your thoughts and also to properly justify each decision so that you avoid hindsight bias. Then you start to notice exactly how difficult it is to come up with a coherent thesis for each buy/sell decision, because as human beings we tend to rely more on emotion rather than logic for our decision-making, even when it involves a significant amount of money.

A buy and hold decision is not easy to make, and even harder to sustain, without the appropriate evidence and conviction. I think my style should more aptly be named "Buy and Monitor" because mindless holding without understanding how the business has evolved and changed is tantamount to laziness and apathy and will result in the investor losing money without even realizing why. So yes, as we navigate a complex investing environment, I believe it becomes even more essential to make it clear why we are holding, selling or buying more of a specific position.

Musicwhiz said...

Hi Sweet Retirement,

I took a look at your blog and also current portfolio composition. Noted THG makes up 4% of your portfolio (I assume you are just reflecting the vested portion in the pie chart as I do not see a cash % component). I should be writing something on it in due course but probably not anytime soon, as I would want to provide an updated investment thesis on my long-term positions Kingsmen Creatives and Boustead (Singapore and Projects now, after the spin-off); also I would want to present new theses on some of the new positions I took up during the 6.5 years I was away.

What I might do is to insert in the THG thesis in sections, interspersed with other topics here and there. This is to relieve the monotony of just reading about the analysis of a single company and also allow for more time for readers to digest the facts and provide constructive comments.

TG 79 said...

Welcome back from your long hiatus. I was a silent reader of your blog and really enjoyed reading your insightful posts and sharing of your investment philosophy. I read your 2012 post with dismay when you announced that you were going to stop blogging. Very happy to see your post again after this long break and looking forward to reading your future posts!

Unknown said...

Lovely post! Enjoyed it very much and I look forward to reading more!

singaporean learning to retire well said...

Looking forward to reading musicwhiz 2.0 posts😃