Saturday, September 20, 2014

3Q2014 - I start to see some steam!

Apologies for the late update and for the fact that its getting less of the numbers and statistics and more of thoughts and dilemmas or confusion if you will. I appreciate more now, the importance of moving away from a more quantitative approach.

Company updates:  
Nanyang Holdings started a partial tender offer, started at HKD33/sh up to 8.2m shares (about a fifth of outstanding shares or 40% of free float which has seen share price reached about HKD39+  from the 20s+ when I first wrote about it. Nothing fantastic but still interesting. Price came down to about 35+ but doesnt affect me much. I wouldn't do that if I were the management.

I added a HK listed real estate/ investment holding co to the portfolio. Not cheap but I envision with the opening up of the country to surrounding countries and its massive property portfolio, not to mention a family that has a great track record, its likely some upward movement is overdue. Float is extremely thin, so I'm adding in nibbles from time to time. Not helping that it has since ran up too. I thought I was crazy to buy it at such high levels, but looking not too shabby now. Not that Im smart, Mr. Market has been very active.

SHC Capital (on sgx) is one counter I missed. I have been thumb sucking over the wide spreads and it cost me dearly. Zurich Re took it over at 70%+ premium. I'm no expert in the P&C and reinsurance field but this firm stood out like a nail.  

Don't ask me about Alibaba, I have great respect for Jack Ma but that's about it (See My views are limited on that. 

Other randoms..
I chatted over lunch with friends and spoke about humans, their confirmation bias and risk aversion characteristics. The industry, the world enjoys specializing and putting things in fixed buckets. It has far reaching problems and is closely related to how people interact socially and especially in their jobs. I do realize the opportunity in there and the problem is an incredible moat in itself if one could build something out of it.

For example, its always easier to sell a high dividend income yield fund than to say its going to be a opportunistic fund where I cannot guarantee no losses but its going to put money in whichever opportunity that makes the highest returns. People fear losses but more importantly, they dislike the fear of uncertainty and even if it means a false confidence of knowing something that may not be true or real. 

A high dividend fund gives the idea of no or low losses with stable income but people dont realize, such a fund will suffer a worse impairment to capital in times of trouble. One would rather trust a specialist investment analyst with a focused 5 years experience in real estate than trust someone with broad experience in various fields and have tried starting an investment business. I have experienced this first hand, it is painful and illogical but I can see where people are coming from. I know a family employs a "consistent high income fund", essentially is a leveraged, income strategy that holds high yielding securities. My repeated concerns fell on deaf ears, since I don't have the experience or "track record". To be honest, I am fairly frustrated and at the same time empathetic. I see many very intelligent talents around getting severely penalized for being generalists and having broad interests.

Similarly, its the reason why there's credit ratings, its a form of a fixed buckets system. People are lazy to accept the fact that there's always the situation where its simply not well defined. Instead of a grid system where one just check the boxes or add scores from a pre-defined scoreboard for easy comparison sake. People are not willing to do the extra groundwork and admit outliers and anomalies. Adding to the complexity is the fact that it is always harder to go against the flow. How would one explain to his bosses that it does not fit in the grid system? What if the boss said it should go into a certain bucket, would one be able to challenge and make the boss look bad? If one runs a investment outfit, would one risk picking oddities and underperforming or to emulate an index and make small tweaks for a slight boost? Reason is that they rather ensure they have similar performance to the index with a smaller variance than to risk a year with mega losses. 

The downside is unlimited in such a scenario while the upside is somewhat capped. Its times like this where people start to sweep small systemic problems aside where it snowballs to a massive problem. That's how the global financial crisis happened in the 2007/8s, apart from clear violation of the agency relationships and conflict of interests.

Risk aversion plays a crucial part in how people think. Its also the reason why most people don't start up companies. They appreciate the outsized rewards upon success but are more focused on the extremely low probability. (I mean having a family and a stable career and others etc. are extraneous factors that also affect how one thinks here) When you lose money, it hits you much more than when you make them.  When you enjoy that stable income and/or lifestyle, you start to forget that you are also in a system and when there are more factors introduced in a system, changes come fast, and in violent magnitudes. It is more pertinent that one stays in a upwind position where learning and not pay is the key priority.

Its the way people think and many times, people step too deep to realize they are in a hole. I remember a close friend of mine who said, "How can equities ever be safe, fixed income is the way to go. With added leverage, its a sure bet. why would anyone consider equities?" Classic case study example.

Its probably a time to relook at how these will pan out in the next few months again.

“Managing your career is like investing. The degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.”

“Risk comes from not knowing what you are doing.”

“What we learn from history is that people don’t learn from history.”

Sunday, June 22, 2014

June 2014 - Diving into technology

Firstly, sorry for the bad English and aesthetically, non-pleasing post. Wrote this in a impromptu manner.

As many of you know, I'm working on a project that's tech oriented. Its partly because what I am trying to solve is a big problem I face everyday and partly because I felt theres no better time to solve this with the lever of technology and information and platform freedom. Its still ongoing and I am fumbling with the mountain of things to clear and sort and worrying about whether theres a true problem, whether the problem is a one single mega pain or a collection of big and mostly small pains which is harder to solve.

The key (which I learnt) was to spot problems that are too painful to be ignored, come up with a rough, simple product that solves most of it and continuously listen to user feedback and iterate if it fails. The belief that solving a very important problem and getting users crazy over your solution before thinking about revenue models is also something very new to me. There were also talks about growth hacking, making things go viral and then Whatsapp just disproved it with no PR, no marketing, by charging people and the user stats still hit through the roof, because of a great product that users loved. The interesting thing was things are viewed differently, very dynamic, very forward looking and a constant stage of experiments. Reminds me of the saying: "Focus on where the puck will go, rather than where it was". Its a very different world from where I came from which admittedly is very backward looking for most of the practitioners, and I can better appreciate how Buffett, Munger start to look at things. Steve Jobs also hinted that innnovation and creativity is all about doing what you love (ensures you go through lots of crap), connecting the dots between far flung concepts (aka latticework mental model as per Charlie Munger) and of course think big (not in the ambition sense but more like macro level) to mix and match stuff to see what works and not.

I actually picked up programming to understand how it all works and understand what and how engineers or programmers as some call, work on problems and I must say its all a very cool process. Ive also burnt many weekday nights and weekends learning it (still learning it),  my last was trying to do "pushes" via a command prompt which is really a basic concept of making changes on your PC and pushing it to the cloud servers in layman terms. Its basic but I took forever to learn it, its a unique field and incredibly powerful. You realize that you can actually create things that makes makes a difference, makes life easier, basic ones like getting bus timings, movie schedules etc. and they have serious big scale applications. I mean I would still take a few weeks or months to build one but I have seen people doing it in a few days.

There is in fact a much deeper impact to me. Suddenly it becomes clearer what tech or some startup companies were doing. Why Facebook bought Whatsapp or Occulus, why Twitter could do a billion range IPO despite its financials (Not that I totally agree with the valuations) but you have a much panned out view of the landscape. Why is Swipe, VMware and Salesforce (I know there was a recent short call on it) so popular etc? Why is Tesla so different? Are they crazy to build a hyper loop or make humans do interstellar travel like weekend trips. We aren't really talking about singularity here but you can start to see how things and technology converge and why people start to move towards the cloud, towards privacy secured products and services like Snapchat and more importantly towards mobile etc. I recommend reading this slide by Mary Meeker of KPCB.

More importantly, the actual process of trying to start up something is immensely gratifying, and I have not even came up with a product yet. The act of doing it, I have already learnt so much from it. Crafting experiments to test for product demand and relevance, understanding the difference between whats a want and a need, whether to listen to your customers or regard them as users who dont know what they want. Also understanding whats the industry landscape, categorizing product types and building features. I enjoy reading posts from a few people in the industry, from the big hitters like Paul Graham to lesser known ones like Slava who runs RethinkDB. For PG, I particularly like "Do things that dont scale", "Ambitious startup ideas", "How to get startup ideas", "Schlep Blindness" and "Startups in 13 Sentences".

The fact that startups are the mix of very intelligent people on the forefront of technology and the desire to break things make for some very interesting combination and results.

On the other hand, my portfolio has little changes except for a HK listed real estate company which I invested into. I went in at a high, there's some massive price movements even though volume and free float is very low. Value remains and likely a minimum 2 bagger. There seems little thats reasonably priced for me though at the moment. Fed's decision to cut back on bond buyback also had some real impact, rates are moving up fast and Chinese companies borrowing in 2014 is staggering. Its US$14 trillion, even more than US companies now. China corporates also will make up over half of total global corporate borrowing needs over 5 year period (i.e half of US$60 trillion up to 2018) Read here for more info. A quarter to a third is financed by shadow banking. And no surprises for guessing its steel and real estate that dominates. And foreign reserves that China has is US$4 trillion. Uh oh...

Also favorite highlight, Bumi Resources tipping on the default edge, like again... HERE

Again, appreciate any exchange if ideas and/or comments.