BULLy the BEAR

How to be a millionaire

duckula06@yahoo.com (la papillion) — Wed, 24 Jun 2009 13:38:00 +0000

After reading so many books on financial freedom, I realised these are the ways to be a millionaire. Why are people so obsessed with being a millionaire? I'm not so sure, perhaps it's a milestone in their lives. For me, being a millionaire is not the most important thing to do. How about being able to spend a million for a start? Haha!

Ranked in order of ease, these are:

1. Start off as a billionaire, spend till you become a millionaire

I suppose a portion of the world's millionaire are actually formed this way. It's the best way to be a millionaire. Shiok until cannot shiok.

2. Use SGD $3,494.28 and exchange for 1 million Zimbabwe dollars

You want to be a millionaire right? Next time, when you rub a magic lamp, make sure you tell the genie exactly what kind of millionaire you want to become. 3 wishes are very precious...

3. Start saving 3k per month for the next 27.8 yrs

Hey, even by putting aside 3k per month regularly under your pillow, you can amass 1 million given enough time. If you start working at age 23, and do that consistently till you reach age 51, you'll get 1 million. Not so simple, because in order to save 3k, assuming 50% savings rate, you'll need to earn at least 6k and spend only half of your income. And make sure you don't hire a new maid and forgot that you had a million under your pillow....

4. Start with 25k, invest at 9.7% per year over 40 yrs

Or start off with 50k and invest at 10.5% for the next 30 yrs. Too long? How about starting off 100k and investing at 10.5% for the next 23 yrs? Easier said than done, I know. A mixture of trading and investing might just push it through. Unless you're Mr. B himself, who gets a CAGR of 20% at last count. Hey, at this rate, you'll double your money every 3.6 yrs.

Bullythebear gathering

duckula06@yahoo.com (la papillion) — Sun, 21 Jun 2009 15:27:00 +0000

It seems like many people prefer sat 10 am to 12 noon. The venue proposed is actually Tea Chapter. You can click on the site here to view it. However, it opens at 11am.

I suggest we meet at 1045 am on 27th June, sat, then by the time people comes streaming in, it'll be just nice. They sell some little snacks there too :) I think the gathering will take 2-3 hours.

IMPT: Since the response is not warm, I think we'll postpone the session to future date :)

Polling time

duckula06@yahoo.com (la papillion) — Fri, 12 Jun 2009 00:33:00 +0000

Trying to arrange an outing in a tea house recently, so need some feedback from the regulars. Can you please post in the comments:

1. The day of the week which you are available eg. Fri or Sat
2. The time of the day which you are available e.g from 11am to 3pm.

The venue should be the place I mentioned last time, no need to mention it here again. If you're unsure, can always ask those in the cbox.

I'll try to arrange it :)

How to motivate people

duckula06@yahoo.com (la papillion) — Fri, 05 Jun 2009 15:09:00 +0000

First of all, a disclaimer. If I really know how to motivate people, this will really be my ticket to financial freedom. To motivate someone, you really need to understand both the science and the art. I've been doing this for 6 years, with varying results. Still trying... Broadly, to motivate people you have to maximise their pleasure and minimise their pain. I'll try to include accompanying examples.

Where applicable, I'll use a common example to illustrate the finer points. The example is this scenario where you are bringing your kid to the toy store. But the kid wants to buy a particular toy which you are not so interested in purchasing.

1. Threat of punishment

It's the classic "If you do this, I will do this" kind of motivation, though the "do" part is more like a disincentive to do certain things. I've always seen parents who said this. It's more a perceived punishment rather than actual punishment. But if the promise of punishment is not carried out, then the threat gets weaker over time.

Example 1: "If you are still so naughty, I'll will make sure you'll get caned when we get back"

2. Lure of rewards

"If you do this, I will do ___" - that's the key point of this method. The "do" is followed by something positive and pleasant. The promise of reward is usually good enough to motivate someone, not the actual reward itself. If the reward is not carried out after the promise, the method gets weaker over time.

Example 1: "If you get 80% of his final year exams, I'll buy you the toy. Do you want to study hard for your exams?"

Example 2: "If you don't make a scene here, I'll bring you to eat ice cream. The weather is so hot, you do love a nice cool ice-cream don't you?"

3. Reduce disapproval

I find that women are better at using this. Humans need to seek approval from significant people in their life - either parents, partners, spouses, friends, classmates etc. By putting your criteria in which you disapprove people, you can put a disincentive for others not to act in a certain manner.

Example 1: "Look at the little boy there who is crying. He is so disobedient and don't listen to his mummy. I don't like kids like that. Are you going to be disobedient like the boy too?"

4. Maximise approval

Same as disapproval. You set your criteria for your approval, then you compare how someone is approved by you because he/she fulfilled the criteria.

Example: "See your brother sleeping in the pram. He's so nice and quiet. I love kids who are quiet and obedient, so please don't make me angry ok?"

5. Appeal to ego/pride/vanity

Self explanatory? A bit similar to approval but the motivation is clearly different. Ego/pride is more internal.

Example 1: "You are such a big kid now, still crying at this age? Look that uncle is laughing at you now"

Example 2: "You are such a big kid now. Big kids don't cry over toys. You don't want to cry over little things like toys right?"

Example 3: "If you cry more, then you will be ugly already. No more pretty face. You like to be pretty right?"

6. Fulfil basic needs

Basic needs of a living thing are the ability to reproduce, to eat, to excrete and to move about. Essentially, this is the need to survive (or the survival of one's genes). This is one of the most important yet primal motivator in anyone's life. Crude but it works very well. In modern times, the need to survive can be rested on one commodity - money. Thus, wanting to earn more money is classified by me as a primal need to survive.

This method is so effective. Just look at what people will do just to survive an earthquake or tsunami.

7. Satisfy curiosity

To discover the unknown, to find out 'what if'...these are motivated by the need to satisfy one's curiosity. It's the motivation that makes one read a book (to find out what happened) and perhaps to finish one whole drama HK drama series in one seating. I suppose scientist are quite motivated by this. It's quite hard to find people who are motivated by curiosity in Singapore, from my experience. It's a rare sight.

To sell or not to sell?

duckula06@yahoo.com (la papillion) — Fri, 05 Jun 2009 03:20:00 +0000

Do you ever wondered about this - Imagine you have a stock which you had bought at $1.20. The price now is $1.80. It gives out dividend (not guaranteed, of course) at a rate of 5 cents per annum last year (dividend yield of 4.2%), with possibility of increasing its yield every year. Will you sell the stock for capital gains of 60 cts (1.80 - 1.20 = 60 cts) but forsaking 5 cents or more dividends forever?

Here's a few ways to valuate this:

1. Assuming that the dividend is fixed at 5 cts forever, it'll take 12 yrs (60/5 = 12) for the dividend (if you hold the stock) to cover the present capital gain (if you sell it now at $1.80). Which do you think is better - 60 cts gain now or 60 cts gain over 12 yrs.

Of course, the complications come in when you talk about the possible capital gain (or loss) if you hold the stocks for 12 years. The company might be bankrupt, it might freeze or cut dividends, it might give more and so on. It's never easy to decide.

2. The first method does not take into account the time value of money. It's better to do a discounted dividend approach to account for the time/money relationship.

Below shows my calculation, assuming there is no change in the dividend given per year. I assume a discount rate of 4% (why? that's the inflation rate I assumed) to account for the opportunity cost of holding cash.

After my garbage in garbage out (GIGO) exercise, I end up with a value of 41 cents. The safety factor is to account for any funny things that makes my assumption invalid. If after accounting for the safety factor, I end up with 60 cents, then theoretically I have no incentives to act on either options of holding or selling now. To push me to sell now, I raised the value of 41 cents by 30% to 53 cents - this means if I gain anything more than 53 cents, I'm actually motivated to sell now to lock in my gains.

Since selling now at $1.80 I'll get 60 cents. I'll sell now.

Again, this method does not take into account the possible capital gain/loss of holding the stock for a long period of time. I've already stated in my previous blog post "The false security of intrinsic value" the illusions associated with this kind of discounting method of valuation, so I shall not elaborate more here.

3. Last method is this: I saw another counter with better prospects, so I sell now to lock in my gains, and switch to another counter. What is better prospects? It could be better yield, safer yield, likelihood of higher capital gains in the future, charting etc. Exactly how does one know which counter gives a better prospects - I leave it to you. I do not know myself.

After being played in and out by the market, my inclination is towards method 1 and 3. If it does not scream out buy when using a calculator with only + - x ÷, then you probably need to look elsewhere.

Disgusting Pac Andes

duckula06@yahoo.com (la papillion) — Fri, 22 May 2009 17:18:00 +0000

Pac andes just threw a grenade towards my direction. Make it 2 grenades. It got me hot and bothered!

1. First grenade - they are issuing rights on a basis of 1 rights share @ $0.15 for every existing share held. The rights come with detachable warrants, with an exercise price of $0.23 each to convert to 1 ordinary share.

Hey, didn't pac andes do a rights issue in 2007 before? And they are doing it again? C'mon...are you so pressed for money to keep asking shareholders to part with their cash?? It's not enough to dump shareholders with rights issue, and you still want to get more money out of shareholders when they convert their warrants??

2. Second grenade - they are going to restructure their share capital. Initially, their share capital of $400 mil is divided into 2000 mil shares, with par value of $0.20 each. Now, they are going to divide their share capital into 8000 mil shares instead, giving a par value of $0.05 each.

This takes some fees and do you know what's the rationale for this exercise?

It's stated that the main purpose for this reorg of share capital is to enable the company to undertake the proposed rights issue because the average closing price of pac andes is at $0.186 (for the 7 month prior to the date of the announcement today). This happens to be below the par value of $0.20 per share in the current system.

Since the Bermuda Companies Act prevents a company from issuing shares at a price below the par value of the share, they are going to go through a reorg of the share capital just so as to allow the proposed rights issue to go on! They stated that this will allow them greater flexibility in issuing new shares in the future when the opportunities arise.

HELLO! There's a lot of nasty things I wouldn't want to blog in public. What is the management thinking about?!

How much to save to retire

duckula06@yahoo.com (la papillion) — Mon, 18 May 2009 17:36:00 +0000

I was just doing some simple calculations to see how much I need to earn in my working life (assuming I have to retire at 55) in order to sustain myself only till the end of my life. I've a average monthly expenditure of around 2500, all inclusive.

So assuming I pass on at age 85,

$2500 x 12 x 54 = $1,620,000

I probably need this much money now in order to stop working yet be able to sustain my lifestyle till 85. This 1.6 million of course do not include family, or any other commitments that I incurred while I survive till 85...thus it's quite an underestimate.

Reality sucks, isn't it?

Assuming I maintain my expenses after I retire all the way till 85, I need to spend $900,000 (based on $2,500 per month expenses for 30 yrs). I only have 24 yrs to get this amount before age 55, the age I can retire. This means that I need to save $3,125 per month from now till age 55 in order to save up to that amount. That's hard saving only and it's hard saving that amount for that long period.

If I have an investing capital of $100,000 now, I figured that I need to get a returns of around 9.6% per year on average to multipy that capital to reach $900,000 in 24 yrs. That's assuming I didn't add in more capital to that initial capital outlay. Do you think it's do-able?

How can anyone not invest? It's not impossible to reach financial independence, but it'll be very hard if one has to do it by savings alone.

The father, the son and the donkey

duckula06@yahoo.com (la papillion) — Wed, 13 May 2009 17:43:00 +0000

KK shared with me this story in the cbox. I really thought it's a very important lesson to be learned from it. It is happening to us all the time. Since we learn different things from the same story, I'm not going to interpret but leave it open for readers to form their own thoughts about it.

----------------------------------

A Man and his son were once going with their Donkey to market. As they were walking along by its side a countryman passed them and said: "You fools, what is a Donkey for but to ride upon?"

So the Man put the Boy on the Donkey and they went on their way. But soon they passed a group of men, one of whom said: "See that lazy youngster, he lets his father walk while he rides."

So the Man ordered his Boy to get off, and got on himself. But they hadn't gone far when they passed two women, one of whom said to the other: "Shame on that lazy lout to let his poor little son trudge along."

Well, the Man didn't know what to do, but at last he took his Boy up before him on the Donkey. By this time they had come to the town, and the passers-by began to jeer and point at them. The Man stopped and asked what they were scoffing at. The men said: "Aren't you ashamed of yourself for overloading that poor donkey of yours and your hulking son?"

The Man and Boy got off and tried to think what to do. They thought and they thought, till at last they cut down a pole, tied the donkey's feet to it, and raised the pole and the donkey to their shoulders. They went along amid the laughter of all who met them till they came to Market Bridge, when the Donkey, getting one of his feet loose, kicked out and caused the Boy to drop his end of the pole. In the struggle the Donkey fell over the bridge, and his fore-feet being tied together he was drowned.

"That will teach you," said an old man who had followed them:

"Please all, and you will please none."

Wordle here wordle there

duckula06@yahoo.com (la papillion) — Thu, 07 May 2009 17:46:00 +0000

This is another wonderful piece of art form I found from PG's website. Indeed very fun - I spent a few hours playing with it just to see the different combination that comes out.

Here's a wordle of the books I've read so far this year. The bigger the fonts are, the more times it occurs in the titles of the books I've read :) Have fun trying, it's found here!

See? I've read a lot of books on millionaires and a lot of them have the words 'Buffet' and 'Richard' in them :)

Top-down approach in investing

duckula06@yahoo.com (la papillion) — Thu, 07 May 2009 04:15:00 +0000

I usually adopt a bottom up approach towards investing, so it's good to do a top down approach too, just to see the broader picture. I read this little book series (yes, finally completed everyone of them!) called Bull Moves in Bear Markets by Peter Schiff and in it, there are a very investment themes to take note of. Basically the author is very bias towards the near term future of US, notably because of the high amount of debts that it is mired in and the unwillingness of FED to raise the interest rate to curb inflation, thus running the risk of hyperinflation.

Here's a few countries that might do very well in the future:

1. Australia - This is a country rich in natural resources, with lots of supplies of natural gas and metals. Being very close to China, who is very likely to consume huge amounts of metals and energy in the future to fuel its economic growth, Australia is thus likely to participate greatly in the commodities bull run mentioned by Jim Rogers and other such 'visionaries'. I think its close proximity to China makes it a good exporter of commodities to China at a cheaper price.

2. Canada - Stupid also mentioned about the loonies. It is the largest foreign supplier of energy, including oil, gas and uranium to US. Canada is resource rich with a lot of metals, agricultural commodities and energy. Again, another commodities play, with likely appreciation on its currency, like Australia.

3. Singapore - Yes, this little tiny dot is mentioned in the book as well, which I'm pleasantly surprised. For those cheapo neh neh, can go to bookstores to browse this book. It's on page 163. Singapore depends a lot on export, particularly in consumer electronics and IT products. Manufacturing is diversified into petroleum refining, chemicals, mech. engineering and biomedical sciences. I guess Singapore's advantage is its good relationships with China and US, so can probably use its status as a financial, hi-teh and medical tourism hub (the book said so, not me) to leverage itself into a nice cushy position. The other advantage I can think of is the stronger stable government.

Hey, you can complain all you like about the government, but we all have to concede defeat to its stability and the effects this can have on investors abroad. No strikes, tri-partite relationships with labour unions (do we have one?), low unemployment rate, highly educated labour force -- all this adds up I suppose.

There's a line which I snigger at: "Singapore is the third most popular place for Chinese companies to list their stocks, after Hong Kong and the United States." Oh true, that's why we get all the third-tier ass shares listed here.

Ok, I'm not going to list say more...here's the list of other countries that the author feels for: Norway, HK, Switzerland, New Zealand and Netherlands. We can analyse the countries and see that he is bullish on Asia (esp those leaning towards China), as well as those countries with lots of commodities.

Okay, enough from the book. Here's a few themes that I think are worthy to consider in the future:

1. Green technologies

There is this strong undercurrent of green movement happening around the world today. Carbon footprint seems to be a key concern too. I've a lot of young people telling me about saving the earth and so on. China might also be setting up their own green cars to compete with US. Might be the next technology to lift the world's stock market to another feverish bubble.

2. Commodities

Energy related commodities will continue to play a big part to power the world's economy. Hmm, unless someone managed to find a very environmentally friendly and abundant supply of fuel...looks like bubble creating material to me. There are reports saying the huge demand of metals that China will need in build its infrastructure, thus turning it from a net exporter to net importer. With the low interest rate environment, inflation could be a problem in the future, so countries with lots of commodities will be able to take in more foreign exchange gains if the commodity bull run is true, thus maintaining their currency from dropping.

Microsoft Live Writer review

duckula06@yahoo.com (la papillion) — Tue, 05 May 2009 16:23:00 +0000

After listening to what PG had mentioned with regards to my time saving article recently, I decided to adopt and download the free Microsoft Live writer. It's actually a very cool piece of software and I'm testing it right now as I type this article. In the past, I used to type my blog on Microsoft words then cut and paste onto the blogger site, but it seems that this cool piece of software can publish straight to blogger!

I can even see how it looks like in the actual colour settings, which is damn cool! If not, I can always switch to html or the normal 'words' format to edit as I wish. Very convenient indeed! I can even put in pictures from web or from my computer, which previously I can't from microsoft words.

The software is also quite idiot proof and I spend less than a few minutes trying to figure out which buttons is for what functions. It certainly makes my blogging experience more enriched. I think it's even more user-friendly than the blogger interface :)

Conclusion:

Definitely a must-use for me! Potential time-saver found!

Ways to save your time

duckula06@yahoo.com (la papillion) — Mon, 04 May 2009 15:02:00 +0000

As time gets more and more precious, I wondered how else I can do to squeeze more time. Everyone gets 24 hours a day, but some people wasted a good part of their time doing things that are not aligned to their goals or not pleasurable to themselves – in order words, their time got ‘robbed’ by others.

Here’s a few ways for me to squeeze more time to really do the things I want to do:

1. Blog my articles in Microsoft words first, then cut and paste it straight to blogger.

I’m currently doing that now because my internet connection was down, so I’m using the time now to type it out in the words form so that later I can just copy and paste it to post the article up. This is a great time saver because by blogging the articles when my thoughts are the most lucid and fluid, I can save a lot of time thinking about what and how to write the articles.

2. Give yourself 5 minutes to read through the snail mails and decide what to do with them straight away

I used to keep a pile of snail mails on my desk, waiting for the day when I’m finally free to sort them out. It takes a great deal of time just reading the mails again then following up the actions required. These days, I give myself 5 minutes to read through, decide and follow up the action immediately. These grant me two advantages – firstly, my desk is clutter free and secondly, I do not have to sit through the piles of mails to follow up the actions required. I either throw them straight away or file them up if needed. This ‘no-second-look’ philosophy must have saved me a few hours per month, which is substantial savings in the long run.

I think this rule applies to emails too. If I didn’t follow up my emails immediately, chances are that I would not do it anymore. So I make it a point to apply my ‘no-second-look’ philosophy to that too.

3. I always bring a book whenever I go

It never fails to amaze me how a well-planned schedule for a day can go horribly wrong. I might end up waiting a few hours for events to happen, and I dread having nothing to do while waiting. Thus, I always bring a book whenever I go in case I have to end up waiting for people longer than I should be. I also kicked the habit of sleeping on trains and use the time to read while standing/sitting. I can’t read on buses (it makes me dizzy), so I nap a while or just think about stuff.

4. Use of the SBS-Iris online before I go out

As I take buses most of the time, I detest waiting the long waiting time at bus-stops. Since last month, I’ve been using the SBS Iris website to determine the waiting time I need for my bus to arrive at the bus stop and plan my trip accordingly. This is such a time saver that I make it a point to check whenever I’m going out, if it happens that I’m taking a bus.

Use your time wisely. It’s the only resource that you have!

Make me an offer I can't refuse!

duckula06@yahoo.com (la papillion) — Tue, 28 Apr 2009 04:17:00 +0000

When we’re talking about investing, what are we actually looking for? The concept is actually very simple. We’re basically looking for a company that fulfills the following:

A company that earns the most stable and highest earnings over the longest period of time, selling at a cheap price.

(You can replace ‘earnings’ by ‘dividends’ for those who are looking more towards income)

While the concept is easy, the execution is certainly not. For example, what is meant by cheap? Am I talking about the cheapness of the price with reference to the past prices, or am I talking about price with reference to intrinsic value? Talking about intrinsic value, how do I calculate it? Based on PE, discounted dividends, discounted cashflow? What about the discount rate and the period of discounting?

It opens up a can of worms just by analyzing the simple statement above. It’s the same when analyzing a company too – you thought it is a simple affair till you read more.

I think I need to do valuation of the stocks that I want to own, and the price that would make them attractive. It’s been a long time since I started doing so. So, everyday, I’ll just go the market and see if it throws up some real good bargains at me. Make me an offer I can’t refuse!

What I learnt from Mafia wars

duckula06@yahoo.com (la papillion) — Wed, 22 Apr 2009 04:57:00 +0000

After playing the facebook application - Mafia Wars - for some period of time, I've come to realise a few truths in life. You can really learn a lot of serious stuff in games, if you played it seriously enough. I'm so serious to even put in a spreadsheet the various yields one will get if one invests in different kinds of property.

Here are the truths in life that I realised by playing the game:

1. You need friends around you. Having many friends is better than having no friends. Having a few good quality friends is better than having many poor quality friends.

When playing the game initially, I only had less than 5 friends. As a result, I was bullied tremendously. It got to a stage that I was so irritated that I went to a massive recruitment drive to increase my friends. Currently, I had 150+ friends. Guess what? No more random attacks from others, nobody dared to rob my properties and it became so much easier to attack/rob others. I also realised that as my many friends grew in levels, it's even harder for others to attack me. A few high level friends helps more than plenty of low level friends.

2. When the going gets tough, the tough not only gets going, the tough hits back.

I used to just silently absorb all the abuse from others as they attacked and robbed my properties, thinking that I should be nice to others. But I soon realised that the best defense is to attack others, especially those that think they can bully me. I would gather a few strong friends, rob their properties dry, attack them until they are dead again and again for a few days until they give up. In life, you need to show others that you have the capability to hit back very hard when the need arises so that others will not take you for a sucker. I have to be aggressive to protect myself.

3. It's important not to overstretch your cashflow.

When you are rich, it's easy to forget that for every things you buy, there is a hidden liability side. As you accumulate your assets, you also begin to accumulate your liabilities. Make sure you always have free cashflow and do not accumulate too many assets that drains your cash out. My current cash flow in per hour is $22 million, cash out per hour is $402k, so my net cashflow is still $22 million per hour. I think I'm as conservative in game as in real life.

4. Be aware of the consequence of your actions, it might come back to haunt you later.

As I was attacking and robbing those who attacked and robbed me earlier, I was wondering. Is it possible that the other party is also retaliating because I had earlier on attacked/robbed them? So it becomes a case where the victim becomes the aggressor and subequently became the victim, and goes on and on in a vicious cycle. In life, it might not be possible to see who is at fault. So one should just think about whether all the fighting is worth it.

I called a truce with someone after fighting him for around a week. He accepted, and is now part of my team.

5. When money is not a problem, a lot of calculations becomes unnecessary.

When I started, money is not enough, so I had to calculate yields for the property purchase to make every cent that comes in count. When I am earning 22 mil per hour (i.e. in one day, I'll get 530 mil - alas if only this is real money) in the game, there is no point to this anymore. I just buy the property or any other items that I like since it forms only a tiny fraction of my cashflow.

The rich thinks very differently from the not so rich, and they are moved by concerns different from others.

There are so many truths in life that you can discover, if you only open your eyes to them. Most are just in front of you yet are invisible to you. Hidden in plain sight.

China milk quarterly tabulation

duckula06@yahoo.com (la papillion) — Tue, 21 Apr 2009 05:28:00 +0000

I've some time at hand to crunch some numbers for China milk. I've always wanted to do that but never really got around to doing it. Here's the figures:

I didn't read through the whole annual report nor its business in details, so let's do it another time then. Here's a few thoughts:

1) Despite the s-share saga, there are some s-shares like China milk whose business are still very sound and the debts are not stacked sky high. A cursory look at the revenue and net profits shows that China milk is very much in business despite the tainted milk saga in China too. The business is doing well without the much debts too. Debt/equity ratio is pretty good and is much lower than that in FY07.

2) The cash and cash equivalent is growing bigger and bigger since 1Q07. China milk did not announced dividends but there are official announcement of China milk proposing to buy back part of their convertible bonds - the only long term debts in China milk's balance sheet. The details are quite beyond me, not very sure what they are talking about. But it's important to note that by doing so, they would have reduced their long term liabilities in their balance sheet (by how much, I'm not sure) and book a non-taxable accounting gain of US$654,600 or around RMB 4.5 mil. That is around 3-4% of the 3Q08 net profits.

There are of course questions regarding what is the use of this cash if the management did not distribute back as dividends to shareholders. I think besides buying back their bonds, they intend to get more dairy livestocks.

3) Is there a problems with China milk running into liquidity problems? Very unlikely. Their current ratio are off the charts, being so well bathed in cash. With their repurchase and subsequent cancellation of their convertible bonds, their liabilities will reduce further. We're talking about a very debt-free s-share over here.

Hongguo FY08 results analysis

duckula06@yahoo.com (la papillion) — Mon, 20 Apr 2009 05:45:00 +0000

Hongguo released their FY08 results quite some time ago, and it’s only now that I’ve the time and resolve to really sit through and pore over it in detail. Overall, it was quite a disappointing 4Q result – not terribly bad nor excellent, just so-so. It didn’t help that Hongguo did not declare dividends for FY08 too, presumably to conserve cash and stay liquid in this hard and trying times. I’ve been waiting a year for their dividends in vain.

Here are the quarterly results for Hongguo for the whole of FY08:

1) We can see that the gross margins of Hongguo’s business fell sharply over the quarters. After a sharp rise in 2Q, the 2H08 is just anaemic. There are two reasons for this.

Firstly, the price of the products sold had been reduced due to the promotional discounts granted under the Hongguo’s stock clearing activity, as well as other sales campaigns organized by departmental stores. The departmental stores had to do this so as to encourage more consumers to spend, and such activities had increased in the 4Q, resulting in the rather poor gross margins of 34.6% in the 4Q (compared to average 39.4% for the whole FY08).

Secondly, there is an increase in the cost incurred by Hongguo to support the sales campaigns organized by the departmental stores. Whether there is an increased in the cost of producing the products sold, I’m not too sure on that.

These two reasons exert a downward pressure on the profit margins relating to C.Banner product line and those under JUC. It remains to be seen if this is a chronic problem or a temporary one. C.Banner, Hongguo’s top selling product line, is still ranked no.3 in China in terms of market share.

2)Net margins dropped throughout the whole of FY08, resulting in a whole year net margins of only 12%, compared to the 14.9% net margins in FY07. The rise in Selling, distribution and administration expense (SDA) rose for every quarter. This is due to Hongguo setting up more retail outlets (addition of 125 new outlets for their in-house brand, C.Banner and E.Blan, as well as another 60 more Naturaliser outlets), resulting in higher cost and administration expense because of higher staff payroll.

Just counting the in-house brand outlets opened in FY08, there is an increase of 16.4% in the number of outlets in FY08 compared to FY07 (762 in FY07 and 887 in FY08), whereas there is a corresponding increase of 27.1% of SDA (175 mil RMB in FY07 and 223 mil RMB in FY08). To have a clearer picture, let’s take a look at the SDA/revenue increment. It increases marginally from 23.8% in FY07 to 25.3% in FY08. This means that while opening more outlets will increase the SDA, the corresponding revenues brought in by the new outlets sort of compensated for the increase in SDA.

However, more revenues do not necessary imply that more is added to the bottom line. With the management stating explicitly that they are going to add another 120 new outlets (100 for in-house brands, 20 for Naturalizer brand), I’m a little worried. I can expect the SDA to increase more in the next FY. As long as the additional outlets are opened without leveraging themselves too much (they did not borrow money to open new outlets at all) and keep inventory management, costs and cash flow tightly managed, I think all should go well.

3) Their liquidity ratios are all very well above the normal s-share companies, so I’m not worried at all. With current ratio well in excess of 3 times, and quick ratio above 1.5, I think Hongguo have a clean bill of balance sheet health. They are not highly leveraged at all, so that must have helped a lot especially now where credit lines are tight. Receivables dropped, even when revenues have increased, so no problems of Hongguo having a lot of theoretical earnings in income statement but no real money in cashflow statement. I did notice in the footnotes that the percentage of the receivables dragging over more than 1 yr had increased from around 8.7% in FY07 to around 12% in FY08. But the total amount we’re talking about is less than 1% of the total trade receivables, so I think it’s immaterial. Around 94% of the trade receivables in FY08 are not past due and not impaired, so it should translate into cash in due time.

In terms of cash flow, there are not problems as far as I can see. They are probably going to have better cash flow in the next FY because firstly, they skipped the dividends and secondly, they mentioned they are not going to expand their manufacturing facilities to boost their annual capacity since they still have excess capacity to handle it.

4) Looking forward, the management reiterated that their main focus is actually on the ladies footwear retail business in their business strategy. Currently, they are getting a higher percentage of their revenues from their contract manufacturing business. Hongguo intends to be less aggressive in their outlet expansion plan (though they are still going on with their plans to open another 100 in-house brand outlets and 20 Naturalizer outlets), which I think is prudent in case their liquidity dries up.

For the existing scale of operation, Hongguo stated that their current 6 production lines are sufficient, hence they do not need to expand further in their production facilities in the coming FY. They would instead focus on securing high margin orders to increase their profit margins. Big words, yes, but so far, the management had a track record of fulfilling what they had mentioned. I've full faith in them continuing to do so again. They have every incentive to do so, since in FY08, all the 3 founders had a total stake of direct/indirect interest amounting to 47%, compared to 46% in FY07.

5) I should be attending my first AGM on 30th April by Hongguo. They are trying to pass off some resolutions, notably the more interesting one would be the share purchase mandate. I don't mind them purchasing their own shares off the market, though at this time, I would rather they distribute it to shareholders in the form of dividends. I've no wish to invest more in ass-shares at the moment, so I would rather direct the cash from the dividends to other worthy pursuits.

6) Valuation valuation valuation…

Price at last close: $0.155
EPS: $0.061
PE ratio: 2.5x

NAV: $0.32
Current assets – total liabilities: $0.25

I’m not even going to suggest that Hongguo is a good buy now. But if you’re dying to get some ass-shares in SGX, why not consider the better ones? You’ll save yourself countless sleepless nights. Just ask those who invested in Ferrochina, beauty china, china print & dye etc.

Even considering graham’s strict current assets – total liabilities, the current price is at around 40% off it. If Hongguo survived this and does not go belly up, how wrong can you go with 2.5x PE and price way below any form of valuation? Time will tell if this is a good investment.

Bulls climb a wall of worry

duckula06@yahoo.com (la papillion) — Thu, 16 Apr 2009 03:30:00 +0000

Have you got this feeling that you've missed out on the stock market? If you've been watching the markets, it seems that no bad news can derail STI from marching upwards these days. Forget about the general economy and the languishing GDP forecast by our government - the stock market has a mind of its own and will move up regardless of the fundamental economic situation.

A few signs are worrying:

1. I've noticed that the top volume of SGX are occupied by the likes of small caps, specifically the ultra pennies as I call them. Once again, ultra cheap counters like the 0.005 digiland reaches the top position in volume transaction. Hey, did I have a deja vu that such things had happened before? I remembered fondly the good old days of the 2006/2007 period where such small caps are punted.

2. Some of the counters are climbing up with lesser volume, perhaps reflecting the same way that STI index is climbing up too. Look at ocbc's chart:

Did you see the rise in price without the corresponding rise in volume? Volume divergence is the name of the game.

The signs are even clearer when you look at UOB's chart. Several volume indicators are diverging from the upward trend in price.

So, if you think you've missed the boat, think again. If you're a keen reader of history, you'll learn that humans never learn from their past mistakes. What had happened in the past will happen again, perhaps in another form. Don't feel missed out...look out for opportunities again and know what to do when it happens again.

If all else fails, you can always feel 'motivated' by this:

Fashion whims in insurance

duckula06@yahoo.com (la papillion) — Thu, 09 Apr 2009 02:20:00 +0000

Did you realise that financial/insurance products suffer from fashion whims too?

During the good old bull times, we have products offered by companies touting good returns projected way into the future (I heard from a friend, the returns projected are at 10% or more). It's no surprise then that the returns are much less than projected - it's just not sustainable. So what's fashionable now?

If you ever had people cold-calling you regarding their newest product, or if you've ever been waylaid by people on your way to a shopping mall, you'll have realised that the latest fashion whim in financial products are endowment polices. These are called a variety of names but all of them fulfill the same function - save a certain amount of money per month for a period of years mixed in with a bit of insurance coverage, essentially a sort of savings plan.

Hey, don't get me wrong. I'm not saying that endowment plans are rubbish - they are not. I'm just saying that they are not suitable for everyone, especially those who have no proper life plans, CI (critical illness) and H&S (hospitalisation plans). You know, when you have only one product to sell, everyone seems to need the product you are selling. Just like when you have a hammer in your hands, every problem seems like a nail to you.

I noticed that banks are getting a bit more aggressive towards selling insurance policies to its customers. They are touting H&S plans and other insurance plans too. For those who are unsuspecting and who bought it, may I ask a few questions to you:

1. Who is going to service you when you have claims?

2. If you have queries, who are you going to call for help?

3. Who's going to do a yearly review with you since you last bought it as your circumstances must have changed?

Not sure about you, but I prefer to have some face whom I can talk to and hold accountable for. Of course, that person might run road too, but there'll always be another one to take over your case.

Another fashionable whims in insurance I detected recently is this early payout upon diagnosis of CI. Suddenly the brochures are highlighting this clause, and there are new products introduced with the selling point as this. Hey, you know what, the whole industry is filled with incompetent people inculcating the incomprehensible into the indifferent...it's going to be an immeasurable effort.

If you ask this layperson who knows nuts about insurance, I'll say go for the big picture. If you're my age, single but not available and with no child, you'll want to ensure that you have at least a proper life coverage for CI and death, together with the all important H&S plans. Cover these basic needs first, then we talk about other add on like personal accident plan, hospital benefit and disability income. Settle that insurance part, then we proceed on to talk about investments. Exactly in that order.

STI - self reference

duckula06@yahoo.com (la papillion) — Tue, 07 Apr 2009 04:07:00 +0000

Self reference only.

There's still no signals to get into STI. Have to wait for a good point of entry.

I see support level at 177X level, sitting right at the ema100d level. After that will be 170X level. I read this website often, it gives a good analysis of the STI weekly movement. Good reference material: http://www.him.com.sg/

I want to catch the big movement, not the small little ones, hence like a fisherman, I have to learn to be patient. It makes it easier because I'm in no hurry to lose more money.

These days I've not had the energy and time to do some quality posts. Why? Usually I blog in the morning. But these days, I'm preoccupied with driving lessons..GRRR! Hopefully it'll all be over soon then I can go back to my usual routine. Life is a series of projects after projects...it gets a little tiring after sometime, don't you think so?

STI and HSI

duckula06@yahoo.com (la papillion) — Mon, 30 Mar 2009 04:18:00 +0000

This is for self reference only.

Below shows the STI index. Poised for a retracement. Possible entry points, 166X, 163X there abouts. I like the 166X support level, as it is the gap support, near to ema 50d support and a trend line coming from June/July last year (touching jan high this year). Could be significant.

The chart below is for HSI. Same pattern as STI.

The mathematics of effort and results

duckula06@yahoo.com (la papillion) — Sun, 29 Mar 2009 14:02:00 +0000

If you start to value your time, you'll realise that being a perfectionist is a very silly thing to do. Why is that so? Effort is not equal to results. In life, I've seen countless examples of people who seemingly put in minimum effort but reaped maximum benefits. This is also known as working smart, not working hard.

I can't agree more.

While showering, I've derived the mathematics of effort and results. It is actually an exponential graph (I'll spare you the equation because it's the form that matters, not the exactness) which looks something like what I've attached below.

Initially, a little effort will reap a lot of results. However, as more and more effort is piled on top of previous effort, the results increment gets smaller and smaller, until it finally plateaus off. The main idea here is that the results reaped is not exactly linear to the effort that you put in.

Here are some examples that I can imagine:

1. A student gets 40 marks out of 100 for his test. He puts in a 10% more effort, he gets 60 marks out of 100. He puts in another 10% more effort, he gets 70 marks. He puts in another 10%, he gets 75%. To reach 90 marks, he'll have to put in a lot a lot more effort than the initial 10% effort that pushed his grades from 40 marks to 60 marks.

2 A woman had a weight of 70 kg. She tries to jog and her weight drops to 60kg. To lose the next 10 kg, she'll have to run harder and faster than before.

There is a region in which the sweet zone is found - this is where the effort put in is reaping the maximum results before the increment tapers off to a plateau. It's your job to define it and find the balance point yourself. If you value your time, just don't be a perfectionist - the effort that you put in to perfect your act might be better spent on other more value-creating actions.

That being said, there are some activities where maximum effort must be put into before a sizeable result can be observed. But once reached, the result will shoot up exponentially without requiring further effort (as shown below).

This kind of activities require patience and usually involve some kind of leverage on either time or money or both. It is also your duty to find and do such activities and work towards that final exponential increment.

I can think of a few examples too:

1. Trading/investing in the stock market. The initial outlay of effort is tremendous, to say the least, since the 'effort' usually involves financial losses as well. However, once the sweet spot is reached, the results will exponentially increase without you putting in a lot more effort.

2. Setting up a successful business. Key word is 'successful'. The initial time and money used to set it up is discouraging in the early stages of the business, but once it starts to take off, the sky becomes the limit.

Have you been doing your part to allocate your time and effort wisely in order to place a higher value on your life-energy?

Sunday's rambling

duckula06@yahoo.com (la papillion) — Sun, 15 Mar 2009 03:17:00 +0000

I browsed through Sunday Times today and noticed that there is an article on the low rate of interest provided by financial institutions in Singapore recently, presumably due to the plunging SIBOR rate, again presumably because the world's central banks are cutting their rates to boost the economy.

It's interesting that every politician have a fetish for growth. It's quite impossible to generate growth forever you know. Imagine that a hypothetical bacteria doubles their population every one minute - meaning a growth rate of 100% per min. If this rate goes on forever, we'll be covered by bacteria in maybe a few months? But this will not happen because somewhere along the nice growth rate on paper, there will be a limit to this whole growth process. In the case of the growing bacteria, either they run out of space, or they run out of food, or their toxins emitted kill each other, or all of them at the same time. I guess economic growth is the same too.

I looked at the article and there are suggestions by different people on what is the best place to put your $50,000. Almost all of them suggest at least a small part in equities related instrument, either 'safe' blue chips or a few well diversified funds.

If you ask me, where you are going to put your $50k depends very much on what you intend to do with the $50k. Are you saving up for short term use - like getting a property, a car or marriage within 2-3 years? Are you saving up for your child's education in 25 yrs time? Are you saving up for retirement in 40 yrs time? Basically the longer the time frame, the more you should put into equities related instruments. If now is not the best time to invest, when is it? 2006? 2007? If you need the money in 2-3 yrs time, I'm not so sure what you put into the equities market can be recovered in this time frame. Hence, if you can't afford to lose your capital in the event of pre-matured cash out, then don't put it there.

I'm put most of my money in MMF because of my short term needs (see my post on Budgeting for the near future). However, they are getting lesser and lesser returns (though I must add they are still better than banks' rate), with monthly returns dropping from 0.17% per month in May 2007 to around 0.06% in Feb 2009. This means that the returns per annum dropped from around 2% to 0.7%. I think I'll stop putting money and perhaps draw some out of it. The risk of losing the money in MMF (though low probability) is not worth the 0.06% returns per month I'm getting from it, especially since I'm not going to put it there for the long term.

For those interested, mine is the Phillips MMF. Here's the unit price for year 2009.

Here's the graph plotting for the unit price of Phillips MMF since I started tracking in May 2007. Can you see the shift in gradient starting in 2008?

An epilogue

duckula06@yahoo.com (la papillion) — Fri, 13 Mar 2009 05:28:00 +0000

Today, a pet chinchilla passed away.

In its short life span, it had brought many joys. I asked my gf if she will still have the chinchilla, knowing that it will die at this particular day in advance. She said yes - the joys of having it is so much more than the sorrow that it brings her and so it's worth it.

Life is fragile. It pays well to reflect on who you've been neglecting as you hurdle over life's daily struggle.

Rest in peace, little one, for you'll be in raisin-land with all the other chinchillas.

Sick of s-shares

duckula06@yahoo.com (la papillion) — Thu, 12 Mar 2009 03:09:00 +0000

Do you know what s-shares stand for?

S-shares stands for stupid shares. Actually they are Singapore listed, China-based companies. What have they done to incur the wrath of investors locally? Let's trace it...

1. All began with Ferrochina. The details are hazy, but it goes more or less like this: Debtors force ferrochina to repay their short term debts, and nobody wants to lend ferrochina money to tide them over. Company declared bankrupt, and shareholders 'dieded'. Suspended from trading.

2. China printing & 'Dying' - this one is comically, though not so funny to shareholders. The husband and wife CEO team from the parent company went runnng. Suspended from trading.

3. Fibrechem – auditors have problems finalizing the trade receivables and cash balances at 31st December 2008. Shares are suspended from trading now.

4. Beauty china – Some party wanted to buy over the shares of the CEO, who is a major shareholder himself, as his stakes take up 38.7% of the total shareholdings. It seems that part of the shares sold by the CEO are due to margin calls - which means that the CEO had pledged his shares to do some borrowings. Suspended.

5. Sino-env - CEO had a company, who pledged his shares in sino-env as a pledge to hedge funds. Now, unable to repay their payment obligations, hedge funds threaten to sell off shares. Might affect the company's solvency and ability to pay off bond holders. Suspended.

6. Oriental century – Subsidiary of Raffles education. This is the most recent case where s-shares are involved. CEO substantially inflated sales and cash balances and had diverted unspecified sums to an interested party. There are fictitious accounting and related records, thus leading everyone to believe that the cash they had were in existence. Raffles education shares, who held 29% of oriental century, are halted from trading now. Oriental century shares are suspended from trading.

So who’s the next one to fall? These incidents reflect very poorly on s-shares because of the lack of good corporate governance. If the statements they published publicly cannot be trusted, nobody can do a proper valuation of the company and determine how strong their financial standing is currently. This will affect investors’ ability to judge for themselves the strength and prospect of a company. It’s a shame that such low quality companies are allowed to be listed in SGX.

I remembered fondly in 2006 that any company with CHINA as their names will do very well as punters bid them up, citing very valid and logical reasons like China being able to decouple from US, China being the next powerhouse etc. It’s great that I didn’t participate much in this orgy, though my sins are equally as bad – I bought some of them on the way down.

I’ve two s-shares currently (I do not consider pac andes as s-shares, since they are not china based companies, more like HK based) – china milk and hongguo. Both reported okay business – still making profits but lesser amounts. Both of them share a common attribute, which is they have excellent cash positions. Now, I would have to wonder if the cash reported are really there or not. It sucks big time to me because I can’t even be sure if there accounts are true!

You know what? I’m sick of s-shares.

Budgeting for the near future

duckula06@yahoo.com (la papillion) — Mon, 09 Mar 2009 06:18:00 +0000

I was trying to determine the big ticket cash outflow in the near future over the weekend. The 3 biggest ticket items are car, property and wedding. I roughly know the first two and set budget for them already, so I need to estimate how much I have to cough out for the wedding.

I started by writing down the names of the guests I wish to invite for the dinner. At last count, there are around 85 people, with maybe another 40 more coming from friends of both parents. This works out to be 125 guests to be invited, or assuming a table capacity of 10 guests, a total of 13 tables. Let’s just raise it up to 16 tables, in case there are extra.

Since there are only a small number of tables, I thought it’ll be better to have a dinner at a high end restaurant rather than be contented with a middle range hotel. That needs to be worked out with my gf. So assuming $1200 per table, I need to fork out $19,200. From what I asked around, the wedding package of bridal gown plus photos/video should cost around $6000. Add to this the cost of the wedding rings/bands, which I budgeted to be at $5000, we’ll have a grand total of $30,200. To be on the safe side, I’ll increase it to $35,000, which is a near 16% markup for conservative budgeting purpose.

For car, my total budget is around $30,000, which I intend to pay 50% as down payment and borrow the rest so as not to over stretch my cash coffer. With this budget, I narrowed down to 2 cars – first is a new Kia picanto, the other is a 2-3 years old Honda jazz. I’m undecided as to which is a better bargain, but that’s not important yet in this planning exercise. I strictly do not want my budget to exceed $35,000. Period. Let’s just use the budget of $35,000 to begin with, and my intention of paying 50% upfront means I have to fork out $17,500.

For property, I intend to get a 600-800k property for investment purpose. Assuming a 30% down payment, I need to raise 180-240k cash for it. This might be a little too big for me to swallow, so I’ll have to look for co-investors to share the down payment and mortgage payment. Still, my budget for property is only 100k, so I either have to find enough people to share the burden or just reduce the size of the property I’m looking out for.

Let’s tally the figures:

1. Car purchase: $17,500 which I’ll need by end 2009
2. Marriage: $35,000 which I’ll need by end 2010
3. Property: $100,000 which I’ll need by around 2010 to 2012

Total: $152,500

Assumptions:

1. I have to pay all the things myself, which is quite a valid assumption for now. My parents are definitely not going to chip in. My wild card here is the contribution from gf and her family. I assumed my wild card doesn’t exist.

2. I heard people saying that I can recover 80% of the wedding banquet expenditure. Since my banquet expenditure is estimated to be $15,300, this means I can recover back $15,360. I rather not bet on it. Let’s just assume that I get nothing back.

Cashflow

Getting the car and the property will increase my monthly expenditure as I need to repay the interest and principal of borrowing. The car should set me back by around $1000 per month (includes everything) while the property should at most set me back by around $1000 per month too, assuming that I have 2 person to share the burden with. That will set me back by $2000 per month, meaning that I have less to save unless my income increases by an equivalent amount too.

Of course, the point of buying a car for me is to increase my income, so even though my expenditure is 1k per month, I might/might not be able to break even/make more. The second thing is about the mortgage for the property loan. Best case is that the rental can more than cover the mortgage, generating cash flow for me. Worst case is that there’s no rental and I have to bleed 1k per month till I exit from the property. I’m totally fine with the worst case scenario. The more likely scenario is that my gf can help to ease my burden for both of the debts I incurred, which up till now I have not considered yet. That will greatly improve my situation and most likely I can retain my savings rate of more than 50% monthly income.

3 yr plan from early 2009 to end 2011

I have enough cash to cover both the car down payment and the marriage, which I’m very glad. This means that till end 2010, I do not need to accelerate my savings (like selling off my stocks to raise cash). I have 2 years – 2009 and 2010 – to save up, which at my current rate of 50k per year, I should be able to accumulate 100k for the property at end 2011. The critical period is from 2010 to 2011, as I might need to accelerate my savings before the property market flies off. However, if the market from 1998 to 2003 is any indication of future trend, there might be a period of consolidation while buyers and sellers fight it out. If that happens, I will have more time to accumulate savings for property. If I purchase the property 3 years later at 2012, I’ll have even more cash to buffer.