Eight percent per annum: Value investing in Singapore stocks

20 Years On!

2026-03-27T23:35:00.002+08:00

20 years is a long time. This blog started in 2006. So it has been 20 years.

This blog started in 2006. Fuck. It's been that long...

In that time frame, Blogger, this platform was bought out by Google, which thrive a bit.

But thereafter it was probably de-prioritized and all you see is ads now.

In the same timeframe, a baby becomes an adult, gets to drive, drink alcohol and vote in some countries.

In Singapore, if he is a boy, he goes to the army and handle weapons. If she is a girl, she graduates from high school, goes to university, probably has a boyfriend.

It is a fucking long time.

As a long term investor, I thought 20 years was the right time-frame to think about life and investments. Well, the world has become a lot more short-term.

Tiktok is about seconds. Youtube is in the minutes. Some podcasts go on for an hour or so. Movies have ironically gotten a bit longer at 2 plus hours, sometimes 3 hours.

But years? Come on. Who thinks in terms of 20 years? Insurance agents?

In 2023, I moved my content onto substack, the new platform for long-form writing. But still, no one reads unless you know how to play the game well.

Substack winners are players who have mastered the art of writing for social media. They can grow their followers to the thousands in days. It is a skill in itself.

To give substack credit, there is a lot of wonderful content on substack. Mine is 8percentpa.substack.com. Please follow and subscribe.

The value investing world is so disconnected because we have to think in years, usually 3-5 years, sometimes 10-20 years but the world is so different today.

In the last 20 years, if you subscribed to pure value investing, you would not have bought Nvidia, Amazon, Tesla because it was impossible to justify using value investing methodologies.

But these were the stocks that outperformed the most.

We discussed a bunch of stocks here. Some were okay, some bombed.

One went to zero. Hyflux.

I came to the conclusion that for most people, by that I mean 99% of human population, should just buy risk-free assets, like government bonds, if they have the means.

If you have a bit more appetite for investments, buy equity indices, like the S&P500.

Don't bother to pick stocks. You will not win.

The investment game is like the Olympics. Only the best of the best human beings win.

But unlike the Olympics, anyone can open an Interactive Broker account and compete, thinking he or she can win.

No, you will not win. If you did, it was luck.

By winning, I mean, beating the S&P500 over 20 years.

The S&P compounds 10% per year. So over 20 years, it will almost 4x the original capital, using the Rule of 72.

If you did compound 4x your capital since 2006, you win. Was it luck or skill? Be honest.

The best investors barely beat this. It is just like the Olympics. Not physically but mentally.

The human body deteriorates after the age of 20 so it is hard for a 40-year-old to win Olympic medals.

Investment requires experience and wisdom so age becomes an advantage but still because it's the most intense mental Olympics, only the best of the best get the medals.

I found a good list here: https://fiscal.ai/super-investors/

Bill Ackman, Howard Marks, Li Lu, Stanley Drunkenmiller, Warren Buffett, you name them.

The point is, this game is fucking difficult.

If you have a day job, and you try to do this, beat the market, make outsized returns? Forget it.

Just buy the S&P500. Or the STI. Or if you are risk-adversed, T-bills.

Don't risk your hard earned money trying to pick stocks.

Okay, if you want to buy DBS, eat dividends, make some extra. By all means.

Remember, that used to be Singtel. It's been replaced by DBS.

Like the top badminton player, or top tennis star. The best blue chip gets replaced too!

Or in the global context. It was Apple, which is replaced by Nvidia.

So, buy the index. That's for folks who can tolerate some risk.

If you cannot afford to lose money, just put in the bank or buy T-bills.

Don't risk hard earned money trying to invest.

Don't listen to insurance agents or well-meaning friends who made money buying Bitcoins.

The former is trying to earn your money, the latter got lucky and have no idea wtf they are talking about.

If after all this, you still want to go down the fucking rabbit hole and understand more about investing, follow or subscribe 8percentpa.substack.com

On this substack platform, we discuss activist investing.

Activist investors try to beat the market by trying to take control of their investee companies.

Activists send people on the boards of companies to shake things up.

Warren Buffett bought Berkshire Hathaway in an activist setting in 1965.

Activist investors do beat the market although the long term positive impact is unclear.

Because after the activists take their money, the companies' share prices revert. So the verdict is unclear.

What's clear though is if you read this far, your attention span goes beyond Tiktok.

Our substack is irregularly updated but we are here for the long game.

An attempt for the author to see if he can beat the market one more time, at the PA* level.

We write about investment ideas and activist stocks that we own.

https://8percentpa.substack.com/about

We also discuss free cashflow compounders, markets and portfolio management tips periodically.

So, see you there!

*PA stands for Personal Account.

This post is not written by AI.

New Activist Investment Idea!

2026-01-01T11:21:00.000+08:00

This post first appeared on 8percentpa.substack.com

This company might be a giveaway with the sub-title above and loyal followers of this substack. In order to mask it a little, we are not revealing the currency below. This is a European activist stock and the company has to turn things around for share price to rally.

Financials (Dec 26)

Net Sales: 8bn, OP: 0.8bn, Net Income: 0.4bn
EBITDA: 0.8bn, Free Cashflow (FCF): 0.4bn
Dividend: 4.5, Dividend Yield: 3.2%
Net Cash*: c.5bn, Market Cap: c.7bn

*Net Cash: Cash + 50% of Inventory - Short-term debt - Long-term debt

Financial Ratios

ROE: 7% (currently 3%), ROA: 5% (currently 1%)
GPM: 80%, OPM: 5-10% (currently 3%)
EV/EBITDA: 11.5x, EV/FCF: 14.4
PER: 18.1x, PBR: 0.7x
FCF Yield: 5.5%

As mentioned, an activist recently launched a campaign against this stock and tried to get onto the board of directors but was rebuffed. Since then, interested market participants and fellow substackers wrote a lot about this name and we have no shortage of deep research.

1. Background and Business

We have written extensive about Swatch. Please check the link below:

https://8percentpa.blogspot.com/search/label/Swatch

To reiterate, Swatch is a Swiss luxury watch and jewellery conglomerate that owns the following brands as well as production sites for watch movement manufacturing and retail distribution chains. While most readers would know Swatch, few would associate the company with iconic luxury brands like Omega and Harry Winston. In fact, its billion dollar brands or potential billon dollar brands are Breguet, Blancpain, Glashutte, Longine, Rado, Tissot and needless to say, the top three megabrands: Omega, Harry Winston and Swatch itself.

Here's the investment thesis:

Swatch is an activist play trading as a net net with its cash and inventory almost as big as its market cap. Its second generation founding family needs to turn things around or face more public scrutiny. The turnaround story includes revitalizing its megabrands, improving investor relations and reinvesting in mechanical watch innovation.

Activist Angle

What's new and important in 2025 is that activist Greenwood Investors, owning 0.5% of the company has launched a public campaign against Swatch’s management. In the last AGM held in May, the activist Steven Wood receive 60% of the votes but was blocked by the family to join the board. Sensing potential to change things, other activists are definitely looking at the name.

Management is also under pressure to turn things around since the under-performance has caused its market cap to drop to single digit billions while its peers are 10-30x bigger. Otherwise, someone might privatize them.

Positives

Iconic brands: Swatch owns three megabrands, Omega, Harry Winston and Breguet which could be even bigger should management focus on them. Omega consistent ranked top 3 in the world of watches in terms of volume sold. This is the brand that was worn to the moon and its secured its legacy.

Harry Winston is also consistently rank amongst the top jewellery brands while Breguet is a horological powerhouse founded in 1775 by Abraham-Louis Breguet. The brand's history is essentially a history of watchmaking itself. The founder invented and perfected numerous technologies that are still fundamental to mechanical watches today.

Privatization: With the stock trading at net net (current assets - current liabilities > market cap), the stock is ridiculously cheap for a jewellery / watchmaker and both activists and management knows this. Privatization either by management or third party would see share price popping 20-40% depending on the premium offered.

With that, let’s move on to the risks.

Risks

China: A big part of Swatch’s earnings recovery hinges on China and should business in the Middle Kingdom continue to deteriorate, it would be much more difficult for Swatch to engineer a turnaround. Mitigating factor: Swatch commented that it is seeing early signs of recovery in China and expects good results in 2H2025.

Management: Swatch is currently helmed by the founder’s son and daughter who have little regard for shareholders. The article below revealed their stances well. As such, management might then take it private should it become unreasonably cheap. While investors buying Swatch now would enjoy the pop, ultimately, it’s not great because long-term shareholders are being taken out cheaply.

https://www.swissinfo.ch/eng/various/activist-takes-on-swatch-maverick-as-omega-empire-falters/89342463

The rest of the post is on 8percentpa.substack.com

Prominent Global Activist Stocks

2025-11-10T17:05:00.000+08:00

This post first appeared on 8percentpa.substack.com

🌎 Shareholder activism is part and parcel of capitalism and modern society today.

🌐 If you are a citizen in a democratic society, you get to vote.

🔖 Analogously, if you are a shareholder, you have a voice and the right to opine on how things should work in your company.

Today, publicly listed stocks have thousands, and for larger companies, millions of shareholders. No individual shareholder can effect big changes. When the board of directors fail in their jobs, all shareholders suffer.

That’s where activists come in.

Activists buy the shares of listed companies and effect changes. Through proposing transformational improvements, putting themselves onto the boards of companies or simply advising management via constructive dialogues behind-closed-doors, activists help their investee companies better strategize and grow.

We discussed some interesting activist names in Japan, where c.40% of listed stocks trade below book and has attracted activist attention globally. But the global activists had been busy for many years.

Warren Buffett acquired Berkshire Hathaway in an activist setting back in 1965. The 1980-2000s saw the rise of shareholder activism in US and then in Europe.

Funds like Cevian, Elliott, Hikibi Path Advisors, JANA Partners, LIM Advisors, Oasis, Pershing Square, Simplex, Starboard Value, Third Point, Trian Partners and ValueAct became very prominent.

Without further ado, here’s the inaugural list of the prominent global names (ex-Japan) in alphabetical order.

Acadia Healthcare (ACHC US, Market Cap: USD2.4bn, PER: 10.4x, PBR: 0.8x, EV/EBITDA: 6.9x) : Engine Capital public engaged Acadia Healthcare, NASDAQ listed mental health facilities operator, in Sep 2025 with its 3% stake. Engine is asking for pause in capital intensive projects, followed by company overhaul focusing on governance, cost reduction and asset sale. In Oct 2025, Khrom Capital joined the fray, asking Acadia to explore a potential sale of itself.
Air Products and Chemicals (APD US, Mkt Cap: USD65bn, PER: 22.6x, EV/EBITDA: 15.4x) : APD is one the world’s largest industrial and specialty gas maker alongside Linde PLC, Air Liquide and Nippon Sanso. In 2025, it was targeted by activist Mantle Ridge and then DE Shaw, a quant / activist shop and they succeeded to overhauling the board, ousting the CEO and appointing a few directors onto the board.
Akzo Nobel (AKZO NL, Market Cap: USD12.1bn, PER: 14.0x, PBR: 2.5x, EV/EBITDA: 9.6x, Dividend Yield 3.3%) : Akzo Nobel, one of the largest paint company, was engaged by Cevian, Europe’s leading activist investor. In Aug 2025, Cevian disclosed a 3% stake in AKZO causing share price to jump. This seemed to be a case of constructive activism with Cevian’s spokesperson publicly stating that they see the long-term potential of AKZO do to better. There is little public info on other engagement agendas, but A.I. believes that Cevian would ask for sharper portfolio focus and better cost discipline at AKZO.
Autodesk (ADSK US, Market Cap: USD66bn, PER: 29.7x PBR: 24.3x, EV/EBITDA: 22.6x, FCF Yield 2.4%) : Renowned 3D design and engineering software company has been engaged by Starboard Value since 2024. Starboard has argued that Autodesk’s margins were not optimized (GPM 11%!) and corporate governance should be improved. After a public spat, Starboard and Autodesk management are apparently cooperating to improve the numbers.
Avantor (AVTR US, Mkt Cap: USD8.8bn, PER: 13.3x, EV/EBITDA: 11.1x) : AVTR is one of the largest life science and materials company providing mission critical to products and services to biopharma and healthcare players. In 2025, activist Engine Capital (owns c.3% of shares) engaged the company targeting a possible sale given that share price dropped c.50% as a result of poor execution. Management took the threat seriously and took steps to overhaul the firm.
Bill Holdings (BILL US, Market Cap: USD5.3bn, PER: 24.4x PBR: 1.4x, EV/EBITDA: 17.3x, FCF Yield 5.9%) : Company which has been providing cloud-based software that simplifies, digitizes, and automates back-office financial operations for small and midsize businesses worldwide finds itself targeted by both Elliott (owns 5%) and Starboard Value (owns 13%). Stock surged c.27% in two weeks. This could be an interesting candidate for the portfolio given it is a strong free cashflow generating SAAS business.
Bitfarms Ltd (BITF CN, Market Cap: USD1.7bn, PER: -ve PBR: 2.5x, EV/EBITDA: 104.1x) : Canadian listed bitcoin miner was engaged by its larger US competitor Riot Platforms earlier this year. Riot built an initial stake of 12% but was poison-pilled by Bitfarm. It went to the courts, Riot upped its stake to 19% and managed to squeeze in a board member in late September. The endgame could be Riot trying to buy Bitfarm on the cheap. But then, Bitfarms is burning cash. So Riot would need to stop the bleed before forking out more money.
BP PLC (BP LN, Mkt Cap: USD91bn, PER: 12.1x, EV/EBITDA: 4.7x, Dividend Yield: 7.9%) : Formerly known as British Petroleum, then renamed as Beyond Petroleum, BP is one of the highest profile activist stocks in 2024-2025. Elliott Management bought c.5% of outstanding shares and called for a strategic reset to refocus back on traditional oil and gas. Succumbing to activist pressure, BP’s Chairman resigned and management took concrete steps, including announcing the sale of its U.S. onshore wind business, to shift back toward its core oil and gas portfolio. Share price has also increased from GBP3+ to GBP4.2 as of this writing.
Charles River Laboratories (CRL US, Mkt Cap: USD8.2bn, PER: 16.5x, PBR: 2.5x, EV/EBITDA: 11.3x, FCF Yield: 5.2%) : Elliott engaged CRL earlier this year and got two directors appointed on CRL’s board. Charles River is a global Contract Research Organization (CRO) for pharmaceutical and biotech companies currently trading at reasonable valuations.
Coway (021240 KR, Market Cap: USD5.5bn, PER: 12.8x PBR: 2.4x) : Coway is durable goods rental company renting out air purifiers, toilet bidets and mattresses, doing a decent business in Korea until gaming company, Netmarble came along, snapped up 26% and caused some corporate governance issuce. Activist Align Partners then came in and tried to sort things out. Align Partner’s Deck on Coway.

Cracker Barrel (CBRL US, Market Cap: USD1.4bn, PER: 19.4x PBR: 3.0x, EV/EBITDA: 11.4x, Dividend Yield 1.6%) : This restaurant operator blew up part of the internet in August when management decided to go really woke and change its logo, removing Old Timer from its original logo. Fans and activists both protested. Even the US President said his piece. Long time activist investor in Cracker Barrel, Sardar Biglari wrote a 120 page damning presentation calling for improvement. That said, this was more sensational news than actionable activist idea. Takeaway: depending on the circumstances, straightforward narratives (like trying to be progressive) can still somehow backfire
CSX (CSX US, Market Cap: USD118bn, PER: 22.1x, PBR: 5.4x, EV/EBITDA: 13.1x, Dividend Yield 1.6%) : CSX, North American railway company transporting coal, agricultural and other finished products is being engaged by Ancora Holdings. The activist has ousted its CEO and is pushing CSX to explore merger options with either BNSF Railway Company (owned by Berkshire Hathaway) or Canadian Pacific Kansas City (CPKC).
Diageo (DGE LN, DEO US, Mkt Cap: USD62bn, PER: 16.2x, EV/EBITDA : 12.8x, Dividend Yield 3.7%) : The world’s largest spirits and whisky maker continues to languish with both US and China drinking less. While no activist is publicly involved as of Oct 2025, it was recently reported that Terry Smith of Fundsmith sold his stake in Diageo, a stamp of disapproval on the company. Subsequently, CEO Debra Crew resigned, another sign of activist action behind-the-scenes. This newsletter has written a lot about Diageo. Valuations are still very reasonable.
Disney (DIS US, Mkt Cap: USD207bn, PER: 19.0x, EV/EBITDA: 11.7x) : Disney was targeted by Nelson Peltz of Trian and Blackwells Capital in 2024. Both activists failed to win any board seats although Blackwells’ advice for Disney to digitalize faster and embrace A.I. was sound, even prophetic. Disney’s share price has just been treading water for the last two years.
Harley-Davidson (HOG US, Mkt Cap: USD3.3bn, PER: 6.6x, EV/EBITDA: 12.2x, Dividend Yield: 2.6%) : The world’s #1 premium motorcycle brand faced off activist H Partners (c.9% shareholder) at this year’s AGM. While H Partners failed to get board seats, their campaign triggered the resignation of CEO and catalyzed management to refocus on strategic priorities. Share price has also started moving.
Honeywell (HON US, Mkt Cap: USD138bn, PER: 20.2x, EV/EBITDA: 15.3x, Dividend Yield: 2.1%) : Honeywell is a massive industrial conglomerate with core businesses in Aerospace, Building & Industrial Automation and Energy & Sustainability Solutions. In late 2024, Elliott bought a USD5bn stake and publicly urged Honeywell to break up its businesses. This was a major activist win as Elliott partner Marc Steinberg was appointed to Honeywell's Board and Honeywell agreed to breaking up into three distinct, publicly listed companies.
Kenvue (KVUE US, Mkt Cap: USD40.7bn, PER: 19.8x, EV/EBITDA: 13.7x, Dividend Yield: 3.9%) : Consumer health company spun out from J&J, selling over-the-counter (OTC) medicines, personal care, and wellness products. Multiple activists, including Starboard Value, Third Point and Sachem Head engaged the firm seeking a strategic review including divestment of under-performing business (skincare) and possible full sale of the company.
Keurig Dr Pepper (KDP US, Market Cap: USD38bn, PER: 13.4x, PBR: 1.5x, EV/EBITDA 11.2x, Dividend Yield: 3.3%) : Activist Starboard Value’s engagement with KDP was made public in mid Oct 2025 after the company announced plans to buy European coffee maker JDE Peet’s for USD18bn, which many believed was overly expensive. The following analysis provides good insights on this development:https://www.cnbc.com/2025/10/18/how-starboard-could-build-value-at-keurig-dr-pepper-ahead-of-its-jde-peet-deal-.html
Lamb Weston (LW US, Market Cap: USD7.9bn, PER: 19.9x PBR: 4.5x, EV/EBITDA: 16.9x, Dividend Yield 2.6%) : Lamb Weston is a global food processing company specializing frozen potato products. In 2025, it was engaged by JANA Partners which owned c.7% of outstanding shares. JANA pushed for major operational and capital improvements, including advocating for a potential sale of the company. In mid 2025, JANA and Lamb agreed that four of its 13 directors would be nominated by the activist.
Lululemon Athletica (LULU US, Market Cap: USD20.1bn, PER: 13.9x, PBR: 4.6x, EV/EBITDA: 7.7x) : In a rare case of founder-led activism, Lululemon’s founder, Chip Wilson, compared his own company to a “plane crash” with a full page advertisement criticising management on the Wall Street Journal in Oct 2025. On CNBC, he also alluded to working with activist investors to force changes on the board. (Updated Nov 2025)
Natural Resource Partners (NRP US, Market Cap: USD1.4bn, PER: 9.7x, PBR: 2.3x, EV/EBITDA: 7.8x, FCF Yield 15%, Dividend Yield 2.9%) : This interesting name is being targeted by activist Graystone Capital and other smart investors. Its main business is collecting royalties from the coal and soda ash mines that it owns. NRP is a Master Limited Partnership which for reasons unclear, non-US investors are unable to buy.
Markel (MKL US, Mkt Cap: USD24.4bn, PER: 19.2x, PBR: 1.4x) : This insurer, once touted potentially as the next Berkshire Hathaway, was targeted by activist JANA Partners (again!) in 2024. JANA argued that Markel had lost its way and might consider selling the business to another bigger insurer. Markel did not fight back publicly, instead took the opportunity to take feedback and review its businesses. It recently announced the sale of its global re-insurer business.
Medtronic (MDT US, Market Cap: USD118bn, PER: 16.1x PBR: 2.5x, EV/EBITDA: 13.5x, Dividend Yield 3.1%) : Elliott’s involvement in this global medical device giant was announced last month after “constructive dialogue”. It was reported that Elliott’s involvement likely resulted in the board appointments of two independent directors and the spinoff of Medtronic’s diabetes business. Share price reaction was muted though.
Middleby Corp (MIDD US, 0K1G UK, Market Cap: USD6.7bn, PER: 15.1x, EV/EBITDA: 10.8, PBR: 1.8x) : US commercial food service equipment maker has been engaged by Trian’s ex-CIO Ed Garden. His eponymous fund, Garden Investments holds c.5% stake of Middleby. In Oct 2025, FT announced that Middleby will sell 50% of its kitchen product business to 26North, a new investment vehicle of Apollo’s cofounder Josh Harris. Interestingly, share price has not moved much. (Updated Nov 2025)

PepsiCo (PEP US, Market Cap: USD210bn, PER: 18.0x PBR: 10.8x, EV/EBITDA: 13.3x, Dividend Yield 3.7%) : Elliott published its manifesto https://elliottletters.com/pepsico/ on PepsiCo articulating its comeback strategies on PepsiCo’s legacy of successes built on its storied glories such as building Frito Lay into the global #1 potato chips brand and successful spinoff of Yum! Brands. PepsiCo is also our portfolio name since 2023.
Pfizer (PFE US, Mkt Cap: USD143bn, PER: 8.9x, EV/EBITDA: 8.5x, Dividend Yield: 6.8%) : Once the largest pharmaceutical company in the world, Pfizer has dropped to #11 in ranking. Activist Starboard Value acquired a USD1bn stake and called for its board to hold management accountable for the share price underperformance. At the 2025 AGM, Pfizer’s directors were all re-elected. It is unclear what’s Starboard’s next move. Meanwhile, PFE’s share price also didn’t do much. As such, the story is still unfolding…
Philip 66 (PSX US, Market Cap: USD49.3bn, PER: 14.5x PBR: 1.8x) : Elliott launched a public campaign earlier this year arguing company has under-performed for many years. Company fought back and things culminated into the AGM proxy battle with both sides getting two of their nominated directors voted in. The saga is ongoing. Elliott’s deck: https://www.10xebitda.com/wp-content/uploads/2025/02/Elliott-Management-Phillips-66-Natural-Resources-Elliott-Phillips-Presentation-11-Feb-2025.pdf
Reckitt (RKT LN, Mkt Cap: USD50bn, PER: 15.2x, EV/EBITDA: 12.7x, Dividend Yield: 3.8%) : Formerly Reckitt Benckiser, this UK consumer and OTC drugmaker with iconic brands such as Dettol, Durex, Nurofen, Vanish, Air Wick, Enfamil (milk) was targeted by multiple activists in 2024. Pressured by them, RKT sold part of its homecare business and is return capital to shareholders. This newsletter has written about Reckitt.

The rest of the post is on https://8percentpa.substack.com/p/prominent-global-activist-stocks

Japan's Activist Stock Names

2025-10-20T10:43:00.010+08:00

This post first appeared on 8percentpa.substack.com and is now the #1 most read post on our substack.

Since we started to talk about shareholder activism, the biggest hotbed has been Japan. There are now a few hundred Japanese names owned by activists today. Shareholder activism in Japan started around 2005 when the activist pioneers targeted Japanese broadcasters and food sauces*.

It did not end well.

Foreigners were labelled as arrogant gaijins (i.e. aliens) who didn’t know Japanese ethics and were just vultures, barbarians at the gates, greedy capitalists and enemies of corporate and basically the whole of Japan. Activists were mocked, fined, thrown in jail and chased out of the country.

The Japanese activist pioneer, Murakami Yoshiaki, founder of the eponymous Murakami fund, was imprisoned, taking one for the global activist teams trying to transform corporate Japan during trying times. He now lives in Singapore. Together with his daughter, they are playing key supporting roles in Act II of Shareholder Activism in Japan.

Fast forward to 2025, things have really changed.

Activists are no longer the villains.

Villains today are sleepy management in corporate Japan who couldn’t spell ROE. Okay, they can spell ROE, but probably couldn’t fully appreciate its importance. Certainly, most of them do not know what’s FCF, acronym for Free Cashflow, another key metric for investors.

That said, you would be surprised how fast Japanese management learn. Once activists show up at their doorstep, you will see FCF on their investor relations’ presentation materials the next quarter. Because their jobs and the company’s independence are now on the line if they cannot win in the court of public opinion.

Hence we thought it would be interesting and pertinent to write down a list of activist stocks recently and currently “in play”. This would also serve as a good go-to-post should we need to come back to refer to some names. It would also be updated with important new names. New activist campaigns are happening almost weekly.

Without further ado, here’s the list of the Japan’s activist names in alphabetical order.

Current List

Alps Alpine (6770 JP, Mkt Cap: USD2.3bn, PER: 15.3x, PBR: 0.7x) : Alps Alpine is a prominent electronics components and car audio manufacturer currently owned by the abovementioned Murakami team (c.17% of outstanding shares) but multiple activists have engaged the company in the past.

Anicom Holdings (8715 JP, Market Cap: USD440m, PER: 25.5x PBR: 2.3x, EV/EBITDA: 8.8x, Dividend Yield: 1.0%) : Largest pet insurer in Japan invested by Taiyo Pacific Partners for a couple years. Recently, Dalton Investments of Fuji Media fame disclosed a 5% stake in Anicom, causing the stock to jump c.10%. Dalton has signalled that it would made its proposals known. (Updated Sep 2025)

Astellas Pharma (4503 JP, Market Cap: USD20bn, PER: 17.0x PBR: 2.0x, EV/EBITDA: 7.7x, Dividend Yield: 4.7%) : Farallon Capital engaged Astellas with 3% stake and calling for more cost cutting and optimizing R&D. Interestingly, CEO acknowledged the engagement, calling Farallon constructive. Astellas faces a huge patent expiration of its blockbuster prostate cancer drug Xtandi and is probably keen to study more growth strategies, even from activists. (Updated Sep 2025)

Calbee (2229 JP, Market Cap: USD2.7bn, PER: 21.8x, PBR: 1.9x, EV/EBITDA: 8.9x, FCF Yield 3.2%, Dividend Yield 2.0%) : As with Pepsico (engaged by Elliott), Japan’s largest potato chips maker, which is c.21% owned by Pepsico, was similarly engaged by Hong Kong’s Oasis to buck up. Calbee’s earnings have stagnated for 10 years. Calbee is a household name in Japan, but with mere market cap of USD2.7bn and share price having done nothing for a decade, the onus is on management to prove the activist wrong. Oasis has gone up the league table and have engaged bigger boys. This activist might have good ideas up its sleeves to create shareholder value with Calbee. (Updated Sep 2025)

Casio (6952 JP, Mkt Cap: USD1.8bn, PER: 16.2x, PBR: 1.2x) : Casio needs no introduction, its G-shocks, calculators, electronic pianos are ubiquitous but management seemed unable to drive earnings growth and Oasis, yes, the same HK based activist has targeted this company recently (like literally a few days ago in early July 2025). This would be an interesting name to watch for 2025-2026.

Daiichi Life (8750 JP, Mkt Cap: USD28.0bn, PER: 9.2x, PBR: 1.0x) : Daiichi is the only one among four traditional Japanese insurer that is listed and has been targeted by Effissimo, which was the reincarnation of the original Murakami Fund. With 11% stake, Effissimo’s stake is close to USD3bn.

Daihatsu Infinearth (6023 JP, Mkt Cap: USD540mn, PER: 16.4x, PBR: 1.3x, EV/EBITDA: 6.7x, Dividend Yield 1.9%) : Formerly known as Daihatsu Diesel, company was engaged by Kaname Capital which owns 18% of the company. The maker of marine and land-use internal diesel combustion engines share price has rallied sharply since Kaname’s engagement. Most of the engagement details are not public. What we can see in disclosures are i) Imabari is now the largest shareholder (19.6% stake), replacing Daihatsu Kogyo ii) Good english earnings presentation with business details iii) dramatic PBR improvement from 0.4x to current 1.3x! (Updated Oct 2025)

DIC Corp (4631 JP, Mkt Cap: USD2.0bn, PER: 10.5x, PBR: 0.7x, EV/EBITDA: 14.6x, Dividend Yield 3.2%) : Oasis engaged this Japanese fine chemical company making inks, pigments and resins for its art collection in the Kawamura Memorial DIC Museum which rightfully belongs to all shareholders. A.I. estimated the 384 artwork could be worth c.USD1bn. (Updated Sep 2025)

eGuarantee (8771 JP, Mkt Cap USD510mn, PER: 19.6x PBR: 3.3x, EV/EBITDA: 10.6x, Dividend Yield: 2.3%) : This is an interesting financial services company that helps companies hedge credit risks, especially invoice non-payments in Japan. Ariake Capital, a constructivist fund launched by ex-Goldman Sachs analyst Katsunori Tanaka, currently owns c.7% of outstanding shares. Responding positively, eGuarantee recently revised its policy to improve shareholder returns. (Updated Oct 2025)

Eiken Chemical (4549 JP, Mkt Cap USD500mn, PER: 22.4x PBR: 1.8x, EV/EBITDA: 11.9x, Dividend Yield: 2.5%) : Japanese diagnostics company with 70% market share in colon cancer screening tests is concurrently engaged by AVI and Dalton (cumulatively owning c.20-25%). Company has responded with new mid term plan and strived to improve shareholder returns. However, with continuing lacklustre earnings (earnings halved from its peak in 2022), it might be privatized should activists find the right buyers. (Updated Oct 2025)

Ezaki Glico (2206 JP, Mkt Cap: USD2.0bn, PER: 25.7x, PBR: 1.1x) : The maker of chocolate Pocky sticks has been targeted by Dalton, the activist that stirred up the media circus in Japan’s media industry (see next entry). Glico was trading below book despite being one of the most iconic Japanese brands with not just Pocky and Pretz but also its Glico Man in Osaka.

Fuji Media (4676 JP, Mkt Cap USD5.5bn, PER: 16.5x, PBR: 0.8x) : This is one of the five TV broadcaster in Japan under fire and the biggest Japan activist play of 2025. Dalton Investments is the main cheerleader now but multiple activists, including the Murakamis have targeted this name.

Gungho Online (3755 JP, Market Cap: USD1.0bn, PER: 16.3x PBR: 1.2x, EV/EBITDA: 3.0x, Dividend Yield: 2.2%) : Once Japan’s famed gaming company founded by Taizo Son (the more famous Son’s younger brother) and creator of megahit Puzzles and Dragons mobile game, the company is being targeted by the aggressive Strategic Capital in Jan 2025. Recently, Strategic raised its stake from 7.5% to 8.5% and seek to remove the CEO and improve transparency on management pay packages can better capital allocation and growth strategies. (Updated Sep 2025)

Heiwa Real Estate (8803 JP, Market Cap: USD1.1bn, PER: 15.6x, PBR: 1.3x, Dividend Yield 3.7%) : Japan’s mid-tier developer owning prime land around the Tokyo Stock Exchange was engaged by LIM advisors, Simplex Asset Management and the Murakami family. The earlier activists were successful in their campaigns selling their stake to Taisei, currently owning c.20%. It is unclear what Murakami family is asking for at this juncture. (Updated Sep 2025)

Hogy Medical (3593 JP, Mkt Cap USD0.7bn, PER: 35.1x, PBR: 1.5x) : Company makes surgical kits in Japan and has been “in play” for some time. In its July 2025 results meeting, Hogy Medical’s management remarked that going private was on cards and stock price went limit up. Otto Oehring knows this name well and has written interesting stuff on Japan.

IG Port (3791 JP, Mkt Cap USD590mn, PER: 35x PBR: 3.7x, EV/EBITDA: 8.7x, FCF Yield: 6.6% Dividend Yield: 1.1%) : Japan’s fabled animation studio behind iconic animation like Ghost In The Shell, which was made into Hollywood movie starring Scarlett Johansson in 2017. The firm appointed Hibiki’s CIO as an independent advisor on its board. (Updated Oct 2025)

Kao (4452 JP, Mkt Cap USD21.1bn, PER: 24.2x, PBR: 3.0x) : Kao is the P&G of Japan without P&G’s high ROEs and valuations. It makes washing detergents, diapers, soaps and shampoos and its brands are well-loved in Asia. Management hasn’t really been sleeping at the wheels but its ROE can definitely be higher than the current 9%. Oasis has started to engage the company as one of its first large / megacap engagement.

Kawasaki Kisen (9107 JP, Mkt Cap USD8.9bn, PER: 9.5x, PBR: 0.8x) : Kawasaki Kisen or K-Line is one of the three Japanese mega-shippers companies that is 35% owned by Effissimo for c.10 years. However, exactly how Effissimo engaged K-Line has remained largely elusive and the one prominent activist action that is public is that one of Effissimo’s key employee became a board director for K-Line.

Keisei Railway (9009 JP, Mkt Cap USD5.4bn, PER: 16.8x, PBR: 1.5x) : Palliser Capital, an upcoming activist, started engaging Keisei Railway to try to catalyze the divestment of Keisei’s crown jewel: its 21% stake in Tokyo Disneyland (Oriental Land 4661 JP) which is worth >JPY1trn and more than Keisei’s own market cap. Insofar, Palliser has not been successful. Similarly, Elliott has engaged Mitsui Fudosan to do the same with its 6% in Oriental Land.

Kobayashi Pharma (4967 JP, Mkt Cap USD2.7bn, PER: 30.4x, PBR: 1.9x) : One of Japan’s well-known OTC drugmaker that also manufactures sanitary products, air fresheners, breath fresheners, pain relief medicine, denture cleaning agents and a slew of household products. Oasis targeted the company after one of their supplement caused 5 confirmed and 75 unconfirmed deaths.

Kyocera (6971 JP, Mkt Cap USD5.4bn, PER: 25.4x, PBR: 0.7x) : Kyoto’s largest electronic components behemoth founded by the legendary Kazuo Inamori which has gone sleepy. Oasis recent launched a campaign to create “A Better Kyocera”.

Kyoto Financial Group (5844 JP, Mkt Cap USD5.2bn, PER: 19.1x, PBR: 0.7x) : Largest regional bank in Kyoto whose holdings of famed Kyoto companies such as Nintendo, Nidec, Murata and Kyocera is more than its own market cap. Silchester, owning an 8.5% stake has been calling for the unwinding of these cross-shareholdings, which is one of the worst use of precious capital.

Lifenet (7157 JP, Mkt Cap USD1.2bn, PER: 23.7x, PBR: 1.8x) : Japan’s first and largest online life insurer held by Effissimo for many years. Constructive engagement coupled with Lifenet’s executive team’s savviness resulted in share price quadrupling over the last couple of years. Effissimo continues to own a big stake.

Lion (4912 JP, Mkt Cap USD2.7bn, PER: 16.4x, PBR: 1.4x) : Japan’s dental care play targeted by Japan Activation Capital, new activist on the block founded by ex-Carlyle senior executive. Lion’s business is great (just look at Colgate’s long-term share price) and yes, it should trade at higher multiples.

Kansai Electric Power (9503 JP, Market Cap: USD16.4bn, PER: 8.2x, PBR: 0.8x, EV/EBITDA: 8.7x, FCF Yield 3.3%, Dividend Yield 2.8%) : Japan’s top utility company is being engaged by Elliott which publicized its 4-5% stake recently. Elliott is calling management to sell non-core assets which it estimated to amount to c.JPY2trn (80% of its market cap) including real estate. The monies could then be used to raise dividends and push share price above 1x PBR. Kansai Electric also has the largest nuclear power footprint in Japan. (Updated Sep 2025)

Keeper Technology (6036 JP, Mkt Cap USD670mn, PER: 20.5x PBR: 5.6x, EV/EBITDA: 12.8x, FCF Yield: 3.9% Dividend Yield: 1.6%) : It was reported that domestic activist, Misaki Capital now owns c.5% of Keeper which is Japan’s largest car waxing company, competitor and interestingly, strategic shareholder to Soft99 (below). Misaki is known to be non-hostile and might perhaps engineer another MBO in this somewhat popular car waxing industry in Japan. Or advise both Keeper and Soft99 to merge perhaps? (Updated Oct 2025)

Mandom (4917 JP, Market Cap: USD650mn, PER: 29.3x, PBR: 1.4x, EV/EBITDA: 9.8x, FCF Yield 8.8%, Dividend Yield 1.9%) : Japan’s leading male cosmetics and hairstyle product maker is being taken private by its own management. Mandom has been engaged by multiple activists, notably Hibiki Path Advisors amongst others and this is management’s bid to get the activists off their backs. Hikibi is fighting for a higher price. This is a portfolio name and we made c.50%. So, Hibiki Path Advisors. Thank you so much! Our analysis on Mandom written in Apr 2025 and updated in Sep 2025.

Meisei Industrial (1976 JP, Market Cap: USD520m, PER: 9.6x PBR: 1.1x, EV/EBITDA: 4.4x, FCF Yield 6.5%, Dividend Yield: 3.7%) : Meisei Industrial specializes in thermal insulation for construction works, an important technology as we need more insulated data centers, more cold chain warehouses in the face of global warming. Dalton related Nippon Active Value Fund has increased its stake to c.10% today and likely targeting privatization given the firm’s cheap valuations. This would be an interesting name to monitor. (Updated Oct 2025)

Mitsui Soko (9302 JP, Mkt Cap USD2.0bn, PER: 28.2x, PBR: 2.5x) : Warehousing subsidiary of Mitsui Group. Japanese newswires got excited when 3D Investment Partners raised its stake from 8% to 9% in July 2025. That said, share price has rallied quite nicely over the past 12 months. Warehouse names in Japan used to be really cheap but at close to 30x PER, perhaps this trade is over. Sumitomo Warehouse (9303 JP) is still cheap though. (Updated Aug 2025)

Money Forward (3994 JP, Mkt Cap USD2.2bn, PER: Negative, PBR: 8.5x) : Japan’s unicorn fintech play listed just a few years ago caught ValueAct’s attention. ValueAct and related parties now owns c.5% of Money Forward. ValueAct believes margins could be higher and the activist intends to use its expertise having engaged co.s like Microsoft, Adobe and Trend Micro to help Money Forward. (Updated Aug 2025)

Nippon TV (9404 JP, Mkt Cap USD5.5bn, PER: 15.8x, PBR: 0.8x) : Japan’s leading TV broadcaster and owner of Studio Ghibli (whose style is being popularized by OpenAI and used for various purposes). While there is no public record of activist holding the name, it is definitely on many’s radar. This substack has written about Nippon TV and the portfolio is also invested in this name.

Nissan Shatai (7222 JP, Mkt Cap USD980mn, PER: 25.6x, PBR: 0.9x, Dividend Yield: 1.1%) : Nissan’s listed subsidiary making various specially-equipped vehicles, such a, ambulances, children’s school buses, and refrigerator vans. Activists Effissimo and Strategic collectively owns c.33%. The play seems to be targeted buyout by Nissan, but alas, the parent has no money at the moment… (Updated in Oct 2025)

Omron (6645 JP, Mkt Cap USD5.1bn, PER: 20.5x, PBR: 1.0x) : One of Japan’s top player in factory automation, sensors and controllers, Omron is the newest target of Japan Activation Capital, founded by former Carlyle executive Hiroyuki Otsuka. (Updated in Aug 2025)

Pigeon (7956 JP, Mkt Cap USD1.4bn, PER: 22.0x, PBR: 2.6x) : Pigeon used to be the stock market darling as the China play for premium baby products but has since derated. Japan Activation Capital, which has targeted Lion has also targeted Pigeon. This activist seems to like animals (or rather companies with animal related names).

Ricoh (7752 JP, Mkt Cap USD5.2bn, PER: 13.1x, PBR: 0.7x) : Once the global #3 photocopier alongside iconic names like HP, Fuji Xerox, Canon, Konica Minolta and also Kyocera etc, this stock has languished with bad business decisions and attracted Effissimo is now the #1 shareholder with 21% stake in the company.

Rohto Pharma (4527 JP, Mkt Cap USD3.2bn, PER: 15.1x, PBR: 1.8x) : One of Japan’s household name in OTC and skincare, Rohto is well-known for its eye-drops and lip-balms. AVI, a UK based activist, launched its campaign “Awaken Rohto” to catalyze the firm to focus on its core businesses and not squander capital on regenerative medicine. Presentation link: https://www.assetvalueinvestors.com/agt/campaign/awakening-rohto/

Sagami Rubber (5194 JP, Mkt Cap USD69m, PER: 25.4x PBR: 1.0x, EV/EBITDA: 17.2x, FCF Yield: 7.0%, Dividend Yield: 1.1%) : Second largest condom maker in Japan after Okamoto (which we own) targeted by Oasis and Briarwood Chase and the two collectively own c.23% of outstanding shares. Total foreign ownership is c.31%. With its small market cap, this company might be taken private in a flash. That said, there is very little available publicly as to what the activists have in mind or what they want to do with Sagami Rubber. (Updated Sep 2025)

Sanken (6707 JP, Mkt Cap USD1.3bn, PER: 3.9x, PBR: 1.2x) : Targeted by both Oasis and Effissimo, Sanken’s story revolved around its 50% stake in Allegro Microsystem (ALGM US), a power semiconductor company listed on Nasdaq. Sanken’s stake is worth way more than its own market cap and Allegro has initiated a buyback 18% of the stake for USD666m. That said, Sanken still owns 32% of Allegro.

Sapporo (2501 JP, Mkt Cap USD3.7bn, PER: 44.1x, PBR: 3.0x) : Japan’s fourth largest beer company with real estate worth more than its market cap was engaged by activist 3D Investment Partners. Share price has rallied significantly since 3D’s investment was made public (see link below). https://www.compoundsapporo.com/home-eng

Seibu Group (9024 JP, Mkt Cap USD7.3bn, PER: 38.3x, PBR: 1.9x) : Once a sprawling railway empire in Japan with its founder the richest man in the world, Seibu Group now trades at a mere USD7bn market cap but 3D Investment Partners believe that the stock is undervalued with its vast land holdings and lucrative domestic businesses such as Prince Hotels and baseball games.

Shibaura Electronics (6957 JP, Market Cap: USD670m, PER: 21.6x PBR: 2.8x, EV/EBITDA: 9.8x, Dividend Yield: 2.3%) : In a rare case of corporate activism, Taiwan’s Yageo made an unsolicited hostile bid for Shibaura Electronics, Japan’s thermistor and sensor maker, earlier this year. This ruffled a lot of feathers and MinebeaMitsumi was brought in as a white knight. After multiple rounds of bids and counterbids, Yageo bid 7,130 yen for Shibaura and looks like Yageo will win. (Updated Sep 2025)

Shiseido (4911 JP, Mkt Cap USD7.1bn, PER: 58.6x, PBR: 1.7x) : IFP, a consumer focused long-only turned activist fund engaged Shiseido, Japan’s #1 cosmetic maker, as its high-profile target in 2025 following a previous failed attempt with Kirin Holdings (beer). IFP has not made its proposals to Shiseido publicly but share price has rallied in anticipation.

Soft99 (4464 JP, Mkt Cap USD590mn, PER: 30.1x PBR: 1.5x, EV/EBITDA: 12.8x, FCF Yield: 9.4% Dividend Yield: 1.1%) : Soft99, Japan’s car wax and automotive chemical product company launched a MBO privatization to rid itself of activist Effissimo. But it was a low-ball bid and Effissimo countered with a higher price which was 66% higher at JPY4,100 per share. Inexplicably, Soft99’s board is arguing that shareholders should accept the lower bid. They might just succeed because the top shareholders are either friends or strategic partners. If so, it will be a blow to activism in Japan. Someone should sue. (Updated Oct 2025)

Square Enix (9684 JP, Mkt Cap USD8.1bn, PER: 37.8x, PBR: 3.5x) : Square Enix is a big name in gaming with valuable IPs such as Final Fantasy and Dragon Quest, featuring the artwork of Toriyama Akira, the author of Dragonball, Japan’s iconic manga and anime of the 1980s and 1990s. 3D Investment Partners have engaged the company to help improve its corporate value.

Sumitomo Corp (8053 JP, Mkt Cap USD30.5bn, PER: 7.9x, PBR: 1.0x) : One of the top trading houses in Japan targeted by Elliott, one of the most aggressive activist globally. Warren Buffett is also a shareholder and this substack has written about this name at https://8percentpa.substack.com/p/bonus-idea-2.

Sumitomo Realty (8830 JP, Mkt Cap USD17.0bn, PER: 12.5x, PBR: 1.2x) : One of the top three property developers in Japan currently being targeted by Elliott as per the above name. Sumitomo Realty recently gave up on its poison pill / takeover defense measure, one of the last large cap companies in Japan to do so. In Aug 2025, Elliott released its public letter calling for Sumitomo Realty to wake up. It’s an awful interesting read if anyone’s interested. Please DM 8percentpa if you want the pdf. (Update in Sep 2025)

Synchro Food (3963 JP, Market Cap: c.USD120mn, PER: 29.3x, PBR: 3.7x, EV/EBITDA: 11.8x, FCF Yield 8.8%, Dividend Yield 2.5%) : Japan’s #1 one-stop-shop platform for restaurant operator benefitting from high restaurant turnovers and labor shortage being engaged by multiple activists. AVI owns c.18% while LIM advisors have another c.14%. The founder has sold down his stake and so, this company is primed for private equity to take over. (Update in Sep 2025)

Tadano (6395 JP, Mkt Cap USD0.8bn, PER: 10.1x, PBR: 0.7x) : One of Japan’s largest construction crane maker, Tadano announced a strategic partnership with Japan Activation Capital with the latter owning 11% stake. Tadano hopes JAC can help with crafting its global expansion ambition. This is a rare example of friendly activism. (Update in Aug 2025)

Taiyo Holdings (4626 JP, Market Cap: USD2.9bn, PER: 24.3x PBR: 4.3x, EV/EBITDA: 12.8x, Dividend Yield: 3.7%) : Japan’s electronic material and chemical company with niches in liquid solder resist and printed wiring boards currently being engaged by Oasis and Misaki Capital. DIC, another chemical company was roped in as a white knight against Oasis. DIC received c.20% share ownership of Taiyo via a dilutive share offering. The fight continues and this saga is currently “live”. (Updated Sep 2025)

TBS (9401 JP, Mkt Cap USD5.3bn, PER: 18.1x, PBR: 0.8x) : Japan’s TV broadcaster originally targeted by Yoshiaki Murakami and currently owned by multiple activists. TBS is known for its intriguing dramas but also its ownership of Tokyo Electron and prime land in Akasaka, Central Tokyo. Added together, these assets are worth multiple times its own market cap.

Teijin (3401 JP, Mkt Cap USD1.6bn, PER: 19.0x, PBR: 0.5x) : Teijin is one of Japan’s traditional textile makers which has successfully transformed itself into a chemical conglomerate and carbon fiber manufacturer in the early 2000s. Since then, company ‘s earnings stagnated and Effissimo bought c.10% of Teijin, likely targeting divestment of its non-performing businesses to better focus on its core franchises. Previously Elliott also engaged Dai Nippon Printing, another chemical maker. Multiple activists targeting Japan’s chemical sector has sparked a lot of interest in other Japanese chemical companies as well.

Tokyo Cosmos (6772 JP, Market Cap: USD77m, PER: 20.4x PBR: 1.6x, EV/EBITDA: 6.8x, Dividend Yield: 2.0%) : This is a microcap name in Japan making electronics components for cars, gaming consoles and white goods etc. It was engaged by activist Global ESG Strategy. The activist managed to replace the entire board and appointed its own representative, Mr Yasuto Monden, to be the Representative Director, President and CEO of Tokyo Cosmos. Could this be another privatization candidate? (Updated Oct 2025)

Tokyo Gas (9531 JP, USD12.5bn, PER: 11.4x PBR: 1.2x, EV/EBITDA: 6.9x, Dividend Yield: 1.5%) : Tokyo Gas, is Japan’s largest city gas provider with substantial real estate holdings. Elliott bought c.5% stake in late 2024 and urged the company to divest its real estate portfolio and improve shareholder return. The company has responded positively and share price has done really well (up c.50%)! (Updated Sep 2025)

Tokyo Tatemono (8804 JP, Mkt Cap USD3.6bn, PER: 9.3x, PBR: 1.0x) : Tokyo Tatemono is a Tokyo based Tier 2 developer (Tier 1 refers to the top developers like Mitsubishi Estate, Sumitomo Realty and Mitsui Fudosan) with prime land near Tokyo station and is perennially undervalued. Palliser Capital engaged the company calling for its divestment of strategic cross-shareholdings to fund its prime development projects.

Toyo Suisan (2875 JP, Mkt Cap USD6.1bn, PER: 14.1x, PBR: 1.9x) : Japan’s #2 instant noodle maker competing with the more famous Nissin Cup Noodle. With its brand Maruchan though, Toyo Suisan has built leading market share in the Americas. Nihon Global Growth Partners targeted this undervalued name and requested management to return more cash to shareholders. (Updated Sep 2025)

Toyo Tire (5105 JP, Mkt Cap USD3.2bn, PER: 8.2x, PBR: 1.0x) : As one of the neglected smaller car tire maker globally, Toyo Tire has not been able fully realize its corporate value. Toyo Tire is also an affiliate of Mitsubishi Corporation, its largest shareholder with 20% stake. Palliser has engaged the company, targeting to resolve the parent-child listing issue by privatization.

UACJ (5741 JP, Mkt Cap USD2.0bn, PER: 10.5x, PBR: 1.1x, EV/EBITDA: 7.1x, Dividend Yield: 2.4%) : Japan’s leading comprehensive aluminium manufacturer was formed in 2013 through the merger of Furukawa-Sky Aluminium and Sumitomo Light Metal Industries. Effissimo has bought c.18% of the company and is the second largest shareholder behind Furukawa Electric, one of its parentco. As with most other Effissimo’s investments, it is unclear what the fund has requested the company to improve on. (Updated Oct 2025)

The rest on the post is at https://8percentpa.substack.com/p/japans-activist-stock-names-large

How Warner Bros Discovery Delivered An Agonizing 126% Return For Our Portfolio

2025-09-19T21:23:00.002+08:00

Background: Warner Bros Discovery, one of our earliest portfolio names, might be bought out and merged with Paramount Skydance as reported by Wall Street Journal last week. The attached video and the bullet points below depict our journey with this stock since 2023. The situation is “live” and circumstances will be changing rapidly. We will monitor and update when new salient information becomes available. This is not investment advice.

This video post first appeared on 8percentpa.substack.com

Warner Bros Discovery (Ticker: $WBD) is one of our portfolio names and after last week, it delivered 126% return over 2 years. Well, if we had timed it better, it could have been 126% in 10 months. As such, this was an agonizing win because the stock roller-coastered with no alpha for a long time. We shall go into all the gory details below:

This was our Original Investment Thesis

WBD has one of the best content library globally with iconic franchises like Harry Potter, DC Comics, Game of Thrones amongst many other brands (HBO, Discovery, CNN and more).
The company is also a strong free cashflow generator and trading at double digit FCF yield was stable and EBITDA growing.
Its closest competitor, Disney was engaged by activists and we thought US media could become more interesting. WBD was way cheaper than Disney in market cap and hence more interesting. WBD is also one of John Malone’s Liberty Global companies and his team has a strong track record of strong execution.

Our Full Roller-Coaster Ride

Background: WBD was formed when Discovery merged with AT&T’s Warner Media c.2022 and was loaded with c.USD66bn of debt. Share price subsequently bobbed up and down violently but ultimately ranged bound from 2022 to 2024.
This was pure pain and agony which we shall describe further below with our powerpoint slide. Fast forward to 2025, WBD then announced to split into two companies earlier this June.
WBD was supposed to split into GrowthCo with Streaming, Movies, Content and all the sexy businesses and LegacyCo with free-to-air TV, CNN, Discovery and other less sexy businesses.
However, there was another plot twist last week (12 Sep 2025). It was reported that Paramount Skydance ($PSKY) is preparing to buy Warner Bro Discovery (WBD) with funds backed by the Oracle’s Larry Ellison and his son.
This came as a big surprise because Paramount Skydance was only formed weeks ago when Skydance bought Paramount for USD8.4bn. The market believed this though.
Why? Oracle had a blow-out quarter with over USD450bn future orders, Oracle’s share price jumped >30% making Larry Ellison the richest person on the planet.
With WBD’s share price pop, we have taken the bulk of the profits while keep a small toehold. but still, it was an agonizing victory as the stock did nothing for two years.
Also, there was always the risk that WBD might have too much debt on its balance sheet and might need an equity recap. Equity recap or dilution usually meant permanent loss of capital.

In the slide above, we describe our agony and pain in gory details. When we invested, there was the hype of the Max launch. We made money and thought we were geniuses.
Max was WBD’s answer to Netflix and Disney+. But Max did not do well, cord cutting turned further south and earnings downgrades came in waves. Our position bled and the portfolio continued to suffer as market cap collapsed to USD20bn.
In 2024, there were more twists and turns as depicted in the purple boxes. At times, we watched Shawshank Redemption on Netflix to remind ourselves that we needed hope. Hope is a dangerous thing. Hope can drive a man insane. But hope is also perhaps the best of things.

Thanks to the Ellison family though, WBD now earned 126% return for our portfolio, making it the largest profit contributor for the portfolio.
Please watch the attached video above which we included more slides and details.

Lessons Learnt

Be careful when buying highly indebted companies, there is no room for error and there is high risk of permanent loss of capital. This played out as we held WBD. The market was constantly worried about equity recap. Share price traded as low as USD7. With market cap falling below USD20bn.
Be careful of businesses in secular decline. Cord cutting was in secular decline. 70-80% of WBD’s EBITDA was in linear and free-to-air media and was impacted. But we ignored it. This was just stupidity.
Size the bets properly. WBD should have been a more manageable position. Our team’s investment psyche is more suitable for more mid size positions rather than 1-2 outsized high risk high return bets.
Lastly, for fun, the following is reproduced by the author after reading similar creations from smart people on X / Twitter. Apologies, yours truly cannot remember who but hope to thank the anonymous genius who inspired us.

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

This post first appeared on 8percentpa.substack.com

Pivot to Shareholder Activism as 8% Value Activist!

2025-08-17T13:59:00.006+08:00

This post first appeared on 8percentpa.substack.com

Time files. It has been c.20 years since we started blogging here. Today, few people use blogger. Blogger itself became difficult to use, ads and clickbaits dominate the posts. As such we ported to substack, an innovative newsletter platform, a while back. But we continue to post here from time to time.

In 2025, we pivoted to talk about activist stocks i.e. stocks owned by diligent, smart, activist fund managers who have made good money for their investors. From 2022 to 2025, we have also covered a couple of free cashflow compounders. We will still touch on these great stocks, the basic investment related stuff periodically, where relevant.

Shareholder activism is coming to Asia and Japan, because there are too many undervalued names. Even though everyone’s focused on US and its exceptionalism today, value is in Asia. As of 2025, roughly half of Asia’s listed stocks trade below book. 40% of all listed companies in Japan trade below book.

What is Shareholder Activism?

Shareholder activism is about investors using their stake in publicly listed companies to change the companies they have invested in for the better. In activist marketing lingo, it’s called positive transformation.

Publicly listed companies are complex animals. Most companies today have hundreds to thousands and for larger caps, hundreds of thousands or even more shareholders. Executive management of these companies answer to the board of directors who supposedly represent all shareholders.

But sometimes, things don’t really work.

Cosy management are supported by dysfunctional boards and share price languished for years. Hence we have so many companies trading below book and we need activists to shake things up.

How do Activists Make Money?

Activists invest in cheap companies stuck with certain issues and they try to unlock value by resolving those issues. It could be changing management, or divesting poor performing businesses, or even taking the entire company private. It has been a viable strategy and some of the best activist funds have generated stellar long-term track records. Interested readers please read the Harvard study link below:

Harvard study on activists: https://corpgov.law.harvard.edu/2023/08/01/do-activists-beat-the-market/

Activism is not new. Warren Buffett was the activist when he took over Berkshire Hathaway in 1965. In the early 2000s, the current version of activism came back to the US in a big way and the movement then grew globally into Europe and more recently Japan.

Family controlled businesses in Asia might need a bit more time before activists can work their magic. This is because families owning 30-50% of outstanding shares make it difficult for activist to do anything. But the time will come. It is a matter of when, not if.

We want to be ready. We hope to make money by identifying the best activist ideas. That’s the mission!

What substack has to offer?

We have published monthly investment ideas for the past few years. We started with the usual free cashflow compounder ideas but we pivoted to discuss activist names in 2025. Interestingly, many names turned out to have activist involvement. Since Japan is the biggest hotbed, we will discuss a lot of Japan ideas, but will also touch on interesting global and Asian activist names.

From time to time we will opine on investment basics, fundamentals, portfolio trades and updates, investment strategies, market analysis and more. This substack is targeting both aspiring and seasoned investors. We publish posts every 5-10 days on both invested and toehold ideas.

We invite you to start as a free subscriber on substack. We are also on X, LinkedIn and Telegram!

Let's also connect on:

LinkedIn: https://www.linkedin.com/in/8percentpa
X: https://x.com/ArvelVista
Telegram: https://t.me/+zF0bRcOXXo4zOTc9

The rest of the post is on 8percentpa.substack.com

QYLP ETF - Deep Dive

2025-08-01T11:29:00.002+08:00

This post first appeared on 8percentpa.substack.com

We wrote an earlier post on this covered call ETF. We discussed how it could be an interesting hedged play to benefit from the continuing rise of the Magnificent Seven and NASDAQ. Today, we will go through the fundamentals, technicals and valuation more deeply.

1. Fundamentals

QYLP is a covered call ETF for the NASDAQ100 (top 100 stocks on NASDAQ) denominated in British pounds (GBP). There is a primary ETF listed on NASDAQ with ticker QYLD and it tracks the index BXNT which is basically the same thing - covered call version of the NASDAQ100. Both QYLP and QYLD pay dividend monthly by writing covered call options of its constituents. Here’s the investment thesis for QYLP:

The QYLP ETF (Ticker: QYLP) is a covered call ETF listed in the UK that tracks the NASDAQ100 but overlaid with the writing of covered calls which generates option premiums that is paid out monthly. It has generated c.7% return over the last 12 months and would be able to contribute stable dividends to the portfolio while providing exposure to the NASDAQ top 100 constituents. While unrelated to activism, this exposure ensures participation in the event of continuing melt-up of the Magnificent Seven and the best run companies in the world today.

QYLP is an Ireland domiciled ETF and has the following fund details (screenshot below). As an innovative covered call ETF, expense ratio is slightly higher at 0.45%. Market cap is decent at c.USD480m (although the primary ETF has >USD8bn in AUM. The primary ticker is QYLD and there is more information for QYLD which is the ticker for the same instrument listed on NASDAQ and the USD denominated version on the LSE. QYLP is the GBP denominated version.

The following table shows the top 10 constituents of the QYLP as of Jul 2025. We can see the Magnificent Seven (Alphabet / Google, Amazon, Apple, Meta / Facebook, Microsoft, Nvidia and Tesla) prominently featured. In fact, the NASDAQ index represents the best run companies on our planet with perhaps a couple of exceptions. In a way, this investment idea is a hedge against missing out on the continuing growth of these greater-than-great companies. Granted the risk is that we are near the peak and should markets collapsed, we will be underwater for a while.

Performance and Track Record

The following charts show the performance of QYLP, QYLD and the QQQ indices. The Ireland domiciled, UK listed QYLP has the shortest track record and the numbers also assume that the dividends are re-invested. At 7+% annualized return, the track record is decent and comparable to the primary ETF (second table below).

Performance of the QYLP ETF listed on LSE with okay track record

The next table shows the performance of the primary index QYLD, listed on NASDAQ and denominated in USD. We can see that the annualized returns are not far from QYLP (above) at 7+%pa. That has been the case for the past 10 years and also since inception in 2013. Both indices are managed by the Korean asset manager, Mirae.

QYLD listed on NASDAQ with longer track record

The last chart shows the performance of QQQ, one of the most popular NASDAQ ETFs and we can see that performance triumphed both QYLP and QYLD by a huge margin. For 10Y, annualized return it was 18.7%! The price to pay for regular dividend income and less volatility is c.10% of return per annum, which is a lot.

That said, let’s analyze some of the positives and risks of owning this ETF.

Positives

Participation and diversification: As alluded to above, the exceptionalism of the Magnificent Seven (Mag7) is something unique in the past twenty years or perhaps the entirety of humankind. Less than 10 companies today generate more than USD50bn free cashflow (FCF) globally on an annual basis and we have almost every member of the Mag7 generating that much. To add, apart from the Mag7, most of the NASDAQ companies in the index are actually best-in-class and might well be the next generation of FCF juggernauts. As such, I believe the risk of missing out is not small and it pays to just have some exposure via this ETF.

To delve delve a little more on this topic, since we pivoted the portfolio to focus on activists, which is inherently a value strategy, there is almost no opportunity to invest in these best of the best NASDAQ names. Yes, one activist had engaged Google and even Microsoft was targeted in the past but activist stocks are usually not compounders. So having c.5% in some of these idiosyncratic strategies is a very pertinent for the portfolio. That’s one reason why we also have physical gold in the portfolio.

Next topic, regular dividends!

QYLP and QYLD’s distribution calendar published on https://globalxetfs.eu/funds/qyld/

Regular Dividend Income: The other attractiveness of QYLP is that we get regular monthly dividend (table above) on top of exposure to NASDAQ. The annual dividend has hovered around 11-14% which is highly attractive to dividend investors. Owning this ETF in the UK, which has no with-holding tax, is also one of the reason why we chose QYLP. Additionally, there is always a base of dividend buyers which ensures liquidity for the ETF. However, we pay a big price for this regular income. We missed out almost 10%pa based on past 10Y track record. Although I believe the gap should close the longer we hold this instrument.

Another way to think about QYLP is that rather than holding cash or T-bills in the portfolio, owning this ETF gives us regular dividends, exposure to NASDAQ and firepower to add to high conviction activist names should interesting opportunities arise in the future.

With that, let's discuss the risks.

Risks

Deviation in performance in performance: While the NASDAQ has recovered and exceeded its previous all-time high in Feb 2025, the stock price of QYLP has languished. I can think of two reasons.

The rest of the post is on substack.

Huat Ah!

Activist Targets Swatch!

2025-07-12T08:35:00.004+08:00

This post first appeared on 8percentpa.substack.com

Today, we would like to discuss Swatch. We have looked at Swatch for donkey years and wrote a tonne of materials about it. See below:

https://8percentpa.blogspot.com/search/label/Swatch

Since then, share price underperformed big time. To us, there is no surprise that an activist came in and now trying to shake things up. It might be interesting to do more research now and perhaps add this to the portfolio.

This post will not be a full analysis. More like a preamble. We will keep this short and sweet for now. Provide a brief background, tell the activist’s story and how the founding family reacted and set the stage for the bigger analysis.

Here we go!

1. Background

Swatch Group (Market Cap USD8.9bn, EV/EBITDA 8.8x), while being known for its plastic, colourful, quartz wristwatches for kids and youngsters, is actually a watchmaking conglomerate. Swatch owns Omega, with all the heritage - worn to the moon and all, which could have become a premium luxury watch brand like Rolex, but that did not happen. It also owns both mass-tige and high end watch brands like Longines and Breguet amongst others.

Swatch x Omega, the solar system collection

In 2013, Swatch bought jewellery brand Harry Winston as one of the early steps to compete against LVMH, the world’s largest luxury player and also its arch-nemesis, Richemont. While it created much hype back then, management did not follow through. Supposed synergies and growth did not come and Swatch’s growth stagnated and free cashflow generation also collapsed.

Meanwhile, LVMH became Europe’s largest company by market cap (only recently overtaken by Novo Nordisk) and Richemont double its market cap to almost CHF100bn, which is 10x bigger than Swatch over the 10-15 years.

Swatch’s overview, thanks to Finchat.io.

In the same time period, Swatch’s market cap more than halved. Its financial ratios became pretty dismal, as we can see above. Both ROE and Operating Margin are at 4+%. Price-to-Book is at 0.6x. The founding family, with two generations of family members running the business and owning majority of the company, are burying their heads in the sand, resisting advice.

Under its founder Nicholas Hayek, Swatch used to be a FCF generating machine. But after he passed, mis-management has caused FCF to turn negative. This was the result of declining margins, ballooning of its inventory (unsold watches) and increasing capex.

FCF from macrotrends.net showed that Swatch’s 2023 FCF was negative…

Swatch also has CHF1.4bn in net cash, which together with its inventory of CHF7bn, amounts to more than its market cap. In fact, Swatch recently met Ben Graham’s Net Net (Current Asset - Total Liability > Market Cap) criteria. Which is somewhat unthinkable for a luxury company.

2. Activist’s Side of the Story

As such, activists found this name. Steven Wood of Greenwood Capital, owning 0.5% of Swatch, called out Swatch’s management. He would like to see the company engaging shareholders and asked for seat on the board. As expected, Swatch’s management poo-pooed him and voted down his request for a board seat.

However, it seemed unlikely that this is the end of the story. For the share price to collapsed so much to become a net-net, it seemed difficult to justify Swatch has done a lot of things right. There is definitely room to improve margins, ROEs and to think about the six point plan (below) that Mr Wood has raised.

1. Breguet: Improve the retail experience, add personalization programs at scale, reduce the wholesale channel variety and improve residual values. We believe these steps can make Breguet once again king of the Swiss watch industry.

2. Harry Winston: Emphasize the brand’s core design elements through annual collections that both reinforce the icons and the exceptionally rare jewels that the group is known for. With annual collections taking the opposite approach as Van Cleef and Arpels, the goal is to replicate Hermès Birkin playbook for unoccupied ultra-high-end jewelry industry.

3. Omega: Increase collaborations to expand the collection, and target audience. A key priority is to add new collaborations, staying true to the brand’s core DNA but aimed to make the brand more relevant with Gen Z. Utilize what’s working and “hot” in the vintage market to inform new design trends and take a few more risks with selected exclusive editions.

4. Capital Markets: Strengthen perception and credibility of the company in the capital markets and media by creating an offensive narrative, as opposed to letting others define the company’s story. Continue to increase transparency and add an entrepreneurial Investor Relations officer to help management stay focused on the business. By regaining a more rational valuation, this will improve stakeholder perceptions of organizational culture, lead to higher employee satisfaction, higher productivity, ultimately benefitting all stakeholders.

5. Brand Marketing: Increase marketing spend, funded by removing overhead burden, to double-down on storytelling for the incredible historic brands and ongoing innovation within the group. Remove layers in between founding family, executives and the company’s core employees of doers, sellers and inventors.

6. Technology Innovation: Expand the group’s innovations across the portfolio brands by layering in technology into replaceable and upgradeable bands.

Courtesy of https://www.watchpro.com/activist-investors-six-point-plan-to-strengthen-swatch-group/

2. Founding Family Strikes Back!

Alas, the founding family is not interested. They believe they know their business best. They would say it was because of China. Once China recovers, all will be good. They believe analysts and investors know shit and so, while they own >50% of the company, it is difficult to see how things could change.

The rest of the post is on 8percentpa.substack.com

The Curious Case of UOI

2025-06-20T12:04:00.001+08:00

This post first appeared on substack.

This is a short commentary about UOI and not a full review for the stock to be in the portfolio. Interested readers, please click the following newslink for context.

https://sg.news.yahoo.com/minority-investor-says-uoi-over-014825695.html

Activism is coming into Asia. It has already taken Japan by storm. It may take years, or even decades but it is a matter of when, not if. Why? Because tonnes of Asian stocks trade below book. In Singapore, >50% of our listed stocks trade below book. We are worse than Japan (which only has 40%).

320 out of 620 listed stocks on SGX trade below book!

We have listed stocks trading at 0.03x price to book. More than one. There is Sapphire Corp, China ShenShan Orchard and Fuxing China Group. All trading at 0.03x. (See screenshot below).

Take the case of Fuxing China Group trading at $3.15m (not enough to buy a 3-bedroom condo in Singapore) which is at 0.03x book value. What it means is that you can buy the company for $3.15m today (technically, you may need to pay a takeover premium but let’s keep is simple), but the net assets on its balance sheet is worth c.$100m. Isn’t that the bargain of the century?

A couple of them trading at 0.03-0.09x Price to Book!

Alas no. I dug into its financials. $50m of that is account receivables, which is money not paid to Fuxing yet. The other $50m is supposedly depreciated property, plant and equipment: its factories and facilities. Apparently, Fuxing make zippers in China. Someone needs to fly down and check those assets. They may not be there. So, yup, even though its 3c to the dollar, nobody is buying.

But there are real unpolished gems around. Usually companies that are, for one reason or another, trading very cheaply for some time already. That is when activists come in to try to unlock value. Today’s story is about the curious case of United Overseas Insurance (UOI) with an individual activist.

First, let's look at UOI's financial numbers:

Simple Financials (Dec 25 estimate, SGD)

• Sales: 100m, Net income: 30m

• Operating Income: 35m, Investment Income: 17m

• Debt: -100m (Net cash), Mkt Cap: 477m

• Investments: c.414m of which 47m in Haw Par shares

Financial Ratios

• ROE: 6.5%, ROIC: 2.6%

• PBR: 1.0x (Dec 25)

• PER: 15.9x (Dec 25)

• Dividend: 23 cents per share, Yield: 2.9%

UOI used to trade below book but has since rallied because the said individual activist called management out via the media. The market got interested and bought the shares up. However, without more firepower, it might be difficult to create genuine change.

That’s the difficulty and complexity about activism. Many things need to fall in place. E.g. Low allegiant shareholder ratio. Latent value that needs to be unlocked. Potential angle to catalyse some transformation and importantly, the core business should be sound and valuations should make sense.

Here’s the usual Fundamentals, Technicals and Valuation framework.

1. Fundamentals

UOI operates a simple business of selling insurance via Singapore’s second largest banking group - United Overseas Bank (UOB) Group. It is a unique bancassurance business which has enjoyed steady growth alongside Singapore’s economy (or perhaps more relevantly Singapore’s property market). By leveraging on the UOB Group’s infrastructure, UOI has also been able to keep underwriting cost low (no agents and lower IT cost), thereby generating steady underwriting profits.

Actually, both underwriting and investment profits had done well. From what I can tell, UOI had positive investment income for the past few years. Please see slides below:

It is not clear if other income is investment income. The assumption is yes. The slide above shows it has been positive from 2018-2022 and the next slide shows 2023-24 did well too.

Investment profits had grown last year as a function of the stock market. UOI uses its own inhouse asset management team and Schroders and both adopt conservative investment strategies and have, by and large, made returns. In short, it’s a decent business.

Let's discuss the elephant in the room.

Activism in Singapore: What's really the crux of the issue here is that an individual activist has called out poor management under UOB’s leadership. He believes that UOI is over-capitalized (>400% capital adequacy ratio) and should sell stuff to return capital to investors and he proposed the following two resolutions:

Resolution 1: To distribute UOI’s 4,274,600 ordinary shares in Haw Par Corporation directly to UOI shareholders.

Resolution 2: To appoint a financial advisor to evaluate strategic options for maximising shareholder value.

As we can expect, UOI threw them out, citing no legal requirement to put these to the vote. What transpired was a tense shareholder meeting which we all get to learn more a little bit more about UOI’s business.

Due to to the lack of disclosure, it is hard to analyze UOI. What we know is that it runs a profitable general insurance business (after selling the life insurance to Prudential) and pays 2+% dividend yield. It used to be cheaper, but thanks to the spotlight being shone on it now, share price has rallied. The investment thesis should still be intact though.

Investment Thesis

UOI enjoys an interesting niche general insurance business (Residential mortgage, property, personal accident) in Singapore with its lower-than-industry cost base by leveraging on UOB’s group infrastructure. It enjoys marginal growth alongside the strength of Singapore’s property market. Recent shareholder activism while un-successful would keep management on their toes to continue to increase its dividend payout (currently 47% payout ratio).

Risks

Conversely, the risk is that management decides to do the opposite, since the activist would never gather enough shares to mount any serious challenge to the UOB group (which owns c.60% of UOI). It is a given that UOI will not sell Haw Par shares nor change anything that the activist demanded (even though he may be right, and especially if he is right, that’s how politics work right?). The only hope is that dividend can be raised because the UOB group will also benefit.

Should that not happen, share price will then trade at where it is now and we can only eat the 2+% dividend or worse, the bigger risk is that share price corrects back to a lower level (c.$6.50 from current $7.70). That’s 18% downside!

The rest of it is on substack.

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

Tariff Tantrums and the SPX Bear Run

2025-04-26T09:42:00.001+08:00

This post is also on substack.

Thanks to Trump, April 2025 might go down in history as the first President-inflicted bear market of the 21st Century. Veteran market participants (like this blogger) would remember the past bear markets well. There was the dotcom bust which lasted almost three years. There was the March 2020 pandemic scare which was a 29% drop in just one month. More recently, in 2022, the market dropped more gradually and the whole ordeal lasted 9 months.

Then there was the mother of all bear markets, the GFC, which was a whopping 55% drop over 17 months back in 2007-2009. Scary, would be an under-statement. The global financial system as we knew it could collapse. We were days from the Second Great Depression. It was hard to believe, and still is, but both God of Fortune and Lady Luck smiled on us all. So we can just talk about it rather than experience it.

S&P Bear Runs since the 1950s

For the story today, the S&P500 peaked in Feb 2025 slightly above 6,000 and then things fell apart, as they do when markets peaked. Only this time, we shot ourselves in the foot. Or rather Trump did. We are now almost 20% below the peak, which by definition, means we are entering bear market territory. In the last two weeks, the drop was drastic enough that Trump himself got nervous and backtracked his tariffs by postponing it for 90 days.

The markets heaved a sigh of relief, stock prices stabilized and some hoped that the good old days will come back. By that, I mean Nvidia leading the Magnificent Seven to higher highs. Bitcoin and A.I. names rallying again. S&P500 revisiting 6,000 and surpass that, with major global indices (except China) following behind. And more euphorias, kumbayas and what not. Alas, the probability of that happening seemed pretty low now.

Change in world order

What we are seeing could be a generational change in the world order which started when Trump became President back in 2016. That coincided with Xi's rise in China amongst many global events (Brexit etc) which culminated to Russia's invasion of Ukraine. The world, led by US to cooperate, globalize, trade and prosper since WWII changed to one that is about self-interest. We are talking about protectionism. De-globalization. Every country for herself. Friend-shoring, onshoring, you know the rest.

The markets ignored these seismic geo-political shifts because there were exciting stories. It started with the FAANGs (Facebook, Amazon, Apple, Netflix and Google) which then morphed into the Magnificent Seven (Tesla, Nvidia, Microsoft, Meta, Amazon, Alphabet and Apple). There was the whole Bitcoin mania and then the A.I. mania. If we dig deeper, there were also other sub-plots like shareholder activism, Novo Nordisk and some big pharma with their gamechanging obesity drugs. There was also Japan, with Nikkei breaking its 1989 high after 34 years. Even in Singapore, we had DBS having its market cap exceeding USD100bn and taking over Singtel as Singapore's proxy stock.

https://companiesmarketcap.com/sgd/banks/largest-banks-by-market-cap/

Today, DBS' market cap exceeded SMFG's (Japan's second largest bank) market cap and also UBS' momentarily when it had to rescue Credit Suisse. This is quite unthinkable. Japan has a population twenty times bigger than ours. And UBS is the pre-eminent wealth manager and now Switzerland's only big bank. What did we do so right? If you scrutinize the table above (courtesy of companiesmarketcap.com), we are on our way to surpass more G7 banks like BNP and Citigroup. Citigroup! The Citi that never sleeps!

Anyways, back to the story, so, the markets were busy. Who cares if Russia and Ukraine started a war. Or if China threatened to invade Taiwan. Market participants were enjoying the bull market and making money left, right, centre. But Trump slapped the markets in the face and everyone woke up. So the question now is would he double down or would he backtrack? Extrapolating from these two simple actions, there are two possible scenarios:

Slight return to normalcy

This is the bull scenario that everyone hopes for. Trump, worried about his own finances, or simply focuses to whip China differently, backs down. The markets think its business-as-usual and we avert that 50% drop we saw with the GFC and the dotcom bust. But still, it is hard to imagine that we go back to the previous world order of global cooperation, more trade, less bitching. Even if this scenario pans out, it will not be Mag7 leading the markets. It is hard to say who are the new leaders, I would focus on what I have preached - strong FCF companies which are now featured on substack.

All hell breaks loose

This is the doomsday scenario where Trump loses it (which is highly possible) and we have full-blown trade wars, not just with China but with allies, neutral countries. Basically, total collapse of the world order since WWII. This bear market could become a combination of the dotcom bust and GFC, lasting into years and dropping 50% at the end. The only safe assets to hold would be cash and gold. Ironically, property as well. The end game here is WWIII.

This is not impossible. And if WWIII happens, cash is worthless. Only gold can preserve wealth.

Of course, predicting the future is never so simple. The future is a set of probabilities and the two scenarios above probably lies on a spectrum with normalcy at one end and hell at the other. So we might avert WWIII like how we averted the Second Great Depression back in 2009. Regardless, it would be a very uncertain 12-18 months ahead. Hold more cash and be less courageous.

2025 FCF and Dividend List

2025-03-21T22:30:00.024+08:00

This post first appeared on 8percentpa.substack.com

This year's first batch of dividend lists are out!

Instead of using Poems, we will try out a new platform - Finchat.io. This is one of the most powerful toolkit for publicly listed stock research and I would encourage all readers to give it a try. It's a freemium model, so anyone can use the free ones, which is already very powderful!

For this year's lists I have similarly used FCF as the main filter, but added dividend and net cash and excluded certain industries. Here's the list for Singapore:

Venture (Market cap c.SGD 3.6bn) is the stand out here, with 35% of its market cap in cash and generating a whopping 12.7% free cashflow yield. This stock used to be a darling with share price hitting >$25 a couple of times since its IPO (today's share price is $12.5). It competes in a very good niche today, making hardware for the leading players in life sciences and networking equipment the growth segments of today, having successfully transitioned from PC and printers eons ago.

However, such hardware manufacturing business is inherently cyclical and share price had gone through many boom and bust cycles. Today, it is trading near trough valuations but without studying closer, it is hard to say when things would recover. It is also worth noting that the founder still runs the company and Venture's success over the last 40 years is largely attributable to him. Should he retire, it is unclear if the company can continue to grow and compound as it had.

US FCF and dividend list for 2025

This second list churns out the US names of which Acuity and Dolby are the largest. Acuity makes lighting and Dolby makes sound systems. In our substack, we have covered IMAX, which is in the same space as Dolby - cinemas. Both names look interesting but again, without doing the work, it is hard to say if they are good buys are not. The other issue with US stocks for us is also that dividends get taxed. 20% would be withheld and taxed so it makes more sense to buy stocks with little dividend if we really want to optimize returns. Almost all the stocks on this lists all have very high dividends. Dolby has a whopping 9% dividend!

Japan's list

Given the craze on Japan in 2024 and hopefully we see more buzz in 2025, this last list is on Japanese names. For those of us who don't look closely at the land of the rising sun, Japan has been undergoing a stealth transformation for many years after the burst of its bubble, banking crisis and corporate governance overhaul. The stock market finally exceeded its high in 1989 and a huge wave of shareholder activism is under way. We might see Nikkei successfully breaking through at hit 45,000, if not 50,000.

This is not a number plugged out of thin air. The math around it is as follows:

Next year's Topix EPS (2026) is c.220 yen (and growing) and multiplying that by PER of 16x (one turn higher than its historical average to reflect Japan's transformation discussed above), we can explain Topix at 3,520 (vs only 2,800) today.
The Nikkei / Topix ratio has a historical average of 14x and using that (i.e. 3520 x 14), we have Nikkei at 49,280.
With that, 50,000 is not too far away.

Although we do need the yen to remain weak and the activism momentum to continue. Japan has had so many false starts over the decades it is hard to believe whether the country could really embrace capital markets transformation. I think Japan can change and will change because this provides part of the solution to solve its aging issue (e.g. more capital to attract workers into Japan) and Japanese themselves are frustrated that countries that were behind are now richer. This is a strong impetus to push the country to progress.

With that, we shall discuss two names on the list briefly. Both have what Japan is most famous for - animation:

Bandai Namco (Mkt cap USD22bn, net cash at c.USD2.5bn, dividend yield 4.5%, FCF yield 5.7%): this is the ultimately anime IP play with its strong library of the most famous IP and manga titles like Dragonball, Naruto, Gundam and One Piece. Its businesses span toys, games, amusement centres but as with most sleepy Japanese management, financial metrics such as OPMs and ROEs are not optimized and hence we see the stock trading cheaply. Activists need to come in to shake things up.

Nippon TV (Mkt cap USD4.8bn, net cash USD1bn, dividend yield 1.1%, FCF yield 5.5%): broadcasters are right in the middle of shareholder activism with Fuji TV being targeted. The other four broadcasters including Nippon TV. They all face similar issues with Fuji TV: traditional management who knows nothing about capital markets and doesn't give a shit about shareholders. Hence, they all trade below book despite owning the most valuable real estate on prime land in Tokyo. Nippon TV also owns the crown jewel of Japanese animation - Studio Ghibli. As such, there a lot of hidden value beneath the PBR <1x apparent cheapness.

So, hope these ideas help. Please conduct your own deep dive research. Our substack will also write these out should they qualify to be in the portfolio.

Huat Ah!

Past lists:

2024 Dividend List - Tokyo!

2024 Dividend List - UK!

2024 Dividend List

2023 Dividend List

2022 Dividend List - Australia!

2022 Dividend List

2021 Dividend List - HK!

2021 Dividend List

2020 Dividend List

2019 Dividend List

2018 Dividend List - Part 4

2018 Dividend List - Part 3

2018 Dividend List - Part 2

2018 Dividend List - Part 1

2017 Oct Dividend List - Part 2

2017 Oct Dividend List - Part 1

2017 Mar Dividend List

2016 Dividend List - Part 2

2016 Dividend List - Part 1

2015 Dividend List - Part 2

2015 Dividend List - Part 1

2014 Dividend List

2013 Dividend List - Part 2

2013 Dividend List - Part 1

Inspection Update on Vicom

2025-02-21T17:24:00.004+08:00

This post first appeared on substack.

Vicom has done almost nothing over the past 18 months and hence I believe it is time to do a quick update and see if this is worth adding. For the uninitiated, here’s the original writeup about Vicom, the largest vehicle and industrial inspection company in Singapore:

https://8percentpa.substack.com/p/investment-idea-4

Vicom, while it is a decent SGD460m market cap company, has no analyst coverage and its published materials for analysis is atrociously lacking. The company only has its annual report and bi-annual earnings update. Meanwhile, the annual report has no Management Discussion & Analysis (MD&A), the most important section of any annual report.

That said, financials are solid:

Simple Financials (Dec 2025 estimate, SGD)

Sales: 120m
Operating Profit (OP): 35m
Net income:30m
FCF: 30m
Debt: -55m, Mkt Cap: 500m

Financial Ratios

ROE: 21% ROIC: 21%
EV/EBITDA: 10.7x (Dec 25)
PER: 16.9x (Dec 25)
Past Margins: OPM 30%
FCF yield 7%

The stock has completely underperformed in 2024. With global stock markets rallying 20-30% and the STI itself going up mid teens, Vicom’s share price has actually gone down since our last review. This post serves to provide an update, redo valuation and decide if we should add.

1. Review

Vicom share price has stagnated primarily because revenue has not grown much since COVID-19 because Singapore’s vehicle population has not grown at all. Thanks to the exorbitant cost of car ownership here. Before the announcement of 20,000 new Certificate of Entitlements (COEs) last week (see video link below), there was no prospect of significantly revenue growth.

To add on the above point, c.50% of Vicom’s revenue comes from vehicle inspection and since the number of vehicles in Singapore is capped by the number of COEs (the certificate that allows for vehicle ownership), there has been no volume growth over the last few years, as mentioned.

For the un-initiated, the price of the COE in Singapore (essentially a piece of paper that the government issues to vehicle owners) is six figures. That’s household’s annual salaries. While goods vehicle like vans, light trucks and lorries have cheaper COEs, they are still crazily expensive which explained the lack of volume growth for vehicles and hence lack of revenue growth for Vicom.

With no volume growth, investors then want price increase. Sadly, Vicom has not raised inspection fees, due to potential far-reaching repercussions. Singaporeans require our vehicles, both passenger cars and goods transport trucks / lorries, for their livelihoods. With COE prices higher than the sky, should Vicom raise inspection fees during election years (i.e. 2025), it would become a major issue for the government in power. And that is a big no-no.

Vicom's inspection fees as per Vicom's website

As such, prices have more or less stayed the same for many years as shown above. The basic inspection fee is SGD68.67, which is cheaper than dinner at Macdonald’s for a large family. This is quite a rarity in Singapore where prices of everything has gone through the roof in recent years.

Electric Vehicles (EVs)

The other risk not discussed in the initial analysis was EVs. While the basic price for inspecting EVs is the same, there are no additional tests required (e.g. emission related) and hence should the number of EVs grow significantly, Vicom’s future revenue growth might be impacted.

Investors' mind are on this issue because many believed Elon Musk and Tesla will take over the world. This is now supercharged with nitro boost with Donald Trump coming back into power. That said, this author believes that EV should not change the picture for Vicom. The main reason that EV penetration will take years, if not decades to play out. Vicom is a steady compounder with strong FCF generation. EV or not, stock price should compound at single digit over time.

Growth Angles

Future single digit growth might be supported by the release of 20,000 new COEs and the remaining non-vehicle testing business in SETSCO, Vicom’s subsidiary doing testing for food, manufacturing and construction materials. The balance between vehicle and non-vehicle testing revenue has underpinned part of Vicom’s steady growth story. This business is featured prominently in its annual report.

Management

Vicom is currently helmed by Mr Sim Wing Yew who has led the firm since 2011. He is supported by a strong and experienced team with varied backgrounds. As expected, a significant number of managers come from the Comfort Delgro Group while others are recruited within Singapore Inc.

The following is an excerpt of the profile of Chairman Dr Tan Kim Siew, who has had a distinguished career spanning the Ministry of Finance, Defence and National Development. Dr Tan undoubtedly provides the oversight for Vicom to continue to perform to shareholders’ expectations.

Dr Tan Kim Siew is the Chairman and Independent Non-Executive Director of VICOM Ltd. He is the Chairman of Nominating and Remuneration Committee and a member of both the Technology Committee and the Sustainability Committee. He is also an Independent Non-Executive Director of SBS Transit Ltd.

Dr Tan is presently a Senior Consultant in the Ministry of Finance. From 2012 to 2014, Dr Tan served as Commissioner of Inland Revenue. Prior to this appointment, Dr Tan was the Permanent Secretary (Defence Development) of the Ministry of Defence from 2003 to 2012. He had also held other appointments in the public service, including Chief Executive Officer of the Urban Redevelopment Authority, Deputy Secretary in the Ministry of Finance and in the Ministry of National Development, Chairman of the Defence Science and Technology Agency, and Chairman of the DSO National Laboratories.

2. Valuation

As Vicom’s business is simply so stable and predictable, there isn’t really much reason the change the numbers in the previous analysis. With FCF and Net Income at SGD30m and applying the same multiples, we get to an average intrinsic value (IV) of c.SGD1.7 which gives c.30% upside if we take the average for the three metrics below. This is lower than the original SGD2.2 IV because we used 25x multiple which on hindsight was probably too high for a single digit compounder.

Vicom has also continued to distribute good dividends as its parentco - Comfort Delgro probably relies on that for its own earnings growth. As such, we should expect Vicom to continue its c.4% dividend yield, which is a good spread vs Singapore’s T-bills at 3% today.

The rest of the post is on substack. Thanks!

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

Where is Bitcoin Going?

2024-12-01T20:06:00.004+08:00

This post is first published on substack.

Bitcoin hit all time high again, exceeding USD100,000 momentarily (SGD >130,000). Greater fools (including this author) buying at the previous peak are now elated because they finally broke even. Based on what happened in previous halvings, there could be a little more upside. The chart below from Google shows the full price history (in SGD).

Bitcoin seems to follow a rough four year boom bust cycle largely driven by what is known as halving. The timing of the actual bottom and how high it can skyrocket is difficult to call but based on the price chart above, we can make the deduction that halving is an important event in Bitcoin. Rather than explaining everything myself, I have asked A.I. for help. Isn’t it wonderful we live in this artificial intelligence era?

1. Halving Explained

Bitcoin's four-year cycle, also known as the "halving cycle," is primarily driven by the cryptocurrency's underlying protocol and the economics of its supply and demand. Here are the key description and factors contributing to this cycle:

2. Four Year Cycle

Bitcoin supply started with 10.5m Bitcoins and with 50 Bitcoin as mining reward. Approximately after every four years, the supply of Bitcoin and reward for mining Bitcoin is cut in half. This event, known as the "halving," reduces the supply of new Bitcoins entering the market. It will continue until 2140 when the total supply reaches 21m Bitcoins. 3. Supply and Demand Imbalance

Following a halving event, the reduced supply of new Bitcoins can lead to an imbalance in the market, causing prices to rise. As demand for Bitcoin remains steady or increases, the decreased supply creates upward pressure on prices.

4. Speculation and Market Sentiment

The four-year cycle is also influenced by market sentiment and speculation. Investors, anticipating the halving event and the potential price increase that follows, may buy Bitcoins in advance, driving up prices.

5. Market Maturation and Adoption

As the cryptocurrency market matures and more investors become aware of Bitcoin, demand for the asset increases. This growing demand, combined with the reduced supply after a halving event, contributes to the price appreciation.

6. Volatility

That said, halving increases the volatility of Bitcoin prices. Inactivity during the in-between years have also caused prices to stagnate or go down. The combination of these factors has resulted in Bitcoin's historical four-year cycle, with significant price increases following each halving event:

- 2012 halving: Price increased from around $10 to over $1,000

- 2016 halving: Price increased from around $650 to nearly $20,000

- 2020 halving: Price increased from around $7,000 to over $90,000

- 2024 halving: Prices increased from around $40,000 to ?

The above is copied from A.I. and slightly refined by yours truly but as you might be able tell, the A.I. reasoning is at times, still not perfect. But what’s important are the price levels at the end which I have checked to be accurate. However, as with all else in finance, the timing around the bottom and jump in prices are very hard to call.

Unlike previous halvings, this 2024 one saw the prices jumped before halving actually happened. While the 2016 and 2020 cycles saw the jump in prices about a year (very roughly) after it happened. The magnitude of the price jump is also crazy. Should we expect the same magnitude as the previous halving in 2020, Bitcoin could reach $400,000 or more.

Of course it would not because there is finite amount of money out there. Bitcoin and the total market cap of crypto at a few trillion dollars is already bigger than most listed companies except for the top few (see ranking below). Bitcoin itself is at c.USD2trn, which is quite inexplicable as Bitcoin was basically created out of nothing and generates no cashflow. These trillion market cap companies below generate an insane amount of free cashflow.

Bitcoin prices can go up a bit more (pick a number, my guess for this peak is USD150,000) and then we go down the rollercoaster like past cycles. This is an art. It could be higher or lower. Who knows? Your guess is as good as mine. Then we wait a few years for the next high which will come around the next halving in 2028.

Boom and bust, this is the nature of Bitcoin.

Some like to compare Bitcoin to gold. Since gold’s market cap is c.USD18trn, Bitcoin at just 2trn still has a lot more room to go, right? No, because gold is an established store of value since human civilization began, like freaking 10,000 years ago. Bitcoin is still a teenager. In desperate times, you can trade gold to get rice in Zimbabwe. Do you think the same Zimbabwean will accept your hot / cold wallet and give you rice?

Undoubtedly, the boost is coming from the popularity of Bitcoin ETFs and the market cap is at c.USD100bn. There are also more institutional buying. Some listed companies like MicroStrategy has also shifted its entire cash base to cryptocurrencies. However should such momentum wane, then we have to worry that the party could end soon.

The other big risk is just overall market sentiment turning south. There is currently a lot of euphoria after the presidential election and animal spirits are high up in the air. Tariffs or not, markets just keep going up. The S&P500 hit all time high. Even Singapore’s Straits Time Index is near all time high. It’s inexplicable.

To sum it up, it always pays to be always vigilant because the markets are like dance parties where eventually the music will stop and everything will crash and burn. Crypto crashes will be the most treacherous.

So, beware!

The complete post is on substack.

Thoughts #36: 100 Years

2024-11-01T14:54:00.000+08:00

As humans continue to live longer, it is not inconceivable that we could live up to 100 years. Monaco's life expectancy is at 89.5 years, with females hitting 93.5 years! It is also well researched that people living in Blue Zones lived more than 10 years longer vs the rest of the world and this brings their life expectancy in the late 80s as well.

In the world of investing, the investment horizon is usually 5-10 years. We create models with 5-10 year forecasts, but we rarely hold them for as long. We trade them. We look for exits in 3 years to boost the IRR. It is a true conundrum.

To be honest, 5-10 years is a very long time. Humans live day by day and we thrive on activity. Therefore our monkey brains cannot comprehend in 5, 10, 15 year time frames, let alone 100 years. 5 years ago, nobody could predict that Taylor Swift could make a billion dollars doing concerts, Jensen Huang could become a demigod giving signatures on bosoms and we may have 10 trillion dollar companies in 2024 and none of them from China.

Looking things from this time frame, anything that happens in 1,2 or even 3 years matter very little. In the moment when the going gets tough, it could be very long. For example, NS is two years. In the middle of it, some wished we were never born in Singapore. But when it is over, we look back and say, it was nothing.

It is very sad when we hear about teenagers taken their own lives. Whatever they were going through, it wouldn't be an issue in 10 years. It is not about belittling their troubles. Even WWII, it was a long and arduous 5 years. But then, things change and improve. Somehow, I think we need to train ourselves to truly think long term.

I heard a firsthand account about a primary school reunion gathering of people in their 70s. The lives that schoolmates lived could really give us perspectives in life. People who did not do well in primary schools could thrive in secondary and then later in lives.

There are others who fumbled through but succeeded in strawberry farming in their 60s. Conversely, smart teenagers struggled later in their lives because of ego, lack of social skills, lack of friendly support. The morals of these stories are really to live our lives truthfully and rightfully, always.

Coming back to investing, perhaps we should adopt the same approach, if something is only going to be bad for 1-2 years, then it is not an issue. The crux is then to determine if the issue is going to last 5-10 years. Secular changes and multiple contractions would last that long. So we need to be careful of those.

One example that comes to mind would be the rise of the smartphones and the collapse of digital cameras and before that, how digital cameras themselves replaced film. Today, it could be EVs destroying gasoline cars and renewable energies replacing fossil fuels.

Bayer's share price languishing for almost a decade

The other long term impact that comes to mind is lawsuits. Bayer being the case-in-point. The lawsuit that came with the M&A of Monsanto took almost 10 years and it is still not being resolved. It was difficult to established back then but now armed with such knowledge and benefit of hindsight, let's be careful with lawsuits!

The other point about being long term is really establishing habits that help us compound the quality of our lives over 100 years. In investing, this would be dollar cost averaging, monthly into portfolio opportunities and quarterly into ETFs. In our normal course of work, it would be good daily habits such as exercising, reading, writing to nourish the body and mind.

Hope this helps!

Huat ah!

We are migrating to Substack. Post on this original infosite will be irregular going forward. Please follow us on 8percentpa.substack.com.

Tokyo Dividend List

2024-10-17T23:30:00.000+08:00

This post is also on 8percentpa.substack.com

In this post, we shall explore dividend stocks in a brand new market, Japan!

Thanks to poems, we have the ability to screen US, UK, Hong Kong, Singapore, Malaysia and Japan! Japanese stocks have never been interesting since they paid little dividends, had lower ROEs and lower margins. But things seemed to be changing with the Nikkei breaking its 1989 high this year.

Let's look at the list:

The names above show the blue chips of Japan and companies we have heard of. NTT, Bridgestone, Komatsu. Today, the trade at 3-4% dividend, at single digit to low teens PE and some below book value while Nikkei rises above all time high. It seemed we might be able to find some bargains. The criteria for the screening is as shown below:

As per past screens, we simply used ROE of 10%, operating margins of 8% and dividend at 3% which churned out the interesting list of names. While there are many interesting names, I would highlight the following two: Bridgestone and Tecmo Koei.

Bridgestone

This is the world's largest tire company trading at 1x Price-to-book while giving a 3.6% dividend yield. The stock has always traded cheaply as there isn't much growth in the auto industry and tires being tires, are just not sexy enough. Listed in Japan, it is also associated with the Japanese auto industry which is being disrupted by electric vehicle. Toyota led Japan into the hybrid and hydrogen solution for cars only to be upended by Elon Musk and then China.

Nevertheless, unless cars can fly, they need tires and Bridgestone will continue to grow as long as we buy cars. Management simply needs to buck up and drive the company to grow or perhaps consolidate the Japanese tire industry with still at least four tiremakers fighting each other in Japan much like the shoguns back in history.

Tecmo Koei

This is a Japanese gaming company famous for its slash and cut games based in Chinese and Japanese history. It has carved out a 40 year niche in this gaming segment. Some of us might remember playing the classic Three Kingdom strategy game back in the 1980s. Gaming is a highly profitable and highly cashflow generative business and Tecmo Koei has simply compounded growth as such.

Today it is trading slightly cheaper against its peers as the company has not been able to create more hit titles. The founding family also still owns a big chunk of the company and therefore restricts trading volume. But at teens PE and 6-7% FCF, it does feel cheap.

That said, we have not studied Japanese names in detail. These names are also not in the portfolio. So do do more research and always remember caveat emptor!

Huat Ah!

Past lists:

2024 Dividend List - UK!

2024 Dividend List

2023 Dividend List

2022 Dividend List - Australia!

2022 Dividend List

2021 Dividend List - HK!

2021 Dividend List

2020 Dividend List
2019 Dividend List
2018 Dividend List - Part 4
2018 Dividend List - Part 3
2018 Dividend List - Part 2
2018 Dividend List - Part 1
2017 Oct Dividend List - Part 2
2017 Oct Dividend List - Part 1

2017 Mar Dividend List

2016 Dividend List - Part 2

2016 Dividend List - Part 1

2015 Dividend List - Part 2

2015 Dividend List - Part 1

2014 Dividend List

2013 Dividend List - Part 2

2013 Dividend List - Part 1

Best Semiconductor Gem!

2024-10-03T23:30:00.011+08:00

Semiconductor stocks had a superb run in the last fwe years driven by shortage of chips and then the current A.I. craze. The following chart from finchat.io showed that investing in the SOXX ETF would have delivered over 200% return or CAGR of 25%.

Today, we are going to discuss a related idea with potentially more upside given that the stock has corrected more than 45% but the big tailwind story hasn't really changed. But first let's look at the financials:

Simple Financials (Mar 25 estimate)

Sales: 2.3trn and EBITDA: 700bn
OP: 600bn and NI: 500bn
Market Cap: 10trn
FCF: 450bn and Net Cash: 500bn

Financial Ratios

PBR 5.3x and ROE: 26%
EV/EBITDA: 11.3x
PER:16.7x
FCF yield: 5%, Dividend Yield: 1.8%

Isn't it amazing to be able to buy such a high-octane semiconductor play at such valuations? Hence the tagline that this could be the best semiconductor gem! As an experiment, we shall not reveal the name today. Interested readers could try to guess and go onto substack to find out. But for convenience, let's call this company T.

1. Fundamentals

The following is the investment thesis for T:

T is the one of the top players in the semiconductor industry with high market share in certain core products. It stands to benefit from the continuous growth of the semiconductor market and is especially geared to capex growth in its home country. At current valuation, investors can enjoy 5% FCF yield and almost 2% dividend with 80% technical upside if market sentiments improve quickly.

The chart below shows that the market is estimated to double from USD500bn to USD1trn by 2030. As one of the top companies in the value chain, T will grow in tandem with the market and current share price correction provides the opportunity to buy cheap and gain good exposure today!

The manufacturing of semiconductors is also highly complex and in various parts of the value chain only the best of the best survived. The number of players have shrunk to just 1-3 in most segments. In actual high end cutting edge production, there is only Intel, Samsung and TSMC and in the field of lithography, there is only one player left - ASML.

Positives

High and growing market share: the production of semiconductors requires many types of equipment which are manufactured by T. It would take up too much space to describe all of them. The following paragraph describes the opportunity well:

T commands a share of more than 80% of the coater/developer market and more than 60% of the thermal processing system market*, but has less than a 30% share of the etch system market and less than 20% of the cleaning system market. Etch systems and cleaning systems are both used in key semiconductor production processes and therefore their markets offer strong growth prospects going forward.

Increasing dominance in servicing: as the largest player in the field, T also has a huge installed base of past equipment globally and only T can service its own equipment. This has led to the growth of its servicing business (currently 20-30% of revenue) and at the same time strengthen its business moat as customers are unable to switch to competitors while new entrants are also not able to gain market share.

Risks

However, the thesis is not without risk. T has significant exposure to China and stands to lose this portion of its business should the trade and technology war between US and China exacerbate. The mitigating factor is that there is no other provider and China will find a way to still buy from T via different routes not unlike how arms dealer can find ways to sell weapons around embargoes.

The rest of the post can be found on substack.

When to Top Up?

2024-09-19T23:30:00.005+08:00

This post serves as a note-to-self to refine the right process to top up names that are already in the portfolio. It deserves a post because of how our monkey evolved brains work with all its biases and blind spots. It also describes why investing is difficult because the initiation of a position is the start of a very long process for value investors. The position could stay in the portfolio for years, an initial bump up makes it difficult to top up later on and a mistake will take years to unwind.

The scenario we are talking about here is usually when we have done an initial analysis on a name, decided it was worth to take the risk and buy an amount. However, things did not pan out the way it should, bad news erupted, shit hits the fan and the stock collapsed, usually c.20%. We need to decide if we should buy, sell or hold. After years of going through some of these scenarios, having gained some experience, I believe the following would be the right process to follow, with the caveats and strategies attached.

Review the new info
Redo valuation
Write an update
Decide to buy, sell or hold

Review

The first step is obvious. We need to review what happened. This could be an earnings miss, or some bad news at some competitors or some lawsuits etc. The short-term bad news would be the easiest to handle as they would usually provide the opportunity to add because longer term we know things will revert to normal, if the thesis is still intact.

By and large, we did our homework well when buying initially. So if it is now cheaper, than it should mean we should buy more! But there are some shit that we should look out for: big lawsuits, impairments, potential fraud and solvency issues. These could be negatively gamechanging and we might run the risk of putting good money after bad.

Redo valuation

The next step would then be redoing valuations. This would require doing some assumptions of how much the intrinsic value was impacted and did the share price fall more than it should. This is an art and it could be quite difficult at times to make a good judgement and establish the right valuation when new info is scarce. With lawsuits, impairments and all the big bad stuff, it could really be difficult. If the solvency issue looms big enough, perhaps it would be best to just wait for the next opportunity to get out.

Update

After the above initial analysis, the logical next step would be to write out an update and pencil the thoughts out. This serves to help us crystallize the thinking and of similar importance, for future reference and learning. The update should relook at the thesis, reviews the risk, see if there could be any silver lining and provides the new valuation to see if there is strong basis to top up the position.

The update should also include:

New information from the 2-3 quarters of recent earnings update
Information from newswire and the internet, including Youtube and substack
Alternative sources from interviews with experts (if we can find them via our network)

Decide

Once we have the update in hand, we then need to decide whether we should buy, hold or sell. I will go through the thought process for each of them.

Sell

The decision to sell happens when the thesis is no longer valid. The news was devastating, the intrinsic value is impaired. This could be fraud, or some mega lawsuit or some big changes. As such, it should not be as difficult because if we have followed the discipline never to put too much into any position, this means that the losses should not be big.

Percentage wise, it would be big, usually 30-50% type but if we did our risk management well, it could be losing a few thousand dollars or a couple of air tickets for our holidays in today's context. It would make sense to recoup the remaining capital to deploy into better names, with more upside. We can also set a target sell price and wait for the stock to bounce to sell.

Hold

This would usually be the default decision. It could be because the new data and hence the review was inconclusive. We need more time for more data points to reveal themselves. For example, if the company is involved in some class action lawsuits, the verdict could be months out. It might make sense to wait for that verdict or at least some clearer indication closer to the verdict date. Or it could be simply waiting for the next quarter results. In such cases, we just need another review when there is more data.

Buy

Lastly, the decision to buy more should un-ambiguous. The valuation checks out. There is now more upside than before. What is left is how much more to buy. It would make sense to slowly build the position up to a max size. If we are now at 1% of the portfolio and target to go to 4% then perhaps it could be adding another 1%. Incremental step ups would be my preferred option.

Fear and Greed

Even when everything checked out logically, there will be one final hurdle. Emotions. Fear and Greed. Fear that despite all the analysis, we will make the wrong decision, sell and then it goes up. Or top up only do catch a falling knife. Ouch!

Greed can also come into play, for some reason, we are blinded by some biases and want to buy more despite everything pointing the other direction. At this point, we may need to speak to like-minded investors to help us straighten our thinking, resolve blind spots to make the right decision.

So that is it!

Hope this lay out a good top up process. As you can see, investing is a full time job. It does not end with one analysis. So much is at play and luck is definitely involved. Sometimes, it is really way simpler to just put everything in T-bills!

Huat Ah!

Update on Reckitt

2024-09-06T18:29:00.002+08:00

This idea was first published on substack.

Consumer staples have always been a feature in the 8% eco-system because the revenues are recurring, the businesses easy-to-understand and generate good cashflows and dividends.

We have discussed Reckitt (RKT) briefly on this blog and more extensively on substack. This post serves as an update with the following framework: review, update, value and decide. The stock has performed terribly since 2020 and while the substack portfolio added at the lows in 2023, we have not seen a strong recovery. The position today is slightly underwater.

Hence, this update today. Let's start with the review of the investment thesis.

1. Review thesis

The following is the original thesis:

Reckitt is one of the strongest consumer staples companies in our times with best in class margins for OPM at 20-25% over the last 20 years and has generated consistent growth on the back of strong brands in strong categories.

Reckitt's portfolio of Power Brands ensures that the stock in defensive in volatile times and compounds nicely over time as it has done. Reckitt's overall geography split has also geared towards developing markets which contribute to 40% of its total revenue. Its strong brands allow its products to establish themselves as premium products, with pricing power but continues to enjoy volume growth.

While Reckitt has 33% exposure to Europe & ANZ and 27% to US, revenue growth for developed markets had also been stable. The company has generated consistent and strong FCF to the tune of GBP2bn and this should continue and reach GBP3bn in the future.

The thesis has not change much since inception. Reckitt continued to deliver the high margins and cashflows in the recent 1H results. The company grew its emerging markets (EM) business in single digit which was not too different from US and Europe. Its portfolio does have products that are more catered to developed economies such as dishwashing powder and air fresheners. Going forward, growth might have to come from both EM and US/Europe.

Reckitt also continued to manage its cashflow well growing its FCF and returning via dividends and share buyback. Its dividend yield is at a very palatable 4.4% today. Being listed in UK, there is also no withholding tax. Due to the collapse in its share price. FCF yield is close to 7%.

2. Update

The biggest elephant in the room today related to the looming litigation in its infant milk business. Earlier this year, Reckitt and Abbott were sued because its specialized milk formula allegedly caused the deaths of premature babies fed with their products. Verdicts ruled against both companies stated that they failed to warn of the risk of necrotizing enterocolitis (NEC) which has fatality rate of 15-40%.

Reckitt was ordered to pay USD60m to a mother while Abbott also subsequently lost another case and was order to pay USD495m! There are c.3,000 cases filed against both companies and the legal liabilities could be GBP3-5bn or more for Reckitt. Reckitt has another trial with important dates starting in end Sep 2024 to Mar 2025 which would provide more datapoints.

3. Valuation

It is worth noting that Reckitt's market cap fell from GBP38bn to GBP31bn today, more than the abovementioned legal liabilities. Although we cannot rule over future revenue impact and more litigation, the share price collapsed have broadly discounted this NEC issue. Let's look at how valuations are:

The table above shows that Reckitt has c.49% upside with IV at GBP67 per share, c.10% lower than the previous GBP70 calculated 18 months ago. However given the litigation is not over, it might be risky to do anything now.

Peers have largely rerated in the last 18 months with average EV.EBITDA at 17x vs a more reasonable 15x when the last exercise was done. RKT does look exceptional cheap here.

4. Decision

While there is good margin of safety, it would be prudent to buy more today as litigation could be very detrimental as we had seen with Bayer (share price dropped 50% and never recovered). The 2024 low at GBP40 would be broken should the verdict be unfavorable. If so, Reckitt could fall further to GBP35. This means the risk reward is -c.30% downside (GBP45/35) vs 49% upside (GBP45/67).

As such the decision would be to HOLD for now.

Huat Ah!

Investment Eightfold Path - Part 2

2024-08-30T19:41:00.002+08:00

As discussed in the last post, we have simply borrowed the above term from Buddhism to help us think about the eight ways to build wealth. The Noble Eightfold Path is actually super profound and I would urge readers to study it for our own sakes in order to pursue enlightenment someday.

For today, we shall discuss from where we left off in the last post. To recap, we have divided the components of wealth-building as per below and discussed the first four:

1. Active Income
2. Cash, T-bills
3. Pension / CPF
4. Property
5. ETFs
6. Stock Portfolio
7. Top picks for the home run
8. Moonshots

ETFs

Exchange traded funds or ETFs would be the best way for any individual investors to build wealth. The way to do it is also to simply buy regularly. I would suggest every quarter or so, when there is spare cash not needed for daily lifestyle, after paying down mortgage, after investing in T-bills, you would want to put some into risk assets to make more returns, then yes, buy ETFs.

It is always best to start with the S&P500, the largest, most liquidity and most well-known ETF which has generated adequate returns since capitalism began.

Stock Portfolio

Investment professionals do not like to buy ETFs. It is their job to beat the index, i.e. by generating more return than the index. So to buy ETF is to admit that they cannot do their job. Warren Buffett certainly won’t buy the S&P500. So, if Warren can do it, so can I. That’s the thinking. But it’s flawed.

I think the way to do this is actually to have two buckets of capital. One to buy ETFs, the other to create your own stock portfolio to try to beat whatever index you want to beat. I would say 99.9% of all investors should not try this.

It is a lot of work. You need to study a lot of companies better than ChatGPT and the next generation of Generative A.I. and you need monitor these companies closely. Frankly, with all our commitments in life, who has time to do this?

Unless you are really interested, really committed and have that spare resource, time and energy and you think you can beat Generative A.I. to it. Then go for it.

Otherwise, just buy the S&P500 or some other broad base ETF.

Top Picks

Once in a blue moon, we see something that makes a lot of sense. This could be an opportunity of a lifetime where there is a huge valuation arbitrage opportunity. We have done the work, we know the risk reward and it makes sense to make an outsize bet on something.

For readers following this substack, it could be Warner Bros Discovery (WBD). I have studied this stock for years. My model shows more than 100% upside. It could even be more. Some time in the past, Warner Bros was the arch nemesis of Disney. If Disney is worth hundreds of billions, today isn’t WBD way too small at c.USD18bn? If I am wrong, the downside seemed limited, but if I am correct, then all the work done should warrant a bigger bet, to make a difference to the portfolio.

The other relatable example would be Nvidia. Many shrewd investors have identified the name a few years ago. It didn’t even have to be an outsized position. If you had just a bit of Nvidia, would you have made a lot of money today. In Singapore’s context, the name was right under our noses - DBS. Singapore banks had gone up 10x if you have held it since 2003, just 20 odd years ago. DBS’ market cap is SGD100bn today.

Of course, hindsight is 20/20.

Moonshots

We are calling the last section Moonshots but it should be thought of an all-encompassing catch-all to cover every possible remote scenario so that our wealth can be preserved and enhanced. Let’s talk about alternative assets first.

For the rest of the post, please visit 8percentpa.substack.com

Investment Eightfold Path - Part 1

2024-08-16T08:04:00.003+08:00

This post is also on 8percentpa.substack.com

In Buddhism, the Noble Eightfold Path refers to the following:

Right Understanding
Right Intent
Right Speech
Right Action
Right Livelihood
Right Effort
Right Mindfulness
Right Concentration

It is is a core and profound teaching providing a practical guide to living. Today we are just borrowing the term to use it for our purpose. The analogy ends with the number (eight) and perhaps how we should have important foundations (i.e. Right Understanding and Intent) before we progress. For those interested and want to learn more about the Noble Eightfold Path, please ask ChatGPT :)

For our investment journey, I have thought long and hard about what would be the several important components of our balance sheets (assets) or types of investments to build wealth over time, in the Singaporean context. The following is what I have come up with, based on my own experience, which I will go through point-by-point in this post and another follow-up post.

Active Income
Cash, T-bills
Pension / CPF
Property
ETFs
Stock portfolio
Top picks for the home run
Speculative investments / Private equity / Gold / Others

Active Income

Years ago, Robert Kiyosaki wrote a so-called seminal book named Rich Dad, Poor Dad. He introduced the concept of passive income. His message was that we should all aspire to generate passive income, through investment, property etc. Then we didn’t have to work etc etc. It was a big myth. Looking back, I think the book did the world a dis-service. We all have to work. That’s the way it is.

Today I would turn the concept on its head. Passive income can never surpass active income. Take your work seriously. If you don’t like your job, quit and do something else. The active income is the basis of building wealth. Importantly, save up so that you have cash, a big retirement nest egg or pension and property (#2, 3, 4 below).

At a certain point in life, you may acquire the capabilities to not work for someone else. You have achieved the pinnacle in your career and it’s time to slow down. You will still need active income. This is where things get interesting.

The interplay between cash, investments, property can support your transition to do something else. Hopefully this still generates active income which can become supplementary to your investment income which can sustain your lifestyle.

Cash, T-bills

Next we have cash and T-bills, we cannot live without cash in the modern world. While it has no meaning in the animal kingdom, or if you own a farm which can sustain yourself, it is essential for most people today. There are real-world examples of people running out of money and then starving to death. As such, it is important to always have cash. The rule of thumb is 12-18 months worth of liquid cash in case shit happens.

Related to cash is my favourite investment today, which is the first post on my substack. Some of the cash should be invested in T-bills. Singapore 6 month T-bills continue to give 3.4%pa and US ones are even higher. It comes back after six months (effectively you only get 1.7% for 6 months). Honestly, there is no need to do any other investment for most people. Just put all the spare cash (minus what you need for the next 6 months) into T-bills. If you want to remember the one thing from my last 2-3 years of writing, this is it. Buy T-bills. Read this post.

Pension / CPF

In Singapore, almost every worker needs to contribute to the national pension fund which is called CPF. For young readers (ie in your 20s), this is more a pain because you think what is rightfully yours is being locked away. But as you age, the payout day gets closer, then things become really, really relevant.

If you have made the right decisions, you stand to take out a lot at age 55. It could be hundreds of thousands of dollars. Alas, CPF is being used to fund property (the next topic), children’s education and what not. So a significant number of Singaporean cannot hit what is known as the minimum sum which is about SGD200,000. So there was a big backlash that the Singapore Government has cheated us, locked away all these monies. We never see them. We die and it only gets passed on to future generations.

To me it’s a case of mis-concept and not getting all the right information. It is complicated, but it’s all out there. While people called CPF a scam, on the flipside, a guy name Loo Cheng Chuan started the 1M65 movement that utilized the compounding of CPF and grew his money to >SGD1,000,000. Originally, he believed he would get a payout of SGD1,000,000 when he turns 65 (hence 1M65). But he way surpassed his own calculations. He now has way more and he is only in his 50s.

So, think hard about the decisions you need to make with CPF. It can be literally life-changing. Aspire to be like Loo Cheng Chuan.

Property

I have have written one important post about property. In sunny Singapore, we are fortunate to have great leaders who had the foresight to devise a national strategy which allowed 80-90% of Singaporeans to own their homes. So I would presume most readers here would own your own homes.

Your first home is very precious. Don’t trade it.

The second property onwards is then investment. Property provides leverage for individual investors and usually generate positive returns over time. But you could also lose a lot of money if you are not careful. Strive to pay down mortgage fast, then the real investment game begins.

The abovementioned are more like bread and butter of our financials in this lifetime. Please make sure they are secured before you think about anything else. In the next post, we shall discuss the risky stuff. Stay tuned!

TO BE CONTINUED...

Charts #51: Olympics

2024-08-02T21:59:00.001+08:00

Found a good chart on the usual Visual Capitalist site, one of the most powerful visualization of data and statistics platform around.

Will we see a day it costs USD100bn to host the Olympics? That would just be a matter of time. Inflation should most certainly take care of that. We will also see the first 10 trillion dollar company, the first trillionaire, the economies would be measured in quadrillions!

Thoughts #35: Private vs Public Investments

2024-07-19T00:30:00.024+08:00

Investment ideas can come from everywhere but it is important to understand that public and private investments are as different as apples and oranges. Investment ideas from personal connections, private companies and structured schemes come to us. It is very tempting to put money to work thinking that we are getting good risk reward. But we must be very discerning.

Personal and private investments cannot be compared to what is publicly listed or backed by a reputable government (e.g. US or Singapore) or large institutions. For example, we see a private investment which shows 20% annual return on paper. We cannot say that this is better than buying DBS, which can only generate 10% annual return (of which 4% is dividend).

There are a few important reasons:

DBS is the largest bank in Singapore and the 25th largest bank in the world. There is very low probability it would actually go bust.
DBS is publicly listed and its accounts are audited by top accounting firms. It means the numbers are real. The cash on the balance sheet is real.
DBS is liquid, you can sell any time and take the money out if you need it.

In contrast, for a startup setup by your friend, or even and big private investment led by a Temasek linked company in which you have an angle to participte, none of the above matters. The considerations becomes:

Can I trust the person executing the investment. What if he calls it a day at his startup or at Temasek, move on to do something else? What happens to the money committed?
Who audited the numbers? Can I trust the cash was used the way it was intended?
How long is this amount locked up for? What if I need the money some time in the future.

The answers are complex. For the first question, would almost certainly be dunno. Even if you have 100% trust, shit happens. What if the friend gets hit by a bus. Or the lawyer who did the work ran away with the money? With DBS stock, such risks are all averted.

So in order to make a good decision, we need to apply the right discount, we probably have to calculate the expected return here. So for DBS stock, the expected return is the same as the above because the probability that DBS will go bust is near zero and we can take the money out any time i.e. expected return is 10%pa.

But for the private investment, if the probability of default is not zero. For a Temasek led private investment, it could be 30% default probability. For your friend's startup, it could be 70%. So using those no.s, the expected returns drop to 14%pa and 6%pa respectively. Then we need to think about the liquidity needs. If it is locked for 10 years, then I cannot put like 10-20% of the portfolio or something big, like six figures. Who knows when I need that money?

Hyflux

Case in point, Hyflux. It was publicly listed. Strong links to Singapore government and Singapore Inc. Yet, it went bust. Thousands of convertible bondholders lost their shirts. Equityholders know their risks, we buy equity knowing it might go zero but we get the enjoy the upside, if any. But bondholders have no upside. We bought thinking we can enjoy 6%. Yet, it went to zero. So even listed entities are not foolproof. Shouldn't we ask more questions?

Full post on 8percentpa.substack.com

Huat Ah!

Market review: 2024-2025

2024-07-05T09:39:00.008+08:00

2023 came and past. There was no recession, the Russian-Ukraine war continued and more conflict happened in other parts of the world. Israel-Hamas. We may have Trump as the most powerful man on the planet facing off three dictators: Putin, Xi and Kim. How fun.

Meanwhile stock markets continue to make new highs (except China). The Nikkei broke past its peak of 39,000, last achieved in 1989. This was the year Taylor Swift, the first billionaire singer who helped Singapore gain more hatred from our neighbours, was born. At 35, her age is also slightly higher than the median and average age of all the humans on planet Earth.

My point, is that it's been a while since Japan was on investors' mind and just when Nikkei tried to come back, India took centre-stage limelight again with Modi promising more and the India stock market hit all time high as well. Yeah, the world is crazy.

So what should we expect for the rest of 2024 and 2025?

I believe what goes up must come down. Valuations are stretched but not crazy. The last time Nikkei hit 39,000, it was trading at 60x PE. Today it's 16x. The PE for the US market is expensive but not at its most expensive when we look at its history, as exemplified by the famous Case-Shiller PE ratio chart below.

Case Shiller PE 50 Year Chart

The last bubble was with the Nasdaq and it is worth examining at that as well. The Nasdaq was trading at >100x PE back in 2000. While it has way surpassed that peak of c.5,000 at >17,000 today, the PE ratio is c.30x. So, just looking at PE valuations, we can always argue, things are not super crazy. But every bubble is different. It can go way higher and break the previous PE record high.

This could be generative A.I. sucking in even more money which means the Magnificent Seven (Nvidia, Alphabet/Google, Meta / Facebook, Tesla, Amazon, Microsoft and Apple), the GRANOLAS in Europe (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, Loreal, LVMH, AstraZeneca, SAP and Sanofi) and the Seven Samurais (Tokyo Electron, Mitsubishi Corp, Toyota, Nintendo, Fast Retailing, Sony and MUFG) continue to go up. While the rest of the market stagnates.

Or things can just collapse should the weakest link break. It could be another Silicon Valley Bank, it could be China, or Tesla. The risks are not being highlighted today but with interest rates this high, by right, investors should be favoring stocks with lower PE or higher earnings yield. Yet, we are seeing the opposite.

As fundamental investors, we always have to be mindful of valuations. I would advocate we look at the specific companies closely and make sure valuations are cheap. We should also keep comparing earnings yield to T bills. If we can get 3-5% on T bills, we must think hard about buying stocks at less than 3% earnings yield or 33x PE. Singapore 6 month T bills are still giving 3.7% and US ones are even higher at 4-5%.

US T bills from Google

As to fundamental analysis, I believe A.I. will change the game. It is still unclear how. One scenario might be that retail investors might be better served, since we can simply ask chatGPT to do the analysis in the near future. Or it might also be the case that no one beats the market anymore. So we just buy the index which is generating return by A.I. investing for us.

Before that future happens though, we have Substack today (mine is 8percentpa.substack.com). I believe Substack is becoming an important growing eco-system for independent writers who could write as well as professional analysts perhaps with the help of chatGPT. Their analysis are in-depth, informative and much better than Youtube videos (e.g. Roaring Kitty). The following would be a list of posts on both new names and names that I follow.

Just a few posts from other Substacks:

https://eaglepointcapital.substack.com/p/verisign-a-capital-light-compounder

https://buybackcapital.substack.com/p/the-issue-no-4-vrsn

https://hightechinvesting.substack.com/p/warner-bros-discovery-stock-catching

https://pricepoint.substack.com/p/price-point-040-lets-take-a-look

https://theartofhittingbombs.substack.com/p/company-deep-dive-no-5-adobe

https://cloud.substack.com/p/the-5-ways-ai-will-transform-creativity

Huat Ah!

Thoughts #34: A.I. vs Human Portfolio Manager

2024-06-16T00:10:00.001+08:00

Portfolio Management has never been easy. 80% of portfolio managers cannot beat the benchmark. Would it be the case that this becomes 99-100%? There could be a few scenarios:

1. A.I. beats everyone -> all portfolio managers cannot beat the benchmark

2. A.I. plus the best portfolio managers beats everyone, including A.I. These hybrid A.I. + best human portfolio managers make up the best 1%.

3. A.I. competes with A.I. and only the best A.I. beats everything else.

The chart below shows humans don't really stand a chance...

Huat Ah!

Please support us on 8percentpa.substack.com too!

QYLP: Global X Nasdaq 100 Covered Call ETF

2024-06-07T00:15:00.178+08:00

Covered call ETFs are relatively new and literature on the internet provide little insights on how such an asset is good for investors. Hence, this post hopes to add knowledge to whoever is interested. First we need to cover the following sub-topics to understand this idea better.

What is a covered call ETF?
Why buy on the London Stock Exchange or LSE?
What is the thesis?
What are the risks?

First up, a covered call is an option which allows the seller to sell a stock which he or she owns, usually at a higher fixed price vs today some time in the future. This allows the seller to receive a premium from the buyer. Call options give the buyer the right to buy a stock at a certain price (i.e. the seller has the obligation to sell at that same price)

There is also something known as a naked call, when the seller doesn’t own the stock. But that is a topic for another day. Today, let’s discuss the thinking for the buyer and seller of call options:

The call option buyer thinks it is good bargain to buy a stock at a certain higher price but doesn’t want to pay up for it. So he wants to only buy the right (i.e. the call option) which is much cheaper. In a way, call options provide stock buyers leverage. He is bullish on the stock.

The call option seller (i.e. us) is obliged to sell at this higher price, but in return, receives a premium. He doesn’t want to sell the stock now but at a certain higher price, he is okay to sell. On top of that, he receives a premium and is therefore even happier. In a way, the seller is bearish but not bearish enough to sell today.

Covered call ETFs

Now that we have covered covered calls. We can go on to how it works for an ETF. So extrapolating form the above, the Nasdaq 100 covered call ETF will own the 100 Nasdaq stocks but sell covered calls on them. In the US, this goes by the ticker QYLD and in UK, the author would be buying QYLP which is part of the group of ETFs listed in 2022 with the same manager Global X but this particular ticker is denominated in pounds. The reasons shall be discussed in the next section.

This ETF essentially owns names of the Nasdaq and sells covered calls on them to generate returns. The list of names, which are publicized regularly and differs in weightage vs the index, are as follows:

The US listed entity has a much longer history and we can see from the below that the track record is not far from the index return assuming that all proceeds are reinvested. Since inception (which was 2013), the ETF has returned 7.4% while the index returned 8.3%.

Yes the ETF return is actually lower than the index, so shouldn't we buy the index? This too shall be discussed below in the thesis section. For now, let's call that covered call provides premium to the owner and is less volatile than the index. Covered call ETFs generate very high dividend and this particular one, QYLP has provided 11-12% dividend since inception (which was 2022 on the London Stock Exchange).

This is a good segue to go into the next section.

Why the London Stock Exchange (LSE)?

The reason is that UK has no withholding tax. So the 11-12% goes directly into investors' pockets. If we have bought the US listed one, 30% would be taken away by taxes which makes it less interesting. The author has chosen the GBP denominated one because of future currency needs but most investors should just use USD, which is the default currency and that means less complications.

The dividends come monthly and has been very beneficial for many retirees. Some people have invested in covered call ETFs for decades and benefit from the monthly income. Notable ones include DIVO and JEPI which interested readers can also dig into from the link below.

https://moneyguynow.com/best-covered-call-etfs/

Thesis and Risks

Okay, let's discuss the main topic. Thesis and risks. Why buy such a complicated instrument when we can buy the index. The answer is that in other times other than 2024, you should probably buy the index. Index buying has been proven to be the easiest way to compound returns and dollar cost averaging into index buying will create good wealth over time. The index of choice will be the S&P500 which has returned c.11%pa over the last 10 years and more than 10%pa over the last century.

So why bother with covered call ETF on the Nasdaq?

Here's why:

We don't want to miss out on the tech and Gen AI bubble.
The regular income is good.
Covered call ETFs will outperform if the market is flat or if it goes down.

There is real upside risk that we are at in the middle of yet another tech bubble which is driven by the Magnificent Seven, Generative AI and perhaps cryptocurrency (again!). Yes these names have rallied a lot but it seemed that we are not in the final legs of any huge bubble. It could go up a lot more from here and we stand to miss all the upside from here.

If you owned Nvidia when it was below $100 and has rode the stock up, then good for you and perhaps this idea is not for you. But for most of us, this might be a good way to participate without taking on all the risk. The covered call ETF owns the underlying names and will go up as long as the index goes up. It also provides regular income. However, it will underperform the index over the long run due to higher expenses,

This brings us to the second point which is the monthly dividend. Covered call ETFs provide regular income which is very attractive for people who require this. As mentioned, for QYLP listed on LSE, this is 11-12%pa which is very significant.

The last point is simply a reiteration that we are hedging ourselves should this bubble scenario not play out. If Nasdaq collapses, then we are saved by the dividends and should outperform, at which point, we should then actually buy the index like QQQ or SOXX.

Let's talk about the risks!

The full post is on 8percentpa.substack.com

References:

https://globalxetfs.eu/funds/qyld/

https://www.globalxetfs.com/funds/qyld/