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Author: williekeng   |   Latest post: Thu, 18 Aug 2022, 12:00 PM

 

27 Big Lessons From Warren Buffett's 46 Letters (1977-2021)

Author: williekeng   |  Publish date: Thu, 18 Aug 2022, 12:00 PM


Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

Everyone knows Warren Buffett. Every knows he's well-known for his annual letters to shareholders.

I've read all of his 46 letters — from 1977 to 2021. And these are the key lessons I've learnt after reading them.

Most people think Warren Buffett isn't just a genius in investing, he's also an excellent "capital allocator".

He knew how much to bet in the companies he invests in. When he found a winner, he went in big.

But he was more than an investing genius and an excellent "capital allocator".

In this article, I broke down and analyzed his 46 letters. I share my 27 biggest takeaways here.

Let's dive in!

#1: Willing to adapt

In business, like in life, be willing to change course - whether it's the environment, relationships, career and so on) — if things don't work out.

Buffett changed his entire investment style from "cigar-butt" investing to buying great businesses - with incredible economic franchises — at sensible prices. Buffett was willing to pay a premium to buy high-quality businesses that could compound profits over the long term.

Buffett stopped buying companies that didn't have much economic strength, but whose shares sold cheaply.

In fact, Buffett's investing style toward high-quality investing was largely influenced by his co-Chairman and best friend, Charlie Munger.

"In my early days as a manager I dated a few toads. They were cheap dates (stocks he bought) - I've never been much of a post - but my results matched those of acquirers who courted high-priced toads. I kissed and they croaked."

#2: Be “long-term greedy”

Berkshire Hathaway's huge success was because of Buffett's patience discipline.

Instead of approaching investing with quick-wins, Buffett only thought about compounding his profits over the 20, 30 or even 50 years.

What's more, Buffett didn't allow short-term losses to affect him.

Ever since Berkshire Hathaway started operating, the firm recorded temporary losses of at least 30% over a period of six times.

Source: Buffett’s Letters to Shareholders

#3: Buffett was a relentless learner

Warren Buffett went all out to learn about the insurance business because his mentor, Benjamin Graham was the Chairman of Government Employees Insurance Company (GEICO). GEICO back then was a private US auto insurer.

On a Saturday in January 1951, Buffett took the train from New Work to Washington DC to GEICO's office...

“To my dismay, the building was closed, but I pounded on the door until a custodian appeared. I asked this puzzled fellow if there was anyone in the office I could talk to, and he said he’d seen one man working on the sixth floor.

And thus, I met Lorimer Davidson, Assistant to the President, who was later to become CEO.

Though my only credentials were that I was a student of Graham’s, ‘Davy’ graciously spent four hours or so showering me with both kindness and instruction.

No one has ever received a better half-day course in how the insurance industry functions nor in the factors that enable one company to excel over others.

As Davy made clear, GEICO’s method of selling – direct marketing – gave it an enormous cost advantage over competitors that sold through agents, a form of distribution so ingrained in the business of these insurers that it was impossible for them to give it up.

After my session with Davy, I was more excited about GEICO than I have ever been about a stock.”

Tiger Broker users can now customize their functions - Watchlist, Latest News, Communities, Stocks and so on — in the 8.0 App on one page. You can do this by simply adding/removing widgets. I spend two minutes every morning on my Home Feed - looking at the 1) Top News, 2) My Watchlist, 3) Stock Opportunities, and 4) My Portfolio.

#4 Keep it simple

Buffett invested in companies he knew deeply. Sometimes, it's good to keep things simple.

For example, between 1977-2021, Buffett calls his private businesses: The Sainted Seven. These are the Buffalo News, Fechheimer, Kirby, Nebraska Furniture Mart, Scott Fetzer Manufacturing, See's Candy and World Book.

In fact, these companies sold simple products like newspapers, furniture, candies and books.

In life, when it comes to decision making, it's good to keep things simple.

#5: Stick to your circle of competence

What's easy for you to understand may not be for others. And that's your competitive advantage.

Warren Buffett's core business was in insurance.

And he knew the insurance industry so much, no one else could match his insurance knowledge. He had a circle of competence. He dedicated at least half of his letters talking about the insurance operations. I learnt a lot. It was amazing the amount of insurance knowledge he had.

How Buffett came across the insurance industry was luck, but he was also attracted to how complex the industry was.

Insurance is one of the few businesses that's hard for people accurately guess and make judgement on insurance claims.

That's where Buffett's expertise was - accurately guessing and making judgement on insurance claims.

For example, Buffett looked for things people don't understand well. Berkshire Hathaway ever priced the famous boxer, Mike Tyson' insurance policy. And not many people knewhow to price such a liability.

In 1995 letters to shareholders: “We insured the life of Mike Tyson for a sum that is large initially and that, fight-by-fight, gradually declines to zero over the next few years...”

The thing was, charging a high premium to Mike Tyson might make you lose him as a valuable customer. But undercharging your premiums could result in fatal losses if claims are made.

#6: Be an archaeologist

Read Original Sources. Buffett read classic texts. Want to learn economics? Read John Maynard Keynes and Adam Smith. Want to learn consulting? Start with Peter F. Drucker. Want to learn airlines? Read Juan Trippe, founder of Pan American World Airways.

When Buffett started out, he'd go to the library to check out the Who's Who in America. I noticed he often quoted famous novel writers, comedians, company managers in his letters. Many of these famous people were outside of the finance industry. This reflected his wide interests in various fields.

Today, the internet churns out so much content, more than 90% of the information is a derivative of many classics.

Dig for old things.

Classic texts have timeless principles.

Tiger Brokers is a great way to get our feet wet in investing across different markets. And the best way to learn is to expose ourselves to stocks not just in Singapore, but across the world. Tiger Brokers now has access to Singapore, US, Hong Kong, Australia and China A-shares. Right at your fingertips.

#7 Provided value first

When Warren Buffett bought The Buffalo News, he figured out the best way to get the highest readership was first to provide valuable news content. And that meant having a much higher news-hole ratio than other newspapers.

News-hole ratio is the amount of space available daily for news in a newspaper. Between 1957 to 1975, a typical news hole ratio in the US is 45% of its space for non-advertising content.

Buffett knew newspapers could only survive if it was the top publication in the region. So, he focused on providing as much news content, before thinking about advertising profits to attract readers.

Back then, the Buffalo News news-hole ratio was 50%, one of the highest in the industry.

A lot of content was given to the reader, as opposed to flooding the papers with advertisements.

That was how The Buffalo News became the number one newspaper.

Even though newspaper subscriptions were disrupted by the internet, The Buffalo News still was the go-to paper.

#8: Buffett "read" people

Buffett understood what made people ticked. He knew who were the managers with honesty and integrity.

When he looked for great businesses, this gave him an immense competitive edge.

He could straightaway size a person up, find out whether he or she can be trusted, and is honest, hardworking and intelligent.

#9: Leverage with debt is risky

It was like driving on a snowy mountain top, with a knife pointing at you.

“The disciples of debt assured us that this collapse wouldn’t happen: Huge debt, we were told, would cause operating managers to focus their efforts as never before, much as a dagger mounted on the steering wheel of a car could be expected to make its driver proceed with intensified care.

We’ll acknowledge that such an attention-getter would produce a very alert driver. But another certain consequence would be a deadly – and unnecessary -accident if the car hit even the tiniest pothole or sliver of ice.

The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.”

#10: Love what you do

Or at least learn to love what you do. If you love what you do, you'll do more of it without the need for someone else to push you.

You put in your best effort and bring out the best in you.

"Charlie and I, ourselves, followed that liberating course after a few early stumbles. We both started as part timers at my grandfather's grocery store, Charlie in 1940 and I in 1942. We were each assigned boring tasks and paid little, definitely not what we had in mind. Charlie later took up law, and I tried selling securities. Job satisfaction continued to elude us.

Finally, at Berkshire, we found what we love to do. With very few exceptions, we have now 'worked' for many decades with people whom we like and trust. It's a joy in life to join with managers..."

Once, someone asked when Buffett planned to retire. He replied: "About five to ten years after I die."

#11 Read widely

Buffett's letters quoted subjects and experts from epistemology, insurance, literature, marketing, management, engineering. And many more.

He combined fundamental principles from across different fields to create original insights.

That's how he discovered great businesses hidden away from the public eyes.

My take? The world is beautiful and there's so much new discovery every day. So much insights to gain from combining existing knowledge.

#12: Buffett networked extensively

Buffett didn’t just sit behind his desk all day to read.

He often flew across the country on his private jet to meet peers, management, industry experts to discuss ideas.

Sometimes, Buffett blocked out a full week to a month to meet people. This gave him insights across different industries.

He applied these insights creatively by looking at companies from angles most people overlook. This is what I call: immense informational leverage and advantage.

I join the Tiger Community, which is a great way to get access to like-minded individuals like Buffett is to get access to a community of like-minded investors. There's also an active discussion forum, which is especially helpful for beginner investors.

#13: Learn to say "no" more often

Buffett rejected 98% of businesses that come across his desk. The ability to pick good companies from bad is an ability Buffett has trained himself for.

More importantly, it made me think about how I also want to reject 98% of things that come my way. Learning to say "no" is crucial, on top of choosing who I like to work with and what job roles that suit my strengths.

Pick your battles to win the war.

#14: Being contrarian

It pays to be different. Investment firms on Wall Street employ an army of portfolio managers and analysts to manage the firm's assets. Berkshire Hathaway? Only Buffett is making the investment decisions.

Another thing. Instead of setting up an office in Wall Street, New York, Buffett chose to set up his office in his quiet town of Omaha, Nebraska - away from all the financial noises.

Go contrarian.

Which leads me to the next point…

#15: Hold contradicting ideas in your heads

One of Buffett's key successes was he could hold many contradicting ideas and beliefs in his head. And still applied them successfully in his business.

For example, Buffett bought simple businesses to understand. But one of Berkshire Hathaway's biggest investments was in insurance - GEICO, a reinsurer. And possibly one of the most complex industries to master.

Buffett didn’t like to forecast the market. Yet he frequently made predictions about the sustainability of a company's profits over the long term.

Buffett didn’t like to manage people. Yet, Berkshire Hathaway, through its subsidiaries employs 372,000 staff.

#16: Choose highly "capital-efficient" businesses

A dollar of profits earned from Singapore Airlines isn't the same as a dollar earned from Alphabet (Google). Both produced a dollar of profits but required different amounts of capital to produce a dollar of profits.

Invest in businesses that required small, incremental capital to produce large, outsized profits. These businesses were far and few, but gushes the huge cash flow (and dividends) for investors.

When I search for investment ideas, I make use of Tiger Broker's Up-to-date Information Flow. This is also one quick way to find "capital-efficient" businesses — using Tiger's Discover, Watchlist, Stocks tool to find out the latest top buys and sells, recent movers and most active traded stocks

#17: Learn how to allocate capital

It’s about effectively employing capital by allocating the right amount — knowing when to concentrate his bets.

At one point, Buffett owned 40% of American Express in his company.

He also at one point owned 25% of his net worth in The Buffalo News.

#18: Buffett defined his own success

Buffett was ambitious. But he didn’t let ambition get the better of him. Buffett knew exactly what success meant to him - collecting great businesses, allocating capital and compounding wealth.

Even when he was interim Chairman of Salomon Brothers at one point, he wasn't greedy to grow his ego by becoming a permanent Chairman.

He didn't want to take that kind of power. He felt having this power wasn't necessary.

#19: Buffett clarifies his thoughts by writing and teaching

Like a pastor who has to preach to an audience of diverse backgrounds, Buffett made it his job to write and explain his thoughts clearly in his letters to shareholders.

"Teaching, like writing, has helped me develop and clarify my own thoughts... if you sit down with an orangutan and carefully explain it to one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly."

#20: Buffett went deep into a subject

He read everything about a topic. This included the companies he invested in. For instance, even after investing Coca-Cola shares in 1988, Buffett continued to read Coca-Cola's annual reports as far back as 1896. He gained insights such as Coca-Cola having a 100 years vision of the business.

In his 1996 letters to shareholders: "I was recently studying the 1896 report of Coke (and you think that you are behind in your reading!). At that time Coke, though it was already the leading soft drink, had been around for only a decade. But it’s blueprint for the next 100 years was already drawn... Though health may have been a reach, I love the fact that Coke still relies on Candler’s basic theme today – a century later. Candler went on to say, just as Roberto could now, 'No article of like character has ever so firmly entrenched itself in public favour.''

#21: A firm's true value isn't made up of its physical assets — it’s the people

A firm doesn't function like a body of organisms - the liver, lungs, stomach operate independently of each other, though all must work together.

Rather, firms operate under a bureaucratic nature with top managers driving the firm's direction.

Buffett knew the potential of an individual’s contribution to the firm. That's why Buffett paid so much attention to managers. He frequently says he only invests with managers whom he likes, trusts and admires.

#22: Understand people's true incentives

You can’t blame people for the role they play in society.

It’s not an investment banker’s fault if they sold you crappy junk bonds or collateralized debt obligations.

You can’t blame CEOs for saying yes to every merger & acquisition. Understand what their incentives are. Investment bankers are paid to sell products, bridge capital from savers to borrowers. CEOs are paid to grow the company.

#23: Trust people

Let managers do their own things. Let your staff carry out the work they are meant to do without micromanaging them.

Buffett didn’t believe in bureaucracy.

He didn’t have "useless" meetings.

He didn’t set corporate budgets and there's no performance reviews.

Buffett asked a very important question: "What can you tell other people who are experts on how to do things?"

#24: Big changes don't mean exceptional stock market returns

Investing into "high P/E", or high growth companies in the promise of a huge change - disruption in the industry.

People rather fantasize about the future profitability of a company than to understand what's the real situation of a business today.

In fact, investing is all about figuring out whether a company can continue to grow its profits in a sustainable way over a long period of time.

#25: Do ordinary work well

And put in the extraordinary effort. The investment industry is a knowledge-based business — like law, medicine and engineering. It's highly competitive.

The key to differentiate is putting extraordinary effort. Buffett doesn't just spend his time reading widely and deeply. He also spent time travelling, met new people, learnt fresh insights.

He combined his knowledge and experiences with the world.

#26: Invest in companies with a "share of mind"

It's not just about having a share of the market. Buy companies whose products have a share of mind, not just a share of the market.

When these products are deeply entrenched in the minds of people, according to Buffett, it has some sort of "special thing".

That's why Buffett bought American Express.

You can raise prices with people complaining and getting angry but they will still pay for your product, there's a moat. And if the company continues to gain market share against its competition, you've gotten a winner.

#27: Treat your portfolio like a collection of businesses

Buffett invested into businesses like he buys baseball cards.

And he looked at stocks not as pieces of paper, but real underlying businesses with managers running the operations.

I use Tiger Brokers' Watchlist to build my own collection of businesses. This is one quick to let you have a "top-down" view on what's happening to the stocks you're monitoring.

Final Thoughts

Learning Buffett's letters to shareholders is more than just learning about investing.

I learnt about personal development and what it takes to be someone of character.

What I enjoyed was the authentic way Buffett writes his letters - folksy, human, and vastly different from the many CEO letters I've read in my investing journey.

Buffett made it a point to make his letters easy to understand, personal and upfront about his business. He took special care to explain how the investment business really works.

It's an insight into his mind.

Which of these lessons resonate with you? Let me know!

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

The post 27 Big Lessons From Warren Buffett’s 46 Letters (1977-2021) appeared first on Dividend Titan.

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My Biggest Stock Market Mistakes (And How to Avoid Them)

Author: williekeng   |  Publish date: Mon, 15 Aug 2022, 12:25 PM


Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

I bought my first stock in 2010. That kickstarted my investing journey. I've invested for 12 years now, and I continue to make many more stock market mistakes.

Some are common mistakes. Some are costly mistakes.

But I learnt as much from them.

These are my 7 biggest stock market mistakes. And how you can avoid them.

#1: Not starting as early as possible

I should have traded my first stock way earlier. I bought my first stock only in October 2010. It was a U.S. tobacco company. I started reading intensely about investing in early 2009.

Yet, I waited over a year to get my hands dirty in the stock market.

The problem I had was I wanted to make sure I knew EVEYRTHING on investing before jumping to the deep end of the pool. I waited too long.

Because I realized it's only when I trade my first stock, then I know what's crucial to read, analyze and research on.

Otherwise, it's simply talking strategy on paper.

More importantly, if I had bought stocks earlier, I could have better capture the gains during the global financial crisis.

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#2: Not treating investing like a business operation

When I started, I simply followed everyone else, treating investing as buying and selling individual pieces of shares.

When one of my stocks goes up, I get happy.

When another of my stock goes down, I get disappointed. And often, my emotions jump between joy and disappointment.

Instead, treat investing like a business operation. I'll explain.

Instead of looking stocks as individual pieces of paper, you think of them like inventories for a business to operate. These inventories (stocks) collectively help produce profits and dividends for you. Even when one or two stocks fall in price, you don't get affected by it.

You own a portfolio of inventories (stocks), monitor them and manage them by making sure businesses you own continue to be in great shape. If any of these inventories don't serve you, sell.

Sometimes, you might buy an excessive number of stocks. You trim it.

You keep a close watch on your portfolio's overall performance. You might have some losing stocks. But overall, a large part of your gains will be driven by your winning stocks.

I own a basket of businesses across different industry. More important, own stocks across different countries. Smart diversification matters.

This way, I wouldn't feel so stressed if one or two stocks were losing money. Because my overall investing operations was making money. That's all that mattered.

#3: Not finding a mentor

I'll put this upfront - finding a mentor HELPS a lot.

It accelerates your learning curve, gives you fresh insights and helps you avoid big mistakes But I let ego get the better of me. I thought I could learn investing by myself. Huge mistake.

I would have saved myself the capital losses, and accelerate my learning. Especially at times felt like I was heading nowhere.

A mentor shows you their mistakes so you can either avoid them or reduce the impact. More crucially, a mentor gives you different insights, network and ways of analyzing businesses. It's good to find someone who has walked the path. And is successful. You accelerate your learning curve this way.

The world is full of financial gurus pushing you crazily expensive courses. Some are good. Some are bad. Look for those that truly helps you. There's always something to learn from them.

Other than finding a mentor, you can find like-minded individuals to share your investing journey. I join the Tiger Community, which is a great way to get access to a community of like-minded investors. There's also an active discussion forum, which is especially helpful for beginner investors.

#4: Not diversifying enough

When I started, I only had seven stocks in my portfolio.

At one point, I had 61% of my portfolio in just one stock — a company that sells women's apparel. Big mistake. That stock went on to lose over 55% in market value within two years.

Sometimes, two or three of your stocks go wrong. It's normal. This is investing. Things can get shaky. But what you need to understand is this - billionaire investors like Warren Buffett, Seth Klarman and Howard Marks could manage billions of dollars safely, precisely because they spread their money over many different stocks.

When Peter Lynch, a famous Fidelity Investment fund manager, took over the Magellan Fund, he owned 100 to 150 stocks. His returns for the Magellan Fund? A 29% compounded annual return between 1977 to 1990! That's impressive.

His conviction in diversification led him to survive multiple crises - the "savings and loans" crisis in 1980, Black Monday in 1987, "junk bond" crisis in 1989 and so on. The fund's returns were nearly twice the 16% return on the S&P 500 Index.

In fact, The Magellan Fund was the best performing fund then.

#5: Listening to other people

I cannot emphasize this enough. One crucial mistake was not trusting my gut. The first stock I bought was a US company. I started investing in the US stock market. However, people told me to stay out of US stocks. Why? Back then, the US dollar currency was weak, US stocks appeared more volatile, thus seemed "riskier".

As a newbie, I got scared.

"Why invest overseas when you can invest in Singapore stocks?" A good friend once said, "You know the brands, Singapore shares (prices) don't move so much, no so volatile."

People influenced me to invest in Singapore stocks instead. Because it feels safer. Not a bad choice. I followed that advice. And I missed out some of the biggest gains in the US stock market - especially financial and tech stocks — since 2013!

Trust your guts.

Don't let other people's advice influence you. If you think there's gems found in Hong Kong, Australia or even Europe. Go for it.

Tiger Brokers is a great way to get our feet wet in investing across different markets. And the best way to learn is to expose ourselves to stocks not just in Singapore, but across the world. Tiger Brokers now has access to Singapore, US, Hong Kong, Australia and China A-shares. Right at your fingertips.

#6: Over-relying on valuation models

I used to rely on valuation models.

I'd do a forecast of a company's revenues, profits and cash flow. But all these numbers don't make ANY sense if you don't understand the business. Numbers are just numbers. I made that mistake of depending too heavily on valuation models. And it's a common mistake for people starting out to invest.

Instead, learn to understand businesses. You can do this by reading financial reports and industry reports. Talk to like-minded investors. Talk to business owners. Learn what drives businesses' revenues, does it have an economic franchise, and is management sound.

THEN use valuation models as a tool to be objective

#7: Believing arbitrage investing makes the most money

It takes up too much of your time.

And it works but you got to put in a tremendous amount of effort. And once you collect your profits, you got to reinvest them again. You're always on the hamster wheel. I should have focused on buying great businesses earlier on instead.

And let my wealth compound.

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Final Thoughts

Investing is a never-ending journey. There's no such thing as not making mistakes. You're sure to make mistakes, just like me. But don't let the big stock market mistakes cost you your capital. I did at one point.

Learn from mistakes. Avoid the big ones.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

Note: I want to let you know this sponsored article is a collaboration with Tiger Brokers. Whatever I write here is my own views and opinions, based on my research.

The post My Biggest Stock Market Mistakes (And How to Avoid Them) appeared first on Dividend Titan.

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Invest Fair 2022

Author: williekeng   |  Publish date: Thu, 11 Aug 2022, 12:00 PM


ShareInvestor is bringing back Invest Fair 2022. And you know? This will be a physical event with a big bang.

This mega financial event will host a panel of top financial experts. There are 21 speakers across the different industries - including fund managers, strategists, traders, economists, brokers and financial bloggers.

With the COVID pandemic getting behind us, air travel re-opening and economies returning to "normal", perhaps it's time for us investors to explore what’s next.

Invest Fair 2022 will be a physical event. And it will be held at Suntec Exhibition Hall 404 from 9am to 6pm.

What's even more exciting is you get a chance to win in their lucky draw prize

You can sign up right here.

If you're a first-time attendee, this conference will help you unpack the latest investment trends and stock ideas that could interests you.

4 “Must-Go” Keynote Events

1. Picking Winning Shares for All Economic Conditions

Speakers: Mr. David Kuo, Co-Founder of The Smart Investor

Time: 10:50am to 11:35am

If you want to know how to pick the next winning stocks, Mr. David Kuo, Co-Founder of The Smart Investor will go behind the scenes with his portfolio allocations and stock selections.

What I find appealing is his take on companies that can withstand economic cycles.

Perhaps he might reveal a hot stock or two? I don't know. I like how he pays focus on
companies with fundamentals and proven track records in growing shareholder
values. This is right up my alley.

2. Investing in Uncertain Times

Speakers: Mr. Song Seng Wun, Director of CIMB Private Bank; Mr. Suan Teck Kin, Executive Director of Global Economics and Markets Research of UOB; Mr. Terence Wong

Moderator: Willie Keng, CEO and Founder of Dividend Titan

Time: 3:35pm — 4:20pm

I'm standing on the shoulders of wise giants here. I'll be moderating two veteran economists and a boutique fund manager — top in their industry — on the most talked about topic on investing today: How do we invest in uncertain times?

This is amidst supply chain disruptions, raw material shortages and rising energy prices. Not to forget rising interest rates, the ongoing war in Ukraine and geopolitical tensions. What can investors do?

Catch all of us live on the main stage as we unpack these topics for you.

3. The Wealth Report and Luxury Homes in Singapore

Speaker: Mr. Leonard Tay, Head of Research, Knight Frank Singapore

Time: 10am — 10:45am

This is interesting - a property talk in a sea of stock market analysis. I love it. Hear what Mr. Leonard Tay, Head of Research of Knight Frank Singapore has to say about the tipping point
of Singapore's luxury residential market.

“The number of global Ultra High Net Worth Individuals grew by 9.3% in 2021, up from 2.4% in 2020. Singapore is predicted to witness a 268% growth in its Ultra High Net Worth Individuals
(UHNWIs) population to around 6,000 individuals by 2026. However, this has not really translated into activity for the luxury home market in Singapore during the pandemic years of 2020 and 2021.”

Mr. Leonard Tay reveals insights from The Wealth Report and Luxury Homes in Singapore. This Knight Frank flagship publication shows many compelling data on the property market. For the data-driven junkies, this is a perfect opportunity to collect the latest property data.

4. Investing in Inflationary Times

Speaker: Mr. Paul Chew, Head of Research, Phillip Securities Research

Time: 1pm — 1:45pm

40 years of low interest rates. Massive fiscal spending across developed economies. And trillion dollars of excessive money printing. All these led to the longest bull run in the bond market, and huge borrowing across corporates and individuals. At the end, all this
culminating in a furious inflationary environment. What's next?

Hear Mr. Paul Chew talk about the most concerning topic amongst Singaporeans today - rising inflation.

That’s not all at Invest Fair 2022

The keynote events discusses big macroeconomic trends. How about bottom-up investing? Trading? Options strategies? Hear from other experts like Mr. Shanison Lin, Founder & CEO of Investing Note who shares about trading in the Level Up Your Experience in Trading event.

If you want to get your feet wet in investing basics, follow Mr. James Yeo, Founder of SmallCapAsia.com on How to Invest in Quality Stocks Using 4 Simple Steps event.

You want to know more about sustainability investing? No problem. Head right down to Painting REITs Green by Mr. Edward Pye and Mr. Hong Li from UOB Asset Management.

And the more popular investing instruments - How Do I Manage My REITs Portfolio in the Current Interest Rates Environment? By Mr. Chua I-Min, an SGX Academy Trainer.

I'm pleased Dividend Titan is a friend of the Invest Fair 2022. I hope to see you there.

Invest Fair 2022 will be a physical event this year.

Do remember to sign up!

Sometimes investing can be simple.

Willie Keng, CFA
Founder, Dividend Titan

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SIA Shares: Safe or Not?

Author: williekeng   |  Publish date: Wed, 10 Aug 2022, 6:00 PM


It was lunchtime.

Frank walked into the canteen of the airport terminal, sat down at the counter and ordered a sandwich.

Moments later, a pilot walked in, sat down right beside him.

Soon, more crew attendants filled up the empty seats in the canteen.

This was the 1970s.

Frank Abagnale was convicted of cheque frauds, stole millions of dollars and at one point, posed as a Pan American Airways pilot.

Back then, pilots and flight crews from different airlines thought of themselves as a close-knitted community — No matter which airlines you were from.

And this was before the US airlines' deregulation.

"Pilots and crew attendants didn't hesitate to talk to one another." Frank said. "They all see themselves as one big family."

All that changed.

The Airline Deregulation Act was enforced in 1978. Overnight, control of ticket prices, flight routes, new entrants of airlines were removed.

It was a dream for new airline entrants. It was a nightmare for airline monopolies.

More countries later on, followed the US Deregulation Act.

Singapore Airlines and the Airlines Industry

Back in October 2001, Singapore Airline (SIA) shares suffered a 50% loss due to the September 11 Terrorist Attack.

In the six years following the Sept 11 crisis, SIA shares soared 123% to S$19 per share.

SIA began operations in 1972. It's the airline carrier of Singapore.

SIA has ranked as the world's best airlines four times. SIA has done what many airlines couldn't do - produced steady revenues, consistent profits and grew a strong brand.

In fact, the Singapore Girl was a notable figure in the airline’s corporate branding.

Since then, Singapore's blue-chip has produced an annual average of S$15 billion of revenues, net profit margins of 5-6% and an annual average S$2.5 billion of operating cash flow. For an airline, these numbers are impressive.

But they hardly tell the full story.

And despite its strong reputation in the world, SIA shares have continued to fall from its peak in 2007.

Today, SIA sits at less than S$6 per share.

Source: ShareInvestor Webpro

Siamese Twins

When I invest, I want to first know what the industry is like.

Then, I want to know if the business in the industry has these three things:

  1. A business must have a habit-forming product
  2. A business must be "capital-efficient"
  3. A business must have pricing power

Airlines sells a habit-forming service — People love travelling. Some travel for work. Some travel for leisure. Air travel has transformed so many lives you cannot simply take air travel away.

But of the three things, what SIA lacks is "capital-efficiency" and pricing power. Both are like the Siamese twins

What’s capital-efficiency? Look for companies with an unusually high returns on your assets, even in the face of competition. And these returns don't need large, ongoing capital investments. It's the secret engine that drives successful businesses.

Even though SIA produces strong operating cash flow, it has also produced negative free cash flow (operating cash flow minus capital investments) every other year, over the last 10 years. SIA pours in heavy capital investments, but yields a small return on its capital.

That’s why it’s net profit margins are a low single-digit.

Air ticket pricing has an “Elastic Demand”

SIA cannot escape the next crucial thing: pricing power.

Air ticket prices are what economists like to call: elastic demand. For a small change in ticket prices, there's a huge change in demand.

If you travel for holiday, and air ticket price drops - wouldn't you rush to find that cheaper alternative, for the same standard of flight?

Many people would. I would.

Travelers are more sensitive to air ticket prices.

And they try to fly less when prices are high than when they are low.

This is how low-cost carriers easily disrupts big giants like SIA for the same flight routes.

That's why the airline industry suffers from a near-perfect competition.

Starbucks versus Singapore Airlines

Starbucks raise its fresh cup of latter by 20%, people still buy.

Air ticket prices go up by 20%? People are going to compare prices. Air tickets are an elastic good.

Here's a litmus test: what products and services would you not buy if prices were raised? That's a sign that the product or service lacks pricing power.

That's why low cost carriers could dominate the market over time - market share grew from 15% to 35%.

SIA shares: short-term play or long-term investment?

I wrote this right after I walked out of an interview over the weekend about SIA shares. I wanted to pen down my afterthoughts.

The thing is, SIA looks to me more of a speculative stock than a long-term investment.

Even if SIA financial numbers recovers to pre-COVID levels, it still has to deal with the entrants of low cost carriers.

As aircraft sizes get bigger over time, these LCCs can charge a far lower ticket price (more scalable) with more passengers carried in bigger, cheaper aircrafts.

SIA makes more a good short-term trade because air travel is opening up and already we’re seeing strong recoveries of this Singapore blue-chip.

But the long term game? There are, in my opinion, other good stocks to pick.

Sometimes investing can be simple.

Willie Keng, CFA
Founder, Dividend Titan

The post SIA Shares: Safe or Not? appeared first on Dividend Titan.

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This Stock Plunged 51%: What You Need to Know About iFast 2Q2022

Author: williekeng   |  Publish date: Thu, 28 Jul 2022, 1:00 PM


I don't know to laugh. Or to cry.

iFast Holdings soared 855% in just 1.5 years. Then lost 60% of its gains over the last 11 months.

I've no better way to sugar-coat this: iFast Holdings 2Q2022 results is horrible. But that's not the reason why its stock is currently in the dump.

Does this mean iFast Holdings has no hope?

Was I wrong the last time I wrote about iFast?

Let's explore what happened.

Why iFast had a bad 2Q2022 result

There were two reasons.

First, the UK digital bank, BFC Bank (now called iFast Global Bank) iFast bought, struggled. Even though this digital bank contributed 7% of iFast's 2Q022 revenues, it’s still a S$950,000 loss during 2Q2022.

As far as I'm concerned, many acquired companies tend to struggle.

  • DBS bought Dao Heng Bank, which subsequently had a big write down.
  • SingTel also had problems with Bharti Airtel the past few years.
  • Kraft Heinz took a US$3 billion write off with nine brands in 2020.

Not all acquisitions work out. There could be an exodus of talent, culture mismatch, “acquisitive synergy” doesn’t exist and so on. In fact, most acquisitions struggle.

Now, what's important is iFast hasn’t overstretched its finances from buying the digital bank.

In its latest financial quarter, iFast carries no debt. And has S$165 million of cash.

Even if iFast has to write off its UK digital bank acquisition, it wouldn't hurt it.

At least, I'm not counting on iFast to be in trouble.

Next, iFast has also decided to pull out from India — regulatory problems. The Securities and Exchange Board of India had stopped investors using "pool accounts" to trade mutual fund.

You see, Pool accounts are digital wallets investors can store money in, which India regulators decided to stop investors from using. This will affect how iFast, a Fintech company, runs their business in India.

As a result, both bad news led to a higher operating costs for the quarter.

Was I wrong about IFast?

I wouldn't focus on one bad quarter.

What the market doesn't know is iFast secret ingredient isn't what everyone thought it be. iFast isn't a traditional stock broker — it doesn't make money off from stock trading commissions. iFast is more than that.

A big part of their business is actually recurring income it collects from trailer fees. In fact, close to half of its revenues come from trailer fees.

What’s trailer fees? Fund managers pay trailer fees to iFast for selling fund managers' products - mainly unit trusts - on iFast's online platform. As long customers continue to own unit trusts, iFast continues to collect the fees year after year.

It’s a capital-efficient business. Once the online platform is up and running, you don’t need that much capital to maintain the business.

This makes iFast more than just a broker. In my opinion, iFast doesn't compete with other stock brokers, including the newer ones.

And many people don't get this. Unit trusts are "sticky". Unlike stocks, unit trusts don't get traded often. And the funny thing is, people who buys unit trusts tend to keep it for the long term, even during a stock market crash. This is opposite of stocks - where people tend to buy and sell quickly.

That's why surprisingly, iFast's AUA doesn't drop as much despite the stock market crashed earlier this year.

You don't see people withdrawing their money from iFast.

Recurring income is powerful. Because it gives iFast "cash flow visibility". It doesn't rely on investors' money. It doesn't borrow debt.

What impressed me the most is iFast "network-like effect". Think of it like a snowball rolling down the hill.

As more people use iFast, the company's assets grows, the more fees it collects. And as more people see iFast’s assets grow, more people trusts iFast. And the platform attracts even more money.

It's a hallmark of an appealing business.

Why IFast shares plunged?

The real problem isn't iFast lousy results. The market sees iFast is a tech stock.

Since earlier this year, the NASDAQ has fallen the most, down 24% year to date. And wiping out most of the gains of tech stocks in general.

The reason is simple.

Tech stocks are susceptible to interest rate hikes. Many tech companies don't produce profits. In fact, these companies have been raising tons of debt. And interest rates could put mounting pressure on these companies.

As a result, the stock market became scared.

And decided to throw all tech stocks out of the window.

In fact, Fed came out to say it will continue to raise interest rates

But like I said, i Fast is different. In its latest quarter, it still maintained a strong AUA, produced solid revenues and profitas. What's more, it doesn't have any debt at all.

Final Thoughts

iFast shares plunged.

But its business is still one of the more profitable Singapore companies. It doesn't compete with other stock brokers, there’s no debt and and utilizes one of the most powerful business model - recurring income.

iFast’s higher operating costs from its digital bank and its pulling out of India is more a temporary issue than a permanent one.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

The post This Stock Plunged 51%: What You Need to Know About iFast 2Q2022 appeared first on Dividend Titan.

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4 Singapore Hospitality REITs Might Be Worth Considering 2022

Author: williekeng   |  Publish date: Mon, 25 Jul 2022, 4:00 PM


I'm not a huge fan of hospitality trusts. There, I've said it.

And I'll tell you why.

Hospitality assets (hotels, serviced apartments and so on) tend to have volatile profits, lower occupancy rates and are largely seasonal.

Hospitality assets are usually well-located in each country.

But these assets are also highly competitive.

Leisure travellers and corporates are price sensitive customers.

But, unlike airlines, hospitality trusts offer a much safer way to play on the air travel recovery. I'd pick investing in an aircraft versus a property.

What's surprising is many hotels survived COVID.

In fact, I think right now, it's interesting to look at some of these REITs today — Singapore hotels’ RevPAR are quietly climbing back up over the last two years.

Source: Business Times

And I’m going to rank what are I think are the best Singapore hospitality REITs to buy today.

Let's dive in.

Is it too early to buy Singapore Hospitality REITs?

Singapore hospitality REIT shares are still going no where.

Source: Yahoo! Finance

That’s why there’s something appealing about Singapore hospitality REITs.

Many countries are opening up for travel, airports are packed, people and companies are rushing to fly again.

Yet, Singapore hospitality REIT shares are going no where.

So far, Singapore hospitality REIT shares are a total wreck since 2020. Shares have yet to fully recover. And that’s because the market is still uncertain about rising interest rates, inflation and the war in Ukraine.

These REITs have a much lower dividend pay out than their 2019 dividends, P/B are trading off their historical average and trade at a much lower dividend yield.

But that's not the end of the world.

Hospitality Trusts are cyclical businesses. And they ride with a growing economy.

What makes them a popular investment is they have always paid a high dividend yield. In fact, of these four Singapore hospitality REITs paid their 2019 dividends, they have yielded between 6% to 10%. It isn’t too bad.

That's because hospitality assets are based on a gross profit + variable rent.

And since the global financial crisis, many hotels and serviced apartments have done very, very well.

So here are my thoughts on how I rank these Singapore hospitality REITs today.

#4: ARA US Hospitality Trust

There's just too many things I don't like about ARA US Hospitality Trust.

Actually, I'm more disappointed with its REIT manager, ARA. Look, ARA is a capable property manager. But I'm surprised they listed this REIT with a bunch of not so great assets.

ARA US H-Trust is a "pure play" US hotel REIT.

Today, it has 41 hotels across the US worth over US$722 million. These are "upscale" hotels - the Hyatt brands, AC Hotels, Courtyard by Marriott and Residence INN by Marriott. Corporate and leisure holiday travellers demanding more comfort drive these hotels' demand.

Most of these assets sit on freehold land, total 5,340 rooms.

What I like is the biggest revenue driver for ARA US H-Trust is they lease their properties to the highly reputed Hyatt brands of hotels.

Yet, ARA US H-Trust has been largely disappointing.

Occupancy rate has dipped so much to around 51%. Recently, it recovered to 62% Typical hospitality properties usually have a much higher occupancy rates.

That's why, ARA US H-Trust borrowing costs is high - 3.4%. It reflects the higher credit risks of these hotels.

Any higher uptick in interest rates is going to challenge ARA US H-Trust's finances.

What's more concerning is its gearing ratio already hits 44%, close to MAS's gearing limit of 50%. This is on top of ARA US H-Trust's high interest expense. Last year, its interest coverage ratio only covered 2.2x.

This means, ARA US H-Trust either has to sell down its properties or raise new shares to raise capital to buy new properties.

The growth potential for ARA US Hospitality Trust is an improving US economy.

ARA US H-Trust is the most speculative hotel REIT. Its P/B ratio is heavily discounted to 0.76x. While it only pays a dividend yield of 1.5%, a strong US recovery could see this stock soar back up. But then again, it's a risky play considering ARA US H-Trust has a set of weaker hotels versus other Singapore hospitality REITs.

ARA US Hospitality Trust ranks fourth as my fourth best Singapore hospitality REIT to buy.

#3: CDL Hospitality Trust

At S$1.5 billion market, CDLHT is a well-balanced REIT.

It doesn't have the best financial numbers right now, but it's a well-diversified REIT with properties across Singapore, UK, New Zealand, Maldives and Japan.

Most of its leases were affected by COVID. Even though it's slowly recovering. In fact, its 1Q2022 showed improvements on its RevPAR. And has improved over the last few months.

1Q2022 master leases revenues have remained flat as compared to last year.

While its managed hotels revenues grew 36% to S$46 million as compared to last year.

Close to half of CDLHT 's revenues come from its Singapore hotels, which includes Orchard Hotel, Grand Copthorne Waterfront Hotel, M Hotel, Corpthorne King's Hotel, Studio M and W Singapore at Sentosa Cove.

ts Singapore hotels RevPAR grew 40% as compared to a year ago. There's a huge demand for hotels. Singapore recorded close to 250,000 visitors during 1Q2022. This only accounts for 5% of 1Q2019 visitors.

Going forward, I expect CDLHT 's main performance on its shares and dividends to come mainly from its Singapore assets. Market demand is recovering, with staycations and corporate events driving demand. Furthermore, there's less restrictions on weddings and social functions.

Even though CDLHT's occupancy is only at 54.5%, this should recover over the next few years.

Like Ascott Residence Trust, CDLHT trades close to its book value. And CDLHT's dividend yield is also around 3.4%. If you ask me, I prefer Ascott Residence Trust over CDLHT any time.

If CDLHT's dividends resumed to its pre-COVID levels, its dividend yield would be 7%, which is only slightly higher than Ascott Residence Trust.

CDL Hospitality Trust ranks as my third best Singapore hospitality REIT to buy.

#2: Ascott Residence Trust

Ascott Residence Trust is the kind of daughter you want to bring home to meet your parents - dependable, trustworthy, and willing to ride through tough times with you.

Yet ART almost died a horrible death during COVID.

It went into a cardiac arrest and saw its dividends plunged by 43.3% versus 2019.

It recovered quickly right after COVID gotten better.

Revenues, income and gross profits almost withered next to nothing. Even though ART continued to maintain most of its long term leases, hotel operators simply aren't able to afford paying any rent to ART. That led ART to pivot to student accommodation.

It's a good move.

Student accommodation provides longer stay students, willing to lock in longer leases than short-term term stays with corporate and seasons travelers. The real problem is students are price sensitive customers. But compared to traditional hotel and serviced apartments, student accommodation still loses out to the long-term relationships hotels and serviced apartments can build with corporate clients.

But what I truly like about ART is its diversified portfolio of freehold assets across developed markets - Australia, China, Japan, Europe countries, US and Singapore.

This creates a healthy balance that's not seen in other Singapore hospitality REITs.

ART currently trades close to its book value, which is a stable valuation. It's almost like a bond. ART is a great way to position for a strong hospitality recovery without losing too much sleep.

Dividends are nothing to shout for. At 3.8% dividend yield, there's some recurring income.

DPU has dropped from 7.61 cents per unit in 2019, and dwindled to 4.3 cents per unit last year.

If you expect air travel to resume to pre-COVID levels, ART could see a flood of dividends rushing back.

I take comfort in its low gearing, high interest coverage. This gives this motherlode of Singapore hospitality REITs plenty of room to increase firepower.

If ART's DPU resumed to its 2019 dividend level, that would be a 6.7% dividend yield at today's shares. Not too bad.

I rank Ascott Residence Trust as my second best hospitality REIT to buy.

#1: Far East Hospitality Trust (My Top Singapore Hospitality REIT)

I like Far East Hospitality Trust amongst all four hospitality REITs.

This is because it's the most resilient hospitality trust amongst all the Singapore hospitality REITs.

First, its DPU didn't drop as much.

Next, it has a unique selling point on its properties - boutique hotels that are understated, and have a heritage angle to it. It's the mid-tier, “non cookie cutter” type of hotels that appeal to corporate travellers who want a more budget yet comfortable hotels. And appeals to leisure travellers (both locals and tourists).

And FEHT's rent leases have allowed them to be more resilient.

Far East Organization is the master lessee to most of their hotels. And their rental agreement has a downside protection. Even when tourists dropped to zero, there's a fixed rent paid to Far East Hospitality Trust.

This is different from the other hospitality trusts.

This, in my opinion, allows FEHT to weather the downsides better than its peers.

What's more important here, FEHT probably has the most optimal potential for recovery. At this point, it has the lower P/B ratio, and dividend yield is the highest. If it recovers, it should recover safely to around 6% dividend yield.

Sponsor is no stranger to Singapore investors.

Far East Organization is one of the largest private developers. Only problem is its private, so I've no knowing exactly how their financial position is. But Far East Organization is probably one of the more financial savvy developers. They have been operating since 1950s.

The thing is, FEHT has been reducing its gearing. What I realized about hotel REITs is their gearing tends to be higher, have lower interest coverage and pay higher interest costs.

If FEHT recovers, it could revert to around 4 cents per unit, a 6% dividend yield. Today, FEHT trades at 4% dividend yield.

Far East Hospitality Trust is currently my top favourite Singapore hospitality REIT buy today.

Final Thoughts

Singapore hospitality REITs are appealing for income investors betting for an air travel rebound. These REITs are backed by high quality properties (versus airline stocks).

More importantly, these REITs have recovered from the depth of COVID in 2020.

The big drawback for these hospitality REITs are their lower dividend payout right now. If their dividends revert to pre-COVID dividends, it should be yielding between 6-10%.

My favourite is probably FEHT, followed by Ascott Residence Trust. These are my two highly rates hospitality REITs.

Sometimes, investing can be simple.

Willie Keng, CFA

Founder, Dividend Titan

The post 4 Singapore Hospitality REITs Might Be Worth Considering 2022 appeared first on Dividend Titan.

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