Value Investing is Tough

[jianjian]

hi all, i just join the forum on Oct 23rd, which is today

hope to learn from you all as much as i can.

i do notice that this forum has little members, but i do know that quality more impt than quantity

just a curious question here.. does any Mutual Fund or BB practise Value Investing? because from all the books i've read so far.. all are saying mutual fund are bad, and their short term practise is not value investing at all. so do they actually do value investing? (Peter Lynch for eg.)

[Musicwhiz]

hi all, i just join the forum on Oct 23rd, which is today

hope to learn from you all as much as i can.

i do notice that this forum has little members, but i do know that quality more impt than quantity

just a curious question here.. does any Mutual Fund or BB practise Value Investing? because from all the books i've read so far.. all are saying mutual fund are bad, and their short term practise is not value investing at all. so do they actually do value investing? (Peter Lynch for eg.)

There are actually some Funds which are managed using a value philosophy. But these are pretty rare and perhaps not as common as one may expect.

Perhaps d.o.g. can shed more light on this as I understand he is a Fund Manager......

[d.o.g.]

does any Mutual Fund or BB practise Value Investing? because from all the books i've read so far.. all are saying mutual fund are bad, and their short term practise is not value investing at all.

Very few retail funds practise value investing, because very few retail funds can get the stable investor base needed to practice value investing. Value investing requires patience, but retail investors are generally impatient, meaning they are unwilling to give their money enough time to work. As a result they tend to subscribe to funds at the top of the market, and redeem at the bottom of the market. This is precisely the opposite behaviour needed by funds that practise value investing.

Most of the "real" value funds do not seek out retail money. Instead they seek out either wealthy individuals or institutions who can make a long-term commitment.

Retail funds generally cater to the flavour of the day. 10 years ago it was dotcom and high tech. 5 years ago it was commodities. Now it is gold. History shows that when new retail funds are launched on a particular concept, it is very near the top of that market. Retail fund management is usually an asset-gathering business - it is run to generate management fees. It is not run to truly deliver long-term value to the retail investors.

One exception in Singapore might be the Aberdeen group. From interviews given by Hugh Young and some of the holdings that Aberdeen is seen to have (as a substantial shareholder) they do appear to have a value orientation. So if you are a retail investor and believe in value investing, but have neither the time nor the interest to DIY, maybe the funds run by Aberdeen could be a legitimate choice.

If you happen to be a qualifed investor then there are more choices available. There are several exempt fund managers in Singapore who are value-oriented, myself among them. None of us can take retail money - we can only take on qualified investors.

[Musicwhiz]

Hi d.o.g.,

Thanks for your explanation.

Could I ask what is the difference between "exempt fund manager" and "non-exempt"? I am not so clear on this term "exempt". Does this mean the fund is a mutual fund for accredited investors (i.e. net worth of at least US$1-2 million, or a hedge fund)?

Would appreciate if you could explain briefly on the differences (if any).

Thanks in advance!

[d.o.g.]

Could I ask what is the difference between "exempt fund manager" and "non-exempt"?

Currently there are 3 kinds of professional investors allowed to operate in Singapore:

1. Licensed

This would be the likes of Fidelity, DWS, Aberdeen etc. They can take money from anybody. To apply for a license, the firm must already have a long track record and at least $1bn under management. In other words the license is targeted at foreign firms setting up shop in Singapore.

2. Boutique Licensed

These firms are restricted to 99 qualifed investors. To apply for a boutique license, one must have a track record and at least $100m under management. This is targeted at established firms who don't qualify for a full license.

3. Exempt

These firms are restricted to 30 qualified investors. No prior track record or minimum amount under management is required. This is basically where all the homegrown fund managers (including myself) operate. The private equity firms like TPG, KKR, Blackstone etc. also generally operate as exempt fund managers.

Exempt fund managers do not have to comply with the licensing regime, but they are still required to comply with all the anti-money laundering and counter-financing of terrorism laws. They are also required to comply with the "know your client" rules e.g. when Deloitte & Touche audited me they pointed out that I had to verify that my clients were not linked to the Taleban, Al-Qaeda, North Korea etc. So in my client agreement I now sign off on such matters.

As for qualified investors, MAS currently defines a qualified investor as:

1. If individual, either minimum income of $300k or minimum net worth of $2m
2. If corporate, minimum net assets of $10m

[Musicwhiz]

Hi d.o.g.,

Thanks very much for the clear explanation. Now I understand the differences!

I guess it really takes a lot of money to become an accredited investor; and you also get access to many opportunities which "normal" retail investors do not have. I guess some examples would be private equity stakes (pre-IPO) which I've read about in "Me & My Money" section of Sunday Times.

So I guess if I want to start my own fund and charge people fees, I've got to get a license and demonstrate a decent track record of managing money and obtaining good returns? Haha.....

[jianjian]

nice .. what D.o.g posted help to clear alot of question. haha