Any Experience going through a Bubble and Recession?

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#21
(22-03-2015, 08:01 AM)Musicwhiz Wrote:
(21-03-2015, 02:41 AM)BfGf Money Blog Wrote: Yup I won't quote your name.

That's good advice. BTW, I follow your blog! LOL

Thanks for guiding a noob like me! I will remember your advice!

Hi BfGf Money Blog,

Thanks, I didn't know people still follow my (now-defunct) blog!

You have an interesting blog too, I visited it and it's very informative. Keep it going! Do you still own the companies you mentioned (i.e. CES, Keppel Corp, Nam Cheong and Valuetronics)? What are the investment merits for each of these companies?

All the best for your tuition centre business! I could never run a business myself haha so I always admire those who are entrepreneurs. Smile

Hey thanks for visiting!

CES - bought it last time because I felt it was undervalued. I also thought the projects completition for FY 2014 would boost its value. I would want to get out of it now though as its financials are boggling me and I personally don't want to waste time thinking about it anymore.

Keppel - I bought when it dropped to around 8.2 for dividends yield of 5%. Sadly, I should have checked that its FCF is getting more negative each year. So, I am not sure if they can continue the dividend payout in the near term. Will hold just for dividends. (Always have a problem with over-confidence!)

Valuetronics - I bought early last year. For dividends. Finances pretty sound. But might want to attend their AGM to find out how they are getting out of a dwindling consumer electronics business.

Nam Cheong - Leader in its niche (apparently). Resilient to cyclical macrotrends (apparently). Thought it had growth potential. Then the oil crisis came and now I will just wait and see.


But ya, other than Keppel, the other buys were considered pretty old.

My investment philosophy has changed since then. (Need to spread my bets more, instead of over-concentration on certain investments, Need to understand risks better, Get my over-confidence bias in check; Invest only in scalable, leading companies.)

Priceline, MasterCard and GoPro would be my newer buys.
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#22
(19-03-2015, 10:23 PM)BfGf Money Blog Wrote: I am looking to write an article on my blog about investors and their experience going through recessions.

Would like to know what are the noticeable warning signs of a bubble.

I will suggest not to bother too much abt identifying tops and bottoms of bubbles - imho, the economy is too intertwined and too complex for anyone to have a full grasp of it.

97 AFC was a bubble to recession. But if the IMF had not insisted on the standard package of austerity and interest rate hikes, perhaps the crash will be milder. If China had been ran by a different set of people and devalued the yuan, perhaps the recession would have been a depression.

2008 GFC was a bubble to recession. But if the Treasury had decided to bail out Lehman, perhaps the crash will have been further out i/o 2008.

The main lesson I've learnt is the danger of projecting linearly forward using current data, esp when leverage is involved - which is why I'm not a fan of DCF, Gordon Growth etc and a firm believer of being balanced and diversifying assets. Being at the right time at the right place with the right liquidity is important - sometimes it is better to be lucky than smart; but perhaps one needs to be smart to position oneself to get lucky.

I think going thru a recession drills into you some lessons for life. Entire cohorts of young students cannot find employment which is quite a hard scenario for current students to imagine. PMETs in their 40s with 2 mortages, a car loan, couple of schooling kids etc gets retrenched - the devastation on the family with the liquidation into a crash to raise cash is tremendous.

Dalios has a framework I like a lot - to be sustainable, debt can only grow as fast as income; income can only grow as fast as productivity.

I say, look before you leap.
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#23
I like the statement, " perhaps one needs to be smart to position oneself to get lucky" Big Grin
“夏则资皮,冬则资纱,旱则资船,水则资车” - 范蠡
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#24
(23-03-2015, 10:15 AM)AQ. Wrote: which is why I'm not a fan of DCF, Gordon Growth etc and a firm believer of being balanced and diversifying assets.

so since we are in value investing forum, how do you tell if a company is undervalued/ overvalued?
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#25
This thread is abt experiences of going thru a bubble and recession, and the point I was trying to share was more of the "danger of projecting linearly forward using current data, esp when leverage is involved" rather than the "not a fan of DCF, Gordon Growth etc".

There's a rather cute saying "In Fixed Income, one needs to be smart; in Equities, one needs to have common sense". In a way i find that rather true. It doesn't mean equity guys are stupid, but i think common sense and an acute sense of reality are very useful traits. It is more useful to be able to see that the the business is losing its moat or that management are blood suckers rather than being able to pump numbers with 5 decimal point accuracy into a 10 page excel model throwing out buys or sells.

I think DCF/GGM are tools but very limited in reality - I think there are very few business models where you can apply them. In the local context, I can probably think of only Straco (where the attractions have a limited lifespan) where one can do some decent projections/discounting and the results convincing. Some REITs should be good using the method but alas, value destruction from the REIT managers makes such analysis useless most of the time. (e.g. how to project for 30yrs when they place shares to buy nonsense every 3 yrs?)

Although I don't think this thread should morph into a thread on valuation methods, but i think Specuvestor has a neat framework on assets/management/biz and Paullow has also a sensible framework on dividends. Both of which I like a lot, and not surprising of which you don't find mathematical operations more complex than +,-,* and the occasional /. It also shows that 2 different people can have rather different valuation methods and yet make lots of sense.

The biggest difficulty is to shape one's mind from "Tell me what to do" into "This is what I want to do".
It is also enlightening to discover for yourself a framework/paradigm rather than a mechanical instruction manual.
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#26
Just to add

Asset A biz B & structure S and dividends are closely related as hand and glove.

To summarise this association :

For a counter to pay more dividends over time, the business B concerned must be growing on its associated asset/s A and more importantly its controlling shareholder(ie structure) S must be willing to aligned its interests with the minority shareholders n reward them accordingly(ie dividends).
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#27
(23-03-2015, 10:15 AM)AQ. Wrote: Dalios has a framework I like a lot - to be sustainable, debt can only grow as fast as income; income can only grow as fast as productivity.


I like that KISS
Tongue
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#28
(24-03-2015, 11:11 AM)paullow Wrote: Just to add

Asset A biz B & structure S and dividends are closely related as hand and glove.

To summarise this association :

For a counter to pay more dividends over time, the business B concerned must be growing on its associated asset/s A and more importantly its controlling shareholder(ie structure) S must be willing to aligned its interests with the minority shareholders n reward them accordingly(ie dividends).

This is true if one needs more dividend to be paid. But in the short to medium term it can be leveraged to pay, or purely cyclical like some shipping companies. And indeed increasing payout can be sought even for ponzi schemes.

That said, cashflow to the investor is the best determinant of whether the business is cash generative. A company that issues share dividend vs a company that issues special dividend and then rights issue looks the same on an accounting basis but has very different connotations. In the latter case you know the company has real hard cold cash to distribute. Then again in the short run Mr Market might not be interested in cashflows and fundmentals vs sexy stories. We have all been there and seen that

OTOH the corollary might not be true ie improvement in Asset A productivity and utilisation might not improve business B because working capital increase or staff/ directors' fee increase, IPT, competitive environment etc. Improvement in B might not lead to S paying out more dividend as it is retained, bad M&A and in some cases, engineered to be privatised. There are quite a number of companies to case-study where A-B-S is disconnected

That's why we have to analyse the A-B-S properly and know which level are we talking about when we discuss on VB. They are linked for sure but not sure if as tight as a hand and glove Smile

PS thanks for the A-B-S acronym... nice... maybe need to copy-right this Big Grin
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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#29
(24-03-2015, 09:58 AM)zerobeta Wrote:
(23-03-2015, 10:15 AM)AQ. Wrote: which is why I'm not a fan of DCF, Gordon Growth etc and a firm believer of being balanced and diversifying assets.

so since we are in value investing forum, how do you tell if a company is undervalued/ overvalued?

The simple way for "property company" is to compare the current market price with its NAV .

For an undervalued bank share , you compare the share price as multiple of book value and if below 1 , it may be viewed as undervalued.
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#30
(23-03-2015, 10:15 AM)AQ. Wrote:
(19-03-2015, 10:23 PM)BfGf Money Blog Wrote: I am looking to write an article on my blog about investors and their experience going through recessions.

Would like to know what are the noticeable warning signs of a bubble.

I will suggest not to bother too much abt identifying tops and bottoms of bubbles - imho, the economy is too intertwined and too complex for anyone to have a full grasp of it.

97 AFC was a bubble to recession. But if the IMF had not insisted on the standard package of austerity and interest rate hikes, perhaps the crash will be milder. If China had been ran by a different set of people and devalued the yuan, perhaps the recession would have been a depression.

2008 GFC was a bubble to recession. But if the Treasury had decided to bail out Lehman, perhaps the crash will have been further out i/o 2008.

The main lesson I've learnt is the danger of projecting linearly forward using current data, esp when leverage is involved - which is why I'm not a fan of DCF, Gordon Growth etc and a firm believer of being balanced and diversifying assets. Being at the right time at the right place with the right liquidity is important - sometimes it is better to be lucky than smart; but perhaps one needs to be smart to position oneself to get lucky.

I think going thru a recession drills into you some lessons for life. Entire cohorts of young students cannot find employment which is quite a hard scenario for current students to imagine. PMETs in their 40s with 2 mortages, a car loan, couple of schooling kids etc gets retrenched - the devastation on the family with the liquidation into a crash to raise cash is tremendous.

Dalios has a framework I like a lot - to be sustainable, debt can only grow as fast as income; income can only grow as fast as productivity.

I say, look before you leap.

Thanks AQ, I like what you say about the Dalios framework. Will read more into it.
BTW, I feel the same about DCF projections too.

Great advice overall!
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