Business Times Interviews - Starting Young

[arthur]

Q: Describe your risk appetite.

A: I would say I lean more towards the aggressive side. Ultimately though, I think my risk appetite is still quite balanced and because my portfolio is very diversified, I can afford to take on larger risks.

Also as a professional risk manager, I make sure I use Value at Risk (VaR) metrics to ensure that I stay within my risk limits.

VaR?

Value at Risk was practised by all major banks, including Lehman Bros but failed to account for the mortgage crisis coming in.

But one thing I admire in him, at least he bother to hedge his/father investment portfolio.

[BlackCat]

Q: What advice do you have for young investors?

I advise to have a daddy with a 7 figure portfolio.....

[kazukirai]

No offence to anyone but I recall that it was Geeks bearing formulas that caused Long-Term Capital Management to implode too. As good as all the risk-management tools and formulas are, tools are just tools. How these tools are being used is the question. So far, human tendency for being greedy and fearful hasn't been curbed with the invention of all these tools.

[exige]

haha, I quote here a review written by someone on the book, A Random Walk Down Wall Street:

it's highly unlikely that anyone, no matter how smart or sophisticated, can beat the market consistently over long periods of time. The experience of the past three decades has borne Malkiel out. When he first wrote this book, for example, the mutual fund industry was still in relative infancy. Now we have a bewildering variety of funds, whose managers utilize sophisticated computerized tools, yet only a tiny minority beat the market with any regularity.

I've studied the VAR models and did a case study on LTCM before. Kinda scary.. Hope this Daryl Chia can help safe-keep the amount of funds in his dad's portfolio over the long run.

[wj888]

Fund managers are supposed to obfuscate financial stuff to you and so make you feel compelled to invest with them. Whether they are good managers.. it's anybody guess.

But ... who cares whether you lose or win when I am taking a cut of the mgmt fee.

[exige]

Ahaha, not as sizable as yours. I just have fingers in many pies. I'm interested in BRK.B as well but that's from me as a fanboy.

The retailer to kiasu Singaporeans I'm thinking of is actually of is Popular. I have no doubt that the digital retail place will make traditional bookstores like Popular (unless they evolve) obsolete one day but I'm betting that that day has not come in Asia and won't for a while longer. Meanwhile, Popular has that added buffer of kiasu parents who will buy heaps of assessment books and study guides and that will be a crucial mitigating factor.

Big macro ideas would include the broad strokes of the brush such as an aging population in SG (which is why I bought into the healthcare REIT), or the propensity for more people to eat out, decline of low value-add manufacturing in SG etc. Basically, these are trends that are unlikely to reverse and even if they do, it would do so very slowly.

How was your investing process like?

PS: The queues at H&M were crazy. I thought they were giving away free clothes or something.

haha, so what is holding you back from buying BRK.B now?

I look at big macro ideas too. Or rather, for me, its more industry specific. I look at the nature of the industry / its dynamics, from a business point of view, the profit models, before taking a look at the specific companies on the way they manage their financials in the long run.

Although I'm buying stocks, I am fundamentally more interested in their businesses, as I believe that in the long run, stock prices are determined by the specific company's business performance, rather than Wall Street hype. However, not all companies in a chosen industry may be a safe bet. Therefore, I prefer to only look at companies who have a more conservative financing plan. ie: Minimal or no unnecessary debts. Just like the tortoise and hare story, I'd rather have a slower but surer winner in the long run, than to have a faster but riskier hare..

[Musicwhiz]

Business Times - 12 Sep 2011

STARTING YOUNG
Profiting from undervalued stocks

Playing on the Neopets website helped shape Tham Poh Hong's investment ideas. By STEPHANIE RIADY

Distressed stocks can usually trigger a mass exodus of investors who prefer to sell off existing shares for safer alternatives. For Tham Poh Hong, however, there can hardly be any two words that have a sweeter ring. As a contrarian investor, Poh Hong finds opportunity in distressed stocks that he considers undervalued, and makes his money when these stocks eventually make their comeback.

Poh Hong, who currently has a six-digit investment portfolio, shares his investment strategy, the type of stocks he prefers and why he has dipped his feet into the old currencies market.

Q: What got you started in investing?

A: My interest began back in secondary school when I started playing this (virtual pet website) called Neopets. My friends and I used to play this snake game called Meerca Chase, where the goal was to eat eggs and earn points. Playing that game made me realise that my skills were never good enough because I always earned fewer points. That's when I discovered Neopets had stocks that players could buy to earn more points.

In Neopets, green-coloured stocks indicated that their value was going up, and red-coloured stocks down. At first, I used to buy a lot of green stocks but I lost money because my green stocks would turn red the next day. Out of curiosity, one day I bought everything that was red, and surprisingly made money. That's when I cultivated an interest in undervalued companies.

Q: What kind of investor are you?

A: I'm a contrarian investor in that I invest in sectors that people do not want the most. For example, Olam. During a global crisis, people tend to dump commodity and shipping stocks. But if you had bought a share of Olam at $2 during the recent crash, you would have made money because it is currently valued at about $2.50. So you would earn a good amount - about 25 per cent. I buy things that people do not want and sell them when people want them. I do buy a lot during a crisis.

I am also a value investor in distressed assets - anything that people want to sell at a very low price which I find has value, I'll choose to invest in it.

I believe investors need to know the true value of a company. Warren Buffett said: 'You must know what you are doing.' He says that every day the stock market will quote you a price - do you want to buy Olam at $2.50? So if you do your own calculations and come up with a price that you're very sure is undervalued, you can just wait for the day (the stock price dips) to buy it.

Q: How do you choose the stocks you invest in?

A: Before deciding on a stock, I will look into the business, namely what the current business is doing. With BreadTalk (one of my investments), for example, I checked out how many outlets they have; I will also do a five-year trend and calculate a five-year revenue, the profit margin and the operating costs. After that, I will do a simple forecasting - using their growth rate to calculate the net asset value, which I get by subtracting liabilities from assets. As a value investor, and a fundamental kind of investor, I will read annual reports every day and devote two to three hours to them every weekend. You can also go to some websites to get information, like the SGX's daily announcements of all the companies.

Q: What kinds of stocks do you invest in?

A: I restrict myself in the types of stocks that I invest in. I don't invest in oil, engineering firms or technology firms. Instead, I invest in businesses that I believe there's always a need for. I invested, for example, in Pan Pacific and SingPost because I believe that those are very defensive stocks. Basically, I invest in businesses that I believe will grow in the next five to 10 years.

I also invest a lot in food stocks. One of my better buys here has been BreadTalk. Last week, BreadTalk went to a low of 49 cents and I bought quite a lot of its shares. Subsequently, it has gone up to 55 cents. I did this because I believe there will always be a demand for food.

Q: Is this why you have come to collect old currencies?

A: I stumbled across currencies because it's an interest of my dad. In order to be a collector, he told me, you need to collect things that are valuable.

I came across this old uncle who needed money so he sold me a set of old Singapore currency - the bird edition - at a 5 per cent increase of the original price. I bought it over. Afterwards, I went to a forum and checked the price of the currency I own, which is in running numbers, and found that it is worth more than what the uncle asked for. The old currency appreciation right now is about 20 to 25 per cent.

I think currencies can increase at 2 to 3 per cent a year because there are rich people who are willing to collect things that people do not have, and who are willing to pay a huge sum of money for them. While currencies only make up perhaps one per cent of my portfolio, it's part of my buying things that are of value.

Q: Are there certain factors you consider when buying stocks?

A: I do consider a few factors when buying a stock. There must be a share buy-back by the directors, and the directors must hold a substantial amount of shares for themselves. The company must have good management - it's important to read where the managers graduated from and what they have as their background. The company must also have a positive operating cash flow - making profits alone is not enough since that does not indicate how well the company is doing.

I also believe that it is important to understand the whole economy. If the Euro and US markets are not doing well, for example, I will not invest in a company whose revenue is in US dollars.

Q: What advice would you give to college students seeking to invest?

A: You must understand how much money you have. Don't use 100 per cent of your money for investing in stocks. You must have a portion of money that is necessary to pay your daily expenses, and another portion for investing. You should then treat the amount of money for investing as though you will lose it, so you will not feel any emotional sadness if the stock market crashes.

Before you start investing, you must read. I can't determine when enough is enough, but reading must enable you to be confident. As for myself, I read more than 40 books - I did not just skim through them, but really read them and highlighted the points with notes. I don't just read books on investing but also on psychology, history, economics as well as books on various business sectors and trends. You need to read very widely to have a real understanding. You must, for example, read books that teach you how to control your emotions in the area of behavioural finance.

Finally, you must have the discipline to monitor your activities every day. Be an active investor by knowing where your company is heading every quarter. If it is making losses, you must understand why. If a chief officer leaves a firm, you must know why because that will indicate whether or not the company is in trouble.

[KopiKat]

Q: How do you choose the stocks you invest in?

A: Before deciding on a stock, I will look into the business, namely what the current business is doing. With BreadTalk (one of my investments), for example, I checked out how many outlets they have; I will also do a five-year trend and calculate a five-year revenue, the profit margin and the operating costs. After that, I will do a simple forecasting - using their growth rate to calculate the net asset value, which I get by subtracting liabilities from assets. As a value investor, and a fundamental kind of investor, I will read annual reports every day and devote two to three hours to them every weekend. You can also go to some websites to get information, like the SGX's daily announcements of all the companies.

Either the reporter anyhow report or this fella anyhow throw smoke or what's stated in bold is too complicated for me to understand.

[karlmarx]

i believe Poh Hong browses this forum as well. or perhaps is even one of the members here! maybe can ask him to clarify. =)

[Musicwhiz]

After that, I will do a simple forecasting - using their growth rate to calculate the net asset value, which I get by subtracting liabilities from assets.

Either the reporter anyhow report or this fella anyhow throw smoke or what's stated in bold is too complicated for me to understand.

I think the problem with the above statement is that the "growth rate" is extremely arbitrary and uncertain, which basically affects the entire computation and hence will affect one's perception of valuation and margin of safety. And NAV was never a very good measure of a Company unless you are stripping it bare-bones - in fact as long as a Company is generating cash and profits perhaps PEG or PER may be more suitable.

And well, these are young investors so we should give them the benefit of the doubt!