Tuesday, November 18, 2008

Prefer style over substance.

"More troublingly, listeners preferred speakers who answered the
wrong question well over those who answered the right question poorly"

"A politician in a debate asked about the illegal drug
problem in America whose answer stresses the need for universal healthcare has engaged
in a successful dodge if listeners have both forgotten that she was even asked about
drugs, and evaluate her highly."

-From here. See a review of this paper here.

Friday, October 17, 2008

Strategic Hotels

I was drawn to Strategic Hotels (NYSE:BEE) on hearing about Bill Gates taking up a stake in it via his investment company Cascade Investments. Value investors like Bill Gates are usually early to the party. The price has nearly halved since he bought shares and is around 4$ today( 17 Oct 08).

Recently I saw a report that Bill is now going to take an active strategic role in the business.

My guess is that at this price he can simply take over the company, Bill is no stranger to the hotel business, and has a stake in the Four Seasons Hotels.

I will skip detailing a valuation of the company here, I think it is cheap. Bill is no fool and I assume that he has done more due diligence than I will ever be able to match.

I am going long Strategic Hotels.

Monday, September 22, 2008

When to Sell Berkshire Hathaway

I own some Berkshire Hathaway B shares. I have mentioned my reasons for buying Berkshire in a previous article. So now that I am sitting on a nice profit ( unlike most of my other buys from that time) should I sell now?

I feel that any stock should be sold if
  1. It is overvalued.
  2. There is better alternative.
To address point 1 we need to check if Berkshire is overvalued. To do so you may now use the IntrinsiValuator. It is a nice tool created by some nice guy to help us value Berkshire according to hints that Warren Buffett himself has given.
According to the site if you select "Conservative" in the Assumption field the "Intrinsic Value" for the B shares is 4829 USD. This is above todays (19 sep 08) price of 4595 USD. So we still have some way to go before I feel I should sell. I would sell when it is well above intrinsic value and maybe closer to the Optimistic scenario price of 6500 USD.

As for point 2, Are there equivalent or similar businesses that are available cheaper? To answer that I need to research Leucadia National Corp and Markel Corp. Both these companies are similar to Berkshire. They have insurance operations and use the premiums they receive to invest in diverse businesses. All these companies have well regarded managements and are followed by value investors.

Thats all for now...

Monday, June 30, 2008

My UK Pension Plan strategy.

After moving to the UK I have been planning to Invest in my company's Pension Plan.

The benefits are obvious:

1) Company matches my contributions up to a limit.
2) Tax is refunded (40% for me) on my contribution to the plan.
3) If I run up huge gambling debts and declare bankruptcy, they can't touch my pension ;-).

I hate pension plans because:

1) The money is locked up, there is no good way to get the money out until I reach 55 ( far away for me).
2) Pension plan administrators pocket big fees for truly awful performance. Nearly all the funds offered to me in my very restrictive company pension have underperformed their benchmark over the last decade. My Plan provides only mutual funds and does not let me buy Shares.
3) If you leave the UK you can only transfer the money out to an approved scheme in your new country.

Still I feel that I should subscribe to the plan up to the limit my
company matches. There are other tax advantaged ways to invest if it were not for the company's contribution. The main disadvantage to me is that t I can not personally manage my money.

The best strategy I can think of is ..

As soon as I leave the company or move to another one I will transfer the money in the old Pension plan to a SIPP (self invested pension plan) that lets you buy individual shares. Any monkey can manage the money better than the typical funds that lurk in most pension plans. If you really have no ideas I suggest you look at the "RIT" investment trust that can be bought like any share on the London exchange. You can see a List of Investment Trusts at Trustnet. Investment trusts in the UK have historically done better than Mutual Funds.

I can Run a SIPP and a Company pension Plan simultaneously. My company refuses to pay to a SIPP directly and insists that they will only pay their contribution to the approved pension plan. However that does not stop me from transferring the Money to my SIPP soon after it is paid to the Company Pension Plan. So I can minimise the time my money spends in an awful fund in the pension plan. To minimize the damage my fund manager can do I intend to select a "Cash" Fund for my company pension Plan.

Unfortunately the average broker for a SIPP pension plan in the UK only lets you buy on the London Exchange and a few selected stocks ( not ETFs) on the major US exchanges. I feel that the best opportunities however are in small dividend paying companies in Asia and some US listed ETFs and a very few dividend paying OTC/Pink Sheet stocks.

3) If I leave the UK I can transfer my money from my SIPP to an approved scheme in another country.

So to summarize I'll always have two Pension plans. The first is a stocks and shares SIPP and the second is the current company pension plan. As I move from company to company I transfer my previous companies pension plan to my SIPP.

I may also transfer the money from my company pension plan to my SIPP as soon as it is paid in.

If I leave the country I can move my SIPP money to a approved scheme in the new country or even to something in Luxembourg.

All the above assumes low costs for transfers. You will have to check with your company pension provider about cost for transfers ( mine has no cost).

So which SIPP should I choose ? My desire is for zero or low costs ( not a percentage of assets) , zero or low transfer fees, ability to buy shares globally, and low brokerage. Hargreaves is a SIPP provider I have been looking at. If you know of better ones that permit excellent International share dealing please let me know.

Disclaimer: I do not own RIT ( I feel I can do better). I suggest RIT just because its past performance is not too bad and it is globally diversified. I also dislike buying Investment trusts like RIT when they trade at a premium to NAV. They usually trade at a Discount.

Wednesday, June 25, 2008

Top ETF picks for the next decade.

The last ten years have seen the Asian financial crisis, the rise and fall of the dot-coms, the real estate boom and bust, the Iraq War, and the present credit crunch. I feel that the next ten will be no different with assorted manias, depressions, bubbles and wars occurring just like they have always done before. I see no reason why the next decade will be any better or worse than the last. Here are some ETFs that I feel will do well as suggested by their back tested performance over the last decade.

My top pick for all low risk investors is the DPN ETF . Its Index and back tested performance is described here . Historical data suggests that the consumer staples sector offers good returns with low volatility.

My pick for the next decade for those who do not care about volatility is is the DGS ETF . Its Index and back tested performance is described here . If you are not worried by an occasional 50% fall in value then dividend paying emerging market small cap stocks offer the highest rewards. Even after suffering an initial 50% drop in the Asian financial crisis this index has returned 20% annualized since 1998. Emerging markets

All the index links above show back tested results for the last decade so you can get an idea of the expected volatility and possible returns.

As you can see I like Fundamental Indexing, I own other ETFs from WisdomTree which creates these ETFs. The particular ETFs above were not available when I was last able to invest so I have ended up with some other stuff (DEM and DFE).

ETFs are funds but may be bought on the stock exchange like any other stock. there is no entry or exit load but there is brokerage. The underlying fund usually has a low annual expense ratio, usually .6% to 0.7% for the Wisdomtree ETFs.

Saturday, May 17, 2008

Singapore, Taiwan, Korea and Sweden MSCI Index comparisions

Once again I do a review of the valuation of various MSCI country Indices that interest me. My last similar article is here. All data is as of today (May 17 2008).

MSCI Korea: 10Yr annualized returns: 23.40%, P/E=17.23, P/B=2.62, Samsung=16% of Index.
MSCI Taiwan: 10Yr annualized returns: 2.09%, P/E=17.49,/ P/B=2.67, Taiwan Semiconductor =11.6% of index.
MSCI Singapore: 10Yr annualized returns: 11.05%, P/E=14.71, P/B=2.72, Financials=51.48% of index.
MSCI Sweden: 10Yr annualized returns: 11.05%, P/E=13.73, P/B=3.55, Ericcson=11.93%, Financials=23% of index.

Based on a simplistic analysis of the above I had bought Korea which then had the lowest P/E. Now that I am reviewing the valuation I see no need to change my holdings in Korea. Singapore looks cheap, but with Financials being a major part of the Index I am not sure if now is the right time to buy more.

Why look at Sweden? I just recalled from memory a chart from Jeremy Seigels "Stocks for the long run" which shows Sweden has the best long term return from equities; just slightly better than the US.

Disclaimer: I already own the Lyxor Korea ETF .
I am not sure if the numbers above include reinvested dividends. The P/E also seems to be different from other estimates I have seen, possibly because they may be using only annual figures and not TTM and also because the more bullish analysts usually mention forward P/E instead of trailing P/E.

Friday, April 11, 2008

Avoiding value traps.

Stocks may appear cheap but may be about to get much cheaper.

If a great company is trading at a ridiculously cheap price then why is management not buying all it can from the open market?

I prefer to wait for management to buy in the open market. This simple strategy will help me avoid value traps.

As an example look at Moody's. A great company facing a few tough problems. I will not buy until the executives use their own money to buy in the open market. You can track insider buying at Moody's here.

Sunday, March 16, 2008

My notes on equity investing in Singapore

I have moved out of Singapore and am (today) in the UK. I will now post my findings on the best way local investors can sensibly invest in Singapore.

IMHO Investors in Singapore seem averse to an open sharing of ideas, I have no idea why. Unlike trading, Investing is not a zero sum game.

It took me a long time to get comfortable with investing here. If I had this information earlier it would have made me more money.

Here are my thoughts on how to go about things.

1) In my personal opinion between DBS Vickers and UOB Kay Hian I prefer
DBS Vickers for the fundamental investor, it has tools for screening,
more access to company financials and research reports, and the UI is tolerable.
UobKayHian seems more tuned to the trader than the investor. I was unable
to check out Phillips Capital. If you invest in markets like Korea - Phillips Capital seems to have access from Singapore unlike the other brokers.

2) The Share Investor magazine is the best way to keep track of
fundamental developments in Singapore stocks. It is the "Valueline" of
Singapore. A must have. Unfortunately there is no internet access to it. It is stocked at nearly every 7-11 store in the central business district.

3) Reuters has good pages (free) for almost all Singapore stocks. As an example see the Reuters page for Bright world precision machinery.

4) There are no taxes on capital gains or dividends (for the stock
investor), this makes Singapore the perfect place to invest.

5) The SGX announcements are a must read for insider info,
unfortunately SGX does not allow you to subscribe to announcements for
only your stocks of interest.

6) If you want stock related rumors and gossip there is the sharejunction site

7) if you want broker research you can get it at remisiers.org.

No investor should listen to the buy and sell recommendations from
his broker but the research is sometimes highly readable as it
presents the data clearly and explains business issues you may have
missed. The buy or sell recommendation at the end of the report is
best ignored. Based on the same numbers my opinion almost always differs
from the broker.

8) You will get sued if you make nasty comments about other people or
stocks so keep your online presence polite. Free speech rights you may be used to in the USA do not apply in the same way in Singapore. Defamation is taken very seriously. If you allege on a internet message board that a person is lying or dishonest you can expect to hear from their lawyer.

Some other suggestions:

1) Do not buy if insiders are selling, insider buy/sells are reported
on the SGX announcements page and in several daily broker reports.

2) Trust in dividends, if a company is profitable and yet cannot pay
dividends be suspicious. There is no excuse for not paying dividends in
Singapore. There is no tax on dividends, so no reason not to pay surplus cash to investors. I do not like companies that need cash to grow. The best companies can grow while paying out cash dividends and taking on zero debt.

3) Do not buy broker "buy" stocks, brokers are too generous with
"buys", buy only the "best" stocks.

4) Ignore technical analysis if you cannot prove with rigorous back testing that
it has worked in the past.

For those of you who still wish to follow my global investing adventures you can subscribe to my many groups as shown on the right panel "My favorite Links" of this blog.
Right now I am most active on my UK Group LongtermequityUK . These groups are spam free and have wide variety of real investors who try to help each other. There is no spam or advertising in any of these groups, only individual investors trying to help each other.

Thursday, January 24, 2008

Been Elsewhere

Have been posting at my UK group and on Caps.fool.com.

Meanwhile am waiting for The wisdomtree india Earnings ETF.