Book Review: The Making of a Value Investor by Gautam Baid

This is the 2nd book by the author. (His first book is 'The Joys of Compounding'.) I borrowed the book from National Library Overdrive. 

The book is about his dairies made from Jan 2018 till Mar 2020, where Indian stock market had downturn in 2018, recovered and then crashed again during Mar 2020 Covid.

The book has plenty of investing wisdom such as:

- Don't buy lower quality. Higher quality companies maintain prices better in downturn.

- Don't chase lower quality during boom times, only to see gains evaporated into losses during downturn

- Never bet the farm on a single investment, no matter how certain you are of the outcome. Risk often originates from sources you can't imagine. Avoid going crazy with concentration. Always diversify prudently.

- One of toughest things to do is to hold cash for long periods of time, and then deploy it during bear markets.

The reader will find the book very useful, especially if he reads it during periods of market downturn. 

Half-Year After Fire

I have FIRE (Finanal Independent, Retired Early) around 6 months ago. Below are some thoughts in Q&A form.

1) What's your FIRE number? How do you determine that you can FIRE?

The famous 4% rule notes that you are finanally independant if your net assets are 25x of your annual expenses. Some people postulates that 4% is risky and prefers 3.25% or 3% (= 33x your annual expenses). 

A lower parameter is safer e.g. 2% (50x annual expenses) is safer than 4% (25x)

For me, I feel that I can FIRE, when my net assets reach certain number or parameter that I am comfortable with. 

2) How did you reach your number? 

My expenses are low (as I am single). So I saved a lot, and my wage is above average. 

Over half of my assets (including CPF OA/SA) are in shares, which gives higher returns than cash.

3) What's life after FIRE?

I have more freedom in my time. 

I can wake up later than usual. I can travel overseas in those months which was my peak period in work in the past. 

I can spend more time gaming, reading web-novels, watching serials, watching Youtube etc. 

I can spend more time trying to be a better investor. 

Some thoughts

Video on Reits Investing

There is a brillant video on Reits investing by Sven Carlin: https://www.youtube.com/watch?v=b-07Qlh-iO0

It offers a perspective not commonly seen in Reits investing

Thinking on Investing

Recently, I am thinking that I should raise by hurdle rate i.e. wait for fatter pitches and act less. 

My investing results will be better that I wait for fatter pitches and swing harder at these fatter pitches. 

On hated asset

I like to ask myself: "What is the most hated asset now?"

Hated asset implies pessimistism and thus higher probablity of profit in future when things turn. Vice versa.

The most liked assets seem to be Magnificant 7 in US markets and short term T-bills.

The hated assets are still China/HK stocks (for most part of past 2 years, except Nov 22 - Feb 23). 

SG-Reits are in this hated group last month (i.e. Oct 2023), but they rose recently after US 10-year interest rate eases. I think that buying reits now is betting on US interest rate cut in the next 6-18 month. 

Recent purchase of Reits ETF

Purchase of NikkoAM-StraitsTrading Asia ex Japan Reit ETF

I bought above reits ETF today, using CPF-OA funds. It's a small stake. I am buying it, as SG Reit has fallen a lot recently and it's yield beats the 2.5% interest in CPF-OA

- Based on Yahoo Finance chart, it's trading at all time low since 2017.

Based on Nikko AM website, the reit 

-- is 75% SG reits and 13% HK reits. It's mainly retail (36%) and industrial (32%) reits.

-- has 0.55% expense ratio

-- has ~6.8% yield, based on 2023 payout.

Hongkong Land

HK Land has hit $3.10, offerring 7% yield. I am wondering if I should buy or wait till it drops to $3 before buying.

China Tower Sale and other purchase.

In previous post, I said that I bought China Tower. I have since sold it, as its price dropped and I find that I lack knowledge and conviction in the stock. 

Instead, I bought more BABA and bought Hang Lung Properties. 

Hang Lung Properties owns luxury shopping malls in China. It would have more malls in next few years. It's trading at 7+% dividend yield. 

Overall, I find that the yield in HK property companies are quite stable/safe, as they usually pay the same amount of dividend for years and their debt to equity ratio are not as high as reits (and hence higher interest rates have lower impact on them, compared to reits).

Keppel Pacific Oak US Reit (KORE)

I have a position in KORE. It's loss making. I wonder if I should increase my stake in the reit. Maybe I will do so, if it drops further to $0.20. 

Recent purchases of SG and HK Stocks

Singapore Stocks Purchase

1) HK Land

Bought tiny amount of Hongkong Land at $4. The thinking is to get some 5.5% dividend while waiting for price to recover. Now HK Land is at $3.74. Will wait it out but not adding, as I am aiming to buy other shares.

2) Mapletree Industrial Trust (MIT)

My first purchase of MIT. It was bought using CPF OA funds at $2.19. The thinking is to earn higher yield compared to CPF OA and T-bill while waiting for share price recovery when interest rate subside in future (hopefully).

3) United Hampshire Reit (UH Reit)

I already have UH Reit since last year. The recent purchase is at 0.43, adding on to my earlier position.

The thinking is that the reit owns stable subhurb / strip shopping space rented to grocery / neccesities outlets (i.e. low rental risk) and pays >10% dividend at current price level. So I will get decent dividend while waiting for share price to recover when interest rate subside in future (hopefully).

4) Keppel Pacific Oak US Reit (KORE)

I bought KORE earlier at $0.36. Adding a bit on to earlier position at $0.30. Its 1H results release later this week.

KORE owns US office but at better locations and probablly the buildings are more well-maintain (but this leads to higher upkeep cost.)

This is a higher risk play given the weak demand for US office space. Nonetheless, its better located and well-maintained offices should mitigate the weak demand to some extent.

I am aiming for higher dividend, albeit at higher risk.

HK Stocks Purchase

5) China Construction Bank (CCB) 939.HK

China banks share prices in HK have declined since its ex-dividend date. The share prices are near its Oct 2022 lows. China banks provide quite decent dividend at 8%-9%, after accounting for 10% dividend withholding tax. My thinking is to get the dividend while waiting for share price recovery.

Why CCB? I have bought CCB before in 2017 and hence is more familiar with it. My position is small, as I am buying the next one.

6) China Tower 788.HK

Trades at 15 PE, based on aastocks.com. Not cheap.

China Tower has 1 core (tower business) and 2 wings ( Smart Tower and Energy).

In its recent earnings call, the management notes that some towers will be fully depreciated in 2024-26 and hence its profits will be higher then. With higher profits, its dividends should also rose. Hopefully the earnings recovery will lead to higher share price in 2024-25.

Conclusion

Looks like my recent purchases are mainly dividend + share price recovery play (i.e. get dividend and wait for share price to recover.)

Comparing Local Banks

Recently, Prof Aswath Damodaran has an video on banks valuations. In final part of his video, he compared US banks using serveral indicators in a table.

I compared our three local banks using the indicators in his table. I did not include the '% of assets held to maturity' as there seems to be little info on it in our local banks' statement and it is probably not material.

From the table, OCBC seems to be cheapest among the three banks, while DBS seems to be dearest due to its higher ROE (or growth). 

If I am interested to buy the cheapest bank, I will probably look at OCBC . Nonetheless, I am not buying bank shares now. 

Thoughts on UH Reit, KORE and Cromwell Reit

 United Hamsphire US Reit (UH Reit)

I started buying last year and added more recently.

Jun 2022	Initiate a position of X shares at USD$0.61
Aug 2022	Dividend of USD$0.025, 4.77% yield on $0.61
Aug 2022	Collect the dividend in shares at USD$0.55 price
Mar 2023	Dividend of USD$0.0297, 4.86% yield on $0.61. Incl Div in Aug2022, total 9.6% dividend yield
Mar 2023	Collect the dividend in shares at USD$0.485 price
Apr 2023	Add X/2 shares at USD$0.465
May 2023	Add X/2 shares at USD$0.43

My thinking is UH Reit holds mostly properties anchored by neccessities/supermarket. These tenants have long lease duration. Hence, its rental income is stable.

The downside is rising US interest rates. And the annual rental increase is likely small.

Its 2023 DPU should be lower, due to rising interest rate. This is likely priced in its current price. If interest rate continues to rise, its DPU will continue to fall. If Fed cut interest rate, its DPU should rise.

Keppel Pacific Oak US Reit (KORE)

Aug 2022	Sold all KORE position at USD$0.65, at slight loss
Mar 2023	Initiate a position at USD$0.37

It's an US office reit. As many know, US office reits are in trouble due to falling physical occupany, falling demand, higher interest rates and tighter lending requirements for CRE (Commercial Real Estate). People expects more trouble for office landlords down the road i.e. slow moving train wreck. 

The upside is that the above issues are likely priced in at its current price. If things are not going to get worse than expected, the current price is pretty ok to me. 

The downside is that things can get worse than expected. 

I will keep my position at KORE small, so that if prices fall further without permanant issues, I can add more. If there are permanent issues with KORE later, the losses will be kept small due to small position size.

So far, KORE office properties have held up better compared to MUST and Prime US Reit. 

Cromwell European Reit

Have not bought into it. 

Similar to US reits, it is facing rising interest rates. Unlike US Fed whose rate tightening is likely ending, the ECB interest rate is expected to keep rising given high Euro inflation and its interest rate is not as restrictive as US's.

We see how rising interest rates affect US reits last year. I expect that rising Euro interest rates will affect Cromwell similarly. 

Cromwell should be interesting to look at, when ECB rate tightening cycle is ending.