Monday, May 30, 2016

Triple S Scorecard – The Enhanced Version

This article will be reproduced at TTTI as a guest post as well.

Firstly, I like to thank TTTI for giving me the privilege to write a guest post for his blog. After deciding for a long time, I decided to write on my creation – Triple S Scorecard – which is also unique to how I invest. In addition, this comes as a good time as I am reviewing on this scorecard as well.

When I started investing in 2009/10, I had my fair share of mistakes. It was only after reading the book, Value Investing: Tools and Technique for Intelligent Investment by James Moniter, in 2011 that I realize the need for a more consistent value-focus strategy. After reading more books, I came up with a checklist.



But it was only in early 2015 that I finalized on a standard group of criteria to be in my checklist. However, I felt that I still need a more systematic and consistent way of investing, especially in Singapore Stocks.

So in November 2015, Triple S Scorecard was created. Most of the criteria were heavily influence by the teaching of Benjamin Graham, the father of value investing, as well as the books, Value Investing Tools and Technique by James Montier and Show Me The Money Book 2 by Teh Hooi Ling (Read here for a detailed write up on the Criteria of Triple S Scorecard and its initial research).

A review of the stocks (that was bought because it passed the predecessor checklist or Triple S Scorecard) showed that 5 out of 9 of them will have produced capital gains. If dividend is taken into account, 7 out of 9 of them will have produce positive gains. However, I believe the scorecard has the potential to be greater with some enhancement and simplification.

Thus, I made the following changes: 

  1. Current Ratio was removed as a Criteria – Most stocks that I target in the initial stage will have already have a high Current Ratio. In fact, if its Current Asset is already higher than its Total Liabilities, this criteria will be almost irrelevant.
  2. Total Liabilities to Equity as well as Total Debt to Equity Criteria are combined – This is to emphasize the focus on the balance sheet to ensure it is not highly leveraged or geared.
  3. Dividend Yield was increased to 3.5% - Just preferred a stock that provide more dividends to its shareholders.
  4. Dividend Yield to Price to Book Value was amended to 8.8 – This criteria was a direct “pluck and use” from the book, Show Me The Money Book 2 by Teh Hooi Ling. She researched that if a stock gives high dividend with low Price to Book Value, while not being highly leverage, it will have the higher probability of a gain.
  5. Earning Yield was removed as a Criteria – Earning Yield is actually the opposite of Price to Earning Ratio. Thus, this may be a duplicate of the criteria.
  6. Price to Average 5 year Earning was removed and replaced with Price to Average 5 year Free Cash Flow – I read up on free cash flow and was enticed by the meaning behind it. It took away/add back the non-cash item from net profit and calculate the amount that is left over by a company to use to pay down debt, distribute as dividends, or reinvest to grow the business. 
  7. Current Price to Earning Ratio to reduce to 7 – This is another criteria that is "pluck and use" from the book, Show Me The Money Book 2 by Teh Hooi Ling. Similarly, she researched that if a stock has very low Price to Earnings Ratio, it will have a higher probability of a gain.
Triple S Scorecard

Enhanced Triple S Scorecard

Then, I went back to the 9 stocks and did an analysis on each stock, using the financials I used at the point of time to input in the initial Triple S Scorecard, to input in this new Enhanced Triple S Scorecard.

This is the result – only 4 out of those 9 stocks that passed this Enhanced Triple S Scorecard (Based on the financials at that point in time).

The 4 stocks are:
1)      PNE Industries Ltd, which has a Total Gain of 39.9% during this period of investment.
2)      TTJ Holding Ltd, which has a Total Gain of 12.6% during this period of investment.
3)      Ellipsiz Ltd, which has a Total Gain of 24.1% during this period of investment.
4)      Fischer Tech Ltd, which has a Total Gain of 29.3% during this period of investment.

This also meant that if I only invested in these 4 stocks that pass the Enhanced Triple S Scorecard at that point in time, I will have 100% gain.

BUT… please note that this is only based on a small sample size. Only time will tell if the Enhanced Triple S Scorecard will continue to produce positive results for my portfolio.

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Saturday, May 28, 2016

Guest Post - Differences between investing in SGX listed vs US listed companies

Recently I got to know TTTI. He is a value investor like me. We exchanged blog links and decided to guest post on each other's blog. 
I am really glad that someone actually asked me to do a guest post. Anyway I understand that he invest in US listed companies too. After traveling back from USA (which I was supposed to do a post on it...please wait for it), I am also tempted to invest in US listed firms. So I asked him to do a guest post of the differences between investing in SGX listed vs US listed companies...
This post has been reproduced with the permission of TTTI. His blog can be found at The Thumbtack Investor.

I've been asked to write about this topic, and whilst I think there isn't much difference in terms of quantitatively analyzing the companies, there are certainly differences that one must consider when trying to invest in US listed companies.
Of course, the differences are also very much dependent on the specific type of company itself. The points below refer to the overall market and of course, involve a lot of generalizations. Here goes:





Complexity - US listed companies tend to have much more complex financials to consider. It is a norm for US listed companies to have debt on their balance sheets, with many different levels of seniority of debt with different maturities.
There is also a much higher level of complex corporate actions such as using equity for mergers and acquisitions (M&A), equity for debt swaps, preferred shares, mezzanine debt and debt with various covenants attached.
It's best to illustrate this with a real life example:
Chesapeake Energy (CHK) (which I am vested in), successfully conducted a debt swap with a senior lien new debt early this year. In other words, they managed to convince existing debt holders to swap the debt that they hold for new higher lien (higher priority) debt, at less than the full value of the debt. 
What this means is that if you were one of the original holders of the debt, for every $1 that you paid, CHK offered to redeem the debt from you at say $0.70, and even then its not in cash but in terms of new debt that is more senior than the existing debt, and has longer maturities (aka higher risk to the bond holder)
Why would the debt holder accept this lousy deal?
Because the alternative is possible bankruptcy for CHK and the debt holder would then probably get back close to nothing. By successfully executing this swap, CHK effectively cut off 30% of their debt (for the debt that was converted), without coughing up with a single cent.
To convince debt holders to tender their debt for this conversion though, ironically, it was in the interests of the company that it was perceived to be going bankrupt.
Afterall, if you are a bond holder, and if you think CHK would be able to fully pay back the bond at maturity, you wouldn't want to accept such a swap and get a haircut right?
I can't think of any instances where such a thing happened for SGX listed companies.
The complexity and the wide variety of deals involved, means it's a haven for intelligent and crafty financiers who can grasp and take advantage of complicated deals. If one is not as well versed, or inexperienced, it's better to steer clear of situations that involve such complicated deals.
I would imagine that someone like Carl Icahn would have a very tough time if he could only invest in SGX listed companies. He'd probably be bored to death.
Another obvious example is non-GAAP reporting. US listed companies are allowed to report non-GAAP results if they feel it reflects their business more accurately. This obviously adds on a layer of confusion for the fundamental analyst, who has to find out what are the items added in or not added into the non-GAAP results to make it non-GAAP.
SGX companies do not report non-GAAP results. In contrast, the companies' financial statements are relatively easy to understand, and the reporting structure is IMO clean, and standardized.





Types of Companies - There is a much wider variety of companies with different businesses listed in US stock exchanges, compared to SGX listed companies. For example, a Singapore-based company, 8I Holdings Limited, is listed on the Australian exchange. The founder candidly said during an interview that they had trouble getting approval to get listed on SGX as the authorities didn't accept purely investment holding companies. Well, 8I actually does educational courses in investing too but nevertheless, they apparently had trouble getting listed locally.
My personal experience is that SGX generally has only a few varieties of companies compared to most other foreign exchanges, not just the US listed ones.





Volatility of share prices - IMO,US listed equities generally show greater swings in share prices compared to SGX ones. This makes sense as the pool of participants in US listed companies is much larger than SGX listed companies.
Correspondingly, the optimism and pessimism cycles are greater. Volatility is hence much larger.
This point is important to understand, especially so for technical analysts. Even fundamental analysts must be aware that things that look cheap, can get much cheaper or stay cheap for a prolonged period of time compared to a SGX listed company.
Taxes - This is probably one of my pet peeves about US listed equities. Taxes, taxes, taxes.
The US government practices double taxation (sometimes triple!). Meaning that the company pays corporate taxes on its earnings, and on top of that, any distributions (dividends) are taxed again at the shareholder level.
Capital gains are taxed as well. For foreigners, the taxes due are usually withheld by the brokerage firm that you use, so the taxes are deducted from your dividends or profits.
In contrast, Singapore has no capital gains tax, and does not practice double taxation.





Brokerage and other Transaction Fees - In addition to brokerage fees, some brokerages levy additional monthly charges on foreign holdings. This varies between the various brokerages so it's better to check with one's broker regarding the monthly fees, if any. There are also usually additional fees levied on dividends and share distributions for US listed holdings.
On a related note, its better to utilise one of the international brokers when investing in foreign shares. The brokerage charges are way lower than the local ones like OCBC, UOB or Phillips. For eg. Using a prepaid cash management account for POEMS, each US exchange transaction costs a flat US $20. In contrast, using Interactive Brokers, the commission charges are usually way lower. It can  even be as low as US $1.
The fees these international brokers charges even for SGX listed companies, are way lower than our local brokerages. However, Singaporeans are not allowed to buy SGX listed companies using these international brokerages, only non-Singaporeans are.
Why? I have no idea. My guess is the foreign brokerages are not MAS approved, so the shares that you bought would be held in a custodian account and there's counterparty risk. In other words, if the brokerages collapses, there's no recourse to get back what you own. 
Although all these brokerages are huge, have international operations, and are obviously well funded, in this day and age, it's hard to say something will never collapse aka do a Bear Sterns.
Shareholder Activism & Engagement with Management - This is kinda obvious. There is hardly any shareholder activism in the local SGX listed companies. There's only 1 AGM mandated for SGX listed companies. In US exchanges, the companies usually have quarterly conference calls together with the quarterly results release. During these conference calls, analysts can put forth questions and management has to answer them.
In my experience, the involvement of shareholders is much greater in US listed companies compared to SGX. In terms of shareholder engagement, I'd have to say of all the SGX listed companies I've owned or analysed, Boustead Singapore takes the cake. They have annual conference calls and regular email updates.
Like I said, Carl Icahn would've a tough time if he could only invest in SGX listed equities.
Yields - US listed companies generally have lower yields compared to SGX listed companies. More US listed companies distribute dividends on a quarterly basis, compared to SGX listed companies.

Forex risks - The recent volatility in the USD-SGD brings to the forefront the importance of forex. Forex plays a substantial role in determining your overall returns when investing in foreign markets. In the past 1 month or so, the exchange rate has done this:
This means even if the share price of your US listed holdings have not changed, you'd have enjoyed a nice 2.21% gain in 1 month. If the share price increased, you'd have enjoyed a much bigger boost due to the compounding of this 2.21% gain on both your initial capital, as well as the capital increase.
Conclusion
These are some of the differences between investing in SGX listed vs US listed companies. These are derived from my personal experiences and my opinions.

Regarding portfolio construction, I don't think it's necessary to own US listed companies simply for the sake of diversification. The true intrinsic value of the company vs the price at which it can be attained at, regardless of the exchange it is listed on, should be the key consideration. However, if one ascertains value and would like to make an investment in a US listed company, then it would only be wise to be aware of these differences before committing to the investment.

Thursday, May 26, 2016

Accordia Golf Trust - The Final Write Up

I have previously written about Accordia Golf Trust here and here.

Today, Accordia Golf Trust just announced the dividend for the second half of the year - 4.31 cents per share. Although it is slightly lower than previous dividend during the similar period - 5.71 cents per share, but it is still significant.

Looking at the financials, the golf trust actually did better this year. Revenue increase and Net Profit increase.

Even the future looks good as quoted from the financials;

"All of AGT’s golf courses are located in Japan and due to the gradual recovery of the Japanese economy, the number of golf plays has been stable, especially among those golf courses located in the metropolitan areas. This trend is expected to be stable. Despite the downtrend in Japan’s population size, the number of plays per golfer has been increasing. This is due to 1) decline of cost per play as compared to previous years, 2) increase in plays by seniors who tend to play more frequently, and 3) increasing population of large cities due to urbanization in Japan..."

Showing my white flag

However I am still skeptical after holding this stock for more than 1.5 years due to the following:

1. Accordia Golf Trust is heavily held by  Mitsubishi UFJ Financial Group, Inc. and Morgan Stanley Capital Management, LLC. These funds regularly buy and sells the golf trust, creating volatility. Just look through the SGX announcements and you see increment and disposal constantly. If your heart is unable to understand these fluctuations, you will make rash decisions. I am an example.


2. Golf as a sports is affected by the weather. This is seem in the last Dec financials and decreased the dividend significantly. This also may have cause the price to fall drastically at that time.

3. Japan is prone to earthquake. What happens if it actually affected most of the golf course? Revenue will be greatly affected.

4. The market is currently in a downtrend. The economy is in a downtrend. IMO, Golf is a luxury sports. I believe less and less people will play this sport if the economy continues to stay in trend.

5. When I first bought Accordia Golf Trust, it is due to a recommendation. In relation to point 1, this resulted in me getting jittery when the price went down significantly. I should have stay by my investment methods or do my own analysis before buying.

In short, it is not my style to sell or reject a stock solely basing on non-financial reasons. However, I am already sitting on top of a huge paper loss and due to the above reasons, I am prepared to sell all of my holdings if it hits my target price of above 70 cents (even at 70 cents, I am still making losses). If it does not hit my target price and I am not desperate to buy new stocks, I may just continue to hold it much longer.

Please do your own analysis if you intend to sell. Don't blindly follow me. Don't be like me.

Monday, May 16, 2016

How Did These Triple S Scorecard Stocks Fare After 1 Year?

Sorry for the prolong in-activeness of this blog as I was preparing my overseas trip and then I went overseas. Anyway after being back only for a few days, I already have a lot of topics on my mind,

So here is the first topic... which relates back to my previous post - about enhancing my Triple S Scorecard.

After posting on the topic, people were asking me "How did the Triple S Scorecard stocks performed for the past 1 year?"

Thus, I decided to do a short summary on the stocks in my portfolio that pass the Triple S Scorecard previously and how it performed.

Do note that not all the stocks in my portfolio are based on Triple S Scorecard criteria - Some are blue chips, some are dividend based stocks, while others could be deep-value investing stocks.

Here are the 7 stocks in my portfolio that pass the Triple S Scorecard:

*Do note that these stocks may not be bought exactly 1 year ago, but these stocks are bought because it passed the Triple S Scorecard since the scorecard was established 1 year ago. In addition, transaction fees are not computed in the findings below.

1) PNE Industries Ltd 

Average buying stock price - 0.568

Current Price on 16 May 2016 - 0.735

Gain of 29.4%!

Dividend announced between 5 April 2015 to 16 May 2016 - 0.020 + 0.040

Total Gain of 39.9% including Dividend!

2) Sin Ghee Huat Corporation Ltd

Average buying stock price - 0.260

Current Price on 16 May 2016 - 0.200

Dividend announced between 5 April 2015 to 16 May 2016 - 0.015

Loss of 20.9% even after including dividend...

3) TTJ Holdings Ltd

Average buying stock price - 0.324

Current Price on 16 May 2016 - 0.285

Loss of 12.0%...

Dividend announced between 5 April 2015 to 16 May 2016 - 0.080

Total Gain of 12.6% after including Dividend!

4) Chuan Hup Holding Ltd

Average buying stock price - 0.331

Current Price on 16 May 2016 - 0.285

Dividend announced between 5 April 2015 to 16 May 2016 - 0.030

Loss of 4.8% even after adding dividend...

5) Hock Lian Seng Holding Ltd

Average buying stock price - 0.385

Current Price on 16 May 2016 - 0.365

Loss of 5.2%...

Dividend announced between 5 April 2015 to 16 May 2016 - 0.040 + 0.025

Total Gain of 11.6% after including Dividend!

6) LHT Holding Ltd

Average buying stock price - 0.540

Current Price on 16 May 2016 - 0.560

Gain of 3.7%!

Dividend announced between 5 April 2015 to 16 May 2016 - 0.030 + 0.028

Total Gain of 14.4% after including Dividend!

7) Ellipsiz Ltd

Average buying stock price - 0.298

Current Price on 16 May 2016 - 0.350

Gain of 17.4%!

Dividend announced between 5 April 2015 to 16 May 2016 - 0.013 + 0.007

Total Gain of 24.1% after including Dividend!

In addition, there are 2 Other Stocks which are no longer in my portfolio, but was bought due to the stock passing the Triple S Scorecard Criteria:

8) Fischer Tech Ltd

Average buying stock price - 0.905

Current Price on 16 May 2016 - 1.100

Gain of 21.5%!

Dividend announced between 5 April 2015 to 16 May 2016 - 0.020 + 0.050

Total Gain of 29.3% after including Dividend!

9) Fu Yu Corporation Ltd

Average buying stock price - 0.168

Current Price on 16 May 2016 - 0.193

Gain of 14.9%!

Dividend announced between 5 April 2015 to 16 May 2016 - 0.010 + 0.005 + 0.005

Total Gain of 26.8% after including Dividend!

Conclusion

With the above records, the findings are as follows:

1) 5 out of 9 stock gains directly from the share price itself.
2) 7 out of 9 stock gains after adding the dividend.

This is generally in line with my previous research when I was creating the Triple S Scorecard. Although some of the stocks requires dividend to achieve a total gain instead, but one have to take note that these results are obtain during a period of downturn since Aug 2015.

I am satisfied with these findings and the gains as well, but I believe there is still potential to achieve even better results if the Triple S Scorecard is enhanced further. Do look out for it as I will back test against these stocks again to see if I can achieve better results.

Furthermore, there is some notable mentions that passes Triple S Scorecard but I didn't manage to get them in time - Captii Ltd, Zagro Asia Ltd and Mun Siong Engineering Ltd.

Do contact us if you are interested in a copy of the Current Triple S Scorecard.

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