FOMO in the air

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history.

Heller responds,“Yes, but I have something he will never have — ENOUGH.”

For many, I guess we will never feel that we have enough… When we have losses, we feel pain. We envy those that made gains. When we made gains, we envy those that made more gains…

I guess I have been pushing back writing a post for some time. I also do not intend to make a Game Plan this year. After what happened in 2020, it kind of make me reflect on how fast things can change and how nimble we need to be as investors, despite my long standing belief in buy and hold.

I think it is an understatement to say that there is a sense of FOMO (Fear of missing out) in the air with the markets off to a great start in 2021. (Below: Red line is the STI index, while the blue line is the S&P500).

The concept of anchoring bias is very real when people see the past 2020 performance; or simply said – the left side of the price chart, it affects their projection for the returns going forward (which is the right side of the price chart – basically blank and unknown).

The is even more acute when we throw in more speculative stocks like Tesla, Nio, Pinduoduo, etc.

And how can we forget… Cryptocurrency (Bitcoin).

In addition, we start seeing a lot of people posting their massive positive gains in social media and more people discussing or rushing into stocks.

He began buying Tesla at just $7.50, and now he’s retiring at 39 years old with $12 million worth — he still refuses to sell a single share (read here)

How Elon Musk’s biography led to a Tesla investor retiring at 43 (read here)

Elon Musk Has Made Millionaires Out of His Most Loyal Fans (read here)

$2.3 million profit in 2020 (watch here)

Not to forget the memes and funny images related to Tesla stock price surge.

Even a simple tweet about Signal by Elon Musk can send the stock price of an unrelated Signal Advance soaring.

Signal Advance has soared 11,708% since an Elon Musk tweet recommending a similarly named privacy app spurred ticker confusion (read here)

Elon Musk tweeted ‘use Signal’, confused investors sent wrong stock soaring over 5,100% (read here)

For Crypto new rich, it seems that Lambo (Lamborghini) is the new language.

When Lambo? How Lamborghini became the status brand of the crypto boom (read here)

This crypto-millionaire bought a Lamborghini for $115 thanks to bitcoin (read here)

No doubt many of these speculative stocks have great narratives, and are changing the world with disruptive technologies… However, chances will come again, just likely not now.

Again, many of us suffer from the endowment effects whereby we deem our holdings as relatively more valuable (as compared to how people without such holdings perceive).

So back to the start of my post… I guess it really doesn’t matter to me what has happened in the past. I really can’t change that. None of us can.

Some of us did not invest, some did. Some made losses, some made gains… People who made gains in traditional industry stocks, look at people who made huge gains in healthcare, tech or glove stocks, then there also those who made huge gains looking at those who made even more massive gains in Crypto….

What really matter is what we do now and in the future. With the low interest rate environment, as what Howard Marks has mentioned recently, the projected yields of assets are generally brought down. People are moving up the risk ladder in search of the similar yield (as in the past).

I am not seating on huge gains, selling my stocks and retiring. For me, there will always be another crash with a slightly different scenario. Volatilities in the markets are getting more and more frequent, and are deeper and faster… I do hope I will be more prepared by then and my portfolio will perform better when the next crash blows over.

I think in every crisis I learn something. In this, I learn to be more receptive in observing and thinking of more possibilities and accepting more disruptive growth stocks in my portfolio, which are best bought when the markets crash (Superrrr…. hard psychologically).

For me, my stock portfolio contains mainly traditional industry / recovery stocks, with some tech stocks. Well, generally the portfolio has performed well with more than half of the counters in gains ranging from 20%+ (for REITs and then bank stocks) to 40% range with the outlier being 90%+ for Pinduoduo, others are still in the red (mainly the HK-listed counters, around negative 1% to 10%). Golden agri remains the worst at around negative 60%. With the slow rotation towards recovery stocks, from Nov 2020 onwards, I am seeing and hoping for more gains.

However, I am not doing much at the moment and I am still heavily invested in equities. The past few days and weeks are good.

I may pick up more PDD or Alibaba stocks if their stock prices dip, but nothing drastic.. Mainly DCA for my portfolio as a whole. The Price to Book ratios for the Straits Times Index and Hang Seng Index still appear attractive over the long term.

I can’t say the same for the Price to Earnings ratios for the US markets.

At the time of writing, the S&P 500 index is valued at a price-to-earnings (PE) ratio of 38.06. Its average PE ratio in the last decade was around 20x.

This shows that the S&P 500 is valued at around 90% above the mean.

In Feb 2020, I mentioned in my post then that I reached a milestone in my net worth. The definition of my overall net worth is everything I have (my personal CPF, stocks, bonds, SRS, Cash, P2P, Insurance cash values, etc… excluding the value of our property). However, shortly after that, with the market crash in March 2020, my net worth quickly dropped below that milestone level. Yes, the joy was short-lived then.

Fast forward to today, I am surprised that my net worth has increased by approx. 18% in relation to that milestone value in Feb 2020. This is generally thanks to the rise in the stock markets till date.

Oh well, who knows what will happen in the near future.

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Alibaba Group Holding Ltd (HKG: 9988) share price crashed 26%. Is it worth buying?

I think in the universe of publicly traded Chinese tech companies, few could match the astounding growth of Alibaba.

Indeed, many investors have included Alibaba in their stock portfolio, either directly through the purchase of its shares in the US or Hong Kong stock exchange, or indirectly via a passive ETF (BABA is within the Hang Seng TECH Index, Vanguard FTSE Emerging Markets ETF (VWO) and Ark Fintech Innovation ETF (NYSE: ARKF)).

I do not currently own shares of Alibaba, however, if you are a long term buy and hold passive investor like me, Alibaba will probably be in your watchlist.

Its massive scale and growth is truly impressive (see below – from its 2020 Annual Report).

The recent drop in the share prices came as no surprise given the headline news (which has been flashing in Channel News Asia and in the front page of the business section of The Straits Times, and many other major news outlets). Simply said, one just can’t miss it.

China launches probe into Alibaba for suspected monopolistic behaviour (read here)

1) Valuation Metrics compared to other mega tech stocks

In addition, as mentioned earlier, when it comes to quality mega tech growth stocks, Alibaba is in a class of its own. China is a very different country in many respects. One of these things is the nationwide restriction on internet access in the country, as you may have heard of it before, a lot of the most used websites are inaccessible from within China, including Google and Facebook. So in China, the 3 big tech companies, Tencent, Alibaba and Baidu can still operate without much competiton from some of the global/US mega tech companies.

Many things are relative.. it is how we perceive them. When it comes to investing, to many, some things are considered expensive or cheap only when we compare them with their peers.

To quote Rolf Suey in his 24 Dec 2020 post: “Alibaba has FCF of USD24B over revenue of USD90B (27%), comparable to Apple as being a cash cow. In comparison, Amazon has a FCF of USD27B over revenue of USD322B (8.4%), that pales Alibaba. Despite the profitability, Alibaba’s PE (ttm) is a mere 25 (today’s HKSE price) that is way cheaper than Apple’s 40 and Amazon’s 93.” 

So indeed, if I liked Alibaba stocks (HKG: 9988) when it was at HKD 307.4 a share on 28 Oct 2020, I would like it more now (on 26 Dec 2020) at HKD 228.20 a share. The current P/E is 27.54 (from Poems).

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Warren Buffett

Indeed when compared to the other mega tech stocks, Alibaba’s current valuation metrics appear cheap. See below.

However, its market cap / revenue ratio is not the lowest (Amazon, Alphabet and Baidu’s ratios are lower).

2) The Ant Group factor

Start by asking: How bad can things become?

The other big news prior to the authority’s probe into Alibaba for suspected monopolistic behaviour would be the suspension of the Ant Group IPO in Nov 2020.

So much has been written about the much anticipated listing of Ant Group on the Hong Kong Stock Exchange (HKEX) and Shanghai’s STAR market (officially known as the Shanghai Stock Exchange Science and Technology Innovation Board) in early November. The dual listing which was expected to raise an estimated US$34.5 billion would have been the biggest IPO in history.

With Ant Group’s record $34.5 billion IPO suspended, what happens next? (read here)

Now IPO valuation aside, we are aware that Alibaba owns 1/3 of Ant Group and in its 2020 Annual Report, it states that this stake is worth approximately RMB 71.6 billion or HKD 84.87 billion (after factoring the cost reimbursement and deferred tax effect) – see below.

Now the Common Shares Outstanding of Alibaba (9988.HK) is 21.492 billion. Given that on 28 Oct 2020, its share price was hovering around HKD 307.4, that would give it a market capitalisation of HKD 6,608 billion at that time. Bear in mind that the market capitalisation of Alibaba today (26 Dec 2020) is HKD 5,373 billion, a 18.7% drop.

Now assuming the worst case scenario (which I seriously doubt it would happen), for instance that the Chinese authorities went hard ball, and basically Ant Group is obliterated (from China), or it became a state own entity, resulting in the total crash of Ant Group’s value and hence Alibaba’s 1/3 stake in it is gone (which is supposedly worth HKD 84.87 billion not too long ago even without the IPO listing).

In other words, a complete write off of Ant Group from Alibaba’s balance sheet, so to speak.

That would mean that Alibaba’s market capitalisation would have technically dropped from HKD 6,608 to HKD 6,523 billion.

3) The Fine Factor

Regulators had previously warned e-commerce giant Alibaba about the so-called “choosing one from two” practice under which merchants are required to sign exclusive cooperation pacts preventing them from offering products on rival platforms.

The State Administration for Market Regulation (SAMR) said in an online statement that it had launched a probe into the practice.

Ant said it had received a notice from regulators and would “comply with all regulatory requirements”.

Now in the below article, to quote: “Cui said the consequence of the investigation this time could be more severe than the 500,000 yuan Alibaba was fined this month. Chinese lawmakers are revising antimonopoly laws, which could mean the maximum fine is lifted to 10% of a company’s annual revenues.

Jack Ma’s Alibaba and Ant targeted by China regulators (read here)

So it states that the maximum possible fine that the authorities could impose on Alibaba is 10% of its revenue. Well, we all know that given the size of Alibaba and it is basically an ‘eco-system’ with many parts, so the fines may not be on the whole of Alibaba, but maybe some of its divisions.

To quote its 2020 Annual Report: “Our businesses are comprised of core commerce,
cloud computing, digital media and entertainment, and innovation initiatives. In addition, Ant Group, an unconsolidated related party, provides payment services and offers financial services for consumers and merchants on our platforms. A digital economy has developed around our platforms and businesses that consists of consumers, merchants, brands, retailers, third-party service providers, strategic
alliance partners and other businesses.”

However, for simplicity sake, let’s again assume the worst, and the maximum penalty of 10% is imposed on Alibaba’s total revenue which was RMB 509.7 billion or HKD 605.60 billion in FY 2020. That would be a fine of approx. HKD 60.56 billion. The revenue figure would probably be higher in FY 2021.

Hypothetically that is an outflow of approx. HKD 60.56 billion from the annual net profit just to pay the fine. However, we did not consider the financial impact to the underlying business though (to comply with the rules).

Taking into consideration that in Dec 2020 (this month) the market regulator only fined Alibaba and Tencent Holdings 500,000 yuan (HKD 592,654) each for failing to seek regulatory approval for past acquisitions. So HKD 60.56 billion is a crazy huge amount.

So factoring the above mentioned obliteration of Ant Group value and the max. 10% fine (of the revenue) imposed, the market capitalisation would have further dropped from HKD 6,608 to approximately HKD 6,462 billion.

The market capitalisation of Alibaba today (on 26 Dec 2020) is HKD 5,373 billion. So this figure is still lower than the calculated figure considering the above mentioned worst case scenarios.

However, I may have missed out some other factors, considering the negative impact of the new regulations on Alibaba existing e-commerce and fintech businesses.

4) Be patient. It could get worse.

Everyone’s circumstance is different. For me, my focus now is on building a war-chest, although that does not mean that I would ignore any opportunity that comes my way. I am always looking for situations whereby there is a very distinct divergence between the value and price while understanding the factors causing it. When it comes to good companies, the lower the price the better.

We like to think of ourselves as ‘contrarian’ investors. However, when shits really happen … not many will execute.

By the way, a good book which I have just read, which I think is full of short paragraphs and sentences with deeper meanings, for thinking about investing is “The Sceptical Investor: How contrarians bet against the market and win – and you can too” by John Stepek

When it come to China related stocks, which I am not really familiar with in terms of regulatory requirements (kind of opaque in my opinion), I would probably demand a higher level in terms of margin of safety. Would we have a public hearing like what we had for the mega tech firms in the US, I doubt so.

Bearing in mind, while we are thinking of buying shares of this companies, existing Alibaba shareholders are mulling the red on their screens as well (and probably thinking of the way forward to minimise losses – either average down, sell or hold).

I would give it time. I am probably wrong, and may miss the boat again.. but that’s life I guess. One way is to spread out my purchases over a period of time (if I like the price).

Alibaba stocks has been trending down since late Oct 2020 and we are now coming to the end of Dec 2020 (close to 2 months), and the normally outspoken Jack Ma has kept a low profile since then (probably on the advice of the Chinese authorities). There are many things we are not aware yet, other than the probe and the failed Ant group IPO, etc. It is just a black hole to me when it is related to the Chinese authorities… not much can be read from it.

When one finds a cockroach in his/her house, there is typically more than 1 cockroach in that house…The investigation only happened recently. Could be it by coincidence, that right after the failed Ant Group IPO listing, there are news of a probe into Alibaba…? Your guess is as good as mine.

We can never guess what the future will be, but we can probably guess what is the worst case scenario. Frankly, we should not wait for everything to be set in stone and good news being crystallised (when news start turning better) before investing.

Put it in another way. People always over-react to news. However, I do not know if we will have more bad news in the future. Why not? Still I can think and stress test the possible worst case outcomes via financial metrics. After all, Alibaba is cash rich and is not loss making… yet. It’s current ratio is only 1.99 as of 26 Dec 2020. Eg.  The business has 2 times more current assets than liabilities to covers its debts.

As of September 30, 2020, Cash and cash equivalents were RMB301,509 million. Total current assets were RMB522,935 million. Total assets were RMB1,433,626 million.

Total Current liabilities were only RMB262,942 million and Total liabilities were RMB452,403 million.

Nevertheless, I do want to give this counter a few more months… (and also since I want to build up my war-chest; I have other priorities). I feel that I need to read more to understand. However, that is just me, and I can spread out my purchases. I feel that the markets can stay irrational longer than I can imagine. This stated period (of few months) is also dependent on any developing news. Currently there is a lot of speculation with no real hefty prosecutions, fines, sacking or detention etc…a 500k yuan fine mentioned earlier is really peanuts to a firm of this scale (Alibaba). More like just a slap on the wrist.

In the history of Alibaba, top executives have volutarily resigned or were sacked immediately due to wrong doings… it had happened. It can happen again.

Just think about it, in a short period of less than 2 months, more than a quarter of the share price of Alibaba (HKG: 9988) is wiped off due to some news….let this sink in for a while before you do anything. Imagine that happened to the value of your property… volatile stocks indeed.

On a side note, given the current valuation of Alibaba and the extend of its business in China, some might say, in the context of China, it might be ‘too big to fail’ – the fall of Alibaba would cause much disruption to other related companies in China and in other parts of the world.

Just bear in mind that Alibaba just had the best 11.11 performance which was quickly dashed after Beijing released draft rules. For many tech stocks, 2020 has been a great year. So how would 2021 be? Your guess is as good as mine, but I feel that for many mega tech stocks, there should not be many surprises, it probably won’t be as good as 2020, but still it should not disappoint too much. Nevertheless, things changed quickly….as what we can see from Alibaba (and the share prices of JD.com, JD health, etc).

My above points 2 and 3 are reference to when Alibaba stock prices are high in late Oct 2020… so how would 2021 be if there were no bad news for these mega tech stocks? With pandemic easing…

Alibaba’s $56 billion Singles Day record overshadowed by 10% stock plunge as China proposes new regulation (read here)

Depends on how you see the markets, there are always pockets of opportunities, we just need to spend time to do some research before jumping in. If you do want to invest in Alibaba, at least spend some time reading its latest Annual Report and Interim Report.

Do let me know your views below in the comment section.

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Most memorable trade of 2020

I guess with the year 2020 coming to a close, it is perhaps time for some reflection.

The main gist of this post as I looked back is probably what is the key investing moment for this year. Investing in stocks by itself is a rather mundane process, for me, it is basically logging into the laptop or my handphone and keying in the buy / sell price and pressing the confirmation button. Literally as interesting as watching the paint on the wall dry.

However, this being 2020, the year of the pandemic, many things are perhaps like what many would say – unprecedented. The moment is not really the most profitable trade. It was memorable for other reasons.

I always believed that the best time to buy / invest is when there is maximum fear. That is the theory part / belief, so to speak. Although, implementation is another ball game altogether.

And if I am to just list one event in Singapore when fear is high and when that particular trade was done in 2020, that would be during the live telecast of PM Lee’s remarks on the coronavirus situation, delivered on 3 Apr 2020.

PM Lee: the COVID-19 situation in Singapore (3 Apr) (click here)

Prior to the actual tel many people would rushed down to the nearest super-markets or provision stores to stock up on supplies. We too have a list of items for our families need, although toilet paper and rice wasn’t really in that list. Basically just some food for the family / kids to last for a few days. Wifey’s order.

So yeah, I headed to the Sheng Siong supermarket near my place. There I was with some food, waiting in line (a very very long queue), feeling that it was a complete waste of time, while mayhem was happening all around me – people jostling to grab what they can, ramming trolleys that were packed to the brim, in a place with no space for trolleys (narrow aisles packed full of people. This is Sheng Siong not Cold Storage), kids making lots of noise… Wondering what was all the fuss about.

In the live telecast of the PM Lee speech that day, it was mentioned that the government will be applying a circuit breaker.

Anyway, I can sense a lot of ‘fear’ in the air, and in the stock market. While queuing up I was also scrolling through my trading account on my handphone – It was literally full of red (blood bath).

Taking all this in, me in my office wear queuing up in a ridiculously long queue holding on to a shopping basket with like 6 items within, the mayhem around me, the red ‘blood bath’ on my handphone screen, the time (evening)… all these seem a tad too surreal for me.

I made a trade at that moment, and it was to purchase Mapletree Commercial Trust shares at the price of $1.50. It was strange as well: So great was the selling volume, that my order was filled immediately right after I clicked the buy button after trading hours (if I remember correctly).

Back in mind, I was thinking that if the trading algorithm has a soul, it would probably be laughing at me for being a fool who is so willing to part with his money.

It was not a huge amount, as I tend to break up my purchases over a period of time / days / months. I have no idea then if tomorrow or the week / month after prices will drop even lower.

On hindsight, it was the bottom for MCT share price this year – I reckon.

So literally while people was queuing up to buy food, I was ‘queuing’ up to buy stocks that people are dumping. Prior to and after this date I have also purchased some more MCT stocks.

So what is your most memorable trade for 2020? Do let me know in the comment section below.

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Nio’s Customer Centric edge

Ok first of all, I am not crazy into EV automobile stocks. Eg. Tesla, Nikola, Nio, Xpeng, Li Auto, BYD…

In addition, I would like to clarify that this post is not an in depth analysis of the EV and self driving tech, nor detailed comparison. It is just about the customer centric aspect of the business model of Nio.

I just think these EV stocks are still pretty speculative. Nevertheless I have been toying with the idea of a ‘Story fund’. More on that in the future. In the meantime, it is just reading and getting to know the companies behind the stocks. Frankly, I think they will always be overpriced given the hype. Probably the next market correction or crash will offer some level of margin of safety. Till then… fingers crossed.

As mentioned in one of my previous post titled “The Market Pendulum“, I mentioned that I will be reading the book titled ‘Insane Mode” by Hamish Makenzie.

Well, after finish reading the book, I was introduced to a number of emerging EV car makers throughout the world (eg. predominately in the US, Europe and China). Even traditional carmakers like BMW, Nissan, Toyota, GM and Volkswagen are going into the race.

On a side note: When it comes to autonomous vehicle, there are currently five-ish levels in total. With Level 1 being the most basic and Level 5 being the most advanced. At the ultimate level of autonomy, Level 5 vehicles are completely self-driving and autonomous. The driver does not have to be in control at all during travel, and this vehicle can handle any road condition, type of weather, and no longer bound to geo-fenced locations. A level 5 vehicle will also have emergency features, and safety protocols.

I do think the really understated competitor here is Google. Google’s Waymo is working towards this Level 5 goal.

Tesla and most of the other EV car-makers (in US and China) are not at Level 5 yet FYI. Although Elon Musk did mention this year that Tesla is ‘very close’ to Level 5 autonomous driving technology and will have it this year. Although, we all know how ‘rubber time” it is when Elon Musk talks about timeline and year 2020 is almost nearing its end. Read here and here.

Meet the 6 Frontrunners in the Self-driving Car Race (read here)

One of the major competitor to the US car makers (eg. Tesla), are those from China. And among the prominent EV car makers in China, we have Nio, Xpeng and Li Auto.

Now, to clarify, this post is not about the financial metrics or stock performance of these companies. A lot of these have been written online. Basically Nio and Xpeng are still loss making, but have been getting a lot of attention as their share prices (Nio and Xpeng) surged in 2020, although there are some pull backs recently. Li Auto is the first Chinese EV start-up to report profits, read here.

Nio, a Chinese premium electric vehicle start-up:

Nio stock went public at 6 in September 2018, then hit a low of 1.19 in late 2019 on sales and cash woes. Through most of 2020, Nio shares rocketed as the Chinese EV market rebounded.

I always felt that when we are thinking about growth stocks (and particularly ‘story’ stocks), I am more interested in what differentiates the business model or narrative. What will propel the growth forward. Basically a lot of capital is used to capture market shares in the super competitive start-up world. So it does not really do justice to the stock to compare its financial metrics to an established mega tech stock, with steady revenue and growing net profits.

In addition, in the EV market in China, the other key factor is the government subsidies, which can typically break or make these companies (operating on thin margins). What is given today might not be the same tomorrow…

Nio is the showiest, led by its charismatic founder, William Li Bin, and boasts the deepest pockets and boldest business plan. The company is known for its grand, customer-centric strategies ranging from a network of luxurious showrooms to a free battery swap service. It was the first of the three to deliver cars to its customers, in June 2018.Unlike Tesla, Nio does not manufacture its own vehicles. It partners with China’s Jianghuai Automobile Group on manufacturing the ES8, ES6 and EC6 utility vehicle.

Among the dominant EV Chinese car-makers, eg. between Nio, Xpeng and Li Auto, Nio is probably the highest end of the trio. Yes, it is more expensive to own a Nio compared to Xpeng and Li Auto, but still cheaper than Tesla.

Quality wise, from what I have watched and read, Nio appears to be better (compared to Xpeng and Li Auto), in terms of finishes, design and even the voice activation system. One video of Xpeng test drive shows that the system was unable to recognise what the car salesman was saying after numerous attempts. Nio’s seem more responsive and has less glitches.

Oh yeah, the Nio, Xpeng and Li Auto’s business model and standard is on another level compared to BYD. BYD seems to be more towards taxi, trucks, public transports etc.

In June 2018, Nio began deliveries of the ES8, a premium electric SUV and its first volume vehicle. A year later, it started delivering the smaller ES8. In September 2020, Nio began delivering the EC6, seen as a potential rival to the upcoming made-in-China Tesla Model Y.

NIO EC6

When reading and watching videos about Nio, what caught my attention is really the customer centric business model of this company. I view this model more akin to a ‘lifestyle approach’, much like how Apple operates. Nio attempts to integrate its products with the lifestyle needs of its customers. After all a car is a key part to the car-owner’s daily routine, and it should go beyond just beyond a mode of transport. I think given the super-competitive Chinese maker which Tesla is also trying to break into, that is really what sets Nio apart, other than the cheaper price point as compared to Tesla.

I still believe that Tesla cars (Model S, Model 3, etc) are on a whole new level: Technology and Quality wise. With their hands-on iconic leader, Elon Musk, few can match Tesla’s level of innovation and attention to details. However, that is only purely looking at the car itself, as a stand-alone product.

However, unless Tesla really immerse itself into the Chinese culture (and really understand the Chinese customers’ way of life/lifestyle needs) and create a holistic lifestyle approach to marketing, it would face a very tough market there (and given the premium that customers have to pay). That is really shifting focus from the car to the whole experience. In China, business is still focused on providing consumers with a satisfactory experience. 

In the first video below, the Nio car owner was saying that Nio has so much more services as compared to Tesla. The only service he used for Tesla is to fix the car.

While NIO focuses on building innovative technology, they also focus on building relationships and a community with their cars. Their business is conducted in NIO Houses which are office areas that are “to create a lifestyle beyond just a car.”

Amenities (All these amenities are free with a purchase of their vehicle):

1) They allow all owners of their vehicles to use their office space and conference rooms for their own personal meeting places or parties.

2) As large cities in China do not have large living spaces, NIO provides spacious living room areas and a library to allow their customers to enjoy their afternoon within their facilities.

Lifestyle services & activities for the family:

1) They focus on consumer satisfaction through hiring top Starbucks baristas to work and serve customers with high quality coffee or tea within their facilities.

2) They also conduct “joy camps” which are activity-based experiences for their customer’s children to enjoy activities such as a planetarium show on the ceiling of their office, crafts, and even birthday parties.

Services related to owning their vehicle:

1) Of course, the difference in charging of the EV vehicle is different for Nio as compared to Tesla. For Nio, owners can swap the battery, rather than charging the battery. So less time is needed to have a fully charged car. Also if the owner needs a better battery for longer distance rides, they can easily swap for one. Likewise, if there are newer models of battery, a simple swap will do.

In Aug 2020, Nio launched the innovative Battery as a Service (the “BaaS”) subscription model.

The BaaS model allows users to purchase electric vehicles and subscribe the usage of battery packs separately. If users opt to purchase an ES8, ES6 or EC6 model and subscribe to use the 70 kWh battery pack under the BaaS model, they can enjoy the vehicle purchase price with an RMB70,000 (USD10,688) deduction off the original price and pay a monthly subscription fee of RMB980 (USD150) for the battery pack. (read here)

Nevertheless, I do think the downside here is safety when compared to Tesla. I would think Tesla cars have better safety factors. Tesla battery is integrated with the vehicle, and the bottom of it, resulting in a low centre of gravity. It is also protected by thick protective plates which supposedly can crush stones or obstructions – meaning less likely damage to the battery and less fire risk.

Indeed, this concept of battery swapping has its own sets of issues as mentioned in the article below.

Motor Mouth: Is battery-swapping the future of EVs? (read here)

2) In Chinese culture it is very rude to be late, so if you are a NIO owner and get in a car accident, a NIO representative will come to the accident and handle the police report while the owner continues to work.

2) If a NIO owner needs to charge their vehicle while they are out then a NIO employee will drive a power station to the current location of the car and charge it. NIO offers this service at the same price of electricity, so it is less than the cost of a tank of gas in the United States. This is especially useful for owners who travel from to different carparks daily which do not have battery swapping stations within.

In gist

Tesla being the forerunner has inspired many others to take the step towards electric and autonomous vehicles. A wave that I think is unstoppable. However, who will emerge as the final winner is anyone’s guess.

Nevertheless, I am impressed by Nio’s lifestyle business model. Quite a number of the owners of Nio cars in the videos I watched, mentioned that Nio ‘spoils’ them, and their next car will definitely still be Nio.

This level of details to their services is rare even among the other car makers, not just the EV car makers. Some people call Nio, the ‘Chinese Tesla”, I would probably call it the ‘Apple’ version of the electric and autonomous vehicle world. It would be a mistake to be just another ‘Tesla’, mimic their strategies and to try to beat Elon Musk at his own game.

Still there are many factors to consider for any company to be the market leader, be it the advancement in technology, design of the vehicle (inclusive of the comfort and safety features), the distribution and design of the charging stations, the after sale services provided, the perks given for the customers and their family members (beyond just those services of the vehicle), the affordability…. One post is simply insufficient. A book more likely. Anyway, I am not an expert at EV vehicles, just studying them from a business / investment point of view and looking for an edge among them.

Well, I will be moving on to read my next book, titled “The Google Story (2018 Updated Edition): Inside the Hottest Business, Media, and Technology Success of Our Time” by David A Vise & Mark Malseed.

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The 2021 Market Crash

So yeah, it’s ‘official’.

It is popping up everywhere on social media. I just can’t get into Youtube without seeing one of the videos from financial influencers talking about it. A lot of content is made about this topic.

It is an evergreen theme. With the markets back up (especially in the US markets), the t heme is back, strong.

Back with a vengeance.

1) Graham Stephan (2.62M subscribers on Youtube):

2) Meet Kevin (1.03M subscribers on Youtube):

3) Minority Mindset (790K subscribers on Youtube)

4) Cooper Academy – Investing (270K subscribers on Youtube)

So yes, lots of videos/content from people talking about the coming stock market or housing market crashes. However, the issue is when we talk about crashes, the truth is nobody has a clue about when the next crash will be.

Even Ray Dalio, the American billionaire hedge fund manager and philanthropist who has served as co-chief investment officer of the world’s largest hedge fund, famously mentioned ‘Cash is trash” just prior to the Covid-19 stock market crash early this year (Jan 2020), did not had a clue then.

Ray Dalio says ‘cash is trash’ and advises investors hold a global, diversified portfolio (read here).

What do investors want during a market crash? Cash….lots of it.

Howard Marks will never advocate timing the market. Although he talked about the ebb and flow of the markets, highlighted that we can only calibrate our portfolio so as be more defensive or aggressive at certain parts of the market cycle, he would and could not pin point when the markets will crash. He does not like to be drawn into the debate of when markets will crash. Asked if he thinks current markets are overvalued… well, he mentioned that if the global economy does pick up, then the recent valuation would not appear stretched. It’s relative so to speak.

In addition, if you have watched the earlier videos from Peter Lynch, in his talks, he will just tell everyone that as the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, his fund will go through the volatilities with the markets. Every time the markets went down, his fund also went down with it, and went down more.

Wikipedia defined stock market crashes as follow: “There is no numerically specific definition of a stock market crash but the term commonly applies to declines of over 10% in a stock market index over a period of several days.”

So if we look through the history of stock market crashes (in Wikipedia), the recent crashes, beside the 2020 stock market crash, are 2015–16 stock market selloff, August 2011 stock markets fall, 2010 flash crash, and the big one – Financial crisis of 2007–08.

The previous big stock market crash was in 2007-2008, that was more than a decade ago.

These talks about 2021 Market Crash are not just on Youtube, it is on Facebook, Reddit, etc… everywhere on social media!

There are knock-on effects on the psychology of retail investors. People may get scared out of the markets. And if you do not want to stay invested, you will find A Reason NOT to invest. There are countless reasons why not to stay invested.

If you are familiar with Peter Lynch, you can sense that as compared to other great investors, he has a great sense of optimism (even compared to Howard Marks, Ray Dalio, Warren Buffett, etc)…

To quote the article below: “At the beginning of the third quarter, Berkshire Hathaway’s cash pile stood at an all-time record $147 billion.”

Why Isn’t Buffett Putting More of His Cash to Work? (Read here)

As mentioned by Peter Lynch: There is always something to worry about. It will always be scary, there will always be concerns.

In recent times, Peter Lynch continues to maintain his stand. These days, as he put: Bad news is infinite now.

Well, we can worry about other variants of the coronavirus, 3rd to 4th wave of the pandemic, more defaults and fallouts when the monetary and fiscal stimulus stop, different tax regulations from the Biden administration, the overheated stock market (valuations) & housing markets… never-ending list.

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Frankly, personally I have no clue of when is the next crash. However, I do think that people who stay out of the markets will miss out on opportunities and lose out more.

When we are dealing with people’s emotions, I stay out of predictions of the future. Like how I can’t predict my wife’s mood. I continue to research on companies, read about news, and just mentally and financially prepare myself for the next crash – don’t know when that will be.

In the meantime, collecting dividends from those stocks which I have stay invested in.

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The Market Pendulum

It is Dec 2020, and with some time on hand since I am on leave, I was able to spend time reading on top of spending time with the family.

In one of my previous post “Chill and Read“, I mentioned 3 books which I have read or which I will be reading. Today, I have read the 3 books about 3 incredibly talented and driven men:

The first man: A former English teacher. He failed his entrance exam twice before studying at a Teachers College. He graduated in 1988 and continued to teach English for several years. Subsequently, he got rejected from 30 jobs before he decided to band together with a group of friends at the age of 29 to create his internet start-up.

The second man: A computer science graduate who turned out to be a great businessman as well. His first job was with China Motion Telecom Development where he was in charge of developing software for pagers. He saw first-hand how the rise of the internet and the messenger services disrupted the pager services and within a few short years, many companies like his went out of business. Along with four other classmates, he went on to co-found his internet start-up and launched the Chinese version of ICQ (QICQ).

The third man: A private gay man who had big shoes to fill eg. Taking over the CEO job from who was at that time, probably the one of the world’s most inspirational & iconic (if not the most inspirational & iconic) tech founder, in one of the biggest tech firm at that time. Unlike his predecessor, he was never the chief product officer but was perhaps best known as a brilliant operations manager / chief operation officer (COO) with an unbelievable work ethic (and social ethic) at that time. He managed to bring the company to a new peak (which is today’s second most valuable company in the world).

I have just finished reading the book “Mastering the Market Cycle” written by Howard Marks.

I think reading this book “Mastering the Market Cycle” is timely. In the book, it talked about the different types of cycles eg. the Economic cycle, Government involvement with the economic cycle, companies’ cycle in profits, the Pendulum of Investor Psychology, the cycle in attitudes towards risk, the credit cycle, the distressed debt cycle, real estate cycle, etc.

Well, these are cycles we are all familiar with, but perhaps the more important cycle these days is the credit cycle. Howard Marks listed it as the top influence concerning the 2007-2008 Global Financial Crisis. At that time, the crash in the stock markets was due to the fear that the credit window was shutting which would lead to (or led to) the credit crunch witnessed by many big financial institutions and companies.

Many companies (esp. the top companies) made use of their reputation and credit ratings, to borrow via/take on short-term debts at favorable rates to issue out long-term bonds or loans/mortgages when times are good (to earn the spread). Basically to take advantage of the spread during good times and assume that they can always roll over the short-term debts (when the ‘money’ tap is on). This is hard to resist for companies, as they risk losing out to others if they do not follow suit. However, when the sub-prime crisis hit and liquidity dried up (eg. credit windows closed), they found themselves in trouble.. especially for the big banks.

If not for the swift unprecedented actions by the Federal Reserve then and fiscal measures by the US government to unfreeze liquidity and back the credits bringing back investors’ confidence, the crash would have lasted a lot longer and people’s faith might not be restored.

Many of the cycles I view are all inter-related in many ways, whereby typically the worst deals are made when times and future outlooks are good. Howard Marks called it the ‘race to the bottom’ when sellers of bonds or credit lower their requirements given the buoyant markets. Inversely, the best deals are made when there are hardly any buyers (who are often scarred by recent losses) and the interest offered for the bonds are sometimes at eye-popping juicy double digits, and in some odd cases, the interests itself can cover the shortfall in the liquidation value of the companies (eg. still make money when the companies go bust, since bond buyers are higher up the pecking order as compared to stock-holders). One simply ‘cannot lose’, but due to the situation then, many fund managers just could not get over their fear (and kept asking: ‘What if it gets worse?”).

Or to put it in another way, from the perspective of the investors: “What the wise do in the beginning, the fools do in the end’. To succumb to the urge to invest when everyone around you is boasting of the massive profits they made is a mistake that many people make.

Even Newton who once muttered that “‘he could calculate the motions of the heavenly bodies, but not the madness of the people”, made the mistake of buying back in the South Sea Company stocks, although he initially made a profit of  £7,000. He ended up losing £20,000 (or more than USD 4.37 million in 2020’s money). For the rest of his life, he forbade anyone to speak the words ‘South Sea’ in his presence. Read here.

In the Chapter “Pendulum of Investor Psychology”, Howard mentioned that the swing between optimism and pessimism (euphoria vs depression) is ever-present in the markets. What is perhaps pertinent here that historically, the pendulum itself spends very little time at the midpoint (equilibrium) or normal range. For the past 47 years (from 1970 to 2016) the markets are either up more than 30% or down more than 10%, for 13 out of the 47 years (more than a quarter of the times). The annual returns on the S&P500 were within 2% of ‘normal’ (which is between 8% and 12%) for only 3 times! No wonder Benjamin Graham described Mr. Market as manic-depressive, randomly swinging from bouts of optimism to moods of pessimism.

Thinking about today, the credit windows in many countries are wide open. I reckon many countries are getting more knowledgeable and experienced (since 2007-2008 GFC) in managing the risk of having no liquidity when a crisis strike. This is probably why the crash this year recovered rather swiftly.

Currently, greed perhaps is more prevalent now as compared to the fear felt in Feb, March, or April 2020.

Besides, with the US presidential election over (results are known), and the vaccine for Covid-19 found, markets have largely priced in these known/positive news. Nevertheless, there are on-going US-China trade tensions and an anticipated slow global economic recovery.

We are now near the end of the year, and many people are showing their year-end portfolio results. The upswing in the US markets (esp. S&P500 and Nasdaq) has already erased the losses seen in the early part of the year. The tech-heavy Nasdaq has already far surpassed its previous peak in Feb 2020.

Somehow, the cycle duration (of the stock markets) has been getting shorter and shorter – when it comes to the US markets. For the Singapore market, on the other hand, the STI is still around 13% below its Jan 2020 level.

Still many people if they have bought during the March / April 2020 period, would have achieved gains. Also, if they have bought into Tech stocks, that gain would be even more. Even for many traditional recovery stocks (REITs, banks, consumer-related), there would be gains as well.

For me, there are always two opposing thoughts: The fear of losing (Fear) and the fear of missing out on opportunities (Greed). To embrace one in totality would mean forsaking the other.

In the book, Howard Marks mentioned that choosing good companies itself is not sufficient. This is probably stemmed from his early experience during his career, whereby many bid the stock prices of Nifty-Fifty stocks sky high (in the late 60s and the 70s). These are great companies during their time (Xerox, Coca Cola, IBM,  Kodak, Polaroid, AIG, etc). People who invested in them during that period saw many years of under-performance subsequently (or did not make money at all).

Howard Marks: Lessons from the Nifty Fifty (read here)

“So, if you were smart enough to invest in Merck, Lily, Avon, Coke, Texas Instruments, Hewlett Packard, and that ilk of companies in ’68 and you were smart enough to hold those stocks for 5 years you lost 80-90% of your money. And I would be shocked, actually, to find that — I mean, I haven’t done the work. But I’d be surprised to find that you have an attractive rate of return to today…
And so, I was very fortunate to learn a painful lesson early. You invest in the best companies in America and you lose almost all your money…
So, what I learned from the  combination of these two things is that investing is not a matter of what you buy, it’s what you pay. Investing is not a matter of buying good things, but buying things well. And you have to understand the difference between buying good things and buying things well. And I think that’s what we’ve been able to do.” Howard Marks

In his Oct 2020 memo titled – Coming Into Focus, Howard Marks included a great piece on comparing today’s tech goliaths with the Nifty Fifty. Marks makes the point that while the FAAMG’s may be larger, faster growing and have greater growth potential than the Nifty Fifty, no one’s valuing them on current income or intrinsic value, and perhaps not on an estimate of e.p.s. in any future year, but rather on their potential for growth and increased profitability in the far-off future. And herein lies the problem.

We can be choosing the best stocks, but can still screw up (leading to years of under-performance) if we don’t understand where we are in the cycle. Knowing when the tide is in favor would greatly increase our odds.

Having said that understanding where we are in the cycle is different from timing the market. Since nobody can accurately time the exact low and high of the markets. Nobody can be sure of the outcome, but there are times when the probability of success (or failure) is higher. Nobody knows when, since the markets are driven by people’s emotions. Nobody can predict emotions. We can only prepare for the inevitable.

I always feel that the window of opportunity is closing. Currently, it is probably left with two places that few would want to invest in now (see below). No, not the tech stocks.

1) The extreme recovery stocks. eg. Travel related, retail/commercial, hospitality stocks. Kind of like the ‘ground zero’ sectors in this pandemic. However, these companies have to be financially strong to be able to survive the prolonged crisis.

2) Hong Kong stocks. Again these have to be fundamentally sound companies able to outlast their competitors.

These 2 groups have been underperforming compared to other sectors / or their contemporaries in other exchanges, and for good reasons. Investors hate unknowns, and there is the ever-present potential for opportunity cost losses (heck… there are much better stocks with brighter prospects out there, why be stuck in the mud with these stocks). To some, these are the untouchables. However, I may be wrong – as always do your own due diligence, and diversify.

However, it is not that straight forward, as the euphoric US markets (historic low-interest rates and QE infinity) would also have an impact. As such, it might be more worthwhile to stay on the sidelines.

As mentioned by Howard Marks, it is really a very difficult task to understand the cycles as a whole. He was able to clearly distinguish the different cycles in his books, but in real life (to me at least), all cycles are inter-related, and not all are synchronized. Taken as a whole it is not so clearly defined.

Who knows, maybe a perfect storm will occur again for these stocks. After all, if I am unsure, I can always choose not to invest or sell some (eg. opt to be more defensive rather than being aggressive). Knowing myself and the much-limited level of my war-chest now, I would much rather wait and snowball my war-chest. As Howard Marks says, it is easy to make gains in a rising market. However, the distinction of a superior investor is that he can to make gains in good times with the risk under control (cause we never know when the tide will turn from favorable to unfavorable). To be prepared. eg. to make more in good times than what he gives back in the bad times.

Nevertheless, my inclination is towards being defensive at this stage, given what I have seen in the US markets, the tendency towards greed (psychologically), credit window being wide open (loose monetary policies / QE infinity), the on-going requests for further government fiscal stimulus in the US (and other parts of the world), and even the housing price indices in many parts of the world are higher than they have ever been.

Overall, my portfolio is still heavily towards equities. It is still aggressive. My current stock portfolio is more towards the defensive sectors, tech light. So perhaps moving slowly towards building my war-chest, and being less aggressive in my stock purchases. Just adjusting the allocations perhaps. Nothing extreme about it (eg. not selling out and going fully towards cash). I think the key word to use here is ‘calibrating’.

As I am more towards dividend investing, I will probably be invested for a long time, and to borrow Standard Charter’s tagline: “Here for good”. So it is a matter of building upon the proportion of cash/bond vs equities or more defensive or growth stocks etc. I don’t think Howard Marks has ever advocated going fully into cash and abandoning the markets altogether.

Well, the next book which I will be reading is titled ‘Insane Mode” by Hamish Makenzie.

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Are we heading towards a Property Bubble again?

Being in the construction sector, I am keenly aware of the boom and bust of the property market.

Perhaps, it is not like some sectors whereby the intensity of the work is fairly constant. For instance, in the healthcare or deathcare (except when there is a major epidemic or pandemic), sectors in the civil service, etc. Whereby the nature of work and industry is not that cyclical.

Deja Vu?

I remember prior to the 2007-2008 global financial crisis, there were talks among those people working in the developer side getting many months of year end bonus, given the heady rush up in property prices and sales. Those were the days before the Singapore government implemented their various cooling measure regulations. It was like if there was a cock-tail party, people would be talking about property and their prices. If you were one of the buyers, you would be one of the lucky ones. It was not just about Singapore properties, but also about overseas properties (esp. those in China, and other developing regional markets), since many of the big local (MNC) developers were actively expanding their footprint there. 

In 2007, the then CapitaLand’s president and chief executive Liew Mun Leong was awarded a bonus of $20.52 million for helping the property developer achieve a record profit of $2.76 billion that year. At that time, this amount was unprecedented in Singapore, even among the three listed local banks, whose management typically draw high bonuses. (read here)

Work-wise, it was a busy period for us. Being relatively new in the workforce, I did not know we were heading towards a bubble then.

In Singapore, at that time, people were able to ‘flip’ properties for quick 6 figures profit.

End of era for flippers (read here)

Then the global financial crisis struck. Our company was lucky in the sense that we have steady projects coming in during that period. I was also glad that work was more manageable then. My company then implemented a freeze on salaries and there were some pay cuts at the senior level. However, I do not recall anyone was laid off at that time.

As for those chatters about big multi months bonus (esp. among those working for developers), these quietly and quickly died down, and was followed by disgruntled complaints.

So here we are now, the coronavirus has upended everyday life in the eight months since the crisis was declared a pandemic by the World Health Organisation (WHO). The economies of many countries are adversely affected including the United States.

In response, US Federal Reserve Chairman Jerome Powell has highlighted the importance of the lending programs aimed at battling the economic fallout from the coronavirus pandemic.

He highlighted that even as recent positive vaccine news raised the prospect of a swifter economic recovery next year, it is not time to shut down emergency programs yet. In addition to the lending and liquidity programs, the Federal Reserve is expected to pump more money into the economy, expanding both its bond-buying programme and ultra-cheap loans to banks to support economic recovery. The Central Bank left the target range for its federal fund’s rate unchanged at 0-0.25% during its November 2020 meeting.

You know, for me, being in the construction sector, I am wondering if this is the calm before the storm. After all, ‘work’ comes in cycle, well at least for me. Without a doubt, in Singapore, the construction sector has been one of the hardest-hit industries amid the fallout from the pandemic, contracting 97.1 per cent from the first to the second quarter.

Construction sector takes $10b hit as demand plunges (read here)

Yes, for many companies, there is a sudden drop in demand, and with the disruption in the supply chains and the constant worries about possible upticks in infection cases in the dormitories, many companies faced an uphill battle.

However, the pent-up demand is still there. My opinion is that if not for the various cooling measures still in place now in Singapore, there would probably be a revival in the buying fever or sort by now.

With the low interest rates and plenty of liquidity finding its way into the markets, I am starting to read more and more about the frenzy in the housing property markets.

With the flood of liquidity, asset prices tend to inflate.

The subprime mortgage crisis started in 2007 when the housing industry’s asset bubble burst. With the previous years’ increasing home values and low mortgage rates, houses were bought not as places to live in, but as investments. (read here)

Where are we at now?

Hong Kong

Let’s start with Hong Kong. In my opinion, it is a place with many intrinsic issues (unresolved) and some interesting news and trends.

Firstly, a bit of context here. I believe many are aware that Hong Kong entered a recession even prior to the onset of the pandemic, in 2019. This is due to the many months of social unrest which started in early 2019 and till today is not entirely resolved. Many people in the low income segment of the population are currently already struggling.

Before COVID-19, there were 1.4 million people, or 20.4 per cent of the population, living below the poverty line (before taking government aid into account) — the highest level in a decade. The city’s unemployment rate has risen to 6.4 per cent…. while the rate for those living in poverty “is even higher”

Hong Kong unemployment rate
Source: Chart of the Day: Hong Kong Unemployment Hits Nearly 16-Year High (read here)

The current jobless rate in HK reached 16 years high in the three months to September 2020, hitting 6.4% for the July to September period amid the on-going Covid-19 pandemic. Hong Kong was also just hit by the fourth wave of Covid-19. Consequently, Hong Kong and Singapore postponed the launch of quarantine-free flying until 2021 on 24 November 2020, dealing a heavy blow to hard-hit industries banking on travel bubbles to salvage a recovery from the coronavirus pandemic.

Source: 4th wave of Covid-19 in Hong Kong because rules eased too soon: Expert (read here)

Fear, uncertainty and the grim face of poverty in Hong Kong with COVID-19 (read here)

Poor in Hong Kong: life is hardest for the elderly, jobless and single-parent families living on a pittance (read here)

Coronavirus: Hong Kong’s low-income residents suffering more under strain of pandemic, with relief doing little to help, survey finds (read here)

Chart of the Day: Hong Kong Unemployment Hits Nearly 16-Year High (read here)

4th wave of Covid-19 in Hong Kong because rules eased too soon: Expert (read here)

Hong Kong, Singapore put brakes on travel bubble until 2021, will reassess Covid-19 fourth wave situation in late December (read here)

So yes, it is not looking good over there. However, it is a different story for the rich / upper class, as the pandemic widen the inequality.

COVID-19 is only making Hong Kong’s inequality worse (read here)

Still, I am surprised by the many recent news of Hong Kongers rushing to buy properties given the dire situation there.

In spite of the prolong recession, rising jobless rate, unabated poverty hardship, social unrest, political issues, business closures, fourth coronavirus wave…. droves of people nevertheless found time to queue up so as to buy properties.

After all, if you stuck at home due to the pandemic, fearing for your job security (if you still have one), what else can you do right? Why not just pop by your friendly neighborhood show-flat and sign yourself up for a few million dollar worth of debt, leverage, mortgage, apartment unit..

To quote the below article:” Hong Kong’s homebuyers packed a real estate developer’s showroom over the weekend to snap up hundreds of new flats, as assurances of low interest rates by monetary authorities drove them to seek sanctuary in fixed assets.”

Hong Kong homebuyers snap up first new property project in two months, lured by discounts and falling interest rates (read here)

New World posts a third sell-out weekend in Tai Wai as buyers rush to park their money in flats amid era of low interest rates (read here)

Hongkongers come out in droves to buy property even as developers steadily raise prices amid improving confidence (read here)

Source: Hong Kong homebuyers snap up first new property project in two months, lured by discounts and falling interest rates (read here)

Despite the prolong recession, residential property prices in Hong Kong are still stubbornly high. Hong Kong SAR (China) Real Residential Property Price Index was reported at 186.870 2010=100 in Jun 2020. This records an increase from the previous number of 184.535 2010=100 for Mar 2020. (read here)

Source: Hong Kong SAR, China Real Residential Property Price Index (read here)

Sure there are many factors to consider in Hong Kong, be it competition from mainlanders buying up properties in Hong Kong, the lack of affordable public housing, relaxation of restrictions and favourable financing, etc. Still, the rush towards properties in droves, as Hong Kong strives to mitigate its fourth coronavirus wave, is worth noting. Will this be the start of a very big gold rush towards property post pandemic?

China

From Hong Kong, we move on to the news from China. China property prices rebounded fairly quickly from the pandemic. However, the rising debt of Chinese property developers are in the spotlight again, as liquidity issues at top developer China Evergrande trigger investor concerns.

Chinese regulators imposed the red lines and other quantitative limits at an Aug 20 meeting with developers. In the near term, a developer with a weak balance sheet and sizeable exposure to second-tier cities may need to cut home prices to boost sales and shore up cash. Over the longer term, it may force developers to devote more resources to non-residential property, such as office and retail.

Asia’s largest junk bonds are riskier than ever — and Chinese property developers may be feeling the heat (read here)

China’s three red lines for home developers (read here)

The Chinese property market with the reviving economy is heating up again, and Chinese buyers are buying properties from overseas as well.

Wealthy Chinese buyers snapping up luxury homes again (read here)

Rich Chinese investors snapping up luxury homes from Singapore to Sydney (read here)

The $52 Trillion Bubble: China Grapples With Epic Property Boom (read here)

The Chinese property bubble is now bigger than the U.S. housing bubble that led to the Great Recession (read here)

The pandemic hardly made a dent to the climbing property index. China Nominal Residential Property Price Index was reported at 140.262 2010=100 in Jun 2020. This records an increase from the previous number of 139.494 2010=100 for Mar 2020. (read here)

Source: China Nominal Residential Property Price Index (read here)

With China, we are talking about epic proportions here. As stated in the last article above: “”The resulting asset bubble, many economists say, now eclipses the one in U.S. housing in the 2000s,” the Journal writes. After all, residential real estate in the U.S. was reportedly seeing about $900 billion a year during the property boom’s peak, but in China, investors flooded the housing market with roughly $1.4 trillion over the past 12 months ending in June.”

The United States

Likewise, the housing market in the US is booming. In September 2020, the number of Americans buying new houses spiked to a 14-year high. Home prices are growing at their fastest pace since 1991. And US mortgage lenders just recorded their biggest quarter in two decades.

Source: The U.S. Real Estate Market in Charts (read here)

American Housing Is In A Full-Fledged Boom (read here)

Wow! U.S. housing market sizzles, despite pandemic (read here)

The U.S. Real Estate Market in Charts (read here)

Source: Wow! U.S. housing market sizzles, despite pandemic (read here)

New Zealand

Beyond the major economies of the US and China, even at the bottom of the world, in New Zealand there is a housing frenzy.

To quote the article below: “The red-hot market is causing such concern that Prime Minister Jacinda Ardern’s government has taken the unusual step of asking the central bank to do something about it, saying surging prices are “harmful to our aims of reduced inequality and poverty.”….
New Zealand house prices jumped 9.2 per cent in November from a year earlier to an average of NZ$769,000. In Wellington, a compact harbour city with a shortage of homes for its growing population, prices climbed 5.8 per cent in the past three months alone for an annual gain of 13.5 per cent.”

Housing frenzy in New Zealand exposes perils of ultra-low interest rates (read here)

Investors snapping up homes, first-home buyers struggling in ‘hyped-up market’ (read here)

Source: New Zealand Real Residential Property Price Index (read here)

Likewise for some parts of the world…

Mortgage boom risks coming home to roost for Brazil’s banks (read here)

To quote the above article: “Home loans surged 49 per cent in October from a year earlier to their highest monthly volume since 1994, data from Brazil’s mortgage association shows, driven by a dramatic drop in the benchmark interest rate to 2 per cent, from more than 14 per cent in 2016.”

In Summary

I would have assumed that people being rational beings would learn from their past lessons. However, people all have an innate desire for a higher standard of living and for many, an infatuation with the property asset class as an investment. It is one of the few asset class which allows buyers (and especially investors) to obtain high leverage, and achieve profits at an accelerated pace.

Frankly, if not for the cooling measures still in force in Singapore, my wife and me could I gone on to purchase an investment property.

Nevertheless, many factors are different now, with banks financially stronger and government (in many countries) taking steps to tackle any unbridled frenzy.

Still, it is interesting how the 2020 ‘QE Infinity” by the Fed, and low interest rates (and in some cases negative interest rates) environment around the world is panning out. Consequently, how it is affecting the property markets, while we are still in the midst of a global pandemic and many countries are still technically in a recession.

The other push factor at play here due to the pandemic is that it has hasten the drop in housing inventories. Developers and contractors are building less due to the restrictions and demand is starting to outweigh supply. This is not going to change anytime soon.

This can clearly be seen in the US. The existing home months’ supply is the lowest it’s been since they started collecting this data in the late-1990s:

Source: The U.S. Real Estate Market in Charts (read here)

To quote the below article: “Builders shut down operations in March and April, as the economy shuttered, and then they were largely blindsided by the soaring demand that surged in May. They are now faced with a dwindling supply of finished lots as well as skyrocketing prices for lumber. That has some of the biggest builders actually slowing production.”

New home sales crush expectations, but the supply is running out (read here)

So unlike the period prior to the GFC, there is now another key factor, which does not spell good news for genuine buyers looking for homes. In addition to the access to ‘cheap money’, there is also the fact of falling housing inventory, hence, for buyers, in the near to mid term, they either buy NOW or have little else to choose from later (or be priced out of the market)..

Put it in another way, these days, it is hard not reading news of the rush towards properties.

The Singapore residential property market is heavily regulated. The rush is not that evident here….yet. However, being a small open city state, it is nevertheless exposed to the risks in many major economies overseas and heavily dependent on externals. In other words, it is not easy for Singapore financial sector or property sector to be totally insulated. The ‘bursting’ of the bubbles in China or the US would definitely be felt here….

Singapore’s Oct new home sales halve on fewer launches, options curbs (read here)

Sjngapore unlike China cannot afford to look internal. The latter can still depend on its internal economy for growth and consumption. Singapore is just too small and open.

Singapore has just unleashed an unprecedented amount of fiscal support during this pandemic to help counter the fallout from the virus and supported hard-hit sectors such as airlines, construction and tourism. It unleashed a package of almost S$100bn — or nearly 20 per cent of GDP — and drew down a record S$52bn from past reserves to fund the plan.

Are we ready for another crisis? MAS cannot print unlimited amount of money…

Many countries battling new waves of infection (read here)

A rush to create Asean travel bubble holds too much risk (read here)

It is like how we are like now during this pandemic. Even if Singapore manage to have zero community cases and start to shift into Phase 3, slowly opening up, but with many parts of the world still seeing record high number of cases and battling second and third waves of infection, can we truly be out of the woods?

Do let me know what you think. Leave a comment below.

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Chill and Read

The markets have been on an uptrend for the past couple of days and weeks, with dips near the end of Nov 2020.

Basically, I am collecting my thoughts, collecting dividend, and just reading books. I try not to spend too much time on social media, and spend more time with the kids.

Portfolio

I am not that into momentum trading. Basically I am wondering would I have sufficient war-chest if the next correction occurs.

I have contributed to my CPF accounts and have subscribed to the preferential offers from Ascendas Reit (recently) and Mapletree Logistics Trust (earlier in Nov and was allocated what I applied for). In gist, I did not invest for this month except for the preferential offers.

I recently watched the below video clip of an interview with Seth Klarman.

In it, he talked about the gyration of stock market prices (you can fast forward to 6.14min). Although he does not like bad times, but he mentioned that his fund benefits from volatility and his company provides liquidity when people want to sell things in a hurry. He also mentioned that it is frustrating when the markets keep going up and up, and he worries because, just at this time, the ‘little guy’ get sucked in. The ‘little guy’ finds it irresistible, get lured in by stories from his neighbours or friends of how much money they made in the markets.

He further added that buying is easier then selling. There is no timing element… one can never get the right price. A lot of stocks are cheap for a reason, and a value investor will find out of the reason.

Earlier in the video (at 2.50min) he talked about the need to balance between arrogance and humility. When we buy anything, it is an arrogant act, eg. you are buying because you think you know more than everyone else who are selling (or at least the seller). However, you need to have the humility to say that you might be wrong.

Well, currently, my state of mind is probably at the point of trying not to be lured in. I think that (to not buy) is as important as buying when everyone is fearful, and fearing that the market will keep going down cause we will never know. To me, right now is probably not the right time to be arrogant, cause a lot of people want to get in so as not to miss out.

Things are starting to look go in the economic side, we have news of workable vaccines, and 2021 is starting to look much better already (compared to 2020).

Books

I will be taking leave from my work sometime in Dec 2020.

I recently read finish the book “Jack Ma: Dancing to the Top”, and have two books lined up for the coming weeks:

– Ma Huateng and Tencent: A Biography of One of China’s Greatest Entrepreneurs: A Business and Life Biography

– Tim Cook: The Genius Who Took Apple to the Next Level

It is amazing how Jack Ma took Alibaba from infancy all the way to what it is today, which is an ‘eco-system’ consisting of:

– Taobao, Tmall,

– And at one time having a stand alone group buying site (Juhuasuan),

– Branching into logistic – Cainiao (with the alliance with logistic suppliers and express deliveries companies),

– Finance – Alipay (getting a banking license ad teaming up with a fund management company, and transferring large deposits back to banks to get better interest for the benefits of customers), Yu’ebao (which evolved the uneasiness in many Chinese banks),

– Big data and Cloud computing – Aliyun

– And even investing in a football club.

Most of these are a result of his quest to obtain more data, analysing those data and creating a stronger ecosystem, with each part supporting one another and with the focus on customer’s experience at the core. It is also perhaps a natural progression from e-commerce. For instance logistic / express delivery and e-commerce will always be intertwined and Alipay arised from the need to retain customers’ payment prior to receiving the goods.

It also talked about why Alibaba was first listed in the US and not HK or Shanghai (‘Partnership system’ with Softbank, having major foreign shareholders, and the company being domiciled in the Cayman Islands).

At this age of mobile/social e-commerce, I wondered would Tencent/Pinduoduo be able to penetrate into the group buying, if not for the failure of Alibaba’s Juhuasuan (mismanagement, with the employees profiting from merchants, and consequently, the head of Juhuasuan was removed). There is an obvious reason why Pinduoduo developed a new in-house shipping information technology, freeing it from its dependence on Alibaba’s Cainiao.

E-commerce upstart Pinduoduo wants its data back from Alibaba (read here)

Of the big three tech firms in China (Alibaba – e-commerce, cloud computing, finance / Tencent – gaming, Wechat / Baidu – Search), Alibaba probably view Tencent more as a threat.

I seriously doubt any bank can compete with Alibaba (or Ant Financial for this matter), with data at its core.

Have you noticed the new advertisement on TV by Standard Chartered, titled “Supply Chain”. I reckon banks are starting to take the matter of recording and analysing the supply chain from consumers to manufacturers seriously (using data). However, they are miles away from the data eco-system developed within the big techs.

Nevertheless, the herculean task undertaken by Alibaba will not be easy, even though they have first mover advantage. Many small players and complex regulatory restrictions…

That’s all for me for now.

Signing out.

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4 Things you need to know about Pinduoduo (NASDAQ:PDD)

U.S.-listed Pinduoduo (PDD) is the third-largest e-commerce player behind Alibaba and JD.com in China. A large part of PDD’s appeal is the group buying function where the more people who buy a product leads to a lower price. 

However, both JD and Alibaba have launched rival products to PDD which could bring stiff competition to the smaller rival. 

Nevertheless, this young start-up that just recently turned five years old, proved that it can compete against large incumbents like Alibaba and JD.

1) Feed-based shopping

Pinduoduo considers themselves to be under a feed-based shopping format which caters more to the current mobile era. As explained by PDD: Feed-based shopping underpinned by a “you don’t know what you want but happy to discover” philosophy.

They differentiate themselves from ‘search-base’ e-commerce sites whereby customers go search for products they know.

2) Lower prices

A large part of PDD’s appeal is the group buying function. When a user selects an item on Pinduoduo, they can choose to participate in group buying. The more people that join in, the lower the price of the item goes.

This encourages buyers to share links to the item they are buying with friends and family or over social media. 

I see this as a double edged sword.

On one hand,  the group buying model is very successful. It has driven PDD’s valuation to > USD100 billion within 5 years, a feat that Alibaba and JD took more than 10 years to achieve respectively. Its revenue comes from the commission fee it takes from sales on its platform and advertisements. 

From the Upstream distribution channel point of view, PDD managed to balances the benefit between suppliers and consumers and adds value to both parties. PDD as a channel, directly connects suppliers and consumers, without traditional midstream parties like distributors & channels, retail outlets, etc. Hence eliminating much of the associated costs and thus allowing consumers to enjoy lower prices, without hurting manufacturers’ profit (eg. boosting volume).

From the Downstream customer acquisition point of view, PDD has enjoyed a low customer acquisition cost as a result of support from Tencent. Tencent integrated PDD into WeChat, meaning over one billion monthly WeChat users can get access to PDD and make payments through the app.

However, on the other hand, the impression of PDD selling cheap products seem to stick, and made it hard for PDD to break into the first and second-tier cities in China (go up scale).

Many people also associate being cheap or discounted products with inferior products.

Pinduoduo users are predominantly female, living in Tier 3+ cities. Pinduoduo’s average order price sits at roughly 30-50 yuan, a fraction of Tmall’s 214 yuan (11:11, 2018) and JD’s 422 yuan.

A large part of PDD’s user base is from smaller Chinese cities where there are perhaps more price-conscious consumers. JD.com and Alibaba appear to dominate in the so-called tier 1 cities in China. 

Last year, PDD disclosed that 45% of its gross merchandising value (GMV) came from first and second-tier cities. That means that 55% still comes from tier three cities or below.

3) Profitable

PDD, in Q3 2020 finally reported a gain on its bottom line (ever!), together with cash flows from operations of RMB8.3 billion ($1.2 billion).

The total revenues in the September quarter were RMB14.2 billion, representing a surge of 89% from RMB7.5 billion in the same quarter last year. 

Notably, year-over-year revenue growth has accelerated from 67% in the previous quarter to 89% on the back of more active buyers, as well as higher spending per buyer. Annual spending per user improved 27% to 1,993 yuan.

Pinduoduo Reported Its First Ever Profit! Here’s What Investors Should Know (read here)

This figure is an impressive amount of cash flow for a company to make over a 90-day period, more than $1 billion in cash flows from operations, a dramatic increase from RMB2.6 billion (very approximately $400 million) in the same period a year ago.

Source: Pinduoduo: Delivering very strong results, still cheaply valued (read here)

Pinduoduo: Delivering very strong results, still cheaply valued (read here)

To quote the above article: “Going into COVID-19, Pinduoduo’s revenues got hit hard (Q1 2020; in China). But then, coming out of Q1 2020, we have seen its revenue growth rates accelerating once again, with Q3 2020 reporting 89% y/y growth rates.”

To tie in with the earlier point of the impression that PDD is selling cheaper goods: The pandemic induced recession which affected a large part of the lower income group appears to further accelerate the growth of PDD during this period.

4) Incredible Growth

Besides its profit / financial results, one should look at the GMV (Gross merchandise value) and active users.

Pinduoduo Inc (PDD) Q3 2020 Earnings Call Transcript (read here)

As mentioned by PDD Chief Executive Officer and Director, Lei Chen on 12 Nov 2020, for the 12 months ended September 30, 2020, Pinduoduo’s revenue yield of 731 million active buyers (36% increase YoY), 643.4 million MAU, monthly active users (50% increase YoY) and generated nearly RMB1.5 trillion GMV (73% increase YoY).

Lei Chen attributed this phenomenal growth over the past 5 years, to the growing support for the new interactive mobile commerce experience that PDD championed. PDD mobile platform has become a mainstream online shopping app. Their Open [Phonetic] ranked first on various app stores. 

Most importantly, Pinduoduo has also become China’s largest online platform for agricultural products by enabling direct selling from farms to the dining table.

Alibaba highlights for Q3 2020; active customers reached 757 million (read here)

Now compare the GMV growth and the number of active users, to Alibaba’s e-commerce platforms. In the third quarter of 2020. the incumbent Alibaba reported 881 million mobile MAU in its retail marketplaces (Taobao and Tmall) with 757 million annual customers

Tmall online physical goods GMV, excluding unpaid orders, grew 21% year-over-year during the September 2020 quarter.

Tmall Global GMV, excluding unpaid orders, grew 37% year-over-year during the quarter.

Alibaba generates $101.46b GMV in the 11.11 Global Shopping Festival 2020 (read here)

In the recent Alibaba Group’s 2020 11.11 Global Shopping Festival, a total of RMB498.2b ($101.46b) in gross merchandise volume (GMV) was generated during the 11-day campaign from November 1 to 11, according to an announcement shared by the Group last Thursday.

Still that is only an increase of 26% compared to the same timeframe in 2019.

Meanwhile, JD.com’s transaction volume over the same period totaling RMB 271.5 billion ($40.97 billion), more than the RMB 204.4 billion it recorded in 2019 (32.8% increase YoY).

Pinduoduo revenue for the quarter ending September 30, 2020 was $2.093B, a 99.09% increase year-over-year.

In comparison, Alibaba revenue for the quarter ending September 30, 2020 was $22.838B, a 37.16% increase year-over-year. While JD revenue for the quarter ending September 30, 2020 was $25.659B, a 36.01% increase year-over-year.

In short, Pinduoduo the e-commerce firm is growing faster than its major rivals Alibaba and JD.com, and gaining market share quickly. This is after all a company that went above 100 billion RMB per year of merchandise sold on its platform 2 years after its launch, while it took 10 years for JD.com to get there.

Summary

In gist, the growth of Pinduoduo has been nothing short of amazing. The recent earning report showing the first ever gain in its bottom line has fueled a burst in its share price.

Share price on 19 Nov 2020

However, the recent growth could be due to the pandemic induced recession which has led to shoppers being more cost conscious. Nevertheless, it will be part of my stock shopping list, and I don’t mind further adding more PDD stocks to my portfolio if prices dropped abruptly (eg. in the event of a market correction or crash).

When you combine two ‘drugs’ – you get a very powerful concoction.
E-commerce (Shopping) + Social media = Social e-commerce.

The Social Dilemma quotes to note:”If you’re not paying for the product, then you’re the product.” ”It’s the gradual, slight, imperceptible change in our own behaviour and perception that is the product.” ”There are only two industries that call their customers ‘users‘: illegal drugs and software.”

Please note that I am vested in Pinduoduo.

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Stocks Sector Rotation? Way forward…

Geez.. it has been a long time since I last seen STI index rallied. I almost forgot the feeling, and it felt good that some of my counters are turning green. After all, I have been staring at mostly red counters in my portfolio for most part of this year (2020).

STI up 3.67% as investors pivot towards pandemic-hit sectors on vaccine hopes (read here)

2020 is odd and tough in making predictions or even holding on to one’s own conviction. In a typical year, even with the corrections, adverse global news or the good/bad quarterly earnings, etc… I was able to probably still infer from past financial data of that particular company / stock, or eternal events and extrapolate into the future. The typical bottom up analysis.

When thinking about my stock portfolio, I don’t really put overall economy, politics…at the top of the list (eg. top down).

However as we all know, in 2020 we have the pandemic. I occasionally looked through the SGX company announcement website during my free time, but it is always the same piece of news among the different companies- COVID-19 disruption, write-offs…. uncertain times ahead, etc. It is like a blank state or a sudden black out. Or like many companies, big or small, all at once, went on extended medical leave. huh….

“I’ve always said if you spend 13 minutes a year on economics, you’ve wasted 10 minutes. I deal in facts, not forecasting the future.” Peter Lynch

From Feb 2020 to the Circuit Breaker (which started in April 2020) and the Work From Home (WFH) arrangement till now….it all felt kind of surreal. People call it the new normal. Well, feeling aside, my analytical mind is still trying to get around how to value any stocks, or to think of the future narratives for most stocks. With the new normal (not sure how long that will be, even with the news of the vaccine), it makes the use of probabilities and inference to past data kind of obsolete.

Nevertheless, I am sure many strong companies (even those in ‘old industry’/ value stocks) will come out of this someday.

To quote the Straits Time article: Ms Margaret Yang, a strategist at DailyFX, said that if the vaccine proves to be safe, effective and widely used, business activities are likely resume more quickly. Digital facilities, while still relevant, may lose their edge. “The rally in the energy, financial and industrial sectors, alongside a fall in technology shares, reflected this expectation,” she said.

I have been reading about articles highlighting the rotation from stocks which are beneficiaries of the pandemic (eg. Tech / Gloves maker), to value stocks or old economy stocks eg. Banks, Aviation, Property, Hospitality, Tourism related stocks.

Vaccine spells trouble for Big Tech but old economy stocks surge – Special Report (read here)

Thoughts on the Market Today (10 November 2020) (read here)

However, the likely difficult logistics of mass production and transportation of a vaccine, would mean that recovery of the economy will not be as fast.

To quote Howard Marks in his latest / Oct 2020 memo: And even with the disease controlled, economic stimulus is unlikely to reverse all the damage. The trauma has been deep, and the impact may not be easily shaken off. Large firms will continue to automate and streamline. Large numbers of smaller businesses – such as restaurants, bars and shops – will never re-open. Thus millions of people will not be rehired into the jobs they formerly held. For this reason, the expectations with regard to economic recovery have to be realistic. To me, as I’ve said, “V-shape” has too positive a connotation.

Given the state we are in, the perennial question still remains: How do I position my portfolio from here onwards?

And this inevitably led me to ponder the state of REITs and where we move from here. The below article by Investment Moats (dated July 2020) pops up in my mind.

So since I can’t really do a bottom up analysis (single stock), I look at it more from a macro view… broad sweep.

19 Charts That Explain the Global Listed Real Estate & REIT Markets (read here)

In the above article by Investment Moats, it listed down the various charts and diagrams sourced from UBS Global Research. You can find more articles here, in the UBS Asset Management site. I shall not go into details of the write-up, after all, a wealth of information can be found there.

Reading the UBS articles, we understand it is a challenging time to create a portfolio that resilient to the current trends and meet income needs over the long term. Still strategic allocations and diversifications are important. The low interest rates appear to remain on hold for the foreseeable future (given the global & deep extend of the pandemic).

“Where to next?” (Read here)

The article also mentioned that they foresee that growth will recover in 2021 and the virus is brought under control.

“Real Estate Outlook – Edition 3, 2020” (read here)

Of the 332 markets we monitor globally 30% reported a rise in yields in 2Q20, similar to the 31% which reported a rise in 1Q20. A handful of markets (10%) reported a fall in yields while 60% reported no change.

The effects is more pronounced sector wise as compared to geographical (eg. countries). Both in terms of yield and real estate values (price). Yield increased in office, retail and it is more mixed in industrial and logistic (mainly flat). I reckon this is probably due to the drop in asset prices in the office and retail sectors. As they mentioned that by the start of August 2020, REIT prices were down 20-25% YTD for the main countries. Sector wise, worst performer was hotels (down 55% in USD terms), retail (down 43%), office (down 2%) and residential (down 10%). Industrial bucked the trend (up 10%).

In their strategy viewpoint, they advised to focus on sector allocations, and yes and also the increasing usage of tech / digital space.

To quote: This includes an overweight allocation to the industrial and logistics sector, and a broadly neutral allocation to offices and underweight to retail. There is uncertainty over the office market and the extent to which a permanent rise in homeworking will reduce office footprints once the pandemic has passed.

Two key themes look set to be dominant. The first is an increasing reliance on and pervasiveness of tech and the digital space; the second is an increased value and importance placed on ESG factors by investors, governments and society at large. (eg. decarbonisation)”

While reading Howard Marks Oct 2020 memo, we understand that this recession is not the typical financial down cycle. Typically, downturns stem primarily from economic weakness, and they are repaired with economic tools. 

To quote: “But this episode is different. It was caused by an exogenous, non-economic development, the pandemic. The recession – rather than being the cause – was the result: a closure of business induced intentionally in order to minimize inter-personal contact and halt the spread of the disease.”

From another angle, when we were early in the outbreak, the news would relate the on-coming recession to the 2003 SARS induced recession. However, even compared to that, the pandemic recession now is different. There is now a more wide-spread adoption of tech (prior and after the outbreak), and work from home arrangement is now possible on a wide scale. The scale of the lock-downs is also bigger and longer.

So in a way, I can see structural / fundamental changes in the way we live and work, and that degree differs within different industry sectors. Post pandemic, I see some sectors and companies permanently adopting this ‘new normal’. Nevertheless, I would still adopt a more balanced stand and foresee more of a hybrid arrangement moving forward (as humans are basically social creatures, and some tasks just require people to be physically present).

I do agree that post pandemic, the ‘old industry’ companies / stocks will rebound. And from another angle there is a trend of adoption of tech by these companies, with a number of them fighting back (Eg. GMC hummer). In addition, the change will not be overnight.

Ford CEO says automaker weighing making own batteries for EVs (read here)

Volkswagen boosts investment in electric and autonomous car technology to US$86 billon (read here)

Nevertheless, for me, it is good to have a bit of the big tech stocks. At this stage patience is key (for me at least).

Tech sell-off continues after Covid vaccine breakthrough (read here)

Big Regulation Coming For Big Tech (read here)

Big tech stocks (both in US and China) are also not without their risks (eg. with potential new regulations to break them up).

Is Big Tech a bubble? (read here)

To quote the above article: “Going forward it is possible that value versus growth becomes more cyclical, where they alternate outperformance for a number of years each time. If this is indeed what the future holds, value investors, among whom I count myself, need to adjust and not stubbornly hold onto the ‘value investing is the best long-term strategy’ mantra, but rather be flexible enough to shift portfolio allocations between the two styles.

One of the key macro-economic variables that has supported technology since 2008 has been the sluggish economic growth coupled with very low inflation and zero interest rates. In this kind of environment, the present value of discounted future cashflows of a company that is able to grow earnings above inflation (a very easy hurdle to overcome, given that 30-year inflation expectations are just one per cent per annum) becomes extremely valuable, easily justifying the current P/Es of around 35x that many tech companies trade at, though it may be a stretch to make this fit Tesla’s 990x P/E.”

What Happens When Investors See People Dumber Than They Are Getting Rich (read here)

To quote the above article: “You could make a compelling case right now that the U.S. stock market is insanely overvalued and set up to offer investors subpar returns from current levels for some time into the future.

The analytical side of my brain completely understands this argument. Admittedly, it’s an argument many intelligent people have been making for some time now and the market hasn’t agreed….

But the behavioral side of my brain wouldn’t be surprised if the stock market continued to charge higher despite above average valuations and strong returns since 2009.

It’s possible the stock market could see a sustained downturn if the pandemic continues to get out of control, a vaccine is further away than expected or the economy experiences another setback.

I’ve lost my ability to be surprised in 2020 so this certainly isn’t out of the realm of possibilities.”


I am always wary when there is a big jump in the stock prices. From a yield point of view which kind of make me sees things inversely, the higher price inevitably result in lower yields moving forward. The recent surge in the STI is one case. From Howard Marks’ memos and even Ben Carlson’s posts (see article above), the possibility of subpar returns from herein onwards is very real.

This argument is still valid even with the announcement of a vaccine and with the outcome of the US Presidential election.

With the stock markets we would never know what is the near term outcome. And currently my personal feeling is that, if there is a need to invest, and if my primary objective is for income, be more towards industrial and logistic sector, with a dash of quality tech stocks that would further strengthen post pandemic (and those that were already doing well prior to the pandemic).

However, it is not wise for me to go too crazy into stocks now or massively sell off one sector to go into the next. Also, I might be better off building up my war chest (but would not advocate not doing the regular DCA investing though).

Well, nevertheless, if you have been holding on to a bunch of stocks (could be a bunch of Singapore listed old economy stocks or others) and has been seeing it under-perform since the early part of the year since the start of the pandemic. And with the recent spike in prices, with the announcement of the vaccine and US Presidential election outcome, etc ….and am finally starting to see ‘greens’ after a long while… This song is dedicated to you (one of the Chinese oldies). “P

Signing out!

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