Author: 8% Value Investhink

Overseas Education Ltd – Part 1

Overseas Education Ltd (Bloomberg Ticker: OEL SP) is an intriguing small cap stock in Singapore listed in 2013 that almost doubled but then crashed spectacularly in the last 1.5 years. It now trades at 12% free cashflow yield, 11x PE and pays a 4% dividend (likely to be more going forward) and earnings are stable and growing barring Singapore’s demise (i.e. our beloved little red dot one day becoming irrelevant). For the uninitiated, OEL operates the largest independent international school in Singapore called Overseas Family School (OFS) providing expatriate kids with quality international education. It started in 1991 and...

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Negative interest rates, skyrocketing asset prices!

This is a continuation of the previous post. Inflation had always been around, so the nominal zero that we saw was never really zero. Inflation of 3% meant that money depreciated value 3% every year, we just didn’t see it so we think it’s not there. When inflation is 3% and interest rate is 2%, effectively money in the bank is still being burnt. After the Global Financial Crisis (GFC), nominal interest rate became zero, but inflation was around 1% and hence real rate was already negative. But unfortunately our primitive human minds can only think in nominal terms,...

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Welcome to the World Of Negative Interest Rates!

The world is going to be a very different place. Since time immemorial, interest rate had been positive. This was very logical, at least to humanity. If we lend someone money, we are expected to be paid interest and at the end of the loan, we would get back the principal. No, that doesn’t work anymore. The new rule is if we lend someone very, very credible some money, we would pay this person interest for the privilege of lending him money. Sounds great yah for people like us who are very, very credible! Welcome to the world of...

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Lessons Learnt: Sembmarine and Keppel

Our beloved oil rig manufacturers had suffered a catastrophic decline in the last 18 to 24 months. Keppel fell from $10 to $4.8, a 52% drop and Sembcorp Marine collapsed from $4.5 to $1.5. a 66% free fall. Sembmarine’s parent Sembcorp Industries didn’t do that well either, falling from $5 to $2.2, again a more than 50% decline from its peak. All three stocks now trade below book, with single digit PE, with no recovery in sight. Apologies to anyone who had took advice from previous posts and bought these stocks. Investing is as such. 40% of the time...

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Happy New Year! Let’s talk about REAL Investing!

Happy New Year folks, it’s 2016. This year is meaningful in a way since this site started out in 2006. So, a decade just whizzed by with some intermittent writing, some charts and lots of thinking and oh yes, thanks for support this site for the past 10 years! It’s been great so far, another 40 more years to go! We are on track to at least match Berkshire or SG50, and it so happened that Berkshire is actually as old as Singapore and celebrated its 50th anniversary in 2015. So in 2056, we shall have 8PA50 or something....

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The Force Awakens: Thoughts and Takeaways

Star Wars: The Force Awakens opened last weekend and smashed all box office records. This episode, #7 in the franchise, will likely make USD 1-2bn in the cinemas alone. When Disney bought Star Wars for USD 4bn in 2012, everyone thought they were stupid. Why pay so much to George Lucas who did a crap job trying to do the prequels (Episode #1-3)? Also how can a 30 year old slapstick sci-fi saga be worth so much? Now, Disney is having the last laugh. Episode #7 alone might rack in enough profits to cover the USD 4bn cost and...

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The Thing About Prediction

A recent book titled Superforecasters is making waves in the financial circle as expected. The book proposed that it is possible to predict the future, if a good team was in place, with teammates coming from very varied backgrounds and good training. Coincidentally, there had been a few occasions on this website where we discussed prediction and its ultimate futility. Today, we try to marry these concepts, hopefully coming away with a few key ideas for readers to ponder about. I believe the first thing to know about prediction is to never trust any. Never trust anyone who claims...

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Pay Up for High ROIC! (Part 2)

Do read from the first post. So does it make sense to pay 20x for 20% ROIC? The answer is YES! In fact, as a rule of thumb in Singapore’s investment circle, we should pay one multiple point for 1% of ROIC. So if it’s 20% ROIC, we can pay up to 20x and still get a good return. If it’s 30% ROIC, then it’s 30x. Here’s the same table from the previous post showing a 15% ROIC business, let’s call it Table 2. Table 2 So as we can see, at Year 8, even if we value the...

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Pay Up for High ROIC! (Part 1)

In financial math, high ROIC or return on invested capital can justify almost any PE to buy. This is what this post strives to illustrate. Do read on, it’s really important! Promise you won’t waste your time. Invested capital simply accounts for all the capital that businesses need: equity and debt. ROE which stands for return on equity, does not take into account of debt. In the financial world, most people talk about ROE but essentially both ROIC and ROE are about how much we can get back by putting in $100. The genesis of this post comes from:...

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Invert, always invert

This is a quote originally from Carl Jacobi, a German mathematician but has now been attributed to Charlie Munger, Vice-Chairman at Berkshire Hathaway, investing partner alongside Warren Buffett. Munger used this phrase so many times in so many of his books that value investing students would have to come across it sooner or later.   Inversion is a technique used widely in math to solve problems by reversing the thinking to come to some kind of solution. In investing, Charlie encourages us to also always invert to see through issues that are not easy to do so conventionally. Today,...

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Cooling Off Day Post

While the global stock markets rocked in choppy waves of unprecedented volatility in the last two weeks, Singaporean investors were probably busy following the campaigns of the current elections. This round to me seemed less interesting vs the previous cycles where we saw various tumultuous sagas involving CCTVs, sweet young things vs sweet young things, Dr Chee shouting at PM Goh like a gangster, Cheng San GRC (for those of us old enough to remember). This round we pretty much got to get excited only about this Titanic poster below. For the un-initiated, this was an argument using the...

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This is just the beginning…

Market participants rode through one of the scariest financial roller-coasters in the past two weeks. In Singapore some stocks were down 7-8% in a single day, cumulatively losing 15-20% in one week. In the US, things were even more dramatic, some stocks when through 20% intra-day swings. Then today everything bounced, as if nothing happened. It was really quite unsettling. Most of us would be asking, “Why? Why? What happened? What now?”. Sadly, at this juncture, there are no good answers. That was what happened during the first two weeks for the Lehman crisis.   Markets are a bit...

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All-in costs, breakeven costs, cash costs

Analysts of deep cyclicals, industrials, commodities would be very familiar with these terms. These terms are invented by the financial industry to try to help analysts analyze real businesses from their desktops, in plush offices, hundreds or thousands of miles away from where the businesses actually took place. It bears little resemblance of how real ops managers actually thought about their costs or how businesses actually operated. All-in costs refer to all the costs that is needed to start and ramp up a business. Take the example of a gold mine, the all-in cost today for digging up an...

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Grexit? THIS IS SPARTA!!!!

Five years and 3 bailouts later, it’s amazing that the leaders in Europe haven’t made any progress in this long and painful odyssey of pulling Greece out from hell. Everyone had their fair share of blame. The latest instalment this year from May-Jul 2015 started with Alexis Tsipras, the Greek PM who thought that he was King Leonidas, went to the negotiating table with the European Union  (EU) demanding money and yet promising no reforms. Essentially reminiscing the unforgettable scene from the comic based comical epic movie: 300, released in 2006. This is Sparta! For the un-initiated, the scene was...

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Checklist for buying stocks – IMPORTANT!

Just finished reading “Education of a Value Investor” by Guy Spier. A short and informative narrative by a value investor about his own journey. I found it really useful and would like to incorporate a few key lessons from what I have read. We all know the importance of checklists, pilots and surgeons use them, so should investors. Charlie Munger had said it years ago that all prudent investors should have one and Guy got the idea from Charlie.   Guy went one step further by saying that the checklist should be used as a final step to just...

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