To all my readers and followers, although it has been a long time since I have made posts here in the NomadInvestor blog, I have actually been very active in value investing all these while, constantly learning more and doing more of value investing, and it has been an amazing journey.
The reason why I have been silent here is that I have moved on to partnering with a friend and producing content and sharing about investments in another platform — MoneyWiseSmart, where we provide online courses on investing and investment research, with the aim to share what we know about investment and financial education with the other people, and to grow our knowledge and wealth together.
If you are interested in learning more about investments, I strongly encourage and am delighted to invite you to follow us at the following channels. We share a lot of free useful content and also paid courses for those who want more. Cheers all 🙂
Trailer video for our first online course ‘Investing Fundamentals, Financial Statement Analysis and Business Valuation’ launched today (with attractive early-bird price until 9 January 2020): https://www.youtube.com/watch?v=afGiRXSs9Cc
Over the weekend (19-20 January 2019), I attended Value Investing Summit (VIS) in Kuala Lumpur with my investor friends. This is my second time attending VIS (do check out my last year’s post here, if you haven’t), albeit on a sponsored media pass this time and at a place that required much travelling (I am based in Singapore).
This year’s learnings are more about simple time-old wisdom, but these are the ones that are true wisdom that stand the time, and I will be sharing just the key lessons here.
The summary is that:
figure our your investment philosophy and strategy, and have a good process (which I think most should have done so, if you have been investing and learning seriously for a few years); and
more importantly, execute that strategy and process with DISCIPLINE, ROBUSTNESS (don’t slack and ignore things that you know you should be thinking or finding out, but don’t due to indolence), a RATIONAL MIND and PATIENCE, bearing in mind the cognitive biases that human are prone to and always staying HUMBLE and ACT accordingly.
Investing is simple, but not easy. So remember to adopt a simple process and execute it seriously.
Take a simple idea and take it seriously – Charlie Munger
Now, let me turn to some of my learnings in more detail (by speakers), which probably might shed more colour on what I mean.
Vishal Khandelwal (Safal Niveshak)
First, the one year challenge! (I am looking older, but he is the same LOL)
Vishal is a fan of reading and re-reading and re-reading the supertext, instead of reading more and more new things. And hence the lessons that I got reminded from him are those simple time-old wisdoms, which despite simple are very important and impactful.
The points that struck me this year mainly relates to:
the importance of having that margin of safety ALWAYS;
thinking more about and focusing on the risks (that can lead to capital loss) than chasing for upsides (if you take care of your downside SERIOUSLY, the upside will come) – Remember: Getting to the top is optional. Getting down is mandatory;
not taking risks that can wipe you out, like the Russian roulette game;
not losing money (the other speaker, which I discuss later, have just 3 down years out of 22 years, which allowed him to keep compounding well); and
always being conscious and truthful about you own circles of competence and the boundaries of them, and being humble enough to stay within those circles (that’s a higher probability way of having your thesis right, which in turn hopefully leads to higher chances of earning money).
I know we hear this often enough, but there’s a reason why it is constantly repeated by the Oracle of Omaha. So it’s worth reminding ourselves again until we have it fully imprinted like a tattoo for life (just kidding).
Rule #1 – Never lose money. Rule #2 – Never forget rule #1. (And don’t be a swelled head!)
Dr Niwes Hemvachiravarakorn (The Warren Buffett of Thailand)
This is my first time meeting and hearing from Dr Niwes – a very funny and down-to-earth guy indeed, despite having over USD 200 million, after compounding it accidentally from USD 600k for 22 years at a CAGR of 31%. Impressive track records, regardless of whether luck played a role (as he claimed)!
Dr Niwes’ strategy and process are very simple and clear, which I think those who have read intensively in the investing field would have already come across very similar things multiple times.
What makes him successful in my opinion is his ability to execute it well, sticking to the stock selection process with discipline and RIGOUR, and sticking with his SUPERSTOCK companies for long enough with PATIENCE and CALMNESS, which are simple but not easy things to do, requiring a very strong control over temperament and having a rational and dedicated mind.
His strategy and points are very simple, and largely similar to mine.
Investing and getting rich is simple and can be simple;
ONLY invest in Super Stocks (hold more than 5 years, aiming for 10 baggers in 10 years), or Super Cheap Stocks (but not in dying industry or with declining profits);
Less than 20%-30% average annual turnover (note: remember punchcard investing, or Mohnish Pabrai’s rule of a strict 3-year lock in upon purchase of a stock);
Look for Mega Trend industry, and the leaders in it, with (i) durable competitive advantages, (ii) virtuous cycles, (iii) good finance, and (iv) good price (P/E less than 30, and low market cap relative to total addressable market (TAM));
And let me repeat, ONLY invest in those, and stick to them strictly and ruthlessly (once you have defined and set up your process and criteria, STICK to them!); and
Just continue living and you will get rich (if you have bought the right companies).
And let me add on – The patience to hold these Super Stock companies through cycles, and give the benefit of doubt to the management (whom you have evaluated to have the ability to know what’s best for the company, in terms of strategy and capital allocation, based on their past track records for decades (and write down these points in black and white, so you know whether the points are really valid or not, and you can’t deceive yourself)) for them to strategise and execute in times of challenges (else you would miss out recoveries and continuous compounding of those companies).
So, please go into buying a company with the expectations that you are not aiming to sell it at the peak before its fundamentals deteriorate for long, but with the expectations of being able to sell it at maybe 70% of its top performance after allowing the company and the management some time to execute to navigate and emerge from the tough times (as no business would have smooth sailings all the time). In other words, before you sell, remember to give the management whom you have identified as excellent executives and capital allocators, and whom you trusted upon your purchase of their companies, some time to correct and execute in overcoming those tough times and crisis, just like what they have done successfully in the past (for multiple times).
Super Stocks! Super Cheap Stocks! Well said!
Overall, Dr Niwes’ presentation makes me believe, and remember, that a good simple strategy and process, when well executed by a dedicated value investor with discipline, can produce tremendous results and wealth over time!
So let us be those dedicated value investors. And do the hard work of executing with discipline and rigour! (Focus on the process, and the outcome will come)
These thoughts of mine that occurred to me then made me think hard about the quality of the companies that I own, on whether they are Super Companies (I would prefer to call them so, then Super Stocks which probably are more catchy) and whether they have the top of the cream qualities on all aspects. So that I don’t sacrifice quality and the opportunities to hold only the real good companies on almost all aspects – if they don’t make the top tier, cut them, and keep turning the stones until you find the top.
Reflecting on the companies I own, on their quality, on whether they are indeed Super Companies… I have found 10, or so I think at least, and I am looking for 10 more so that there are higher chances for a few of them being undervalued at various points of time~ (Please let me know if you have ideas :P)
I managed to catch Dr Niwes for a question that I had before he left, where I asked him, what are the challenges he faced throughout his journey of applying such a strategy. His answer was, not much (he had only 3 down years out of his 22 years journey – impressive! which I believe is achievable if you focus on and remember margin of safety, eyeing on the risks (not the upside), circle of competence and good balance sheets and business models), but probably the challenges were like what he had said, selling too early. And hence his advice, “Keep Calm!”
Me: Challenges? Dr Niwes: Nope. Keep Calm! (And live longer LOL) (Golden advice indeed)
(For record and reference only) Examples of Dr Niwes’ (past) Super Stocks:
CP All – He held since 2009 and would sell when it becomes the largest company in that industry
HM Pro – Sold few years ago, as he saw competition
BH – Best private hospital, with medical/ageing tailwind
BDMS – Same as BH
AOT (Airports of Thailand) – Sold
CPN – Biggest shopping mall
MINT – Hotel group
Other learnings
Charlie Tien, the founder of Guru Focus, read and re-read Buffett’s letters from 1950s to now for multiple times, which changed his life. He also made reference to Wilshire 5000 Total Market Index, to GDP ratio, as an indicator to look out for market cycles. Some of his ideas/companies include Church & Dwight (dealing with household products in the US) (note: seem to be a compounder and have reduced share count over the last few years), and Kweichow Moutai (bought first in 2014 at 8x P/E, when Xi Jinping became the leader and started on anti-corruption campaign).
Joshua Zhang, investment manager at HCF, on spotting (and avoiding) fraudulent and fishy companies, especially Chinese ones, which I think are very important in avoiding losses, so it’s an interesting and useful topic for me (e.g. on different ways to tunnel money out). And invert thinking can come in handy here.Sarah Fu 傅喻, the only Asian reporter to interview Warren for eight consecutive years and founder of 喻见 Media. Again, same resounding principle. Master one basic principle and follow it strictly!Jack Kouzi (or Jacuzzi) from Australia – Director of Strategy at VFS Group. Interesting top-down macro selection strategy, and views on Alibaba (including on its India expansion)China – The growing massive economyPanel Q&A. Question: Rebalance after a company becomes multi-bagger and big portion of portfolio? Vishal: Yes. I would keep all companies at <15% of portfolio by market value (he suffered major losses from his over-concentration of 80% in a stock that didn’t do well before). Charlie: Not really. I wouldn’t, but depends on company. (Nomad Investor: I am more, or totally, aligned with Vishal – no right or wrong, just personal preference)Joshua Zhang, investment manager at HCF, on spotting (and avoiding) fraudulent and fishy companies, especially Chinese ones, which I think are very important in avoiding losses, so it’s an interesting and useful topic for me (e.g. on different ways to tunnel money out). And invert thinking can come in handy here.
Some interesting case studies are:
HIK Vision – it has been in my list of companies to study for quite some time, and at this point I am still conscious of its overseas growth (due to sensitivity of security products) and wouldn’t include much of it in performing a valuation of the company for margin of safety.
Fast Retailing – Story sounds good, growth in international markets could be there, with moat (on use and advancement of technology and intangible assets), but ROE is not showing up as well.
Yihai – Interesting to learn about 张勇. Might have issues with payables and receivables.
So that sums up my key learnings for this year’s VIS~ Hope you have enjoyed the event and this post. And thank you to the organisers for extending the media pass to me!
Next year’s VIS would be in Kuala Lumpur again on 11-12 January 2020, so do check it out if you are interested~
P.S. And do feel free to discuss with me (by sending a message to Nomad Investor, or at my email at thenomadinvestor@gmail.com) if you have any ideas to go into my Super Companies list 🙂
P.S. And do check out another great article on VIS 2019 from MoneyWiseSmart here if you haven’t.
Over the last weekend (27-28 January), I attended the Value Investing Summit (VIS) 2018 at Expo. I bought the ticket at S$150 from someone who couldn’t make it after buying the ticket. Overall, it’s a good event (depending on the line-up of speakers) and well worth attending if you have the time.
There are quite many learning points for me, and quite some that reinforce (and shed slightly new perspectives on) what I already know (which is a good thing too). And it’s quite inspiriting to see so many Charlie Munger and Warren Buffet (‘s thinkings and wisdom) in the speakers in the room, in fact more so on the former, whom I have recently demonstrated a newfound appreciation for. And even more encouraging to know that most of them (especially Vishal and Hemant Amin, who compounded the capital that he manages at >30% annually for more than 14 years with a 10-stock concentrated portfolio) have very similar investing philosophies, strategies and processes as mine (which I found only after 2 years of investing and lots of readings), although of course, I am still way behind them.
I shall list down the more major learning points here, viewed in my own lens (and very drowsy eyes and practically nonfunctional brain on the first morning due to a late night (2am+) out prior).
Day 1 (27 January)
Kee Koon Boon – Hidden Champions and Value Investing
I have been following his articles for some time and so I have already appreciated quite some of his thinking and wisdom
But it’s good to finally see him in person, and understand more of his personality (he was more gentle than I thought, and very knowledgeable and well-read) and the things that drive him (including intellectual pursuit and value-adding to society)
Also, think resilience
Hermann Simon – Hidden Champions – The Vanguard of Globeria: Success Strategies of Unknown World Market Leaders
Hermann is the one who created the “Hidden Champion” concept. He is a German Professor (Doctor), author and business leader. He is also the chairman of Simon-Kucher & Partners, which specialises in strategy, marketing and pricing (he himself is a hidden champion to me, who has run his firm for more than 30 years)
Hidden champion is all around us, creating products/services that we use all the time, often unnoticed and hidden behind, which is why they have the potential to appreciate in value and compound its value for a lot of times
Listening to his talk prompts me to think whether the companies that I own or am looking at has the traits/characteristics of the hidden champions, which are good ones to have
Germany’s Hidden Champions of the Mittelstand – which refers to world-class, export-oriented small and medium-sized enterprises (SMEs)
He is here to talk about businesses (and not investing), but because investing requires understanding of businesses, therefore it helps. It also reinforces to me the idea that I should be focusing on understanding businesses (and the business model), not equities, thus the term business analyst instead of equity analyst as said by Warren Buffett
Examples of Hidden Champions that struck with me include: Wanzl (trolley), Flexi (leash), Essilor (optic lens), Paiho Group (velcro fastener), Wirecard (payment processing)
Laser focus in a niche (that’s how you produce superior value), but still replicate and scale globally (within that niche area), therefore providing avenue for growth. And mono-maniac (leader)
On digitalisation – For B2C is already very advanced; For B2B there’s still much room to go, therefore providing opportunities to businesses and we investors. This is because B2B digitalisation is usually more complex and hard to integrate/implement. For us, as investors, look out for companies that are in the space of, or would benefit from, B2B digitalisation – they provide stable (sticky) cash flows and are associated with high switching costs. In my mind, I run through the companies in my portfolio, and I can only think of Silverlake as more of playing in this area. I shall hunt for more such companies
Joshua Zhang – Case Study
Joshua is an analyst with the Hidden Champion Fund I believe. His presentation was good and solid, with very organised thought and thesis flow and good slides and presentation skills, and I still have a long way to catch up to that type of level
He presented on Kadoya Sesame Mills (JP: 2612), which is a hidden champion
Laser focus on sesame oil; strong moats – culture, know-how (160 years of experience and knowledge)
Interesting company and maybe I would examine at some point if the materials in English are not inadequate
周贵银 (Zhou Gui Yin) – The Power of ROE (in Mandarin – interpreted)
One of my two favourites (together with Vishal)
周老师 is from China and he is a super Charlie Munger (lateral and multidisciplinary thinking), and presented on his 觉悟智慧 (and/or 融道智慧), which discusses the integration of the Chinese philosophies and ancient thinking (佛家思想,，易经，道家，儒家，佛家，兵家，老子，孙子，etc etc) with investing
Overall, I think these points are very good in shaping and building up one’s character, emotional control, temperament, life philosophies, which are at least as important as, if not more than, diligence, IQ, analytical work and number crunching, etc.
These are very high level and more philosophical, and somehow I appreciate it a lot. But I think I am still not at a stage to start studying those Chinese philosophies and teachings to really master the points, and shall leave them to a later stage when I build up more of the other areas first
Some of the points that I like/connect more are:
佛家思想 – 三大境界/领悟：看山是山，看山不是山，看山还是山 – Static dynamism (and in another perspective (in my own words), one can see it as the zoom-in-zoom-out approach/mental model which is very useful in investing)
内圣外王 – 行者 – 无，空 – 只拿不给的话，会导致欲望越来越大，导致我们不能客观 – Be very wary of this, which I think is very true –
道家 – 无，为 – 不要过意的去干悟它 – Time is the best friend of a good business
泰来否极 (always be on the look-out for any potential downfall or disaster – humility and constant cautiousness (like Howard Marks))，而不是否极泰来 (please don’t bet on this – in real life it doesn’t work like this)
长久 – Not short term profiteering/compounding, but permanent compounding
兵家 – 未战先胜 – I win (or make money) the instant I bought the stock, just like what Warren Buffett says, because I have done my homework/diligence and know the value of the company (that I am buying)
See my notes and more points in the pictures below
Panel Discussion – Hemant Amin; Francois Badelon; Hermann Simon; Kee Koon Boon; Judy Goh; Clive Tan
On Circle of Competence:
Hermann Simon
Slightly irrelevant topic – The less known a CEO is in the public, the more successful the company becomes
Hemant Amin
It’s not competence if you don’t know the extent of the circle of your competence.
We use a bit too much IQ (exploring intellectual challenging and complex areas/companies/business models) than we need
It’s okay not to have an opinion on things you don’t know (we use, or fall back, too little on the “too-difficult box”
Define what you know, and stick with it
Kee Koon Boon (some points are on different topics)
Charlie’s mental model – multidisciplinary thinking
Idea of resilience
He likes learning knowledge and likes to know what makes people rise and fall, and that partly leads him to examine company leaders and then businesses and investing
Investing is a multidisciplinary area
He first developed accounting skills, then psychology to understand CEO’s or human’s mind
Duality of a leader (note: duality mental model at play here) – Needs to be tech savvy, and also needs to always have customers’ needs in mind
On screening criteria and habits to develop
Hemant Amin
Let’s look at what not to screen for (note: inverse thinking mental model at play) – Not growing well, not scalable, not good management
Is there a temporary problem? That’s where the opportunities lie
Idea sources: Reading, reading, reading (this is what this business is about); Connecting the dots (this inevitably leads us to insights)
Habits – Reading across diverse sections
Hermann Simon
Personal visit of companies is the most valuable information source
Kee Koon Boon
I’m a mono-maniac. I keep working and adding value to society, because I believe in my work (and that it adds value to society). This is the habit I work on
Day 2
Vishal Khandelwal – In Search of Value in an Irrational World
Finally got to meet Vishal (or rather I would prefer to call him the Safal Niveshak (the successful investor), after following his website and (epic and wisdom-filled) articles for more than two years. So, of course, I have to take a photo with him (such a rare chance)! The Warren Buffett of India!
Anyway, coming back to more serious topic, he presented very well (even though he kept saying that he hasn’t spoken to such large crowds before (he said so too for his previous video interviews)) and presented very useful concepts (more on the high level and strategic points, and temperament). Although I have known most of the concepts/points (mainly through his writings), it’s good to hear them again right out from him and get reminded of those lessons again.
And it’s also good to have met him in person, heard him spoke in person, talked to him and asked him the questions that I have (casually after his session on-stage) in person, and just have a feel of him as a person and understand his personality and the way he speaks/talks/holds himself. Because with these, the next time I read his writings, I would be able to picture him talking to me (note: thought experiment mental model in some way) and therefore able to learn and absorb/internalise those lessons better.
Also, it’s also surprising + lightening to see that (in my own view) he is very much Charlie Munger (or at least uses more of Charlie’s thinking skills in his own thinking) than Warren Buffett (although he learned a lot from Warren too, especially on investing), which proves to me that Charlie’s thinking models and skills are so wonderful that so many successful investors copy and practise them constantly and proactively, and makes me want to learn + implement + practise more of Charlie’s thinking (I am glad that I have read Poor Charlie’s Almanack and learned more about Charlie (‘s thinking and personality) before I heard from and met the speakers in VIS). Just to illustrate, within my first few minutes of conversation with Vishal, he already brought out two mental models (of Charlie’s) – inversion and pre-mortem – which I shall allude to below.
I really want to just list down the most important points that I got from him (note: focus), so here they are (see the more detailed notes in the pictures below):
We are not rational. We make an argument first. Then we try to rationalise it. (Be very aware and wary of this, making sure that you don’t fall into this)
Learning to say NO! (to various info sources, to noises, to (bad, unaligned, or even aligned but decent only) investment opportunities) is one of the most difficult, but important thing to do. Learn to say NO (time is one of your greatest resources/capital that you should allocate well as a good capital allocator)!
Think LONG TERM and have a LONG VIEW! The long view (and long term focus) is an edge that we retail investors have. Look at seasons, not quarters, and one season is maybe 5 years or so (depending on the industry)
Focus on the PROCESS, not the outcome. Also, focus on what we have control over (risk, cost, time, behaviour) (which we rarely focus on), not what we don’t (outcome, stock price) (which we only focus on)
Investing is 51% ART, 49% science – I base my thesis and purchase decisions on what my GUT tells me after I’ve done all the research and absorbed all the info (the science).
Beware of over-focusing on and be careful when using valuation, as all valuation is wrong, and all valuation is biased (since we have already spent a lot of time looking at it) (note: consider the importance of, and use of, margin of safety here)
To avoid confirmation bias, especially when you are holding for long term, and leveraging up, a solution is to write down your thesis in an investment pad (you should have one), not on computer. Write down why you buy, and why you sell.
His answers/points on the personal questions that I asked him:
Be patient and keep doing the work
If you can find only companies with high ROIC but little reinvestment opportunities (note: I think Vishal sees this type of company just like another cheap (value) company, which I think he doesn’t want to focus on), but not companies with high ROIC and much reinvestment opportunities (or if you are not willing to pay for them after you find them, either due to the really high or over- valuation currently, or because of your own psychological/mental barrier), then do these two:
(1) keep finding, keep doing the work, keep flipping the stones (if the thesis for no. 1 doesn’t work out now (maybe because it’s expensive), go down the rung, look at no. 2, no. 3 in the market (in terms of market leadership (note: which is different from market share)), but don’t go further than that; and
(2) be patient and wait for market crash (or correction is also good enough) if it is really overpriced (note: the same thesis might work out in the future too as time passes, not just from the decrease in price, but probably be due to the improvement of business and increase in earnings too – remember, there are two factors, not just one); or be more willing and ready to pay for quality, which requires you to really understand and appreciate Quality – compounding quality gives you a lot of ROI, so learn to understand and appreciate the value of quality (which is not easy, but work on it)
And to help understanding and conceptualising the value of quality (and (probably non-linear) growth), Vishal uses/considers an expected return model as one of his tools (note: I believe he has not just hammers, so he doesn’t see everything as nails) (note: the far-out earnings and corresponding valuation can be used to understand/estimate a business better, but not as the main basis for investment/justification for a high purchase price).
First, estimate the earnings of the company 10 years down the road (have a long view, and this helps to take into account non-linear/ exponential dynamics).
Second, apply a multiple. He personally uses a P/E multiple, and not EV/operating earnings. The important point is to be consistent, applying the same type of multiple across companies consistently – and in response to my follow-up question, he says that difference in or issues on interest expense, capital structure, etc should be taken into account in the estimated earnings (to go with the P/E multiple), and not taken into account by the tool (it is a tool!) (the type of multiple).
Third, see whether the implied valuation range (remember, never have one single valuation number – always a range) gives you an annual return of 15%-20% (or whatever your number is), based on today’s price
In estimating the long-term earnings of the company, use inverse thinking (e.g. think about what would make the company not achieve that level of earnings, etc; or what level of earnings would the company not achieve). Use Charlie’s pre-mortem concept too
Also, force yourself to think about and imagine the long term potential growth. When thinking on this, think about per capita consumption now. E.g. If there is 1 out of 100 people consuming the product/service now, in the future if 5 out of 100 consume, then it’s a 5x growth, just in volume.
Hemant Amin – Value Investing in an Exponential World
Hemant is a local fund manager that manages a family fund of more than S$100M with a concentrated portfolio of 10 stocks, fundamental long. And a track record of >30% IRR for ~14 years – Impressive (with a good process)!
He focuses mainly on (owner-managed) companies with high quality and high growth (best case), followed by companies with high quality and less growth.
Understand business models! Then you won’t say the valuation (EV/EBIT) is high
Largest position is in Bajaj Financial Ltd
Business models + Technology + Scalability = Exponential Growth! (see picture below)
Exponential growth – You have to think NON-LINEAR in this linear world – The rate of change itself is accelerating – Spot the slow boiling water, and make sure that you are on the other side
Think about when does a company moves on the exponential curve (low marginal costs, etc)
Understanding business model allows you to understand where the value is (value investing)
Warren Buffet: “Investing is simple, but not easy”. Simple is deceptive
Be wary of conveniently extrapolating historical results/data – Else librarians will be the best investors
Investing is about connecting the dots, and finance is just one tiny dot
Business models are on steroids in the exponential world (see picture below)
Fish where the fish are – Decide where you want to fish (whether you want to fish only the high quality high growth fish)
Management is not a moat, but his actions affect the moat
Invest in “technology” (not necessarily technology companies), and your circle of competence on it – Ask how will technology scale your company or destroy your company
Elephants (e.g. Google, Amazon, Visa, Microsoft, Adobe, Salesforce) can dance – Size can be a big advantage; Competition is for losers – Wait for good market opportunities for these dancing elephants
Portfolio composition is key – Hemant’s top 5 positions take up 7%, top 10 positions take up 95%
The zoom in, zoom out perspective/approach – E.g. Ask, can this business double in 3 years (24% p.a.) or 5 years (15% p.a.)?
You need to have the discipline to be comfortable with LOW ACTIVITY, HIGH LEARNING, SIMPLICITY (read, read, read and do nothing else)
Charlie Munger: “Simplicity is a hugely underestimated edge in investing and in life”
Q&A: How do you control risks with a concentrated portfolio? (I personally this question, or rather the answer to this question, is very good and useful for me)
Hermann: We do not go out and buy 20% position in a company straight (by doing this, you’re saying that you’re GOD and know everything). We buy <5% every time (start small), then as time goes, we know better and better and more about the company (and the industry), then we accumulate more to a bigger position
Side point: Mohnish Pabrai has a concentrated portfolio too, and sometimes he got burned
Vishal: Think like a parent (borrowing from Phillip Fischer) – only manage the amount that you can
Q&A: Valuation method
Vishal: Warren Buffett talks about DCF, but Charlie Munger says he has never seen Warren done one – ROFL. I personally use multiples (note: good to know that I am on the same page with Vishal here)
Hemant: Even the CEO of the company can’t predict 10 years cash flow, how can you? Remember, our world is dynamic and businesses react
Q&A: Timing the market?
Hemant: Crash is relative to your understanding of the business – see it as owning a private house. We are stuck in the psychology of portfolio management (note: I can’t really recollect the essence of this point now)
Vishal: Quality is in itself a margin of safety – The longer you hold, the better off you are. Conversely, the longer you hold bad businesses, the worse off you are (note: water the flowers, not the weeds)
Hermann Simon – Hidden Champions – Role Model for Leadership in the 21st Century
This is Hermann’s second part
Best bottling company – Kronos (America) – It was achieved by the fearlessness of the founder – with courage (a trait of hidden champions), not with strategy
To internationalise and be a global leader, you need long term perspective, long-term orientation, and have the orientation, stamina and perseverance to run the marathon – Strategy is not a short term mater
Look out for CEOs with long tenures (note: ask, what’s the CEO tenure for your company?) – What can a CEO build in only a few years?
Average tenure of large corporations: 6 years
Average tenure of hidden champions: 20 years
Average tenure of records – Hans Riegel (Haribo bears): 67 years
Employees: Look for high productivity in hidden champions
High productivity indicators: High qualification (uni degree) – Knowledge > Cheap labour in this world of globalisation
Employee turnover rate – Hidden champion has 2.7% turnover
Hidden champions have deep value chain
Total quality control – E.g. Wanzl trolleys
Faber Castell – We grow our own wood in our own plantations – Consistency in quality
No outsourcing of core competences
Uniqueness can only be created internally – If you buy from others, your competitors can do the same too
Intervarsity Stock Research Challenge Presentation Finals – Judge Panel: Hemant Amin; Hermann Simon; Kee Koon Boon; Francois Badelon
5 companies were presented. I only managed to hear the first 3 and had to leave. Overall, I felt that they had done a lot of homework and research, but the companies all have some certain negative points that made them not compelling.
Hamamatsu Photonics (TSE: 6965) – World leader in PMTs, with dominant market share. But low margins, low ROE and low growth rates – Maybe problem lies in sales and marketing front (low asset turnover)
Time Technoplast Limited (BSE: 532856) – Polymer drums – Be careful that high market share does not necessarily translate to high market leadership (for high-value products)
Nihon Kohden (TSE: 6849) – EEG market – electronic medical equipment. Has broad product range for hospitals that are compatible and integrate with each other (including hardware and software). Recurring consumables. But, low historical growth and sub-par gross margins compared to Johnson & Johnson and others (e.g. Medtronic). Suggestion: Look at its Japanese competitors, Sysmex, which has high export %, better margins and high % of consumables
Ending thoughts
That’s all for Value Investing Summit 2018. I am glad that I attended it, with the most valuable part being able to meet the few great investors from the world and learning from them.
VIS 2019 will be held in Kuala Lumpur, Malaysia on 19 and 20 January 2019. I shall consider attending if it has a good line-up of speakers (good value investors, like this time), so I shall wait for more details first.
It’s the last day of 2017 so I thought it would be good to look back on my investment journey in 2017 and reflect on it.
Overall, I am quite satisfied with my journey and the progress that I have made, although there are definitely areas that could have been better.
Things that I have achieved or am positive about:
Discovering which style of investing I prefer and want to focus on, after exploring value companies, deep value companies and brilliant companies (my focus going forward would be brilliant companies with strong moats with positive moat trends)
Doing deeper level of research on and gaining deeper level of understanding of my existing and new companies, in line with my investment philosophy of non-over-diversification of mind (over diversification of portfolio by number of companies) and my rather concentrated portfolio
Spending a lot more time analysing companies (including reading many annual reports, company presentations and IPO prospectus) and reading investor letters, which help me to improve my investment skills and experience, and widen and compound my knowledge
Improving my understanding on returns on capital, in particular ROIC, which is one of the most important quantitative factor that I examine and think about
Improving my understanding on quality moats and moat trends
Finally started this blog, although I have been slacking on producing quality posts and write-ups on my analysis of companies (which is something I want to work on next year)
Started to more properly track and calculate my portfolio returns
Met more investors with similar or different investment styles/philosophy
Finished (and almost finished) reading 11 books, being:
The Essays of Warren Buffett, by Lawrence Cunningham (one of my favourites as it really helps us to get into Warren’s head, and understand better the essence of investing psychology and the concept of equity/business analysis and Mr Market)
The Little Book that Builds Wealth, by Pat Dorsey
The Most Important Thing Illuminated, by Howard Marks (very good book on understanding risk and the non-normal distribution of risk-outcome)
The Outsiders, by William Thorndike (very good book on understanding the capital allocation behavior of CEOs)
Man’s Search for Meaning, by Victor Frankl
100 Baggers, by Christopher Mayer (very good book on long-term investing and multi-bagger investing, which are aligned with my current investing style)
Tap Dancing to Work, by Carol Loomis
Shoe Dog, by Phil Knight (very interesting business stories and helps me to understand consumer retail business better)
Autobiography of a Yogi, by Paramhansa Yogananda (Steve Job’s favourite book)
Poor Charlie’s Almanack (traditional chinese version), by Charles Munger and Peter Kaufman (finishing soon; good exposure for me into learning how to think better, lateral and cross-discipline thinking and using mental models)
Why Moats Matter, by Heather Brilliant and Elizabeth Collins (in progress; further strengthen my understanding of moats and moat trends, which are very important concepts of my investment style)
Things that I am neutral about:
Achieving a portfolio XIRR of 13% for 2017. I am neutral on this because:
first, I think this return is decent only (however, what I am positive about is I think I have made quite some improvements and progress in terms of my investment knowledge and skills (which may not/would not be reflected in short-term portfolio returns) and I am becoming more optimistic about the future returns that I think I can achieve)
second, this XIRR is overstated because it does not take into account the effect of cash drag (although I don’t hold much cash for most part of the year, although increasingly much so towards the end of the year)
third, I don’t think this type of short-term returns information provide much meaning, since in the first place I do not believe that the market prices convey any meaning in the short term or at any point of time (the market is only a voting machine in the short run), and therefore the XIRR which is quite dependent on the market prices at the beginning and ending of the period would not provide much meaning (if one is looking to figure out his investment returns), but just another data point or observation. A better way to track my returns would be to track the increase in operating earnings of the companies in my portfolio, weighted by their portfolio weightage, which I hope I would gather the time and effort to do so in the future.
Things that could have been better and I would like to work on next year (which I am focusing mainly on two points!):
Although I have improved quite some on both my quantitative and qualitative analysis of the companies, there are still much more room for me to work on on the qualitative side, which I think is the main differentiator between a decent business analyst and a very good business analyst, and which I intend to focus on more next year
Ultimately, a good business analyst has to be able to present his thesis in a good form, which I think one good form is to pen down the thesis and the essence of the investment in an article. This is something that I have not done so far (due to my procrastination and obsession over perfection) (I have been mainly just talking about/discussing my investment thesis and points in person with other people, but I would say what’s lacking from a conversation approach of presenting ideas is that the ideas are less gathered and organised, and in some way, fleeting), but is something that I will definitely work on next year because I think this will be the most important action that will bring my skill of investment to the next level
That’s all for the review and I wish everyone a more successful investing and a happy life in the year of 2018! 🙂
I first started my investment journey when I was 23, in mid 2014 (by reading investment books), bought my first company (Disney) in March 2015, and in the blink of an eye, it’s late 2017 now, which means that I have been investing in the market for close to 2.5 years. It has been an interesting journey and I really enjoy investing and examining companies.
I have always wanted to start an investment blog, as I think it will force me to think harder about my investments and crystallise my thoughts, which would help me to develop into a better investor and achieve better returns too. However, I have never gotten myself to doing it.
And after a long one year , in January 2017, I advanced slightly further, starting my Facebook page – The Nomad Investor, where I mainly share my thoughts, investment lessons that I have learnt and investment articles that I find useful.
That’s all I got around doing. So what made me finally work on starting a real proper blog?
The answer lies partly in Howard Mark’s most recent memo “There They Go Again … Again“, and partly in Safal Niveshak’s (an Indian value investor whom I follow) article on Howard’s memo.
In that memo, Howard expressed his view on the prevailing market sentiment, on high asset prices, low risk aversion, low prospective returns, too much capital chasing after too little returns, etc, etc. After reading his 23-page long memo, I strongly agree with him and personally am very wary of the current rich valuations in the market, but will, as he suggests, continue to move forward, but with more caution.
Then, I chanced upon Safal Niveshak’s article on Howard’s memo. At the end of his article, he touched on seven things that he is currently doing now on his savings and investments. And the seventh strikes out to me.
Seventh (and I’ll end here for it’s my lucky number), I am spending less and less time thinking and looking at the stock market and my stocks, and more time reading, doing nothing, and fooling around with my family. That keeps me away from all or any madness that others deeply involved in stocks may be bearing now.
– Safal Niveshak
At that point, I thought that since I find it difficult to uncover good undervalued investments now, maybe I should spend more of my time reading books or finally kicking myself to write that blog that I have always wanted to write!
And here it comes – my first investment blog – The Nomad Investor, to keep me away from all or any madness that many are involved in now.
I have written more about myself here and my investment philosophy here.
I thought it would be good to end off with my current portfolio, which will give you a better idea of what companies do I generally look at. My goal now is to be more serious about my investing from now on and I plan to review my investments and restructure my portfolio slightly in the coming months, and blog about them where relevant.
So here’s a quick peek into my current portfolio, which consists of companies that I intend to keep for long and companies that I plan to divest soon. Feel free to let me know of any thoughts or questions that you have.
When nothing seems to help, I go and look at a stonecutter hammering away at his rock perhaps a hundred times without as much as a crack showing in it. Yet at the hundred and first blow it will split in two, and I know it was not that blow that did it, but all that had gone before.
The Nomad Investor 