Author: Boring Investor

Areas Where We Saved for Our House Purchase

I have never been a fan of property investments, mainly because of the demographic changes that Singapore will face in the next few decades. See A Prediction About Properties 13 Years Ago for more information. Yet because I am planning to get married, …

Are There Stocks That Can Withstand A Crash Better?

Stocks tanked this week. When I was mulling over whether I should move 22% of my money into 1 stock, Global Logistic Properties (GLP), in Nov 2015, I wondered what would happen if the stock market were to crash. Are there stocks that could better survi…

Potential Replacements for GLP

After it became clear that Global Logistic Properties (GLP) would be privatised, I have been looking for a replacement. The investment thesis for GLP is that it has a REIT manager business model, constantly developing new logistic properties and spinni…

Bye Bye, GLP!

Global Logistic Properties (GLP) was delisted last Mon after being successfully privatised. It is a growth stock, and I had hoped to hold on to it for 15 years or more, but alas, some deep pocket investors recognised its potential as well and privatise…

As A Contrarian, You Will Always Walk Alone

A lot of investors have posted good results for last year. However, if you were like me and had been worrying that the stock market could crash in 2017, a year that ends with 7, you would have missed out on a stock market rally in which the STI rose by 18% in 2017. When everybody else is posting good results online, it does feel depressing occasionally.
I was not totally out of the market last year. Having participated in the stock market for 32 years, I will never be totally out of the market, even though I respect the folklore that the market would experience a crash whenever the year ends with 7. I took a defensive stance, ensuring that I had around 45% to 50% cash to deploy in the event that a crash were to materialise. As I sold stocks that were rising, I continued to invest in stocks that were forgotten by the market. Below are some of the stocks that I bought, did not buy, and sold last year, including the reasons.
Stocks that I Sold
Electronics stocks, especially semiconductors, were the rage last year. Nevertheless, I sold them. Needless to say, they went much higher after I sold them. For the semiconductor stocks, Sunright, sold at $0.305, is now $0.895; ASTI, sold at $0.056, is now $0.084; and UMS, sold at $0.78 on average, is now $1.07. For the electronics stocks, Frencken, sold at $0.515, is now $0.59; and Valuetronics, sold at $0.795, is now $0.93. All these were sold to shore up defence for the crash, if any. On hindsight, they were sold too early, as I did not expect the electronics recovery to be so strong. To-date, I still have not figured out what is behind the strong electronics demand, which will determine whether the strong demand can continue or will fizzle out soon. 
There were also some buying and selling of Oil & Gas (O&G) stocks. A notable sale was Keppel Corp at $6.16, as I was concerned that new orders were not coming in fast enough to replace old orders. Furthermore, existing customers are not collecting their vessels (and paying for the delivery) even though the vessels have been completed. See What Keppel Offshore & Marine’s Order Book Can Tell Us for more information.
Stocks that I Did Not Buy
Other than electronics stocks, banks and properties also rose by a lot last year. I had an opportunity to buy OCBC at $8.56 in late 2016, shortly after the US presidential elections. However, I gave it a miss, as I was concerned that O&G losses were still mounting. Although rising interest rates would increase banks’ profits, there are also risks that their customers could not cope with the increasing interest expenses given the lacklustre business environment. In the longer term, there are also concerns whether fintech would chip away the traditional profits that banks make as financial intermediaries. In short, I had not figured out the banks.
The only major property stock that I had was Global Logistic Properties (GLP). To be honest, GLP made a lot of money for me last year. But with the privatisation of GLP, I had to find a replacement. Potential replacements were Capitaland and Frasers Centrepoint (FCL). Learning the lessons from GLP, I decided that Capitaland at $3.50 was not cheap enough. As for FCL, I was concerned that it had too much debts. I watched it rose from $1.66 before finally buying at $1.92. Still the lingering concern did not go away and I sold it at $2.07.
Stocks that I Bought
If you had read Howard Marks’ famous memo “Yet Again?“, he mentioned 6 options that investors could take in the current low-return investing environment. These options are reproduced below for easy reference (please read his original memo for a complete understanding of the 6 options):

  1. Invest as you always have and expect your historic returns.
  2. Invest as you always have and settle for today’s low returns.
  3. Reduce risk to prepare for a correction and accept still-lower returns.
  4. Go to cash at a near-zero return and wait for a better environment.
  5. Increase risk in pursuit of higher returns.
  6. Put more into special niches and special investment managers.
His preferred options? A combination of no. 2, 3 and 6.
The equivalent of option 6 for me is distressed assets and stocks unloved and forgotten by the market. There were 2 distressed asset plays last year. The first was Triyards, which I tried to take advantage of Ezra’s troubles and potential sale of a controlling stake in Triyards. Unfortunately, this did not pan out and I lost $33K as a result. See Know Your Customers Well! for more information. The second was First Ship Lease Trust (FSL). Unexpectedly, FSL did not manage to refinance its debts and had to seek a moratorium on debt repayment. Nevertheless, it has been selling ships to pay down the debts. If it can successfully liquidate all its ships (or until the debts are fully paid off), there is residual value for shareholders. See Valuation of First Ship Lease Trust for an estimate of the liquidation value of FSL carried out in May last year.
There is actually quite a no. of unloved industries and stocks. The first is telcos, with concerns over whether the entry of the fourth telco would increase competition and erode away the handsome profits and dividends that telcos used to earn. However, my view is that the fourth telco is fairly irrelevant. Already, the existing telcos are competing fiercely against each other through SIM-only plans, data upsize plans and Mobile Virtual Network Operators, etc. See Do Telco Investors Need to Fear the Fourth Telco? I bought into Singtel and M1. 
The second unloved industry is O&G. Here, it is a little tricky, because some parts of the industry value chain are recovering while other parts are still declining. The recovering part is the upstream Exploration & Production sector with the rise in oil price, while the declining part is the ship/rig building sector, as discussed in Is A Recovery for Oil & Gas Shipbuilders Near? The ones in the middle, the Offshore Support Vessel (OSV) sector, is probably entering a trough as new vessels enter the market and increase the supply glut. I decided it was about time to enter the OSV sector, buying CH Offshore, Ezion warrant (it got suspended the day I bought it), Mermaid and POSH.
The third unloved and forgotten industry is the shipping industry. After the bankruptcy of Hanjin Shipping in late 2016, conditions have actually improved a little, with the Baltic Dry Index and World Container Index slightly higher in 2017 than in 2016. I bought Samudera, Singapore Shipping and Uni-Asia.
Another unloved and forgotten industry is hotels. Investors love hotel business trusts that pay distributions regularly, but not hotel companies like GL and Stamford Land. After being alerted to their undervaluation by Mandarin Oriental’s spectacular rise and City Developments’ privatisation of Millennium & Copthorne, my analysis shows that there is hidden value in hotels. I bought GL and Stamford Land. See Some Hotels Could Be Very Valuable! for more information.
Needless to say, these stocks that I bought have not risen much compared to the electronics, bank and property stocks.
Conclusion
As contrarian investors, it is sometimes difficult not to be depressed when the market moves in the opposite direction. However, we are the ones responsible for our own money. We carry out analysis independent of the market and invest according to our beliefs. To all fellow contrarians out there, I will leave you with Benjamin Graham’s advice to Warren Buffett:

“You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right — and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.”

See related blog posts:

No, the Stock Market Did Not Crash in 2017

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The Dogs and Puppies of STI for 2018

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Investing Lessons Learnt for 2017

The year 2017 is drawing to a close. It is time to reflect and recap the investing lessons learnt. The largest loss on a single stock this year is Triyards, which has been suspended. In addition, Ezion is also suspended and First Ship Lease Trust (FSL)…

Is A Recovery for Oil & Gas Shipbuilders Near?

In recent months, there have been talks about green shoots in the Oil & Gas (O&G) industry with the gradual recovery in oil price. In particular, SembCorp Marine managed to sell 9  jack-up rigs to Borr Drilling for USD1.3B in Oct. Are O&am…