Monday, May 20, 2024

Respect, Not Idolize

There is always a GOAT (greatest of all time) or several legends in any field; we have Lionel Messi in football, Albert Einstein in physics, Napoleon Bonaparte in tactical warfare, etc. Other than those mentioned above, you may have your GOATs and legends in your own field of expertise and interest. In investing we have a few greats, too, such as Warren Buffett, Charlie Munger, Peter Lynch, and many others. 

These people are/were at the top of their game due to several reasons. Perhaps they have some skills or “powers” that others do not possess, or their contributions were recognized and impactful, or probably a combination of the former two reasons. Whatever it is, these greats would, in the eyes of those who appreciated them, have a strong sense of charisma, and surrounded by a huge field of positive aura. With this, the phenomenon known as fandom emerges and thus, we see so many people supporting their GOATs and legends.

While it is natural that these positive emotions on a person or a group of people may evolve into idolatry, it is perfectly OK to be like this as we humans are emotional creatures. Although we may like them, it is not advisable to go overboard to the point that one’s life is being dictated by them. Things like stalking or doing drastic things when an idolized great is doing what was not expected of them, are extreme acts one could go to if uncontrolled and unchecked; to put it mildly, an obsession.

In the realm of investing, such obsessions are a definite no-no. We all know that it must be approached with an objective, business-like attitude. The greats are there to learn from, such as the methodologies, the analyses, the rationales and reasonings, and with all these, their success stories. Sometimes, you may have heard of people fawning over the famous investors to the point of following their trades, quoting their quotes (much often without context) and so on, to the point of idolizing them. This is not good.

The great investors, or sometimes called super investors, are just like you and me, normal human beings. We make mistakes, and so do they. They might have “predicted” (read: guesstimated correctly) the fragility of the sub-prime markets back in 2007, or they knew the stock price of a certain electric car company will rise n-fold over a few years, etc. but they do not get it right all the time, yet we have people treating their words and/or actions as the gospel truth or future. This is dangerous, for the only person who is right every time is a certain “Mr. Market”.

Hence, we respect these investment greats for what they had done and taught us, not to idolize to the point of being obsessive and without critical thinking.

Related post:

Do They Know Something That We Don't?


Thursday, May 16, 2024

Berkshire Hathaway: The Future

There was a notable absence of a familiar face in this year’s Berkshire Hathaway (BRK) annual general meeting (AGM); he was Charlie Munger, who passed away in late November last year. Seeing Warren Buffett sitting without Munger on stage looked a little weird, as the two investors, whose names were almost synonymous with the company they were (and still are) running, were seen as inseparable. 

Realistically and morbidly speaking, everyone will get to meet their maker sooner or later; and this means Buffett will not be on the stage of the AGM forever. No doubt we would want him to continue (and earn us shareholders huge returns), but we knew this is impossible. Fortunately, succession planning was already in the works, with Greg Abel named as the successor to BRK.

Expectations

Successors are usually judged with the standards and achievements of their predecessors, and naturally they will feel the heat especially if the ones before them were greats. People would expect them to the same, if not, better than their upperstudies. We may be judgmental by comparing between the two, often for the worse as we prefer things that we were accustomed to. 

The tendency to cling on to nostalgia is there, but it is important to know that change is the only constant around. We need to be realistic with our expectations; no matter how much the disciples learnt from their masters, there will always be a hint of difference or deviation between them. The important thing is whether that difference/discrepancy is for the better or for worse, and this must be determined not just within one or two investments over a few weeks or months, but rather over several investments over at least a few years.

Furthermore, expectations are varied from person to person, so on a same issue one could find it better while the other may find it worse. In this case, it is up to the individual investor to decide whether to stick around or to exit his/her investments. 

Going back to BRK, would you think it is still a worthwhile company to invest in post-Buffett period? I would think so, at least for probably another two to three years or so. We need to give them a chance to prove themselves.


Disclosure

The Bedokian is vested in BRK.B.

Disclaimer


Saturday, May 4, 2024

“The Emperor Is Not As Forgiving As I Am”

Star Wars aficionados will know this line, uttered by Darth Vader to Moff Jerjerrod, who was overseeing the construction of the second Death Star, at the beginning of Star Wars Episode VI: Return of the Jedi.

The whole dialogue started when Vader arrived at the still-building Death Star, with Jerjerrod greeting him. Vader cut him off with the latter’s greetings and went straight to the point, demanding that the Death Star be completed in quick time, even though it was still on schedule. Despite Jerjerrod’s protestations, it stopped when he was told that the Emperor was coming, and he instantly acknowledged it, with Vader ending the conversation with the above quote.

For those who had watched Star Wars for the first time, before this scene, it was known that Vader would not hesitate to punish incompetence severely, usually with death. The utterance of this line had shown that if crossed, the Emperor would be a worse case in consequences than Vader himself, thus leading to viewers to speculate on what and how the Emperor as a character was.

After so much on Star Wars, what is the investment message that I am conveying?

The Market Is Not As Forgiving

The market is the dimension where we conduct our investing and trading actions in it. It binds and surrounds our portfolios, providing them with returns, like a friend. But it is also a dangerous adversary where risks are abound, and if one is not careful it may swallow your portfolios whole. For the latter point, it will not hear your grievances and knows no sympathy; in other words, it can be unforgiving.

Which is why we should always adopt a business-like approach to investing and trading. This can be hard as we are humans and capable of having emotions, but we really need to be mindful of our feelings when engaging the market. When the market goes north, do not jump on the exuberance bandwagon; when the market goes south, do not follow the fear crowd. Instead, step back, assess objectively and then contemplate the next move.

May the Fourth be with you!

Wednesday, May 1, 2024

Platinum for Commodities?

With gold and silver rising (and taking a breather) recently, there was talk among my various channels on another overlooked precious metal: platinum.

Platinum is a silver-grey metal which is non-reactive and highly resistant to corrosion, like gold. Platinum has been used for centuries as jewellery, although not as extensive as gold.  Perhaps it is best known for its modern use, that as a catalyst in a catalytic converter in vehicles that still utilize internal combustion engines.

 

Platinum’s performance, at least in price, did not really conform with its precious metal siblings gold and silver. While gold and silver historically were somewhat positively correlated with each other, for platinum, that held true for a while until 2016 or so when it started to diverge (see Figure 1).



Fig.1: Platinum prices (blue) vs gold prices (orange) from 1985 to present. Grey columns denote recession periods. Source: Macrotrends.


Despite platinum being scarcer and costs more to process than gold, there were a few reasons why platinum prices had dropped, and mostly these were vehicle-related; in the universe of catalytic converters, there is another metal that is competing in their use, which is palladium. Also, platinum is used mostly in diesel engines while palladium is in petrol-powered vehicles. With the statistics (based on a few studies) of diesel vehicles emitting more CO2 than petrol ones, the heightened awareness of climate change, and the accelerated adoption of electric vehicles, platinum had seen its functions reduced.

 

Now comes the question: does platinum earn a place in The Bedokian Portfolio’s commodities portion?

 

Going Back To The Basics


The basic premise of having different asset classes within The Bedokian Portfolio is the reduction of risks, and this is achieved via diversification and its related concept, correlation. The commodities asset class, as described in my eBook, is good to own in times of high inflation or hyperinflation, and a safe haven during economic crisis due to its low or negative correlation with equities and bonds, thus as a form of insurance.

 

With this, let us have a look at the correlations between platinum and the other commodities for The Bedokian Portfolio (gold, silver, oil), and other asset classes using their respective ETFs (see Figure 2):


Name

Ticker

PPLT

GLD

SLV

BNO

VT

BND

VNQ

CASHX

abrdn Physical Platinum Shares ETF

PPLT

1.00

0.56

0.70

0.35

0.37

0.02

-0.05

0.19

SPDR Gold Shares

GLD

0.56

1.00

0.86

0.04

0.20

0.57

0.06

0.32

iShares Silver Trust

SLV

0.70

0.86

1.00

-0.02

0.19

0.32

-0.17

0.13

United States Brent Oil

BNO

0.35

0.04

-0.02

1.00

0.17

-0.30

0.19

0.06

Vanguard Total World Stock ETF

VT

0.37

0.20

0.19

0.17

1.00

0.48

0.54

0.12

Vanguard Total Bond Market ETF

BND

0.02

0.57

0.32

-0.30

0.48

1.00

0.50

0.04

Vanguard Real Estate ETF

VNQ

-0.05

0.06

-0.17

0.19

0.54

0.50

1.00

-0.15

Cash

CASHX

0.19

0.32

0.13

0.06

0.12

0.04

-0.15

1.00

 

Fig.2: Correlation (based on annual returns) between platinum, gold, silver and oil, equities, bonds, real estate investment trusts and cash, using their respective ETFs PPLT, GLD, SLV, BNO, VT, BND, VNQ and CASHX, Jan 2011 to Dec 2023. Jan 2011 was selected to be the start date as PPLT was incorporated in 2010. Source: Portfolio Visualizer.



Looking at platinum’s correlation with the other major asset classes, the numbers were low with reference to equities, bonds and cash, and negative to real estate, so it qualifies to be a diversifying asset in a portfolio, like gold, silver and to a certain extent, oil. 

 

It Is All About Exposure

 

Truth be told, platinum was hardly seen by many investors as a hedge against inflation nor a safe haven, judging from the price movements over the years. If you had read enough financial news headlines, in times of crisis, gold was always mentioned first, as over the times it had been associated as such. The price movements of platinum were obvious; in Figure 1, during the Great Recession in 2008/2009 and COVID-19 in 2020, the price of platinum suffered huge drops, only recovering in the latter part of those periods.

 

Platinum prices going up in the later stages of a recession period was a typical characteristic of basic metals, like copper, which signalled the beginning of the next boom cycle. Although one could argue that silver and oil could have that characteristic since they also have industrial applications, for platinum 59% of its use were in just two fields: automotive (41.08%) and jewellery (18.12%)1, and with the limitations stated in the first section of this post, they further exacerbated its use cases. 

 

On the other hand, silver’s uses were more spread out, and recent news had shown that it was the next go-to precious metal after gold. Same goes for oil with many uses and it is dominating the headlines recently.

 

Is Platinum Still Feasible?

 

Platinum is purportedly rarer than gold, as one source puts it that there are 30 times more gold than platinum on Earth, so by logic the price of gold would be subservient to platinum’s (at least for the most part as shown in Figure 1). However, the points highlighted above had seen the disadvantage of platinum over gold. Perhaps when the markets (and cultures) realise its rarity and begin a paradigm shift towards platinum, then that may be the time to consider it as part of commodities in one’s Bedokian Portfolio. As for now, I would not include it.

 

 

1 – Distribution of platinum demand worldwide in 2023, by end use sector. Statista. 19 Apr 2024. https://www.statista.com/statistics/271231/use-of-platinum/ (accessed 30 Apr 2024)


Thursday, April 25, 2024

The Price Of A Thousand Yen

About 20 years ago, I have had heard that the average price for a typical lunch meal in Japan was between 800 and 1,000 yen, which in 2004 terms, was around SGD 12 to SGD 161. That cost, in local terms, was reserved for restaurants, not hawker centres and coffee shops where the price then (by my reckoning) was around SGD 2.50 for a meal.

Fast forward today, you could still get a decent meal in Tokyo for between 800 and 1,000 yen, which is now around SGD 7 to SGD 9. Surprisingly, these price levels are almost equivalent to mixed vegetables rice (considered Singapore’s unofficial basic food index) sold at some locations.

 

In a way, we could describe that we had reached Japan’s level of (price) standards, but there is a macroeconomic explanation behind.

 

The Lost Decade(s)

 

Long story short, the meteoric rise of the Japanese economy post-Second World War ended with the burst of the asset price bubble in the early 1990s, sparking what was known as the “lost decade”. However, this decade did not really last 10 years; the economic stagnation lasted well into the 2000s, 2010s and into early 2020s, thus being dubbed subsequently the “lost 20 years” and “lost 30 years”. The Great Recession of 2008/2009, the Tohoku earthquake of 2011 and COVID19 pandemic of 2020-2021 had made worse these “lost” years.

 

Japanese inflation rates since 1991 till 2023, for the most part, never went above 1.5% annually, and with close to half the time went into negative region2. On the other hand, Singapore’s inflation rate was at an average of about 1.73% year-on-year, with only 2 years of negative numbers, during the same period3.

 

With this, Singapore had overtaken Japan in terms of inflation, and coupled with the strengthening of the SGD against the Japanese Yen, that 1,000 yen now looked less expensive than before.

 

What Can We Learn From Here?

 

The term “equities will always go up over the long run” did not hold true for Japanese ones, until recently; using the Nikkei 225 index as a gauge, it did not return to its high as of Jan 1991 until around Nov 2020. To add, the highest peak achieved in Dec 1989 was not breached till just last month. 

 

Imagine as an investor who was all-in Japanese equities back then; he/she would not have recovered after factoring exchange rates. Hence it is important that we diversify not only among the asset classes, but also into different regions and countries, if your portfolio is sizable enough.

 

 

1 – Yearly exchange rates, Singapore Dollar per 100 units of Japanese Yen. Monetary Authority of Singapore.

 

2 – Japan Inflation Rate. 1960-2024. Macrotrends. https://www.macrotrends.net/countries/JPN/japan/inflation-rate-cpi (accessed 24 Apr 2024)

 

3 – MAS Core Inflation, 1990-2023. Monetary Authority of Singapore.

Sunday, April 21, 2024

What, Me Worry?

The phrase above came from none other than Alfred E. Neuman. In case you did not know this person, he was neither a famous investor nor a historical figure; he is a fictional character created by the now-defunct Mad Magazine, which for those who remembered, was a series of parody-laden illustrated magazines that would tickle your mind.

The significance of the phrase is obvious: the United States (US) and local markets, where most Singaporean investors were vested at, took a heavy beating over the last couple of weeks. Delayed interest rate cuts, drones and missiles flying everywhere, and a slew of other happenings big and small had provided enough bad-news juice to bring the markets down. With all these, do they warrant enough worrying on your end?

Not really for us. This is, to quote a department store’s motto: “the sale worth waiting for is now on!”.

I had said in my previous post that we had gone into some real estate investment trusts (REITs), and we did not stop there; we had added positions to Apple at USD 165, where it was near our next “buy-into” zone. Over the next few days, we would be looking over our holdings and see which had gone into the buy-into zones, provided if the markets are still on a downward trend, and probably initiate positions in them. There could be healthy companies which are being dragged down into the whole generic doom and gloom scenario.

To those who may have regretted not getting into bargains during the COVID period, or even further back in 2008/2009, this may be opportunity knocking again. The markets and the economy go through cycles, so there are Sundays and Mondays happening around.

Keep calm and stay invested.

Sunday, April 14, 2024

Going REITs Shopping Again

The markets were reeling from the latest not-so-good United States (US) consumer price index results and geopolitical jitters. With a recent capital injection and the resulting asset allocation skewness of our Bedokian Portfolio, plus a perceived delay of US interest rate cuts, it is time to go shopping again for the real estate investment trust (REIT) asset class.

Back in October 2023 I had shared on which REIT we had entered. This time round I will share what we had gone in or planning to go into, our rationale, and our average and entry prices.


REIT #1: Frasers Logistics & Commercial Trust (FLCT)

Based on the latest business update in January 20241, the gearing and interest coverage ratios were at 30.7% and 6.2 times respectively, with 76.8% of its borrowings under fixed rates, which indicated a healthy debt profile vis-à-vis other REITs of the same logistical, industrial and commercial sectors. The logistics and industrial arm of FLCT had maintained a 100% occupancy, though the (still) worrying trend of a not-so-robust occupancy rate for its commercial properties, especially for its United Kingdom (UK) properties, is there. The recent passing of UK law of allowing employees to have the legal right of working from home from the onset of employment could likely exacerbate the commercial space situation there.

Despite the downtrend, we believe that the logistics and industrial part still holds relevance in the future markets and economy, and bring about better rental reversions. We had initiated a position of SGD 1.04, with a total average price of SGD 1.07. 


REIT #2: Frasers Centrepoint Trust (FCT)

FCT need no introduction as being the king of suburban malls in the north, east and northeast. Recently in March 2024, FCT had upped its interest of Nex mall to 50%2, funded by private placements and debt financing. Accordingly, the acquisition would provide an accretive 1.5% in the distribution per unit3, and the gearing ratio would be at 37.8%(assuming divestments of Hektar REIT and Changi City Point were adjusted into the financial statements ending 30 September 2023). 

Overall, FCT’s retail malls enjoyed an occupancy rate of not less than 99%, proving the resiliency and relevance of suburban shopping malls in Singapore. Our current average price for FCT is SGD 2.05, and we are planning to enter it around the range of low to mid SGD 2.10s.


REIT #3: Nikko AM – Straits Trading Asia ex Japan REIT ETF (CFA)

OK, this is not really a REIT per se but a collection of REITs from the Asia ex-Japan region. It is part of our core-satellite strategy of having exchange traded funds (ETFs) forming the core and individual counters making up the satellite portion. When there was only three REIT ETFs back then in 2018, CFA was selected due to its diverse REIT holdings in terms of countries and sectors. We had recently bought in CFA at SGD 0.783, and our current average price is SGD 0.953.


REIT #4: Paragon REIT (Paragon)

Honestly, for this round, Paragon is more of a “want” than a “need” for this round of additions, but I will give an honourable mention in this post. Paragon's low gearing ratio, healthy occupancy rate (at least 98% across properties) and its retail profile provided a form of resilience. Recently in February 2024, after a long period of speculation, Paragon had rejected to buy Seletar Mall from its sponsor as part of its right-of-first-refusal5

While in my opinion the establishment of another foothold in the Singapore suburban mall landscape (after its foray into Clementi Mall, which to me is a good move) was gone, but with their explanation of that it is a dilutive acquisition, plus the uncertainty of the interest rate situation (their last known interest coverage ratio was about 3.5 times), prudence is key in such conditions.


Conclusion

If you had noticed, Reits #1, 2 and 4 were mentioned in my October 2023 post, so this was just a rehash. Frankly I had been prospecting other REITs to enter but eventually decided to just look at the present holdings and determine their current health and price to enter. It is alright to just add on to one’s existing portfolio and it is not necessarily to look for new ones to enter simply because it is a must to get it.


1 – 1QFY24 Business Updates. Frasers Logistics & Commercial Trust. 30 Jan 2024. https://flct.frasersproperty.com/newsroom/20240130_214656_BUOU_QWI72KXHOX61KRIR.1.pdf (accessed 14 Apr 2024)

2 – Completion of the acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction. Frasers Centrepoint Trust. 26 Mar 2024. https://fct.frasersproperty.com/newsroom/20240326_212947_J69U_JBZQX6UOU2EAHM9N.1.pdf (accessed 14 Apr 2024)

3 – Circular to unitholders in relation to the proposed acquisition of the remaining 49.0% interest in each of Nex Partners Trust and its trustee-manager as an interested person transaction, p30. Frasers Centrepoint Trust. 4 Mar 2024. https://fct.frasersproperty.com/newsroom/20240305_225314_J69U_L8NR94BDT0MKA9D7.2.pdf (accessed 14 Apr 2024)

4 – ibid, p32

5 – Lim, Jessie. Paragon Reit rejects Cuscaden Peak Investments’ offer to buy The Seletar Mall. The Straits Times. 29 Feb 2024. https://www.straitstimes.com/business/companies-markets/paragon-reit-rejects-cuscaden-peak-investments-offer-to-buy-the-seletar-mall  (accessed 14 Apr 2024)