tag:blogger.com,1999:blog-341047022024-03-12T20:14:34.249-07:00Intelligent Investing"It's (Value investing) like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is." - Seth KlarmanBerkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.comBlogger236125tag:blogger.com,1999:blog-34104702.post-91967300822625381082018-05-21T08:24:00.000-07:002018-05-21T08:24:49.296-07:0010 Year Portfolio Performance<div style="margin-bottom: 0in;">
It has been 10 years since I started on
my investment journey. Not an easy one. Along the way, there are many
“landmines” encountered. Many of these “landmines” may
masquerades as “gold” where you may find hard to resist. If you
are lucky, you just lose a “finger”, but if you are not, it may be
the end of the road.
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Temptations are abound in the world of
investing. You learnt how to curb your basic instinct that may be
harmful. Here are some lessons I learnt over the years.</div>
<ul>
<li><div style="margin-bottom: 0in;">
Humans are not wired to sit on
their butt but you have to learn how to sit on your butt no matter
how itch you are if you want to increase your chances of success in
investing. The more activity you find yourself in, the more you pay
the piper and the more mistakes you commit. A "10x return in 10 years" type of investment increases by making a one-time buying decision
and not by buying and selling multiple times, thinking each time you
can get in at the low and sell at the high - it is harder than you
think it is.
</div>
</li>
<li><div style="margin-bottom: 0in;">
You learnt how to be a contrarian.
This can be learnt too by reading on successful practitioners like
Warren Buffett and the likes. If I had not come across their sage
advice – to be greedy when others are fearful and vice versa – I
would be operating based on my basic human instinct which is to be
fearful when everyone is fearful. This is because humans are social
animals where we seek safety in groups and numbers.</div>
</li>
<li><div style="margin-bottom: 0in;">
You learnt how to differentiate
between needs and wants. A good investor would have to ask themself,
would they risk something they want but do not need by betting with
something they need? If the answer is yes, you should not be in the
business of investing.
</div>
</li>
<li><div style="margin-bottom: 0in;">
There are many snake oil sellers
in the world of investing. There are many who try to masquerades
their style like “Buffett” or the “3G” in the investing
world. In recent years, for example, in the food sector, one of the
most successful operator is Bill Stiritz. Frankly, I am unsure he
would actually be so successful if his endgame is not to sell to the
next monkey. So one of his key selling points is to buy businesses at
adjusted ebitda at 10x after accounting for “synergies”. His
latest vehicle is Post Holdings. He has had success for a very long
time prior to POST. There are a few others who tried to copy him – TreeHouse
Food and B&G food. Both too are acquisitive companies that
acquire businesses with the same modus-operandi. For a period of
years, both had success in driving their stock prices higher. But
recently, both of them suffered operationally at the same time, coincidentally. Both delivered underwhelming results and both paid
through their stock price. This modus operandi is not only unique to
the food sector, you can find it in other sectors and you get some
pretenders that may be starting to unravel – in the consumer
space, Spectrum Brands is an example, and the king of all examples
is Valeant Pharmaceutical.</div>
</li>
</ul>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
You don't need to be a genius to
succeed in investing. You don't need to solve rocket science. But
there are two basic ingredients I think are essential to successful
investing: 1) buy it at a good price, 2) have the patience to wait
and sit tightly on your butt. If you have only one of the two, you
are unlikely to make it.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Impact of 30% withholding tax on
dividend on U.S stocks</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Over the 10 years, if one has invested
$1 in S&P500 etf, he would have gotten $2.38 if there isn't a 30%
withholding tax. After tax, the $1 would be worth $2.23. But this
$2.23 is assuming 1) you reinvested 100% of the dividend, 2) it does
not cost you a single dime in commission to reinvest the dividend.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
An alternative to a market etf is by
investing in Berkshire which is likely to get you a similar result
(from the perspective of a Singaporean investor where you have to pay
withholding tax for dividends).
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
If one has invested $1 in Berkshire
Hathaway which does not pay a single dime of dividend, the $1 would
be worth $2.22.
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>First decade portfolio performance</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
My portfolio delivered a cumulative
performance of 345.7% versus S&P500 of 222.7% in my first decade. Annualized return
was 13.2% versus S&P500 of 8.3%. Details are in the table and
chart.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-gH7smTrp4_c/WwLfX5tmbBI/AAAAAAABbAE/-Tbt0_A9luocMPYXMA9BQgeJYqcY1mz3wCLcBGAs/s1600/Screen%2BShot%2B2018-05-21%2Bat%2B11.00.49%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="248" data-original-width="467" height="337" src="https://2.bp.blogspot.com/-gH7smTrp4_c/WwLfX5tmbBI/AAAAAAABbAE/-Tbt0_A9luocMPYXMA9BQgeJYqcY1mz3wCLcBGAs/s640/Screen%2BShot%2B2018-05-21%2Bat%2B11.00.49%2BPM.png" width="640" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-GnmZOh7sMwM/WwLfX2x2w9I/AAAAAAABbAA/C8hFANpNNdwj9OXvqRQYpAAlRh4ZlvZCACLcBGAs/s1600/Screen%2BShot%2B2018-05-21%2Bat%2B11.01.06%2BPM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="343" data-original-width="585" height="372" src="https://1.bp.blogspot.com/-GnmZOh7sMwM/WwLfX2x2w9I/AAAAAAABbAA/C8hFANpNNdwj9OXvqRQYpAAlRh4ZlvZCACLcBGAs/s640/Screen%2BShot%2B2018-05-21%2Bat%2B11.01.06%2BPM.png" width="640" /></a></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Core Holdings</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>DBS</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
I first bought at around $16 during
January 2016 as the market began to worry on the oil and gas loan
portfolio of the bank. I added most of it at below $15 in the
subsequent months as the worry exacerbated. We added to our position
for as low as $13.9. At that time, price is secondary to any kind of
worries that investors had in mind. Analyst after analyst's views
were the potential loan losses would likely drive the stock lower.
Price target were all revised downwards. The view from the analysts
perspective were all screaming “sell.” Good for me though. When
others sell, you try to buy if it makes sense. The pre-tax
preprovision income of DBS would likely cover the potential loan
losses. For the next two years, none of the dire prediction by the
analyst community comes to pass. DBS stock price marched upwards
without much volatility from below $14 to almost $30 now. For us, in
terms of return, we are up 124% with reinvested dividend over a
period of 2 years. I think Piyush Gupta, the CEO, is the best CEO
that DBS had for a long time. Do I have a price that I would sell at?
Sure I do. If DBS sells for 15x this year eps, about $36, I would
gradly reduce or eliminate my holdings.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Haw Par (the See's Candies of South
East Asia)</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
I have been invested in Haw Par since
2011. It has been a steady workhorse that I would gladly hold
“forever” if the price is sensible. There are mainly two parts to
its business – 1) the investment portfolio that mostly comprises of
UOB shares, and 2) the consumer healthcare business.
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<ul>
<li><div style="margin-bottom: 0in;">
Investment portfolio – In 2011,
Haw Par owns about 63m UOB shares. UOB price at that time was in the
range of $18s. Today, HP owns over 73m shares for about $30 per
share. The increase in shares is due to dividend reinvestment.
</div>
</li>
<li><div style="margin-bottom: 0in;">
Consumer healthcare business –
Haw Par owns Tiger Balm which is a ubiquitous consumer brand in
analgesic products in South East Asia region. The growth in the last
7 years is nothing short of spectacular, although growth has slowly
tremendously in the past two quarters. Revenue was up from $81m to
$202m in 7 years. Operating income before tax is up from $16m to
$69m. There is minimal requirement for capital reinvestment. Total
assets deployed in this business grew from $57m to $108m. It only
needs about $50m of additional assets to generate an additional $53m
of operating earnings with return on assets going from 28% to 63%.
This is how attractive it is. If there is business similar to this I
could think of, it is probably See's Candies.</div>
</li>
</ul>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Mastercard and Visa</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Majority of what I hold for both
Mastercard and Visa originated from 2012. But over the years, when
price was attractive relative to alternatives, I have no qualms
adding to my stake even if the price is almost tripled from what I paid in 2012 in these payment companies. For example, the
earliest batch of Visa were purchased back in 2012 or 2013 at around
$27 (split adjusted) while MA at $35 (split adjusted). I added to
Visa in 2016 at about $77. It is important not to let price to anchor
logic. I understand it is hard to overcome the emotion involved when
you compare the original price from 2012 in order to add at 3 times
the original cost from one's initial investment. It takes a lot to
overcome the emotion. But once you look at it from the value
perspective, it is not a difficult decision. In 2012, Mastercard and
Visa were basically available at a bargain of a lifetime. You could
get a business with a long growth runway that is likely to grow profits at
mid-teens for years, at-a-then almost-equal-to-market
multiple of less than 16x earnings. If one had bought at $27 at 16x
earnings back in 2012, it is worth $127 today – a return of 4.7
folds. Anyone who likes multi-bagger, this is one of the rare chances at that time. Same goes for Mastercard.
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Today, I still think both have a good
decent run way to growth given the advances in technology capability
in the past few years. More and more consumers are taking to paying
cashless – for example, I find myself using “Paypass” or
“Paywave” almost exclusively at places where it is allowed. And
more and more places are equipped with the capability to accept both.
Whether you are holding a credit or debit card, you could use it. But
of course, the valuation today isn't 16x, but almost 25x.
</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Visa and Mastercard could potentially
be my first 10-bagger stocks if it can double from today. If it double by 2022,
it will also be my first 10-bagger stock in a 10 year holding period
– most importantly, by sitting on my butt and not trying to catch
each and every wave up and down.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Berkshire Hathaway</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
I do not expect much from my investment
from BRK. It is basically more of a hedge for defensive purpose. But
I still expect it to produce 7 to 9% annual compounded growth over
the medium to long term. If I manage to find a better alternative, I will be swopping positions.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
Over the past 10 years, there is really
nothing to crow about on BRK's performance. But it still manage to
beat S&P500 if I had otherwise invested 100% either in BRK or S&P
etf. On paper, S&P 500 would have returned 238% over the last 10
years while BRK 222%. But as an overseas investor, I would have to
pay 30% withholding tax on dividend and the broker would again take a
cut on the dividend too, and if I am to reinvest the dividend, I
would have to pay additional commission. So after accounting for such
costs over the past 10 years, S&P500 & BRK performance are
about similar.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Google</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
The first batch were bought in 2014 or
2015 in the low $500s. Subsequently, I added in the mid $700s in
2016. Today, though it isn't as cheap as when I first invested. But
it is still available at a reasonable price that is not much above
market multiple but with growth that is way above market growth rate.
Will I be adding? Absolutely not. I will just keep it and let it run.
It should do a decent job over the medium to long term.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Discovery Inc</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
This is the worst of all of my core
holdings. I first bought it in 2013 or 2014 when it was in the $40s.
It went down to as low as $16. When it was $16, I added quite
substantially to the bet. My average cost is about $27. Discovery is
a cash flow machine. I think over time, I should be able to recoup
the investment and have a decent return. It is my mea-culpa to pay
$40 in 2013. There is totally no reason why a reasonable investor
would want to pay 13 or 14x ebitda at that point in time for a
business that is at the onset to be disrupted by Netflix, Youtube and
generally how consumers are going to consume their video shows. But I
was not one of the reasonable investor at that time.</div>
<div style="margin-bottom: 0in;">
<br />
</div>
<div style="margin-bottom: 0in;">
<b>Madison Square Garden (not a core
holding though)</b></div>
<div style="margin-bottom: 0in;">
<br />
</div>
<br />
<div style="margin-bottom: 0in;">
MSG is not a core holding but I wish it
is when the price was so attractive at $170. MSG is not a typical
value investing type of stock. It is more like a “art” piece
where it is more likely to go up in value as time passes. The primary
thesis is there is only a limited number of sports franchise
available in the U.S. In MSG case, there are only 30 NBA teams. There were 29 NBA teams in 1995 and 129 billionares in the US. Today, there
is 30 NBA teams and there are 585 billionaires in the United States.
And the billionaires of today have more wealth than their
counterparts in 1995. At $170, it was selling for about 20 to 30%
discount to what market valuations were at that time generally. That
was about less than 2 years ago. I think New York knicks was valued
at $3b in 2016 and in $2018, I think it is $3.6b. </div>
Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-90745267786127661742015-09-09T13:41:00.000-07:002015-09-11T00:08:16.582-07:00Portfolio as of 31 Aug 20It has been a long time since we last updated - 1.5 years and some.<br />
<br />
Summary of portfolio performance:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-7EGwMYR-PGw/VfCas6jU24I/AAAAAAAABAM/VWBfm7lywJo/s1600/Screen%2BShot%2B2015-09-10%2Bat%2B4.45.55%2Bam.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="187" src="http://4.bp.blogspot.com/-7EGwMYR-PGw/VfCas6jU24I/AAAAAAAABAM/VWBfm7lywJo/s640/Screen%2BShot%2B2015-09-10%2Bat%2B4.45.55%2Bam.png" width="640" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
Portfolio has largely outperformed STI because 85% of portfolio is in US-based assets. The rest are SG. The strengthening of USD to SGD has given a big boost to our portfolio when converted back to SGD. We started about 7 years ago and at that time, USD/SGD was $1.42, today it is back to almost the same. This is not something I have ever imagine possible - a pleasant surprise for me.<br />
<br />
The following shows the breakdown of performance by US & SG based assets.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-VxuDuSICntA/VfCE7v6mN2I/AAAAAAAAA_Y/dnGyuQaO2sw/s1600/Screen%2BShot%2B2015-09-10%2Bat%2B3.13.00%2Bam.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="65" src="http://4.bp.blogspot.com/-VxuDuSICntA/VfCE7v6mN2I/AAAAAAAAA_Y/dnGyuQaO2sw/s400/Screen%2BShot%2B2015-09-10%2Bat%2B3.13.00%2Bam.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-DT3Oh-Pqedc/VfCE7qTz3QI/AAAAAAAAA_c/7QK7v9IkYU0/s1600/Screen%2BShot%2B2015-09-10%2Bat%2B3.13.12%2Bam.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="66" src="http://4.bp.blogspot.com/-DT3Oh-Pqedc/VfCE7qTz3QI/AAAAAAAAA_c/7QK7v9IkYU0/s400/Screen%2BShot%2B2015-09-10%2Bat%2B3.13.12%2Bam.png" width="400" /></a></div>
<br />
We hold about 15% cash as of end August 2015.<br />
<br />
Our biggest contribution in the past 1.5 years came from Valeant Pharmaceuticals. We have since closed our position on VRX, selling at various prices - as high as $247 with our last sale and closing of our position. On average, we have made about double our investment.<br />
<br />
Our bets in pharma has largely turned out quite above our expectations. We also own things like CELG and GILD. We started investing in CELG last year at $72, and then added twice more, the most recent addition was during the recent crash, two or three weeks ago at $94. GILD's cost is also below today, some of it are up 46%, some of which we added more recently are up 10%.<br />
<br />
We continue to hold both Mastercard and Visa, though we have reduced the stake but still a significant one. Both have continued to serve us well, MA is up over 10% while V over 27% since end 2013.<br />
<br />
Our 6 largest bets consist of 51% of our portfolio, 60% of all our stock holdings.<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-xqfUpT40_fU/VfCXAl5r64I/AAAAAAAABAA/IDIjHFvcwQA/s1600/Screen%2BShot%2B2015-09-10%2Bat%2B4.30.12%2Bam.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="172" src="http://1.bp.blogspot.com/-xqfUpT40_fU/VfCXAl5r64I/AAAAAAAABAA/IDIjHFvcwQA/s200/Screen%2BShot%2B2015-09-10%2Bat%2B4.30.12%2Bam.png" width="200" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
Our "pharma" bet consists of 5 different drugs stocks - CELG, GILD, AGN, AMGN & BIIB. We view this in total as a bet on the sector, though CELG is the largest position in the bet - about 1/3 of the bet.<br />
<br />
Goggle is our latest addition. We started with a small bet late last year at mid-$500s and kept adding all the way through till it bottomed out at $490s. We have since sold some of it but still it remains a strategic position. We are up high teens level for our remaining stake. It should continue to do well.<br />
<br />
LMCA is a stock we have invested in since 2013. There is nothing to shout about on the performance - up 3%ish. That is for the current LMCA portion. But, there is the portion of LBRDA which was spun off from LMCA some time ago. LBRDA's portion is up in the low 20%.<br />
<br />
Discovery is a mistake we made by betting too early by being too optimistic. We were wrong. We were wrong on underestimating the nature of the industry's dynamics. Good news is we managed to catch our mistake early by selling. Bad news is for some unexplainable reason except attributable to psychology, we retain a portion. But still, we managed to sell a significant portion of our bet earlier, some we made a gain, some a loss. For those we sold, we made a gain on average - about mid single digit. For those we are hanging on to, we are down significantly - > 30% . We are not going to sell at current prices though, we think a lot has been de-risked. It should shine at current valuation. But we will be mindful on the dynamics of the industry.<br />
<br />Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com0tag:blogger.com,1999:blog-34104702.post-50136435814436072792014-01-01T11:18:00.001-08:002014-01-01T23:29:24.782-08:002013 Portfolio PerformancePortfolio Performance Table<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-km9qZ4qgmrw/UsRE0JXaomI/AAAAAAAAAFk/fCa3ni3yWCM/s1600/Portfolio+2013+performance+1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="308" src="http://3.bp.blogspot.com/-km9qZ4qgmrw/UsRE0JXaomI/AAAAAAAAAFk/fCa3ni3yWCM/s640/Portfolio+2013+performance+1.jpg" width="640" /></a></div>
<br />
<br />
We are up 27.6% for 2013. This is our second best performance on a full year basis since we started in May 2008. The bad news is our performance is a full two percentage points worst than S&P500. You may think we are disappointed, however, we certainly are not. Why not disappointed? Because we achieved these returns while holding a significant amount of cash throughout the year (varying from 25% to 30%). As a reminder, we have been holding significant amount of cash since end of 2011 and we have outperformed the S&P500 by 1.7% in the past two years.<br />
<br />
Because of our significant cash position, it became an anchor to our portfolio performance. Our actual performance on common stocks owned was greater than the overall portfolio performance as can be seen from the below table.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-Bh-f5RjSNCg/UsRFoHcfY5I/AAAAAAAAAFs/KX0HN3frFyg/s1600/Portfolio+performance+2013+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="179" src="http://1.bp.blogspot.com/-Bh-f5RjSNCg/UsRFoHcfY5I/AAAAAAAAAFs/KX0HN3frFyg/s640/Portfolio+performance+2013+2.jpg" width="640" /></a></div>
<br />
Our common stocks' performance have outperformed the various benchmarks by double digits in 2013.<br />
<br />
We are happy with our performance whether on an absolute, relative or risk-adjusted basis for the last one and two years.<br />
<br />
The following shows the breakdown of our portfolio:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-vzMuwWoTFvI/UsRG6GfwwQI/AAAAAAAAAF4/0SYiUHymj_o/s1600/Portfolio+performance+2013+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="136" src="http://2.bp.blogspot.com/-vzMuwWoTFvI/UsRG6GfwwQI/AAAAAAAAAF4/0SYiUHymj_o/s400/Portfolio+performance+2013+3.jpg" width="400" /></a></div>
<br />
Although the proportion of cash as a percentage of the portfolio remains unchanged from last year, the absolute amount of cash increased by 27.8%. That means we have more cash than last year. Hopefully, we get a good opportunity to deploy more of those cash. But we will not rush.<br />
<br />
Below table shows the significant positions of stocks in our portfolio:<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-jj-Xn1kvZxM/UsUG0fvDgvI/AAAAAAAAAIA/BE4CAN4Dp2I/s1600/Portfolio+performance+2013.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="254" src="http://3.bp.blogspot.com/-jj-Xn1kvZxM/UsUG0fvDgvI/AAAAAAAAAIA/BE4CAN4Dp2I/s640/Portfolio+performance+2013.jpg" width="640" /></a></div>
<br />
Discussion on portfolio changes:<br />
<br />
1) Payment network companies: We have reduced our exposure to both Mastercard and Visa. At one time, we held 20% of our portfolio in these two stocks. Today, it is 10.9%. When we first started buying them, they were selling for less than 16x forward earnings. Now, Mastercard is selling for 27x, while Visa 25x. Most of the return on the stock is driven by multiple expansion rather than earnings growth - the same is true for the main U.S. benchmark indices in 2013 as well. For example, Mastercard's stock has risen by 139% since we bought, while earnings increased by 41%. And this isn't too long ago, we started buying in Jan and Feb 2012 (less than two years). Besides reducing our exposure to the payment network companies, the other measure which we took to protect downside is by switching more of our exposure from Mastercard to Visa. At the start of the year, 82% of our holdings in the payment network companies were in Mastercard, the rest in Visa. Now, 64% are in Visa and 36% in Mastercard.<br />
<br />
2) Berkshire Hathaway: We have reduced our BRK holdings. This is the first time we made changes to our BRK holdings since May 2011. We would not have touched BRK had we not decided there were better alternatives to BRK, taking into consideration we do not want to reduce our cash position in a significant manner.<br />
<br />
3) DirecTV: During the first half of 2013, we added to our DTV holdings when it fell to as low as $48, resulting in DTV to constitute 13% of our portfolio. We have since halved it. The reason why we reduce is the same as BRK where we think there are better alternatives.<br />
<br />
4) IBM: IBM is a major disappointment since we bought them in terms of stock price performance. Although IBM's "as a percentage of portfolio" is less than last year, we hold 16.5% more shares than last year - that means we added to our IBM holdings. We think IBM's price has been significantly de-risked. Going forward, we expect decent results primarily because of the following reasons: 1) IBM sells for 11x forward earnings versus S&P500 of 16x; 2) IBM has terribly underperformed the S&P500 whether on a one or two years basis (on a two year basis, it has underperformed to the tune of 40%); 3) IBM is the worst performing stock in the DOW - the only DOW stock that is in the red for 2013.<br />
<br />
5) In the second half of the year, we opened a number of new positions. Namely, Posting Holdings, Valeant Pharmaceuticals, Colfax and a bunch of companies that are linked to John Malone. As a group, these companies make up almost 30% of our portfolio. We have followed these companies for a couple of years, particularly, the managers leading these companies. We simply love the managers in these motley crew of companies. Most of these managers have a long proven record. And they share a common trait - they are all very focused on growing "per share" value. In short, they are competent capital allocators in addition to most of them being a good operator. In fact, we have a few other of such companies which we would love to own but unfortunately, the price is not where we like it to be. These includes Transdigm, Jarden, Danaher, Teledyne, Roper Industries, B&G Foods, Credit Acceptance Corp, for example. All of them are led by outstanding managers.<br />
<br />
The following tables shows the stocks which drove our 2013 performance:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-LbALJmlSLP4/UsRSfikDhpI/AAAAAAAAAGc/0FQoMM0e0kw/s1600/Portfolio+performance+2013+6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="250" src="http://4.bp.blogspot.com/-LbALJmlSLP4/UsRSfikDhpI/AAAAAAAAAGc/0FQoMM0e0kw/s400/Portfolio+performance+2013+6.jpg" width="400" /></a></div>
<br />
These group of stocks contributed to 75.5% of our total return in 2013, with the payment network companies contributing almost a third of the return. Starz, another company linked to John Malone, contributed to our performance in the first half - we have sold out our position by the first half of the year. Post Holdings, which we only added in Sep and Oct 2013, contributed to our second half performance.<br />
<br />
In fact, DirecTV is another company operated by a sensible capital allocator - Michael White, the CEO of DTV. Michael White is somewhat of an outsider in the industry when he first joined DTV. He worked all his life in consumer staples prior to being DTV's CEO. He was the Vice-Chairman of Pepsico before he lost out to Indra Nooyi for the CEO position. So for him to do so well at DTV is a pleasant surprise. We have gotten very attractive return from DTV since we started holding them. DTV is one of the most, if not the most, aggressive repurchaser of its own stock, and being aggressive is not good enough, it gotta be cheap. And cheap it was, so being aggressive using its significant cash flow and under-levered position to repurchase its cheap stock is a good thing.<br />
<br />
The following table will show the performance of those stocks which drove our portfolio return in 2013:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-V3mP9-oDhBA/UsRVZF33P8I/AAAAAAAAAGo/0rkwfvKfj-Q/s1600/Portfolio+performance+2013+7.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="372" src="http://3.bp.blogspot.com/-V3mP9-oDhBA/UsRVZF33P8I/AAAAAAAAAGo/0rkwfvKfj-Q/s400/Portfolio+performance+2013+7.jpg" width="400" /></a></div>
<br />
As a group, these stocks delivered an average of 33.8% return - slightly besting the S&P500 index by 4.2%. However, this return is understated. The reasons that it is understated are because: 1) Post Holding was only added from Sep 2013; 2) part or most of the capital plowed into Post Holdings were originated from the proceeds from the sale of Starz, Mastercard or other stocks during the year, for example. So these proceeds from such sale were recycled into new positions such as Post and Valeant, have acted as a drag to the reported gain in percentage.<br />
<br />
The following table shows our significant bet on the earlier mentioned motley group of stocks operated by extraordinary managers:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-eUDWj2S_qjc/UsRbVQmXoHI/AAAAAAAAAG4/pcmelllc9hY/s1600/Portfolio+performance+2013+8.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="160" src="http://3.bp.blogspot.com/-eUDWj2S_qjc/UsRbVQmXoHI/AAAAAAAAAG4/pcmelllc9hY/s640/Portfolio+performance+2013+8.jpg" width="640" /></a></div>
<br />
This group of stocks makes up 29% of our portfolio and has delivered an average of 12.3% return. More than 90% of this group were only added during Sep to Dec 2013. We only held a small position of both Liberty Media and Spectrum Brands in the first eight months of the year.<br />
<br />
1) John Malone's stocks: We own 6 different Malone-linked companies. The largest stake among the six is Discovery Communication. Discovery is expected to grow at high teens to low twenties level and is selling for 21x at the price we bought at. It is not cheap in the traditional sense but a fair price to pay for for such growth. We had bought Discovery partly because we thought Mastercard is more expensive, and has a lower growth rate than Discovery. So we swop part of our Mastercard holdings to Discovery. Another Malone's stock we own is Sirius XM which we just bought in Dec 2013. We are likely to add more at current price. We also own Liberty Interactive and we may add more when QVC is separated to be a standalone company if the price is good. If QVC is priced at anything with a market capitalization of less than $14b, we will add.<br />
<br />
2) Post Holdings: We added Post in Sep and Oct 2013. We started with a very small position (1% of portfolio) at a cost of $41.77. This is not abnormal of our strategy. We only build a significant position when it falls from our target entry price. And Post fell to as low as $38, and as a result, we managed to build a meaningful position. We adore Bill Stiriz and most of all, we like that Post is selling at 12-13x normalized earnings and is at the same time, managed by a top notch manager who is laser-like focused on growing per-share value.<br />
<br />
3) Valeant Pharmaceuticals: We started buying VRX in Oct 2013 and added in Nov and Dec 2013. Like Mastercard and Visa, we sucked on our thumbs for too long and only started buying when we could have bought it at less than half the price. We started tracking and studying VRX 1.5 to 2 years ago when it was selling for mid $40s. However, even at the price we bought at, $100+, we think we are getting a good deal. VRX is selling for about 12x normalized earnings and it is led by a top-notch capital allocator - Michael Pearson. Pearson is not a conventional pharmaceutical guy, he didn't raise from the industry but rather he came in from the consultant side of the industry. But like Michael White (DirecTV's CEO), this doesn't act as an anchor to his performance.<br />
<br />
4) Spectrum Brands: Spectrum Brands sells a variety of products, mostly consumer staples, from batteries, to insect repellent, to pet foods and kitchen hardware and door locks. Most of its consumer staple products are what people need rather than want. Although we don't expect high top line organic growth from its consumer staples, but we think the growth from its Home and Hardware division should provide aid to the overall growth in revenue if housing picks up. In any case, management has guided for at least $6.7 free cash flow per share for the fiscal year ending Sep 2014. So even at current price, we don't think it is expensive.<br />
<br />
5) Colfax: This is an insignificant position for us, although we'd like to have a more meaningful position. But the price didn't bulge further from our entry price. So we did not have the chance to add. We love Colfax management. The CEO and many of its top executives are ex-Danaher executives. Colfax, like Danaher, were started by the Rales' brothers, and they own significant stake in both. The record of the Rales' brothers in Danaher are simply legendary stuff.Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com10tag:blogger.com,1999:blog-34104702.post-23284095482492643102013-08-28T13:11:00.000-07:002013-08-29T06:34:31.502-07:00Portfolio performance update for 1H 2013<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-SRKP4PtQU-k/Uh9NvL7XB2I/AAAAAAAAAFQ/Iti8xDBWeuk/s1600/2013+1H+table+1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="307" src="http://4.bp.blogspot.com/-SRKP4PtQU-k/Uh9NvL7XB2I/AAAAAAAAAFQ/Iti8xDBWeuk/s640/2013+1H+table+1.jpg" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<br />
<div style="margin-bottom: 0in;">
Here's our belated portfolio's
performance for the first half for 2013. I apologized for the delay.
</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
Our portfolio enjoyed a good first
half. We managed to do our own things while at the same time, manage
to keep up with the market with a slight outperformance. The slight
outperformance is masqueraded by our relatively significant portion
of cash (more on this later). Throughout the first half (even up to
now – end of August), we hold a relatively substantial cash reserve
of a minimum of 25% cash in our portfolio at any point in time. Our
position in cash is not just for show at period-end. In fact, we have
maintain such cash reserve since the third quarter of 2011 with the
reserve varying between 19% to over 43%. On average, we maintain
between 25% to 32%. We will have no qualms to increase it
substantially. So we are about 70% to 75% long in stocks most of the
time since the third quarter of 2011.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
The reason why we say that our overall
portfolio's performance is masqueraded by our cash reserve can easily
be explained just by examining our pure performance in equities. The
following table shows our performance in equities without taking cash
into the picture.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-WHqdkC_wGIM/Uh5UGybR81I/AAAAAAAAAEg/iienCivZyZU/s1600/2013+1H+table+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="182" src="http://3.bp.blogspot.com/-WHqdkC_wGIM/Uh5UGybR81I/AAAAAAAAAEg/iienCivZyZU/s640/2013+1H+table+2.jpg" width="640" /></a></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
The table shows our equity performance
excluding the effect of cash which tends to be a drag to our overall
portfolio. However, we are happy to hold a substantial reserve
primarily to wait for a better set of opportunity to deploy our
reserves. Cash, to us, is the safest hedge when 1) there is a turmoil
in the market, 2) when rare opportunity arises. Without cash, or
substantial cash reserves in relation to our overall portfolio, we
cannot 1) take advantage when an opportunity comes along, or worse, we may need to force ourselves to chose from our existing holdings and decide if the alternative is better and make a wrong decision; 2) we
wouldn't be able to make a difference to our overall result for the
long term if our cash is only a small portion when opportunity
arises. Importantly, our cash position is primarily dictated by what
we can find in the market. For example, if we have only less than 5%
of cash during January 2013, we will not be able to take advantage of
the severely undervalued shares of Starz when it was first seperated
from the core Liberty Media business. We subsequently bought about a
5% position in Starz. So if we had only 5% of cash, we would have
depleted all our cash – but for most people, I don't think you would spend all 5% in a single stock if you have only 5% cash, unless
it is selling for 10c on the dollar. So more likely, if you have 5%
cash, you may use 20% of it or 1% cash to purchase the position? Or
at most 2.5% of the remaining 5% cash which is 50% of your remaining
last bullets. But since we have about 25% cash back in January 2013,
we can afford to spend 5% of cash in that position or about 20% of
our remaining cash/bullets back then. So if you have 5% cash and use
1% to buy, that 1% would not have much effect on your overall
performance in the long run even if it returns 40%. But if you have
25% cash and spend 5% of it, a 40% return would be much more
meaningful to your overall performance.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
The following table shows the breakdown
of our portfolio by asset classes and regions in which our equities
are invested in.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-BbQVs2Kp_Ks/Uh5UHDbu5RI/AAAAAAAAAEs/4pTPj2BDuqg/s1600/2013+1H+table+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="166" src="http://4.bp.blogspot.com/-BbQVs2Kp_Ks/Uh5UHDbu5RI/AAAAAAAAAEs/4pTPj2BDuqg/s400/2013+1H+table+3.jpg" width="400" /></a></div>
<div style="margin-bottom: 0in;">
A thing to note on our cash reserve - even though it is down a percentage point, our cash reserve in absolute amount is actually up by almost 10% in the first half, i.e., we were a net-seller of equities but not by much.<br />
<br /></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
Here's our stock of significant
positions:</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-ZHzoBxJVOG4/Uh5UHV68WYI/AAAAAAAAAFE/MzF1ElH6dGk/s1600/2013+1H+table+4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://4.bp.blogspot.com/-ZHzoBxJVOG4/Uh5UHV68WYI/AAAAAAAAAFE/MzF1ElH6dGk/s640/2013+1H+table+4.jpg" width="640" /></a></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
From the table, our top 5 positions
makes up almost 75% of our equities' positions, and 56% of our total
portfolio. We hold a relatively concentrated portfolio for equities
although we have a total of 22 stocks in our portfolio.
<br />
<br />
Of the 5 stocks, 4 of them, readers should be familiar with. We will discuss a little more in detail on why we like Overseas Education. OEL operates an international school in Singapore. The economics behind the foreign school system in this part of the world is highly recession-proof and low price sensitivity with high predictability in revenue. We wish we have discovered it early in February when it was newly IPOed at $0.48, but we only learnt about the business a few months later when it was selling for $0.69. But even at $0.69, it is only priced at 13.8x for last year earnings, and about 12.3x for our expected this year earnings. At a low teens multiple for a business that has high to low teens growth potential, we think it is a very good bet. In the latest quarterly report, OEL is increasing school fees by 8.5% starting from August for the new academic year. OEL has historically been able to increase fees over and above the general inflation rate as demonstrated by 1) about 10%, 7% and 6% increment for academic year 2012, 2011 and 2010, respectively.<br />
<br /></div>
<div style="margin-bottom: 0in;">
So what drove our returns in the first
half? The following table speaks for itself.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-LHB9BdtEvXc/Uh5UHhPrOtI/AAAAAAAAAE4/mg0eZh3AbjY/s1600/2013+1H+table+5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-LHB9BdtEvXc/Uh5UHhPrOtI/AAAAAAAAAE4/mg0eZh3AbjY/s1600/2013+1H+table+5.jpg" /></a></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
Over 81% of our return in the first
half were driven by 5 stocks (4, if you will, as we view both
Mastercard and Visa in combination viewed through the lens as “card
network players”).
</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
If you compare to our earlier table
showing our top equities' positions, Starz is not there because we
have divested fully our stake at an average of about $22.2 after
trading cost for a gain of 42%, over a period of 4-5 months. In fact,
our gain could have been much higher had our brokerage not had some
rules which restrict certain stocks to be purchased. In Singapore,
the local brokers maintain a list of restricted foreign stocks, and
this includes newly IPO stocks or new spinoffs (which includes big
names like Mondelez which I think is ridiculous). Ok, anyway, we
wanted to purchase Starz on the very first day it was traded as an
independent company during mid January. It was selling for lower than
$14.2 on the first day. However, we couldn't make a purchase then. We
did not know that Starz is on the restricted list. So the very next
day, we called our broker to make arrangement for us so that we can
purchase Starz. But guess what, on the second day, it was selling for
over $15. We managed to buy at an average of about $15.6 after cost.
It is heart-wrenching to pay more than 10% more than what we
originally could have. So besides us having to pay more, we also
purchase less. We would have deployed close to 10% of our assets in
this position, but we ended up with only 5%. Psychology really plays
a big part in that it prevented us from making a decision from a 100%
logical point of view because even at $15 or $16, it is a very good
bet. Not only was it selling for less than 9x earnings but it was
also selling relatively much less than any of the media firms. But to
have to pay 10% more than what we could have the previous day, it is
extremely very tough emotionally and psychologically to overcome. So we ended
with a 5% position.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
Now remember, we discussed about having
a substantial cash position to take advantage of unseen and
unpredictable opportunities that may come along. So with a
substantial cash reserve, we have the resources to deploy a
meaningful amount to a single position – a 5% position in Starz
which contributed to almost 15% of our total gain during the first
half. So if we had only a very small percentage of reserve, and
imagine, if we only deployed 1% of cash, then Starz would not have
contributed 15% but only 3%.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
The following table shows the return of
our major contributors to our return in the first half.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-daSgImPrCx0/Uh5UHxq9PzI/AAAAAAAAAE8/365tHZSqX9U/s1600/2013+1H+table+6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://3.bp.blogspot.com/-daSgImPrCx0/Uh5UHxq9PzI/AAAAAAAAAE8/365tHZSqX9U/s1600/2013+1H+table+6.jpg" /></a></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
As a class, this motley crew delivered
an average return of 23.6% in the first six months – 11% over
S&P500.<br />
<br />
We also took advantage of one opportunistic situation (besides Starz) during the first half:<br />
<ul>
<li>1) McGraw Hill - Stock plunged when the AG sued MHFI for a reported $5b. We bought some at $45.8. We have since sold at $62 sometime after the first half. But even at $62, it is not expensive, in fact, we think it is still cheap and that we may have made a mistake selling too early. So we may buy it back. At $62, although based of price to earnings multiple, it is about 16x for next year. But if we based on EV/EBITDA, it is selling way too cheap at below 9x (MCO is 12x, Equifax, Dun & Bradstreet are all way over 10x). So, even if MFHI is liable to pay $5b without being criminally indicted of course, MFHI will not disappear. They already have about $1.5 to $2b net cash, so if they raise all the rest through debt, the EV/EBITDA would brings them roughly in line to the rest as mentioned at 11 to 12x. So if any fine that is less than $5b or none at all, MFHI is really undervalued by a fair bit.</li>
</ul>
</div>
<div style="margin-bottom: 0in;">
In our last letter, we said we like 3
stocks – America Movil, Baidu and Valeant Pharmaceuticals –
although we never make any purchase of any of them. We also said we
are most confident on Valeant. Valeant has strengthened our belief in
the quality of its management. At that time, VRX was selling for $70
(in fact, we have like them since they were $45 but we never make any
purchase), now it is over $90. We still think fine of its prospects.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
For Baidu, we recommended them when it
was $100. It has been a volatile ride for Baidu in the past one year,
and also since the time we recommended them. It went to $80 early in
the year, but has since surged to $130. We think, though Baidu is
volatile, they are very entrenched in China though competition is
very cut-throat and they lag in mobile arena.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
For America Movil, it is below the
price at which we recommended them. It is now in the $20-21 range. I
think we did not make more margin for errors in their susceptibility
to governmental/political risk.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
<b><u>Expansion of our list of shortlisted
stocks</u></b></div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
We have been very eager to shortlist
more stocks (especially those in which there are exceptional
managers) so that we track both their performance and the stock
price. In the first half, we found four more companies with
exceptional managers (though price may not be compatible to what we
want). The four companies we will track for a long time are 1)
Transdigm, 2) Credit Acceptance Corp, 3) Jarden, 4) Danaher. To
understand why we love some of these companies, we recommend you to
read some of their shareholders' letter and also their investors'
presentation and compare to what they say with what they delivered. We strongly recommend you to read the shareholders' letters of Credit
Acceptance Corp – it is truly in a class of its own.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
Finally, some stocks we think are worth
a look at current price – 1) AT&T, 2) IBM, 3) Oracle, 4)
Spectrum Brands, 5) Ebay, 6) Crown Castle International, and 7) Thai Beverage. Out of the 7, we have vested interest in all except AT&T & Crown Castle. </div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
Here's a very brief discussion on the 7 stocks:</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
1) AT&T - not far from its 52-week low. Sells for 12.5x of next year earnings. Pays over 5% yield in the meanwhile. You may also like to consider Verizon though VZ is priced higher at almost 15x next year expected earnings but potential growth rate is much higher than T. If VZ managed to buy out the remaining stake from Vodafone (say at the current price reported by the media), it'd likely be accretive to earnings.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
2) IBM - at 52-week low, in fact, have added a little more to my position today. Sells for 11x this year eps. Still on track to hit $20 in 2015.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
3) Oracle - though off from the recent lows of $30, it is selling for less than 11x multiples and 10% free cash flow yield.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
4) Spectrum Brands - highly leverage but revenues pretty predictable. Management guides for $5 fcf for 2013 (think $4.6 is more accurate). And $7 fcf in 1.5 years.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
5) Ebay - not exactly cheap in the traditional sense but management guides for over mid-teens growth and with stock selling for 16x multiple, think is a good bet.</div>
<div style="margin-bottom: 0in;">
<br /></div>
<div style="margin-bottom: 0in;">
6) Crown Castle - expected AFFO of $4 for 2013, up from $3 last year. Likely to grow at low to mid teens. Highly predictable recurring revenue. 87% of revenue & 95% of operating profit are from tower rentals and related. Tower related revenues are all on contractual basis and thus are mostly recurring. Such contractual are long-term in basis and the average is 8 years remaining with yearly price escalation built in with typical 3 to 5% increment. There is typically no way a customer can break or terminate the contract. However, one should note that business is highly leverage at 6x ebitda. But given the highly recurring and predictable revenue, and cost are also largely fixed and grows generally at inflation rate, it shouldn't be much of an issue, and loans are quite well spread out and don't come due in the next few years. EBITDA covers more than 2x of fixed charges including interest expenses.</div>
<br />
7) Thai Beverage - THB has been very volatile of late. Our initial purchase was $0.40 late of 2012. It went up all the way to a high of $0.70. Within the past two months, the stock drops like a stack of potatoes, to a low of $0.415. In all of this drama, so what is the true worth of THB and the risk? From the many views from the media and also individuals' comments from forums online, the risk of the most concern seems to be the high debt and leverage taken on by THB to acquire a stake in F&N. And coupled with that, the poor financial performance in the last quarter exacerbated the decline and was further push over the cliff with recent worries on emerging markets. So what are the numbers behind THB? First on THB's acquisition on F&N and related debt. In some of the comments online, we saw that a number commended that THB is underwater since its purchase of FNN. But I think they have wrongly assumed that THB had paid $9.55 per share for FNN. Instead, the average price paid by THB is $8.77, not $9.55. The figure $9.55 was paid by TCC, not THB. THB was the party that bought into FNN before TCC came into the picture last year. So since the acquisition, FNN had return a total of $3.435 (both capital reduction and dividends) to shareholders. Currently, the last transacted price for FNN was $5.72, so if we add $3.435, the total comes to $9.155, a gain of 4.4% for THB. Now on debt, although debt has increased significantly compared to the pre-FNN acquisition, it is still manageable for a consumer stock type of business. Moreover, the current market value for THB's stake in FNN is worth about Thai Baht $58.8b, this is compared to about net debt of Thai Baht $67b (after THB repaid a portion of loans with the FNN's capital reduction). THB's ebitda is probably going to be in the Baht25b range which is about 2.7x net debt to ebitda - a pretty manageable ratio for a consumer business. Now, what are we paying $0.415 for? The crown jewel in THB is the spirits business. Although this year, it is poised to decline by at least teens level, it should be still able to earn $0.025 a share - so it is 16.6x just based purely on the spirit business. Of course, this is the simple way of valuing by not taking into other aspect of the business. But since it was listed, the market has priced THB from 11x to 21x of its spirit business. So 16.6x is at the mid range.<br />
<br />
<br />
<br />Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com0tag:blogger.com,1999:blog-34104702.post-13555592726509332882013-01-11T02:50:00.001-08:002013-01-11T02:50:16.086-08:00Mispriced Liberty Media??Here's another idea which may or may not works.<br />
<br />
Liberty Media is due to spin off its non-Starz related assets, i.e., its media investment assets in Sirius XM, Live Nation, Barnes & Noble, minority interest in Time Warner, Viacom, Sprint, etc.<br />
<br />
According to this press release (http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=732276), persons acquiring Liberty Media common stock in the market through Jan 11, 2013 will receive shares of Spinco common stock in the distribution. So people who buys LMCA at $122 today will still qualify for shares in the Spinco.<br />
<br />
And the Spinco stock is now traded on as "when-issued" basis on Nasdaq under the stock code, LMCAV (http://www.nasdaq.com/symbol/lmcav). "When-issued" refers to the stock price as if the stock is selling on the day it is ex-dividend or ex-distribution or rights. It closed at $108.71 yesterday.<br />
<br />
So if you buy LMCA at $122, and on Jan 14, 2013 (coming Monday) when it is ex-distribution and if the actual price then really tracks the "when-issued" price of $108.71, you are actually paying $13.29 per share of Starz stock.<br />
<br />
Upon completion of spin-off, there'll be about 124 million outstanding common stock in Starz. Starz makes $240 million in 2011. Thus, eps is $1.93. At the price $13.29, it priced at 6.88x earnings - a value too low compared to other cable companies like AMC Network (>17x) or Discovery Communications (>20x). Even if we use a conservative valuation at 12x eps, it is worth at least $25.<br />
<br />
So by paying $122 today for LMCA, you get 1 share of Starz on coming Monday. If you can then sell the non-starz stock on Monday at the same price as the "when-issued" price traded last night at $108.71, you are only paying $13.71 for each Starz shares which produces earnings of $1.94 per share.<br />
<br />
Easily, you can almost double up your capital of $13.71 to $25 based on 12x earnings of Starz.<br />
<br />
Disclosure: I bought some LMCA at $120.7.Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com3tag:blogger.com,1999:blog-34104702.post-11625269656173130382013-01-04T13:29:00.001-08:002013-01-08T05:56:27.567-08:00Review of Portfolio for Y2012<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif; line-height: 24px;">Let's
start with recent comments from Seth Klarman:</span><br />
<div style="font-style: normal; line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><i>'The
key watchword for the first half of the year [2012] was patience. We
patiently sifted through scores of interesting investment ideas to
find only a few really good ones. We patiently held cash while
waiting for prices to hit our buy levels before accumulating. We
stayed abreast of the U.S. markets where most of our investments
reside, while patiently searching European markets for the occasional
morsel, despite the frustrating reality that most sellers continue to
cling tightly to their troubled assets--at least for now. All the
while, we built up our knowledge of European markets, country by
country and asset class by asset class, while expanding our base of
relationships and developing price targets for many businesses and
assets that we would love to own at the right valuation, awaiting a
reckoning that we deem likely to come but at a date uncertain.' -
Seth Klarman</i></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">We
agree patience is key particularly in times when few investments are
available to deliver an above-average historical return. But a lack
of good investment opportunity does not mean the next move is
downwards for the market. With huge liquidity flooding the system, we
can understand why the market is going up. Fed, for one, is pumping
$85b a month ($45b on long term treasury and $40b on mortgage backed
securities) into the system, although in the latest Fed's minutes, it
hinted that stimulus may be ended earlier than expected. That is over
a trillion dollar of monetary stimulus that is rushing into the
market annually. Couple with ultra-low interest rate which is
expected to be near zero until unemployment rate reaches 6.5% or
below, there is little places to stash one's cash for a decent but
risky return. For those who keep cash, it has less buying power as
time passes. Thanks to the Fed, savers find themselves subsidizing
enterprises and corporations. It is essentially a transfer of wealth
from savers to corporations. Just that it is done stealthily. Not
only is it done stealthily, but it also punishes the responsible
savers while rewarding and subsidizing those who took excessive risk,
bought houses they could not afford or had otherwise ran up too much
personal debt. For savers who realize they are “conned,” they may
then opt to invest in other asset classes like corporate or sovereign
bonds or even equities just so that they do not get “conned”
again. That's why we hear more people saying it is better to buy
dividend assets than to have cash. Eventually, these savers may find
themselves getting “conned” again by the macroeconomic policies
which had driven or “coerced” them to invest in such assets
classes so just that they are able to maintain their real net-worth,
which they otherwise would not have had interest rate been more
normal, when things come to a head. This is exactly the time when
things get more risky when everyone is heading in the same direction.
In short, investors are hugely influenced by what Fed does. Today,
Fed is telling us to go forth and speculate and I don't care what you
buy as long as you buy.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">Given
the current situation, we think it is hard to short the market given
that the liquidity have to go somewhere, at least for the short term.
With stimulus, not only monetarily but also fiscally, couple with low
interest rate, many are enticed or “forced” to get invested so as
not to see their “real” net worth gets decimated by the negative
real interest rate. Negative real interest rate is likely to persist
for some time and thus, we can understand why people are putting more
of their savings in assets that provides better yield than normal
savings interest-bearing account.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">Although
we doubt the market will suffer a big crash any time soon, that does
not mean it would not. We are mindful that the possibility of a
correction is always there. Washington has simply deferred the fiscal
and debt ceiling issues. End of February, Congress must boost the
federal borrowing limit. On March 1st, $110 billion of sequestration
or automatic spending cuts begin slicing into defense and domestic
spending if no deal is reached. By end of March, a government
shutdown looms unless Congress approves funding for government
operations for the reminding of the fiscal year, which ends Sept 30.
Without action, many federal employees could face the possibility of
being furloughed. Although Washington is dysfunctional and has
provided band-aid fixes so far, we believe Winston Churcill is right
when he said: “</span><span style="color: black;">Americans
can always be counted on to </span>do
the right thing <span style="color: black;"><span style="text-decoration: none;">after
they have exhausted all other possibilities</span></span><span style="color: #333333;">.”
But we do not know if they are at the end of the road yet or still
has more possibilities to exhaust and drag for more time.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">So
all these are affecting business decisions who typically plan on a 3
or 5 year basis. How do we expect businesses to plan if they do not
know what is going to happen in a few months? But regardless,
liquidity is flooding the market and there is some tailwind behind
the U.S. economy driven by the housing and automotive sectors. Annual
U.S. automotive sales may potentially even rise to pre-recession
highs.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">But
what is likely to happen two or three years from now when
unemployment hits 6.5% or even 6%, when monetary support is
withdrawn, would the economy be able to stand up on its own, how
about inflation, and how about when interest rate goes up? We do not
know the answers and do not attempt to be part of the jury. We just
play to our strengths which is to look on a bottom-up basis. For us,
we think capital preservation is more important than to rush into
deploying capital so just as to maintain our real net-worth. We fear
the alternative may be worse when things come to a head. Because in
times of chaos, cash is probably the only asset that is certain to
hold up the best in terms of value which you can then use as the
currency of choice to purchase what others deem as trash and risky,
and thus rush to sell regardless of the underlying value.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">An
investor who invests just based on the relationship between interest
rate and inflation in order to maintain their real worth is missing
another ingredient to the equation: risk. Example, for bonds, prices
are high but yield is low though it meets savers' goal of exceeding
banks' savings interest rate but the proposition is risky with
current bond prices. Part of the risk facing investors is that the
math on bond prices and yields means it won't take much higher yields
to inflict substantial capital losses. With 10-year Treasury yielding
1.7%, a one-point rise in yield would lead to a 9.2% decline in the
value of bonds. For investment-grade corporate-bond index of 5 to 10
year notes, a one-point increase in yields would cause a 6.4% drop in
bond value. So in chasing to maintain real “net-worth” may or
will ultimately cause one to worth less.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">So
investors find themselves between a rock and a hard place, facing
either the likely but limited erosion of purchasing power that
originates from holding cash, or the uncertain but potentially
disastrous impairment of capital that arises from owning overvalued
equities or bonds. Both are unappealing choices but we prefer the
former. </span>
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">And
what makes this choice harder is how long will the negative real
interest rate last, this will make a difference to an investor's
choice in equity or cash. There's no easy answers to the problem of
real capital preservation in an age of financial regression, only
difficult choices.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">Depending
on how long the financial regression lasts, if we assume it is
short-lived, then it may be wise to be underweight equities and
conserve capital and wait a riper opportunity set by out-compounding
the drag of inflation and negative real interest rates.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">We
do not know when market will bust and neither do we intend to time
the market. We just simply play to our strength and evaluate equity
by equity and if the price is good, we will buy it, regardless of
economic condition. That is why we build up our cash position in the
second half of 2011, peaking at 43% at end of 2011. But our cash
position has since dropped to 27%. Now you may question why did it
drop so drastically when we think there is both a lack of good
investment ideas and our intent to patiently hold cash until we find
a good investment. Here's the caveat: a lack of good ideas doesn't
mean there isn't any, we were fortunate to identify one area of
interest. So, substantially all of the drawdown of cash were spent on
two positions – Mastercard and Visa. Had we not spent on them, our
cash position would have increased. Thus, if we exclude Mastercard
and Visa, cash would have increased by 15 percentage points.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Portfolio
Performance (all results are based in terms of USD)</b></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure
1.</b></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-bQWH_IRneY4/UOwlYXOHGPI/AAAAAAAAADg/vNHdsi_p0W8/s1600/Performance.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="294" src="http://4.bp.blogspot.com/-bQWH_IRneY4/UOwlYXOHGPI/AAAAAAAAADg/vNHdsi_p0W8/s640/Performance.jpg" width="640" /></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-z0WOgrAa7OM/UOdEHwGIlMI/AAAAAAAAACY/9cBoD3bZ2N0/s1600/Portfolio+vs+benchmarks+2012.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"></span></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">We
added a new table (figure 2) to show the performance purely on our
equities: </span>
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure
2.</b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-wj6BDXeEBQU/UOdEY44jVlI/AAAAAAAAACg/vK-PExlFC-0/s1600/Figure+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="121" src="http://1.bp.blogspot.com/-wj6BDXeEBQU/UOdEY44jVlI/AAAAAAAAACg/vK-PExlFC-0/s640/Figure+2.jpg" width="640" /></span></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">Our
portfolio return 16.5% for the year versus S&P500 13.4% (as can
be seen in figure 1). This is the 5<sup>th</sup> consecutive year we
are ahead of the most broad-based USA indices. We hope it is not
fluke and we endeavor to keep our eyes on the ball and the field, not
the scoreboard per se. </span>
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">We
changed the starting date to measure our performance in year 2008
from 1<sup>st</sup> January to 1<sup>st</sup> May because it is the
actual inception month of our portfolio. Had we maintained January
for comparison, our portfolio would outperform S&P500 by 26.8% in
Y2008, compared to 23.1% from May 08 to Dec 08.</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">Although
we perform well this year even with substantial cash position, we
underperform the Singapore Straits Times Index by almost 11%. Most of the underperformance can be attributed to the fact that we are
overweight on U.S. dollar assets. Figure 3 shows our distribution of
assets:</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure
3.</b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-Qs_HFvhJ3ag/UOdEpxb518I/AAAAAAAAACo/HtUuj8Ju22E/s1600/Figure+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" src="http://3.bp.blogspot.com/-Qs_HFvhJ3ag/UOdEpxb518I/AAAAAAAAACo/HtUuj8Ju22E/s1600/Figure+3.jpg" /></span></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">We
are not concern about outperforming the benchmarks year after year,
although we understand it can be irritating not to. Instead, we aim
to outperform the major USA and Singapore broad-based indices over a
full economic cycle. Even though, we may lag the STI index by a huge
margin in 2012, we have however outperformed the index by an
aggregate of almost 78%, even with 3 years of underperformance out of
the 5 years since our inception in May 2008. We tend to outperform on
the downside than on the upswing. Our portion of Singapore equities
returned 23.1% against STI 27.4% (as can be seen in figure 2).</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">Capital
preservation is the most important thing to us. We will grow it with
the appropriate risk-adjusted return by managing risk rather than
swinging for the fences to maximize profit at all cost. We do not
have the gut to stomach significant losses. At times, we will make
mistakes, we are sure of that, but we will try to keep it at bay. </span>
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>What
drove our returns?</b></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure
4.</b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><a href="http://4.bp.blogspot.com/-SLnvAaHvqBU/UOdFEB-xa0I/AAAAAAAAACw/xrslh6B-6qY/s1600/Figure+4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"></a></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-TjBC1WjZ6Ak/UOdKzsb667I/AAAAAAAAADQ/UqvwEA2E3eg/s1600/Figure+4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="515" src="http://1.bp.blogspot.com/-TjBC1WjZ6Ak/UOdKzsb667I/AAAAAAAAADQ/UqvwEA2E3eg/s640/Figure+4.jpg" width="640" /></span></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">From
figure 4, we can see the top 3 drove 66.8% of our equity gains in
2012:</span></span></div>
<ul>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">MasterCard
and Visa – As a group, up 34.4% and makes up 43% of the total
equities gain for the year. Individually, MasterCard is up 32.1%
while Visa is up 47.3% and comprises 34.3% and 8.7% of our total
equities gain for 2012.</span></div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Berkshire
Hathaway – Up 17.7% and comprises 19.3% of total gain.</span></div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">UOB – Up
31.4% and makes up 13.1% of total gain.</span></div>
</li>
</ul>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We started the
year with Berkshire Hathaway, PepsiCo, and UOB as the top 3 equity
positions – which makes up 69% of all equities held at the start of
the year. We did not own any Mastercard or Visa then. So 2 out of the
top 3 starting positions are the major drivers for this year
performance.</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Mastercard and
Visa, which we bet aggressively by using almost 44% of our starting
cash ended comprising about 20% of our total portfolio, at the peak
(15% at end of 2012).</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">As for PepsiCo, we
sold all of it by May, at a modest gain from our cost.</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Portfolio
Discussion</b></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure
5. </b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-3f4k1uT7HIs/UOdFxRrPVVI/AAAAAAAAAC4/3OK6CAfoqeQ/s1600/Figure+5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><img border="0" height="329" src="http://3.bp.blogspot.com/-3f4k1uT7HIs/UOdFxRrPVVI/AAAAAAAAAC4/3OK6CAfoqeQ/s640/Figure+5.jpg" width="640" /></span></a></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">We
ended 2012 with 21 equities, compared to 10 positions in 2011. Our
top 3 positions makes up almost 40% of total portfolio; top 5, 49%.
Excluding cash, top 3 makes up 54% of all equities, and top 5, 67% of
all equities.</span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Discussion
on equities</b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">
</span>
</span><br />
<ul><span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
Berkshire
Hathaway: Our largest equity position comprises almost 17% of total
portfolio. Berkshire is our longest holding stock. Although we
adjust the position size from time to time, depending on value or
alternative, we have maintained our current position size since May
2011. </div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
We bought our first share in Oct 2008 at a cost of $57. We
think there's not much downside to the current price. BRK is
prepared to repurchase shares at 1.2x of reported book value which
is about $89 – $90 based on 3Q numbers. In fact we think the
stated book value is substantially below intrinsic value. For
example, Burlington Northern Santa Fe was purchased in 2010 for $34
billion. BNSF is expected to earn $3.5 billion in 2012. Using a
multiple of 15x earnings (same as Union Pacific), BNSF is worth $54
billion. If accounting rules allow writing up of goodwill, then BRK
book value will increase by $20 billion. Based on BNSF alone, the
stated book value as of 30 Sep 2012 is at least 10% less if we
include the $20 billion increase in BNSF's value. </div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
For more details
on BRK valuation, we think Whitney Tilson provides a good
presentation on it. You can google for it. In the past, we have made
some money from Tilson's idea – Anheuser-Busch InBev, although we
sold it early. He was spot-on on that, in fact, BUD went even
further than what he thought will sell for – currently BUD is
selling for $87 versus his target of $72 or so.</div>
</li>
</span></span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">
</span>
</span><br />
<ul style="font-weight: bold;"><span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
Mastercard
and Visa:
</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
</span></span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">
</span>
</span><br />
<div style="font-weight: bold; line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Figure 6</b></span></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;">
</span>
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; margin-left: 1em; margin-right: 1em;"><a href="http://2.bp.blogspot.com/-rEtr4GRPIP8/UOdGDIjELbI/AAAAAAAAADA/ejDyhA10TIA/s1600/Figure+6.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-rEtr4GRPIP8/UOdGDIjELbI/AAAAAAAAADA/ejDyhA10TIA/s1600/Figure+6.jpg" /></a></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<ul><ul><div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We bought
Mastercard and Visa in two batches – January and May 2012. We
allocated 56.4% of the total capital during January 2012, all on
Mastercard at an average cost of $350.43. Subsequently, we added
more and allocated the rest of the capital related to them during
May 2012: at an average cost of $408.3 for Mastercard and $116.56
for Visa. Our average cost for the two batches of Mastercard is
$368.15. Subsequently, we reduce some of the holdings, Mastercard
was reduced by 33.9% and Visa by 12.8%. As a result, our average
cost for the rest of the shares remaining at year end is $383.37
for Mastercard and $119.44 for Visa. In addition to selling our
holdings, we did some rebalancing between the two counters during
year: for example, when Visa is cheaper than Mastercard, we sell
some Mastercard to hold more Visa, so it resulted in a higher
reported average cost per share in Visa at $119.44 than the
original cost of $116.56 but overall, it benefited our holdings
than if we had not rebalanced. </span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">At year end, both the stocks
comprise about 15% of total portfolio with Mastercard making up
about 12.4% and Visa 2.7%. Both have about the same potential
medium term growth – 15 to 17%. But Mastercard is priced slightly
cheaper than Visa. At current price, we think both are fairly value
at 19 to 20x forward earnings. We won't be expecting any outsize
return from them. But they should still bring us reasonable return
simply by rising at the same rate as earnings without relying on
any expansion in earning multiples. Even if the price remains the
same a year from now, we think it provides a good entry point to
add more given that the then valuation is likely to be less than
17x on a forward basis. If either one of them falls, say by 10%, in
a year time, we will shift more of our assets into them because
valuation would likely be close to 15x forward earnings. </span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">We think
the long term prospect is very bright – payment is in a secular
growth market. More transactions in the future will be done
cashless, especially for market outside of the U.S. where
transactions are still largely done in cash. In U.S., 29% of all
retail transactions are in cash, down from 36% a decade ago.
According to Mastercard, 85% of all global transactions are in
cash. The huge gulf in cash transactions between the U.S. and
globally lies in the emerging markets. Cash still largely prevails
in emerging markets because of the slow development in electricity
and communication infrastructures. However, smartphones and
wireless networks should help to bridge these physical
restrictions. </span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">There are a lot of competition in the payment sector
from PayPal operated by Ebay, Google Wallet, Square, among others.
But all of them operates in the digital wallet space, essentially a
locker of personal-payment data stored either in the cloud or on
smartphones. None of them have made a dent to the network
infrastructure that facilitates the actual flow and transfer of
money between merchants and financial institutions in the credit
and debit space. PayPal acts as an acquirer which is the
institution that acts on behalf of a merchant to process debit and
credit payments. And acquirers need the network infrastructure such
as Visa to facilitate flow of payments between the merchant bank
(acquirer) and the customer banking facility (the card issuer) –
just like if you and me want to talk on the phone, we need the
phone operator and Mastercard and Visa is the phone operator in the
payment space. Mastercard and Visa also have their own operations
in digital wallet, called PayPass and V.me. But when it comes to
routing transactions, essentially the infrastructure that connects
and sits between the merchants and banks, Mastercard and Visa are
the dominant players. </span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Digital wallet, despite all the hype, has
thus far done little to alter the relationship that has been built
around credit and debit. Compared to Amex and Discovery Financial,
Mastercard and Visa have lesser business risk, though it may be
riskier for an investor in terms of the higher stock valuation –
Mastercard and Visa sells for high teens to low twenties multiple
while Discovery and Amex sells for high single digit and low teens,
respectively. Amex and Discovery, like Amex, in addition to
providing a payment network also provides financing to their
customers, so they have more risk associated with credit. Whereas
for Mastercard and Visa, they are pure-play payment network. Their
revenue comes from fixed per-transaction fees, service fees based
on transaction size, and fees for cross-border transactions. <i><span style="font-weight: normal;">Visa
and Mastercard make about 10 cent for every $100 transaction.</span></i><span style="font-style: normal;"><span style="font-weight: normal;">
So even if there is inflation, we think Mastercard and Visa
provides very good hedge. </span></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="font-style: normal;"><span style="font-family: Arial, Helvetica, sans-serif; font-weight: normal;"><br /></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="font-style: normal;"><span style="font-family: Arial, Helvetica, sans-serif; font-weight: normal;">Adding to Mastercard and Visa moat is the
trust that exists between the banking institutions and them, which
essentially allows them to reach into customers' banking accounts
and subtract money. And banks like the status quo especially when
the banks take most of the fees that flow through the card
networks. In effect, the banks play a big part in protecting the
domain of Mastercard and Visa. Moreover, their business model held
up extremely well during the 2009 crisis, revenue for both rose -
Visa by 9% and Mastercard by 2% - with operating earnings rising at
a much higher pace. It was the first time their business model is
tested as a public company and they passed with flying colors.
Although the shares were sold off at that time, investors now know
how resilient their business model is. So even if there's a
recession, we think Mastercard and Visa is likely to hold up much
better than the last time and better than most other businesses. </span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="font-style: normal;"><span style="font-family: Arial, Helvetica, sans-serif; font-weight: normal;"><br /></span></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="font-style: normal;"><span style="font-family: Arial, Helvetica, sans-serif; font-weight: normal;"> Even in a recession, we think they should be able to deliver growth
in earnings per share because they have a number of levers to pull.
For example, both of them are essentially free of debt, so if they
want to orchestrate a huge repurchase of shares, it is one lever to
use. In fact, we will be happy the shares plunge so that we can buy
more while the companies are also buying back an undervalued share.
Another lever is they can easily cut back on expenses especially
marketing related – the kind of expenses that can easily be cut
in a downturn – that is what Amex did during 2009, so if Amex
can, we are sure Mastercard and Visa are able to as well.</span></span></div>
</ul>
</ul>
<div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>DirecTV</b>:
57.4% of the positions are purchased at an average of $44.22 from
Dec 2011 to May 2012, and the rest were acquired in October 2012 at
an average of $51.43. We recycle part of the proceeds from Mastercard and Visa in DTV during October. At $51, stock is priced at 10x 2013 earnings. We think it trades at a significant discount to intrinsic value and offers steady, leveragable cash flow, exposure to Latin American growth and sound capital discipline. DTV started the year as our smallest equity position with less than
2% of total portfolio. But it ended as our 3<sup>rd</sup> largest
equity position with slightly over 10% of total portfolio. </div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
We think
DTV is one of the cheapest play within the pay-tv sector, whether we
use the traditional PE or EV/EBITDA valuation. Dish Network, a pure
satellite pay-tv play, is the closest comparable that sells for 15x
earnings, almost 50% more than DTV valuation. For others, like Time
Warner Cable, sells for 14x earnings. However TWC is more than
pay-tv, it provides internet and phone services as well, which
provides an advantage over pure CATV play since TWC can provide
so-called “triple-play” package to entice new sign-ons and also
provide a leverage to reduce churn rate. But is “triple-play”
advantage worth to pay 40% premium more? We are cheap so we will
play it cheap and hopefully, the difference in valuation will close
up in DTV's favor.</div>
</li>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>IBM</b>: Makes up
7.1% of total portfolio. All of the positions were initiated in 2012
between $180 to $198, at an average cost of $193.18. We think IBM
has a good chance of performing well in 2013 partly because of the
easy comps which reset the forward benchmark to a lower hurdle to
cross, in terms of the Street expectations. We also like that
about 60% of IBM profit is recurring nature due to its large
software (23% of revenue) and services (58% of revenue) that have
longer-term multiyear contracts. As a result, its business
performance have been less volatile and more predictable than most.<span style="color: #333333;"> </span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span style="color: #333333;"></span>But one of the things we did not like is the
way it reported earnings in Q3 when its reported adjusted operating
earnings include a one-off gain from the sale of a line of business
to Hitachi. If it is a one-time gain, why is it part of adjusted
operating normal profit? We cannot understand except to the extent
that the corporation try to mask the underlying performance and hope
that others miss it. And none of the major news media spotted it, or
at least reported it. Nonetheless, we still think IBM should perform
decently for the next few years and has a reasonable chance to
achieve its stated roadmap of $20 of operating earnings in 2015. But
we will keep a close look on them quarter to quarter on the
reporting and underlying fundamentals.</div>
</li>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
Stocks that
makes up 2 to 3% of portfolio: We hold 5 stocks which each makes up
between 2 to 3% of total portfolio each. In total, these group makes
up 12.1% of total portfolio. The 5 stocks are Visa, UOB, Dollar
Tree, Johnson & Johnson, and IAC/Interactive.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
<ul>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>UOB</b> – We
bought it during Q3 of 2011. We have reduce 2/3 of our UOB holdings
this year. We don't think it is expensive, especially compared to
most other STI components. It has roughly played out as what we
think it should have. The bank has grown its asset base as we think
it can. If return on asset returns to 1.2 to 1.3%, it can earn
between $1.75 to $1.9 based on $230 billion of assets, valuing the
current price at 10-11x earnings.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Dollar Tree</b>:
We acquired during Oct 2012. Up less than a percent. Stock is down
quite significantly from the high. In fact, all the Dollar stores
are way off from the high, and valuation are roughly the same among
all the three – Dollar Tree, Dollar General and Family Dollar –
valued at about 14x forward 12 months earnings. For us, we are more
attracted to Dollar Tree because it is the least leveraged and has the
lever to pull on that basis if needed or maybe it will appeal to
certain private shop given the low leverage and strong cash flow.
</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>IAC/Interactive</b>:
Acquired in Q4 at an average $48.27. Down 2% so far. Usually we do
not invest in technology but we think IAC provides good value for
the type of growth it guides for. Sells for 13x earnings, and 11x
ex-cash for 2013 earnings. We also like that Barry Diller is the
head of the company. We think of Barry Diller in the same breath as
John Malone – both of whom have proven to unlock value and deploy
capital efficiently.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Johnson &
Johnson</b>: JNJ is the second longest holding in
our current portfolio. We have held them since 2010. Up 6.9% in
2012 and up 14.6% from acquisition.</div>
</li>
</ul>
</li>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
We own
another 12 equities which in total makes up 14.9% of total
portfolio. Following are the equities:</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
<ul>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Tesco</b>:
Acquired in January 2012 at an average cost of US$4.94 – up
13.3%. If we did not elect to take one of our dividend in script,
we will up 9.8% instead.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>CSX</b>:
Acquired in Q3 2011. Up 2.6% for the year and up 9.3% from cost. We
reduced over 60% of the positions during February 2012. Results has
been tepid mainly due to the depressed natural gas prices which
drive lower demand for coal. Although coal makes up a huge chunk of
CSX business (over 30%), strong growth in automotive and intermodal
has largely offset the decline in coal volume.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Celgene</b>:
Acquired in May 2012 at a cost of $71.34. Up 10.2%. We reduced 46%
of the positions in October 2012. However, we think still Celgene
should provide decent return. If EMA approves Revlimid as a
first-line treatment for Multiple Myeloma, it should give some
tailwind to the stock. Even if it doesn't, Revlimid is already
prescribed off-label as a treatment for MM in Europe. Also, Celgene
has some recent success in clinical trials for the cancer drug,
Abraxane, resulting in approval for extended use in metastatic
non-small cell lung cancer. There are other trials in the pipeline
for Abraxane for other form of cancers, for example, pancreatic. We
think there's a decent chance in will sell for $90, for 16x 2013
earnings.
</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Norfolk
Southern</b>: We initiated NSC in the first two months of 2012 and
ended comprising over 5% of our portfolio at that time.
Subsequently, we reduced 70% of our holdings in the middle of 2012,
at a modest loss of 1%. The cost for the remaining shares is $71.4,
down -13.4%. Inclusive of the shares sold, we are down – 4.7%.
Norfolk Southern has basically the same business model as CSX in
which coal is pressurizing the underlying business. We think a lot
of the bad news are priced into the current price. To go much
lower, we think the economy needs to stop in its track.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Coca Cola</b>:
We sold all of our Coca Cola shares in the middle of the year and
then again initiated a small stake in Dec 2012 for $36.49. The
earlier stakes were sold at a gain of 12%, which were acquired in
Nov 2011 and Jan 2012 at an average price of $33.38. We think the
current price is a reasonable entry point to pay for a business of
Coke quality at 16.7x 2013 earnings. Together with the earlier
stake, Coke returned 8.9% for the year, and 11.2% from cost basis.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>American
Express</b>: Bought in Oct 2012 at $56.75. Up slightly at 1.3%.
Valuation is not particularly demanding at 13x 2012 and 12x 2013
earnings.
</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>National
Oilwell Varco</b>: We did not pay much attention to the oil and gas
sector (especially contractors that serve the exploration of oil)
until August this year when Berkshire Hathaway initiated a position
in the stock. The stock then was selling for over $80 a share and
peaked at $89.95 in Sep 2012. Then it fell to about $80 and
generally sells between $77 to 83. It took a big correction in
December 2012, falling to a low of $64.82. During the time from
August to December, we spent some time familiarizing with the oil
and gas sector, particularly on the upstream operations including
on and off-shore drillings. Fortunately, our time spent paid off
somewhat when NOV fell below $70, a price we think provides a good
entry. We finally took a small bite and acquire some at $66.9. NOV
is the dominant equipment provider for oil and gas drillers, both
onshore and offshore. Its share grew by 5-folds in the past decade
largely due to its success in persuading drillers in the early
2000s to shift from custom-built rigs to rigs built around its own
standardized components, according to Morningstar analyst Stephen
Ellis. Today, an overwhelming majority of rigs use NOV's parts.
Vendors cheekily called them: “No other vendors.” NOV is
largely dependent on energy prices which drives drilling
activities. If oil prices doesn't support drilling activities, NOV
business will be adversely affected. However, NOV is among the
safest energy plays because it serves both the oil and natural gas
explorers and drillers, and also both on and off-shore drillers –
they are kind of energy agnostic. At $67, it is selling for 11.4x
2012 earnings and 10x 2013 earnings.</div>
</li>
</ul>
</li>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<ul>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Singapore
Telecom</b>: Bought in Oct 2012 at US$2.58 or SG$3.15. Up 4.6% since or
up 6.8% if we include the dividend that just went ex-div in
December 2012. We think SG$3.15 is attractive relative to other
Singapore stocks. The price was also temporarily driven down when
Temasek sold part of their holdings. The selling is now over and
price has recovered a little. But we are not a long term holder in
Singtel. It is just a relatively safer alternative in a market that
is otherwise expensive.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>OCBC</b>:
Acquired in August 2011 at a cost of US$7.56 or SG$9.11. Singapore
banks staged a remarkable recovery in 2012. We sold half of it in
June 2012. Our holdings is up 24% for the year, but is down 1.3%
from our cost.</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>M1</b>: Bought
early this year at US$1.95 or SG$2.43. Up 14.5% for 2012. We sold
half of it in Dec 2012.</div>
</li>
</ul>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<ul><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
<ul>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Thai
Beverage</b>: We purchased the shares in November 2012 for US$0.33 or
SG$0.40. We don't usually invest in stocks which have surged a lot
in a year or is near to the all-time high. However, for Thai Bev,
we have always like the stock since it was listed but we have never
own it until now. In fact, we nearly bought last year when it was
selling for SG$0.24 but we were cheap and queued to buy at
SG$0.235. For half a cent difference, we miss a huge gain. The
other comparable mistake of such is how we miss buying Mastercard
and Visa during Dec 2010 and during part of 2011 when we were
sucking our thumbs. For Thai Bev, even though the stock is close to
its all-time high, we think the valuation is not demanding. It is
selling for 16x earnings. What we like is their spirit business
which is growing at a good clip, although other parts of the
business is holding them back. Compared to other spirit businesses
like Brown-Forman and Beam, they are selling well in excess of 20x
earnings.
</div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
</div>
</li>
<li><div style="line-height: 0.25in; margin-bottom: 0in;">
<b>Marvell
Technology</b>: Our biggest loser for 2012 in terms of percentage, and
ranks among our all-time biggest losers. We bought at $10.05 and is
down by -27.8%. If there is any consolation, it is one of our
smallest equity positions. However, we will be holding on given
that the price has likely priced in a lot of the bad news which we
failed to factor into our analysis. What we thought initially as
cheap is perhaps cheap for a reason and probably a value-trap at
the time of our purchase. MRVL has about $3.5 a share in cash, so
we thought at $10, is selling for 7-8x earnings ex-cash, and if
demand for MRVL products recover, it is selling for 5x earnings
ex-cash. </div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<br /></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
But what really went wrong for us is not so much on being
wrong on the earnings but because we were surprised at how much
MRVL is fined when it lost its suit on patent infringement and was
fined $1.17 billion for actual damages. Because the infringement is
deemed willful, the fine could increase by 3x. In any case, MRVL is
appealing, and could overturn the order eventually or lessen the
fine tremendously. However, if it doesn't, MRVL hands will be
weakened. But we think the fine is outrageous in relation to MRVL
revenue and profit. It is one-third of MRVL revenue or 100% of
revenue if the punitive damages is levied at 3x of actual damages
awarded. We think there's a good chance the actual damages will be
eventually reduced.</div>
</li>
</ul>
</span></ul>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;"><b>Google</b></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">We foolishly sold
our Google stock as it went up. We fail to get the entire rise. We
bought well but we need to improve our selling. But we did decently
for the short holding period. This is the second time we held and
sold Google. We hardly invest in technology companies
primarily because of their often high stock valuations due to rapid
growth, and potential for obsolescence due to rapid change in
technology. The last thing we want is to pay a high price for a
rapidly growing business that gets swept aside by new technology
shortly after we buy it. Bearing this in mind, it doesn't mean we
wouldn't buy it at all costs. We will buy at the right price,
especially at a bargain price. Any time if Google gets back to $600 -
$650 range, we will be there to buy. At $650, we will be paying about
14x earnings, less if we exclude the cash. Even at $700, it isn't
expensive at 15x eps or less than 13x ex cash. It is hard to find
companies with market leading positions secured by strong competitive
advantages in secular growth markets because such companies do not
usually sell at market multiples. And Google is one such find today.
And this is a business that has top line growth of 20% per year. We
will discuss more if we ever get another chance to purchase Google.
Sometimes we make silly mistakes selling our holdings where we will
be much better, in fact, a lot much better, if we had not sold.
Google is another stock we made a mistake selling in addition to our
recent other mistakes – Davita, Anheuser-Busch Inbev and Amgen. All
of which we bought well but sold atrociously.</span><br />
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;"><br /></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="line-height: 24px;">
</span>
</span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;"><b>Opportunistic
situations</b></span></div>
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">
</span>
<br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; line-height: 24px;">We only managed to
find take advantage of one opportunistic situation when Monster
Beverage took a big heat to its shares in October 2012 when there
were some complaints to FDA that Monster drinks led to some death on
over caffeine consumption. We think it was a “tempest in a teapot,”
to borrow Jamie Dimon's infamous quote. So we purchase some shares at
$42.8 and sold within the same month when the price recovers some of
its losses and lock in gain of 10%. Stock has since surged to almost
back to the pre-plunge price of $51 to $55. Again, we were early in
selling.</span></div>
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">
</span></span>
<br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div>
<span class="Apple-style-span" style="line-height: 24px;">
</span>
<br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="line-height: 24px;"><b><span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">Stocks we are considering</span></b></span></div>
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="line-height: 24px;">
<b><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">Baidu</span></b></span></div>
<span class="Apple-style-span" style="line-height: 24px;">
</span>
<br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="line-height: 24px;"><span style="color: #333333; font-family: Arial, Helvetica, sans-serif;">We
do not usually talk about companies we like that we do not have a
position. Baidu is selling for about $100,
down by a third from the peak more than half a year ago. Now, it has
come to a price we are comfortable in for a growing business. Baidu
business is likely still to be in the early innings. Earnings is
expected to grow in excess of 20%. Valuation is less than 17x for the
next 12 months earnings. If we exclude cash, p/e comes to 15x. For a
business that can grow at mid to high teens level for the medium
term, we think paying 15 to 17x earnings is a good deal. One of the
concern was its market share is eaten up by competitors like Qihoo.
Baidu's market share is down to about 60% from its peak of over 70%.
Baidu's market share used to be in the high 50s to low 60s prior to
Google's exit a couple years ago. Upon Google's exit, Baidu market
share went to over 70%. Now it is back to where it is.</span></span><br />
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span style="color: #333333;"><br /></span>
</span></span><br />
<span class="Apple-style-span" style="line-height: 24px;"><span style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><b>American Movil</b></span></span><br />
<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: black; font-family: Times;"><span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;">Stock is having a rough time and is selling close to 52-week low below $23, priced at 13x earnings. Its domination in Latin America is under pressure from government encouraging more competition, including its homes market, Mexico. We think the price is pretty attractive.</span></span></span><br />
<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
<span class="Apple-style-span" style="line-height: 24px;"></span><br />
<div style="line-height: 0.25in; margin-bottom: 0in;">
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><b>Valeant Pharmaceutical</b></span></span><br />
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;">
<span class="Apple-style-span" style="color: #333333;">We think the business is well managed led by one of the smartest mind in the pharmaceutical industry. Valeant pursues a different path from most other large pharmaceuticals. VRX does not spend a large percentage of its revenue on research and development (low single digit versus low to mid teens for major drugs discovery firms) but instead grows through savvy acquisitions that accretes to earnings, sometimes, significantly. They have had much success in the acquisition arena. Even at $60, its all-time high, it is priced at 14.5x 2012 adjusted earnings. It is a rare pharmaceutical that is growing top line and bottom line at such a fast clip at over 20% and 30%, respectively. Although most of the most of the revenue growth came through acquisitions, organic growth is still an industry-leading one at high single to low teens level. Effectively, VRX is a master value investor within the pharmaceutical space. The reason VRX is able to do that it is led by the able Michael Pearson, who has been an extraordinary and aggressive CEO. VRX is a rare find in any industry, which is both a value investor and a savvy operator. The other comparable we can think of are Berkshire Hathaway, any of the Liberty-related companies and Barry Dillar-related companies.</span></span></span><br />
<span class="Apple-style-span" style="line-height: 24px;"><span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif;"><span class="Apple-style-span" style="color: #333333;"><br /></span></span></span></div>
<span class="Apple-style-span" style="line-height: 24px;">
</span><span class="Apple-style-span" style="line-height: 24px;"><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;">VRX is able to generate the types of returns it drives through acquisition largely because of the cost cutting it can achieve in the range of 15% to 20%. As an example, when Valeant merged with Biovail, Biovail was doing a billion dollar sales and in 2012, VRX is targeting to eliminate $300 to $350 million (35% sales) through synergy. So a lot of the $300+ million flows to the bottom line because of the company's low tax structure. In 2011, VRX acquires a number of bolt-on acquisition which in aggregate adds another billion of sales and targets for 25% synergy. Again, a lot of the $250 million is going to flow to the bottom line. So in effect, VRX is generating really high returns by acquiring other businesses in the pharmaceutical industry. VRX has also announced its plan to acquire Medicis which will close in 2013 in a friendly, all-cash deal. The deal will make VRX the largest player in dermatology in the U.S. We like it at $45, and we like it at $50, and now even at $60, we like it, although we have never own it. We intend to and at $60, it is priced at 11x cash earnings.</span></div>
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;">Of all the 3 stocks listed here where we are interested in, we are most comfortable with Valeant the most.</span></div>
<div>
<span class="Apple-style-span" style="color: #333333; font-family: Arial, Helvetica, sans-serif;"><br /></span></div>
</span><span class="Apple-style-span" style="line-height: 24px;"><div style="line-height: 0.25in; margin-bottom: 0in;">
<div style="font-family: Times, 'Times New Roman', serif;">
<span class="Apple-style-span" style="color: #333333;"><br /></span>
<span class="Apple-style-span" style="color: #333333;"><br /></span></div>
</div>
</span></div>
Brian Chanhttp://www.blogger.com/profile/00876920893485955494noreply@blogger.com4tag:blogger.com,1999:blog-34104702.post-10409676987630257612012-07-01T10:00:00.000-07:002012-07-02T08:37:46.909-07:00Portfolio update for first half of 2012<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">What
a dramatic last three trading days to close the first half of the
year on a high note! S&P500 is up 8.3% for the first half, or
over 16% annually - which by any measure is a great result - double
the historical growth rate. Stock prices have been steadily ascending
since October 2011, boosted by a whiff of hopeful recovery in the
U.S economy, a seemingly claim state amidst the sovereign-debt storm
in the E.U., merrily cheered on by central bankers with near-zero
interest rate and hoping for further easing.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Here
is an oxymoron: The job of an investor or money manager is not to
make money but to manage risk because once you take care of the risk,
you take care of the rest. One of the most important job in managing
risk is to measure the temperature of the economy and know where we
stand. At the moment, it is unwise to be fully invested unless one
can find something that is totally uncorrelated to the market.
However, even in a expensive market, there're still value buys on a
bottom-up basis because the market is never fully efficient – just
a matter of degree.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
you are an individual in debt, what would you do to solve your debt
problem? Would you take on more debt to pay your old debt? No, you would not. Would taking on more debt to pay your old debt solve your problem? No, it does not. The only way to solve
your problem is to cut your expenses and pay down your debt. Or you
can chose to default and break your obligations which were granted on
the basis of trust in your ability and goodwill to repay the loans.
Essentially, those people in debt need to stop spending money that
they do not have. So why should it be any different for a sovereign
country? <i>The solution to too much debt is not more debt.</i>
Sooner or later, something have to give and people start facing the
ugly truth. The highly-in-debt country may just chose to default on
its obligations, either directly or indirectly. By indirect manner, a
country can print more paper currency to pay the interest which makes
the currency worth-less if the debt are issued in their own currency.
A direct or outright default happens when a country simply stop
making payments for their obligations – and there's no recourse to
claiming from a sovereign country: you can sue a company for
defaulting and claim its assets in court but for a sovereign country,
how do you sue for a country's assets? Bill Gross and Jim Rogers are
two proponents who question the solution of using more debt to solve
a debt problem. All these look like a band-aid solution for which
every time the policy makers gave such a solution, the market jumps
on the hope of it being a panacea but after a while, real questions
set in and bring the market to where it was before. How many times
have this type of scenario been played over the past year or so?</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Here
are some recent quotes from Bill Gross:
</span></div>
</div>
<br />
<ul>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">“<span style="color: #333333;">Lots
of money being printed but very little wealth. Wealth comes from
innovation and elbow grease not higher asset prices.”</span></span></div>
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span style="color: #333333; font-family: Times, 'Times New Roman', serif;">“Don’t
be fooled, central bank credit creation increases asset prices but
it doesn’t create wealth.”</span></div>
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span style="color: #333333; font-family: Times, 'Times New Roman', serif;">“Wealth’s
not cre8(a)d w(ith) high(e)r asset prices but w(ith)
productiv(i)ty;labor;innovati(o)n. High(e)r asset prices due 2(to)
lo(w) inter(e)st rates (a)r(e) fi(ct)ktitIio)us wealth.”</span></div>
</div>
</li>
</ul>
<br />
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">So
the question is what should we do now?</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
an up-market, some investors for “fear” of losing out may be
lulled into pumping more cash into equities. But in an expensive
market (top-down), there's a dearth of compelling cheap businesses
(bottom-up). So is the market now cheap , a value trap, or just
expensive? There are two ways that tells two different stories on the
same topic. By the traditional value method, a snapshot of the S&P500
shows a current multiple of 15x (based on trailing 12-months
earnings), which is not overly expensive in historical terms. But the
Shiller PE which is based on a 10-year moving average of earnings to
smooth out the impact of an economic cycle, shows an expensive
historical 24x.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">So
why did the two measures differ so much apart? In a March 2012
article by James Montier of GMO, he noted a compelling point: The two
PE measures are derived from different time perspective. Profit
margins are an important determinant of earnings and Montier gave
mathematical evidence that the divergence of the two measures lie in
the result of profit margins deviating from their long-term normals.
That is to say, profit margin today is at historical high for U.S.
Corporates. In fact, it is abnormally high, hovering almost 2% points
over the last peak since 1952, according to NIPA Flow of Funds data.
Such a margin is unprecedented and has caused earnings to go through the roof, or perhaps “artificially” high. Some of the
margin improvements are achieved through synergy, cost cutting, labor
cost, etc. And there is so much you can do to cut your way to
prosperity. Not only is corporate profits at the highest ever, but wages as a percentage of GDP is at the lowest ever since post-war.</span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-usdzw6tW1aI/T_CyL0XvL9I/AAAAAAAAAHQ/DKjeG5Jybs0/s1600/Corporate+profits+&+wages+as+a+%25+of+GDP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://1.bp.blogspot.com/-usdzw6tW1aI/T_CyL0XvL9I/AAAAAAAAAHQ/DKjeG5Jybs0/s1600/Corporate+profits+&+wages+as+a+%25+of+GDP.png" /></a></div>
</div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">As
an example, a small compression in margins can cause a big distortion
to stock price, particularly if you purchase at the peak. Nike, which
just reported earnings, is off almost 10% for the day when they
reported a lower margin (not a lot lower but about 2% lower in gross
margin). For those who bought at the peak of $115 thinking that
margin cannot be compressed, and extrapolated from the recent past,
this is a toxic cocktail. So they learn the old lesson the old way,
through their wallets and is down almost 25% in less than three
months.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Another
broad measure is taking the total market value as a percentage of
Gross Domestic Product. The broadest index to use is the Wilshire
5000. Using this index, the total market value of Wilshire 5000 as a
percentage of GDP is 106% as at June 30, 2012. There're two ways to
look at it again: if you compare since 1950s, 106% falls on the high
end of the spectrum; but if your vision is tunneled to just the
recent past since 1995, this is on the low end. But extrapolating
from recent past can kill you. The market has historically been
priced at 60-80% of GDP, it is only in recent past, particularly from
the 1995, did the percentage top 90% and above, peaking at over 170%
in March 2000. Here's a graph that speaks a thousand words. </span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-_gmj8eCgAiM/T_G_LExxGYI/AAAAAAAAABc/3p49O5UPApU/s1600/Historical+total+market+value+to+GDP.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="298" src="http://3.bp.blogspot.com/-_gmj8eCgAiM/T_G_LExxGYI/AAAAAAAAABc/3p49O5UPApU/s400/Historical+total+market+value+to+GDP.gif" width="400" /></a></div>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">World
Bank also compile their own data. You can find the data in this link:
<a href="http://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?page=4">http://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?page=4</a>.
</span></div>
</div>
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-5xbxebM8N2I/T_G_cxMm26I/AAAAAAAAABk/9MnkGHs1-EM/s1600/Market+cap+of+listed+companies+as+%25+of+GDP+by+world+bank.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="282" src="http://2.bp.blogspot.com/-5xbxebM8N2I/T_G_cxMm26I/AAAAAAAAABk/9MnkGHs1-EM/s400/Market+cap+of+listed+companies+as+%25+of+GDP+by+world+bank.jpg" width="400" /></a></div>
</div>
<div class="separator" style="clear: both; text-align: justify;">
<a href="http://1.bp.blogspot.com/-oBOLmUMFoGw/T_CBonozxgI/AAAAAAAAAGU/bYXHkFUZNb8/s1600/Market+cap+of+listed+companies+as+%25+of+GDP+by+world+bank.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"></span></a></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Unfortunately,
World Bank only have data from 1988 onwards but the trajectory,
whether World Bank or the first graph, are the same. Both also shows
clearly the difference in valuation 1) before 1995 and 2) after 1995.
The year 1995 was the first time in financial history that the U.S
has seen its total market value as a percentage of GDP touches 90%
and ever since, it has averaged well above 90%, except in 2009 when
it fell below 80% just for a moment, and stayed over 90% since. Now
some people may have gotten used to it and argue that 100% is on the
low end of the spectrum for the last 20 years and therefore, the
market is reasonable. Well, only time will tell who is right. For us,
we rather err on the side of caution than to be recklessly bold.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">By
locking up the bulk of assets or capital in equities right now is
likely to doom your portfolio to a long-term return rate that is
historically unattractive and that grossly under-compensates you for
the risks assumed. More importantly, having limited cash at a time
when you should be having more means forgoing future opportunities
that are likely to be better than today's. And in a distressed
market, by selling stocks in order to buy other distressed stocks is
no bargain if your stocks are also in distress. The bargain comes
only if you have liquidity at the right time which holds water and
can be used to buy someone else's perceived trash (treasure to the
buyer), and exchange the cash, which in fact is trash at that time
but perceived as treasure by someone else. During the market low of
2009, sellers perceived their stocks as trash (treasure to the buyer)
and sold it in return for cash which they perceived as treasure
(trash to the buyer). The right thing to do then was the other way
round. We have seen this scenario played over and over again.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">To
get good return and yet low risk, the best time to be fully invested is when market
is in great turmoil. At this point, potential return far outweigh the
risk assumed. This should be the hallmark of a prudent investor or
money manager. To join the rat-race chasing for return together with
your peers for fear of losing out or for the reason of looking bad is
not prudential. When we start to compare ourselves against peers or
even indices and only focus on comparing, it is easy to get lull into
operating on a relative basis rather than absolute one. Instead, we
must only focus on things that are truly important, especially risk
management. In investing, the only way to make money is absolute, not
relative – as they say “you cannot eat relative.” Perhaps some
people may feel good even if they lose money as long as they lose
less than the market. When they make 50%, you may think they are
delighted but for investors who get lost in relative performance,
they are not. They are likely to feel very terrible. Now, you may
think how can someone who makes 50% feels terrible? Lo and behold,
these relative investors are happy with 50% until they see the market
making 55%.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">So
as an investor, you got to decide what you want to be. For us, we
focus on absolute return. To do so, we
follow our core principles as follows:</span><br />
<ul>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
work on patience and maintain discipline by not chasing for return
that does not sufficiently compensate for the risk we take - even if our portfolio lags behind the market in the short to medium
run.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
focus on doing what we think are the right things even if it looks
wrong in the eyes of others, and not what looks right or relative. </span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
do not look to beat the market all the time. We only look to beat
the market at the right time, particularly, we aim to significantly
outperform the market on a downturn and hope to maintain with, or
even underperform the market on an upswing.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
are dedicated to measuring our performance on a full economic cycle
(i.e., a long market cycle that goes through thick and thin) against
the market benchmark.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
do not allow others to tell us what to buy, what to sell, when to
buy or when to sell, especially on a baseless manner. Although we
pay attention to what they say because it gives us an inkling what
the market is doing and if what they are doing is sensible or not,
and we position ourselves accordingly.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
make our own decisions on how we think about the business and the
value that is expected from the price we pay or sell. We eat our own
cooking. Others who tell us what to do usually do not eat the
cooking with us.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We
do not rely on others to measure our performance, we evaluate
ourselves by what we say we will do in our core beliefs that will
bring us long term performance excellence on an absolute basis.</span></li>
</ul>
<div>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">You may ask what are the right things. It is impossible to clearly lay it all out. We can only say we know it when we see it - just like Judge Potter Stewart when explaining what is hard-core pornography, said: "I know it when I see it."</span></div>
<div>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Armed
with the above, we, as investors, are at the crossroad facing a
fundamental choice on how to reach the final destination – do we go
slow or do we sprint? The first thing to recognize is investing is
akin to running a marathon. If you sprint, you may get ahead of
others at first, but losses your steam pretty darn fast. Thus, pacing
oneself is crucial. Remember, the Aesop's fable, “The tortoise and
the hare,” is just as applicable today as it was back then. And
today is one of those days you do not sprint, instead, keep your
breath and energy, and watch others sprint until they cannot. And
heaven forbids, you might even want to egg others on to sprint.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Despite
all the dramas, many of which unresolved, investors have hardly
balked even as we live in a more interdependent world. There are more
challenges to come in the second half including the “fiscal cliff”
issue. Eventually, something have to give and a band-aid solution
would work no longer. When the day of reckoning arrives, policy
makers can be counted on to do the right thing eventually. But it
will not be good for the securities market in general. That is when
we will be absolutely optimistic for the future: We are neither a
perma-bear nor a perma-bull. It depends on where we are in the
economy. Meanwhile, it is never fun waiting for the time to arrive,
and it is certainly not fun to be fully-invested when the day of
reckoning comes, but it is certainly fun when the day arrives,
provided you have bullets to shoot, so to speak. What dooms a man is
his failure to sit quietly in a room as Blaise Pascal observed all
along, and we are determined not to be such a man.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">As
of 30 June 2012, cash as a percentage of assets is about 28% of total
assets, down from 32% at the start of year. We are very reluctant to
go much below this threshold based on current market conditions
unless we can find something really valuable. As we write, we managed
to increase by 4% in cash on the last trading day of the first half.
We will divest more stocks into cash if the market gets more
expensive, hopefully, it will. We are cheering for it although we
have the capacity to allocate into stocks, but we are net-seller in
this market.
</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Although
we hold a reasonable amount of cash, we have outperformed the major
U.S indices but underperformed the Singapore index. We did not deliberately aim to outperform in this market but our positions generated the returns that allows it to. In an
expensive market, we are satisfied to keep up with, or even
underperform, the market. It is in an upheaval market that provides
us with the best chance to outperform significantly in the safest
manner. In the game of investing, we wait for others to commit
unforced errors. We do not claim to have any special or better skills
than any other market participants. Charles Ellis, long ago,
described this phenomenon in his article, “The Loser's Game:” In
the game of investing, it has long ago turned into a game where folks
with ordinary intelligence can win as long as they wait for others to
commit mistakes. Investing is not a value-adding activity, it is a
zero-sum game: In order for someone to make money, someone else must
make a mistake. When you buy X security, someone else must sell you X
security. In the exchange, you as a buyer think X is likely to make
you money while the one who sells you X thinks it is likely to be a
loser. Who is correct? Someone must be making a mistake, it is either
you or the seller. As they say in Poker, if you do not know who the
patsy is on the table, it is likely to be you. Another word of
caution: in investing, it is relatively simple if you focus on the
right things and keep learning but it is not an easy game. Only a
fool will think it is an easy game.</span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Another hardly-asked question is how did the portfolio achieve its results. Most of us tend to just focus on the headlines. For example, if you compare the following arbitrary portfolios handled by different managers:</span><br />
<ul>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio A returns 50% in first half 2012.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio B returns 2% in first half.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio C returns 2% in first half.</span></li>
</ul>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">On first brush, Portfolio A looks the most impressive and most of us will instantly jump to the conclusion that the money manager for Portfolio A is the most "skillful," but is it true? And we brush off managers for the other two portfolios. However, have we asked how was the results achieved? Now, assuming the following are how they achieved the results:</span><br />
<ul>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio A 50% return was largely achieved by placing a significant portion of assets in a "hot" stock with minimal revenue and has yet to generate any earnings to show for. However, it is "hot" and much pursued after by market participants because of its perceived attractiveness with novel technological capabilities that has the "potential" to grow exponentially.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio B is up only 2% and underperformed the major indices by 4-6% because the manager deemed the current state of affair as risky, especially with a dearth of compelling buys. He, thus, allocated, less than 50% into equities, with the rest lock in safe havens like cash or short-term treasuries, while biding for his time.</span></li>
<li><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio C underperformed at the same rate as Portfolio B. However, the results for Portfolio C was achieved very differently from B. The manager for Portfolio C is almost fully invested, with only 10% cash or less. However, most of his equities turn out to be duds and most of the securities are not in safe-haven securities like consumer staples or the stable type of stocks. Most are in cyclicals. And it returns 2% versus the major indices return of 6-8%.</span></li>
</ul>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We can conclude that the strategy for Portfolio A is as good as going to a casino, handled by a manager with no skills. Portfolio B is handled by a manager who is more likely to know what he is doing and is willing to underperform given the risk that he sees and is not willing to chase after returns when he sees it as foolhardy. Portfolio C is handled by a manager who clearly has selected the wrong stocks due likely to a lack of skill, and thus, it will be better off for his customers to be invested in indices than to hand him the money to invest.</span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If we are to chose which manager to hand out money to, we will hand our money to Manager B. If there are only two choices - Manager A and C - we will chose C. Over our dead body will we ever chose A.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">To
end this segment, here is a portion of one of our favorite poems of
all time which happens to capture the essence of successful investing
– “IF” by Rudyard Kipling:</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Quote</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<i><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
you can keep your head when all about you are losing theirs and
blaming it on you.</span></i></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<i><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
you can trust yourself when all men doubt you but make allowance for
their doubting too.</span></i></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<i><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
you can wait and not be tired by waiting, or being lied about, don't
deal in lies, or being hated don't give way to hating, and yet don't
look too good, nor talk too wise.</span></i></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Unquote</span></div>
</div>
<br />
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">First
half of 2012 portfolio review</span></b><br />
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></b><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Portfolio performance are shown in the following tables: Basically, we use four benchmarks to measure our long-term performance.</span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://1.bp.blogspot.com/-0YseteSjUec/T_G9nprFz9I/AAAAAAAAABE/K3r2dQAASyU/s1600/Portfolio+versus+benchmarks+first+half+2012.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="291" src="http://1.bp.blogspot.com/-0YseteSjUec/T_G9nprFz9I/AAAAAAAAABE/K3r2dQAASyU/s640/Portfolio+versus+benchmarks+first+half+2012.jpg" width="640" /></a></div>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">What
have we set out to do at the outset and have we accomplished it?</span></b></div>
</div>
<ol>
<li><div style="font-weight: normal; margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Have
we been conservative in a seemingly expensive market and be brave in
a seemingly chaotic one? Check. Compared to early 2009 to mid 2011
when we were fully invested, we shifted gears starting mid 2011 to
more cash, peaking at 35% cash, but has since dropped but we are
still rather conservative holding 28% cash. We will increase or
decrease depending on how hot or cold the market is, or if we can
find cheap buys even if the market is hot.</span></div>
</div>
<div style="font-weight: normal; margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="font-weight: normal; margin-bottom: 0in;">
</div>
</li>
<li><div style="font-weight: normal; margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Have
we been able to resist chasing after returns for the sake of keeping
up with the Jones and be satisfied to underperform in an up market
and outperform in a down market which is the strategy to long-term
outperformance in a full economic cycle? Check. Our portfolio has so
far shown the characteristics to underperform when the market takes
a huge step forward and outperform when the market takes a huge step
back. And over a period of time, we have delivered results that are
satisfactory, and so far been absolute. Here are some examples:</span></div>
</div>
<ol>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">S&P500
is currently flat from the closing of April 2011 of 1363.61 (peak
for 2011), while our portfolio is up 3% while maintaining a cash
level of 25 to 35% for most of the period.</span></div>
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">S&P500
is currently down 3.3% from the closing of April 2012 of 1408.47
(close to the peak for the first half), while our portfolio is up
1% while maintaining a healthy cash balance of 25 to 28% for the
period.</span></div>
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
an up market, we are likely to underperform the benchmarks but we
will not be unhappy, instead we are satisfied although it may be
emotionally tough but we understand our goal. For example:
</span></div>
</div>
<ol type="a">
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
measured from market low: From end September 2011 (market low) to
now, S&P500 is up 20.4%, while we are up 14.4% while
maintaining a cash level of 15 to 32%.
</span></div>
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">If
measured from the high to the low in 2011: From end April 2011 to
end September 2011, S&500 is down 17% while we are down 10%.</span></div>
</div>
</li>
</ol>
</li>
</ol>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The
above examples demonstrated, thus far, that we are able to deliver
satisfactory results by paying attention to risk. This is achieved
by 1) outperforming the market on its way down, and 2) matching or
slightly underperforming the market on its way up. We wait for
unforced errors and pick up the free lunches - maybe not free but
for a dime or significantly less than its intrinsic value.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Did
we dig for gems regardless of market's temperature? Check. We will
never throw out the baby with the bath water under any conditions.
Mastercard and Visa were bought at a valuation that is likely to
produce mid-teens return for the medium term even though it reduces
our kitty.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
</li>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Have
we exercised patience, and analyze thoroughly before buying or
selling ? Need to work on. We could have been better but we take it
as a learning curve. Although we had done reasonably well for most
of the stocks that we sold based on what we think it is worth,
there is, however, one which we committed an elementary error – Anheuser
Busch Inbev. It is not because we feel terrible that the stock has
surged to over $79 (we sold at $64.6) but rather for the failure
to do a proper analysis when we sold and then learnt later that we
left significant value on the table. We do not feel terrible just
because a stock surges from the price we sold. Two other stocks
that we disposed have also gone up – Starhub (sold at S$3.28) and SIA
Engineering (sold at S$3.87) – but these two are likely to be, at
best, fully valued. We do not see how Starhub and SIAE earnings can
grow at the same pace as how the stock prices suggest, particularly,
Starhub because they have run out of tax assets and need to pay tax
in cash very soon, but sure, they have better levers than the
other telcos which they can pull to increase debt which may benefit shareholders.</span></div>
</div>
</li>
</ol>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">We do not expect our current outperformance to
continue if the market gets more expensive by the day. In fact, if it gets
more expensive, we are likely to underperform, probably by a large margin.
Heaven knows how long the market's ascension can last, but one thing for
sure, nothing goes in one direction forever and on a straight path,
the day will come when something -expected or unexpected – that
will knock the breath out. In fact by being more conservative, we
have managed not to lose as much back for what we had laboriously
fought for. From end of April 2011 to end September 2011, the S&P500
lost 17% while our portfolio lost 10%. But we are not as conservative
at that time than we are now. The outcome as demonstrated by the most recent
smaller slump: From end of March 2012 to the 26 June 2012 (3 days
prior to the market surge that ends the first half on a high note),
S&P500 declined by 6.3% while our portfolio declines by 1.2%.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Thankfully,
we have managed to do reasonably well even when the market is not
particularly cheap and probably risky, while able to maintain a
reasonable cash level at 28% of assets, though down from 32% cash at
the start of year. The reduction in cash can be attributed to the
purchases for Mastercard and Visa. </span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">What
are the main drivers for the portfolio first half performance?</span></b></div>
</div>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>Coca
Cola</b> – We took the opportunity to add KO at an average price of
about $67. We would not have added more Coca Cola had Pepsico price
not been within 3 to 4% percentage less than KO because we do not
think it is prudent to reduce cash holding significantly for a stock
that is only slightly undervalued. But compared to Pepsico, KO is a
better bet if KO is selling for only 3-4% more than PEP. Therefore,
to fund the purchase, we reduced our then-significant exposure to
Pepsico and bought into Coke. Although, we have since reduced
roughly 2/5 of KO. Today, the difference between KO and PEP is
about 10%, down from 15% earlier, in favor of KO. And let's not
misinterpret this as a technical play or based just on the
difference in prices. Rather, it is a comparison of which stock
provides a better value if the price of Coke is 3-4% more than
Pepsico. At $67 for KO, it is selling at almost the same multiples
with PEP at $64-$65 and KO eps growth is brighter than PEP. This was
prior to PEP's reduced earnings guidance. In total KO return 14.8%
for the first half, and comprised about 13% of the total gain for the
portfolio.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>Mastercard
and Visa</b> – Stakes were accumulated in January 2012. Return for
the two shares is 17.6% since acquisition. This group comprised about 20% of portfolio
total gain.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>United Overseas Bank</b> – Up 25.5% for the first half. Makes up 24.4% of portfolio gain. However, the performance is
much less stellar if measured from cost, up only 6.6% (although if
measured in SGD terms, it is up 10%) since acquisition during second
half of 2011.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>Berkshire
Class B</b> – Up about 9.2% for the first half. Comprised slightly
over 9% of total gain. However, it is up by only 4.3% from cost.
Shares were acquired at different times, with two-thirds acquired in May
2011, and the rest acquired in Jan 2011 and earlier.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>Haw
Par</b> – Up 17% year to date. Contributed 5% of total portfolio
gain.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><b>Pepsico</b>
– Up 6.5% for the remaining shares. However for those shares that
were sold, it was sold at a lower price ($65.74) than the price at
the start of the year ($66.35), therefore, it lowered the
gains for the remaining Pepsi shares.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Remaining
gains came from smaller positions such as DirecTV, Reckitt Benckiser,
Becton Dickinson (partially sold), CSX (sold), Anheuser Busch Inbev
(sold), Amgen (sold) and some opportunistic stocks like St. Jude Medical,
Starhub, SIA Engineering and Baxter which are all sold.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Opportunistic
stocks – St. Jude Medical was acquired for $32.5 in December 2011 and was sold
at a gain of 10.5% the next month. Baxter was similarly bought in
December 2011 at $48.11 and sold two months later for a gain of over
16.8%. SIA Engineering was acquired in January 2012 for $3.38 and
sold in March for a gain of 13.3%. Starhub was bought in January
2012 and sold recently in June 2012, for a gain of 20%. These four opportunistic stocks comprised about 7% of total portfolio gain.</span></li>
</ul>
<ul>
<li style="text-align: justify;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The
above reflects the positions with positive returns. The total return
for the above positions produced a gross gain of 9.7% year to date.
But this is offset by some positions with losses Net result as shown
along with Dow Jones Industrial Average as a comparison:</span></li>
</ul>
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="http://2.bp.blogspot.com/-y2GdsM_uMWs/T_CF8QAksII/AAAAAAAAAG0/T9RQLgGDZTI/s1600/Portfolio+vs+DJIA+1H2012+showing+gross+gain+&+losses.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"></span></a><a href="http://2.bp.blogspot.com/-y2GdsM_uMWs/T_CF8QAksII/AAAAAAAAAG0/T9RQLgGDZTI/s1600/Portfolio+vs+DJIA+1H2012+showing+gross+gain+&+losses.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="http://2.bp.blogspot.com/-y2GdsM_uMWs/T_CF8QAksII/AAAAAAAAAG0/T9RQLgGDZTI/s1600/Portfolio+vs+DJIA+1H2012+showing+gross+gain+&+losses.jpg" /></a></div>
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<ol>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
case you are wondering why we did not take S&P500 which is more
broad-base and representative as a comparison: DJIA only consists of
30 stocks and is a price-weighted index. This makes it easier to
calculate than to go through the hassle for S&P500.</span></div>
</ol>
<div>
<ul>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Losers
for first half includes:</span></div>
<ul>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Norfolk
Southern (-1.4%), </span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Western
Union (-5.4%),
</span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Google
(-3.6%),
</span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Celgene (-12%),
</span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Tesco PLC (-2.1%),
</span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Singapore
Land (-1.8), and</span></div>
</li>
<li><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Molson
Coors (-1.6%).</span></div>
<div style="margin-bottom: 0in;">
</div>
</li>
</ul>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">69%
of the losses comes from Norfolk Southern, Pepsico (related to the shares sold to fund KO), and Celgene. Of the 3 main loss
contributors, we hold a larger position in Norfolk and Pepsi
compared to Celgene. Unfortunately, after
purchasing at $73, it fell through the roof to a low of $59, and is now
$64 and change,. This is mainly because of a delay to gaining new
marketing approval for extended use in the E.U for its top selling
drug . But at $59 or below, we stand ready to add because we think it has a strong line of current commercial drugs and also a decent pipeline that serves to extend
use for existing drugs and also new drugs in trials.</span></div>
</li>
</ul>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><span style="color: red;"><b>*All
performance mentioned excludes dividend. </b></span>
</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Additions
to portfolio:</span></b></div>
</div>
<ul>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Mastercard
and Visa</span></b></div>
</div>
</li>
</ul>
<ol>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Started
accumulated in January 2012 with an initial allocation of 5.7% of
total assets. Subsequently, added another 4.2% of total assets in
May 2012 when there was a small correction for both stocks. In
total, almost 10% of total assets (based on start of year total
assets) were allocated in these two equities.</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Average
price paid - $369 for Mastercard and $105 for Visa. Return since acquisition –
about 17.6% as a group.
</span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Why
Mastercard and Visa? We paid about 16x on a forward 12 months earnings for
both. Medium growth rate for both stocks range from mid to high
teens for earnings per share. Any business with a fairly predictable
revenue stream, defensible business model, growth at well over 10%,
and available for 16x earnings is likely to do well. Historical eps
growth is well above 20% since their IPOs. Foreseeable medium
growth is over 15%. </span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span><br />
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Now take Mastercard as an example and assume
growth slows to 10%, earnings by 2015 would then be $27.4 per share.
In order to lose money, the stock must sell below 13.5x in
2015 and growth rate must slow to 10% for us to show a loss.
Of course, if such a scenario happens, we will be extremely glad to
double, triple or even quadruple our stake for a business that still
carries a 10% growth rate and sells for a very reasonable 13.5x
earnings.</span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Otherwise,
in a normal path, assuming an achievable medium per-share-earnings growth of
15%, by 2015, Mastercard would earn at least $40 per share on a
forward 12-months basis. Assuming there is no compression in
multiples from what we pay, at 16x, stock sells for $640, an annual
return of 15%. If multiples increase by 20% and sells for 19.2x,
stock will be worth $768, a return of 20% annually. Conversely, if
multiples compress by 20% (12.8x), stock will be worth $512, an
annual return of 8.5%. In which case at 12.8x multiples, we will
add a lot more, because we view the lagging stock price as if the
stock is brisk-walking at that moment before it picks up steam to
jog and then sprint and ultimately, the full value will be
recognized. So if the stock brisk-walks while the value is
increasing at a faster clip than the stock appreciation suggests, we
will be there to catch more of it.</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
fact, I am late to the game for Mastercard and Visa because I was sucking my thumb for too long and held my trigger at least twice in the
past, particularly, during December of 2010 when both of their
prices plunged due to the Durbin Amendment.</span></div>
</ol>
<ul>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">DirecTV</span></b></div>
</div>
</li>
</ul>
<ol start="0">
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Comprises
about 3% of total assets. We got familiarize with DTV when Berkshire
announced the hiring of Ted Weschler in mid 2011. We first bought
DTV in September 2011 at $40.99 and then dispose the next month at
$47.2. Then in December 2011, we bought again at $42. And in May
2012, we accumulated a bit more at $45. Average price is $43.4.</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Why
did we buy and accumulate more even at a price higher than the
initial price? For one, it is cheap and cash flow is predictable.
The other factor is the stock price has not kept up with the value,
i.e., compression in price-to-earnings and it was pretty sizable
one. Management targets for over $5 eps in 2013. Therefore, at
$43.4, it is less than 9x multiples for a business with highly
predictable cash generating capability.</span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Return
year to date is 12.5%.</span></div>
</ol>
<ul>
<li><div style="margin-bottom: 0in; text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">IBM</span></b></div>
</li>
</ul>
<ol start="0">
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Makes
up about 8.5% of total assets. Bought between the range of $178 to
$198, at an average of $188.6. IBM revenue is much more predictable
than what it used to be. IBM, in essence, is very different from the
start of the decade. The transformation, owning to Lou Gerstner, has
been focused on shifting the business to higher value areas of the
market, improving operating leverage and investing in opportunities
to drive growth. IBM operates in four major segments: 1) Global
Services (GS); 2) Software; 3) Systems and Technology (ST); and 4)
Global Financing. Out of the 4 segments, 3 have got annuity-like
characteristics.</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">“Global
Services” which makes up 56% of total revenue, 44% of pre-tax
income. Approximately 60% of GS revenue is annuity based, coming
primarily from outsourcing and maintenance arrangements.
</span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Software
revenue is approximately two-third annuity based, the remaining 1/3
relates to one-time charge arrangements for charges like license
fees, subscription, etc. Software comprises about 24% of revenue and
47% of pre-tax income.
</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The
role of Global Financing is to facilitates client's acquisition of
IBM systems, software and services. It is similar to a finance
company except that it has the benefit of both a deep knowledge of
its client base and a clear insight into the products and services
that are being financed. This allows Global Financing to effectively
manage two of the major risks – credit and residue value – that
are normally associated with financing. This segment of business is
very annuity-like and held up well as demonstrated in the table
below.</span></div>
</ol>
</div>
<div style="text-align: justify;">
<div class="separator" style="clear: both; text-align: center;">
<a href="http://3.bp.blogspot.com/-jEqamYAHnyM/T_G-uxftTMI/AAAAAAAAABU/5-3TviJKkEA/s1600/IBM+2006-2011+data.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="93" src="http://3.bp.blogspot.com/-jEqamYAHnyM/T_G-uxftTMI/AAAAAAAAABU/5-3TviJKkEA/s400/IBM+2006-2011+data.jpg" width="400" /></a></div>
</div>
<ol><div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Global
finance has done well even during the financial turmoil of 2008/9
and has grown strong since.</span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
terms of valuation, we paid 14x for 2011 adjusted earnings and 12.6x
for 2012. Management has a detailed roadmap on steering the company
towards achieving goals for both the longer term and also medium.
IBM aims to earn $20 adjusted earnings per share in 2015. If IBM is
priced at 12x 2015 earnings which is cheaper than today and also on
a historical basis, it is worth $240, a return of 6.5% annually. If
it is priced at 14x 2015 earnings, it is worth $280, an annual
return of slightly over 10%. If it is priced at 16x 2015 earnings,
it is worth $320, an annual return of 14%. Of course, if the
earnings surprise on the upside, the return will likely be much
more. Conversely, it can as well surprise on the downside. But IBM
has been conservative in its guidance for a long time ever since
Gerstner's days.</span></div>
</ol>
<div>
<ul>
<li><div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Norfolk
Southern Railway</span></b></div>
</div>
</li>
</ul>
<ol>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Norfolk
comprises about 4% of total assets. The stake arises from the sale
of CSX Rail, for which we divested at a net gain of 12.5% and bought
into NSC. However, there isn't much difference economically owning
either CSX or Norfolk unless the price-to-value margin between them
greatly diverge. I'm indifferent to either CSX or Norfolk on their
fundamental business. Both are likely to perform step in step of
each other because both possess almost the same economic
characteristics.</span></div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in; text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Average
purchase price for Norfolk is about $73, a loss of 1.4% since
purchase. I admit I should have been better in timing the purchases
because right after the purchase, it fell to as low as $64, had I
not gave in to my lack of patience. Having said that, railroads even
at $73 should provide a decent value, though it can be a little more
volatile and cyclical. But overtime, rails are in a good position to
earn more than today in the 5, 10 or 15 years from today. Though in
now to then, there will be aberrations, especially on volume, but
not so much on unit price. In fact, rails have demonstrated their
pricing power as can be seen in the below table for the major
railroads:</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="http://4.bp.blogspot.com/-H1Xz8MEXQCY/T_G-g8GFCNI/AAAAAAAAABM/KLeRoGbsQsY/s1600/Rail+data+2002+to+2011.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="287" src="http://4.bp.blogspot.com/-H1Xz8MEXQCY/T_G-g8GFCNI/AAAAAAAAABM/KLeRoGbsQsY/s400/Rail+data+2002+to+2011.jpg" width="400" /></a></div>
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">The
tables clearly demonstrate the strength of all of the rail
franchises on either side of the coasts through a full economic
cycle. The pricing power held up well even in the face of market
distortion in the years 2007 to 2009. Revenue per unit in 2009 is
7.7 to 10% more than 2007 for all the railroads even with unit
volume falling 20% from 2007. Moreover, total volume in 2011 was
still 10% less than its previous peak in 2006. Volume today is
around the same as it is in 2003. One of the “concerns” on
railroads, particularly the eastern railroads, was recently directed
at the decline in coal volume which is likely to be secular rather
than cyclical, as long as coal cannot compete with natural gas as a
fuel for energy. Just this week, Rex Tillerson, CEO of Exxon Mobil,
sort of admitted his mea culpa in going big into natural gas.
However, the decline in the coal franchise (over 40% of total
volume) is offset by growth in the overall merchandise businesses,
particularly very strong growth in vehicle/car carloads with year to
date volume growing in excess of 20%. In the latest weekly traffic
report from the Association of American Railroads, the total coal
carloads for year to date is down 10.8%, but the decline which
started since 2011, is levering off. In the week of 25, coal volume
is down only 0.4%. So any future decline in coal is bound to have a
much lesser impact to total volume, and may even be accretive to
volume if there's an untick. Although utilities are using less coal,
coal is not going to go away totally, <a href="http://www.instituteforenergyresearch.org/wp-content/uploads/2008/05/coal-percent-electric-generation.jpg">coal
makes up 45% of electric energy sector in the U.S in 2011, down from
49% in 2007</a>. According to an outlook released in January 2012 by EIA, <a href="http://205.254.135.7/forecasts/aeo/er/executive_summary.cfm">coal
is forecasted to generate 39% of all electricity generation over the next 25 years</a>. Others are forecasting even lower - <a href="http://www.foxnews.com/us/2012/06/12/us-coal-use-falling-fast-utilities-switch-to-gas/">expecting coal to fall to 30% of all U.S electricity generation by 2020</a>. Utilities are the major buyers of coal – buying more than <a href="http://en.wikipedia.org/wiki/Coal_power_in_the_United_States">90% of coal mined in the U.S</a>.</span></div>
</ol>
</div>
<ol>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Rail
volume has not really had much of a tailwind behind its back yet. In
fact, housing and construction is still not far from the the bottom,
though it is off the bottom. When housing construction recovers, you
can be sure the rails will be a lot more busy. In the meantime,
rails still have the leverage to price their revenue to get them
through till volume fully recovers.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">To
drive home the point of the strength of the rails, the revenue per
unit increased between 68 to 85% and operating income per unit is up
255% to 1320% for the period 2002 to 2011. Although CSX operating
income per unit increased by 1320%, it was driven by a tremendous
improvement in operating ratio, compared to the rest. Had CSX
started with operating ratio of 80-82%, like the rest, CSX operating
income per unit would have grown at about the same rate as the
others – in the 250-280% range.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Now,
let's do some valuation on Norfolk. Based on estimated per share
earnings of $5.87 for 2012, the price we paid at $73 gives a PE of
12.5x, not an unreasonable value. With patience, this stock is
likely to work out fine in the end. Will volume ever recover to its
previous peak? The question is when. In the meantime, we wait. And
while we wait, the railroads are increasing prices at a clip over
rail inflation. Just recently, CSX posted on its website to
increase export metallurgical coal tariff rates by 4%. But rising rates can be
a double-edged sword, so they cannot be too unreasonable because
rails are still regulated by the Surface Transportation Board which
has the authority to reduce charges deemed “unreasonable” as
railroad operators can only levy charges that cover their operating
costs and a rate of return on assets. And it is common that
customers has frequently voiced their opinions.</span></div>
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
</div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<div style="text-align: justify;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">To
understand how railroads get to where they are today, we will
provide some color here. Before 1980, railroads were regulated for
93 years and unable to set prices. With the advent of vehicles and
better connectivity of highway, competition was heightened for the
railroads. While railroads were regulated, truckers and waterways
operators were unregulated, and thus operated on a free market basis
which was a huge disadvantage for the railroads. By the 1970s,
railroads was on the brink of collapse. Bankruptcies were common,
earnings were too low to maintain tracks and equipments in good
condition,, and operating costs were rising. As a result, rails
infrastructure were in shambles and service level was atrocious. At
that time, nationalization was even considered. Eventually, it led
to the Staggers Act of 1980 which deregulated the industry.
Importantly, this act allows railroads to set prices that gives them
a chance to compete with truck and barge operators. Consequently,
railroads turned the table and were able to churn out profits that
would motivate them to reinvest in the business. This led to a
cumulative reinvestment of $480 billion since 1980. Today, railroads
infrastructure is healthy and service level is up year to year. This
has not only allowed railroads to prosper but have also contributed
greatly to the advance of the U.S economy. The railroad are
essentially the backbone for facilitating faster and more efficient
movement of goods, provided the proper infrastructure are in place
and are serviceable with a reliable service schedule and level. So
to re-regulate the rail industry would take a brave-heart to do so
unless the industry trips over themselves.</span></div>
</div>
</ol>
<div style="text-align: justify;">
<ul>
<li><div style="margin-bottom: 0in;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Celgene</span></b></div>
</li>
</ul>
<ol>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">A
very small position bought for 15.5x adjusted 2012 earnings at $73.
Growth rate of 10-15%. Celgene is a biopharmaceutical with a few
commercial drugs manufactured and marketed by them. The main revenue
driver is Revlimid, a drug used for a type of blood cancer, Multiple
Myeloma(MM). In treating MM, there're basically three drugs, 2 of
which belongs to Celgene and the other, a subsidiary of Johnson and Johnson. Revlimid, along with the one by JNJ, are the two first-line
drugs used in treating MM. The other drug that has the potential to
attain blockbuster status in Celgene's fold is Abraxane, currently
only approved as a second-line treatment for metastatic breast
cancer. But there are a number of clinical trials (from early to
late stage) to study extended use of Abraxane in other areas of
oncology, for example, pancreatic. Celgene is hopeful Abraxane will
eventually be a major driver of revenue. However, I made a decision
buying Celgene in a haste. I would be better off had I exercise
patience again. But I still think Celgene provides a good likelihood
that I will be proven right because their existing commercial drugs
are running strong, and the pipeline should also provide some boost
in the future. And perhaps as a form of self-consolation, Celgene's
management is still targeting at least $8 adjusted earnings per
share in 2015. We shall see.</span></div>
</ol>
<ul>
<li><div style="margin-bottom: 0in;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Singapore
and other stocks – M1, Singapore Land and Tesco (small
positions)</span></b></div>
</li>
</ul>
<ol>
<ol type="a">
<li><div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Bought
M1 at S$2.42 early in the year. Received S$0.079 in the meanwhile
as dividend and stock ended June 2012 at $2.56. M1 was bought along
with Starhub at the same time, but Starhub has been sold in June
2012 at S$3.28, which appreciated from S$2.72.</span></div>
</li>
<li><div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Singapore
Land was bought at S$5.65 in Feb 2012 . Highly discounted from
book value. Sells for a reasonable 10x cash flow. A majority amount
of predictable revenue such as rental and hotel operations which
can cushion the impact of the cyclical property development
business. Excluding property development income, the predictable
segments earns about S$0.50 to S$0.54, about 10.5 to 11x earnings
multiple.</span></div>
</li>
<li><div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Tesco
is the giant UK retailer with international operations in Thailand,
Malaysia and other parts of Asia and Europe. Bought Tesco in Jan
2012 at-the-then-3-or-5-year-lows at <span style="color: #222222;">£</span>3.155 per share or
about 9x expected earnings. While we wait for the management to
turn the UK retail business around, we get paid over 4% in
dividend. Surely, a turnaround in retail is never a sure-thing.
Just look at Carrefour, they even cut dividend. But in Tesco, we
shall see. I believe fundamentally, they are not as bad as
Carrefour. There's a reasonable chance for them. And that's why
this is not a huge bet but a small one.</span></div>
</li>
</ol>
</ol>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">While
on the topic of a huge bet in a single or couple of positions, I have
not had one since late 2008 and early 2009. The last stock with more
than 20% in one position was Pepsico during 2011 but has since been
watered down to get into more favorable positions. Pepsico was
acquired for stability rather than an outright bet on a huge gain.
Now our largest position is in cash.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
</div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">In
total, we hold 19 different equities – a record number we have ever
held at single time. Our top five positions of equities make up 54%
of all equities value (excluding cash). Our top seven positions
comprise 65% of all equities ex cash. Our seven largest positions are
Berkshire Hathaway, IBM, UOB, Mastercard, Pepsico, Coca Cola, and
Norfolk Southern, in the order of size. None of the positions account
for more than 10% of total assets including cash. However, three of
the positions accounts for more than 10% of equities value when cash
are excluded.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Compared
to where we started off, we had only 5 positions, with the top 2
positions making up 84% of all assets. Today is unlike the days when
we started off where bargains were abound. Some were selling for as
cheap as 20 cents on the dollar - for example, you can buy American
Express at $10 and now $57. If you dig a little more, there were even
10 cents on the dollar - for example, Liberty Interactive which was
available at $2 and now almost $18. The top 2 positions held then
were Wells Fargo and American Express. None of which we hold today.
When the market is in turmoil, it is easier to just concentrate your
positions in a couple of stocks because you don't need to worry on
risk as much as now.</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Lastly,
divestures include Anheuser-Busch Inbev, Baxter, St. Jude Medical,
Starhub, CSX Railway, Molson Coors, Amgen, and SIA Engineering. We
only lost money on Molson Coors – a lost of 4.6% from what we pay,
but partially offset by dividends.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Mea-Culpa
Confession X 2</span></b></div>
<div style="margin-bottom: 0in;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></b></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Deja
vu, this one is so reminiscent of what I did to Davita in the last
quarter of 2011. Of all the divestures for 2012, the only one I think
I made a mistake is Anheuser-Busch Inbev because it is a well-managed business with a first class CEO alongside a set of first-class
owners. It is a business that is focused on operational excellence and
provides a good growth rate (at least a high single digit growth). I
wish I know what I was thinking of when we sold BUD.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">I
sold BUD at $64.6 early 2012 and regretted almost immediately when I
analyze in details. After that, it surges up. Then I bide for my
time. The stock hit a high of $74 over a month or so and then
gradually decline, and fell to slightly below $67. This is when I
committed a second mistake. Because I sold at $64.6, it became a drag
and anchor to buy again even though at $67, it was selling for 14.5x
2012 earnings, and much less for next. At this valuation, it will
likely provides a decent return. I told myself to buy at $67 but when
it fell below that, I kept thinking about $64.6. Only heaven knows
what I am thinking about. Now, the stock is even further from my
reach – last done at over $79. But well, I do not have to think
about them since the potential upside is pretty much lesser now and
not worth the risk to pursue.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">You
can bet this will likely happen again because BUD case is not the
first time it happens. In fact, it is reminiscent to what I did for
Davita late last year. Davita was acquired for $63 in September 2011
and sold for $74 soon. Again, it was a mistake for failure to think
before selling. Then the stock only went up to a point of $90. Then I
bided for time hoping to repurchase again at a better price. About
two months ago, DVA announced a deal to acquired Healthcare Partners
which will be slightly accretive to earnings and purchase for a
reasonable price. The market did not react well to the news and price
fell to $78. At $78, it was selling at about the same multiple as
what I paid for in 2011. But I got anchored by the price I sold
earlier. Unfortunately, the price never came back down to $74. Now it
is over $95, way beyond my reach. Two deals which I clearly made the
same type of mistakes eerily follow a similar path in consequence.
What have I found out? Tying and anchoring yourself to the past and
basing a decision on other than facts is detrimental to one's
financial well-being which I have learnt but hopefully, will
practice.</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">Finally,
to close the letter, I recommend reading the book – Dethroning the
King: The Hostile Takeover of Anheuser-Busch.
</span></div>
<div style="margin-bottom: 0in;">
<span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;"><br /></span></div>
<div style="margin-bottom: 0in;">
<b><span class="Apple-style-span" style="font-family: Times, 'Times New Roman', serif;">NOTE: All currencies are in USD unless otherwise indicated. Returns are all measured in USD.</span></b></div>
<div style="margin-bottom: 0in;">
<br /></div>
</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com23tag:blogger.com,1999:blog-34104702.post-45972297459168678302011-12-18T02:36:00.000-08:002011-12-18T04:47:52.079-08:00Journey of a portfolioThis is the result of a portfolio since January 2008. I'll try to answer any questions and comments.<div><div><br /></div><div><span class="Apple-style-span" style="color:#ff0000;">+Portfolio Results vs Various Benchmarks (*Excluding Dividends & Other Gains)</span></div><div><br /></div><div><div><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 400px; height: 147px;" src="http://3.bp.blogspot.com/-gSYyGRC5gMc/Tu3ZedV296I/AAAAAAAAAFo/NvRJtU9a5k8/s400/Portfolio%2Bvs%2BSP500.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5687441021734418338" /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 400px; height: 149px;" src="http://2.bp.blogspot.com/-ll5qrusGaFI/Tu3aC6e7tGI/AAAAAAAAAF0/HvNUmqSFZ_o/s400/Portfolio%2Bvs%2BDJIA.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5687441648032396386" /></div><div><br /></div><div><br /></div><div><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 400px; height: 151px;" src="http://3.bp.blogspot.com/-YAFmGVo1BGg/Tu3anSIO8ZI/AAAAAAAAAGA/lZkc3Wawjig/s400/Portfolio%2Bvs%2BSTI.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5687442272854929810" /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 400px; height: 129px;" src="http://4.bp.blogspot.com/-jT_RcfR5njk/Tu3bbkd2wVI/AAAAAAAAAGM/VDoqt10tNZk/s400/Portfolio%2Bvs%2BBRKB.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5687443171130655058" /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div>*Dividends & other gains adds about 12.5% points to the cumulative returns in SGD terms or 13.5% to the cumulative returns in USD terms.</div></div><div><br /></div><div>+Portfolio result is inclusive of cash held. % of cash and equities varies throughout the stated period. When opportunities are abound, cash could be 100% all invested, or when risk is high and potential return is low, the cycle would be reversed, resulting in an increase in % of cash held.</div></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com11tag:blogger.com,1999:blog-34104702.post-53061446102719048182011-07-29T09:59:00.000-07:002011-07-29T11:36:06.723-07:00Pepsico<span class="Apple-style-span" style=" ;font-family:Tahoma;font-size:13px;"><div style="text-indent: 0px !important; "><span class="Apple-style-span" style=" ;font-family:Tahoma;"><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">The stock market had a pretty good run since last September 2010. As the index goes up, opportunities in value proposition comes down. But there are some areas where the valuation is very compelling, and quite frankly, hidden in plain sight. Within the consumer staples space, there're a number of compelling valuations - Pepsico, P&G, Reckitt Benckiser, Anheuser Busch InBev, and Molson Coors for examples, and even Coca Cola though less compelling than the rest.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">However, not many people are going to revved about it and say owning these consumer staples plays will outperform the market. Let me refer back to the previous note on risk - on a risk-adjusted basis, these looks like good excellent value in my opinion. This is, however, not for short term play or traders. Holding these companies would require a long term horizon where we expect to hold them indefinitely until better opportunities become available or we think we made a mistake. Moreover, such higher-quality businesses would not require as high a potential rate of return as a lower-grade security. Reason is we endeavor to evaluate equities just like a bond buyer would look at bonds - we don't go for the highest return without consideration on a risk-adjusted basis. If we will, we will only buy when the risk/premium is correct: like how it was during Mar 2009, you could buy any of the surviving banks at ridiculous valuation and and they were generally perceived by the market as very risky as the price tumbled, but the exact opposite actually happened, the more it fell, the less risk it presented, thus, the risk/premium for a class of stock that was then perceived as extremely risky was in fact priced for great future return in a low-risk manner at the extreme.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">In today's market, certain consumer staples are selling not much more expensive than industrials or basic materials which are more cyclical in nature than consumer staples - in some cases, cheaper. Example, Emerson Electric, Boeing, United Technologies, Honeywell, 3M, all sell almost at par or over Pepsico valuation. The consumer businesses we are interested in make disposable products with very little economic sensitivity. In this economic environment, companies manufacturing industrial or consumer goods that have long lives - like autos, tractors, machineries, appliances or any durables - is an area of concern because their replacement decision can be easily delayed. The five consumer staples companies are basically higher quality businesses with market-leading positions in their principal products; well-recognized brand names; a barrier to entry; with long product cycles but short customer-repurchase cycles; and with relatively low capital requirements that allow the business to generate high cash returns on tangible assets while growing. </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Personally, I own all the five companies (in addition, I own Coca Cola but Coke is not as cheap as it was last year so I don't recommend it at this time). Particularly, I would focus discussing on Pepsico in this note, PEP constitutes the largest of my position (close to 30% of my managed portfolio). </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">I started with a small position (less than 7%) back in Oct 2010 and added intermittently. With the recent retreat, my position was increased by another 50% because I think it is unfairly punished - at $64, it is selling for no more than 14.5x 2011 adjusted earnings for a business that has a long term potential growth of 9-11%. People often ask what is the market missing and what unique insight you bring. I bring no unique insight. It is as if you must be so astute, and have some very complex thesis or story that no one else sees in order to identify an undervalue proposition. Some times, it doesn't. The fact of the matter is there are times when quality businesses are undervalued and we just have to be alert and smart enough to recognize those moments and chose to own them. In 1988, when Buffett started buying Coca Cola, what special insights does he brings besides knowing that KO was selling at 12-14x earnings. That is all there is. Most times the market understands, sometimes it doesn't - that's why in most years, KO sells for 17 to 22x earnings while in a few others, 12 to 15x or 60x when it doesn't.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Pepsico is somewhat distinct from Coca-Cola in that Pepsico is a partial beverage and partial snack foods business. On the beverage front, Pepsi owns its namesake carbonated soft drink (CSD) brands, Mountain Dew, Gatorade and others. On the snack food business, the primary divisions are Frito-Lay and Quaker Foods. Pepsico is the dominant player in the snack food arena. If you walk down the chips aisle of a grocery store, it is hard not to find a bag that's a Pepsico brand. Sure, there're niche players but Frito-Lay has some of the highest market share of any major product in the grocery store. In fact, Pepsico's fortunes are much more driven by snack foods, rather than beverage. They are the powerhouse in snacks just like Coca Cola in CSD. Frito-Lay accounts for about half of Pepsico business and its margin and return on assets are far better than its beverage business.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">What's the expected returns if we buy shares today at $64? On a forward basis, we estimate PEP to earn a normalized $4.42. They should be able to keep about 80% of that (from 1994 to 2010, they had kept between 79-135% of normalized earnings). So free cash flow would be around $3.53 per share. That's a 5.5% free cash yield. On top of this, Pepsi should deliver an annual volume growth of 1.5-3%, primarily from increase snack-food sales and international expansion. Add in some pricing of 2%, largely to compensate for inflation, the expected annual return is 9-10.5%. Compared to S&P, S&P500 is estimated to earn $95 for 2011, of which you keep maybe 50% as free cash flow. At 1300 on the index, the resulting FCF of $52 gives you a 3.7% free cash yield. Add on 3% inflation and 1.5% for organic growth, the average investor is potentially looking at 8.2% annual return from the market. In my opinion, Pepsico is a higher-quality business with lower risk than the average S&P 500 company, it should trade at a premium to the market rather than a discount. When an excellent company like this trades at a decent annual rate of return and with that kind of discount to the market, it's a very attractive risk-adjusted buy. </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">One thing when you focus on the forward rate of return is it keeps you centered on the fundamentals of the business, its economics and its cash flows. Thus, we are not counting on others to pay us a higher multiple or trying to figure out what the future P/E or cash-flow multiple should be - if they will, all the better. For example, in five years time, PEP should deliver at least $6.8 per share in adjusted earnings. If P/E multiples remains the same as today of 14.5, stock price will be $98.6 - an annual compounded return of 9% excluding dividend. Obviously, if the market values the multiples more by then, the annual compounded would be more than 9%. But we don't need to rely on that in order to make money. All we need is just to focus on the fundamentals. Owning a solid business with a 9-10% real return while lying in wait for better opportunities to emerge seems to me a pretty sound approach to making money. </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Selected actual historical performance of Pepsico provided:</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Table 1</span></span></div><div style="text-align: -webkit-left;"><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="border-collapse: collapse; font-size:medium;"><table frame="VOID" cellspacing="0" cols="10" rules="NONE" border="0"> <colgroup><col width="141"><col width="35"><col width="33"><col width="33"><col width="32"><col width="35"><col width="33"><col width="37"><col width="37"><col width="33"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="141" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="35" align="RIGHT" sdval="2010" sdnum="18441;"><span style="font-size:78%;">2010</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2009" sdnum="18441;"><span style="font-size:78%;">2009</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2008" sdnum="18441;"><span style="font-size:78%;">2008</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="32" align="RIGHT" sdval="2007" sdnum="18441;"><span style="font-size:78%;">2007</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="35" align="RIGHT" sdval="2006" sdnum="18441;"><span style="font-size:78%;">2006</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2005" sdnum="18441;"><span style="font-size:78%;">2005</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="37" align="RIGHT" sdval="2004" sdnum="18441;"><span style="font-size:78%;">2004</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="37" align="RIGHT" sdval="2003" sdnum="18441;"><span style="font-size:78%;">2003</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2002" sdnum="18441;"><span style="font-size:78%;">2002</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Non-GAAP EPS</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="4.13568773234201" sdnum="18441;0;0.00"><span style="font-size:78%;">4.14</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="3.70703868103995" sdnum="18441;"><span style="font-size:78%;">3.71</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="3.67478152309613" sdnum="18441;0;0.00"><span style="font-size:78%;">3.67</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="3.37696019300362" sdnum="18441;"><span style="font-size:78%;">3.38</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="3.00237107291049" sdnum="18441;0;0.00"><span style="font-size:78%;">3.00</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2.6588511137163" sdnum="18441;"><span style="font-size:78%;">2.66</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2.31578947368421" sdnum="18441;"><span style="font-size:78%;">2.32</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2.07073030477286" sdnum="18441;"><span style="font-size:78%;">2.07</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.95807713806596" sdnum="18441;"><span style="font-size:78%;">1.96</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Trailing 10-yrs annual compound growth</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0954550000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.55%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0984" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.84%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.115364" sdnum="18441;0;0.00%"><span style="font-size:78%;">11.54%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1129" sdnum="18441;0;0.00%"><span style="font-size:78%;">11.29%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.10543" sdnum="18441;0;0.00%"><span style="font-size:78%;">10.54%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0892124999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.92%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.06728" sdnum="18441;0;0.00%"><span style="font-size:78%;">6.73%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0662050000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">6.62%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Trailing 5-yrs annual compound growth</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0661449999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">6.61%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0687249999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">6.87%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0967450000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.67%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.102755" sdnum="18441;0;0.00%"><span style="font-size:78%;">10.28%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.089245" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.92%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0985484999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.85%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0981350000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.81%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1092" sdnum="18441;0;0.00%"><span style="font-size:78%;">10.92%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.11064" sdnum="18441;0;0.00%"><span style="font-size:78%;">11.06%</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.000"><span style="font-size:78%;">Dividend</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.89" sdnum="18441;"><span style="font-size:78%;">1.89</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.775" sdnum="18441;"><span style="font-size:78%;">1.78</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.65" sdnum="18441;"><span style="font-size:78%;">1.65</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.425" sdnum="18441;"><span style="font-size:78%;">1.43</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.16" sdnum="18441;"><span style="font-size:78%;">1.16</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.01" sdnum="18441;"><span style="font-size:78%;">1.01</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.85" sdnum="18441;"><span style="font-size:78%;">0.85</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.63" sdnum="18441;"><span style="font-size:78%;">0.63</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.595" sdnum="18441;"><span style="font-size:78%;">0.6</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Payout as a % of non-GAAP eps</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.456997752808989" sdnum="18441;0;0.00%"><span style="font-size:78%;">45.70%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.478818850496066" sdnum="18441;0;0.00%"><span style="font-size:78%;">47.88%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.449006285034823" sdnum="18441;0;0.00%"><span style="font-size:78%;">44.90%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.421977138774781" sdnum="18441;0;0.00%"><span style="font-size:78%;">42.20%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.386361303060217" sdnum="18441;0;0.00%"><span style="font-size:78%;">38.64%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.379863315696649" sdnum="18441;0;0.00%"><span style="font-size:78%;">37.99%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.367045454545455" sdnum="18441;0;0.00%"><span style="font-size:78%;">36.70%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.304240488753124" sdnum="18441;0;0.00%"><span style="font-size:78%;">30.42%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.303869540393948" sdnum="18441;0;0.00%"><span style="font-size:78%;">30.39%</span></td></tr></tbody></table> </span></span></div><div style="text-indent: 0px !important; "><div dir="ltr" style="text-indent: 0px !important; "><div style="text-indent: 0px !important; "><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size: small; "><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size: small;">Continued table 1</span></span></div><div style="text-align: auto;text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;"> <span class="Apple-style-span" style="border-collapse: collapse; font-size: medium;"> <table frame="VOID" cellspacing="0" cols="9" rules="NONE" border="0"> <colgroup><col width="148"><col width="33"><col width="33"><col width="33"><col width="31"><col width="33"><col width="32"><col width="31"><col width="33"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2001" sdnum="18441;"><span style="font-size:78%;">2001</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="2000" sdnum="18441;"><span style="font-size:78%;">2000</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="1999" sdnum="18441;"><span style="font-size:78%;">1999</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="31" align="RIGHT" sdval="1998" sdnum="18441;"><span style="font-size:78%;">1998</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="1997" sdnum="18441;"><span style="font-size:78%;">1997</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="32" align="RIGHT" sdval="1996" sdnum="18441;"><span style="font-size:78%;">1996</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="31" align="RIGHT" sdval="1995" sdnum="18441;"><span style="font-size:78%;">1995</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="33" align="RIGHT" sdval="1994" sdnum="18441;"><span style="font-size:78%;">1994</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Non-GAAP EPS</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.66187050359712" sdnum="18441;"><span style="font-size:78%;">1.66</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.45016949152542" sdnum="18441;"><span style="font-size:78%;">1.45</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.23328877005348" sdnum="18441;"><span style="font-size:78%;">1.23</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.15865701119157" sdnum="18441;"><span style="font-size:78%;">1.16</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.10191082802548" sdnum="18441;0;0.00"><span style="font-size:78%;">1.10</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.1312702366127" sdnum="18441;"><span style="font-size:78%;">1.13</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.20756218905473" sdnum="18441;0;0.00"><span style="font-size:78%;">1.21</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1.09069651741294" sdnum="18441;0;0.00"><span style="font-size:78%;">1.09</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Trailing 10-yrs annual compound growth</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Trailing 5-yrs annual compound growth</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.08565" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.57%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0509200000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">5.09%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.00421999999999989" sdnum="18441;0;0.00%"><span style="font-size:78%;">0.42%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0121599999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">1.22%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0237130000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">2.37%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.000"><span style="font-size:78%;">Dividend</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.575" sdnum="18441;"><span style="font-size:78%;">0.58</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.555" sdnum="18441;"><span style="font-size:78%;">0.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.535" sdnum="18441;"><span style="font-size:78%;">0.54</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.515" sdnum="18441;"><span style="font-size:78%;">0.52</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.49" sdnum="18441;"><span style="font-size:78%;">0.49</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.445" sdnum="18441;"><span style="font-size:78%;">0.45</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.39" sdnum="18441;"><span style="font-size:78%;">0.39</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.35" sdnum="18441;"><span style="font-size:78%;">0.35</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Payout as a % of non-GAAP eps</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.345995670995671" sdnum="18441;0;0.00%"><span style="font-size:78%;">34.60%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.382713884992987" sdnum="18441;0;0.00%"><span style="font-size:78%;">38.27%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.43379945799458" sdnum="18441;0;0.00%"><span style="font-size:78%;">43.38%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.444480113636364" sdnum="18441;0;0.00%"><span style="font-size:78%;">44.45%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.444682080924856" sdnum="18441;0;0.00%"><span style="font-size:78%;">44.47%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.393363128983609" sdnum="18441;0;0.00%"><span style="font-size:78%;">39.34%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.322964733025709" sdnum="18441;0;0.00%"><span style="font-size:78%;">32.30%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.320895862792501" sdnum="18441;0;0.00%"><span style="font-size:78%;">32.09%</span></td> </tr> </tbody> </table> </span> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size: small;">Table 2</span></span></div><div style="text-align: -webkit-left;"><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="border-collapse: collapse; font-size:x-small;"><b> <table frame="VOID" cellspacing="0" cols="10" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">Stock price in USD</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2010" sdnum="18441;"><span style="font-size:78%;">2010</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2009" sdnum="18441;"><span style="font-size:78%;">2009</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2008" sdnum="18441;"><span style="font-size:78%;">2008</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2007" sdnum="18441;"><span style="font-size:78%;">2007</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2006" sdnum="18441;"><span style="font-size:78%;">2006</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2005" sdnum="18441;"><span style="font-size:78%;">2005</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2004" sdnum="18441;"><span style="font-size:78%;">2004</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2003" sdnum="18441;"><span style="font-size:78%;">2003</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2002" sdnum="18441;"><span style="font-size:78%;">2002</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="68.11" sdnum="18441;"><span style="font-size:78%;">68.11</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="64.48" sdnum="18441;"><span style="font-size:78%;">64.48</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="79.79" sdnum="18441;"><span style="font-size:78%;">79.79</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="79" sdnum="18441;"><span style="font-size:78%;">79</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="65.99" sdnum="18441;"><span style="font-size:78%;">65.99</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="60.34" sdnum="18441;"><span style="font-size:78%;">60.34</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="55.71" sdnum="18441;"><span style="font-size:78%;">55.71</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="48.88" sdnum="18441;"><span style="font-size:78%;">48.88</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="53.5" sdnum="18441;"><span style="font-size:78%;">53.5</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="58.75" sdnum="18441;"><span style="font-size:78%;">58.75</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="43.78" sdnum="18441;"><span style="font-size:78%;">43.78</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="49.74" sdnum="18441;"><span style="font-size:78%;">49.74</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="61.89" sdnum="18441;"><span style="font-size:78%;">61.89</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="56" sdnum="18441;"><span style="font-size:78%;">56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="51.34" sdnum="18441;"><span style="font-size:78%;">51.34</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="45.3" sdnum="18441;"><span style="font-size:78%;">45.3</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="36.24" sdnum="18441;"><span style="font-size:78%;">36.24</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="34" sdnum="18441;"><span style="font-size:78%;">34</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="65.33" sdnum="18441;"><span style="font-size:78%;">65.33</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="60.8" sdnum="18441;"><span style="font-size:78%;">60.8</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="54.77" sdnum="18441;"><span style="font-size:78%;">54.77</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="75.9" sdnum="18441;"><span style="font-size:78%;">75.9</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="62.55" sdnum="18441;"><span style="font-size:78%;">62.55</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="59.08" sdnum="18441;"><span style="font-size:78%;">59.08</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="52.2" sdnum="18441;"><span style="font-size:78%;">52.2</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="46.62" sdnum="18441;"><span style="font-size:78%;">46.62</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="42.22" sdnum="18441;"><span style="font-size:78%;">42.22</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="20" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Annual compound growth since low of 1994 to end of respective year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.092034" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.20%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0931390000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.31%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0920178" sdnum="18441;0;0.00%"><span style="font-size:78%;">9.20%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1248169" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.48%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1182748" sdnum="18441;0;0.00%"><span style="font-size:78%;">11.83%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.123385" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.34%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.122623" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.26%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1229168" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.29%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.125013" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.50%</span></td></tr></tbody></table></b></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size: small;">Continued table 2</span></span></div><div style="text-align: auto;text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><span class="Apple-style-span" style="border-collapse: collapse;"> <table frame="VOID" cellspacing="0" cols="9" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">Stock price in USD</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2001" sdnum="18441;"><span style="font-size:78%;">2001</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2000" sdnum="18441;"><span style="font-size:78%;">2000</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1999" sdnum="18441;"><span style="font-size:78%;">1999</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1998" sdnum="18441;"><span style="font-size:78%;">1998</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1997" sdnum="18441;"><span style="font-size:78%;">1997</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1996" sdnum="18441;"><span style="font-size:78%;">1996</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1995" sdnum="18441;"><span style="font-size:78%;">1995</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1994" sdnum="18441;"><span style="font-size:78%;">1994</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="50.46" sdnum="18441;"><span style="font-size:78%;">50.46</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="49.9375" sdnum="18441;"><span style="font-size:78%;">49.94</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="42.5625" sdnum="18441;"><span style="font-size:78%;">42.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="44.81" sdnum="18441;"><span style="font-size:78%;">44.81</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="41.31" sdnum="18441;"><span style="font-size:78%;">41.31</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="35.88" sdnum="18441;"><span style="font-size:78%;">35.88</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="29.375" sdnum="18441;"><span style="font-size:78%;">29.38</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="20.56" sdnum="18441;"><span style="font-size:78%;">20.56</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="40.25" sdnum="18441;"><span style="font-size:78%;">40.25</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="29.6875" sdnum="18441;"><span style="font-size:78%;">29.69</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="30.12" sdnum="18441;"><span style="font-size:78%;">30.12</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="27.56" sdnum="18441;"><span style="font-size:78%;">27.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="28.62" sdnum="18441;"><span style="font-size:78%;">28.62</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="27.25" sdnum="18441;"><span style="font-size:78%;">27.25</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="16.94" sdnum="18441;"><span style="font-size:78%;">16.94</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="14.625" sdnum="18441;"><span style="font-size:78%;">14.63</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="48.69" sdnum="18441;"><span style="font-size:78%;">48.69</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="49.56" sdnum="18441;"><span style="font-size:78%;">49.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="35.25" sdnum="18441;"><span style="font-size:78%;">35.25</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="40.88" sdnum="18441;"><span style="font-size:78%;">40.88</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="36.25" sdnum="18441;"><span style="font-size:78%;">36.25</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="29.25" sdnum="18441;"><span style="font-size:78%;">29.25</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="27.94" sdnum="18441;"><span style="font-size:78%;">27.94</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="18.125" sdnum="18441;"><span style="font-size:78%;">18.13</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="20" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Annual compound growth since low of 1994 to end of respective year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.162232" sdnum="18441;0;0.00%"><span style="font-size:78%;">16.22%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.190472" sdnum="18441;0;0.00%"><span style="font-size:78%;">19.05%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.157915" sdnum="18441;0;0.00%"><span style="font-size:78%;">15.79%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.228238" sdnum="18441;0;0.00%"><span style="font-size:78%;">22.82%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.254735" sdnum="18441;0;0.00%"><span style="font-size:78%;">25.47%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.25992" sdnum="18441;0;0.00%"><span style="font-size:78%;">25.99%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> </tr> </tbody> </table> </span></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;">Table 3</span></span></div><div style="text-align: auto;"><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="border-collapse: collapse; font-size:medium;"> <table frame="VOID" cellspacing="0" cols="10" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">Stock price in SGD</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2010" sdnum="18441;"><span style="font-size:78%;">2010</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2009" sdnum="18441;"><span style="font-size:78%;">2009</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2008" sdnum="18441;"><span style="font-size:78%;">2008</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2007" sdnum="18441;"><span style="font-size:78%;">2007</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2006" sdnum="18441;"><span style="font-size:78%;">2006</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2005" sdnum="18441;"><span style="font-size:78%;">2005</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2004" sdnum="18441;"><span style="font-size:78%;">2004</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2003" sdnum="18441;"><span style="font-size:78%;">2003</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2002" sdnum="18441;"><span style="font-size:78%;">2002</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="89.264966" sdnum="18441;"><span style="font-size:78%;">89.26</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="89.569168" sdnum="18441;"><span style="font-size:78%;">89.57</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="114.17949" sdnum="18441;"><span style="font-size:78%;">114.18</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="114.0839" sdnum="18441;"><span style="font-size:78%;">114.08</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="104.2609005" sdnum="18441;"><span style="font-size:78%;">104.26</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="101.558254" sdnum="18441;"><span style="font-size:78%;">101.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="94.996692" sdnum="18441;"><span style="font-size:78%;">95</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="84.303336" sdnum="18441;"><span style="font-size:78%;">84.3</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="96.84035" sdnum="18441;"><span style="font-size:78%;">96.84</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="83.519" sdnum="18441;"><span style="font-size:78%;">83.52</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="65.53866" sdnum="18441;"><span style="font-size:78%;">65.54</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="72.22248" sdnum="18441;"><span style="font-size:78%;">72.22</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="94.951638" sdnum="18441;"><span style="font-size:78%;">94.95</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="90.9664" sdnum="18441;"><span style="font-size:78%;">90.97</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="84.526176" sdnum="18441;"><span style="font-size:78%;">84.53</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="76.98282" sdnum="18441;"><span style="font-size:78%;">76.98</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="62.865528" sdnum="18441;"><span style="font-size:78%;">62.87</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="60.3568" sdnum="18441;"><span style="font-size:78%;">60.36</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="84.112375" sdnum="18441;"><span style="font-size:78%;">84.11</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="85.32672" sdnum="18441;"><span style="font-size:78%;">85.33</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="78.824984" sdnum="18441;"><span style="font-size:78%;">78.82</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="109.38708" sdnum="18441;"><span style="font-size:78%;">109.39</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="95.92668" sdnum="18441;"><span style="font-size:78%;">95.93</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="98.320936" sdnum="18441;"><span style="font-size:78%;">98.32</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="85.28436" sdnum="18441;"><span style="font-size:78%;">85.28</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="79.291296" sdnum="18441;"><span style="font-size:78%;">79.29</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="73.31503" sdnum="18441;"><span style="font-size:78%;">73.32</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Annual compounded growth since low of 1994 to end of respective year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0817075" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.17%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0880046999999999" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.80%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.0883738000000001" sdnum="18441;0;0.00%"><span style="font-size:78%;">8.84%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1209069" sdnum="18441;0;0.00%"><span style="font-size:78%;">12.09%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1194274" sdnum="18441;0;0.00%"><span style="font-size:78%;">11.94%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.132325" sdnum="18441;0;0.00%"><span style="font-size:78%;">13.23%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1304765" sdnum="18441;0;0.00%"><span style="font-size:78%;">13.05%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1361175" sdnum="18441;0;0.00%"><span style="font-size:78%;">13.61%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1423523" sdnum="18441;0;0.00%"><span style="font-size:78%;">14.24%</span></td> </tr> </tbody> </table> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;">Continued table 3</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;"> <table frame="VOID" cellspacing="0" cols="9" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><span class="Apple-style-span" style="font-size:x-small;"><b> <table frame="VOID" cellspacing="0" cols="9" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">Stock price in SGD</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2001" sdnum="18441;"><span style="font-size:78%;">2001</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2000" sdnum="18441;"><span style="font-size:78%;">2000</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1999" sdnum="18441;"><span style="font-size:78%;">1999</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1998" sdnum="18441;"><span style="font-size:78%;">1998</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1997" sdnum="18441;"><span style="font-size:78%;">1997</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1996" sdnum="18441;"><span style="font-size:78%;">1996</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1995" sdnum="18441;"><span style="font-size:78%;">1995</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1994" sdnum="18441;"><span style="font-size:78%;">1994</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="92.382168" sdnum="18441;"><span style="font-size:78%;">92.38</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="86.73145" sdnum="18441;"><span style="font-size:78%;">86.73</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="71.505" sdnum="18441;"><span style="font-size:78%;">71.51</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="71.42714" sdnum="18441;"><span style="font-size:78%;">71.43</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="63.460422" sdnum="18441;"><span style="font-size:78%;">63.46</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="50.71638" sdnum="18441;"><span style="font-size:78%;">50.72</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="41.5979375" sdnum="18441;"><span style="font-size:78%;">41.6</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="33.031696" sdnum="18441;"><span style="font-size:78%;">33.03</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="71.7577" sdnum="18441;"><span style="font-size:78%;">71.76</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="50.75671875" sdnum="18441;"><span style="font-size:78%;">50.76</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="51.09858" sdnum="18441;"><span style="font-size:78%;">51.1</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="48.03708" sdnum="18441;"><span style="font-size:78%;">48.04</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="40.31127" sdnum="18441;"><span style="font-size:78%;">40.31</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="38.812175" sdnum="18441;"><span style="font-size:78%;">38.81</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.79169" sdnum="18441;"><span style="font-size:78%;">24.79</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.13055" sdnum="18441;"><span style="font-size:78%;">22.13</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="90.12519" sdnum="18441;"><span style="font-size:78%;">90.13</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="85.81314" sdnum="18441;"><span style="font-size:78%;">85.81</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="58.7265" sdnum="18441;"><span style="font-size:78%;">58.73</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="67.88124" sdnum="18441;"><span style="font-size:78%;">67.88</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="60.736875" sdnum="18441;"><span style="font-size:78%;">60.74</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="40.94415" sdnum="18441;"><span style="font-size:78%;">40.94</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="39.515542" sdnum="18441;"><span style="font-size:78%;">39.52</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="26.4751875" sdnum="18441;"><span style="font-size:78%;">26.48</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;">Annual compounded growth since low of 1994 to end of respective year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.1918778" sdnum="18441;0;0.00%"><span style="font-size:78%;">19.19%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.213613" sdnum="18441;0;0.00%"><span style="font-size:78%;">21.36%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.17663" sdnum="18441;0;0.00%"><span style="font-size:78%;">17.66%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.25127" sdnum="18441;0;0.00%"><span style="font-size:78%;">25.13%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.287108" sdnum="18441;0;0.00%"><span style="font-size:78%;">28.71%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="0.227625" sdnum="18441;0;0.00%"><span style="font-size:78%;">22.76%</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="LEFT" sdnum="18441;0;0.00%"><span style="font-size:78%;"><br /></span></td> </tr> </tbody> </table> </b></span></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td><td width="38" align="LEFT"><br /></td></tr> </tbody> </table> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;">Table 4</span></span></div><div style="text-align: auto;"><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="border-collapse: collapse; font-size:medium;"> <table frame="VOID" cellspacing="0" cols="10" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">PE based on non-GAAP eps</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2010" sdnum="18441;"><span style="font-size:78%;">2010</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2009" sdnum="18441;"><span style="font-size:78%;">2009</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2008" sdnum="18441;"><span style="font-size:78%;">2008</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2007" sdnum="18441;"><span style="font-size:78%;">2007</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2006" sdnum="18441;"><span style="font-size:78%;">2006</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2005" sdnum="18441;"><span style="font-size:78%;">2005</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2004" sdnum="18441;"><span style="font-size:78%;">2004</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2003" sdnum="18441;"><span style="font-size:78%;">2003</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2002" sdnum="18441;"><span style="font-size:78%;">2002</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="16.4688449438202" sdnum="18441;"><span style="font-size:78%;">16.47</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="17.3939377352036" sdnum="18441;"><span style="font-size:78%;">17.39</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="21.7128554441991" sdnum="18441;"><span style="font-size:78%;">21.71</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="23.393820325058" sdnum="18441;"><span style="font-size:78%;">23.39</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="21.9792951628825" sdnum="18441;"><span style="font-size:78%;">21.98</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.694012345679" sdnum="18441;"><span style="font-size:78%;">22.69</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.0565909090909" sdnum="18441;"><span style="font-size:78%;">24.06</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="23.6051985559567" sdnum="18441;"><span style="font-size:78%;">23.61</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="27.32272337996" sdnum="18441;"><span style="font-size:78%;">27.32</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="14.2056179775281" sdnum="18441;"><span style="font-size:78%;">14.21</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="11.8099657885734" sdnum="18441;"><span style="font-size:78%;">11.81</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="13.5354985561406" sdnum="18441;"><span style="font-size:78%;">13.54</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="18.3271334166816" sdnum="18441;"><span style="font-size:78%;">18.33</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="18.6519249753208" sdnum="18441;"><span style="font-size:78%;">18.65</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="19.3090917107584" sdnum="18441;"><span style="font-size:78%;">19.31</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="19.5613636363636" sdnum="18441;"><span style="font-size:78%;">19.56</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="17.5010719244654" sdnum="18441;"><span style="font-size:78%;">17.5</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="17.363973736797" sdnum="18441;"><span style="font-size:78%;">17.36</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="15.7966471910112" sdnum="18441;"><span style="font-size:78%;">15.8</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="16.4012316113582" sdnum="18441;"><span style="font-size:78%;">16.4</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="14.9042874129438" sdnum="18441;"><span style="font-size:78%;">14.9</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.4758349705305" sdnum="18441;"><span style="font-size:78%;">22.48</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="20.8335340572557" sdnum="18441;"><span style="font-size:78%;">20.83</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.2201234567901" sdnum="18441;"><span style="font-size:78%;">22.22</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.5409090909091" sdnum="18441;"><span style="font-size:78%;">22.54</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="22.5137961677312" sdnum="18441;"><span style="font-size:78%;">22.51</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="21.5619697402227" sdnum="18441;"><span style="font-size:78%;">21.56</span></td> </tr> </tbody> </table> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;">Continued table 4</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="font-size:medium;"> <table frame="VOID" cellspacing="0" cols="9" rules="NONE" border="0"> <colgroup><col width="148"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"><col width="38"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="148" height="11" align="LEFT"><b><span style="font-size:78%;">PE based on non-GAAP eps</span></b></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> <td width="38" align="LEFT"><span style="font-size:78%;"><br /></span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2001" sdnum="18441;"><span style="font-size:78%;">2001</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="2000" sdnum="18441;"><span style="font-size:78%;">2000</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1999" sdnum="18441;"><span style="font-size:78%;">1999</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1998" sdnum="18441;"><span style="font-size:78%;">1998</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1997" sdnum="18441;"><span style="font-size:78%;">1997</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1996" sdnum="18441;"><span style="font-size:78%;">1996</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1995" sdnum="18441;"><span style="font-size:78%;">1995</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="1994" sdnum="18441;"><span style="font-size:78%;">1994</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">High</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="30.3633766233766" sdnum="18441;"><span style="font-size:78%;">30.36</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="34.4356299672744" sdnum="18441;"><span style="font-size:78%;">34.44</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="34.5113821138211" sdnum="18441;"><span style="font-size:78%;">34.51</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="38.6740852272727" sdnum="18441;"><span style="font-size:78%;">38.67</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="37.4894219653179" sdnum="18441;"><span style="font-size:78%;">37.49</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="31.7165597032177" sdnum="18441;"><span style="font-size:78%;">31.72</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.3258693144364" sdnum="18441;"><span style="font-size:78%;">24.33</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="18.8503398257538" sdnum="18441;"><span style="font-size:78%;">18.85</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Low</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.219696969697" sdnum="18441;"><span style="font-size:78%;">24.22</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="20.471744974287" sdnum="18441;"><span style="font-size:78%;">20.47</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.4225040650406" sdnum="18441;"><span style="font-size:78%;">24.42</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="23.7861590909091" sdnum="18441;"><span style="font-size:78%;">23.79</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="25.973063583815" sdnum="18441;"><span style="font-size:78%;">25.97</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="24.0879668871985" sdnum="18441;"><span style="font-size:78%;">24.09</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="14.0282630191167" sdnum="18441;"><span style="font-size:78%;">14.03</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="13.4088628381152" sdnum="18441;"><span style="font-size:78%;">13.41</span></td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="11" align="LEFT"><span style="font-size:78%;">Year-end closing price</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="29.2983116883117" sdnum="18441;"><span style="font-size:78%;">29.3</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="34.1753155680224" sdnum="18441;"><span style="font-size:78%;">34.18</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="28.5821138211382" sdnum="18441;"><span style="font-size:78%;">28.58</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="35.2822272727273" sdnum="18441;"><span style="font-size:78%;">35.28</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="32.8973988439306" sdnum="18441;"><span style="font-size:78%;">32.9</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="25.8558910624057" sdnum="18441;"><span style="font-size:78%;">25.86</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="23.1375247198418" sdnum="18441;"><span style="font-size:78%;">23.14</span></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="16.6178214660402" sdnum="18441;"><span style="font-size:78%;">16.62</span></td> </tr> </tbody> </table> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style=" ;font-size:medium;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Observations:</span></span></div><div style="text-indent: 0px !important; "><ol><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Non-gaap eps compounded at a rate of about 9% from 1994 to 2010, from $1.09 to $4.14, on US dollar basis. </span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Today, stock price is priced about 14.5x 2011 eps. In July 1994, PEP was priced 13.5x (a little better than now) at its low for the year. Had an investor bought at its low of $14.63 (in July 1994), he would have compounded at at rate of between 9.2% to 25.99% on USD basis, depending on his holding period. Had he held till 2010, he would have achieved 9.2% compounded return (ex div) for 17 years, or at end of 1996 knowing the rate of return is unsustainable, he would have sold and achieved a compounded rate of 25.99% for 3 years and waited for better chances (all figures on US dollar basis).</span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Let's say the investor is a Singaporean, he would have paid SGD22.13 in July 1994, and compounded at a rate of between 8.17% to 28.71%. If he held till end 2010 for 17 years, he would have achieved a compounded rate of 8.17%. If he sold at end of 1997, he would have compounded at 28.71% for 4 years of work. All are exclusive of dividends.</span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">In addition to above gain, for an investor who bought in 1994, and not sold PEP stock before 6 Oct 1997, he would be entitled to 0.1 Yum! Brands stock for every PEP stock he held. And if he had held on to the YUM stock to 2010, the 0.1 YUM stock is worth about USD4.9. That means, the PEP stock which he bought in 1994 low, would have been worth USD65.33 (PEP stock) + USD5.2 (YUM stock) = US$70.53</span></span></span></li></ol><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">If an investor buys today and holds for the long run as in 15 to 20 years, he'd likely get decent return. In between, the stock can go about anywhere (maybe if lucky enough again, you could get a 20% compounded return in any of the years in between the very long term. Then when you find the pendulum is at the extreme, you could always sell and wait. The pendulum is hardly at its happy medium. Otherwise, even if the stock don't misbehave, you still will likely get 9-10% return which isn't all that bad, or if I am wrong, 6-8% (on US dollar basis).</span></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="border-collapse: collapse;"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Now, what're the alternatives in July 1994 for a Singaporean investor? We know a Singporean PEP investor would have make 3.8x (excluding YUM stock) from his initial outlay of SGD22.13. Here're a few alternatives:</span></span></span></div><div style="text-indent: 0px !important; "><ol><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">OCBC: July 1994 @ $3.5, Dec 2010 @ $9.88, return of 2.82x</span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">UOB: July 94 $7.54, Dec 2010 @ $18.2, return of 2.42x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">DBS: July 94 $7.66, Dec 2010 $14.32, return of 1.87x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Haw Par: July 94 $2.98, Dec 2010 $6.13, return of 2.05x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">APB: July 94 $8.1, Dec 2010 $19.6, return of 2.42x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">NOL: Jul 94 $1.93, Dec 2010 $2.18, return of 1.13x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">F&N: Jul 94 $2.66, Dec 2010 $6.41, return of 2.41x</span></span></span></span></li><li><span class="Apple-style-span" style="border-collapse: collapse; "><span class="Apple-style-span" style="border-collapse: separate; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Singtel: Jul 94 $3, Dec 2010 $3.05, flat return</span></span></span></span></li></ol><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">(All prices obtained from Reuters interactive stock chart)</span></span></div></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">It's hard to find an outlier but not that there's none. There's one - Sembcorp Marine that sold for $0.86 in July 1994, and ended at $5.37 in Dec 2010, giving a return of 6.25x - double even the best return among the 8 examples. The problem is the stock was flat, fluctuating between $0.50 to $0.8, for the next 10 years. Share prices hardly go no where for a decade for no reason. The reasons for a flat return could be numerous: 1) business could be ill-managed, or 2) lack of decent business economics or growth, or 3) simply priced too aggressively where future gains have been priced into the current price, or 4) others. So that meant the investor who bought in 1994 had bought at the highest price point during the next 10 years. Then from 2005 onwards, the stock simply just spiked up. So why the surge? I don't know the exact cause because I don't follow SembCorp but if I have to guess, it was either the stock was too unloved where people have forgotten about and then woke up to reality, or there was a very major structural change to its business economics where it enjoys a high growth rate.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">And where does it Pepsico stands? With PEP return of 3.8x (on SGD basis) from 1994 to 2010 (17 years, that is a long run), it will be ranked top among the 8 examples. But if you include Sembcorp, PEP would come in second place but I personally think Sembcorp, at that time, would not be an easy investment decision that could be made with strong conviction. </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Sure, among the 8 examples, there may be some that were simply too expensive and thus became a disadvantage and created an anchor to future stock price gain because when it is expensive, investors are simply bringing future gain into the present. For example, Singtel was listed in Nov 1993 at $3.5 or something. That was priced at 45x earnings. So instead of acting as a tailwind to advance the stock price, it acted as an anchor when compared to PEP which at that time (July 1994) was priced at a low PE. Had Singtel been priced reasonably in July 94, say at 12x earnings, it would be available at $0.93 instead of $3 to $3.5. And it would have delivered a return of 3.27x by end of 2010, topping all the 8 SG examples. Had it been priced at 10x pe, it'd end up with 3.9x return, topping PEP. But history is not so. So what does all these tell us? That fundamentals and multiples matters more than anything else.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">But I have to say even PEP at today low P/E would not provide spectacular return, somewhere in the region between 9-11%, excluding forex losses, which is almost a sure thing for the long horizon. It's hard to tell how hard SGD will depreciate against USD for the next decade or two since that is the time horizon I am proposing to hold. Currency don't fall in a straight line - up next year, up again the year after, down the next and so on. Is it possible that SGD will depreciate at the rate of the past 2 years? It could but unlikely in my opinion. Let's take a look at history. Below shows the average rate of decline for the currency pair of SGD/USD since 1960.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-align: -webkit-left;text-indent: 0px !important; "><span class="Apple-style-span" style="font-family:arial, serif;"><span class="Apple-style-span" style="border-collapse: collapse; font-size:medium;"> <table frame="VOID" cellspacing="0" cols="7" rules="NONE" border="0"> <colgroup><col width="246"><col width="88"><col width="88"><col width="88"><col width="88"><col width="88"><col width="88"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="246" height="17" align="LEFT"><br /></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1960" sdnum="18441;">1960</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1965" sdnum="18441;">1965</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1970" sdnum="18441;">1970</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1975" sdnum="18441;">1975</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1980" sdnum="18441;">1980</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1985" sdnum="18441;">1985</td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="17" align="LEFT" sdnum="18441;0;0.00%">Average annual rate of decline to 2010</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.0159250000000001" sdnum="18441;0;0.0000%">-1.5925%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.017642" sdnum="18441;0;0.0000%">-1.7642%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.0197710000000001" sdnum="18441;0;0.0000%">-1.9771%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.0155280000000001" sdnum="18441;0;0.0000%">-1.5528%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.01477" sdnum="18441;0;0.0000%">-1.4770%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.018615" sdnum="18441;0;0.0000%">-1.8615%<br /><br /></td> </tr> <tr> <td height="17" align="LEFT"><br />Continued</td> <td align="RIGHT" sdval="0.44102712728959" sdnum="18441;0;0.00000"><br /></td><td align="RIGHT" sdval="0.441006639393736" sdnum="18441;0;0.00000"><br /></td><td align="RIGHT" sdval="0.441001531654187" sdnum="18441;0;0.00000"><br /></td><td align="RIGHT" sdval="0.569305437135174" sdnum="18441;0;0.00000"><br /></td><td align="RIGHT" sdval="0.630489559020804" sdnum="18441;0;0.00000"><br /></td><td align="RIGHT" sdval="0.613580169415171" sdnum="18441;0;0.00000"><br /></td></tr></tbody></table><table frame="VOID" cellspacing="0" cols="5" rules="NONE" border="0"> <colgroup><col width="246"><col width="88"><col width="88"><col width="88"><col width="88"></colgroup> <tbody> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="246" height="17" align="LEFT"><br /></td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1990" sdnum="18441;">1990</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="1995" sdnum="18441;">1995</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="2000" sdnum="18441;">2000</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" width="88" align="RIGHT" sdval="2005" sdnum="18441;">2005</td> </tr> <tr> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" height="17" align="LEFT" sdnum="18441;0;0.00%">Average annual rate of decline to 2010</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.0139320000000001" sdnum="18441;0;0.0000%">-1.3932%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.00303999999999993" sdnum="18441;0;0.0000%">-0.3040%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.0219820000000001" sdnum="18441;0;0.0000%">-2.1982%</td> <td style="border-top: 1px solid #000000; border-bottom: 1px solid #000000; border-left: 1px solid #000000; border-right: 1px solid #000000" align="RIGHT" sdval="-0.03431" sdnum="18441;0;0.0000%">-3.4310%</td> </tr> </tbody> </table> </span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style=" ;font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">From 1960 to 2010, a period of 51 years, USD has depreciated by 66% against SGD, at an average of rate of -1.59% annually. If you noticed, the fx from 1960 to 1970 was flat. SGD was initially pegged to Sterling Pounds till the early 1970s and then pegged to the US dollar for a short period of time. It was only from 1973 onwards, that SGD was unpegged. That probably explains why SGD against USD was almost flat from 1960 to 1972, going from 3.06 to 2.8, respectively, before plunging to 2.45 in the year after it was unpegged in 1973. So taking 1960 to 1973 numbers would likely distort the real picture of the long term average rate of decline. It's better to look at numbers from 1975 onwards. From 1975 to 2010, a period of 36 years, the average rate of decline is 1.55% annually. 1980 to 2010 is 1.477%. And so forth.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">The period of 2005 to 2010 is either an outlier or the new normal rate of decline. Let's say it's the new normal rate of decline (but things can always be worse, there's no such thing as a worst-case short of total loss), taking into account that US economy is not as vibrant and healthy as it was in the 1980s to 1990s. So if the new normal is an average decline of 3.4-3.5%, then it did take away about 3.8% from the 9% of PEP growth, ending up with yearly return of 5.2%. So where does 5.2% real return brings you in 17 years? You will have 2.36x of your principle (excluding dividend), which is about the same performance had you purchase UOB, F&N or APB in 1994 and held for the next 17 years.</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">Another table for additional info which shows the SGD/USD rate of decline in the respective 10-year period:</span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><table frame="VOID" cellspacing="0" cols="5" rules="NONE" border="0" style="text-indent: 0px !important; "><colgroup style="text-indent: 0px !important; "><col width="246" style="text-indent: 0px !important; "><col width="88" style="text-indent: 0px !important; "><col width="88" style="text-indent: 0px !important; "><col width="88" style="text-indent: 0px !important; "><col width="88" style="text-indent: 0px !important; "></colgroup><tbody style="text-indent: 0px !important; "><tr style="text-indent: 0px !important; "><td width="246" height="17" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">For the period</span></td><td width="88" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">1971 to 1980</span></td><td width="88" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">1981 to 1990</span></td><td width="88" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">1991 to 2000</span></td><td width="88" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">2001 to 2010</span></td></tr><tr style="text-indent: 0px !important; "><td height="17" align="LEFT" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">Average annual rate of decline</span></td><td align="RIGHT" sdval="-0.034783" sdnum="18441;0;0.0000%" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">-3.4783%</span></td><td align="RIGHT" sdval="-0.0152099999999999" sdnum="18441;0;0.0000%" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">-1.5210%</span></td><td align="RIGHT" sdval="-0.000219999999999887" sdnum="18441;0;0.0000%" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">-0.0220%</span></td><td align="RIGHT" sdval="-0.0279099999999999" sdnum="18441;0;0.0000%" style="text-indent: 0px !important; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); border-bottom-width: 1px; border-bottom-style: solid; border-bottom-color: rgb(0, 0, 0); border-left-width: 1px; border-left-style: solid; border-left-color: rgb(0, 0, 0); border-right-width: 1px; border-right-style: solid; border-right-color: rgb(0, 0, 0); "><span class="Apple-style-span" style="font-family:arial;">-2.7910%</span></td></tr></tbody></table></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;"><br /></span></span></div><div style="text-indent: 0px !important; "><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:arial;">However, none of the above reflects the worst rate of decline in a 10-year period since 1960. The worst 10-year period average rate of decline was 1986 to 1995 at -4.2%. If for the next 17 years, the average rate of decline is 4.2%, then it did chop roughly 4.5% off the top of 9%, giving a real return of 4.5%, which will exactly double your principle in 17 years. Is that the worst case? Of course not because worst case means total loss and many things (including externalities) or assumption can go wrong, it is just a matter of likelihood and if you have thought through it logically, clearly and deep enough.</span></span></div></div></div></span></div><div style="text-indent: 0px !important; "><div dir="ltr" style="text-indent: 0px !important; "></div></div></span>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com7tag:blogger.com,1999:blog-34104702.post-29406275883865770202011-07-16T07:28:00.000-07:002011-07-16T08:14:49.170-07:00The Most Important Things to successful investing via the Howard Marks' Way (Part 1)<span class="Apple-style-span" style="font-family:arial;">*The principles behind this note are drawn from Howard Marks thinking. What I learnt and think deeply from all of Mark's principles is his thoughts on risk. I've to be honest that I've not paid as much attention or thought of risk so much as to generating return.</span><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;">"What has been will be again, what has been done will be done again; there is nothing new under the sun." (Ecclesiastes 1:9-14 NIV)<br /><br />I came across the following portfolio:<br /><br /><br /></span><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 320px; height: 92px;" src="http://3.bp.blogspot.com/-xow0Bo8HHx8/TiGhljjJyEI/AAAAAAAAAEw/3DpjK0uOSJM/s320/CPF_port_Jul11.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5629958675759745090" /><span class="Apple-style-span" style="font-family:arial;"><br /><br /></span><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;"><br /></span></div><div><span class="Apple-style-span" style="font-family:arial;">On the outlook, it looks like a decent performance over the last decade. But in investing, luck can be mistaken as skill. A lucky idiot can be mistaken as a successful investor. So could the above portfolio be skill or luck? Was the return achieved with the correct risk control in mind?</span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size:medium;">Whatever it is, I hope to design my portfolio for a safer, more consistent return that can last for a full investing career, rather than to chase for return that is incommensurate with risk which can come back to bite you on a dime.</span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><br />Beating the market can be far from synonymous with superior investing. So the question lies in exactly what is successful investing and how to construct a risk-adjusted portfolio that can perform consistently over a full investing career.<br /><br /></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-family:arial;"><b>KEYS TO SUCCESSFUL INVESTING</b></span></span><span class="Apple-style-span" style="font-family:arial;"><br />Successful investing is to beat the market and to beat the market, you've to be above average, i.e., in the top half of the crowd. Anyone can be average just by investing in an index fund. How can you achieve superior return? Either you need good luck or superior insight. But counting on luck doesn't enhance your chance of success. So you'd better concentrate on insight.<br /><br />To be above average, you have to find an edge where the crowd don't have. You must think of something they haven't thought of, or have thought of but is restricted to act on, see things they miss or bring insights they don't possess. In short, you have to act and behave differently – i.e., be a contrarian. However, being a contrarian doesn't guarantee success. The key is you have to be more right than others.<br /><br />To achieve a consistent above-average result, you need superior insight, intuition, a sense of value and awareness of psychology. All consistent successful investors have something in common – second-level thinking. First level thinkers say, “The economic outlook sucks because of lower-than-expected growth and higher-than expected inflation” Second-level thinkers say, “The outlook stinks but everyone else is selling in a panic; let's buy!”<br /><br />Superior performance comes only from correct non-consensus forecasts, but non-consensus forecasts are hard to make, hard to make correctly and hard to act on. But doing so correctly will lead to superior investment results but that's not easy. And investing is not supposed to be easy. In short, second-level thinkers must be different from and better than first-level thinkers.<br /><br />An accurate estimate of intrinsic value (IV) is the indispensable starting point for reliable successful investing. Without it, any hope for consistent success as an investor is just that: HOPE.<br /><br /></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-family:arial;"><b>FUNDAMENTAL OR TECHNICAL INVESTING</b></span></span><span class="Apple-style-span" style="font-family:arial;"><br />Investing can be divided into two basic schools: 1) those based on analysis of the company's attributes, known as “fundamentals,” and 2) those based on the study of the price behavior of the securities themselves, known as “technicals.” In short, an investor is faced with two choices: first, gauge the security's underlying intrinsic value, or, second, make an investing decision purely on expectations regarding future price movements.<br /><br />Technical or momentum investing might allow you to participate in a bull market that continues upward, but there're a lot of drawbacks. For one, if something cannot go on forever, it will stop. Trees don't grow to the sky. Neither does much things go to zero. What happens to momentum investors then? Without a strong core, they'd likely yield to emotions which will cause them to sell when they should be buying, or buy when they they should be selling. They capitulate to emotions than to facts, causing them pain both emotionally and in the pocketbook.<br /><br />Another main flaw of momentum investing is the investor considers themselves successful if they bought a stock at $10 and sold at $11, bought it back the next week at $20 and sold at $21, and then bought it another week later at $39 and sold at $40. If you can't see the flaw in this where the trader made $3 in a stock that appreciated by $30, you're like the guy in the casino where after a few rounds, and if have not figured out who the patsy is, it's the guy.<br /><br /></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-family:arial;"><b>VALUE OR GROWTH INVESTING</b></span></span><span class="Apple-style-span" style="font-family:arial;"><br />Now on fundamental investing, there're two approaches: 1) value investing and 2) growth investing. In value investing, the goal is to quantify the company's current value and buy its securities when they can do so cheaply with a margin of safety – i.e, value investors buy when the current price is low relative to the current value. Growth investing is to identify companies with bright futures. By definition, that means there's less emphasis on the company's current value and attributes, and more on its potential – i.e, growth investors buy securities when they believe the value will grow fast enough in the future to produce substantial return. So, the choice isn't really between value or growth, but rather between value today or value tomorrow.<br /><br />All investing involves coming to a conjecture about the future, be it growth or value. For value investing practitioners, it's easy to say value investing allows them to avoid conjecture about the future and that growth investing consists only of conjecture about the future, but that's not exactly right. After all, establishing the current value of a business requires an opinion regarding its future. Even a net-net investment can be doomed if the company's assets are wasted unwisely on expensive acquisitions or money-losing operations. So, it is better to regard growth investing as having a conviction about the future, whereas value investing emphasizes current-day attributes but cannot escape dealing with the future.<br /><br />There's no question that's it's harder to see the future than the present. Thus, the batting average for growth investors are lower, but the payoff for doing it well is higher, naturally.<br /><br />The difference in upside potential between growth and value is growth is more dramatic while value is more consistent. So value is the better approach in my opinion. Consistency trumps drama.<br /><br /></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-family:arial;"><b>INTRINSIC VALUE</b></span></span><span class="Apple-style-span" style="font-family:arial;"><br />How do you produce a successful investing result consistently? Remember, it starts with an accurate estimate of intrinsic value. Without an accurate estimate, you'll be as likely to overpay as to underpay. If you overpay, what can you count on to bail you out? Either, it takes a surprising improvement in value, or a strong market, or an even less discriminating buyer (what we used to call a “greater fool”) to bail you out. An accurate intrinsic value will not only result in success but also serves as a protection from investing risk.<br /><br />In investing, we wish the stock will tick up the moment we buy them and thus proving ourselves right immediately. But a stock falling the next day or month, or even a year thus, does not prove we are wrong. In investing, being correct about a security isn't synonymous with being proved correct right away. It's hard to consistently do the right thing as an investor. But it's even harder or impossible to consistently do the right thing at the right time. The most we value investors can improve our chances for success is to be right about an asset's value and buy it when it's available for less. Thus, a firmly held view on value can help you to cope with this disconnect (where buying today doesn't mean you're going to start making money tomorrow).<br /><br />As an example, you found something that is worth $100 and have a chance to buy it for $60. Chances to buy well below actual or intrinsic value don't come along everyday and you should welcome it. So you buy it and feel you've gotten a great deal. But seldom the security price will move up on the next tick the moment you buy it. Chances are you'll often find that you've bought in the midst of a decline that continues. Pretty soon you'll be looking at paper losses. But one of the greatest investing adages reminds us, “Being too far ahead of your time is indistinguishable from being wrong.” So now that the security that is worth $100 is selling for $40 instead of $60, what do you do? In normal course of life, people want less of something when price goes up and more of something when price goes down. It makes perfect sense. But not in the world of investing. In investing, many people tend to fall further in love with the thing they've bought as its price rises because they feel validated, and they hate it when price falls, and then they begin to doubt their decision to buy. This psychology effect makes it very difficult to hold or even to buy more at lower prices, especially if the decline proves to be extensive. (Think about March 2009, securities were all at multi-years low, how many of us really bite when we should have?)<br /><br />Now, if you like it at $60, you should like it even more at $40, and much more so at $30 and $20. But it's not that easy psychologically. We, humans, will wonder, “Maybe it isn't me who's right. Maybe it's the market.” The danger is maximized when they start to think, “It's down so much. I'd better get out before it goes to zero.” That's the kind of thinking that makes bottoms and causes people to capitulate and sell there.<br /><br />The thing that can prevent you from capitulating at the wrong time is to have a strongly held sense of value and an accurate estimate of intrinsic value. Without which, investors who have no knowledge or concern for profits, dividends, sense of value, understanding of the business prospect and attributes, simply cannot be counted on to have the resolve to do the right thing at the right time. With most of everyone around them buying and making money, they cannot know when a stock is too high and therefore resist joining in. And with a market in free fall, they also cannot possibly have the confidence and knowledge needed to hold or buy at severely depressed price. So to be consistently successful in investing, you need an accurate opinion on valuation. Not only accurate, but also strongly held because a loosely held opinion will be of limited help when you need it the most. However, you must be aware that an inaccurate opinion on valuation, strongly held, is far worse. This shows how hard it is to get it all right. Investment is not supposed to be easy, especially superior investing. In a declining market, you need to have an accurate non-consensus estimation on value, and hold that view strongly enough to be able to hang on and buy even as the declining prices suggest you are wrong, and of course, you've to be correct on your estimation of value. Value investors score their biggest gains when they buy an underpriced asset, average down unfailingly and have their analysis worked out. There's no deal better than buying from someone who has to sell regardless of price during a crash. To cater for errors, you need a margin of safety. You either have to be more conservative with valuation or buy a security at a larger discount to the intrinsic value.<br /><br />Charlie Munger is known to advocate: “It's better to buy a great business at a fair price than to buy a fair business at a great price.” But the caveat is the price paid. Investment success doesn't comes from buying good things – Facebook is a good thing but is the price good? – but from buying things well. So price is the starting point in achieving investing success. History has demonstrated time and again that no asset is so good that it cannot become a bad investment if bought at too high a price. And there're few assets so bad that they cannot be a good investment if bought cheaply enough. In other words, there's no such thing as a good or bad investment regardless of price. An investment that is well bought is half sold. All is needed is to figure out the value, price to pay and the of course, the opportunity to act. If the opportunity is not there, there is no point to chase for one. Opportunity in market comes about naturally and not because you want it, it is not created out of an individual's needs or doing. So to chase for an “opportunity” which isn't there just for the sake of getting what you want is close to suicidal in investing success.<br /><br />In the day-to-day pricing of a security, there're two considerations: First, the value of the security and second, the price-to-value relationship of the security. The key to ascertaining value (or the earnings) is skilled financial analysis – this is the easier part. While the key to understanding price-to-value relationship or the outlook for it lies largely in insight into other investors' state of mind or psychology. When people are fearful, they assign a low price-to-value to the security, and vice versa if they are intoxicated. Investor psychology is like a pendulum that can cause a security to be priced just about anywhere in the short run, regardless of its fundamentals. The more people likes an investment now, the higher the value of the current price-to-value relationship, and vice versa. Future price-to-value relationship movements (increase or decrease in P/E) will thus be determined by whether the security will come to be liked by more people or less people in the future. If you boil it down, investing is like a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already baked into the price, and no or few new buyers are left likely to emerge (i.e, all the greater fools have been used up).<br /><br />It is surely hard to know exactly when the market will peak (bubble does not announces its arrival or ring the bell before it departs) but it is not difficult to know where we stand in the market pendulum. In a typical bubble, buyers do not worry about whether a stock is priced too high because they are sure someone else would be willing to pay them more for it. “Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time or become even more overpriced. Those who have initially resisted buying may eventually question their wisdom, then capitulate and buy when they see seemingly easy massive profits everyone else is enjoying. Unfortunately, the greater fool theory works only until it doesn't. Eventually, valuation comes into play, and those who are holding the bag will pay the price. Market will self correct itself without anyone knowing the exact timing.<br /><br />The problem in bubbles is that a security that is attractive will morph into “attractive at any price.” How often have we heard people saying,”I know it's not cheap but I think it'll keep going up because of excess liquidity and many people are willing to pay more at any price.” How I wish I could sell my car or house to you at any price! Buying or holding on that basis is simply playing with chance and blinkmanship, but that's what makes bubbles. During a bubble, investors become complacent and disregard any notion of value and fairness of price, and are infatuated with market momentum on the upswing, and greed takes over (ok, maybe not totally greed but envy because most investors are alpha types who cannot stand missing out what others are seemingly enjoying and look like a loser). Thus, just when an investor needs prudence the most, they forsake it and chase for return by bearing above-market-risk-adjusted return.<br /><br />As we have seen, an investment approach that is based strongly on solid value is the most dependable. In contrast, to count on others to give you a profit or bail you out regardless of value (to rely on an ever-expanding bubble) is probably the least.<br /><br />Just like there're many ways to skin a cat, there're also a few possible routes to investment profit:<br /><ol><li>Benefiting from a rise in the asset's underlying intrinsic value. But the caveat is that increases in value are hard to estimate accurately. Further, the potential for increase is usually factored into the asset's price. So unless your view is superior and different from the consensus, it's likely you're already paying for the potential improvement – i.e. hard to get any alpha return.</li><li>Use leverage. The problem here is that using leverage doesn't make a security a better investment or increase the probability of gains. What it does is just magnifies whatever gains or losses that may materialize. Moreover, it introduces the risk of ruin if a portfolio fails to satisfy a contractual value test and lenders can demand their money back at a time when prices and illiquidity are at its worst. Over the years, leverage has been associated with high returns, but also with the most spectacular meltdowns and crashes.</li><li>To sell for more than your asset's worth. Everyone hopes to sell his assets to a buyer who is willing to overpay. But certainly, to hope for a less discriminating buyer cannot be counted on. Unlike having an underpriced asset move to its fair value, expecting appreciation on the part of a fairly priced or overpriced asset requires irrationality on the part of buyers that absolutely cannot be considered dependable.</li><li>Buying something for less than its value. This is the most dependable way to make money consistently in my opinion. Buying at a discount from intrinsic value and having the asset's price move to its fair value doesn't require luck; it just needs market participants to wake up to reality.</li></ol>Of all the possible routes, buying cheap is the most reliable. But even buying cheap isn't sure to work. You can be wrong on the intrinsic value. Or events can come along that reduce the business value. Or deterioration in markets can make something sell even further below its value. Trying to buying cheap isn't foolproof but it's the best chance to investing success.<br /><br /></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-family:arial;"><b>UNDERSTANDING RISK AND HOW TO INTELLIGENTLY BEAR IT</b></span></span><span class="Apple-style-span" style="font-family:arial;"><br />Successful investing requires us to buy below value and to have an opinion on value. Thus, to have an opinion, we are dealing with the future. And because it involves the future which none of us can know for certain, risk is inevitable. Dealing with risk is the essential element in investing.<br /><br />There're three steps to risk. The first step consists of understanding risk. The second step is to recognize it when it's high. The final step which is the most critical is controlling it. We know that the riskier the asset, the higher the return but riskier investments absolutely cannot be counted on reliably to deliver higher return. Why not? Because if riskier investment can reliably produced higher returns, they wouldn't be riskier.<br /><br />What is risk? First, risk is covert. Risk can only be seen on hindsight, that is, after the fact if events happen in a certain way. But it doesn't mean that if things don't turn up in a certain way, risk is not there. Almost remember, risk is stealth. The risk of an investment cannot be measured in retrospect any more than it can be measured beforehand. Let's say you makes an investment that works out as expected, does that mean it wasn't risky? Maybe you bought something for $100 and sold it a year later at $300. Was it risky? Who knows? Maybe it exposed you to great potential uncertainties that did not materialize. Thus, its real riskiness may have been very high though events did not turn out to be that way. Or say the same investment produced a loss instead, does it mean it was risky? If you think about it, the answer is simple: The fact that something – in this case, a loss happened does not mean it was bound to happen, and the fact that something did not happen mean it was not likely to happen. Nassim Taleb, in his book, Fooled by Randomness, talks about the “alternative histories” that could have unfolded but didn't. Even after the investment is sold out, it's impossible to tell how much risk it entailed. The fact that an investment makes money does not mean it was not risky, and vice versa. Did the investor do a good job assessing the risk entailed? It's hard to answer. Something that is probable does not mean it will happen and something that is improbable does not mean it will not happen. History has proven time and time again that probable things fail to happen and improbable things happen all the time. That's something you need to take into account about investment risk.<br /><br />How do investors measure risk? First, it is nothing but a matter of opinion. Second, the standard for quantifying risk is nonexistent. Some people will think the risk high and others low. Some will state risk as the probability of not making money, and others as the probability of losing a fraction of their money. If you herd all the investors involved in a room and show their cards, they'd never agree on a single number or method representing an investment's riskiness. Third, risk is deceptive, covert and stealthy. When you boil it all down, risk is subjective, hidden and unquantifiable. For simplicity, we shall define risk as the probability of loss which hopefully, we can agree on.<br /><br />So where does that leaves us? We certainly cannot ignore risk. If risk of loss cannot be measured or even observed, how can it be dealt with? Skillful investors can get a sense of risk present in a given situation. They make judgment primarily based on (a) the stability and dependability of value and (b) the relationship between price and value. Other things will enter into their thoughts, but most will be subsumed under these two.<br /><br />Risk of loss does not necessarily come from weak fundamentals. A fundamentally weak asset – a cigar-butt company's stock, a speculative-grade bond, or a building located in the wrong part of a town – can make for a very successful investment if bought at a low-enough price. There's no asset that is so good that will become a successful investment regardless of price, neither, are there many assets that are so bad that cannot produce a successful investment if bought at a low-enough price.<br /><br />Risk is ubiquitous regardless of economic conditions. It is present even without weakness in the macro-environment. Risk is most dangerous when we let our guard down, when we become too arrogant, or fail to understand and allow for risk. And then a small adverse development in the environment can be enough to wreak havoc.<br /><br />Mostly, risk comes from investors' psychology that's too positive and thus drives up prices. They expect high returns from things that have been doing well lately, and thus, buy more. The investments may deliver on people's expectations for a while, but they certainly entail a higher risk. In theory, high return is associated with high risk because the former exists to compensate for the latter. Thus, most people view risk taking primarily as a way to make money. Bearing higher risk generally produces higher return. The market has to set things up to look like that'll be the case, if it did not, no one would make risky investments. But it can't always work that way because if it does, it wouldn't be risky at all. But pragmatic value investors feel just the opposite: They believe high return and low risk can be achieved simultaneously by buying things for less than they're worth. In the same way, overpaying means both low prospective return and high risk.<br /><br />Bargain securities are by nature dull, ignored, beaten-down, and possibly tarnished but are often the ones value investors favor for high returns. Their returns during bull markets are rarely at the top, but their performance is generally excellent on average, more consistent than that of “hot” stocks and characterized by low variability, low fundamental risk and smaller losses when market do badly. Much of the time, the greatest risk in these unloved bargains is in the possibility of underperforming in heated bull markets. That's something the risk-conscious value investor is willing to live with. During a bull market, it is more than enough to keep even with it or perform slightly below it. But in a bear market or crash, the risk-conscious investor will beat the market, often by a large margin. That's when on average the risk-conscious investor will outperform the market over a full investing career.<br /><br />In the world of investing, one can live for years on a great coup or a long running bull market. But does that proved one's success? During a booming market, the best results often go to those who take the most risk. Were they really so smart and have the insight to anticipate good times, or just aggressive individuals who were bailed out by the positive events? Simply put, how often in our business are people right for the wrong reasons? These are the people Nassim Taleb refers as “lucky idiots,” and until the tide goes out, it's definitely hard to tell them from skilled investors.<br /><br />Here's the key to understanding risk: it's subject largely to a matter of opinion. It's also hard to measure even after the fact. Many future scenarios are possible but only one future scenario will occur. The future that happens may either be beneficial or harmful to your portfolio, and may be attributable to your foresight, prudence or luck. The performance of your portfolio under the one scenario that unfolds says nothing about how it will perform under the many other “alternative scenarios (or histories)” that were possible. Consider the various scenarios below:<br /><ol><li>Portfolio A is set up to withstand 99% of all scenarios but succumb because it's the remaining 1% that materializes. Based on the outcome, it may appear to have been risky, whereas the investor might have been quite cautious.</li><li>Portfolio B may be constructed so that it'll do very well in half the scenarios and very poorly in the remaining half. If the favorable scenario materializes and the portfolio propers, onlookers may conclude it was a low-risk portfolio.</li><li>Portfolio C is structured entirely to be contingent on one single oddball scenario, but if the scenario occurs, wild aggression can be mistaken for foresight and even conservatism.</li></ol>The above scenarios alone show return alone – and especially return over short periods of time – say very little about the quality of investment decisions. Return has to be evaluated relative to the amount of risk taken to achieve it. And yet, risk cannot be measured. Certainly, it cannot be gauged on the basis of what “everybody” says at a moment in time. However, risk can be judged by sophisticated, experienced second-level thinkers.<br /><br />Great investing requires both generating returns and controlling risks. And recognizing risk is the prerequisite for controlling it. Dealing with risk starts with recognizing it. Recognizing risk inevitably starts with understanding when investors are paying too little attention to it, being too optimistic and paying too much for a given asset as a result. Value investors think that high risk will lead to low prospective return, both stemming primarily from high prices. Thus, an essential component of dealing successfully with risk is the awareness of the relationship between price and value – whether for a single security or the entire market.<br /><br />In the upward-sloping capital market line, the increase in potential return represents compensation for bearing incremental risk. Investors should not plan on getting added return without bearing incremental risk unless they can generate “alpha.” For added return, they should demand risk premiums. But at some point in the swing of the pendulum, investors forget that truth and embrace risk taking to excess. The fact is, risk tolerance is detrimental to successful investor. When people are not afraid of risk, they'll accept risk without being compensated for doing so.<br /><br />A prime element in risk creation is the belief that risk is low, or even nonexistent. That belief drives up prices and leads to the embrace of risky actions despite the prospect of returns is low. Investors bid up assets, essentially, accelerating into present appreciation that would otherwise have occurred in the future, and thus lowering prospective returns. The risk-is-gone myth is one of the most dangerous sources of risk, and a major contributor to any bubble. At the extreme of the pendulum's swing, the belief that risk is low and the investment in question is sure to produce profits intoxicates the herd and causes its believers to forget caution, prudence, worry and fear of loss, and instead obsess about the risk of loss opportunity.<br /><br />In every bubble that ever existed, its believers inevitably thinks “this time is different,” and worst still, think they can exit in time before the door closes and will not be the last one holding the bag. Unfortunately, under every bubble lies a pin, and during the bubble party, there's no clock that tells the time is ending for the party. Bubble participants have demonstrated that what will be will be again, and what will be done will be done again. There's nothing new under the sun.<br /><br />Worry and its relatives, distrust, skepticism, questionings, fear, and risk aversion, are essential elements in a safe financial and investing system. Lack of these will lead to a lack of discipline and succumb to imprudence for the sake of chasing return without proper consideration. Adequate risk premiums will only come when investors are sufficiently risk-averse.<br /><br />The market is not a static arena. It is responsive and dynamic, shaped by investor's own behavior. The herd is wrong about risk as often it is about return. Investment risk resides most where it is least perceived. When everyone believes something is risky, their unwillingness to buy often reduces its price to the point where it is not risky at all. Over-pessimism can make a security the least risky thing since all optimism has been driven out of its price – all bad news has been baked in and often overly so. Conversely, when everyone believes something is of low or no risk, it is usually bid up to the point where it's enormously risky. No one fear for risk and demand for risk premium, and thus, no reward for risk bearing. This paradox exists because most investors think quality, as opposed to price, is the determinant of whether something is risky. But high quality assets can be risky and low quality assets can be safe. It's just a matter of the price paid for them.<br /><br />At the core, it's the investor job to intelligently bear risk for profit. Doing it well is what separates the best from the rest. Outstanding investors are distinguished at least as much for their ability to control risk as they are for generating return.<br /><br />A great job on risk control is unobservable and thus lowly recognized in the mainstream media and public. High absolute return is much more recognizable and titillating than superior risk-adjusted performance. That's why it's them who get their pictures in the news. Because it's difficult to gauge risk and risk-adjusted performance (even after the fact), and the importance of managing risk is widely under-appreciated, investors rarely gain credit and recognition for having done a great job in this respect. But, great investors are those who take risks that are less than commensurate with the returns they earn. They may produce moderate returns with low risk, or high returns with moderate risk.<br /><br />Risk is covert, invisible, and unobservable. What is observable is loss, and loss generally happens only when risk collides with negative events. Homes in California may or may not have construction flaws that would have collapsed during earthquakes. We do not know until an earthquake occur. The fact that the environment was not negative does not mean it could not have been. Thus, the fact that the environment was not negative does not mean risk control is undesirable. The important thing here is that risk may have been present even though losses did not occur. So, the absence of loss does not necessary mean the portfolio was constructed safely. Risk control can be present in good times, but it is unobservable because it's not tested. You do not buy an insurance only after the fact. Risk control is like buying a house insurance: It's invisible in good times but still essential, since good times can so easily turn into bad times.<br /><br />How do you enjoy the full gain (or just a little below it) in a up-market while simultaneously being positioned to achieve superior performance in down markets? You need to capture the up-market gain while bearing below-market risk and that is not an easy task. But an inefficient market can allow a skilled investor to achieve the same return as the benchmark while taking less risk, and this is a great accomplishment even though you did not beat the market. It is important that you recognize that not all the time it is worth to chase the market and beat it, especially in heady times. In heady times, it's a great achievement if you can even keep up with it by bearing below-market risk.<br /><br />Because there're more good years than bad years in the market, and because it takes bad years to show the value of risk control in smaller-than-market losses, the cost of risk control – in the form of foregone returns – can seem excessive. Risk-conscious investors are like the prudent homeowners who carry insurance and feel good about having protection in place even when there's no fire. While risk control is inevitable, it is neither wise or unwise per se. It can be done well or poorly, and at the right time or the wrong time. Think about how most investors become more prudent and risk averse in a crash when they should have more risk tolerance and vice versa in an up-market.<br /><br />Extreme volatility and loss occur infrequently. And as time passes without that happening, it appears more and more it will not happen, and that risk assumptions were too conservative - just like a frog that is boiled slowly to death. Thus, it lures investors away from their prudence, relax their rules and increase leverage. And all too often, this is done just before risk finally rear its head. Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver which has hundreds, if not thousands of chambers instead of six. After a few dozen tries, one forgets about the existence of bullet, under a numbing sense of security. Second, unlike a well-defined game of Russian roulette, where the risk are visible to anyone capable of multiplying or dividing by six, one does not observe the chamber of reality. One is thus capable of unwittingly playing Russian roulette – and calling it by some alternative “low-risk” game.<br /><br />Can we avoid risk altogether? No. So how conservative should we be? If you think about the high-risk game which the financial institutions played from 2004 to 2007, it is easy to say they should have made more conservative assumptions now that it is after the fact. If we say they should be more conservative, then by how much? You cannot run a business on the basis of worse-case scenario. And “worst-case scenario” is a misnomer: there's no such thing, short of a total loss. If every portfolio was to run such that it is able to withstand the scale of decline that we witnessed in 2008, it's possible no leverage would ever be used. What do you do about that? There's no easy answer. However, risk control is the best route to risk avoidance. On the other hand, risk avoidance is likely to lead to return avoidance as well. We shouldn't run from risk. We should welcome it but only at the right time, in the right instances, and most importantly, at the right price. It's by bearing risk when we're well paid to do so – and especially by taking risk toward which others are most averse to – that we can add value either to your clients or your personal portfolio.<br /><br />The road to long-term investment success lies in risk control more than through aggressiveness. Aggression at the wrong time can make you look like a hero for as long the good time lasts and generally is associated more with rashness than intelligence. Skillful risk control is the hallmark of the superior investor. Over a full career, most investors' results will be determined more by how many losers they have, and how bad they are, than by the greatness of their winners. This last statement alone gives an important insight: Investing, like tennis, can be a loser's game. In tennis, there's the game played by professionals who win by going for aces and volleys. Then there's the other game played by amateurs: let your opponent commits all the mistakes by going for volleys and aces, while you keep your stroke just enough to go over the net – that is, commit less mistakes than your opponents.</span></div></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com0tag:blogger.com,1999:blog-34104702.post-76033723187677466632011-04-04T01:25:00.000-07:002011-04-09T01:41:06.115-07:00Additional info on Haw ParHaw Par's stake in UOB may have increased from the previously reported 62.88 million shares during FY2010 by roughly 3.2%. Why? Because the actual "investment income received" as indicated in the cash flow from operation showed $6.282m during 2010, a huge reduction from $43.575m in the prior year.<div><br /></div><div>The difference of $37.293m is almost equal to the portion of dividend that is due to her UOB's stake (62.88m shares X $0.60 dividend = $37.728). So instead of receiving the UOB's dividend in cash, Haw Par may have opted to receive it in scripts. Thus, Haw Par's stake in UOB may have ended as at 31 Dec 2010 with 62.88m shares x 1.032 = 64.89 million shares.</div><div><br /></div><div>Moreover, it makes more sense to receive the dividend in scripts because 1) UOB is fairly inexpensive; 2) Haw Par will drown in cash if they are to keep receiving it without a good option to redeploy it; 3) it relieves the pressure of deploying cash for the sake of deploying it and end up with below-par investments; 4) the existing cash pile of $110m is more than enough to cover over 2 years of current dividend rate, excluding cash that will come in for the next 2 years from normal operations and other dividend other than UOB. Of course, the downside are for dividend seeking investors, there's less chance for an increase in dividend yield. </div><div><br /></div><div>All in all, Haw Par seems to have made some sensible choices that position the company for better future value.</div><div><br /></div><div><span class="Apple-style-span" style="color:#FF0000;"><i>UPDATE (9 Apr 2011): We are now certain Haw Par owns more UOB shares than the previous FY, approximately 65m shares in total on estimation. Why? Note 14 on HP's annual report states "</i></span><span class="Apple-style-span" style="font-family: 'Helvetica Neue Light', serif; font-size: 11px; "><i>During the financial year, approximately $38,628,000 (2009: $Nil) of additions were non-cash and </i></span></div> <p style="margin: 0.0px 0.0px 0.0px 0.0px; font: 11.0px Helvetica Neue Light"><i>obtained in lieu of dividends.</i><span style="font: 12.0px Helvetica"><span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><span class="Apple-style-span" style="color:#FF0000;"><i>" All are related to UOB because out of the 3 major holdings, only UOB offers dividend in scripts. </i></span></span></span></p>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com4tag:blogger.com,1999:blog-34104702.post-57463499989690400492011-03-02T11:57:00.000-08:002011-03-02T11:58:01.994-08:00Haw Par<span class="Apple-style-span" style="font-family: Tahoma; font-size: 13px; ">Could Haw Par stock be a ten dollar note available for sale at $6? Book value as at end 2010 is roughly $9.8 while stock is selling at $6. For seasoned investor, we know the pitfall just by simply investing based on discount to book value, no matter how huge the gap is. Let's start valuing instead by dissecting Haw Par. There are basically two parts to Haw Par core business: 1) Operating businesses including property rental and sale of healthcare consumer products (mainly Tiger Balm's line of products); 2) Equity investments.<div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Market value of Haw Par = 197.9m shares x $6 = $1187.4m</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">The company owns 4% of UOB (62.88m shares), 41.4288m shares of UOL, 67.558m shares of UIC and 277.9m shares of Hua Han biopharmaceutical which is listed on HKSE.</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Market value of listed equities</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">1) UOB - 62.88m shares x $18.3 = $1150.7m</div><div style="text-indent: 0px !important; ">2) UOL - 41.4288m x $4.5 = $186.4m</div><div style="text-indent: 0px !important; ">3) UIC - 67.558 x $2.8 = $189.2m</div><div style="text-indent: 0px !important; ">4) Hua Han - 277.9m x HK$2.4 = HK$667m or SG$109m</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Total market value of listed equities = $1635.4m</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Based on this, the business is already discounted at a rate of 27%. </div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Not cheap enough? Here's some more icing - the company owns no debt except tax both current and deferred but for deferred, it probably isn't payable till its investment properties are sold but those are held for rental yield; then, it holds another $110m of cash. Add on this cash, the business is selling at a discount of 32%. </div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">In fact, the whole of Haw Par just selling at slightly above the value of UOB shares that the company owns. So, as in investor, at $6, you simply pays for the UOB stake, and are getting the rest - UOB, UIC, Hua Han, cash in bank & investment properties + the tiger balm business which generates $79m in sales yearly - for free.</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Another method of valuation I use is based on earnings of both the operating business and the proportional share of earnings of its equity investments.</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">1) Operating business - Operating earnings excluding dividend from investments come up to about $36.5m. At a tax rate of 17%, net profit = $30.3m.</div><div style="text-indent: 0px !important; ">2) Proportion share of earnings from equity investments:</div><div style="text-indent: 0px !important; "><span class="Apple-tab-span" style="text-indent: 0px !important; white-space: pre; "> </span>a) UOB - EPS $1.6 x 62.88m shares = $100.6m</div><div style="text-indent: 0px !important; "><span class="Apple-tab-span" style="text-indent: 0px !important; white-space: pre; "> </span>b) UOL - EPS $0.55 x 41.4288m = $22.8m</div><div style="text-indent: 0px !important; "><span class="Apple-tab-span" style="text-indent: 0px !important; white-space: pre; "> </span>c) UIC - EPS $0.172 x 67.558 = $11.6m</div><div style="text-indent: 0px !important; "><span class="Apple-tab-span" style="text-indent: 0px !important; white-space: pre; "> </span>d) Hua Han - EPS HK$0.146 x 277.9m = HK$40.6m or SG$6.6m</div><div style="text-indent: 0px !important; ">*UOL and UIC eps are excluding fair value gain/loss on investment properties.</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Total earnings from operating business + earnings from equity investments on a look-through basis = $141.6m</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">On this basis, at $6 a pop, PE is less than 9.</div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Other considerations? Surely, there are. Are the equities that the company holds really valuable or undervalued for the matter? To be sure, it looks reasonable for the most parts, in particular, UOB - priced roughly 11x earnings. </div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">What's the prospect of UOB? As long as Singapore and the region grows, UOB will grows too as assets in the region grows. Banks is simply just the money grid that helps to allocate and distribute capital from those who have them but don't need them to those that need them but don't have them. Not long ago, Singapore government hope to increase the nation average salary by 30% on a real term in 10 years time or something. This looks like one factor that looks favorable for banks to grow its asset base. Total assets was $214b at end 2010. ROA of 1.2% will produce $1.65 in eps. In 2001, UOB total assets was $114b. In 1992, was $28b. Part of it was due to merger like with OUB and most part to organic growth. </div><div style="text-indent: 0px !important; "><br /></div><div style="text-indent: 0px !important; ">Need further proof? Here are some. Singapore GDP measured at current price was $84.7b and $304b in 1992 and 2010, respectively. A growth of 259%. UOB share price grew from $4.5 to $18.3 in the same period. A growth of 300%. Almost mirroring the country rate of growth.</div></span>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com15tag:blogger.com,1999:blog-34104702.post-28821980772412405452011-01-13T06:52:00.001-08:002011-01-13T06:52:52.657-08:00<div><div><object id="cnbcplayer" height="380" width="400" classid="clsid:D27CDB6E-AE6D-11cf-96B8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0"></div><div><param name="type" value="application/x-shockwave-flash"></div><div><param name="allowfullscreen" value="true"></div><div><param name="allowscriptaccess" value="always"></div><div><param name="quality" value="best"></div><div><param name="scale" value="noscale"></div><div><param name="wmode" value="transparent"></div><div><param name="bgcolor" value="#000000"></div><div><param name="salign" value="lt"></div><div><param name="movie" value="http://plus.cnbc.com/rssvideosearch/action/player/id/1726141434/code/cnbcplayershare"></div><div><embed name="cnbcplayer" pluginspage="http://www.macromedia.com/go/getflashplayer" allowfullscreen="true" allowscriptaccess="always" bgcolor="#000000" height="380" width="400" quality="best" wmode="transparent" scale="noscale" salign="lt" src="http://plus.cnbc.com/rssvideosearch/action/player/id/1726141434/code/cnbcplayershare" type="application/x-shockwave-flash"></embed></div><div></object></div></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-32099280504746959192010-04-09T22:05:00.000-07:002010-04-10T04:01:13.801-07:00Forest Labs & Wal-MartForest Laboratories<div><br /></div><div>FDA's advisory panel voted 10-5 against approving the drug, Daxas, and the share skidded by over 13%, closing at $28.25 for the week. FDA generally follows the panel's advice but is not bound to the panel's decision. The fate of Daxas, a once-a-week pill for chronic obstructive pulmonary disease, is key to Forest as it rebuilds its portfolio ahead of the Apr 2012 patent expiration of its top-selling drug, Lexapro, which contributes almost 60% to its revenue. Daxas is developed by Nycomed, a private Swiss company, but Forest holds the right to sell in the USA. Analysts' estimate for Daxas' peak sales of anything from $500m to $2.1b. Lexapro's sales is $2.3b.</div><div><br /></div><div>Forest second top-seller is Namenda, which generates sales of $1.1b, with an annual growth rate of 15% recently. The drug patent is poised to expire in Apr 2015. In the last 2 years, 2 new drugs were launched - 1) Bystolic, launched in Jan 2008, recorded sales of $125.9m for the first 9 months of 2010 financial year, 2) Savella, launched Apr 2009, recorded sales of $15.4m in the recent 3rd quarter ended 31 Dec 2009.</div><div><br /></div><div>Aside from the patent expiration challenge the company faces, the numbers look pretty decent:</div><div><br /></div><div>1) Market cap - 305m shares x $28.25 = $8.6b</div><div>2) Cash & equivalents - $3.874b</div><div>3) Net profit - $0.768b</div><div>4) Free cash flow - $1b</div><div><br /></div><div>Excluding cash & equivalent, the company is valued at 4.7 times FCF or 6 times earnings - less than half of Pfizer valuation, which its top-seller, Lipitor, with $12b in sales is expiring. </div><div><br /></div><div>Wal-Mart Stores</div><div><br /></div><div>Based on forward PE, WMT is selling at a slight discount to other fellow retailers. WMT is estimated to earn $3.98 a share, and at $55, PE is 13.8. Target, TJX, Family Dollar, Costco Warehouse, BJ Warehouse, are selling at PE of about 15, with Costco the highest at over 20.</div><div><br /></div><div>Thomson Reuters reported same-store sales - an important metric that compares sales for stores that are open at least a year - for the month of March 2010 hit a record high of 9.1% for retailers. TJX posted 12% growth, BJ Warehouse up 10.6%, Target up 10.3%, Costco up 10%, and Family Dollar up 11%. Wal-Mart does not report monthly same-store sales.</div><div><br /></div><div>Walmart share price had lagged most of her fellow retailers the past year, though it is up 10%.</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-74679429036443792642010-03-03T09:33:00.000-08:002010-03-03T09:58:37.405-08:00Basic information on DJIA<div style="text-align: center;"><br /></div>Total earnings for calender year 2008/9 = $253.5b<div>Total earnings for calender year 2009//10 = $205b</div><div>Market cap/PE at 2009 low based on 2009/10 earnings = $2.175 trillion / PE 10.6 </div><div>Market cap at 2009 high based on 2009/10 </div><div>earnings = $3.774 trillion / PE 18.4</div><div>Market cap as at 02 March 2010 = $3.5 trillion / PE 17.1</div><div><br /></div><div>Out of the 30 companies, 2 companies made a loss during 2009/10. Excluding these 2 companies, PE, as at 02 March 2010, would be 16.</div><div><br /></div><div>More details as follow.</div><div><br /></div><div><span class="Apple-style-span" style="border-collapse: collapse;"><img src="webkit-fake-url://533785F4-9D37-4954-A1D4-8A3C7492AEBD/image.tiff" /><br /><span class="Apple-style-span" style="border-collapse: separate; "><br /></span></span></div><div style="text-align: -webkit-left;"> </div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-75764529286903979032010-02-11T18:29:00.000-08:002010-02-13T02:32:42.482-08:00A look at Dean FoodsOver the past two days, DF stock price plunged almost 20% because its Q4 earnings came in below estimates, lower-than-expected earnings forecast and faces headwind on higher cost of dairy milk.<div><br /></div><div>DF has an annual sales of about $11.1B. Of which $8B goes to cost of sales, $2.5B goes to operating expenses, and $0.25B goes to interest expense. Leaving about $0.35b to both stockowners and Uncle Sam - of which tax rate is 35%. </div><div><br /></div><div>In 2009, DF earned $1.38 a share or $240m. With an outstanding share count of 183 million, the company is valued at $2.65b. Free cash flow for 09 was $391m. </div><div><br /></div><div>Now DF looks cheap compared to many of her competitors, who easily are valued from 13 to 16 times its earnings or even higher based on FCF. This could be because DF is a low, if not the lowest, margin food business. DF is also highly leveraged at 5.77 times of shareholder's equity. To operate the whole business, $7.8 billion in total is needed. Of which, $4.2b is interest-bearing debt, $1.37b from shareowners, and the rest from trade debtors and others.</div><div><br /></div><div>The question is the sustainability at such highly-levered rate. The cash flow certainly can service the interest payment and pay down debts. We know that all business are structured differently - some with more equity, and some with more debts - but in the end, all are financed through different sources which are different in seniority. Now, lets assume DF is debt-free, i.e, DF must convert the $4.2B into equity. Then the market value increase from $2.65b to$6.85b ($2.65B + $4.2B). Then, DF need not have to pay a dime of interest expense which will save them $250m a year, or $163m after-tax. In total, DF would earns $403m ($240m + $163m), which prices DF at a PE valuation of 17 ($6.85b / $403m). </div><div><br /></div><div>I know the above seems confusing. In summary, stock holders put up $1.37b in equity to get a return of $240m after tax, while, debt-holders put up $4.2b to get a return of $250m before tax. </div><div><br /></div><div>So a debt-less structure would be less advantageous to the current stockowners. Therefore, it would be better that DF structure the business where it is financed more by debts than by equity holders, where equity holders will get more of the share of the pie, and debt-holders less. </div><div><br /></div><div>In conclusion, DF is relatively cheap, but not without reasons and risks. The main risk is DF must meet certain financial covenants on her financial debts. If DF fails to meet such covenants in the event of really adverse economic conditions, share price would plunge because the company may be forced to restructured the financing structure of the business by converting debt to equity at a price that is totally disadvantageous to current common shareowners. But at $14.5 - moreover at a 52-week low - it is worth to take a look. I wouldn't say this is a good long-term holding but certainly a holding that would get a reasonable return within a reasonable time frame.</div><div><br /></div><div>I am also looking at the defence contractors sector - players like Raytheon, Northrop Grumman, Lockheed Martin, General Dynamics, L-3 Communications. Will share more on this when I am through.</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com3tag:blogger.com,1999:blog-34104702.post-48161611382539160272010-01-09T20:36:00.000-08:002010-01-12T06:42:20.372-08:0010,000 Hours of PracticeMany investors are impressed by Warren Buffett's ability to make an investment decision in 5 minutes. In a recent <a href="http://www.cnbc.com/id/15840232?video=1329393420&play=1"><span class="Apple-style-span" style="color:#3366FF;">town hall meeting at Columbia University</span></a>, a student asked which particular information does Buffett looks at to make an investment decision in 5 minutes. Buffett answered: "Well, it is basically 50 years of preparation and 5 minutes of investment decision."<div><br /></div><div>And his answer struck me and brought me back to a chapter that I read in the book Outliers by Malcolm Gladwell. In the book lies the ingredients for success. One of the ingredients is clocking 10,000 hours of practice just to attain a skill such that it functions as how your arms and legs do for you. </div><div><br /></div><div>When we look at outliers like Bill Gates, Tiger Woods, or Roger Federer, it is so easy to assume they had it easy because they are cruising their way through competition and life. But the question is how did they get to where they are. All of them, in fact, devoted more than 10,000 hours of practice just to get the correct stroke, or basics, perfect. How many of us have the will and patience to do the same thing over and over again just to get a single subject perfect? And yet we envy them and think they had it easy, though it is undoubtable they have the innate talent for what they do. So even for the best in class need to put in tons of time and effort to get it right. How about the rest of us, the ordinary folks? All the more we should put in more time to get it right, even we can never get to the level of the outliers, but at least, we would end up in the top 10 or 20 percentile - to get an advantage over the others who don't devote time and effort who have the same innate capability. </div><div><br /></div><div>Take for example, Berkshire's investment in the Coca Cola Co in 1988. Buffett has been a Cola drinker all his life - though he was a Pepsi drinker earlier in his life. He had been evaluating Coke all his life ever since he started buying 6-pack cans of coke and broke it up to sell for a dime each. For 50 years, he did not own a share of Coke - a period where he knows hell lots about what is tipping the advantage towards Coke's economic future. For instance, the advent of refrigeration caused a surge in Coke's sales volume in the 1960s. Beginning 1980s, with the opening up and growth of the Asian economies, Coke is bound to have a bigger share of the beverage market (international sales made up more than 50% of its operating profit today). It was only in 1988 that a sudden down shift in Coke's share price that Berkshire made a huge investment in Coke without much further evaluation because he knew all the factors that drove Coke's business and profit at the back of his hand with 50 years of knowledge. So that is basically the effect of "50 years of preparation and 5 minutes of investing decision."</div><div><br /></div><div>Lack of patience is well evidenced when a young shareholder asked Charlie Munger how to follow in his footsteps to becoming rich. Munger responded: "We get these questions a lot from the enterprising young. It's a very intelligent question. You look at some old guy who's rich and you ask, 'How can I become like you, <i>except faster</i>?' Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day, at the end of the day - if you live long enough - most people get what they deserve."</div><div><br /></div><div>In short, success is about continuous learning even after you get it right. The more you know, the less time you need to make a decision because you would have known most, if not all of the unnecessary information you would have looked at when you started and eliminate those from the decision process. Again, Munger pointed out that 10% of freight carries 90% of the weight. So to get to the level of making a decision in 5 minutes, we need to know which are the 10% of the freight and to arrive there, we need patience, and continuous practice and learning. In Munger's terms, building a latticework of mental models. So when someone tells you a short cut, there's no short cut. If it sounds too easy and good, it is most likely too good to be true.</div><div><br /></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com8tag:blogger.com,1999:blog-34104702.post-85105716271666568672009-12-27T03:11:00.001-08:002009-12-27T03:11:21.622-08:00Steve Jobs: How to live before you die<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 10px; white-space: pre; "><object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/UF8uR6Z6KLc&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/UF8uR6Z6KLc&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object></span>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com3tag:blogger.com,1999:blog-34104702.post-62327498569215437022009-12-19T21:29:00.000-08:002009-12-19T21:58:26.563-08:00Daily Journal Corp. - A Goog Buy?Daily Journal Corp (Stock code DJCO) seems to be selling very cheaply whether valued by itself or compared to other print businesses. What I find that really interests me is not the core print business but rather the equity portfolio which is on the books. <div><br /></div><div>DJCO is an obscure and extremely small-cap stock. But behind it lies a one of the best investment managers as its largest owner and director - Mr. Charlie T. Munger. DJCO's core business is news prints and publications and are sold to more niche markets, like targeting in the area of law. </div><div><br /></div><div>Some numbers at a glance. Market cap is $85 to $86 million. Earnings was about $8 million for the year ended Sep 2009. Free cash flow is about the same as reported earnings. Current assets = $72.5m, total liabilities = $31.1m. Of the $72.5m in current assets, $62.1m is cash, treasuries and marketable securities. And out of $62.1m, $54.1 is marketable securities ($47.9m is stock and rest is bonds).</div><div><br /></div><div>The company, after deducting all liabilities and assuming all noncurrent assets of $10.15m is worthless, the net assets is still worth $41.4m ($72.5m - $31.1m). In other words, at the current market cap, the core business of the company is valued at less than 6 times its earnings ($85m - $41.4m / $8m profit). </div><div><br /></div><div>As mentioned, what is interesting is the stock portfolio worth $47.9m as at end Sep 2009. The whole of 2008, DJCO actually did not own any stocks, most were invested in Treasuries worth of about $20m. During the period Jan 2009 to Mar 2009, DJCO sold the treasuries and bought mostly into stocks and some into bonds. The cost of stocks were $15.5m and bonds $4.9m. In a period of 6 months, the value has more than doubled from $20.4m to $54.1m. I don't think they achieved this due to luck but rather most likely due to the foresight of Mr. Munger that he recognized that the market is totally irrational at the time. For example, banks, even Wells Fargo, were selling for ONE time its pretax preprovision for credit losses income. That is how ridiculous it was in early Mar 2009.</div><div><br /></div><div>However, DJCO does not disclose the stock they hold. But whatever they hold, I am highly certain it will be worth many times more the longer they hold to it. On top, investors get a rather cheap print business that is still holding out fine, though maybe a slowing and dying business in time to come.</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com2tag:blogger.com,1999:blog-34104702.post-29091263071638809742009-12-05T02:20:00.000-08:002009-12-05T02:41:34.146-08:00Buffett Personal Wealth and Wells FargoToo Big To Fail is surely the best investigative business book since Barbarian at the Gates or The Smartest Guy in the Room. Andrew Sorkin gave many new details and juicy insights into the events leading up to and during the crisis last Fall. One of which was the implied personal fortune of Warren Buffett.<div><br /></div><div>On page 508, Buffett quoted, "I will be willing to personally buy $100 million of stock in this public offering (a Buffett's idea which subsequently led to the eventual PPIP)," which, he explained, "constitutes about 20 percent of my net worth outside of my Berkshire holdings." We can infer that he has a personal fortune of $500 million outside of his fortune in Berkshire.</div><div><br /></div><div>And during last fall, his by-now famous co-op, <a href="http://www.nytimes.com/2008/10/17/opinion/17buffett.html"><span class="Apple-style-span" style="color:#FF0000;">Buy America: I am</span></a>, revealed Buffett bought stocks for his personal account. One of which is Wells Fargo. He owns a personal stake of <a href="http://secfilings.nyse.com/filing.php?doc=1&attach=ON&ipage=6147125&rid=12"><span class="Apple-style-span" style="color:#FF0000;">2,240,000 shares</span></a> which he most likely accumulated at a cost of about $56 to $60 million last fall. This constitutes about 12% of his personal fortune.</div><div><br /></div><div>Disclosure: I own Wells Fargo.</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com6tag:blogger.com,1999:blog-34104702.post-67064305096117138792009-11-14T01:29:00.000-08:002009-11-15T23:40:30.598-08:00A review of my current and past holdingsThis is the first time I'm reviewing the decisions I made for my investments - both current and past holdings. There're mistakes I made (like I should have sat rather than to jump) and things I learnt (eg., investments are like gardening, some flowers take a longer time to bloom than others).<div><ul><li><b><span class="Apple-style-span" style="color:#FF0000;">Wells Fargo (current holding)</span></b></li></ul><span class="Apple-tab-span" style="white-space:pre"> </span>Banking sector, generally, in the States were selling at historical lows early this March. Wells Fargo hit a low of $7.8 - in effect, the whole company was available for $33 billion (based on the outstanding shares at that time). Wells potentially earns $40 billion in pre-tax pre-provision earnings. That priced the whole company at less than 1 time its earnings before tax and provision for credit losses. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Now, banking stocks have recovered somewhat - about 3 times from the sector's lows in March 09. Wells is selling at over $27. Even with the recovery, the sector is still selling at a low valuation historically. Wells, for one, is valued among the lowest of the banking stocks available. At $27, it is priced at no more than 3.2 times of pretax preprovision income. With every passing week, it's another week towards hitting the bottom, which means recovery. When the economy turns and earnings normalize, assuming Wells earns $40 billion in pretax preprovision, and 30% of it is catered for credit losses, and after a tax of 35%, it leaves roughly $18 billion available to shareholders. That translates to about $3.8 per share and if a multiple of 12 is applied, the stock can sell for $45.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Why is Wells priced so low? Probably because of the uncertainty on the extent of credit losses from the Wachovia's loan portfolio. The other worry is the rising rate of Wells Fargo's nonperforming loans. At this time, the market is likely to be a couple of quarters away from seeing a peak in nonperforming loans. Once nonperforming loans peak, banks, including Wells Fargo, will need to provide less for credit losses. If we look at Wells Fargo earnings before tax and credit losses - $40 billion - this equates to 5% of its loan portfolio. In order for Wells Fargo to sustain a loss, its nonperforming loan would have to hit 5% of its total loan portfolio. End of 3Q09, nonperforming loans stand at $21B (2.63% of the loan portfolio). So nonperforming loans would have to about double before eating into shareholder's equity. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>What are the risks? If nonperforming loans continue to grow at a faster pace than in the past for the next few quarters, then Wells may have to raise capital which in turns dilute shareholders. However, if nonperforming loans grow at a much slower pace than in the last few quarters before peaking, the likelihood is the share price would shoot up quite dramatically. </div><div><ul><li><b><span class="Apple-style-span" style="color:#FF0000;">American Express (current holding)</span></b></li></ul><span class="Apple-tab-span" style="white-space:pre"> </span>A much misunderstood stock early this year when it was priced at less than $20, bottoming out at about $9. Amex, unlike Visa or Mastercard, offers credit to its customer rather than just offering a system for payment. However, interest income from its lending operation only accounts for less than 15% of total revenue. Majority of Amex's revenue comes from discount revenue - slightly more than 50%. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>In recent years, Amex may have over-expanded credit businesses to less than desired customers, leading to an increase in loans. When the economy tanked last year, so did Amex share price because investors became worried of the credit losses Amex may face.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>All told, Amex pretax preprovision earnings is about $8.5 to $9.5 billion, which means it covers more than 10% of its total loans and accounts receivable ($78 billion at end of 2008). </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>At the low sub-$10 a share, the company was priced at less than $12 billion (1.36 times its pretax prevision earnings). Amex is now $40 a share or $47.5B (5.57 times its pretax prevision earnings). </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>In normal times, Amex is priced 7 to 8 times its pretax preprovision earnings. So if this holds in the future, the upside is another 34% or more.</div><div><ul><li><b><span class="Apple-style-span" style="color:#FF0000;">Kraft Food (current holding)</span></b></li></ul><span class="Apple-tab-span" style="white-space:pre"> </span>This is a simpler investment to analyze. At $27, Kraft is selling for less than 14 times its earning power (EPS of estimated $1.97 for Y2009). Moreover, Kraft aims for a 7 to 9% growth in EPS yearly, and for a 15% operating income margin (compared to 12% in the past). </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Kraft pays a dividend of $1.16 (4.4% yield). With operating cash flow of over $4 billion a year, and after lessing out dividend of $1.7 billion and capital expenditure of $1.2 billion, it leaves net cash of over $1 billion in the company's coffer. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Moreover, Kraft has lagged the stock market in 2009. With the Dow Jones gaining 17% so far this year, Kraft is about flat. Chances are Kraft would outperform the general index some time in the future, especially with the potential positives that the management has set Kraft up for.</div><div><ul><li><b><span class="Apple-style-span" style="color:#FF0000;">Berkshire Hathaway (current holding)</span></b></li></ul><span class="Apple-tab-span" style="white-space:pre"> </span>Berkshire has been a laggard this year. But all good deals are happening to Berkshire. Many people believed that Berkshire always get better deals because of who they are. But the truth is many couldn't get deals like Berkshire because they did not have the lending capacity or cash like Berkshire had during the time of crisis. When all others are pulling back, Berkshire was the only one that was willing to lend to credit-worthy companies and then of course, with lesser lenders, Berkshire was able to dictate for better terms.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>The past year alone, Berkshire had extended over $22 billion in various types of investment securities to 10 different companies - Goldman Sachs, Wrigley, Dow Chemical, GE, USG, Swiss Reinsurance, Harley Davidson, Sealed Air, Tiffany, and Vulcan Materials. All securities came with a basic 8.5% to 15% yield. Some of the securities come with warrants, like Goldman Sachs, which is now in the money by over $2.5B just for the warrants alone. Swiss Reinsurance is another which can be converted some time in the future, which if it is today, it is in the money by over $2B (for a principal of $3.3B). </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>This month, Berkshire did their biggest investment to date, acquiring Burlington Northern Santa Fe at a valuation of $34B. However, it is by no means cheap. It was bought at an earnings multiple of 17 to 18 based on 2008 earnings. But Buffett called it an "all-in" bet on the future of America's economy. If America does well in the future, Burlington will do likewise. It is invested with a very long term view of 10, 20 or 50 years. By then, Warren wouldn't be around but he is positioning Berkshire for the future which he has been building Berkshire towards this end both in terms of culture, and the mix of businesses.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>That is a very brief overview of Berkshire. Now to the details of Berkshire's value. Based on Berkshire's 3Q09 shareholder's equity, the share price is valued at less than 1.3 times its book value. A ratio that has not been seen since probably for a decade or more. But simply to base an investment decision on this ratio is an easy way out, probably not sufficient for an investor to understand the value of Berkshire.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Berkshire, primarily, can be broken down into 4 major categories of business - insurance; manufacturing, services & retailing; utilities & energy and; financial & financial products. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>The headline net earning on the income statement can swing wildly from year to year or quarter to quarter because of the impact of the put option derivatives underwritten on 4 major global indexes (S&P 500, FTSE 100, Euro Stoxx 50 & Nikkei 225). So in order to understand the normal earnings, the gain/loss from such derivatives should be excluded. </div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>The ultimate gains or losses on these contracts will not be known for many years but it is important to understand the mechanics of it because derivatives that are written without discipline are "weapons of mass destruction." The notional value of these equity put options is $37.1 billion. The first contract comes due Jun 2018. Any losses will only be paid on the due date. Meanwhile the value of these contracts are mark to market and any losses will be recorded as a liability. As of 3Q09, the liability recorded for these contracts was $8.1B. Meanwhile, Berkshire received a premium of $4.9B, which they have invested. These two items - the liability and the premium - means Berkshire had so far reported a mark-to-market loss of $3.2B (compared to a mark-to-market loss of $5.1B at end 2008, showing how volatile marking to market gain or losses can be). </div><div><span class="Apple-tab-span" style="white-space:pre"> </span></div><div><span class="Apple-tab-span" style="white-space:pre"></span><span class="Apple-tab-span" style="white-space:pre"> </span>To illustrate how Berkshire can lose on these contracts, say, Berkshire had sold a $37.1B (the notional value) 15 year put option on the S&P 500 index when that index is at 1300. If the value of S&P 500 is at 1170 - down 10% - on the day of the maturity (15 years later), Berkshire would pay $3.71B. For Berkshire to lose $37.1B, S&P 500 would have to go to zero. In the meantime, Berkshire had been paid $4.9B as premium to write the put contract and free for Berkshire to invest. As you can see, even if the index is 10% less than the day the contract was written (which is 15 years later), Berkshire would still not have lost a dime, in fact, a gain of $1.19B, not including any other gain Berkshire had realized from the $4.9B they had put to work.</div><div><br /></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>The derivatives subject is a bit of a diversion. Now, let's get back to valuing the 4 different categories of Berkshire's main business, excluding impact of derivatives. </div><div><br /></div><div><b>Insurance operations</b>: </div><div><span class="Apple-tab-span" style="white-space:pre"> </span>In Y2008, insurance earned $5.3B, of which $1.8B comes for underwriting gain and $3.5B from investment income. Valuing the insurance business would depends on which approach you use. There're a few. </div><div><ul><li>If you apply a straight 15 times multiple to its earnings, you get a valuation of about $80 billion. </li><li>If you based it on its net worth (or book value), the insurance book value is probably about $75 billion and applying a 1.5 times book value, you get a valuation of about $113B. </li><li>Another way is to value underwriting and investment income separately. Underwriting gain does not really gets its earnings from the book value or investment assets, though the capacity or amount that can be underwritten depends on the net worth or equity in the business. So if you apply a multiple of 12 to the $1.8B in underwriting gain, you get a value of $22B. Then since investment income is derived directly from investment assets, we can simply just based the value of the investment income side on the net book value which is roughly about $75B and if you apply a 1.5 times to the book value, it is worth $113B. In total, the insurance business is worth about $135B.</li></ul></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Depending on which valuation method, the insurance business is worth between $80B to $135B.</div><div><br /></div><div><b>Manufacturing, Service & retailing:</b></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>This motley collection of businesses earned $2.3B in 2008. The various businesses in this group can be as different as night and day from each other. For simplicity sake, we will apply a multiple of 15 to its earnings which give a value of $34B.</div><div><br /></div><div><b>Utilities & energy:</b></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>In 2008, this sector earned about $1.2B after one-off items. By applying a multiple of 15, it is worth up to $18B, of which Berkshire owns 87.4% (diluted) interest. So Berkshire's interest in MidAmerican is about $15.7B.</div><div><br /></div><div><b>Financial & financial products</b></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>This sector earned roughly about half a billion in 2008. By applying a factor of 10 to the earnings, it is worth in the range of $5B, more or less.</div><div><br /></div><div>Conclusion: Berkshire, when we add up the individual valuations, it is worth between $135B to $190B (difference lies in how you value the insurance business).</div><div><br /></div><div>This is getting too long. I will try to write more on some other investments that I still hold or had held in the past.</div><div><br /></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com3tag:blogger.com,1999:blog-34104702.post-29802466537801711492009-11-12T10:05:00.000-08:002009-11-12T10:05:59.272-08:00Berkshire Hathaway's 15 Biggest Stock Holdings - Slideshows - CNBC.com<a href="http://www.cnbc.com/id/33608379?slide=12">Berkshire Hathaway's 15 Biggest Stock Holdings - Slideshows - CNBC.com</a>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-46883146628877457642009-11-07T00:57:00.000-08:002009-11-07T01:44:37.721-08:00Food for thoughts on investing in undervalued companiesAgain, I had a rather long break. And I'm back. One of the cornerstone to successful investing is to buy undervalued businesses. But is it enough? I'd argue it ain't. One other aspect is to have good management that really thinks and acts in the right manner on the behalf of the shareholders, whom the management ultimately have a fiduciary responsibility to.<div><br /></div><div>Sometime in July 09, IMS Health was selling at $12 - <a href="http://berkshireh.blogspot.com/2009/07/high-margin-low-or-reasonable-capex.html"><span class="Apple-style-span" style="color:#FF0000;">click here for more details in a previous post</span></a>. At $12, the whole company was selling for $2.2 billion. A value that substantially undervalues the company in relation to its future earnings potential. This week, a consortium led by TPG offered $4 billion (or $22 a share) to buy out IMS. The offer was accepted by IMS management. David Carlucci, IMS Chairman and CEO, said: "This transaction enables our shareholders to realize substantial value from their investment in IMS with an immediate cash premium." But is it really so?</div><div><br /></div><div>Yes, it is but with a caveat. It only offer substantial immediate value for those shareholders who had bought at $12 or so during the period in July but not for the other shareholders. In effect, the management had sold out on the majority of its shareholders. During the period between Oct 08 to before the offer, its share was traded in the range of about $10 to $18 (mostly at $12). Only shareholders who had invested during this period had benefitted but not fully - substantial value is left on the table. </div><div><br /></div><div>Prior to Oct 08, its share traded at above $22. At that price, it too was undervalued in relation to what a full price would be. At $22, the whole company sells for $4B, with a free cash flow of over $350 million. The company is holding up well through the crisis and business prospects appear sound, though revenue had declined. Expanding global pharmaceuticals market, as expected by IMS, to grow at a compound rate of 4 to 7% to about $1 trillion in 2013. So what value, if any, does TPG and its partner bring to the table. Indeed, much value is left behind.</div><div><br /></div><div>In my view, the management had failed in its fiduciary responsibility to its shareholders. Even for investor who bought at $12, they may have less cause for celebration because the management failed to do their best to get a full value of what the company is really worth. One reason the management is eager to sell could be because of the generous slice of equity in the deal they can get.</div><div><br /></div><div>So in essence, even if an investor manage to find an undervalued company (imagine you had bought IMS at $22 which is an undervalued price), they may not get rewarded because of a mediocre management.</div><div><br /></div><div>On the other hand, it is always better to invest in a company that is not only undervalued, but comes with a decent management (think of Berkshire, YUM Brands, Amex, Wells Fargo) who takes care and thinks for their shareholders whom they represent. However, if an opportunity comes where a company is undervalued but its management is mediocre, it's best to buy only at a substantially undervalued price, for IMS case, it did be at $12 or so, not $22 - though both prices are undervalued. Any value investor who had bought before Oct 08 at $22 would perhaps rethink about the whole concept of buying into a company that is run by people who do not think for the people they represent.</div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com1tag:blogger.com,1999:blog-34104702.post-25299293904857605592009-09-08T08:35:00.000-07:002009-09-08T08:36:29.797-07:00NYT: Closely Watched Buffett Recalculating His Bets<span class="Apple-style-span" style="font-size: 15px; line-height: 22px; "><p>Published September 8, 2009</p><p><a href="http://topics.nytimes.com/top/reference/timestopics/people/b/warren_e_buffett/index.html?inline=nyt-per" title="More articles about Warren E. Buffett." style="color: rgb(0, 66, 118); text-decoration: underline; ">Warren E. Buffett</a> has two cardinal rules of investing. Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.</p><p>Well, a lot of old rules got trashed when the financial crisis struck — even for the Oracle of Omaha.</p><p>At 79, Mr. Buffett is coming off the worst year of his long, storied career. On paper, he personally lost an estimated $25 billion in the financial panic of 2008, enough to cost him his title as the world’s richest man. (His friend and sometime bridge partner, <a href="http://topics.nytimes.com/top/reference/timestopics/people/g/bill_gates/index.html?inline=nyt-per" title="More articles about Bill Gates." style="color: rgb(0, 66, 118); text-decoration: underline; ">Bill Gates</a>, now holds that honor, according to Forbes.)</p><p>And yet few people on or off Wall Street have capitalized on this crisis as deftly as Mr. Buffett. After counseling Washington to rescue the nation’s financial industry and publicly urging Americans to buy <a href="http://topics.nytimes.com/your-money/investments/stocks-and-bonds/index.html?inline=nyt-classifier" title="More articles about stocks and bonds." style="color: rgb(0, 66, 118); text-decoration: underline; ">stocks</a> as the markets reeled, in he swooped. Mr. Buffett positioned himself to profit from the market mayhem — as well as all those taxpayer-financed bailouts — and thus secure his legacy as one of the greatest investors of all time.</p><p>When so many others were running scared last autumn, Mr. Buffett invested billions in<a href="http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org" title="More information about Goldman Sachs Group Incorporated" style="color: rgb(0, 66, 118); text-decoration: underline; ">Goldman Sachs</a> — and got a far better deal than Washington. He then staked billions more on <a href="http://topics.nytimes.com/top/news/business/companies/general_electric_company/index.html?inline=nyt-org" title="More information about General Electric Co" style="color: rgb(0, 66, 118); text-decoration: underline; ">General Electric</a>. While taxpayers never bailed out Mr. Buffett, they did bail out some of his stock picks. Goldman, <a href="http://topics.nytimes.com/top/news/business/companies/american_express_company/index.html?inline=nyt-org" title="More information about American Express Company" style="color: rgb(0, 66, 118); text-decoration: underline; ">American Express</a>, <a href="http://topics.nytimes.com/top/news/business/companies/bank_of_america_corporation/index.html?inline=nyt-org" title="More information about Bank of America Corp" style="color: rgb(0, 66, 118); text-decoration: underline; ">Bank of America</a>, <a href="http://topics.nytimes.com/top/news/business/companies/wells_fargo_and_company/index.html?inline=nyt-org" title="More information about Wells Fargo & Co" style="color: rgb(0, 66, 118); text-decoration: underline; ">Wells Fargo</a>, <a href="http://topics.nytimes.com/top/news/business/companies/us_bancorp/index.html?inline=nyt-org" title="More information about US Bancorp" style="color: rgb(0, 66, 118); text-decoration: underline; ">U.S. Bancorp</a> — all of them got public bailouts that ultimately benefited private shareholders like Mr. Buffett.</p><p>If Mr. Buffett picked well — and, so far, it looks as if he did — his payoff could be enormous. But now, only a year after the crisis struck, he seems to be worrying that the broader stock market might falter again. After boldly buying when so many were selling assets, his conglomerate, <a href="http://topics.nytimes.com/top/news/business/companies/berkshire_hathaway_inc/index.html?inline=nyt-org" title="More information about Berkshire Hathaway Inc" style="color: rgb(0, 66, 118); text-decoration: underline; ">Berkshire Hathaway</a>, is pulling back, buying fewer stocks while investing in corporate and government debt. And Mr. Buffett is warning that the economy, though on the mend, remains deeply troubled.</p><p>“We are not out of problems yet,” Mr. Buffett said last week in an interview, in which he reflected on the lessons of the last 12 months. “We have got to get the sputtering economy back so it is functioning as it should be.”</p><p>Still, Mr. Buffett hardly sounded shellshocked in the wake of what he once called the financial equivalent of Pearl Harbor. (An estimated net worth of $37 billion would be a balm to anyone’s psyche.)</p><p>“It has been an incredibly interesting period in the last year and a half. Just the drama,” Mr. Buffett said. “Watching the movie has been fun, and occasionally participating has been fun too, though not in what it has done to people’s lives.”</p><p>Investors big and small hang on Mr. Buffett’s pronouncements, and with good reason: if you had invested $1,000 in the stock of Berkshire in 1965, you would have amassed millions of dollars by 2007.</p><p>Despite that formidable record, the financial crisis dealt him a stinging blow. While he has not changed his value-oriented approach to investing — he says he likes to buy quality merchandise, whether socks or stocks, at bargain prices — Buffettologists wonder what will define the final chapters of his celebrated career.</p><p>In doubt, too, is the future of a post-Buffett Berkshire. The sprawling company, whose primary business is insurance, lost about a fifth of its market value during the last year, roughly as much as the broader stock market. While Berkshire remains a corporate bastion, it lost $1.53 billion during the first quarter, then its top-flight credit rating. It returned to profit during the second quarter.</p><p>Time is short. While he has no immediate plans to retire, Mr. Buffett is believed to be grooming several possible successors, notably David L. Sokol, chairman of MidAmerican Energy Holdings at Berkshire and also chairman of NetJets, the private jet company owned by Berkshire.</p><p>After searching in vain for good investments during the bull market years, Mr. Buffett used last year’s rout to make investments that could sow the seeds of future profits.</p><p>Justin Fuller, author of the blog Buffettologist and a partner at Midway Capital Research and Management, said the events of the last year, while painful for many, provided Mr. Buffett with the opportunity he had been waiting for.</p><p>“He put a ton of capital to work,” Mr. Fuller said. “The crisis gave him the ability to put one last and lasting impression on Berkshire Hathaway.”</p><p>For the moment, however, Mr. Buffett seems to be retrenching a bit. Like so many people, he was blindsided by the blowup in the housing market and the <a href="http://topics.nytimes.com/top/reference/timestopics/subjects/r/recession_and_depression/index.html?inline=nyt-classifier" title="More articles about the recession." style="color: rgb(0, 66, 118); text-decoration: underline; ">recession</a> that followed, which hammered his holdings of financial and consumer-related companies. He readily concedes he made his share of mistakes. Among his blunders: investing in an energy company around the time oil prices peaked, and in two Irish banks even as that country’s financial system trembled.</p><p>Mr. Buffett declined to predict the short-run course of the stock market. But corporate data from Berkshire shows his company was selling more stocks than it was buying by the end of the second quarter, according to Bloomberg News. Its spending on stocks fell to the lowest level in more than five years, although the company is still deftly picking up shares in some companies and buying corporate and government debt.</p><p>Among the stocks Mr. Buffett has been selling lately is <a href="http://topics.nytimes.com/top/news/business/companies/moodys_corporation/index.html?inline=nyt-org" title="More information about Moody's Corporation" style="color: rgb(0, 66, 118); text-decoration: underline; ">Moody’s</a>, the granddaddy of the much-maligned credit ratings industry. Berkshire, Moody’s largest shareholder, said last week that it had reduced its stake by 2 percent.</p><p>The shift in Berkshire’s investments suggests Mr. Buffett is starting to worry, said Alice Schroeder, the author of “The Snowball,” a biography of Mr. Buffett.</p><p>But Ms. Schroeder said Mr. Buffett was also growing anxious about how he would be remembered. He wants to remain relevant in the twilight of his career, she said, and is taking a more prominent role on the public stage. That shift means ordinary investors are getting a chance to hear more of his sage advice, but it also carries some risk.</p><p>“Before, he always made sure to dole out the wisdom with an eyedropper,” Ms. Schroeder said. In the past, Mr. Buffett “said it was a mistake to believe that if you are an expert in one area that people will listen to you in others,” she said.</p><p>Whatever his recent missteps, many people, from <a href="http://topics.nytimes.com/top/reference/timestopics/people/o/barack_obama/index.html?inline=nyt-per" title="More articles about Barack Obama." style="color: rgb(0, 66, 118); text-decoration: underline; ">President Obama</a> down, listen to what Mr. Buffett has to say. He is important in his own right as a billionaire businessman but also because millions of ordinary investors follow his homespun aphorisms, copy his investing strategies and await his pronouncements on the markets.</p><p>Mr. Buffett refused to be drawn out on where stocks are headed, but he warned about the dangers of investing with borrowed money, or leverage, which proved disastrous when the crisis hit.</p><p>As for regrets, he has a few. His timing was bad, he concedes. He should have sold stocks sooner, before the markets tumbled. Then he served up a Buffettism that any investor might heed:</p><p>Asked if anything was keeping him awake at night, he said there was not. “If it’s going to keep me awake at night,” Mr. Buffett said, “I am not going to go there.”</p></span>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com2tag:blogger.com,1999:blog-34104702.post-82437312370775886902009-09-07T01:51:00.000-07:002009-09-07T02:00:22.164-07:00Vanity Fair: Henry Paulson’s Longest Night<span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Excerpts from article:</span></span><div><span class="Apple-style-span" style="color: rgb(46, 43, 30); line-height: 12px; "><h2 id="articleintro" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 8px; padding-left: 0px; border-top-width: 0px; border-right-width: 0px; border-bottom-width: 0px; border-left-width: 0px; border-style: initial; border-color: initial; text-decoration: none; border-style: initial; border- line-height: 20px; font-weight: normal; color:initial;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">In 2006, Goldman Sachs C.E.O. Henry Paulson reluctantly became Treasury secretary for an unpopular, lame-duck president. History will score his decisions, but the former Dartmouth offensive lineman definitely left everything on the field. In private conversations throughout his term, as crisis followed crisis—Bear Stearns, Fannie Mae and Freddie Mac, Lehman Brothers, A.I.G., and so forth—Paulson gave the author the inside track, from the political lunacy and bailout plans to the sleepless nights and flat-out fear, as he battled the greatest economic disruption in 80 years.</span></span></h2><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"><br /></span></span></div></span><div><span class="Apple-style-span" style=" color: rgb(46, 43, 30); line-height: 12px; font-family:Georgia, Times, fantasy;font-size:x-small;"><h2 id="articleintro" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 8px; padding-left: 0px; border-top-width: 0px; border-right-width: 0px; border-bottom-width: 0px; border-left-width: 0px; border-style: initial; border-color: initial; text-decoration: none; border-style: initial; border- line-height: 20px; font-weight: normal; color:initial;"><span class="Apple-style-span" style="line-height: 19px; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">As he noted, “There’s a great lack of financial literacy and understanding in this nation, even among college-educated people.” But Paulson did figure out how to behave on the Hill. “There’s a way, keeping full integrity, of answering the questions you want to answer,” Paulson told me in one of our conversations, reflecting on what he had learned about committee hearings. “The thing that scared me was not a question I didn’t know the answer to. Just say, ‘I don’t know.’ The thing that scared me was some question that I knew, and answered correctly, and I’d be in deep doo-doo!” As his tenure wore on, Paulson confessed, “I amuse myself a lot by sitting there sometimes and thinking what would happen if I said, ‘Do you realize what an idiotic question that is?’ "</span></span></span></h2><div><a href="http://www.vanityfair.com/politics/features/2009/10/henry-paulson200910"><span class="Apple-style-span" style="color:#6633FF;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Click her to read full article</span></span></span></a></div></span></div></div>Berkshirehttp://www.blogger.com/profile/02415080722037608944noreply@blogger.com3