Wolf Money(portfolio update for end Nov 2022)
Portfolio as at end of Nov
1.) Cash
2.) Bank of China(3988.HKG)
Commentary
The biggest headline of the month was FTX bankruptcy. The spectacular failure of FTX had all the making of a Hollywood blockbuster. SBF came from being a hero to zero in a mere 3 years. The once 32b business managed to pull wool over some of the biggest investors in the world including our SWF. The “bank man got fried” investing in the company. Billions were loss. Many people loss their saving.
Every generation of investors are likely to see some sort of bubble in their lifetime. Some investors might asked “why invest in Crypto, there is no fundamental behind it?” I like everyone to hold your horses on criticism. If I substitute S-Chip(Singapore listed Chinese company), Pan Electric or the 2000s tech bubble, does my point of view become clearer? I am sure old timer of our stock market can related to it. Some of us might even be a participant of yesteryear bubbles. Bubbles or frauds in some case can exist in different form. I had my fair share of experience with S-Chip 18 years ago due to the nature of my work. The Chinese economy was just opening up and many Mainland Chinese companies were seeking funding from overseas listing for their expansion. Singapore Stock Exchange was one of the earliest overseas destination for Chinese companies seeking IPO funding. As what you would expect, the initial batch of S-Chips were well received due to the hype surrounding the Chinese economy and the high growth industry they belong. There was a time when every newly listed S-Chip was a great investment, they were unstoppable and unsinkable. S-Chip IPOs were the hottest ticket in town. Stock market participants including the bankers, sponsors, underwriters down to the retail investors were making stupid money. I took a stand of not investing in S Chip after the initial euphoria. Just like the situation in Crypto space, the quality of subsequent S-Chip listings started to deteriorate. My gut feel close to 20 percent of the listings were either problematic or fraudulent even thou I don’t have the actual number. Those involved in the later stage of the bubble suffered financial and reputation loss. S-Chip listings came to a squeaking halt with current Chinese listed companies suffering low valuation in our market due to stigma associated to the debacle. You can read an article written many years ago by a rumour CEO of a Chinese listed company. The high entertainment value of the story make its a good script for the next Netflix hit TV series, “The Clown”.
It is easy for people not involved in crypto to criticise(cnbc commentators) those who got burned but I believe it is very difficult to detect a bubble until it reached a very advance stage. Our property market might be in a bubble, one can’t really tell. Days of unregulated crypto exchange is numbered, a mechanism similar to The Central Depository of the stock market might be proposed where customers’ crypto assets are segregated from any companies running a crypto exchange. In the meantime cold wallet is your best defence against fraud and failure. Simply avoiding the crypto market all together is another option if one doesn’t understand the risk of investing in crypto no matter how hard you tried. Although Lone Wolf continue to avoid the crypto space but I got great respect for the idea. Just like plastic bag itself was a revolutionary green invention alternative to the paper bag in the mid 60s. The inventor’s idea was simple, plastic bag can be reused and it is more durable than paper bag, less trees will be needed to be cut for production of paper bag, great idea you may think until plastic bag becoming too cheap to produce and eventually becoming another disposable item that cause major pollution in Ocean. The initial raw idea of Bitcoin was good because it allow everyone to bypass middle man like the financial institutions which charge a fee for every transaction. Bitcoin is truly the first financial revolution since the invention of money without the need for a middle man until kidnappers, scammers and fraudsters decide to use it to launder ill gotten gains. Like all good idea, human are capable of spinning any good idea into a very bad one, crypto was no exception. My 2c worth to all those investors who got burned by cryptoast or the stock market to take it as part of the learning curve, continue to educate yourself, come back stronger and wiser.
Let me address Comfortdelgro trade. I was initially keen on adopting a wait and see attitude after the 3Q result until the trail stop struck me out. Weaker margin and profit q on q is not a good thing given June to Sept quarter is the first full quarter with reopening in full swing. The main issue facing the company is not fuel or energy but ability for CDG to attract drivers to have a career in the public transport sector thus higher wages cost. I think they have an image problem to attract new blood into their company. Most freelancer will be more keen on doing Grab than driving a taxi or a bus. The “cool” factor or the lack of it is an issue. I also don’t like the fact which I rightly predicted working from home arrangement having a negative impact on rail ridership, ridership peaked out in Sept at 88% vs pre covid. Oct number had a slight dip of 1% to 87%. The lower ridership can only be address by the new fare adjustments formula out next year adopting new matrix like impact of wfh incorporated into calculations of fare. Base on current CDG profit run rate, core earning is likely to be around 150-160m excluding the 38m gain from property sale about 7c-7.5c eps around 17-18x forward p/e. The p/e is way higher than what I personally would pay for. LWF managed a small gain from the sale.
Bank of China
The Chinese and Hong Kong market recovered strongly in November. Bank of China share recovered from its 52 weeks low after sign of easing of covid related restriction in China. Chinese authority is looking to reopen the economy in a safe way. We may see a stronger Chinese economy in 2023. I continue to hold the share for it high yield. Stock is up close to 10 percent for the month. I added an insignificant amount to my holding this month.
Boustead Projects
Boustead Projects reported a 30 percent rise in profit. The extraordinary gain from the purchase of Bideford property was missing from the profit and loss statement. I suspect the gains were classified as a balance sheet item. To me it doesn’t matter. We probably see a stronger 2H as the company undertake contract won recently with higher margin. The illiquid share was down close to 6%. The weakness in BP literally wipe my face on the gain in CDG and BOC. I have no complaints about the fundamental of the company. Its nav stands at $1.265 is about a 40 percent discount to share price and having a net cash at 154m equaling 49.5c cash per share. The demand for Vietnam industrial properties had never been higher. I wouldn’t be surprised Vietnam business to be bigger than Boustead Projects Singapore business in years to come. FY2023(March closing) might see a strong year for Boustead Projects. I will be looking forward to potential injection of their JV properties into Boustead Industrial Fund when favourable market condition prevail. I added an insignificant amount to my holding this month.
Cash
I continue to put capital into SSBs. Retirees who desire to have a 10 years risk free income can consider putting up to max limit of 200k. Imagine at 3% rate or higher, the government will be sending you a 6k cheque yearly for your holiday trip to Europe or America, not a bad preposition. Do take note accumulation of up to 200k may take up to a year and a half due to the popular demand. We might be closed to peak interest in my personal view. How do I know? When our local banks start offering 4.5% fixed rate mortgage for 5 years. 5 years fixed duration is a long time for any mortgage loan in Singapore. I personally hasn’t seen any 1% ish rate been offer 5 years duration last year by any banks. Obviously the banks did all the calculation, it might be wise for them to lock in the yummy interest rate margin for the next few years. As we all know banks are not your friends. 5 years fixed rate at 4.5% to help the mortgagor? Seriously. Don’t scold me if I get it wrong hor. I continue to like cash as I don’t have any use for an immediate deployment. I may eventual find a REIT to house some of my fund since they are the hardest hit sector due to rising interest rate. Just maybe. Finger crossed.
To be honest, I would like the movement of my portfolio to be kept at a minimum unless I was forced by market conditions. I want to make it clear I don’t advocate frequent trading. Trading fees eat into return. In 2022, the turnover of companies in my portfolio is above trend, I don’t think it is a likely trend going forward. I will like to keep my portfolio stable with some caveat for market/company adverse events.
As we head towards the end 2022, it is time to reflect what I have done right or wrong for the year. Thank to the great lord, Lone Wolf Fund still managed a 8% YTD gain(unleveraged and interests on cash around 2% average for the year were excluded from total return). As 2022 become a distant memory, I hope to improve on the depth and scope of my investing competency, learn from the lessons of 2022. Change is the only constant thing in life. Failure to adopt to the changing time of financial market can lead to the way of the dinosaurs. Extinction! I will be doing my year end review next month. Happy Thanksgiving. God bless.
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