Interview with ShareInvestor

Recently, I gave an interview with ShareInvestor. The original version can be found here.

As a successful fund manager, what is your management style/investment philosophy?

I seek companies trading at a price fractional of their liquidation or fair values, as I believe that over time, the price of the stock should eventually reflect the fair value of the underlying business. However, at the heart of the investment philosophy, it’s the emphasis on the capital cycles. It is based on the idea that the prospect of high returns will attract excessive capital; hence huge competition, just as low returns repel them. The resulting ebb and flow of capital affects long-term returns for shareholders in often predictable ways, what is termed as the capital cycle. After identifying sectors that are in its downcycle and starved of capital, this is followed by a detailed research-based analysis of the fundamentals of the company and sector.

With the current macro environment how would you recommend a retail investor to remain cautious?

Understanding that the stock market is volatile is crucial. Markets either go up or down; however, valuations always revert back to the company’s fundamentals in the long run. Investors can prepare themselves psychologically by provisioning for such market drawdowns. Each investor has a comfortable amount of cash level they are willing to hold and this will be extremely useful in a market decline. Imagine a cash level of 5% – 10%, coupled with an average dividend yield of 3% – 4% for the portfolio, this is a considerable cash buffer. While I understand that holding too much cash would result in a cash drag on the portfolio’s investment returns; however, in my opinion to finish first is to first finish. Being fully invested and watching the market go down continuously and without any cash reserves can be a very painful experience psychologically. 

What motivates you to continue writing InvestingNook despite your hectic schedule as a fund manager?

The motivation to blog initially started out when I decided to document my learning journey in the form of an online diary. Over the years, the blog has seen numerous iterations renaming from ValueEdge to InvestingNook; however, at its core, it has always been about the journey of learning and sharing timeless investing wisdom. Hopefully, through my thought process and experiences, readers will be able to find some value in their own investing journey. Afterall, it’s good to learn from your own mistakes; however, it’s better to learn from other people’s mistakes!

Based on one of your articles on the importance of luck in investing, would you attribute your past investment returns to luck?

Phil Hellmuth, the top professional poker player, has won 15 WSOP bracelets and appeared at the final table 57 times. If it were to be down to luck, there would be randomness and we would not be seeing the same faces year after year. With the similar logic as the poker analogy, one could argue that fund managers with a superior long-term track record (e.g. Warren Buffett, Peter Cundill, Howard Marks, etc.) can attribute their success to skill. Now, some may wonder if it is important to be lucky, afterall it is more skill than luck when it comes down to achieving a consistent outperformance. While that may be true, I tend to feel that understanding the element of luck humbles us as investors or even as a person. Realising that in many aspects of our lives, we are where we are or what we have achieved is partially due to luck, has a humbling effect.

Is there any sector that you are currently interested in?

One sector that I am interested in for the Year 2020 would be Hong Kong Property Developers. It is my belief that it is within chaos that we find opportunities and Hong Kong is definitely going through some chaotic times with all the protests that we are reading and watching on the news. However, it is because of this I noticed companies which are unfairly oversold down. Afterall, not all Hong Kong listed companies are 100% exposed to Hong Kong be it in terms of earnings or assets. If we are able to breakdown the exact percentage either in terms of its assets or earnings for Hong Kong companies that have been sold down heavily, we will definitely discover some gems. For example, Hong Kong Property Developers that have minimal exposure to Hong Kong but are highly diversified be it regionally or globally.

People often think that investing is complicated, what do you think?

Investing is simple, but not easy.

While I understand that this statement may sound contradictory, there is a big difference between something that is simple and something that is easy.

The ‘simple’ portion is essentially the approach – the principles of investing. We all understand the theory buy low, sell high – buying companies at a valuation below its liquidation or fair values. It is pretty simple to be buying a dollar in asset for fifty cents.

The ‘not easy’ portion is the execution, determining the value of the business, pulling the trigger and actually buying the stock. During this process, emotional control is definitely required for curbing all fear or greed.

During the Global Financial Crisis in 2007/08, I am quite sure there was no lack of financially sound companies trading at massive discounts. However, for majority of investors, it was definitely not easy to be buying companies when the stock market could be plunging again the next moment.

Additionally, I will be organising a short workshop in collaboration with ShareInvestor on Employing Value Strategies used by SuperInvestors. To find out more check it out here!