Tag Archives: Investment

Starting 2018 positively

Despite closing the year 2017 with an 18% upside in the Straits Times Index (STI), we saw another 90 points increase in the STI to end at 3489.45 in the first week of 2018. For myself, I am happy to have seen many days of advances last year. In the week that just passed us, like many investors out there, I have enjoyed a 5-digit figures climb a day in the three out of the four trading days. In a market like this, it is probably difficult to lose money. Maybe everybody has become an expert in their own rights. But going forward, it is unlikely that things would be repeating at this rate. Complacency may have already started to build in the minds of investors. The advances in the Dow Jones Industrial Index (DJII) has become such a norm that any retreat is seen as an abnormality. Given that DJII has some bearing on the STI, the advance in STI is also becoming more and more of an expectation.

While I am personally enjoying the ride on this wave, I beg to be now more on guard than I had been last year. From the past experience, market crashes came when we were least expected of them. The global financial crisis struck when many Americans were chasing the American Dream. The Nikkei-225 fell when property prices in Tokyo had to be paid by three generations. The Asian financial crisis hit when property prices were around their highest level in the 90s. The DOT-COM bubble burst when there was extensive euphoric belief that any company registered as a DOT-COM was a pot of gold in the making. The list goes on.

In line with the rapid advancement of the STI, many would have agreed that it is getting more and more difficult to find gems that would potentially bring 30%-40% upside to their stock portfolio. On the whole, Mr Market has been quite generous in rewarding the true blue investors due to the extremely low interest rates after the global financial crisis. Going forward, the low-lying apples are no longer there for cherry-picking. In fact, the climb in the recent months has been quite confined to the banks, perhaps manufacturing and possibly some REIT counters that generally offer higher yield. Many of the STI constituents in transports, properties and conglomerates did not really move the STI very much, further weighed down by their lower weightage compare to the banks.


As a matter of opinion, the STI should still remain buoyant due to the spill-over effect of last year and playing catch-up with other financial markets, and very importantly, the economic performance of the local economy. But, whether this year is going to be as good as that of last year remains to be seen, particularly in the second half.

Happy investing!

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.


Two important life lessons when investing in stocks

It must have been 20 years since I attended a remisier course leading to an examination that would enable me to become a full-fledge remisier. After all, I had just completed an MBA course and, this would enable me to skip one of the two remisier modules, thus short-cutting my way to become a remisier should I chose to be one. Just like any other school-leavers after a few years of work on the same job, I was contemplating and exploring a career change. I was no rookie in stock trading (I say trading because I was really trading) at that time. By that time, I probably had already had 6-7 years of stock investing experience as a client. My personal objective to attend the course was very simple. Even if I decided not to take the examination (in the end, I did not), I might still be able to learn a one or two things about the stock-broking industry. I believe the course fees must have been about $200-$300 and the whole course was taught over a period of about 2 or 3 days (can’t exactly remember). As I have already been working for several years, it was a small sum to pay to learn something, perhaps to help me develop another career path, just in case.  After all, I had already paid or have been paying for several high-ticket items, such as my MBA course, marriage plans, housing renovations, car loans, insurances,  etc.,  and many of those things that crossed into our path after we left school. So, in comparison, it is not going to break an arm or leg to pay for the fee to attend the course.


That was a long time ago, and frankly, I had forgotten most of the things that the practice remesier taught. If you ask me today, I think the lessons were pretty boring. They were just brute facts that were to be dumped into our minds and for us to re-produce them during examinations. The hand-out notes were no better. They came in the form of a ring-bind and were about one-inch thick in black/white photocopies in fading print on half-yellowish papers and were not exactly organized. These two factors would have been an ideal condition to put one into a good sleep within the first 10 minutes after sitting down especially given the nice air-conditioning environment and after a long day’s work. But still, there were at least 30-40 eager attendees listening attentively to the lessons.  Perhaps, there were one or two key reasons for this. Firstly, at that time, all the trades have to go through a broker. Whenever we buy or sell stocks, whether they are many board lots or just one board lot, they still have to be handed by a broker or remisier, who have to physically key in our trades. So, a remisier or a broker had a very important role to play in the whole transaction process if we bought or sold securities at that time. Thus, becoming a remisier was an ideal dream that many people were trying to get their hands on. The other reason, a very important one, was that stock market at that time had been enjoying about 7-8 years of boom, except for a temporary disruption due to the 1st Gulf war in 1990. (I actually have an important lesson to share for this episode as well, but I will leave it to another session in order not to digress too much from the subject matter.) It was a lucrative career if one was able to get into it. Can you imagine each transaction of about 1% commission in just 2 minutes of telephone conversation for just one counter! After all, the memories of the great boom of the 90s around 1992 to 1994 had not faded in people’s mind yet.


The point that I wanted to make was not because of the teacher or the notes. It could even be that I had been day-dreaming in most parts of the course. But there were two points that the teacher pointed out that still had a bearing on me in all the investing years that followed. They were actually off-the-calf sharing and were not part of the lesson proper. He shared with us some stories of people (without quoting names or mention anybody specifically, of course) who became bankrupts after losing big in the stock markets.  It was demoralizing. Here, we are trying to learn something to become a remisier, and there the teacher was telling us about bankrupt stories. Perhaps, he just wanted us to be mentally prepared when we entered this industry. But still, he ended up with a positive note. Based on his personal experience, he shared with the class that there were generally two types of people that do not do too badly in stock investing. They are:

(a)    People who do not trade on contra.

(b)   Those that are “one-lotters”.  (Yes, he really said “one-lotters”.)     

At that time, I did not think much about what he said as they were just passing mentions to inject some life into the lesson.  No offence to those who play contra or on margin, I never play contra. I pay for my trades faithfully and on time. So I cannot share very much on the experience of contra. Perhaps, he was coming from a point of view as a remisier, and that he had to take on the financial risk when clients did not pay on time. However, later checks with another one or two broker seemed to confirm this point. Frankly, the purpose of checking was not to talk down or expose those who like to play on contra. I have no authority to do that. I just wanted to know how I could develop my investing character not to be along those lines that exhibited high chance of losing money. The 2nd point was more impactful for me. Apparently, he had coined the term “one-lotter”. I could not find it in an English dictionary.  He meant to class those people who only buy or sell one lot of a counter whenever they make a transaction. Previously, one board lot refers to 1,000 shares and not 100 shares as it is now.  Basically, he was referring to the fact that some people buy or sell only 1,000 shares no matter how good or how bad the market was. It suited me right from the start. Think about it, when we first graduated from school, our salary was close to $2,000 per month for a fresh graduate. Even after some years of working, it was probably $3k to $4k per month. After deducting for our CPF, provide some pocket money to parents, monthly payments for some high-ticket items, I am not sure if I could even save $500 per month in the first year or $1,000 after some years after I graduated from school. How many board lots of a counter can we really pay per trade? At most one. Even for some high-priced stocks, we still needed to save for several months before we could even buy the first board lot. At that time, for example, Cycle and Carriage (C&C) (not yet known as Jardine C&C) was trading at slightly above $10, and OUB (a bank subsumed by UOB) was trading around $8.50. But as I look back in history, taking on one board lot at a time may not be a bad idea. Many of the stocks that I have accumulated today in many thousands of shares were the results of buying one board lot at a time. It may not be the fastest way to riches, but it certainly is a safe and conservative way. Do not underestimate its cumulative power. It enables us buy on dips and picking up opportunities that might have slipped through the fingers of many.


Stock investing is a journey. It is not an end by itself. The stock market will outlive any of us. The investing journey may be long and arduous, but each small step that we take, we are one step nearer to where we want to be.  I am thankful to the teacher for the off-the-calf sharing.  They turned out to be more useful than the lesson proper as I looked back in history. They helped shaped my investing style in the later years. To be continued…. 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

An essential product does not mean its company share price will continue grow

I met two persons, who told me that they had Hyflux shares. I met one of them some 4-5 years ago and the other 2-3 years ago. Both of them have held the stocks for some time. So I presume they have bought the shares 5-6 years and 3-4 years ago respectively. If I remember correctly, first one told me she bought the stock at $2.10 and the other bought at $1.02 per share. When I asked them why they bought the stocks, the common reply was “Everyone needs water.”

When I checked the price today, it is about $0.46 per share. Should they have kept the shares till today, the loss would be about 78% and 55% respectively. This goes to show that it is not necessary that the share price of companies producing essential products will continue to grow. Essentially, the stock price still depends very much on fundamental results like profitability, capital structure, management etc. When I look into the historical chart, the share price went up as high as $3.50 in year 2010. So, I believe when they bought the stocks, they must be thinking that stock was cheap compared to the price reached in 2010. After all, “everyone needs water” as they claimed. Perhaps they have been in it for a wrong reason. I agree that everyone needs water, but may I add that not all drinking water has to come from Hyflux.

Since then, I took note of Hyflux share price from time to time. It has already been falling gradually. In all these years, it has been quite deep in debts. They also had raised two perpetual bonds. The amount raised in the latest perpetual bond was $500m up-sized from the original planned amount of $300m. The total amount raised was higher than its market capitalization of about $362m based on today’s price at 46 cents. The heavy debt has taken a toll on the share price. Perhaps, the decent financial results released this week helped to break the continual fall in the share price, but still, it needs to resolve its debt issue before the stock price can climb convincingly again. So, the conclusion I have is that the two people who had bought the stock might have overlooked the capital structure and had focused too much on the stock price.

Extending the same arguments, there are actually many non-essential but sexy and well-loved products on the market. The share price of these companies has been very strong and their cash holding can be tremendous. Apple Inc is one of them. Think about it. We do not really need an iphone to live. Years ago, there were no iphones, but yet we still continue to survive as a civilisation. Even till today, they are many who simply live by surviving on food, water and shelter, but go without an iphone. Yet, the share price of Apple Inc. continues to be strong and unrelenting.

In summary, it does not mean that a company producing a product viewed as essential (not exactly though, as the process is not essential) will always see its share price growing. It is still very much dependent on a few fundamental attributes like management, profitability, cash flow etc.

Happy investing!

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Look at each stakeholder’s perspective

Every month, when I receive my credit card bills, I would almost immediately go to the internet and post-date the payment to 1-2 days before date due, and make sure that the bill is paid in full. As far as I am concerned, I am a AAA-customer of the bank. My question is – does the bank like me? Well, not quite. Why? Simple. The bank cannot derive a profit out of me. The bank is there to make a profit, and if it cannot earn a profit out from me, I am quite sure I am not its best customer. In fact, the best customers for the bank are the ones that only pay interest without any default, and not even those that pay up part of the principal sum, let alone those that pay the full principal sum. From my perspective, the bank views me just as a credit-worthy customer and not a profitable customer. Of course, the bank will not deprive me for being a credit card customer because it still needs to maintain a healthy ratio of those who pay on time and those who only pay part of the principal sum. What is my point here? A bank’s perspective can be different from its customer’s perspective. 


In a similar way, a bank’s interest in lending to corporate may be different from a retail bond-holder’s interest even though both are lenders to the same company. Banks minimise their risk by securing physical assets as collaterals. That’s why they are in the business of secured lending. Given that banks have already secured the assets, their primary interest would be to achieve profitability when they lend out the funds. However, that cannot be said for an unsecured lender in retail bonds. The primary objective of an unsecured lender should, in my opinion, to focus on the risk to ensure than principal sum is protected and be returned with interest when it is lent out. However, very often, the promise of high returns tends to blind us. If we do not analyse a bit deeper, we may miss the whole picture altogether.   In fact, following the default of Swiber, several companies (need not mention them) had met with bondholders or note-holders to re-structure their debts as well as to change the payment conditions that come along with it. To get the bondholders’ support, companies very often have to make higher promises. However, higher promises do not mean safer promises in future. In fact, it could put the company’s financial future at risk due to the higher promise. One pertinent question is – how can we be so sure that the business environment in the future will be better than it is now?

Unfortunately for the bondholders or even shareholders, we do not have much say in the company executive matters except to raise some concerns. By the time, when such a meeting is called upon to discuss the re-structuring of debt payment, the damage is often already done.

For investors, whether we enter an investment as a bondholder or as a shareholder, doing it right first time is of prime importance. The effort needed to back-track is often arduous and painful.

Good luck.    

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Companies that are not worth investing

In the last post, I had promised to make a post on how to look for negative companies, that is, companies that are not worth to invest in. Generally, it takes some time to know the management and learn their management style. But one pragmatic way is to decide if the company executive remuneration policy is in line with the minority shareholders’ expectation. Obviously, the quickest way is to zoom in the executive chairman’s remuneration components. In most corporate governance reports, they generally assure shareholders that executives do not decide their own remuneration package. This means that this responsibility is in the hands of the remuneration committee, which comprises the independent directors. This obviously provides us an idea of how independent the independent directors are.  Are they erring on the side of the executive directors or are they on the side of the minority shareholders or are they totally independent?

The table shows two generally well-regarded companies. They are Yangzijiang (YZJ) and Venture Corporation. These companies are run by the executive chairman doubled up as a CEO. From the latest FY 2015 annual report, the chairmen-cum-CEOs draw a fixed salary of 18% and 27% respectively. The bonus component made a large proportion, being 82% and 73% respectively of the total remuneration package. Obviously, if the company is not doing well, a large part or even the whole variable bonus component got wiped out and this will heavily hit the total remuneration package of the executive chairman. Of course, when a company is not doing well, it is also likely that the share price and shareholder’s dividend are both at risk. By breaking down the remuneration package into a low fixed salary component and high bonus component, it is a signal to the minority shareholders that the management are with them. Certainly, this will be more in line with minority shareholders’ expectation.  The two mentioned companies have market capitalisation of above S$2 billion, and this generally means these executive chairmen are shouldering a heavy responsibility despite their low fixed salary base in terms of percentage.

Unfortunately for the minority shareholders, that cannot be said of many other companies. Several companies have remuneration packages comprising a fixed salary component of more than 80%, a very small percentage for bonus and a sizeable percentage in other benefits. The components obviously reflect as if it is their entitlement to have a high salary. In fact several of these companies actually reported to incur losses year after year. This obviously means that the minority shareholders are not entitled to dividends, while the top executives are paid a package of between $250k and $500k. Certainly, as an investor, I will strike off these companies without having the need to go into further details. In fact, a number of these companies have market capitalisation of less than $20 million, and certainly we do not expect the share price to be very high. Just by investing say $20,000 to $30,000, one could be easily be among the top 20 shareholders of the company. However, is it worth to invest in them unless we have the veto power to remove the whole board? Obviously, the remuneration package of the executives is not in line with shareholders’ expectations. One of the purposes of public-listing a company is to get minority shareholders to share out the risk, especially in corporate actions such as issuing of rights and selling of bonds and perpetuals. Under such a circumstance, the existing minority shareholders are likely to be the first to be called upon to share out the risks, but yet top executives are paid highly without the need to commensurate their remuneration with their performances. This is certainly not equitable and it does not spell well for minority shareholders. And, certainly it is also unlikely that an executive chairman of a less than $20 million company works harder than his counterpart in the more than $2 billion company, yet draws a higher remuneration than the executive chairman of a $2 billion company. Certainly, I cannot justify myself to invest in these companies.

Now the next question is how independent are the independent directors? They are generally the team members for the remuneration committee. Usually, companies engage the minimum required independent directors to satisfy the minimum statutory requirements. The first reason is by keeping the team of independent directors small, the total director fee can be shared by less directors and each enjoys a higher distribution. And the second reason is, of course, to have less independent say in the company matters, which could otherwise thwart the decision making process within the board. Consequently, the remuneration committee, the audit committee and the nominating committee are run by the same few independent directors. Of course, in situations when the remuneration of the fixed salary component is set extremely high, perhaps, we have to question and to scrutinise the background of these independent directors. They may have perhaps served too long as independent directors in the company such that they are no longer independent. Or, they could have thought that they owe it to the board of which 100% of their director fee is decided. Well, if they are not independent, it is obvious that the minority shareholders’ interest is not protected.

Disclaimer – This post is not a recommendation or an advice to buy or sell the stocks mentioned here-in. The numbers are past data taken from the annual reports. The past data cannot be used to reflect future data or future performances. 

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.