Archives for posts with tag: Stock market

Sorry for the late notice but the PE10 has been updated.

airport bank board business

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Following the selloff in the last week of October, the PE10 reached lows that we haven’t seen since early 2017. At a PE10 of 12.2x, that translates into a 10-year earnings yield of slightly over 8%.

It’s cheap but it certainly isn’t dirt cheap. Dirt cheap would be when the PE10 is hovering around 10x average 10-year earnings. That would mean that the STI would be at levels of around 2500 or so.

Having said that, there’s no guarantee that the STI will fall to those levels. The market has run up a bit since I took the reading so who knows where we’re headed. What I’m confident enough to say is: based on what we’re seeing in the market, we’re certainly close to cheap than expensive.



Everyone’s favourite piece of paper

Francis Tay feels cheated.

The former Singapore civil servant says he’s lost almost S$50,000 in the implosion of Noble Group Ltd, the commodity trading giant. He also says shareholders like him have been let down by regulators whose job it is to protect them from the sort of crisis that’s brought the company to the brink.

‘I was cheated’: Tales from the collapse of commodity giant Noble – The Business Times

When I read the above, I immediately thought of the whole Minibonds saga that emerged during the Global Financial Crisis. Of course, the difference is that many of the investors who bought Minibonds thought (or they wanted to think?) they were buying something safe and that even in the worst case scenario, they would get their capital back.

In this case, investors in Noble are crying foul that the regulators didn’t do enough to ensure that Noble’s financial reports reflected economic reality. There were probably things that SGX could have done as the regulator but ultimately, based on the accounting rules at the time, it doesn’t appear that Noble did anything illegal.

What Matters Most

I was pretty wary of the commodity trading firms not because I suspected they were up to some financial shenanigans but because of the economics of the commodity trading business. It’s econ 101 that the commodity business is a low margin business. Net profit margin is typically in the single-digit range.

This means that the company’s survival depends heavily on cashflow and if the company wanted to boost returns, then they would probably use a fair amount of leverage to do so.

Obviously, if you live on the edge, the chance of falling off the edge should a strong gust of wind blow in the wrong direction becomes much higher. This is exactly what happened to the commodity houses such as Olam and Noble when short-sellers started to accuse them of accounting trickery. Add to that the downswing in the commodity cycle and you have a recipe for disaster.

Of course, in hindsight, we know that Olam has emerged relatively unscathed while Noble seems stuck in an eternal downward spiral which may eventually result in bankruptcy or some form of major dilution for existing shareholders.

Francis Tay really shouldn’t be moaning about his $50,000. If you plan to invest in a company, you need to be prepared to lose the entire sum should non-systemic risks like this come to pass. This is exactly the reason why people have a diversified portfolio. You diversify across asset classes and within the asset class, you diversify across holdings. Of course, there is danger in going overboard with diversification. As with everything, moderation is best.

Human Nature

By the way, Francis Tay should take comfort in the fact that he’s probably not alone. Few people curse themselves when investment decisions go bad and many pat themselves on the back when the decision goes right.

Also, I’ve heard of people who are trained in accounting and finance who buy into stocks with bad economics or products like the minibonds.* Aside, buying stocks with good economics at the wrong price may hurt as well.

Smart people can make stupid decisions too. It’s pretty common when you let fear and greed convince you of the narrative that you want to hear. That’s why I prefer to make a plan and stick to it. I know I’m going to do something dumb at some point. It could be thinking that I can time the market or that I’ve made some superior insight into a company. That might lead to bad behaviour like trading too much by going in and out of the market and in the process, incurring lots of trading costs. Or it could be that I bet the farm on my superior insight, only to lose everything.

Final Thoughts

Please don’t be Francis Tay. Unless you were coerced or misled by an advisor** into making a financial decision, moaning about your losses won’t make you a better investor. Throwing good money after bad is also going to make you poorer. And lastly, don’t buy on myths like “blue-chips are forever” or “Temasek will always save the day”. Please think of your plan and stick to it. If you can’t invest, then maybe it’s better that you buy a low-cost index fund or ETF. In fact, that’s probably the right choice for most people.



* I know a guy who used to be an audit partner who was telling me to buy tigerair and Singpost many years ago. Last I checked, prices never went above the price that he was telling me to buy at. I also know of a finance lecturer who bought the minibonds. Not sure if she thought they were capital guaranteed or she knew how it worked and she was just taking a bet.

** I have some things to say about so-called financial advisors too. More on this some other time.

Full disclosure: I own SPH stock.

Disclaimer: The report is meant to present a factual representation of the company’s business and is not a projection of how the stock will do. It is not meant to be an inducement to buy or sell the stock. As far as possible, I have tried to ensure that there are no errors. Any errors are my own. Please seek advice from an investment professional should you choose to use this information as part of your decision-making process on whether to invest in the stock or not.


So, I came across a report on SPH* that did a horrible valuation analysis on SPH. The main problem with the report is that they valued SPH on the basis that it was not a going concern, calculating it’s NAV and then taking a discount from there.

The report (more like blog post actually) also made simple factual errors like including Seletar Mall in SPH REIT…

So, I did my own analysis of SPH. You can download it for FREE. Leave me your comments and let me know how I can do better. (SPH (T39) report 10 Oct 17)

For those that don’t want to read through the entire thing, I’m listing some of the main points below.


  • The traditional media business is declining fast.
  • SPH is taking on more debt in order to fund other lines of business.
  • Other lines of business are not a sure bet.
  • New CEO not from industry nor has a good track record.


  • Market’s current pricing of SPH seems to expect the worst.
  • Media arm’s decline seems to be bottoming.
  • Debt levels are still sustainable.


  • Management is trying its best to diversify away from the media business


*I’m not even going to link to it because it’s so bad and they are obviously trying to get you to buy something from them

Markets have been taking a beating these couple of days so I thought I’d do a post on where it stands right now and what should you do.

As of today’s (21 Aug 2013) close, the STI has given up all its gains and then some (from 3201.74 on 2 Jan to 3108.99 today). From its peak of 3454.37 on 22 May 2013, the STI is now down 10%. Now, that’s halfway to bear market territory and significant but not anywhere near the horrors of 08/09. See TRB’s take on what that means.

Josh Brown's take on what the dips mean (souce: The Reformed Broker)

Josh Brown’s take on what the dips mean (souce: The Reformed Broker)

Valuation-wise, where do we stand?

Well, on a PE10 basis, the STI stands at 14.08, not bargain territory but certainly not a level that should make us worry about being terribly overvalued. For the record, the last 3 times we were at 14x PE10, the market returned 20.6%, 21.1% and 54.9% over the next one year. That was if you had bought the STI in June ’12, Jan ’12 and Apr ’09 respectively and held it for a period of one year (which in my book is too short a holding period!). This isn’t to say that you would definitely get the same returns (the stock market and economy is a far too complex creature to make definite predictions) but I would say that the odds are in your favour as far as valuations are concerned.

Personally, I haven’t been buying anything since mid-June. Even then, it was a nibble predicated on a dip. I will definitely be putting some cash to work given that my cash levels are up to 30-40% in some of my portfolios due to the building of my cash hoard from savings as well as dividend inflows.

As always, I’m going to be selective and bargain hunt in the sectors that have been trashed. So what should you do? Well, it depends. If you’re a young investor with a regular stream of income, this would be as good as any other time to pick up some good businesses and/or start to build your portfolio.

If you’re a highly leveraged ‘investor’ (read: Trader/day trader) who is long, then woe be to you.

PS: I’m aware of Jeremy Siegel’s criticism of the PE10 (CAPE) but that’s another thing for another time.