Monday, November 14, 2016

Portfolio Rebalancing to factor in Global Reflation.

Events in the U.S. last week overshadowed whatever may have occurred elsewhere in the world. The key now is where are we going from here and how best to profit from that.
I believe that we are only in the first of a nine-inning game. Trump has not even taken office but the market is correctly anticipating change 6 to 9 months down the road, which is the norm. The market is finally focusing on reflation here as well as abroad. The world is moving from a conservative bias with policies and regulations that limited growth to much more accommodative policies.
Finally, monetary authorities here and abroad are talking about the need to pass the baton to governments and fiscal policy to promote growth as they did as much as humanly possible and the incremental benefits of monetary ease from here were negligible at best. I mentioned again last week that the chief economist of the World Bank supported Janet Yellen’s comment that the monetary authorities should let the economies run hot before hitting the brakes.
If everything comes together as I expect then we will be talking about an overheating economy, inflation over 3% and much higher interest rates a few years down the road. But in the interim, earnings will take off for the beneficiaries of growth offsetting any increases in rates therefore leading to much higher stock prices for the reflation beneficiaries. The safe stocks of the past with steady but low earnings growth will suffer and decline. And sell all bonds. Sell the dividend yield stocks too. Thus we have our long/short portfolio.

For myself, I am more bullish on AUD and USD appreciating against the SGD. Thus, I have for the past 2 years allocated 50% of my available resources to AUD and USD equities and cash.

I have also lighten my SGX portfolio in favour of a ASX and NYSE/NASDAQ portfolio, with a strong emphasis on the financials and industrials as well as technology in my portfolio.

I've also not add on to my bond portfolio the past 2 years. Instead, the proceeds from bonds redeemed by the issuers at par or matured was put into productive use in the equities market of the USD/AUD market.

Every year, we have had at least one steep correction and I do not think this will change next year and I intend to keep to my portfolio till the facts changed. 

Friday, October 21, 2016

18 years later and you did not beat the market.

Does it help that I am not selling you anything? Perhaps. What I am selling you is a story, based on 18 years of experience of what works for the common investor, one that I am already starting to sell to my 7 year old. I prefer he start a business, several businesses for that matter, rather than get wrapped up in trading stocks.

I am finding the time spent researching for the portfolio and worrying about it and yet not beating the market by a big margin is really a waste of time.

Most retail investors are more suited to the index investing arena and spending the time saved enjoying life or working hard. Either way, they would end up more satisfied and richer.

I am planning to transition back to an all properties portfolio when the time comes. The returns from properties are plain amazing when compared to a bond/stock portfolio. Stock market is really an exercise in futility and I don't want to waste my time doing that when the returns cannot match what could be handled to me from a property (assuming you buy and hold 10 , 20 or 30yrs).

Naysayers will talk about the leverage offered and you can do the same for stocks and get amazing returns. I say to them, please go ahead and try that  :) Leverage like you would with a property (20% down, and 80% leverage) and go buy your stock. Tell me how it turns out.

What about property gains are maxed out and you will not get similar returns in the next decade. Well, if that is the case, I would bet the probability of Singapore stock market going nowhere for the next decade to be similar. 

Saturday, September 3, 2016

Does Dual Class shares actually benefit the retail shareholders?

Under Armour CEO to Sell $72 Million in Stock
Shareholders approved the creation last year of the nonvoting Class C shares, which allowed the executive to sell some of his holdings without losing influence. Through his Class B shares, which have 10 times the voting power of Class A stock, Plank controls the majority of the company’s voting rights.

I have not gone in depth into what actually happens from dual-class shares.
From the UnderArmour example, it seems like a way for owners to treat the company like an ATM while retaining control thru' the voting class shares. In other words, you might have an owner who controls only 30% of the stocks in Class A (which can have voting rights from 1 time to 5 times to 10times as in this case).

Though a dual-class shares under a good and responsible manager like Berskhire Hathaway will benefit the retail/minority shareholders. There are many others in US which has dual class but have responsible managers. The argument would then be the onus is on the retail investors to find which one has responsible management and "vote" with your purchase of those stocks. However, I think that should not be the way to go about doing things.

I wonder how it would affect the singapore stock market when companies founders start to monetize it this way. Would it become only the institutional holders and company founders retaining much of the pricier class A shares, while retail are left holding the class B(or whatever term u call it) shares. In moves that might not be beneficial to the class B non-voting shares, retail holders have effectively no control over their fate.

Example, if a company want to privatise at a less than premium, voting rights which is very much in the control of the owners and institutional holders would benefit more. You might not have a case while retail holders can vote and say no to the privatisation. Or how about right issues?

Or how about we take it a step further, if a transport company has a dual class shares. And it wants to do something that is of not much benefit to the minority holders, the minority non-voting shares holding can not do much as they will get bulldoze by the voting rights shares which might constitue less than 20-30% of the company outstanding shares. Do note in Singapore, much of the large-listed companies are GLCs. In this case, you really need to ensure the management and the institutional holders(in this case, much of it lies in the hands of GIC and Temasek) are capabable and prudent and work in the best interest of all shareholders, not just the major shareholders. Most Singaporeans loved investing in "bluechips" (Singapore GLCs) for retirement or to buy and hold forever(as taught by the buffettologists of the world). So this issue of management is really really very important for us.

Luckily, so far, it seems only new listing are allowed dual-class. So let's hope we don't have more spin-off of our blue-chips into smaller listed companies.

It also said companies already listed on a one-share-one-vote structure should not be allowed to convert into a dual-class set-up because existing shareholders did not invest in the company with knowledge of the risks associated with such structures.

We might argue much of the decision today even without the dual class shares is still very much dependent on the institutional and company owners, but this one takes it a step further by effectively removing the rights of the minority.  The analogy for me is like in a democracy, a government decides that only the top 10% are awarded 10 votes per person, the middle class 1 votes per person, while the rest are entitled to 0 vote per person but you can still be a singapore citizen with the included benefits of healthcare , education etc.

Anyway, for further discussion on it, it might be good to take a look at the links below on how the stock market is not what is . It seems to be moving towards insiders and wealthy(institutional) have more rights than the others.

Designed to give specific shareholders voting control, unequal voting shares are primarily created to satisfy owners who don't want to give up control, but do want the public equity market to provide financing. In most cases, these super-voting shares are not publicly traded and company founders and their families are most commonly the controlling groups in dual-class companies.

Oh, I just found a local business times article on this. So I'm happy people here are concerned about this too. Much more indepeth and insightful than mine of course. And it seems HK , australia and UK do not allow it.
Hong Kong recently shut the door on dual class shares after the Hong Kong Securities and Futures Commission (SFC) rejected it. The Australian Securities Exchange does not allow it (with minor exceptions for cooperatives and mutuals), and the Financial Conduct Authority (FCA) in the UK has also recently banned dual class shares for companies listing on the Main Market of the London Stock Exchange.
Let’s now consider the proposed “safeguards” to minimise entrenchment and expropriation risks. For entrenchment risks, the first safeguard is a maximum voting differential of 10:1, which is the commonly adopted voting differential in other jurisdictions. A 10:1 ratio is the problem, not a safeguard. Consider a founder who holds only Class B shares with 10 votes each and public shareholders hold Class A shares with one vote each, and there are one million total issued shares. If the founder owns just 10 per cent of the total issued shares, he will have one million votes – or 52.6 per cent of the voting rights – while the public shareholders will have 900,000 votes. This will allow him to pass all ordinary resolutions. If he wants to be able to pass all special resolutions requiring 75 per cent support, he only needs to own about 23.5 per cent of the shares. And this is assuming all shares are voted at general meetings.

Not advocating you to buy properties at this moment.  And whether you buy or sell is entirely your business. But I have found property to have 100% ownership to you, no fractional ownership unless you go into a partnership or setup a company to purchase it. Even then, you are in control of whether you want to "Dilute" your own shares. I think shares can only make you very rich if you are able to gain a significant chunk to influence the company decision. If not, it is just a tradable commodity and DON"T FALL in LOVE with it.