My Journey in the year 2021
I am writing this article to share my thoughts of the year 2021.
Abnormal Stock Market Activities
With the presence of Robinhood, Moomoo, and Tiger Brokers, more and more new market participants are willing to try their hands on US stocks with all kind of interesting promotions. It was not like that for the traditional brokers I had gone through with them for more than 10 years. It is probably one of these reasons why US market is booming so much.
David Einhorn described 3 types of market participants on his Q4 2020 letter. One of three types is what I describe the above. Every time I see Tiger Broker's promotion, I was aghast that anyone can buy any stock to win some freebies.
We have seen the financial history whereby the aggregate high valuation of each item, such as tulip, Japan's real estate market, dotcom, US housing, was 'slimmed' in the end when the fundamental facts could not support expectations. I cannot tell when the unusually sky high optimism in the stock market will reduce to normal state. I felt more confident to stick to the fundamental facts (in the business term) that I can understand.
Accounting Standards
I feel glad that I didn't continue my professional accounting membership. I personally examined the benefits before I made that decision. I felt that the benefits are superficial one and it may not be helpful for my personal development. Reading a lot is much far better than attending short courses for the sake of continuing professional education points at my spending. At many occassions where I attended webinars and short courses, I only gain very little new insights from the trainers/lecturers.
This year, Warren Buffett mentioned that he don't read consolidated financial statements but read financial statements of individual companies. It was probably mentioned long time ago before I read up everything since 2009. Being educated in accounting, merger accounting, whether current or predecessor method, seems very fuzzy especially when the different companies have different year-end dates. When I read the 'The Complete Financial History of Berkshire Hathaway' book, I realised that many people are telling me different opinions with regards to the accounting standards of amortisation of the goodwill. That made me wonder whether the changes to certain accounting standards (IFRS and GAAP) have confused the professionals over time.
To any outsiders like me, it would be very difficult to confirm exactly (with consolidated financial data at segmentation level) whether there is a real progress or real problem. Our tools, to estimate the figures, don't inspire highest level of confidence that we are damn sure. If the C-suite management allows the disclosure of the individual subsidiary's financial statement, it spells that they have a lot of faith in the businesses as a whole. I reckon it is very simple litmus test.
Many years ago, lease accounting was taught to me.Thereafter, there was a little changes in the valuation methods for the lease accounting. Logically, time value of money makes a lot of sense to value the leased assets at compounding interest rate. This standard was clearly elaborated for leasee but not so much for lessor. Economically, it will trick the interested investors who want to know crystal clear about the (lease) income. When the businessmen want to do simple details on a simple agreement (i.e. straight line interest rate), the lessor has no choice to provide lease income at compounded interest rate rather than straight line interest rate (as per lease accounting standard). It is the clear example of what Charlie Munger says ,"To the man with only a hammer, every problem looks like a nail".
End of the day, I will not be surprised if many accounting and auditing professionals exhibit no understanding of the businesses as per their own working on the cash flow statements. It is one indicator I will know what they are thinking of the businesses they are looking at. However, they have done very good job to apply their knowledge for their own jobs.
Connecting the accounting things to investing valuation
The percentage of intangible assets to total assets for many companies are getting higher and higher. A simple valuation will give you decent answer that you cannot invest in any attractive companies at reasonable prices in the super high optimism era.
Every person can create his/her own business plan, whether it is plain, interesting, creative, or thoughtful on his/her individual level. This leaves to the all-important question of which one will succeed. The valuation of any business plan will not provide any clear-cut indications for your investing success. Because of this, I spent more time on qualitative analysis that examine what incentivize everyone. I do hope that I can provide my success case when that happens in the future.
Most of the realised losses, I suffered, seems to exhibit the poor management issue. I suspect that if I identify a C-suite manager whom I understand his/her work philosophy and thinking, it is highly probable that I might made decent profit on the investment of a company where he/she recently took over as chairperson for the board of director or CEO. I do hope that I can do another success case for this one.
I do hope that I can re-use my value investing technique, that I used for the past 10+ years, in the right stock market condition.
Straits Trading Corporation (STC)
I wrote about STC many years ago. I am amazed that the controlling shareholder gradually change her business model from conglomerate one to the heavy focus on real estate model. It is certain that she perserve the business valuation of STC quite well - reasonable to say she has done a fine job for that. But I am still puzzled as to whether Singapore stock market is not giving enough reconigition for this.
Noting her earnest comment on STC's stake in Malaysia Smelting Corporation Berhad (MSC), I am not even sure whether she can get her target price for the potential sale of MSC.
As I see alternative investment opportunities in the new business environment, I opt to close the long position in STC (in October 2021) at the absolute profit of 32.7%.
Comments
Post a Comment