A reader of The Good Investors sent me a message on LinkedIn recently asking what my daily routine is like. The reader mentioned that there’s likely to be strong interest in what goes on in a typical day for me.
I have no idea if there really will be reader-interest in this topic. But I thought why not write about it anyway. A few years from now, it will also be fun to look back at this.
So, I’m usually up by 7am or earlier. There are two things that I tend to do once I’m awake (besides washing up!): (1) Meditate, and (2) catch up on my favourite Twitter accounts.
I don’t have an active Twitter account. But one of the great things about Twitter is that anyone can still access the platform and read tweets. Over the past 1.5 years or so, I’ve found Twitter to be an amazing place to catch up on great articles on life, business, technology, and more. It is also a wonderful resource for condensed pieces of knowledge. Some of the people I follow on Twitter are (in no particular order):
Usually, there will be a lot of good articles shared through these accounts. I will then read through them.
As for meditation, I have found it to be profoundly useful in helping me deal with the stresses in life with equanimity. Sometimes, I meditate first before catching up on Twitter. Then there are days where I catch up on Twitter first, read the articles that pop up there, and then meditate.
When both activities are done, it’s usually around 9:30am. This is when I start my reading/research/writing on companies for my just-launched fund’s investment activities, or for articles for The Good Investors. The wonderful thing about investing for a living, and writing an investment blog as a passion project, is that the work done for both activities often overlap in huge ways. I see it as killing two birds with one stone!
I will usually stop around 12:30pm or 1pm for lunch, then resume the research/writing. Some days, I start working out around 4pm. But if I’m not working out at 4-ish, then I will continue my investment research/writing till 6:30pm or so and then work out. I try to exercise every day.
Dinner typically starts at 7:30pm for me. After dinner I will hang out with my loved ones. After which, I carry on reading till I sleep. Some days I will be watching Youtube before bed. It depends on my mood. But even when I’m watching Youtube, I often will think about something like “Hang on, from my morning reads, I remember Company ABC having a unique management team. Let’s do some research!”… And off I go into a rabbit hole.
Bedtime for me is around 11:30pm or 12 midnight. And then it all starts again!
My daily routine has changed over time. Just 3 years ago, exercising at the gym would be the first thing I do in the morning after waking up. But now I prefer to exercise at a time when my energy is waning (late afternoon or early evening). I prefer to use the time when my mind is the most alert for reading/research/writing. Who knows when my routine will change again. But for now, this is what works for me!
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
A recent webinar with Samuel Rhee, Chairman and Chief Investment Officer of Endowus, to talk about active investing versus passive investing.
Endowus is a roboadvisor based in Singapore. In March 2020, Jeremy and myself had the pleasure of meeting Samuel Rhee and Chiam Sheng Shi. They are Endowus’s Chief Investment Officer and Personal Finance Lead, respectively.
On 17 June 2020, I participated in a webinar hosted by Endowus, where Sam and I talked about active investing and passive investing. I want to thank Sam and the Endowus team (especially Sheng Shi) for their kind invitation. Sam is one of the wisest investors I’ve met, and I learnt a lot from him in our 1.5 hour conversation.
Active versus passive is one of the hottest topics in the investing world today and Sam and I covered a lot of ground during our session. Check out the video of our chat below!
Some of things we talked about include:
My journey in active investing
Sam’s journey in the active investing world before Endowus
The “Three P’s of Institutional Investing”
Advantages that institutional investors have
Endowus’s focus on doing three things very well for their investors: Access to great investment products; providing good evidence-based investing advice; and lowering costs for investors
The foundational building blocks of Endowus’s service. In particular, Sam dug deep into Endowus’s innovative full trailer-fee-rebates and how that benefits individual investors. Trailer fees are fees that a fund manager pays to an investment advisor or investment products distributor – and these fees come directly from the investors who purchase the funds. I admire Endowus for rebating the trailer fees it receives, because these fees are a huge hidden cost that eats into the returns investors earn; the presence of trailer fees is also a big reason why fund management fees are so high in Singapore.
The importance of having low costs in the investment products we’re investing in
How Endowus provides industry-leading low cost investment solutions for investors
Investors’ behavioural mistakes during the COVID-19-driven market panic seen in the first half of this year
The important distinction to be made between the terms “active” and “passive” when applied to investing. Passive investing is often understood to be the use of passively-managed index funds as the preferred investing vehicle. But is someone who often jumps in and out of these index funds a truly passive investor? Is a person who picks stocks, but who then holds these stocks patiently for years, active or passive?
How I manage cash in an investment portfolio
On hindsight, are there any changes to our investments we wish we had made during the market panic in the first half of 2020
Endowus’s desire to constantly improve their offerings for investors whenever they find better investment products.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
Investing-disasters that affect individual investors are often preventable through investor education. This is why The Good Investors exists.
I woke up at 6:15am this morning. One of the first few things I saw on the web shook me. Investor Bill Brewster wrote in his Twitter account that his cousin-in-law – a 20 year-old young man in the US – recently committed suicide after he seemed to have racked up huge losses (US$730,000) through the trading of options, which are inherently highly-leveraged financial instruments.
A young life gone. Just like this. I’ve never met or known Bill and his family before this, but words can’t express how sorry I am to learn about the tragedy.
This painful incident reinforces the belief that Jeremy and myself share on the importance of promoting financial literacy. We started The Good Investors with the simple goal to help people develop sound, lasting investing principles, and avoid the pitfalls. Bill’s cousin-in-law is why we do what we do at The Good Investors.
In one of my earliest articles for The Good Investors, written in November 2019, I shared an article I wrote for The Motley Fool Singapore in May 2016. The Fool Singapore article contained my simple analysis on the perpetual securities that Hyflux issued in the same month. I warned that the securities were dangerous and risky because Hyflux was highly leveraged and had struggled to produce any cash flow for many years. I wish I did more, because the perpetual securities ended up being oversubscribed while Hyflux is today bankrupt. The 34,000 individual investors who hold Hyflux’s preference shares and/or perpetual securities with a face value of S$900 million are why we do what we do at The Good Investors.
Whatever that happened to Bill’s cousin-in-law and the 34,000 individual investors are preventable with education. They are not disasters that are destined to occur.
Jeremy and myself are not running The Good Investors to earn any return. Okay, maybe we do want to ‘earn’ one return. Just one. That people reading our blog can develop sound, lasting investing principles, and avoid the pitfalls. “A candle loses nothing by lighting another candle” is an old Italian proverb. We don’t lose anything by helping light the candle of investing in others – in fact, we gain the world. This is why we do what we do.
R.I.P Alex.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
Sembcorp Industries (SGX: U96) dominated the business headlines in Singapore last week. The utilities and marine engineering conglomerate announced on 8 June 2020 that it would be completely spinning off its marine engineering arm – Sembcorp Marine (SGX: S51) – through a complex deal.
As part of the deal, there will be an injection of capital into Sembcorp Marine via a rights issue. Prior to the announcement, Sembcorp Marine was already a listed company in Singapore’s stock market, but it had Sembcorp Industries as a majority shareholder.
I won’t be explaining the deal in detail because others have already done so. My friend Stanley Lim has created a great video describing the transaction for his investor education website Value Invest Asia. Meanwhile, another friend of mine, Sudhan P, has written a great piece on the topic for the personal finance online portal Seedly.
What I want to do in this article is to share an observation I have about the state of Sembcorp Industries’ business. I think my observation will be useful for current and prospective Sembcorp Industries shareholders.
The market cheers
On the day after the Sembcorp Marine spin-off was announced, Sembcorp Industries’ share price jumped by 36.6% to S$2.09. So clearly, the market’s happy that Sembcorp Industries can now be a standalone utilities business (the company has other small arms that are in urban development and other activities, but they are inconsequential in the grand scheme of things). It’s no surprise.
Sembcorp Marine’s business performances have been dreadful in recent years. The sharp decline in oil prices that occurred in 2014 – something not within Sembcorp Marine’s control – has been a big culprit. Another key reason – a self-inflicted wound – was Sembcorp Marine’s decision to load up on debt going into 2014. The table below shows Sembcorp Marine’s revenue, profit, cash, and debt from 2012 to 2019:
Source: Sembcorp Marine annual reports
Getting rid of Sembcorp Marine will allow Sembcorp Industries’ utilities business (the segment is named Energy) to shine on its own. But there’s a problem: The economic quality of the Energy segment has deteriorated significantly over time. This is the observation I want to share. Let me explain.
Low energy
There are two key reasons why I think Sembcorp Industries’ Energy segment has gone downhill.
First, over the six year period from 2013 to 2019, the Energy segment’s revenue and power production and water treatment capacities all grew – the power production capacity even increased substantially. But the segment’s profit did not manage to grow. In fact, it had declined sharply. Sembcorp Industries does report a separate profit figure for the Energy segment that excludes exceptional items. But the exceptional items are often gains on sale of assets and/or impairment of asset values. To me, these exceptional items are not exceptional; they reflect management’s day-to-day decision-making in allocating capital.
The table below shows the Energy segment’s revenue, profit, power capacity, and water-treatment capacity in each year from 2013 to 2019:
Source: Sembcorp Industries’ annual reports
Second, the Energy segment’s return on equity has fallen hard from a respectable 19.3% in 2013 to a paltry 5.3% in 2019. Here’s a table illustrating the segment’s return on equity for this time period:
Source: Sembcorp Industries’ annual reports
The sharp fall in the Energy segment’s return on equity, coupled with the decline in profit, suggests that the economic quality of the segment has worsened materially over the past few years.
Some final words
It’s unclear to me how much of the Energy segment’s power and water capacities were actually in operation as of 2013 and 2019. So it’s highly possible that most of the increase in the capacity-figures seen in the period are mostly for projects that are still under development.
If this is the case, then there may still be a big jump in the Energy segment’s profit and return on equity in the future. But if it isn’t, then the business performance of the Energy segment in the past few years is troubling. If the Energy segment’s numbers can’t improve in the future, the overall picture for Sembcorp Industries still looks overcast to me even if Sembcorp Marine is no longer involved.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
US stocks have been rising recently despite the US experiencing economic hardship and societal turmoil. Is this a unique case?
Healthy is not the best word to describe the condition of the US right now.
The US accounts for around 28% of all the COVID-19 cases in the world, despite making up just 4% of the global population. Its economy – the world’s largest – officially entered a recession in February this year, and its current unemployment rate of 13.3% is significantly higher than what it was during the depths of the Great Financial Crisis of 2008-09. The US is also currently in conflict with the world’s second largest economy, China, over multiple issues. Making matters worse for America, the unfortunate death of George Floyd in May while in police custody has sparked large-scale civil unrest across the country over racism.
And yet, the NASDAQ index closed at a record high on 10 June 2020. Meanwhile, the S&P 500 is today just a few percentage points below its record high seen in February 2020 after bouncing more than 37% from its coronavirus-low reached in March.
This massive disconnect between what’s going on in the streets of America and its stock market has left many questioning the sustainability of the country’s current stock prices. Nobody has a working crystal ball. But I know for sure that this is not the first time the US has stumbled.
1968 is widely recognised as one of the most turbulent years in the modern history of the US. During the year, the country was in the throes of the Vietnam War, prominent civil rights activist Martin Luther King Jr and presidential hopeful Robert F. Kennedy were both murdered, and massive riots were taking place. It was a dreadful time for America.
How did the US stock market do? The table below shows the S&P 500’s price and earnings growth with January 1968 as the starting point. I have a few time periods: 1 year; 5 years; 10 years; 20 years; and 30 years. You can see that growth in the earnings and price of US stocks over these timeframes have been fair to good.
The following are charts of the S&P 500’s performance over the same time periods, for a more detailed view:
Source: Robert Shiller data
It’s worth noting too that the S&P 500’s CAPE (cyclically-adjusted price-to-earnings) ratio in January 1968 was 21.5. This means that the rise in US stocks in the time periods we’ve looked at were not driven by a low valuation at the starting point. Today, the S&P 500’s CAPE ratio is 28.5, which is higher, but not too far from where it was in January 1968. (The CAPE ratio divides a stock’s price by its inflation-adjusted 10-year-average earnings)
I’m not trying to say that US stocks will continue to rise from here. A new bear market may start tonight, for all I know. I’m just trying to show two things.
First, stocks can rise even when the world seems to be falling apart. What we’re seeing today – the huge disconnect between Main Street and Wall Street – is not unique. It has happened before. In fact, I’ve written about similar episodes that occurred in 1907 and 2009. Second, we should approach the future with humility. Let’s assume we can travel back in time to the start of 1968. If I told you then about the mess the US would be entering, would you have guessed that, with a starting CAPE ratio of 21.5, US stocks would be (a) 11% higher a year later and (b) 46% higher five years later? Be honest.
No one knows what’s going to happen next. All past crashes look like opportunities, but every future one seems like a risk. There are also always reasons to sell. The best way we can deal with an uncertain future in our investing activities is to adopt a long time horizon, and have a sound investment process in place.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
One of my favourite investing articles is an old piece, written in February 2008, by The Motley Fool’s co-founder, David Gardner. It had the provocative title, The Greatest Secret of All, and an equally provocative lede (emphasis is his):
“Welcome to my article. I’m glad you found it, because it is your lucky day, dear Fool: The greatest secret to easy riches in the stock market is contained right here, below.”
The article does contain the greatest secret in investing, and I implore all of you to read it. I’ll come back to his piece and provide a link to it later. For now, let’s turn to my girlfriend’s investment portfolio.
The portfolio
In early 2019, my girlfriend wanted to build a portfolio of stocks for herself. We started having long conversations about what she can do and how she should be building the portfolio. Eventually, she settled on a list of stocks in the US that she was really keen on, and she made the purchases on the night of 8 March 2019.
The list of stocks are shown in the table below, along with their initial weightings. I merely acted as a sounding board – the stocks were bought by her. She made the final call and the “Buy” mouse clicks.
From the get-go, the portfolio did really well, producing a gain of 20% in just a few short months. There was a brief swoon from mid-July to early-October, but then things picked up again. Her stocks ended up charging to an overall gain of 36% in mid-February 2020. That was when all-hell broke loose.
The fall, and the aftermath
The S&P 500 in the US – the country’s major stock market index – hit a peak on 19 February 2020, before fears over COVID-19 started ripping across the market. By 23 March 2020, the S&P 500 had declined by 34% from peak-to-trough.
My girlfriend’s portfolio was not spared – it tumbled by 29% over the same period. All her previous gains were wiped out in the fall. The portfolio even dipped into the red.
Here’s a chart of the performance of my girlfriend’s portfolio (the blue line; without dividends) and the S&P 500 (the red line; with dividends) from 8 March 2019 to 8 June 2020:
Source: Google Finance and Yahoo Finance
As of 8 June 2020, my girlfriend’s portfolio has a 50% gain from its initial value on 8 March 2019, and has comfortably surged past the previous peak seen in February 2020. Meanwhile, the S&P 500 has rebounded strongly from its 23 March 2020 low, but it’s still a little off its high.
The greatest secret, revealed
Some of you may be thinking that my girlfriend had made significant changes to her portfolio in March 2020 that resulted in the strong gains seen in the right-hand part of the chart above. Not at all. Her portfolio had zero changes during the COVID-19 panic. In fact, she has made no changes to her portfolio since she first purchased her stocks on 8 March 2019.
This brings me back to David Gardner’s article, The Greatest Secret of All. The secret that David is referring to is this:
“Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.”
The word “tenaciously” needs highlighting. There was a painful period earlier this year when my girlfriend’s portfolio was in the red. She needed tenacity to hold on. To her credit (and it’s all her credit!), she held on. She was forward-looking and never gave in to the prevailing pessimism about COVID-19.
Yes, COVID-19 – and the economic slowdown that has happened globally as a result – was and still is painful for all of us. But she was confident that “this too, shall pass.” Tomorrow will be a brighter day.
She was also confident in the long-term futures of her companies. If you look at the names, these are companies that are building the world of tomorrow. There’s robotic surgery (Intuitive Surgical); DNA analysis and precision medicine (Illumina); e-commerce (Amazon, Shopify, MercadoLibre); digital payments (Mastercard, PayPal, Visa); streaming (Netflix, Spotify); and cloud computing (DocuSign, Paycom Software, Veeva Systems, Twilio etc). There’s more, but I think you get the drift.
What’s next?
The story of her portfolio is not over yet. Only 1 year and 3 months have passed – that’s way too short a time to come up with any high-probability insights. A new bear market may be just around the corner. It’s not our intention to take a victory lap.
But what has happened to my girlfriend’s portfolio throughout the COVID-19 situation – because of her tenacity in being actively patient – is worth bringing up. Because, 10 years from now, her portfolio could very well be another real-life example of David Gardner’sgreatest secret in investing.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.I, the author, own all the shares mentioned here (except for Spotify). I will be making sell-trades on most of the stocks mentioned here for reasons that are explained in this article.
Companies that have a great view on how we live, work, spend, and play have recently shared important clues on how a post COVID-19 world could look like.
The title of this article is a topic that I think many investors badly want to know.
I don’t think anyone has a firm answer. But we can get important clues from the comments that some companies have shared in recent times. I’m referring to companies that have a great view on how we live, work, spend, and play.
“As COVID-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security, we are working alongside customers every day to help them stay open for business in a world of remote everything. There is both immediate surge demand, and systemic, structural changes across all of our solution areas that will define the way we live and work going forward.”
“Throughout the quarter, we saw consumption continue to increase across the platform and growth of the number of hosts, containers metrics traces and logs, for example, have remained consistent with historical trends.
We started to see some negative effects in impacted industries such as travel, hospitality and airlines. But we’ve also seen substantially increased usage from other categories such as streaming media, gaming, food delivery and collaboration, as these customers scaled up their operations in this environment.
We also saw a surge of usage and surge in accounts in March in response to COVID that we expect could be more transitory in nature and may normalize over time.”
“In the past month, there has been unprecedented demand for our products and services. Our transactions are up 20% year-over-year, with branded transactions up over 43% more than double pre-COVID levels in January and February. On May 1st, we had our largest single day of transactions in our history, larger than last year’s transactions on Black Friday or Cyber Monday.
Our net new actives hit record highs in April, surging over a 140% from January and February levels, averaging approximately 250,000 net new active accounts per day. For the month of April, we added an all-time record of 7.4 million net new customers. I don’t want to lose sight of the fact that we also had a record Q1 adding 10 million net new accounts, but that will pale in comparison to the 15 million to 20 million net new active accounts we anticipate adding in Q2…
… We had a very strong January and February, with FX-neutral revenues growing by an average of 18% and TPV growing at 26%. We began to see some COVID-19 impacts in late February, but the strength of our overall business outweighed cross border weakness coming out of China. However, all that changed as we exited the first week of March.
Shelter-in-place and social distancing became the norm across the globe, and as one economy after another effectively shut down, we saw a substantial revenue decline, predominantly in our travel and ticketing verticals. Some of our important customers, including Uber, Airbnb and Live Nation saw rapid decreases in transaction volumes…
… As I mentioned earlier, we began to see a very noticeable shift in our results toward the end of March and throughout April. We saw dramatic increases in our daily net new actives and overall engagement levels. Our daily number of transactions accelerated throughout the month growing from the beginning of April until month end by 25% with 7.4 million net new actives, record engagement and transaction volumes and 20% revenue growth. I would characterize April is perhaps our strongest month since our IPO.”
“We’ve seen our customers rise to the occasion too. While shelter in place orders have slowed foot traffic to our sellers, they found new ways to keep their doors open, retain staff and serve customers. Retailers, wine shops and QSRs launched online ordering by building websites in less than a day for delivery and curbside pickup. Larger full service restaurants opened community markets to sell raw ingredients, produce and food staples through online stores, even Michelin Star restaurants like Chez Panisse in Berkeley.
Distilleries and taylors shifted to selling personal protective equipment like hand sanitizer and masks. Hairdressers and beauticians moved to video appointments to advise on self-styling. Over the past six weeks we’ve also seen Cash App customers come together like never before. Folks are donating the strangers in need through social media, fundraising for charities, small businesses and churches and tipping artists during online performances…
“While GMV through the point-of-sale (POS) channel declined by 71% between March 13, 2020 and April 24, 2020 relative to the comparable six-week period immediately prior to March 13, as most of Shopify’s Retail merchants suspended their in-store operations, Retail merchants managed to replace 94% of lost POS GMV with online sales over the same period. Retail merchants are adapting quickly to social-distance selling, as 26% of our brick-and-mortar merchants in our English-speaking geographies are now using some form of local in-store/curbside pickup and delivery solution, compared to 2% at the end of February.”
“A great example of this is what we did with the state of Illinois, which was a notable win in the quarter for both workforce and customer identity. With the onset of the pandemic, Illinois needed to ensure it could securely manage its remote workers and secure the identity and access of several state agencies. The state had numerous disparate legacy identity systems across its agencies, which caused friction for its employees, contractors and citizens. Illinois selected Okta to be their identity standard, which will streamline their operations with a single unified identity platform.
With Okta’s customer identity solutions, Illinois’ citizens will have a secure, seamless experience when accessing their government resources. And with Okta’s workforce identity, the state’s employees and contractors will be able to more efficiently do their jobs…
… In just 36 hours, we helped FedEx deploy the Okta Identity Cloud to enable more than 85,000 remote and essential employees to connect to critical applications amid increased demand during the crisis…
… We were one of the first companies to host a large and virtual event, two events if you include our Investor Day. It was an unexpected and challenging task, but both events were incredibly successful, and our customer and investor feedback was amazing. We had nearly 20,000 registrations for Oktane20 Live, which is over 3 times what we had been expecting for the in-person event…
… As we look forward to the rest of this year and beyond, when this crisis is over, we don’t expect organizations to revert to their prior ways of working. We have no doubt that a much higher percentage of workforces will be connecting remotely, and we see that as an inevitable long-term trend.”
“I think if you look at some of the metrics around commerce in North America, I know that e-commerce has been, kind of, trending up from 10%, 11%, 12% over the last few years of total commerce. I think it just jumped to something like 25%, 27% of all commerce. That trend is not going away.”
“Looking at things, a different way, our newly booked room nights, which exclude the impact of cancellations, were down over 60% year-over-year in March and down over 85% in April. This gives you a clear indication of how much our business is currently impacted by this crisis.
That being said, while the virus’ impact on travel is unprecedented, I am confident that this crisis will eventually end and people will travel again. Travel is fundamental to who we are and while it may take some time to return to pre-COVID-19 levels, we will get there eventually. And then we’d expect travel to continue to grow thereafter…
“New bookings revenue for full second quarter may vary from April’s results depending upon the level of travel demand and accommodation availability we experience in May and June. As Glenn noted, we’re seeing some stability on newly booked room night growth trends with the year-on-year decline rate being quite consistent for our April after reducing rapidly through the first quarter. We believe that domestic travel will rebound sooner than international travel as we expect travelers to look to their home country or region first for safe travel option.”
“The effects of the pandemic have been far-reaching and the world is looking to life sciences companies for solution. The industry is less affected financially than many others and remains relatively strong overall, but it is certainly a time of significant change as many of the industry processes become more virtual. Healthcare providers and patients are delaying many non-essential visits and elective procedures. When comparing February to April in the US using Crossix data, doctor visits were down by more than 50%. This is impacting some life sciences companies more than others depending on their product portfolio.
Many clinical trials have been delayed to avoid nonessential patient visits to doctors, in-person visits by sales reps or clinical research associates to doctors have also largely stopped. These changes are causing patients, doctors and the industry to rapidly adopt digital strategy. Necessity is creating innovation. Using Crossix data, we see that telemedicine increased rapidly in the US from less than 1% of doctor visits in February to more than 30% of visits in April. Doctors and patients are getting used to a mix of in-person and digital interactions and are finding it productive.
Using Veeva Pulse data from Veeva CRM, we see that in the US remote meetings between pharma and doctors with CRM Engage are up more than 30 times, and Approved Email communications are up more than 2 times from February to April. Doctors are telling us they find digital meetings effective and they look forward to a mix of in-person and digital interactions once things get back to normal. It’s good to see the healthcare systems and the life sciences industry evolving so rapidly. It was a very busy quarter for Veeva.”
““People, after having been stuck in their homes for a few months, do want to get out of their houses; that’s really, really clear,” Airbnb Inc. Chief Executive Officer Brian Chesky said in an interview. “But they don’t necessarily want to get on an airplane and are not yet comfortable leaving their countries.”
Airbnb saw more nights booked for U.S. listings between May 17 and June 3 than the same period in 2019, and a similar boost in domestic travel globally. The San Francisco-based home-share company is seeing an increase in demand for domestic bookings in countries from Germany to Portugal, South Korea, New Zealand and more. Other companies, including Expedia Group Inc.’s Vrbo and Booking Holdings Inc. are also seeing a jump in domestic vacation-rental reservations…
… International sojourns usually planned months in advance are being replaced with impulsive road trips booked a day before and weekend getaways are turning into weeks-long respites, Chesky said. Previously, a New Yorker might have headed to Paris for a week in June. Now they are going to the Catskills for a month. “Work from home is becoming working from any home,” he said.”
“Especially, from January 20, 2020 until February 20, 2020, local governments issued strict control measures… Shortly after February 20, 2020, when orderly resumption of work took place across the country, an increasing number of restaurants started to resume their operations while demand from consumers also gradually recovered. However, as some of consumer demand continued to be negatively impacted by hygiene concerns and quarantine measures, the ongoing closure of universities, and work-from-home policies that applied to many of our high frequency consumers, the order volume still had not fully recovered to its normal levels by the end of March 2020…
… In spite of the short-term negative impacts, we strongly believe that the COVID-19 pandemic will play a positive role in the industry’s long-term development. On the consumer side, the pandemic has further accelerated the cultivation of consumption behavior, helping to further educate some of our targeted potential consumers in a positive way… Notably, we have seen increasing consumer preference for high ticket size categories during the pandemic due to the increasing adoption of food delivery for formal meals, further diversification of high-quality supplies on our platform and growing preference for branded restaurants…
… On the merchant side, the overall catering industry was severely disrupted in the first quarter of 2020… More notably, the pandemic has further accelerated the digitization process, especially for many branded restaurants with high quality supply, which have traditionally focused on in-store dining instead of delivery services. In the first quarter of 2020, a large number of premium restaurants, highly-rated restaurants, chain restaurants, Black Pearl restaurants and five-star hotel restaurants, which did not have or had very limited food delivery services, initiated food delivery operations as their primary vehicle for business operations due to the pandemic. Participation by these restaurants increased high-quality supply on our platform in the long term, while we reinforced our importance to small- and medium-sized independent restaurants as food delivery almost became their sole source of income during the pandemic.
On the delivery front, although delivery capacity was not the bottleneck for our food delivery business during the pandemic, delivery cost per order increased both on a quarter-over-quarter basis and a year-over-year basis as a result of the increased incentives paid to delivery riders working during Chinese New Year and pandemic situations, additional costs associated with anti-epidemic measures, and the decline in order density. However, the pandemic has accelerated the adoption of new delivery models and stimulated technological innovation. As a leader and promoter of on-demand delivery, we pioneered the launch of contactless delivery services, which received widespread acceptance and recognition from consumers, merchants and local governments. In addition to helping to mitigate the hygiene risks for both consumers and delivery riders, the contactless delivery model improves delivery efficiency and creates more opportunities for the exploration of diversified delivery models and new technology for autonomous delivery…
… During the pandemic, our in-store business was more severely challenged in comparison to the food delivery segment, and its recovery was noticeably lagging behind that of the food delivery segment. As the majority of the in-store service categories are classified as discretionary or entertainment-related services, which usually involve close contact with others and/or large crowds, both supply and demand remained low in the first quarter of 2020 due to consumers’ hygiene concerns and local governments’ restrictions…
… As the leading platform in local services, we began to work with local governments in March 2020 to launch the Safe-Consumption Festival and issued vouchers to consumers to use in local services, especially in restaurant dining, which sustained the most impact during the pandemic. We believe that consumer vouchers could not only stimulate one-off consumptions, but also have strong leverage effects that stimulate the recovery of the overall consumption demand in relevant regions and industries….
… While local accommodation and business travel activities, especially in lower-tier cities, have started to gradually rebound at a faster pace along with the general recovery process, consumers were still taking conservative measures and postponing travel-related activities and expenditures even after the peak of the pandemic. To further support industry recovery, we leveraged our platform capabilities and launched the Safe-Stay Program. Under the Safe-Stay Program, we established precautionary measures and increased service capabilities for our partner hotels, such as the adoption of strict health precautions for all employees and consumers, close tracking of consumer information, free booking cancelations, and discounts for additional nights.”
“We engaged a new public sector customer, the Department of Labor in one of the largest U.S. states to help transform its previously complex and lengthy process for handling emergency unemployment benefit. Supported by DocuSign eSignature, the department distributed over $500 million in benefits to more than 500,000 residents in less than one week. We enabled hundreds of U.S. national and regional financial institutions to accept applications for Small Business Administration loans more efficiently. In one of those large banks, we were involved with over 0.5 million loan applications, 75% of which were signed in less than 24 hours.
We worked with a regional telecom provider using DocuSign Intelligent Insights, which is our contract analytics tool to analyze potential pandemic-related risks in thousands of their supplier contracts. Finally we helped a European telemedicine provider issue e-prescriptions and online sick leave certificates by using our video identification capability to confirm the patients’ identities…
… Some of the healthcare opportunities were big. If you think about the situation where you’re trying to — you’re now trying to do COVID-19 testing and you’ve never been an organization that did that kind of testing before, and now you say, “I got to figure out a way to get people’s information and get them to fill out forms, Oh! but I don’t want to touch them, I don’t want to touch anything they’ve touched, I also need a digital solution for doing that.” And we had sales cycles that happened in that in a matter of days, where people came to us, explained that business need that they had, or that healthcare need that they had and we were able to get up and running that use case.”
“As you can imagine, customers in the hospitality and travel have exhibited very unusual patterns during this period. First, there were spikes in volume as airlines and hotels dealt with rebookings and canceled flights during the transition from pre-COVID-19 into travel restrictions and shelter-in-place protocols. Then, there was a sharp decline as business slowed. Another example is that ridesharing saw a large decline during this time, with offsets in many cases by sharp increases in demand for food delivery, curbside pickup and retail logistics. In addition, telehealth and work-from-home contact centers saw a pickup of adoption during this time.
While we are cautiously optimistic, no one can predict what exactly will transpire in the back half of the year given the uncertainty of the macroeconomic environment…
… We’ve seen companies across multiple industries adapt in real time due to COVID-19. Digital transformation projects that could have taken years such as transitioning from an on-trend contact center to the cloud instead took a weekend. Developers and companies big and small got to work, reconfiguring the world for a work-from-home and nearly 100% e-commerce reality.
Let me give you just a few use cases across various industries that we’ve helped our customers win over the last couple of months. With shelter-in-place and social distancing going into effect, demand for telehealth solutions has soared. Virtual care became a new reality for doctors, nurses, clinicians and millions of patients around the world. And Epic, the company that supports the comprehensive health records of 250 million people, mobilized to build its own telehealth platform powered by Twilio’s programmable video. The solution allows providers to launch a video visit with a patient, review relevant patient history and update clinical documentation directly within Epic.”
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
What we can learn from an investor who produced an annual return of 23% for 47 years.
I first learnt about Shelby Cullom Davis sometime in 2012 or 2013. Since then, I’ve realised that he’s seldom mentioned when people talk about the greatest investors. This is a pity, because I think he deserves a spot on the podium alongside the often-mentioned giants such as Warren Buffett, Benjamin Graham, Charlie Munger, and Peter Lynch.
Davis’s story is well-chronicled by John Rothchild in the book, The Davis Dynasty. Davis started his investing career in the US with US$50,000 in 1947. When he passed away in 1994, this sum had ballooned to US$900 million. In a span of 47 years, Davis managed to grow his wealth at a stunning rate of 23% annually by investing in stocks.
There are wonderful investing lessons found in The Davis Dynasty and there are three that I want to share in this article.
Lesson 1: It’s never too late to start investing if you do it correctly
Warren Buffett was a whiz kid. He started his own investment partnership at the ripe “old” age of 26 in 1956. But not everyone starts young like Buffett. If you think you’re too old to start investing because you need to draw upon your savings as you approach retirement, take heed. Davis only started his investing career at 39 – without prior experience – and went on to build an immense fortune.
The secret of Davis’s success is that he started investing with a sound process. He was an admirer of Benjamin Graham, Buffett’s revered investing mentor. Just like Graham, Davis subscribed to the discipline of “value investing”, where investors look at stocks as part-ownership of businesses, and sought to invest in stocks that are selling for less than their true economic worth. Davis’s preference was to invest in growing and profitable companies that carried low price-to-earnings (P/E) ratios. He called his approach the ‘Davis Double Play’ – by investing in growing companies with low P/E ratios, he could benefit from both the growth in the company’s business as well as the expansion of the company’s P/E ratio in the future.
Davis also recognised the importance of having the right behaviour. He ignored market volatility and never gave in to excessive fear or euphoria. He took the long-term approach and stayed invested in his companies for years – even decades, as you’ll see later –through bull and bear markets. Davis’s experience shows that it is a person’s behaviour and investing process that matters in investing, not their age.
Singapore’s statutory retirement age is currently 62. For those who are 65 at the moment, the average life expectancy is 21.1 years. So, most people approaching retirement, or even those who are already retirees, will likely still have decades to invest. If they can use a portion of their retirement savings (and only just a portion!) to invest in stocks with the right behaviour and process, the investments could provide an additional income stream through dividends and/or a better tomorrow through capital appreciation. The stock market will almost surely decline steeply from time to time (volatility is normal!). But investors with a sound process, regardless of age, should still stand a great chance of coming out ahead.
Lesson 2: Buying and holding works
In The Davis Dynasty, John Rothchild wrote that the foundation for Davis’s wealth was built on a few stocks that he had bought in the 1960s and held till 1992. Notable examples included: (1) A US$641,000 purchase of Japanese insurer Tokio Marine & Fire in 1962 that grew to US$33 million; and (2) shares of American insurer American International Group that he began buying in 1969 that grew to US$72 million.
The journey was rough for Davis. His portfolio shrunk from US$50 million to US$20 million during the vicious bear market that US stocks experienced in the early 1970s. But he watched unmoved. Instead of selling, Davis bought shares of undervalued companies very aggressively during the bear market, while holding on to the stalwarts he had purchased in the 1960s.
Davis knew that the companies he had invested in were still solidly profitable with bright growth prospects. He saw no reason to sell their shares during the bear market. He was confident that their value would be far greater in the future, because his investment focus was on companies with excellent management, good returns on capital, and a strong balance sheet. These are attractive company-traits for long-term investors.
His experience during the 1970s bear market, and the eventual wealth he built, is a great reminder that a long-term buy-and-hold approach to investing will work if your investing process is sound.
Lesson 3: The world is your oyster
In 1962, Davis travelled to Japan and learnt about Japanese insurance companies that had solid operations because of governmental support. He used the knowledge gained from his investing experience in the US to analyse the Japanese insurance companies.
At the time, American investors only had eyes for American companies. Their thinking was that investing in foreign stocks was too risky. But Davis thought differently. He saw value in the Japanese insurance companies. He ended up investing in four insurers for around US$2 million in total. They are: Tokio Marine & Fire; Sumitomo Marine & Fire; Taisho Marine and Fire; and Yasuda Fire & Marine. Davis held them for more than three decades. By 1992, they were worth a combined US$75 million.
Davis was not the only American investor, decades ago, who dared to venture abroad. Sir John Templeton, an investing legend who achieved a 15.4% annualised return from 1955 to 1992, was also a renowned global stock picker.
“The concept of geographical diversification is particularly important for Singapore investors. Look at the stocks in our local stock market benchmark, the Straits Times Index. There’s no good exposure to some of the important growth industries of tomorrow, such as cloud computing, DNA analysis, precision medicine, e-commerce, digital advertising, and more.”
There are risks associated with international investing and we should not be blind to them. Understanding an overseas-based company may be tougher. Currency fluctuations can also hurt our returns. But these risks can be mitigated by finding great companies to invest in. We shouldn’t constrain our investing activities by geography.
Final word
I highly recommend John Rothchild’s book, The Davis Dynasty. There’s so much more about investing that we can learn from Shelby Cullom Davis’s life experiences than what I’ve covered here. But if I were to summarise what I’ve shared in one short sentence, it will be this: Invest for the long run with the right process, and never let age or geography dictate your investing opportunities.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
We are in a state of chaos now across the world with COVID-19. Then there’s also the current riots in the US. How can the world rebuild itself?
Wow. The following is how author Robert Kurson described the riots that happened in the US:
“After thirty minutes, the police obliged them, smashing and clubbing and kicking and dragging anyone they could reach—demonstrators, onlookers, journalists—and it didn’t matter that the network television cameras were filming or that people were yelling “The whole world is watching!” or that those in the streets weren’t Vietcong or Soviets but the sons and daughters of fellow citizens; all that mattered for the next eighteen minutes of brutality and mayhem was that something had fractured in America and no one had any idea how to stop it, and after order was restored there still seemed to be cries coming from the streets, even though there was no one left to make them.
Among the millions who watched the unedited footage on television, there hardly seemed a soul among them—rich or poor, young or old, left or right—who didn’t wonder if America could be put back together again.”
Could America be put back together again…? Yes. Because Kurson’s description appeared in his book Rocket Men, and was written about 1968. Riots erupted in the US after the assassinations of Martin Luthor King Jr. and Robert Kennedy during the year. Both men were giants in the country’s socio-political landscape.
(I want to quickly digress here and give credit to one of my favourite investment writers, Ben Carlson. I came across Kurson’s passage in one of Carlson’s recent blog posts.)
The riots that Kurson wrote about could well be used to describe what’s happening in the US today. The current social tension in the country – sparked by the tragic death of George Floyd while in police custody – is heartbreaking. Even for someone like me living thousands of kilometres away in Singapore, I can feel it.
2020 has been brutal so far. Economies around the world effectively ground to a halt in the first half of the year as countries scrambled to fight against COVID-19. And nobody knows just how much psychological trauma individuals from all the affected countries have suffered because of social distancing, lockdowns, and closed businesses. And with COVID-19 still looming in the background, the George Floyd riots came crashing in.
“One key thing I’ve learnt about humanity is that our progress has never happened smoothly. It took us only 66 years to go from the first demonstration of manned flight by the Wright brothers at Kitty Hawk to putting a man on the moon. But in between was World War II, a brutal battle across the globe from 1939 to 1945 that killed an estimated 66 million, according to National Geographic.
This is how progress is made, through the broken pieces of the mess that Mother Nature and our own mistakes create…
… There are 7.8 billion individuals in the world today, and the vast majority of us will wake up every morning wanting to improve the world and our own lot in life.. Miscreants and Mother Nature will wreak havoc from time to time. But I have faith in the collective positivity of humanity. When there’s a mess, we can clean it up. This has been the story of our long history.”
Humanity’s progress has never been smooth. There are always things to worry about. But tomorrow will be a brighter day.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.I, the author, will be making sell-trades on the stocks mentioned in this article over the coming weeks.
My takeaways from “The Big Short”, a great movie on how a few real-life investors foresaw the 2008-09 financial crisis and profited wildly from it.
My girlfriend is currently taking online courses on financial analysis for her own personal development. The content can be really dry for her at times. To spice up her learning, I recently suggested that she watch the movie, The Big Short.
The film came out in 2015 and is based on the 2010 book by renowned author Michael Lewis, The Big Short: Inside the Doomsday Machine. Both the movie and book depict the real-life experience of a few groups of investors who foresaw the 2008-09 US housing and financial crisis and profited from it.
When the movie first came out, I was so excitedthat I helped organise an outing to watch it with a group of friends who are also keen investors. I remember being captivated by the film.
After recommending The Big Short to my girlfriend (she loves the movie too – yay!), I decided to rewatch it last weekend. It was the first time I did so, five years after I initially saw the film. In my second run, I experienced the same captivation I did as on my first. But this time, I also came away with investing lessons that I want to share – perhaps a by-product of me having this investment blog that I love writing for.
Lesson 1: The market can remain irrational longer than you can remain solvent
The characters in The Big Short mostly used leveraged instruments – credit default swaps (CDSs) – to make their bets that the housing market and the financial instruments tied to the housing market would fall. This is a simplified explanation, but the financial instruments that were tied to the housing market were essentially bonds that were each made up of thousands of mortgage loans from across the US.
The CDSs are like insurance contracts on the bonds. If you own a CDS, its value will rise significantly, or you will receive a big payoff, if the value of the bonds fall or go to zero. But before the decline happens, you have to pay regular premiums on the swaps as long as you own it. Moreover, you have to meet margin calls on the CDS if the value of the bonds increase.
The investors depicted in The Big Short suffered temporary but painful losses to their portfolios because of the premiums and margin calls they had to pay prior to the flare up of the housing and financial crisis. Their experience reminded me of a great quote that is commonly attributed to the legendary economist John Maynard Keynes, but that is more likely to have originated from financial analyst Gary Shilling:
“The market can remain irrational longer than you can remain solvent.”
If the housing and financial crisis did not erupt when they did, the investors in The Big Short may have suffered debilitating losses if they held onto their CDSs long enough. This is a key reason why I do not short financial assets nor use leverage. Some investors can do it very successfully – the ones in The Big Short certainly did – but it’s not my game.
Lesson 2: Investing can be a lonely affair
One of the real-life investors profiled in the movie and book is Dr Michael Burry. The movie did not explore much of Burry’s earlier life before he invested in the CDSs, but his real backstory is amazing.
Growing up, Burry was somewhat of a loner. But he managed to excel academically and eventually graduated with a medical degree. He worked in a hospital for some time, but found that his real interest was in stock market investing. When he was a doctor, he spent his free hours researching stocks and writing about them on the internet. His sharing was excellent and attracted the attention of the well-known investor Joel Greenblatt (the character Lawrence Fields in the movie is based on him). Burry eventually left medicine to establish his investment firm, Scion Capital, with Greenblatt’s seed capital.
Burry’s reputation was built on his uncanny ability to pick stocks mostly through bottoms-up, fundamental analysis. In Scion’s early days, he posted tremendous returns for a few years by shorting overvalued stocks and investing in undervalued ones. But in 2005, after he discovered the house of cards that the US housing market was built on and decided to invest in CDSs, his investors started turning on him. They had no faith in his ability to find investment opportunities outside of the stock market. They wanted him to stick to his knitting.
The Big Short depicted the intense emotional loneliness that Burry felt when his investors turned their backs on him. Some even threatened to sue. Burry was vindicated in the end. In 2007, the US housing market started to collapse and the bonds that were built with the mortgage loans failed. Burry’s CDSs soared as a result. But he was so burnt out by the experience that he decided to close Scion Capital after cashing in the profits.
What was even sadder is that even though Burry made a lot of money for his investors in Scion Capital – the fund gained 489% in total, or 27% annualised, from its inception in November 2000 to June 2008 – the relationships he had with his investors, including his mentor Greenblatt, had mostly soured beyond repair.
At times in investing, we may be the only ones who hold a certain view. This could be a lonely and draining experience (although it’s probably unlikely that we will face the same level of isolation that Burry did) so we have to be mentally prepared for it.
Lesson 3: Famous investors can be very wrong at times too
This is related to Lesson 2. Joel Greenblatt produced a 40% annualised return for 20 years with his investment fund, Gotham Capital, that he co-founded in 1985. That’s an amazing track record. But Greenblatt got it wrong when he butted heads with Dr Michael Burry’s decision to invest in CDSs.
It’s very important for us as investors to know what we don’t know. As I mentioned earlier, Burry started his investing career by being a very successful stock picker who did bottoms-up fundamental analysis. Being a good stock picker does not mean that you will automatically be good at other types of investments. I believe this was Greenblatt’s concern and I sympathise with him. This is because it was a legitimate worry that Burry may have ventured into an area where he had zero expertise when he shorted the US housing market through CDSs.
This is not meant to be a criticism of Greenblatt in any way. His results are one of the best in the investing business. I would have been worried about Burry’s investment actions too if I were in Greenblatt’s shoes. What I’m trying to show is just how difficult investing in the financial markets can be at times, and that even the best of the best can get it wrong too.
Lesson 4: Luck can play a huge role in our returns
One of the central characters in the movie and the book is hedge fund manager Steve Eisman (named Mark Baum in the film) who first heard of the CDSs trade from a bond trader at Deutsche Bank, Greg Lippmann (named Jared Vennett in the film). What is amazing is that Eisman only knew about the idea because of a mistake that Lippmann made.
Lippmann wanted to introduce his idea of shorting the housing market with CDSs to hedge funds that had a certain characteristic. One hedge fund Lippmann discovered that fit his bill was Frontpoint. Eisman’s hedge fund was named Frontpoint – but the problem was Eisman’s Frontpoint was not the Frontpoint Lippmann was looking for. Lippmann only realised his mistake when he met Eisman in person. Nonetheless, Eisman saw the logic in Lippmann’s idea. He made the trade for his Frontpoint, and the rest as they say, is history.
This goes to show how important luck can be to our investment returns. Eisman only knew about the idea because Lippmann suffered a case of mistaken identity. Sure, Eisman may have eventually discovered the same idea independently. But this is a counterfactual that is impossible for us to ever know. What we do know is that Lady Luck had smiled on Eisman, and to his credit, he acted on it.
Disclaimer:The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.
