Sunday, February 18, 2018

Happy CNY!

It's the Year of the Earth Dog! But this doesn't mean markets cannot go up! According to internet predictions, this year will see resource industries doing well with oil and gas leading the way! Also, Donald Trump, born in the year of the Fire Dog in 1946, will set everything ablaze!

Dingyi Music Group

The God of Wealth is also looking to bestow on Earth his blessings in 2018. Hence Dingyi Music Group is presenting this beautiful 财神到 (God of Wealth arrives!) played with traditional Chinese orchestra insturments. With the God of Wealth's arrival, this means that property, gold and other stores of wealth like jewellery and watches would see their value appreciating! This is the year to seriously think about buying properties after years of weakness. For those who had bought, the following pic is for you!

The Dab Dog

Regardless of what Feng Shui predicts, fundamentals remain strong although we are no longer in the first innings of a bull market. At some point, the party would end. So be prepared! While there are opportunities in the markets, we should also be looking at trimming expensive names and raising cash. Meanwhile, for 2018, let's Huat Ah!

Happy Chinese New Year!

Tuesday, February 13, 2018

Book Lessons #1: The Snowball Early Chapters

As most regular readers might know. I had been amazingly slow in my reading. So, in 2018, I finally finished reading Alice Schroeder's 2008 masterpiece on Buffett's life titled The Snowball. This is the best book written on Buffett ever. It depicted his whole life from birth in 1930 all the way to events in 2007-2008. I think there are so many lessons we can learn that we should revisit these posts in the months and years ahead. But for today let's focus on a very practical today's common life issue that I gleamed from the earlier chapters in the book.

The Snowball

In describing both Buffett's childhood and his own early career when his kids were very young. I realized how their lives and ours were related. Both Howard Buffett (Warren Buffett's father) and Warren himself dealt with the markets. His father was a stockbroker before he became a senator. The big revelation reading about their lives was that they had no time to deal with domestic issues, or rather, anything else outside their work. A career in the financial industry was so mentally draining and time consuming that they had no time to deal with wives, kids and the rest of the domestic chores (as with being a senator later on for Howard Buffett). As such, both housewives find it very hard to raise many kids. Both Howard and Warren had three kids and the mums had a really hard time. In fact, Buffett's mum went into a crazy rage with her kids so much so that her eldest daughter and Warren himself resented her for the rest of their lives. It was very sad.

Ironically, modern societies are not suited to raise children. There's a saying, "it takes a village to raise a child" but with the rise of nuclear families in the 20th century, we no longer live in villages. One father and one mother have to raise multiple kids. America experienced this decades ago and now we are the first or second generation in Asia going through this. The results are not encouraging. From the book, we also realized that Buffett was a delinquent in middle and high school until he finally woke up one day to improve his studies. His kids also didn't do that well in school. This is an important reflection point for Singaporean parents today, which is made worse by our education system. We shall revisit this point later.

Back to Howard and Warren's daily lives. Their work consumed almost all the hours. They wake up early in the day to read up on market news, spend most of their time in the office on the phones, in meetings or more reading. At 6 or 7pm, they get off work and go home for dinner, which is the only family time during weekdays and then it's more reading late into the night or playing bridge. Reflecting on my own life, it has been pretty much the same routine. We spend so much time working, reading and thinking that we are mentally exhausted. There is very little energy left for anything else.

Brutal markets: STI fell 7% in 10 days

The markets are brutal. The participants are all smart. When everyone competes at the highest level, that’s where it’s always super tough. It takes Joseph Schooling to swim 8 hours every day to win an Olympic gold. It is not too different in order to become the top 10% of all investors who can beat average market returns. Warren Buffett reads two newspapers everyday, magazines, annual reports of potential investments, on top of all the other stuff he has to read. He probably spends 8 hours reading everyday. It's just crazy. On top of that, he did his fair share of travelling all over USA in his younger days. He was always in New York, not mentioning a two year stint at Graham and Newman. Then later on he needed to be everywhere: Omaha, California, New York, Sun Valley (Idaho), Washington etc. That was his life then, this is our lives today. 

When he is out on the road, his wife and also his mum during Howard Buffett's days dealt with the three kids. All by themselves. No domestic helper, no iPad, for distracting the younger kids. Not even TV for Howard's wife as it wasn't invented yet. It was unimaginable how they survived. I truly appreciate another adage, "Behind every successful man, is a very successful woman." There can be no Warren Buffett without Susie. There can be no Lee Kuan Yew without Kwa Geok Choo.

To be outstanding in our careers, our wives sacrificed. This is usually not very visible. In fact we resent why they couldn't be more. Why couldn’t they become Mrs Lee Kuan Yew. Why they couldn't understand we are working our asses off in the trenches from 8am to 6pm and when we reached home, we are not ready to juggle kids and wash dishes. We just want to switch off.

But today is 14th of February. Today is the day to put aside our complaints and give our loved ones a  big hug. Thank them for making our lives easier, for doing the chores, for taking the kids to the playground despite being totally drained.

Cupid did shoot the good arrow, right?

This cupid (Ying Tze) would be good yah?

Then, we have our education system...

I am convinced that 80% of all parents in Singapore cannot win against our education system. But that is actually ok. Our education system is a pressure cooker destined to churn out maybe 5% pristine students and maybe 35% damage products. There's 20% of okay students who would eventually find their way to success just like how Warren Buffett did and how his kids did. There will always be the average and below average students which makes up remaining 40%. A big proportion of these students get on with lives, but some would also get demotivated and become damage products. This damage is done every year and is usually irreversible. This is the sad truth. Our education system does not lift up the average, it destroys the average. But this is kept invisible. As for the bottom 20%, our system failed them, utterly.

How to win against this system? We almost need to be superheroes. Like Mr and Mrs Incredible, two superheroes married. One can take care of work, investments, annual holiday trips, on top of earning the dough. The other becoming a full-time schoolwork CEO, COO and CPO - Chief People Officer, managing all the different tutors, enrichment, as well as schoolwork. Yup, in short, become as good as one of the Avengers, save the world while looking damn cool. 

Well, the saving grace is that we don't really have to win in the system because the system is totally not preparing our kids for the future. The classroom was invented 100 years ago and had failed to improve with the times. There is not much point in learning how to write essays using bombastic words and flowery phrases or in solving three variable simultaneous equations in primary school. The former is a reflection of the outdatedness of our system, the latter the incomprehensible mentality of trying to squeeze over-abstracted concepts into young brains when they are not ready.

The most important lessons our kids have to learn would not be taught in schools. Especially Singapore schools. They are:

1. Learning to relearn everything, not rote memorizing.
2. Learning the soft skills, dealing with people, presenting, talking well.
3. Learning to use all different available tools, which is easily available today via the internet and other means, and not always relying on fixed methods or formula.

Wishing all couples a very Happy Valentine's Day! 

To my dearest wife, thank you for your love for the past 15 years! 

Tuesday, February 06, 2018

Tangible Thoughts #2: Market Turning?

Here's a long quote from a 2006 movie called "The Prestige" directed by Christopher Nolan starring Christian Bale and Hugh Jackman.

Every great magic trick consists of three parts or acts. The first part is called "The Pledge". The magician shows you something ordinary: a deck of cards, a bird or a man. He shows you this object. Perhaps he asks you to inspect it to see if it is indeed real, unaltered, normal. But of course... it probably isn't. The second act is called "The Turn". The magician takes the ordinary something and makes it do something extraordinary. Now you're looking for the secret... but you won't find it, because of course you're not really looking. You don't really want to know. You want to be fooled. But you wouldn't clap yet. Because making something disappear isn't enough; you have to bring it back. That's why every magic trick has a third act, the hardest part, the part we call "The Prestige".

Why is this relevant today? The markets corrected 3-5% overnight and looks like the carnage is continuing. But this looks like Act Two. It's just "The Turn". In every bull market, we are likely to see three acts - similar to the magic trick. 

Act One: we get a story, the markets get excited, stocks go up. The story today is actually a sequel. The first story acted out in 1999-2000 and ended in a tragedy. In 2017, the renewed internet story is about Amazon, Google, Apple, Facebook taking over the world. Then things got a bit crazy in 2018 and that's why we have "The Turn". That was yesterday. The table below shows how markets corrected. Over a 1,000 points for Dow, Bovespa, Nikkei and Hang Seng. This is unprecedented.

Markets on 5 Feb 2018

However I don't think the show has ended. We still need Act Three right? But, unlike a magic show, after Act Three, everything will come crashing down. (Well everything did come crashing down in "The Prestige", so for those who haven't watch, be sure to catch it some day!) In the last crash, we almost crippled the whole world. We were a few days close to a repeat of the Great Depression. Let's hope this show will not crash and burn like the last one!

Monday, January 29, 2018

Chart of the Month #8: Flattening Yield Curve

This argument came about in late Nov when some prominent economists noted that the US yield curve is flattening and might invert soon. Flattening or inverting yield curves are big deals bcos they were followed by recessions 7 out of 8 times since WWII. The chart below shows just that.

As you can see, we are likely to head into another one as the 10yr-3m spread goes to zero, which implies flattening or inverting yield curve. 

The economic rationale is weak though. Why does a flattening yield curve causes recession? One reasoning postulates that banks, the lubricants of a vibrant economy require steepening yield curve to make their spreads, so if spreads turn to zero, it would mean they cannot lend money and hence economic activities grind to a halt.

Another reasoning goes like this: short term rates rising to meet long term rates usually means central banks are entering into tightening mode, which again put the brakes on the economy, causing recessions.

However, it seems that this is not going to happen at least until late 2018, so meanwhile the party goes on! Huat Ah!

Monday, January 22, 2018

Singtel: Becoming A Dumber Pipe?

I have been a long term shareholder as well as a long term mobile phone subscriber of Singtel. The experience had not been great, to say the least, especially in the past three years. Singtel's stock had done okay if we look back in time. It was $2.2 or so in 2007 and today it's $3.7. An investor who held throughout would had made 68% on capital gain and another 40% or so in dividends. But in the last three years, it did nothing. Meanwhile, DBS went from $15 to $25 and became the largest stock in Singapore (overtaking Singtel) for the first time ever!

Today, we try to decipher what happened to the #1 stock in Singapore.

Singtel's investment thesis had been pretty simple. This was a business connecting 600 million mobile subscribers over a huge part of the world. It generated tremendously strong free cash flow averaging S$3bn annually over the past 10 years with almost 2/3 coming from overseas. It is the #1 or #2 player in Thailand, Australia, Indonesia and Philippines. In Singapore, being the biggest brother, it led the way in screwing subscribers and generated huge profits year in year out. What more could investors ask for?

Big Brother - Singtel

For the longest time, it was also the proxy for Singapore. Equity investors looking to buy into countries usually look for proxy stocks. If they believe that a certain country had growth prospect and would like to play on that theme, they would buy a stock to express that view. So Singtel is the proxy for Singapore, just as Astra would be the proxy for Indonesia and Samsung for Korea or TSMC for Taiwan. However, there are also bigger themes at play. Just as Samsung and TSMC are now being associated as core stocks for the new tech wave, Singtel is facing heaps of trouble.

It is becoming a dumb pipe.

The dumb pipe argument on telcos has been around for some time. The theory was that as internet advanced, telcos would lose their relevance in the new paradigm as apps, transactions, gaming take place outside the telcos' dominance. It started with Whatsapp killing off SMS, then voice and now perhaps even data. In order to defend profits, the telcos keep setting up traps to squeeze money out of consumers.

As an example, international data roaming and international phone calls had become exorbitant. Data roaming is easily $25 per MB. If you are reading this on your mobile phone in Afghanistan without an overseas roaming plan, you might be paying $125! It has gotten so ridiculous that we hear about $1,000 phone bills and it goes on Straits Times and Singtel had to come out with some backdating-the-charges-via-a-cheaper-plan way to lower the charges. Meanwhile their call centres get flooded with waiver requests and they have the guts to claim that they are helping customers save money!

Ridiculous overseas charges

So is it just a dumb pipe or a dumber pipe?

But back to the original threat from apps and internet - this is real. SMS revenue fell drastically since Whatsapp came about. Now that voice quality had improve, people are using Whatsapp for calls too. So the only profitable arena left became data, which is why we see exorbitant data roaming charges. Now Google saw this chance and recently decided to jump in with a way to screw the telcos. It is rumored that they might offer phones with flat fees for global data usage. Now this is a gamechanger. It this really happens, it would be goodbye to all telcos, all over the world.

That's what telcos get for screwing subscribers all these years. Remember Google's company motto is "don't be evil". Not that they are living up to it, but they are certainly aiming to eat Singtel or for that matter every telco's lunch.

Singtel knows this is coming. While screwing subscribers they have also been investing in new ventures. Alas, no traditional telco had succeeded in spending money to grow new businesses. Singtel touted its small success in cybersecurity. It claims that it is the #5 player in the world in the field of cybersecurity. But if we speak to the real cybersecurity guys, they would be like, "Huh? Who is Singtel? So, it's a stretch to say they are good here. But who knows, they might make it, cybersecurity is a nascent market, things can change quickly.

Unfortunately, these investments need money and with money going into investments means less money for shareholders. The lines above shows that while dividend per share had been kept constant at 74% of earnings per share, it had shot through the roof as a % of free cash flow. At this rate, Singtel would be borrowing to pay dividends. Perhaps that is why it has been overtaken by DBS in terms of market cap. 

Having said that, Singtel is not going to crash 40% tomorrow. At S$3bn FCF per year, it is trading at a healthy 5% FCF and the market might still give it the benefit of the doubt. It can still become a smart pipe. Meanwhile, it will continue to screw subscribers and squeeze more cash out of everyone of us. Singaporeans pay one of the highest phone bills globally while suffering from poor network quality and exorbitant overseas roaming charges. Not unlike our public transport and our education system, we get the crap underneath the cleanliness and the efficiencies that our infrastructure promises. Geez, that's quite worrisome, isn't it. 

It is a dilemma to be a suffering consumer but a shareholder of Singtel. As a shareholder, some of the pain is mitigated with the dividend and the capital gain over the years. But as we now know, Singtel could become a dumber pipe. With the 4th telco coming up, it might really stir up competition and grab a piece of Singtel's pie. Especially with most subscribers suffering so long and would be more than happy to switch. If the Singapore cash cow is slaughtered, we can easily see cashflow plummeting 20-30%. This is then a serious threat to the dividend and when the dividend is cut for a dividend stock, things get really, really ugly. 

Perhaps its time to seriously think about divesting Singtel!

The author owns Singtel.

Tuesday, January 16, 2018

Tangible Thoughts #1

Welcome to yet another recurring theme type of posts! Modeled after Xi Jin Ping penning down his thoughts for the Middle Kingdom after Mao and Deng, this series will pen down bite size thoughts from the great investors as well as other thought leaders.

Here's the first inauguration thought from David Einhorn taken from an excerpt of a talk he gave recently. He was asked this interesting question from the audience and his answer was just enlightening.

Audience: Do you sort of stick to your guns, when it comes to entering contrarian positions and holding it until it works out?

David: First of all, it's not about sticking to your guns. It's about reassessing constantly. And when the positions don't work, or they go against you, the presumption is not we were right, the presumption is that we might have missed something here. And so then, you have to go back and think about it again and again and again and understand the other side, and see if anything has changed, and see if your view has changed, if it has changed, to modify the position. And you might eliminate it, or you might reduce it, or sometimes increase it, but very rarely. 

Generally speaking, my inclination is when the position is not going well it's more likely that we missed something, so the choice is generally either to reduce or eliminate or just simply keep it if we think that it's right. On the other hand if we continue to think that we are right, then I find that patience is the way to go. And then we have to wait and let the story play out however it does, while we continue to reassess it to see if, in fact, we were wrong.

Investing is not about right or wrong with one's initial stance as every new development changes the course. Rather, it is about reassessing the situation constantly, changing our positions when things change or have the patience to wait for the market to realize our correct views.

Monday, January 08, 2018

Is the Virtual Economy Taking Over the World?

Here's wishing all readers a very Happy 2018! Thanks for all your support these 12 years! Today let's talk about world domination by the internet!

We discussed this topic some time back about how internet is taking over the world and real world and real life experiences are becoming a rarity. Today let's delve a bit further. We saw how the largest companies in the world are now dominated by internet firms. So, is the virtual economy taking over the world? If so, exactly how big is it really gonna be?

I think it will be almost as big as the real economy some day i.e. the virtual economy could become 40-50 trillion dollars, which is 80% of the real economy today. But it will not take over the real economy. It might be something quite different. More like an avatar economy mirroring our real economy. The real economy does not disappear, it takes on different forms while the overall pie grows.

Based on my estimate, the virtual economy today is possibly just 15-20% of the real economy today. While it did cannibalize some demand from traditional businesses, a big part of it is just new stuff. We shall see how new everything actually becomes. Now why do we say it is 15-20% today? Reference could be drawn from two data points:

1) The tech sector market cap of the top 100 firms is USD 3.6trn vs the total market cap of USD 17.5trn, meaning that tech firms make up is c.20% of the top 100 firms (according to a report by PWC).

Technology makes up 20%

2) Internet retail penetration is 15% in the US while it is 8-18% in other developed countries (18% in China). Although globally it should be closer to the lower bound since penetration in emerging countries would be much lower.

So my thesis is that from the current 8-18%, the virtual economy consisting of mainly e-commerce, content (movies, music, software, books etc) and gaming amongst other verticals will continue to grow to become 80% of the real economy. But as alluded to before, this doesn't mean that the real economy is going to shrink. This is an additional 62-72%. In other words, in x years (maybe like x = 2035) the global GDP would be USD 110-120trn and the virtual economy would be USD 40-50trn and the real economy would be USD 70-80trn. The real economy doesn't really decline, things just get moved elsewhere.

The stock market is usually very simplistic in thinking. If Amazon is taking over retail, then all the malls and related stocks should go to zero. To some extent, retail did get decimated, but because we all live in the real world, we don't stop going out. We stopped going to department stores and traditional malls but we spend more time at Starbucks, at Costco/Big Box or Don Don Donki (the new Japanese discount store in Singapore) for differentiated shopping experiences, at outlet malls, at theme parks and going for other experiential adventures. 

Costco's share price at all time high despite Amazon's onslaught

There were other interesting revelations from the content industry, namely music and movies. The music industry was the first to fall prey to the internet technological disruption. Apple Music devastated CD sales, then streaming came along and took share from music download. Now Spotify seemed to be the undisputed leader and the recorded music sales finally saw growth in 2016 after years of decline, hitting revenue of c.USD 8bn in the US. But the truth is much bigger than that. The live concert industry boomed big time from 2000 to 2016 while CD sales plummeted. In 2016, Live Nation, the world's #1 live concert operator had sales of USD 8.4bn, the bulk coming from the US. This one firm's revenue outstripped the revenue of the entire US recorded music industry! You see, things in the real world don't disappear, the revenue just moved elsewhere.

Moving on the Hollywood, with Netflix, Amazon Prime, Youtube and streaming, the first level thinking is that everyone would stop watching movies in theatres. Yet worldwide box office revenue had positive growth from 2006 to 2016. It was c.USD 9bn in 2006 and today it's close to c.USD 11bn. So did we really watch less movies? Yep, we stop watching stuff we might catch on the planes or Netflix or elsewhere but we still cherish the experience at the cinemas. We choose the one or two films we will definitely watch at the theatres.

The Last Movie of 2017

In fact, we want to watch it in IMAX. If it's the one movie we want to watch this year, then we better watch it in top quality. We pay up to watch The Last Jedi, or Avengers, or Fantastic Beast: The Crimes of Grindelwald. So the virtual economy does not take over the real economy. It is always something deeper at play. Difficult to see, always in motion, the future is.

Let's talk about gaming which is now bigger than movies and music combined. A whole generation had grown up with Nintendo, Playstation and Xbox and are now having children. With mobile gaming becoming prevalent, we are also seeing seniors playing Candy Crush and Pokemon Go! on their phones. Gaming is simply part of everyday life today. Statistics have shown that people on average spend a few hours on gaming and social media. By examining this, we might catch a glimpse of the end game for the virtual economy.

Recently Wired did a piece on the lives of esports gamers. Esports is fast becoming an important industry as gaming grew so big. For the un-initiated, esports is going to be as big as NBA or NFL or the English Premier League where teams compete in games with other teams to win championships and millions of spectators watch these pros play online. These esports players train as hard as star basketball and soccer players. They work out, study hard, eat healthy and train 7-8 hours a day playing games like Overwatch together. Yes, they spend half of their waking hours on computers, in the virtual economy.

To some extent, we all spent a lot of time online as well, since we are on laptops or PCs when we are not in meetings. We might not have enough time for shopping, gaming and/or consuming content while working but as efficiencies improve, we would be able to do much more in the 24 hours. We will be able to shop, Facebook and Whatsapp with voice recognition, maybe watch short movies on the way to the office pantry and when cars drive themselves, we free up even more time to spend in the virtual world. We will have multiple avatars for different purposes. So, yes, the virtual economy can still grow. I believe it will be 50 trillion dollars.

Does it mean we should buy FAANG and BAT now? That's a very tough question. I think there is a better time to accumulate them, rather than buying them now for 40-100x PE. Meanwhile, opportunities are abound in the real economy with great franchises trading at teens PE. These are opportunities we wish to explore in 2018 and we shall also discuss A.I. autonomous driving and semiconductor chips in the future.

Meanwhile, again a very Happy 2018, together we huat!

Saturday, December 30, 2017

2017 in Review: Melting Up, Up and Away!

In a blink of an eye, we are now at the end of 2017. Last year this time, we did a similar review for 2016 and then talked about how 2017 would pan out. The following passage surmised what we discussed:

Let's talk about 2017. Remember it's not prediction but preparation. It's not easy but let's try. In my view, 2017 could see the rise in animal spirits given the very bad 2016. Investment appetite especially with the US economy recovering could pull parts of the world up. Although China and Europe should remain tough with the bad debt issues still haunting the financial sectors. So what's the preparation needed? Maybe look to deploy a bit into secular sectors, like health and fitness. Meanwhile in Singapore, 2017 could be the year the property oversupply hits a peak after which the no. of new condos would drop. Hence it might mean it's the bottom for the property market. It's could be the last chance to buy Singapore property before it becomes way too expensive. So, be prepared!

Quite miraculously, we got many things right! We saw animal spirits coming back which led to the rising bull markets globally. The US markets are up 20-25%, Europe up 21%, Japan up 19%. Hong Kong up over 30% and China 25-50% depending on which index we took. The US economy recovered well enough that market participants are talking about things being too heated up. Elsewhere investors shrugged off Europe's lingering issues and China's debt problems and looked for excuses to bid things up.

The crazily prominent example of this is Bitcoin. 2017 saw the bubble formation of bitcoin in its final stages and we are now witnessing the meltdown. During the same time last year, bitcoin was trading at $800. A few week ago, it hit an all time high of nearly $20,000 before crashing 50% to $10,000. At its peak, the total market value of bitcoin hit USD 300 billion, which is bigger than Singapore's GDP. Alas, all good things come to an end, we should be seeing bitcoin crashing back to earth and then forgotten, as with the tulips, internet has-beens and pencil buildings in Japan constructed voraciously durring the 1990 property bubble.

Bitcoin Mania

For Singapore, 2017 also had some significance. We saw the public dispute of the first family being brought to public while our property market staged a nascent recovery. The markets were oblivious to the spate, investors' confidence in both stock and property markets remained strong. Who cares if Oxley Rd becomes a museum or another luxury property address in the little red dot? Singapore will be the rich and famous playground in South East Asia, the Monaco of ASEAN.

However the saga also marked the signs of tumultous times when power transfers occurred, alongside other incidents such as the seizure of our Terrex armoured vehicle by China and my personal favourite: Tesla cars being taxed as environmentally unfriendly by our beloved LTA so much so that Elon Musk called our PM to settle the issue. Longer term, I cannot help but worry. We came far on the foundations built by the first generation of forefathers but the infrastructure (both the soft and the hard ones) is not robust. There are issues with our education, healthcare and transport systems, amongst others. Big issues!

In five to ten years, we will have a new prime minister and his new team, untested and unproven. We must give them support and we have to fix the abovementioned issues if we want Singapore to be relevant beyond 2050. But meanwhile, property should be okay. Fortunately or unfortunately, Singapore will become a safe haven for global wealth to find their ways into private properties in District 9, 10 and 11. Alas, most Singaporeans will not be able to afford condos in the not too distant future as we see $2,000 to $3,000 psf condos become the norm as with HK, London and Monaco (and the most exorbitant to hit $10,000 psf). The 5C dream shall remain a dream for 90% of Singaporeans.

Well, that's the future, back to the present moment, so what's installed in 2018?

I think the apt phrase to describe 2018 might be what is alluded to in the title. We will witness the markets melting up, up and away! What's that? Well, essentially, we might see a bubble. But exactly, what's a melt-up?

Meltdown? Melt Up?

Here's a definition from Financial Times:

A 'melt up' is the informal term used to describe markets that experience a rapid rise in valuations due to a stampede of investors anxious not to miss out on a rising trend. Gains caused by melt ups are usually followed quite quickly by melt downs. 

In my opinion, a melt up is probably indistinguishable from a bubble. It might be a semi-formed bubble and not a full blown one that we saw in 2000 but really, what's the difference? It just means that we will see prices going up, our portfolios showing gains but nothing much fundamental really changes. The prudent investment strategy during melt-ups or bubbles is to sell incrementally. But this is easier said than done. Because after every sale, we feel damn stupid as we see the stuff we sold going up further and we question whether we sold correctly. Maybe we should have waited for a higher price. That is the dilemma. So that is why a better strategy might be to sell in tranches. Ideally we keep selling until we are 50% or more in cash at the peak of the melt-up so when it finally crashes, we will have the firepower to buy. So 2018 might be the year we need to raise cash substantially if we are fully invested now.

The other interesting investment angle, as with what happened during dotcom was to buy good old economy stocks at cheap valuations. We are seeing some of these opportunities presenting themselves as every market participant out there is just thinking about buying FAANG (Facebook, Apple, Amazon, Netflix and Google), BAT (Baidu, Alibaba and Tencent) and the rest of the internet powerhouses at 30-100x PE. At the other spectrum, great companies in consumer staples, pharmaceutical and healthcare are trading at teens multiples. Hopefully we can uncover more of these awesome stock ideas in 2018.

Wishing all readers a Happy New Year! Huat Ah!