Monday, January 27, 2020

Sold some stocks

Last week I sold:
  • DKSH.  Too small an amount to keep track of.
  • Call options on an Italian bank.  They had been doing well, but dropped back down due to the Italian election
Made a negligible profit.

Last night, I sold:
  • Rolls Royce (RYCEY).  Big loss of around USD 8K on this.  This has been my worst position, because of the size of the loss and the time holding it.  My mistake was buying it based on earnings 5 years ago, where I did not realize how bad the cashflows were.  Operationally, cashflows have since recovered, but the current valuation is fair - not cheap - even at 20% below my purchase price.  I sold now due to the Wuhan Virus.  China's ban on international travel groups will hurt Engine Flying Hours if it continues.  And if the virus spreads (likely), I think people will be reluctant to fly, even in US/Europe.
  • Sold some small positions in oil stocks.  China's slowing economy will affect oil.
Normally I would wait for a rebound day to sell.  But I think the flu will get worse before it gets better, and the market may just be starting to price it in.

Am waiting for the chance to buy China/HKEX stocks.  If he virus peaks in April/May, when should I buy?  Got plenty of time to think about it.

Sunday, January 26, 2020

Wuhan Virus: What we know #2

How Transmissible is it?


How deadly is it?

Hard to tell now:
  • At the early stages when hospitals are overwhelmed, it is hard to identify who has the disease.  Many may have a bad common flu and go to hospital, others may have a mild version of the new virus and stay away.  The death statistics may be understated, as some who die are recorded as other causes.
  • There are reports that the virus can sicken healthy people.  Including killing a healthy 36 year old.
  • About a quarter of cases are severe (requiring hospitalization).
  • The official mortality rate is ~ 3%  (the 'sweet spot' to maximize transmissiblity).  But it could end up a lot higher or lower.

How likely is the containment to work?

The current quarantine of Hubei cities is probably too late.  Due to the transmissiblity, I would expect other Chinese cities to be affected, and possibly locked down as well.

I am guessing that other countries, like Singapore, will not be broadly affected.  Think we will only have to deal with few isolated case.   But its a matter of luck.  There's a chance that it turns out as bad as SARs.

Identifying/Stopping the Virus

A Singapore company has developed a device (chip-on-a-stick) that can identify the virus in 2 hours.  We will need such detection, due to the virus' wide range of symptoms, and how similar they are to other flu.  The question is how fast and cheaply they can be produced.

Vaccine development is expected to take 3 months to reach experimental testing.

The Stock Market

I think the outbreak will get worse before it gets better in China. There is a small chance it affects other Asian countries as badly as SARs.

Longer term there should be a buying opportunity for Chinese stocks.  But not yet.

Tuesday, January 21, 2020

What we know about the Wuhan Virus

It is less deadly than SARS.  SARS caused death through a severe immune response, which is why it killed healthy people, but not children.  The Wuhan Virus has mostly killed older people: out of 6 deaths to date, their ages were 61, 69, ??, 89, 66 and 48.

The incubation period is believed to be 2 weeks.

Most infected people have mild symptoms.  Its possible that some people have no symptoms.

We don't know how transmissible it is.  Can it be spread by casual contact (eg: touching a doorknob, sneezing), or does it require close contact?

My best guess is that it is already entrenched a large enough population to remain.  Hard to stop it spreading because of the long incubation, mild symptoms and CNY nationwide migration.  As viruses spread throughout a population (six months or a year?), they usually evolve to show less symptoms and become less deadly.  Eventually this becomes like the normal flu, maybe slightly deadlier.

What do I guess for the stock market?
  • Probably get a spiking number of cases 2-3 weeks after CNY.  Maybe the Asian markets sell off a bit more.
  • I think they will recover from this issue between today and the next two weeks.
So I think the impact will be a lot smaller than SARs.

Sunday, January 19, 2020

How to find Financial Statements on HKEX

Took me long enough to figure this out that its worth recording here.

Go to HKexNews website.  Not HKEX.  Type in the company code, select the company and dates.

Thursday, January 2, 2020


The news from India has been bad for the past few years.  There was a painful demonitization in 2016.  A GST in 2017.  GDP growth has been falling the past year, and last quarter's 4.5% growth is one of the lowest in the past 25 years:

Source: Trading Economics

Indian stocks are flat-to-down over the past 2 years:

I think India is due for a cyclical rebound in the next few quarters.  Helped by last September's fiscal stimulus, which should power their market for a few years like Trump's 2017 stimulus did.

I'm long several Indian ETFs: 2% INDA (large caps), 1% each SMIN and SCIF (small caps), and 1% Fairfax India (Prem Watsa's fund with interesting holdings, but very high fees).

Tuesday, December 3, 2019

Gold Royalty Companies

Gold financing companies are a leveraged play on gold prices.  These companies sponsor gold miners and receive future streams of gold royalties.

A brief look at the 4 major royalty companies:

Silver Wheaton

Only 52% of their 3Q19 revenue was from gold, with 46% from silver.  Didn't bother to look any further.

Franco Nevada Corporation

Franco Nevada is a large company, with 56 producing streams, plus 237 in exploration & development.  (This excludes another 81 energy streams - are they becoming so big they have diffiiculty funding sizeable precious metal streams?).  2/3rds of their 3Q19 revenue is from gold.

They are well diversified.  The two largest projects make up 26% of revenue, the largest 4 make up 42%.  Half their revenue comes from Latin America.

Debt is roughly 2 years' CFO.

For valuation, TTM EV/EBIDTA is 37 (at a stock price of USD 99).  Very expensive.  If I annualise their latest 3Q19 earnings (due to the gold price being higher in the last quarter), EV/EBIDTA is a more reasonable 24.  This shows how leveraged to the gold price this type of company is.

Correlation with gold price: Its daily return has a correlation to GLD of 0.65  over the past 10 years, and 0.73 over the past 6 months.

Royal Gold

Another large company.  They have 7 producing royalty streams, plus 35 producing royalty interests.   78% of their 1Q20 revenue is from Gold.  

They are conservatively geared: debt is 60% of CFO.

They are very concentrated: Their top two streams make up 44% of revenue, and the top 4 make up 65%.  41% of their 1Q20 revenue is from Canada, followed by 22% from Chile. 

Based on annualised 3Q19 earnings, EV/EBIDTA is 22 (at USD 118 stock price).

Its daily return has a correlation to GLD of 0.65  over the past 10 years, and 0.54 over the past 6 months.

Sandstorm Gold

A mid-tier company, with 23 producing streams, plus 167 in exploration & development (appendix iii).  At least 2/3rds of their net income was from gold in 2Q19.

They are conservatively geared: debt is slightly over 1 year's CFO.

There is some concentration risk.  Their largest 2 projects make up over 30% of CFO, and the largest 4 make up nearly 60%.

A large boost in gold production is expected in 2022:

This projected increase is from their Hod Maden mine in Turkey.  They have a lot riding on one project.  There is execution and political risk here, with a lot of upside.

Based on annualised 3Q19 earnings, EV/EBIDTA is 15.6 (at a stock price of CAD 6.92).

Its daily return has a correlation to GLD of 0.57 over the past 10 years, and 0.69 over the past 6 months.

When do we buy gold?

Gold goes up when interest rates go down.  Because it reduces the opportunity cost of holding (interest bearing) cash.

Gold is the Anti-Dollar.  You buy it if you think USDs are going to be worth less in future.  And you would hoard it if we had negative interest rates.

I see gold as a way to short the S&P 500.  If it has another sharp sell off, like in 4Q 18, the Fed will cut and gold will go up.  Gold is uncorrelated with the stock market (GLD and SPX have a correlation coefficient of -0.29 over the past 10 years, and -0.03 over the past 6 moths).

I've bought a small amount of FNV, RGLD and SANDS two nights ago.  Altogether makes up 2% of my portfolio.  I may increase it slowly, later.  This is a trade with a 6-12 months timespan - I do not want to hold gold as a long term investment.

Some links:


Thursday, November 14, 2019

Sold Wharf REIC (HK.1997)

Sold this stock yesterday for an SGD 600 loss.  Two reasons:

One: China is not stimulating.  They are still in a downturn from the 2016 credit expansion.

Source: CEIC

Maybe they need lower US rates in order to stimulate.  China is short USDs (too many USD denominated loans, plus a current account deficit), they need to borrow them, and high rates hurt.

Source: hedgeye webcast (6th Nov)

Or maybe the CCP is just waiting for the US election to be over, before giving global stock markets some juice.

Either way its not here yet. I should have waited for the stimulus to start first.  Wharf REIC is a cyclical China play, and we need cashed up Chinese tourists buying LVs and Rolexes for it to take off.

Two: protests are getting worse.  On Sunday, a student was shot.  School holidays have started.  Protesters are now trying to disrupt the city's transport on weekdays - previously the effect was limited to weekends.  Parts of the city look like CNY on weeknights.  People are leaving work early most days, and even many normal restaurants and shops in the CBD are closed.  The protests will not die down, as I initially expected.

Tsim Sha Shui: 8pm Tuesday night

I was too early.  This may be a better trade in 3 to 6 months.