Sunday, 15 January 2017

Another Year That Ends with 7

You probably have heard of the folklore -- whenever the year ends with 7, the stock market would crash. In 1987, Dow Jones Industrial Average went through the Black Monday in which it crashed 22.6% in a single day on 19 Oct 1987. Stock markets worldwide followed suit. In 1997, Asia went through the Asian Financial Crisis which did not end until nearly 2 years later. The STI went from 2,216.79 on 31 Dec 1996 to 805.04 on 4 Sep 1998, which is a precipitious drop of 64%! Fig. 1 below shows the extent of the crash during that period.

Fig. 1: STI Crash in 1997

In 2007, it was US' turn to experience a financial crisis, which eventually inflicted all other countries in the Global Financial Crisis (GFC). The stock market crash did not begin at the start of 2007, but sometime in Oct 2007 and ended only 1.5 years later. From 3,875.77 on 11 Oct 2007, the STI crashed until it bottomed out at 1,456.95 on 9 Mar 2009 for a steep drop of 62%! Fig. 2 below shows the crash during that period. In fact, 3,875.77 remains the all-time high of STI. For the next 10 years afterwards, the STI never came close to reaching this level.

Fig. 2: STI Crash in 2007

It is 2017 this year, another year that ends with 7. Will history repeat itself and the stock market experience another spectacular crash again?

Personally, I have experienced the crash of 1987, 1997 and 2007. In 1987, I was helping my father to monitor stock prices when he was at work. On that fateful day (20 Oct 1987), I saw prices gapping down by 33% when the market resumed trading from its lunch break. It was such a shock that it became the moment when I knew that the stock market was destined to be a part of my life (see Confessions of a Serious Investor). 

In 1997, I was 1 year away from graduating from university. Being the "smart" guy in the family, I had recommended my father to buy a certain financial stock that had fallen from $3 to $0.75. We never saw the money on this stock again. This crash had the heaviest impact on my family. Because of the financial crisis, Malaysia imposed capital controls, resulting in suspension of trading of all Malaysian stocks listed on the SGX Central Limit Order Book (CLOB) market. All shares were frozen and transferred to the Malaysian stock market. They were only released a few years later. By then, they were mostly worthless. 

In 2007, I was investing with my own money for 9 years when the GFC happened. At the start of 2007, I was uneasy with the speculative fever over structured warrants that pushed stock prices to high levels. Unadjusted for corporate actions, Capitaland reached $8.60, Ezra $6.75, NOL $5.45, SGX $15.40, SIA $19.30, Swiber $3.66! Unfortunately, the money that I pulled out from stocks went into REITs and high-yield business/ shipping trusts, such as FirstShip, Rickmers, MacCookPropSec, etc. which crashed equally significantly. At the depth of the crisis, I estimated I was sitting on paper loss of about 65%! Undaunted, I liquidated half of my bank preference shares and pumped fresh money into the stock market. The market recovered and I recouped all my losses and made some money (see Behind Every Successful Bear Market Recovery is A Cash-Like Instrument).

It is 2017, do I believe in the folklore that the market would crash spectacularly again? I respect folklore, especially having gone through 3 severe market crashes previously, but I needed evidence that a crash is likely, such as sky-high stock prices like the case in 2007. Thus, in the later half of 2016, I was wondering what would cause a crash to materialise. The realisation came when the market did not crash after Brexit happened in Jun 2016: the massive liquidity injected by central banks around the world was propping up asset prices, but that did not help the many companies in many industries which are instead facing poor business and/or low margins, with some companies entering judicial management (see What Have We Got After 8 Years of Easy Money?). Although there is euphoria after the US presidential election that Trump would increase infrastructure spending, cut taxes and regulations and thus speed up the recovery of the economy, he is at the same time advocating protectionist trade policies, potentially triggering trade wars with other countries. Furthermore, increased infrastructure spending would lead to inflation and interest rates rising more rapidly. There is also the risk of capital flight out of non-US countries into US, making US dollar debt burdens more heavy for companies in Asia (see Making America Great Again and Its Impact to Asia). 

Thus, I am not optimistic about the stock market for 2017 and have been shoring up cash positions whenever possible. The crash may or may not happen. But if it happens, I am prepared.


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Sunday, 8 January 2017

Betting Against the STI Component Stock Changes

Buying and holding a stock index is considered as passive investing. However, the STI is not entirely passive. Every quarter, the STI would be reviewed to determine whether certain stocks should be dropped from or added to the index. This can be likened to active stock selection. How have the stock selections of STI of the past 3 years performed?

Over the past 3 years, there have been 6 changes to the STI component stocks. 1 of them is a forced change, as CapitaMalls Asia (CMA) was privatised and its place in the STI was taken over by Ascendas REIT. All the other 5 changes are voluntary changes. The performance of the stocks removed from the index since their removal till 30 Dec 2016 is shown below.

Stock Replacement Date Price
Then
Price 30/12/16 %
Changes
Replacement
CMA 04 Jun 14 2.35 NA NA A-Reit
JMH 21 Sep 15 47.00 55.25 18% SATS/UOL/YZJ
JSH 21 Sep 15 27.01 33.20 23% SATS/UOL/YZJ
Olam 21 Sep 15 2.04 1.97 -3% SATS/UOL/YZJ
Noble 21 Mar 16 0.22 0.17 -21% CCT
SembMar 19 Sep 16 1.25 1.38 10% JMH
Average


5.3%

Please note that the price of Noble has been adjusted for a 1-for-1 rights issue at $0.11 in Jun 2016. The unadjusted price before the removal date is $0.32.

Among the 5 stocks removed from the index, 3 have gone on to register double digit gains in stock price, one is esentially flat and another is down by double digits. Overall, this portfolio of discarded index stocks have gained by 5.3% as at 30 Dec 2016.

The performance of the stocks added to the index since their addition till 30 Dec 2016 is shown below.

Stock Replacement Date Price
Then
Price 30/12/16 %
Changes
Replacement
A-Reit 04 Jun 14 2.38 2.27 -5% CMA
SATS 21 Sep 15 3.80 4.85 28% JMH/JSH/Olam
UOL 21 Sep 15 6.02 5.99 0% JMH/JSH/Olam
YZJ 21 Sep 15 1.17 0.81 -30% JMH/JSH/Olam
CCT 21 Mar 16 1.47 1.48 1% Noble
JMH 19 Sep 16 60.14 55.25 -8% SembMar
Average


-2.6%

Among the 6 stocks added to the index, 3 are essentially flat, registering less than 5% gain or loss in stock price. 1 has outperformed with a 28% gain, but it is offset by another which underperformed with a 30% loss. Overall, this portfolio of added index stocks has lost 2.6%.

Please note that this analysis does not consider dividends. Among the 6 added stocks, 2 of them are REITs, which pay handsome dividends but fluctuate little in stock price. This partly explains why the portfolio of added index stocks is essentially flat.

If you had bought the discarded index stocks and sold the added index stocks, you would have gained 5.3% + 2.6% or 7.9%. Note that this is a market-neutral portfolio; you are neither long nor short the market. In other words, this 7.9% gain is alpha! It is not a gain because of a correct bet on the direction of the market. It is a gain independent of where the market moved! (Again, please note that dividends are not considered in this analysis.)

If you notice carefully, there is 1 stock that appears in both the discarded and added index stock lists. The stock is Jardine Matheson Holdings (JMH). When it was dropped from the index in Sep 2015, it price was $47.00. When it was added back to the index a year later, it had risen to $60.14. Its price as at end Dec 2016 was $55.25. Thus, on the 1 occasion when the STI carried out "market-timing", it performed poorly as well!

The main reason for the overperformance of discarded index stocks and underperformance of added index stocks is because changes to the STI component stocks are announced in advance. Hence, investors would have sold the discarded stocks and bought the added stocks before the changes take place, resulting in the discarded stocks outperforming and the added stocks underperforming subsequently. Nevertheless, the fact remains that this is a market inefficiency and investors who bet against the changes stand to profit from it.

In conclusion, the STI is not a very good stock picker. Investors who buy and hold the STI should be aware that changes to the STI component stocks would impact their performance to some extent. Also, betting against the STI component stock changes might be a fairly profitable move.


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Monday, 2 January 2017

The Dogs and Puppies of STI for 2017

The Dogs and Puppies of STI is an annual blog series that I try to update at the start of every year. It can be very time-consuming to crunch all the data and analyse their performance relative to the STI, especially since there is only a very short time window between the end of the previous year and the start of trading in the new year. Nevertheless, I try to do my best every year. Here is the edition for 2017 and a review of the performance of the Dogs and Puppies of STI for 2016.
 
To recap, the Dogs and Puppies of STI for 2016 are as follows (see The Dogs and Puppies of STI for 2016 for more info):

Puppies of STI 2016
  • A-Reit
  • Capitaland Mall Trust
  • HPH Trust
  • SembMar
  • ST Engineering
Other Dogs of STI 2016
  • Keppel Corp
  • SembCorp
  • SPH
  • Starhub
  • UOB

You might have noticed that SembMar continues to be included as part of the Dogs and Puppies of STI for 2016 even though it was dropped from the STI in Sep 2016. This is because the concept behind the Dogs of the Dow theory is to buy the identified stocks and hold them for 1 year. Hence, its place among the Dogs and Puppies of STI is unaffected. From this year onwards, it will no longer be contending to be part of the Dogs and Puppies of STI.

How did the Dogs and Puppies perform in 2016? The results are shown below.


Price 31/12/15 Price 31/12/16 Div Div Yield Return
(excl. Div)
Return
(incl. Div)
Puppies





  A-Reit $2.28 $2.27 17.70 7.8% -0.4% 7.3%
  CapitaMall $1.93 $1.89 11.23 5.8% -2.3% 3.5%
  HPH Trust $0.53 $0.44 4.87 9.2% -17.9% -8.7%
  SembMar $1.75 $1.38 12.00 6.9% -21.1% -14.3%
  ST Engg $3.01 $3.23 16.00 5.3% 7.3% 12.6%
Non-Puppies





  Kep Corp $6.51 $5.79 48.00 7.4% -11.1% -3.7%
  SembCorp $3.05 $2.85 16.00 5.2% -6.6% -1.3%
  SPH $3.94 $3.53 20.00 5.1% -10.4% -5.3%
  StarHub $3.70 $2.81 20.00 5.4% -24.1% -18.6%
  UOB $19.61 $20.40 110.00 5.6% 4.0% 9.6%







Dogs


6.4% -8.3% -1.9%
Puppies


7.0% -6.9% 0.1%
STI 2882.73 2880.76 93.00 3.2% -0.1% 3.2%

As shown above, both the Dogs and Puppies underperformed the STI in 2016. Inclusive of dividends, the Dogs returned -1.9% while the Puppies were almost unchanged at 0.1%. Both are worse than STI's 3.2%. Excluding dividends, the Dogs and Puppies did even worse. The Dogs returned -8.3% while the Puppies returned -6.9%, which is worse than STI's -0.1%. 

The underperformance of the Dogs and Puppies relative to STI in 2016 reversed the overperformance in 2015. This underperformance is unexpected, as STI was virtually unchanged if dividends were not considered. Since the Dogs and Puppies contain REITs that pay high dividends, the Dogs and Puppies should in theory outperform the STI after the dividends are considered.

If you have been following this annual series of blog posts, you would know that I am not a fan of having REITs included in the STI. There are now 4 REITs/ business trusts in the STI, namely, A-Reit, Capitaland Comm Trust, Capitaland Mall Trust and HPH Trust. Since REITs/ business trusts pay high dividends, they naturally dominate the Dogs and Puppies.

For 2016, what would be the performance of the Dogs and Puppies if the REITs/ business trusts were excluded? The performance is as shown in the table below.


Price 31/12/15 Price 31/12/16 Div Div Yield Return
(excl. Div)
Return
(incl. Div)
Puppies





  SembCorp $3.05 $2.85 16.00 5.2% -6.6% -1.3%
  SembMar $1.75 $1.38 12.00 6.9% -21.1% -14.3%
  SingTel $3.70 $3.65 17.50 4.7% -1.4% 3.4%
  ST Engg $3.01 $3.23 16.00 5.3% 7.3% 12.6%
  YZJ $1.11 $0.82 5.50 5.0% -26.2% -21.3%
Non-Puppies





  Kep Corp $6.51 $5.79 48.00 7.4% -11.1% -3.7%
  OCBC Bk $8.80 $8.92 36.00 4.1% 1.4% 5.5%
  SPH $3.94 $3.53 20.00 5.1% -10.4% -5.3%
  StarHub $3.70 $2.81 20.00 5.4% -24.1% -18.6%
  UOB $19.61 $20.40 110.00 5.6% 4.0% 9.6%







Dogs


5.5% -8.8% -3.3%
Puppies


5.4% -9.6% -4.2%
STI 2882.73 2880.76 93.00 3.2% -0.1% 3.2%

SingTel and Yangzijiang will take the places of A-Reit, Capitaland Mall Trust and HPH Trust among the Puppies. SembCorp will turn from a Dog into a Puppy and OCBC will take its place as a Dog. The No-REIT Dogs and Puppies performed even worse than the standard version. Inclusive of dividends, YZJ dropped by 21.3%, pulling down the performance of Dogs and Puppies to -3.3% and -4.2% respectively. Thus, for the second year in a row, the original Dogs and Puppies outperformed the No-REIT Dogs and Puppies. Perhaps the original Dogs of Dow theory should not be tinkered with. 

Moving on to 2017, the table below shows the dividend yields of STI component stocks in descending order:

Counter Div (cents) Price 31/12/16 Div Yield Remarks
HPH Trust US$ 4.19 $0.44 9.64% Puppy
StarHub 20.00 $2.81 7.12% Dog
CapitaMall 11.13 $1.89 5.90% Puppy
CapitaComm 8.70 $1.48 5.88% Puppy
YZJ 4.50 $0.82 5.52% Puppy
A-Reit 12.19 $2.27 5.37% Puppy
Kep Corp 30.00 $5.79 5.18% Dog
SPH 18.00 $3.53 5.10% Dog
SingTel 17.50 $3.65 4.79% Dog
ST Engg 15.00 $3.23 4.64% Dog
SIA 44.00 $9.67 4.55%
OCBC Bk 36.00 $8.92 4.04%
SGX 28.00 $7.16 3.91%
ComfortDelGro 9.25 $2.47 3.74%
SIA Engg 12.00 $3.37 3.56%
SembCorp 10.00 $2.85 3.51%
DBS 60.00 $17.34 3.46%
UOB 70.00 $20.40 3.43%
Genting SP 3.00 $0.91 3.31%
SATS 16.00 $4.85 3.30%
ThaiBev 2.67 $0.85 3.14%
HKLand US$ 19.00 $6.33 3.00%
Capitaland 9.00 $3.02 2.98%
GLP 6.00 $2.20 2.73%
JMH 400US$ 145.00 $55.25 2.62%
UOL 15.00 $5.99 2.50%
Wilmar 8.00 $3.59 2.23%
CityDev 16.00 $8.28 1.93%
Jardine C&C 69.00 $41.23 1.67%
GoldenAgri 0.50 $0.43 1.17%

Just to recap, the Dogs of STI are the 10 highest-yielding dividend stocks in the STI, while the Puppies of STI are the 5 lowest-priced stocks among the Dogs of STI. Thus, the Dogs and Puppies of STI for 2017 are as follows:

Puppies of STI 2017
  • A-Reit
  • Capitaland Comm Trust
  • Capitaland Mall Trust
  • HPH Trust
  • Yangzijiang
Other Dogs of STI 2017
  • Keppel Corp
  • SingTel
  • SPH
  • Starhub
  • ST Engineering

So far, since 2014, STI has won twice while the Dogs & Puppies have won 1 time. STI has won when it rose (2014) or was flat (2016) and lost when it fell (2015). Which will win in 2017? Let us see in 2017!


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Monday, 26 December 2016

A Look-Back at My Blog for 2016

2016 is drawing to a close and it is an opportune time for me to reflect on my blog for this year. Regular readers of my blog would know that my blog posts this year have tilted towards understanding the business of the industry/ company. This is most clearly manifested in the series of 14 Oil & Gas posts and a couple of sporadic posts in banks and Global Logistic Properties (GLP). This tilt towards business analysis is also reflected in my investments, with selective positioning along the O&G industry chain and a big investment in GLP.

This shift towards business analysis as opposed to financial analysis has yielded advantages. Previously, being trained as a value investor, most of my investments were solely based on analysis of the financial statements, i.e. the company must have good earnings, low debts, strong cashflows, etc. However, the issue with financial statements is that they reflect the past business conditions, not the future business conditions that drive stock prices moving forward. It is like driving with the rear-view mirror. Thus, many times, I would buy into a stock with good earnings but whose price is declining, only to end up with declining earnings and further declines in share price later. This is most clearly epitomised by the misadventures in O&G stocks in late 2014.

With business analysis, past financial statements are only an input for understanding the business of the company and constructing a business model for it. They are a means to understand what factors drive the revenue and costs of the company. Using this model, you can feed prevailing news about the economy in general (e.g. rising interest rates), industry news (e.g. OPEC cutting oil production) and company-specific news into the model and forecast how future financial statements would look like. This way, when the next financial statement is released, you would not be surprised by the earnings report. Also, the next financial statement is used to check how accurate your business model is and make the necessary adjustments. It is also used to check how well management has executed their strategy and business plans and understand what are the potential risks. Financial statements are a means to an end and not the end itself.

Having said the above, I have actually not carried out an in-depth business analysis of any company in my blog. What I have done is broad-level analysis of industry groups instead, as a single industry analysis can provide a quick understanding of many companies in the industry. A blogger who has done in-depth business analysis of companies very well is SG Thumbtack Investor. Looking forward to 2017, I hope to carry out more business analysis for more industry groups.

Thanks for staying tuned to this blog throughout the year. Wishing all readers Merry Christmas and a Happy, Prosperous and Healthy 2017!


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Sunday, 18 December 2016

Why Is Protectionism A Concern For Singapore?

After the election of Donald Trump as US President, it has been said that his protectionist stance is bad for open, trade-reliant economies like Singapore. But what is trade? My idea of trade has stagnated since the secondary school days, when we learnt that Singapore had a thriving entrepot business due to its strategic location at the southern tip of the Straits of Malacca. Thus, if it is just the port business that is affected by protectionism, then it is not a very big deal, isn't it?

However, on further thoughts, trade is not just about the port business. When we buy goods from the supermarket or shop online from Amazon or Taobao, that is trade. When we watch the Premier League on TV, that is also trade. As investors, when our companies such as Keppel Corp builds and delivers an oil rig to the Gulf of Mexico, that is trade. And when SIA flies passengers from New York, it is also trade. Thus, trade is all over the place. It is what enables us to consume goods and services that Singapore does not produce and sell goods and services that Singapore produces. The smaller the domestic market is, the more reliant we are on trade with other countries.

The figure below shows the correlation between Non-Oil Domestic Exports (NODX) and GDP. The correlation between NODX and GDP is 0.52. It illustrates the importance of trade to GDP in Singapore.

Correlation between NODX and GDP

What would happen if there is no trade with external countries, as a result of protectionism and/or trade wars? In the extreme case, we would not have food, enough water, and power (because no natural gas), not to mention creature comforts like the latest iPhone or watching the Premier League. Keppel Corp could only build oil rigs for drilling oil in Singapore waters and SIA could only fly from Changi Airport to Seletar Airport! Very soon, these companies would go out of business and all the staff that work for these companies and supporting industries would be jobless! Thus, although we seldom think about it, trade is essential for the survival of Singapore. When there are threats of protectionism and/or trade wars, perhaps we should pay more attention to them, because our survival depends on free trade!


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Sunday, 11 December 2016

Making America Great Again and Its Impact to Asia

I delayed writing about the impact of Trump's victory in the US presidential election, primarily because I wanted more time to observe his policies. However, since US Fed is meeting this week to discuss interest rate rise, I will pen down my current thoughts. Things will change, as Trump might adjust his policies after he becomes president.

Since Trump's surprise victory, stock markets have rallied strongly. Part of the reasons has to do with some of the positive policies proposed by him, such as infrastructure spending, tax cuts, reduced regulations on banks, etc. If enacted, these policies will increase aggregate demand and speed up the recovery of the US economy. This is a refreshing change, considering that we have had 8 years of loose monetary conditions and the economy has not improved much since the end of the Great Financial Crisis. In fact, risks have increased in some areas of the economy, as described in What Have We Got After 8 Years of Easy Money?

However, Trump's proposed policies are not all positive. Chief concerns among his policies are his protectionist stance and worries that increased infrastructure spending would lead to inflation and interest rates rising more rapidly. Although increased infrastructure spending and tax cuts would strengthen the US economy, if US adopts a protectionist stance and raises import tariffs against other countries, other countries would not benefit from increased US demand as much as previously. This is especially so if other countries engage in a tit-for-tat retaliation against US protectionist policies. Furthermore, given the rise of anti-globalisation sentiments in many developed countries, the risks of increasing protectionist policies and trade wars cannot be ignored. Thus, while the US stock market has valid reasons for rallying, it is a little strange for other stock markets outside US to cheer when protectionist policies have beggar-thy-neighbour effects.

It should be highlighted that US policies have significant impact on other countries, as the world economy is mostly centred around US. US is a major export destination for many countries. Thus, when US decided not to proceed with membership in the Trans-Pacific Partnership (TPP), the TPP is said to be practically dead. When US pulls out of TPP, the net effect is equivalent to all other 11 members of TPP pulling out at the same time. In contrast, Brexit is only one country pulling out of the European Union. Had it been Singapore which pulled out of TPP, the Singapore stock market would have dropped, not risen as it had after Trump's victory.

Although a protectionist trade wall can limit economic benefits spilling outside of US, it does not restrain financial tightening from spilling into other countries. Given the unimpeded capital flow around the world, increase in US interest rates will lead to increase in interest rates in other countries as they try to hold back capital from leaving the country. Not only that, US dollar will rise relative to other currencies as investors get attracted to the better economic prospects in US. Companies that hold large amounts of US dollar debt are especially vulnerable. During the Asian Financial Crisis in 1997/98, regional currencies depreciated significantly against the US dollar (due to unsustainable trade deficits) and companies with large US dollar debts collapsed.

When news of Trump's surprise victory initially filtered through to the markets, stock markets fell precipitiously before rebounding equally sharply. Part of the reason is the reconciliatory tone in Trump's victory speech, which gave the markets hope that he might not go ahead with some of the more controversial policies proposed during the election campaign. It is interesting to note that the markets are willing to discount the negative policies but continue to give full weight to the positive policies. Whether Trump is able to implement the positive policies in full can only be seen a few months after he becomes president. If, for budgetary or political reasons, the policies cannot be implemented in full, the markets will likely be disappointed.

Thus, I am not optimistic about the recent rally in the Singapore stock market. It might continue for some time, but a few months into Trump's presidency, the markets will have a clearer picture of what he can or will do. Also, the interest rate path will become clearer by then.


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Sunday, 4 December 2016

Being A Co-Owner of GLP

It is often said that buying shares in a company means becoming a co-owner of the company. However, what does it really mean to be a co-owner? After my large investment in Global Logistic Properties (GLP), I finally understood what it means. Usually, for any investment, if the company is not doing well, I could simply sell and walk away. But when I initiated the 15% to 20% concentration in GLP, I told myself that there shall be no exits. If GLP sinks, I sink as well. Hence, I have to understand the business very well and monitor the prevailing risks to protect my investment. Such a mentality requires very different actions from the usual mentality in stock investments. In fact, I differentiate GLP as a business investment as opposed to other stocks which are financial investments.

The first difference between a business and a financial investment is the duration of the holding period. After I had overcome my initial jittery over the stock price fluctuations for such a large concentration in GLP (see My Roller Coaster Ride with GLP), I am prepared to hold GLP for 15 to 20 years or more instead of taking profit in the short term. Having understood the business model of GLP, even a 50% gain in the short term will not be sufficient. GLP has the potential to be a multi-bagger if it is given enough time to develop to its full potential according to its business model. It does not matter if the stock market were to close for the next 10 years. Financial investors make money from the markets, but business investors make money from owning and growing the business.

The second difference is in how financial statements, especially quarterly ones, are viewed. For financial investments, I would read the financial statements, possibly discover some concerns, and sell off the investment the next morning. I once sold off a growth stock (Riverstone) after it reported weaker-than-expected quarterly results, only to see the stock doubled in price. But with GLP, the quarterly results are reviewed to monitor how well the company is executing its business model and plans and what are the potential risks. A set of poor quarterly results does not lead to the stock being sold.

An analogy would be the quarterly exam results of your children. If the child only scored 60 marks for one particular quarterly exam, would you quickly give up on the child, or would you look past the score and delve deeper into the exam questions to understand how well the child has mastered the subject syllabus (i.e. followed the business plans) and which areas has the child done poorly (i.e. what are the risks)? Likewise, a business investment focuses less on the actual earnings figures but more on evidence of business model execution and potential risks.

Because of the differences in emphasis, the questions asked by financial and business investors at Annual General Meetings (AGMs) are also different. It is not uncommon to hear questions such as why is the dividend so low or why has the profit margin dropped in AGMs, but these are mostly focused on the short term financial results. Between quarters or even financial years, there are certain to be variations in the results. Sometimes, the variations might simply be a matter of timing, which will reverse in the subsequent financial period. Long term business investors are more concerned about the viability of the business model and the potential risks. For example, if you are a long term shareholder of GLP, would you not be concerned over whether it is at risk of being disrupted by technological innovations or economic trends, or how it is going to manage rising interest rates and declining renminbi value? These are issues that could threaten the viability of GLP and everybody's investment in it if not managed well. In constrast, how low the dividend or profit margin are for one financial year seem less significant compared to these issues. Financial investors ask questions related to the past (e.g. earnings, dividends, etc.), while business investors ask questions concerned with the future (e.g. opportunities, risks, etc.).

There is also a conflict in what financial and business investors want from their investments. As an example, GLP was recently rumoured to be the subject of a takeover by a group of Chinese investors. Financial investors might be satisfied with a gain of, say, 20% over several months if the takeover were to materialise, but business investors would see a great business and a potential multi-bagger over 15 to 20 years being taken away.

In conclusion, the mentality and actions from being a financial investor and a business investor are very different. It might be a lot more risky being a long-term business investor, but also more rewarding if you get it right.