Catherine Tan manages a number of Lloyd George Management's Asian specialist accounts including LG SLI Japan Fund, an Asian Internet Fund and an Islamic Fund.
Before joining Lloyd George Management in Hong Kong in 1998, she was a portfolio manager with DBS Asset Management in Singapore for 4 years . She was voted one of Asia's top ten fund managers in Asiamoney in 1997.
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The only no-brainer is the person who believes in a no brainer. Challenge the consensus.
Stay clear of stocks labelled no-brainers. There is no such thing. The best investors are those who work the hardest. It is a knowledge game and superior knowledge leads to superior returns. Read widely, think laterally and remember that history has a tendency to repeat itself.
At the top of a cycle, excess capex (capital expenditure) is always disguised as productivity increase. Think USA today, and remember the Japanese and then later the East Asian miracle , where there was a clamour to explain why productivity (later exposed as a myth) was substantially higher. Special mention goes to Singapore's Senior Minister who claimed it was because of East Asia's Confucian values.
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The only constant is change.
When a practice is continued because it has worked very well in the past, warning bells should ring. That is the worst reason to do something and is a sign of inertia or, worse , mismanagement. What is good today is easily bad tomorrow.
A case in point was the Thai dollar peg. In 1995, when asked if they would relax it, Bank of Thailand happily and adamantly rejected the idea saying it had worked so well in the past. In the process it built up pressure for the subsequent implosion. For everything, there is a time and season .
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Earnings are well and good but cashflow rules.
Earnings can be 'manufactured' more easily than cashflow. If it's such a great business, it will show in the cashflow. Likewise when things seem bleakest - at the height of the Asian crisis, for example - you can make a lot of money buying stocks trading at huge discounts to their cashflows. Buy strong cashflows. Caveat below.
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Cashflow return on investment ( CFROI ) matters.
Even with a cash cow business, be careful of majority shareholders or management whose interests may well be different from those of minority shareholders. Often cash- generative listed businesses are used to bail out failed or failing private enterprises through dilutive injections. If they cannot generate a decent return, the money should be returned to you.
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Balance sheets, accounts and prospectuses are a good source of information.
They are underutilised and should be scrutinised. There is a lot hidden in them which tells you more than any analyst could. Look for inter-company loans, bank guarantees , receivables etc., and read the risks.
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Macro matters.
No market is an island. Sector investing has taken roots and affects stocks everywhere. When America catches a cold, the rest of the world is still susceptible to pneumonia. In a liquidity rally, turkeys fly highest.
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Know why you are in the stock.
This will help you know why and when you should get out of it. Revisit the reasons why you bought a stock often. Ask if anything's changed. Be very honest. If you are in it for the ride, don't try and cloak the decision. That way, you are more likely to get off before the ride ends.
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Take profits. Take losses. Protect NAV (net asset values).
A bird in the hand is worth ten in the bush. If the stock has reached your target price, realise your profits. Revisit the fundamentals. If the only things that have changed are price and sentiment, sell. On the other side of the coin, don't be afraid to realise losses. If you wouldn't buy it today, don't hold on to it.
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Follow the insider.
Monitor insider actions, management transactions and company buybacks. If the people on the inside are selling shares to you, it's a strong signal that the market's overheated.
A particularly savvy insider is Li Ka Shing whose cash raising has generally coincided with the top of the markets and whose buybacks have coincided with its bottoms. His IPO of Tom.com, for instance, was right at the height of the internet mania.
Research unusual stock actions, whether surging volumes or unusual price movements. They are often the first indicators that something's happening, for good or bad.
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Asia is no different to the rest of the world, and the same global rules apply.
Don't make an exception. Don't be fooled into making exceptions.
