Monthly Review - November 2012

November was a month of  excellent financial progress with gains in my equities being supplemented by favourable commodity and FX movements and supported by savings. Cash flow from the properties was about break even as I had a vacancy. The result was a solid increase in net worth.

Here are the details:

1. my Hong Kong equity portfolio appreciated sharply. This was the source of most of the gains this month. I opened a position in Sinolink Holdings and added to my existing position in China VTM. I sold my shares in Yanzhou Coal;

2. my AU/NZ equities appreciated slightly;

3.my ETFs appreciated in line with the local markets. The exception was Vietnam where a combination of domestic market movements and FX losses caused the ETF to fall again;

4. my commodities rose with most of the gain being in silver. I added to my silver position;

5. all but one of my properties were occupied with all tenants paying on time. There was one vacancy. There were no repair bills;

6. currency movements were positive, as the NZD and AUD rose against the HKD/USD;

7. my position in bonds remains small;

8. there were no open derivative contracts;

9. savings were average with good income being matched by high expenses. Not only did I have to pay for the air tickets and hotels for our Christmas holiday but I added a few more cases of wine to the "cellar" I have built up in the UK.

My cash position fell slightly with more money going out than coming in. I currently hold 40 months of expenses in HKD cash or equivalents. This is above my target floor of 24 months.

For the month, my net worth increased by an impressive 3.6%. The year to date increase is 27.2%. My retirement date has been fixed for the middle of next year for reasons that have nothing to do with finance - financially, I am past the point where I can afford to retire.

Book Review: You Say Tomayto ...

"You Say Tomayto ..." (Contrarian Investing in Bitesize Pieces) is written is a similar style to Anthony Bolton's "Against the Tide", a series of short summaries on various matters which a fund manager considers relevant to the business of making stock selections for an actively managed fund. In this case the author is Alistair Mundy who heads Investec Asset Management's Contrarian Equity Team who has reproduced a series of his monthly commentaries from the last four years.

While there were only a relatively small number of points which I had not previously encountered or concluded on my own, on the whole there was enough material to make reading a worthwhile exercise. Especially now when equity markets have been relatively kind, it is worth remembering that good times are generally followed by bad and departing from the principles of being a value investor can be damaging to your wealth.

I particularly liked the sections dealing with breaking down market commentary (mostly useless), sales pitches (ditto) and the momentum investing (a bad idea).

Book review: Investing Against the Tide

Anthony Bolton earned a stellar reputation as the manager of Fidelity's Special Situations Fund. Against the Tide is Bolton's recount of his investment approach and some of the techniques used in managing investments.

The material covers basic principles in assessing the merits of a company's shares and the techniques for selecting individual investments (both to buy and to sell). As a general statement, the principles were well stated but did not offer anything new. Everything contained in the book (apart from Bolton's personal observations and experiences) has been well flagged by others. As an example, the benefits of investing in companies which have strong franchises,  the risks of owning companies with high gearing and the preference for buying shares at "valuation anomalies" to obtain a margin of safety. These are all mantras that have been repeated by others.

What I did find interesting was the addition of technical analysis to fundamental analysis and the behavioral aspects of "Twelve qualities that make a good portfolio manager".

One thing that struck me as odd was the heavy emphasis on direct meetings with company management. Obviously, these are not available to retail investors like myself and it is somewhat irksome to have the utility of such meetings to professionals regarded as being of high importance. While there is nothing illegal in such meetings (no insider information should be passed), it would make for a more level playing field if such meetings were either banned or done my conference call where all interested persons could join.

Succinctly written but no new insights.

Oxfam Trailwalker 2012

I took part in this year's Hong Kong Oxfam Trailwalker - a 100 km hike accross Hong Kong's rather hilly New Territories. We started with very pleasant hiking conditions during the day. The night was a different story. Being caught on some of Hong Kong's more exposed hills (Needle Hill, Grassy Hill and Tai Mo Shan) for much of the night with only a t-shirt and a disposable plastic raincoat was a very unfun way to learn about windchill. Still, we finished within half an hour of our (not very quick) target time and I'm already thinking of how to get around the course a bit quicker next year. With retirement on the horizon, I should have time to train a bit harder.

Getting down to the last time for some tasks

With less than seven months to go until I retire, I am starting to experience a few things for the last time (I hope!).

Today I submitted my last ever self assessment. Since I have concluded that I won't be bonus eligible this year and will be officially handing in my notice shortly after the actual assessments have been done, it ended up being a lot shorter than usual. Shorter is better - less work for me and less work for the people who read it. Somehow, it seemed like a major milestone on the countdown to retirement - in  fact the first such "last" that has actually struck me as being in some ways meaningful.

Looking forward, I can see a succession of other "lasts" approaching. Next up is my last office Christmas party.

Sinolink Holdings purchased

This morning I added a few shares in Sinolink Holdings (HK:1168) to the portfolio. The company is a small scale PRC property developer and investor whose shares are currently selling a large discount to the net cash position (40%+) and an even larger discount to the book value of the assets (around 70%). Even by the standards of the discounts applying to peer group companies, this would appear to excessive to me - especially given the very high net cash position.

The company does not pay a dividend.

I paid an average of HK$0.61 per share.

Silver purchased

I tried to purchase some physical silver and was told that the bank was "out of stock" so I added a little more notional silver to the portfolio instead.

I paid HKD251.60 per ounce (approximately USD32.36).

China VTM purchased

I have held shares in China VTM (HK:893) for some time. They were originally acquired during the boom in iron ore prices and I have been sitting on a loss almost from the day I purchased them.

Earlier this week, the company announced that it had received a letter from it's controlling shareholder that it was interested in a possible privatisation of the company. The possible privatisation would be subject to a number of conditions, of which the most significant is the provision of finance for the offer. Given that the offeror (and concert parties) already owns around 50 percent and that the company is cash flow positive and sitting on a reasonable amount of cash (both as per most recent interim report) and assuming that the offeror puts at least some of its own money on the table (a point on which the announcement is silent), I'd like to believe that financing would be available.

If it proceeds, the indicated offer price is HK$1.72.

I have added some additional shares to the portfolio in the belief that the offer will proceed. If I am right, then there is about 8% upside from current levels. If the offer does not proceed, then the share price will probably head materially lower in at least the short term.

I paid HK$1.59 for the additional shares.

Yanzhou Coal sold

Yesterday I sold my shares in Yanzhou Coal (HK:1171).  A combination of high gearing, high capex and broker downgrades prompted the decision. And yes, I am kicking myself for not selling when the shares were close to HKD30.

The sale price was HKD12.28 per share representing a profit of approximately 21% (taking into account transaction costs and dividends).

In need of a new camera

It looks like my trusty but aging EOS 5D may be nearing the end of its useful life. I've had the camera for about seven years now and it is starting to malfunction with auto focus and flash sync both failing to work properly. I'll take it over to the Canon shop to see if it can be repaired, but strongly suspect that it will not be worth the cost.

If I do need a new camera, I am inclined to stick with a Canon full frame sensor - either the ID X or 5D III. While the Nikon D800 looks wonderful (and the built in flash has its attractions), given my existing Canon lenses and flash, I don't think it is worth shifting to another brand. Put differently, if I am happy with the 5D, then the 5D III will still be a meaningful step up.

Eight pay days to go

Another month has been and gone. As far as retirement planning is concerned, nothing of substance has changed: there have been no changes to my proposed allocation of the remaining pay cheques and I have not increased the number of people who are aware that I will retire next year.

At the moment, it is still far enough away that the it hasn't really sunk in yet and I still worry that something may happen to cause the date to be shifted again. Possibly a case of the price of freedom being eternal vigilance. Once I am past New Year, I expect that the impending retirement will start to feel a bit more real.

Financially, everything remains on track (in spite of the best efforts of the Hong Kong government to keep me in the work force by cracking down on property investors) and our household expenses continuing to rise as the inflationary effects of QEternity continue to affect Hong Kong.

As far as the non-financial aspects are concerned, I would like to start picking up some of my intended retirement hobbies and interests - I really don't see the point in waiting - to the extent that they do not unduly impact on my work or family.

I've signed up for the Hong Kong marathon in February 2013 (which took over three hours dealing with a "busy" on-line application portal) and should start doing some training for that. If nothing else, I have a bit more motivation to keep up the exercise regime.