Is it too late to invest in Bitcoin?

Is it too late to invest in Bitcoin?

Happy Birthday!! On 12 Jan 2009, Nakamoto sent 10 bitcoin to Hal Finney. This became the first “transaction” in bitcoin history. 12 years later, prices of Bitcoin exploded to reach USD$40K (on 9 Jan 2021). What a journey! Such exponential increase in prices tend to spike interest among the retail investors on their wealth management journey. If you reading this, welcome to the club.

In this article, I will write about my understanding of bitcoin, where we are at the moment and also answer an important question in your mind.

Is it too late to invest in bitcoin?

Is it too late to invest in Bitcoin?

Is it too late to invest in Bitcoin? Source: Logo vector created by starline

Disclaimer: I don’t claim to be an expert in Bitcoin. All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.

 

Context Of Bitcoin: Currency Of Trust

Bitcoin was born slightly after the full swing of the banking crisis. What started as a subprime mortgage crisis eventually created a domino effect that crippled the ENTIRE world financial system. You can imagine the distrust in the financial industry at that time.

The original Satoshi Nakamoto white paper states: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Financial institutions now have new and stricter regulations to comply. At the same, another school of thought arose. Skip the financial institution altogether. It is what it meant by disruption. Imagine a world where you can make financial transactions without going to a bank. This loosely translates to a more efficient and cheaper financial services.

 

This is where Bitcoin was born.

Bitcoin is positioned to be the “currency of the future”. This boils down to back to the fundamental of money which is trust. The US Dollar has been positioned to be the global currency because it is widely accepted and “trusted” (consider why you won’t want to hold Zimbabwe’s currency). 61% of all foreign bank reserves are denominated in U.S. dollars, and nearly 40% of the world’s debt is in dollars. On the dollar bill, you will see this world called legal tender which means that it is acknowledged by the laws as a mechanism to settle a private or public debt or in order to meet a fiscal responsibility which includes paying taxes, abiding by contracts, and finally damages or fines.

Bitcoin is making waves as it becoming more “widely accepted” (I will discuss more about this later). It is also “trustable” as it is backed by blockchain technology. To put loosely, blockchain technology is used to share valuable data in a secure, tamperproof way. That’s because blockchains store data using sophisticated math and innovative software rules that are extremely difficult for attackers to manipulate. At this moment of writing, Bitcoin is not legal tender yet but is deal with as property or goods.

For a deeper understanding of cryptocurrency, blockchain technology and bitcoin, here is a good article by PwC.

 

Can it ever be used as money?

In the economic literature, something can only be used as money when it has these 3 functions. A medium of exchange, a measure of value and a store in value. Perhaps the heavily debated issue is if Bitcoin if it has a store in value.

Is there a store in value?

Bitcoin Price Volatility

Bitcoin Price Volatility

Consider this graph on the volatility of bitcoin over the past year and also past 10 years. The prices of bitcoin was never in any sense stable (which is what makes it exciting). Prices volatility have been north of 20%. A store in value is defined as something that can be saved, retrieved and exchanged at a later time, and be predictably useful when retrieved. Whether you are a bull or bear for bitcoin, I think we can agree that there is no predictability for the value of the coin in the near future.

Is it being used as a medium of exchange?

While Bitcoin transactions has been increasing over the years as it slowly become more “widely accepted”, we are unsure how much of it is being translated into real goods and services. According to newbtc, only 33% of bitcoin transactions are being used to purchases goods.

Bitcoin Transaction Trend

Bitcoin Transaction Trend

That being said, I believe that there will be more transactions in future. My question is IF my Bitcoin is appreciating at such an insane level, why would you ever use it to buy something? Taking a note back into May 22, 2010, now known as Bitcoin Pizza Day, Laszlo Hanyecz agreed to pay 10,000 Bitcoins (USD$400,000,000 or USD$400million today) for two Papa John’s pizzas for USD$25. Who in the right mind would want to use Bitcoin to buy anything? Imagine something that you bought at $25 then would now be USD$400million. There would be an extreme incentive to keep money or HODL (someone that keeps cryptocurrency rather than selling them).

Will more people start to use Bitcoin?

It is written that there is an “increasing adoption” of Bitcoin. I have my doubts as shown by this Bloomberg article. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset. Due to the finite nature of Bitcoin, an increasing adoption have to mean that the number 2% should start to go up. I believe there are some whales that are currently holding the bulk of Bitcoin for it to be used meaningfully as money.

Personally, I believe the original intent of it being used as money is now being shaken.

 

Bitcoin As An Investment Speculation

While I believe the original intent of Bitcoin have not been carried out, you cannot not deny that the people have been making money on it. Whether Bitcoin should be invested depends on who you are asking or who you are.

Futuristic Individual – Yes. We will be using cryptocurrency in future.

Value Investor – No. Because there is no value creation in Bitcoin (No revenue/cashflow/earnings).

Technical Analysis Trader – Buy at signal. Sell at signal.

Bullish Retail Investor – Hell Yeh. Huat ah!

Bearish Retail investor – Run for the hills! Let me tell you a story of the Tulip bubble.

Personally, I believe that there is room to speculate on this. With no foreseeable future usage (in my own humble/limited capacity), I feel that it is a strange asset class but an attractive tradable instrument.

 

Final Thoughts By Wealthdojo

There are still many things shroud in mystery. Who is Satoshi Nakamoto? Who are the 2% who is holding Bitcoin’s wealth? Are they the Russians, Chinese or terrorist? We will never know (at least for now).

With Bitcoin entering into the financial system, they have became part of the system they have set out to replace. The disruptor seemed to have become absorbed into the legacy system. The banks will live another day.

All views represent my own. I would love to engage in a healthy discussion of bitcoin in the comments section below.

 

For those of you who want to kick start your Wealth Management journey in 2021, why not consider joining my telegram channel?

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

 

10 SRS Investments to Consider Especially if you are 40 and older Retirement

10 SRS Investments to Consider Especially if you are 40 and older

If you are reading this, you probably have an amount of money in your SRS account. As the interest in the SRS account is 0.05%, you are also probably thinking of investing that amount. In the 6 Levels Wealth Karate, one of the key pillars of your financial journey is building up your investment portfolio and that includes your SRS account.

If you are unsure what SRS is, please refer to comprehensive SRS guide that was written previously.

Start Here: The $1 SRS Strategy

Basic Knowledge: 5 things you need to know about SRS when you are 40 and older

Your SRS Overseas Retirement Guide: 3 things you need to know about SRS if you plan to leave Singapore

Today, we focus on the 10 Investments you can consider using your SRS.

(Disclaimer: We will be explaining each concept with a real life examples. Please note that, those are not buy/sell recommendations. The suitability of the investment vehicle depends on each individual. Please talk to a competent financial advisor for more details.)

 

Investment #1: Fixed Deposits

A fixed deposit is an investment vehicle that pays account holders a fixed interest in exchange for depositing a certain sum of money for a certain period of time. It is very popular among the older generation as it is virtually risk free as long as the bank doesn’t collapse. Even if it does, your deposits are still protected, up to $50,000, thanks to the Singapore Deposit Insurance Corporation.

I have pulled up an example to showcase fixed deposits. It is worth noticing that after the 13th month, the interest will become more significant. Also if you are putting your money for 6 months or less, the interest is 0.05% which is indifferent for you to not put into a fixed deposit anyway.

10 SRS Investments to Consider Especially if you are 40 and older fixed deposit

10 SRS Investments to Consider Especially if you are 40 and older fixed deposit

 

Investment #2/3/4: Singapore Government Securities

Singapore Government Securities are debt instruments that are fully backed by the Singapore Government. Singapore Government Securities includes Singapore Saving Bonds (SSB), SGS Bonds and also Treasury Bills.

For SSB and SGS Bonds, you will receive interest every 6 months. If we put the definition loosely, it means you are lending money to the Singapore Government to receive a interest.

For Treasury Bills, it does not issue interest/coupons. You will receive the face value at maturity. If we put the definition with an example loosely, you are paying $0.95 now to get $1.00 in a xxx time frame.

I have taken a screenshot of the detailed comparison of the 3 securities here. Do check out more information on the MAS Website.

DBS has also created an extremely useful step by step guide to help you in your purchase of the securities.

10 SRS Investments to Consider Especially if you are 40 and older Singapore Government Securities

10 SRS Investments to Consider Especially if you are 40 and older Singapore Government Securities

 

Investment #5: Bonds

Bonds are basically debt instruments as mentioned above. However, I have separated bonds with the above SSB/SGS bonds because bonds can issued by companies etc. In a simple nutshell, the better the credit rating of the bond issuer, the lower the returns (or the coupon rate).

There are 3 main ones that you can purchase. Firstly, individual bonds, Bond ETF Funds, and Bond Unit Trusts (more on ETF/Unit trust in a while).

A popular example of a bond is the Astra V PE Bonds Class A-1. It was popular because the bond was issued by Temasek Holding’s subsidiary, Azalea. It was offering 3.85% annual interest for it’s bonds and was 7.2x oversubscribed in 2019. In this bond, you can see their investment diversification on their website. (Again, this is not a recommendation)

10 SRS Investments to Consider Especially if you are 40 and older Astrea V Bonds

10 SRS Investments to Consider Especially if you are 40 and older Astrea V Bonds

 

Investment #6: Stocks

A stock (or equity) is a security that represents the ownership of a fraction of a corporation. Loosely define, you are a partial owner of the company when you purchase the company’s stock.

There are several methodologies that you can use to invest in stocks. Recently, the hottest topic around is whether Value Investing Is Dead Or Maybe Not. I have also written about a hidden gem in the Singapore Stock Exchange that might have short term capital appreciation in the next 6 months. If you are interested in banks, I have written about DBS business and opportunity.

The example I will be using is an evergreen stock in the Singapore Stock Exchange called Singtel. It is important to know what you are investing in. Most people only recognized Singtel for its’ mobile and data internet service, but do you know that >50% of their revenue comes from something else? Stock investing require greater skills and mental fortitude. I strongly encourage you to learn more about stock investing before dipping your toes into it.

PS: You can only invest in stocks listed in the Singapore Stock Exchange using your SRS.

10 SRS Investments to Consider Especially if you are 40 and older Singtel Business Revenue

10 SRS Investments to Consider Especially if you are 40 and older Singtel Business Revenue

 

Investment #7: Reits

Reits (real estate investment trusts) are the same as stocks except they invest only in real estate. They tend to have higher distribution yield as compared to stocks because of their consistent cashflow from rental. Similarly, you can only invest in a Reits that is listed in Singapore. At the end of 2019, Singapore has 35 REITs, six stapled trusts and two property trusts.

An example is the Mapletree Industrial Reits. Its principal investment strategy is to invest in a diversified portfolio of income-producing real estate used primarily for industrial purposes in Singapore and income-producing real estate used primarily as data centres worldwide beyond Singapore, as well as real estate-related assets.

As at 30 September 2020, MIT’s total assets under management was S$6.6 billion, which comprised 84 properties in Singapore and 27 properties in North America (including 13 data centres held through the joint venture with Mapletree Investments Pte Ltd). MIT’s property portfolio includes Data Centres, Hi-Tech Buildings, Business Park Buildings, Flatted Factories, Stack-up/Ramp-up Buildings and Light Industrial Buildings.

10 SRS Investments to Consider Especially if you are 40 and older Mapletree Industrial REITS

10 SRS Investments to Consider Especially if you are 40 and older Mapletree Industrial REITS

 

Investment #8: ETFs

ETFs are called exchanged traded funds. An ETF typically replicates a specific index (for example, the Straits Times Index or the Singapore Market). The main feature of an ETF is that it is passively managed and do not try to outperform the underlying index. They usually have lower fees and charges as compared to actively managed investment funds such as unit trust.

Currently, there are 39 ETFs listed in the Singapore Exchange.

One example is the SPDR® S&P 500® ETF Trust (S27). They are investing in the 500 companies in the S&P500. You can take a look at the top 10 holdings of this ETF.

10 SRS Investments to Consider Especially if you are 40 and older SPDR ETF

10 SRS Investments to Consider Especially if you are 40 and older SPDR ETF

 

Investment #9: Unit Trust

Unit Trust is a fund that invested in a portfolio of assets according to the fund’s stated investment objective and investment approach. It is usually more active than ETFs. Unit trust could be diverse because there could be infinite investment approaches in the world.

You could invest in a dividend fund, a growth strategy fund, a commodity fund, a growth strategy in emerging countries, a dividend strategy fund in a developed market (I think you get the point now), etc. Because unit trust is so broad, we will not be giving an example. I feel it is best to work with a financial advisor to discuss and find the most appropriate unit trust for you.

 

Investment #10: Single Premium Insurance Product

A single premium insurance are usually retirement/annuity/accumulation products. Not all insurance products can be bought using the SRS.

There are 2 strategies in general. One being a lump sum payout at maturity or a stream of income in the future, starting from a date of your choice. A portion of your investment returns are guaranteed as compared to investment #5/6/7/8/9. This appeals to those that are seeking a more conservative and steady income stream during retirement. There is also a possibility of bonuses that are non-guaranteed.

Please feel free to contact me to have more information on these.

PS: An article isn’t complete unless there is a photo of retirement with 2 loving elderly =)

10 SRS Investments to Consider Especially if you are 40 and older Retirement

10 SRS Investments to Consider Especially if you are 40 and older Retirement

 

Final thoughts by Wealthdojo

Whichever the financial vehicle that you are deciding, it is important to understand and know your risk profile, knowledge level, budget, income etc to make a good investment decision.

I wish you all the best in your investment. Do contribute to your SRS before 31 Dec if you wish to have tax benefits for your financial year.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

The $1 SRS Strategy Retirement Age

The $1 SRS Strategy

It is 45 days before the end of the year. Have you accomplished your 2020 goals? Whether it is a financial goal or a fitness goal, the good news is that we have another 52 days left.

In the 6 Levels Wealth Karate, we talked about many strategies while you embark on your wealth management journey. Today, I want to congratulate each and every one of you for being invested in your financial journey. If my blog has helped you, I would appreciate if you could comment how you have benefited in the comments below.

If you have not started, it’s okay. This article will be the easiest way to start to start.

 

Supplementary Retirement Scheme (SRS)

Previously, I have already talked about SRS. In this semi viral article, I described the 5 things you need to know about SRS when you are 40 and older. Personally, I believe that SRS may be suitable for someone who is 40 years old and above.

This is because it is likely that your income is more than $80,000. There will be great substantial tax savings. Plus, we might need liquidity for housing/renovation/marriage/children purposes before that. This will post an liquidity issue. Someone 40 and above might fit into such a category.

In the “best case scenario”, you will be withdrawing $40,000 per year and that income will be tax-free (assuming you are not working).

Please read the above post to learn more about the details.

 

The $1 SRS Strategy

This strategy is the most important strategy of all. This is because we need to first start!

Yes. Most goals failed because they have not even started. Think about it, did you “renew” your 2019 new year’s resolution in 2020 because you didn’t accomplished it in 2019? It need not be a financial goal. What about your fitness goal? What about your learning goal? If this seems like the case, you have the opportunity to change now. By doing so today, you will shave off up to 3 years of your retirement age. If that is not enough, all it takes is $1.

How is that possible? Let’s gather a few facts.

You can make penalty free withdrawals from your SRS on or after the statutory retirement age (currently at 62) that was prevailing at the time of your first SRS contribution. In 2019 National Rally Speech, PM had announced the retirement age to be raised to 63 in 2022 and 65 in 2030.

This will mean that if you still refuse to open your SRS account by 2022, your penalty free withdrawal will increase by 1 year. If you still refuse to open your SRS account by 2030, your penalty free withdrawal increase by 3 years.

The minimum that you can contribute is a grand total of $1. If you are above 18, all you need is to contribute $1 to “lock in” your retirement age to be 62.

The $1 SRS Strategy Retirement Age

The $1 SRS Strategy Retirement Age

 

Your 1 Minute Opening Guide

You no longer need to go to the physical bank branch to open up your SRS account anymore. All it takes is 1 minute.

This is the way I do it. My personal SRS account is with DBS (for convenience sake). You can also open your SRS account with OCBC or UOB. It is only 2 steps, click click and you will have an SRS account. If you are unsure how much to contribute, you can always contribute $1 to your SRS account first to “lock in” your retirement age.

The $1 SRS Strategy DBS

The $1 SRS Strategy DBS

This guide serves to let you under how $1 can lock in your statutory retirement age. In fact, do it now! Log into your DBS/OCBC/UOB internet account and do it now!

 

What can you do with your SRS account?

By popular demand on my Telegram group, I’m currently writing on how to invest using your SRS account now. If you have any questions that you want to be addressed in that article, do drop me a comment and I will include that in the article.

Otherwise, this is one question that is commonly asked: 3 things you need to know about SRS if you plan to leave Singapore. This is for people who wants to live in another country during retirement.

 

Final thoughts by Wealthdojo

We wish you the very best in your 2020 goals. Otherwise, we hope that this will be your first financial milestone.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Value Investing Is Dead Or Maybe Not

Value Investing Is Dead Or Maybe Not

Is Value Investing Dead?

Value Investing Is Dead Or Maybe Not

Value Investing Is Dead Or Maybe Not: Warren Buffett (Photo From Market Watch)

In the 6 Levels Wealth Karate, I talked about the importance of creating a superfund income. We do this via investment. Right now, there is a fierce debate on whether value investing is dead. To all value investors, we know that price is an important component of value. That’s why we’re called value investors. I challenged The Moss Piglet on his investment thought process and we want to share with you if value investing is dead or not.

In one of his recent blog post, he opined that it is time to update our approach to value investing for a changing world. In this article, he would elaborate more on his view of this new paradigm of value investing.

 

Brief History of Value Investing

The father of value investing was Benjamin ­Graham. He gave birth to this term roughly 100 years ago. During that time, the Dow Jones industrial average comprises of only industrial companies like Anaconda Copper and National Lead. Consumer marketing was still in its infancy. The closest thing to a consumer products company was probably General Motors.

Attracted to the upside of equities, Graham set about trying to figure out a predictable, systematic way to make money in stocks. He turned to corporate financial statements to look for answers. Graham saw that while stock prices fluctuate in the short run, a company’s tangible assets had a solid, precise value. By calculating value and then comparing it with price, Graham found he could make sense of markets. Thus was born the book “Security Analysis” and, with it, value investing. With his focus on liquidation value, Graham tended to buy boring, beaten-down businesses (Sidenote: I’m looking at this hidden gem at this moment in time). This was also known as cigar butt investing.

Value Investing Is Dead Or Maybe Not Benjamin Graham

Value Investing Is Dead Or Maybe Not Benjamin Graham (Photo from Quotiepie)

Then came a young man from Omaha who studied under Graham at Columbia. This man was none other than Warren Buffet. Surveying the economy of the mid-1950s, Warren Buffet saw that it was very different from the one Graham had encountered when he was young.

The Dow Jones Industrial Average now contained companies like Procter & Gamble, Sears, and General Foods. These companies were fundamentally different from an industrial company: The primary driver of their business had little to do with hard assets. Rather, the value had to do with the company’s brands and the loyalty and familiarity that comes along with it. The emotional ties to products like Budweiser and Jell-O allowed businesses to charge a premium for their goods.

At the same time, the rise of national television enabled strong brands with deep pockets to flood the television networks to reinforce a culture of homogeneity. This setup a vicious cycle for dominant brands like Coca Cola and Nike as they went from strength to strength while lesser brands slowly withered away. With that, Buffet was more willing to apply a more qualitative assessment of companies than Graham.

 

Defining Value Investing

At its roots, value investing is simply a framework for investing that involves buying stocks for less than their underlying value (Side read: Is Ant Group Overvalued?). As Warren Buffet says,

“Price is what you pay, value is what you get.”

The definition of value investing varies widely even among value investors. Damodaran has an interesting take on defining value investing where he classifies value investors into four groups. This depends largely on their approach of finding value stocks.

 

Passive Value Investing

Also known as the buy and hold strategy, investors screen for companies using criteria that they believe will lead to value stocks. Once they bought the stocks, their patience will pay off as “the market is a voting machine in the short run and a weighing machine in the long run”. We see screens ranging from “low P/B” and “low P/E” and “Quick Ratio” to more qualitative screens like good management and the use of Piotroski F-score and Benenish M-score. (One application is picking up quality companies during COVID19)

Contrarian Value Investing

In contrarian value investing, you focus on companies that have seen steep drops in stock prices. Investors believe that markets tend to overreact to news and that corrections will occur eg. Uranium trade and tanker trade.

Activist Value Investing

This style is a lot like contrarian investing, except the target companies are cheap companies where the investor believe that value can be unlocked through management action. Some examples of potential management actions that can create value include spinning off subsidiaries, share buyback, dividends etc. After acquiring a large portion of the company, the activist investor will often publicly lobby the Board of Directors to adopt their proposed changes to unlock value. The whole process can take a long time and activist investors need to be patient and persistent.

 

Valuation Challenge of an “Asset-Light” Economy

Warren Buffet’s ideal businesses were generally capital-intensive industries such as insurance and railroads, or they produced a widely advertised consumer products. However, it is becoming increasingly clear that we are now looking at a new breed of asset-light compounding machines with huge network effects.

Unlike the 1980s where most corporate investments were in tangible (physical) assets, we now have companies which value originates in intellectual property such as invention, knowledge and software. Yet all these asset light companies are harder to value because intangible assets are difficult to estimate. Technological change is very rapid and the risk of disruption is higher than the more traditional industries with predictable revenue, cash flow and earnings.

Value Investing Is Dead Or Maybe Not Digital Transformation

Value Investing Is Dead Or Maybe Not Digital Transformation (Photo From Brain Solis)

Modern accounting also failed to reflect the real values of intangible assets on the balance sheet, hence rendering the book value valuation (P/B Ratio) useless. A research paper from NYU Busines School titled “Explaining the Recent Failure of Value Investing”  goes into much further details on this topic.

Today’s valuation problem is in fact more challenging because the proportion of assets that are intangible and immeasurable is even larger.

 

We present to you: Value Investing 3.0

The high level concept of value investing is always useful, to buy with a margin of safety, at a discount of intrinsic value. However, the application method is going to change, especially in this easy money environment. In the past companies would have to wait for profits before expanding business by reinvesting the profits. Now, the company doesn’t need to do that anymore. Eg. Tesla can issue new shares to raise capital for building new factories in Germany and China. Never in the history of capitalism has no much wealth been created using so little capital.

The good news is, even in an economy transformed by technology, many principles of value investing still apply. 

1) Always look for businesses with a clear-cut competitive advantage. These companies should also look to build and maintain market share. Eg. Amazon has a stranglehold on e-commerce, Google owns search. Value investors have to think about how a company will be able to earn outsize profits over the next generation.

2) Traditional value investors view margin of safety as a “discount” to their intrinsic value, where you price in the risk of investment mistakes. For me, the margin of safety now lies not in the tangible assets but rather in the sustainability of the business itself. I still prefer to find cash producing businesses in strong financial condition selling at undemanding valuations. Of course, with these margin of safety criteria, I will most probably be looking at large, diversified and mature tech companies.

3) If Value Investing 2.0 is about consumer brands like Coca Cola operating with economies of scale, Value Investing 3.0 stocks relies on the network effect. A company will become more valuable as more people uses its products and services. Examples are Match Group (MTCH) and Google (GOOGL), where their users tend to come back for more. Match Group owns a portfolio of dating website and apps, which grew large due through significant network effects. Google gained an early edge due to its superior search algorithm and now “google it” became a verb meaning to do an online search.

Value Investing Is Dead Or Maybe Not Network Effect

Value Investing Is Dead Or Maybe Not Network Effect

 

Takeaway

Value investing is affected by the complexities of evaluating companies in the new asset-light and knowledge economy. Relying too much on historical data would lead investors to focus too much on companies whose peak growth has come and gone. What worked in the past often does not necessarily work in the future. Investors should not only consider Value Investing 3.0 prospectively but also to give some thought to the vulnerability of Value Investing 2.0 companies (RIP Robinsons).

However, the essence of value investing philosophy has not changed – merely the environment. From the 1930s to the 1960s, value investing was centered around cigar butt stocks. Over the next 50 years, it shifted toward consumer brands, economies of scale and capital-intensive commodity businesses. Now the best value investing opportunities can be found in asset-light compounders with huge network effects.

I would like to end this post with a quote from a book, The Intelligent Investor:

“The underlying principles of sound investment should not alter from decade to decade, but the application of these principles must be adapted to significant changes in the financial mechanisms and climate.”  – Benjamin Graham

Cheers

Author Bio

The Moss Piglet is a financial blogger who enjoys expressing his findings and opinions about the financial markets. He is always on the hunt for irrationally beaten-down stocks as well as lesser known companies that are of value. Follow his investing journey at https://themosspiglets.com/.

 

Final thoughts by Wealthdojo

Times may change. But the investing principles will remain the same. Whether if is value investing 2.0, 3.0 or even investing using an investment linked policy, please treat your investment seriously. My wish is for everyone to invest wisely. If you have not started investing, there are basically 2 ways to do so.

  • Do it Yourself (DIY) – Learn about investing successfully and invest on your own.
  • Do For You (DFY) – Get someone who can invest successfully to invest on your behalf

We wish you good fortune for the rest of 2020. It is not too late to start.

 

Join my Telegram Channel for a tip a day! In Wealthdojo, we dedicate a small amount of time daily for learning new things. Continuous learning is one of the greatest secrets of success.

For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.

Is Ant Group An Overhyped

Is Ant Group An Overhyped?

Ant Group IPO has been halted! Does it have problem with the Chinese government or does it present us more time to understand the company?

Is Ant Group an overhyped? Ant group announced that it would want a market valuation of USD $200B and later raise it to USD $313B. In the latest valuation I can find, Ant is going to be listed at HKD$80 on 5 Nov 2020. It will be listed on Hong Kong and Shanghai and will be the largest IPO of all time. We aim to find out if Ant Group is an valuable company to invest in.

Disclaimer. Please read. To set the context right, in the 6 Levels Wealth Karate, investing in an excellent business at an overvalued price is a lousy investment idea.

Is Ant Group An Overhyped

Is Ant Group An Overhyped

 

Introduction

Ant Group is started as Alipay created by Alibaba in 2004 as a payment tool of online market place. Besides logistical issues, there was a lack of something important in the internet space: Trust. It is not hard to imagine people losing their money via scams. Hence, people were generally more skeptical towards online payment at that time (probably even today). To create trust, Alipay did something different. Alipay held the buyers payment first. They then released it to the sellers after the buyers confirmed that they have received and are happy with the purchases. This deterred fraud and scams.

To further build trust, Alipay launched a campaign in 2015. If a user were to suffer a lost due to an online fraud/scam while using Alipay services, Alipay will compensate them.

Today, Alipay has 1.3B active users with a 55% Chinese Market Share for mobile payments. The only significant rival: Wepay and QQ Wallet with 40% combined.

Is Ant Group An Overhyped Overview

Is Ant Group An Overhyped Overview

It has also gone from being a digital payment (wallet) to having digital solutions (place to spend money). Ant Group is a middle man who is working with service providers (bank/insurance companies/investment funds). Consider this an expansion of the current application at Alibaba where people buy products from companies. With 1.3B active users, I cannot imagine the amount of transactions going on with this application.

Today, I present the following reasons why I think Ant Group is an excellent company to be invested in.

 

#1 – Ballie Gilford is invested in them

Call me bias. Ballie Gilford has been investing in growth opportunities since 1908. They are an early investor into some of the world’s most valuable private and public tech companies, boasting a roster of portfolio companies that includes unicorns from nearly all generations in modern tech, including everything from Amazon, Google and Salesforce to Tesla, Airbnb, Spotify, newly public Lyft, Palantir and even SpaceX.

I got to know about this company when it first made its’ appearance when it partner with AIA. After looking at Ballie’s growth investing strategies and its’ track record, I am more confident of Ant Group.

 

#2 – They are profitable

This speaks volumes. In the current trend where people don’t mind investing in non-profitable companies, Ant demonstrated that there is real demand and there is REAL money being made. There is so much to interpret from this table and I hope you can look closer at it.

Is Ant Group An Overhyped Profits

Is Ant Group An Overhyped Profits

Ant Group has been in profits since 2017. Though it has not been a consistent trend, it is unlike the other unicorns who are not in profits yet.

Secondly, digital payment and merchant service has seen increasing revenue. However, the percentage of revenue has been reducing. This means not only digital payments (their original bread and butter) has been growing, their new technology platform has been picking up even faster! People are starting to get credit, investment and insurance using Alipay.

Thirdly, who knows what other businesses they can complement with which leads us to point 3.

 

#3 – They do not compete. They complement.

Ant Group is a middle man and the ultimate place to do business. Instead of starting a bank or insurance company, Ant Group partners them to provide their services. Ant Group takes less risk and yet is able to command a profit whenever someone needs a service with a bank or an insurance company.

They are the ultimate middle man that is impossible to remove because you would need to do your trusted payment using Alipay. In many investment courses, we call this an efficient scale moat.

Their only direct competitor is Wechat. The good news is that there is a tread that Alipay has been chipping away Wechat’s market share slowly.

Is Ant Group An Overhyped Overview Wechat Pay VS Alipay

Is Ant Group An Overhyped Overview Wechat Pay VS Alipay

 

#4 – Valuations are reasonable

I wanted to get into an Pre-IPO deal. However, my broker from CGS-CIMB wasn’t able to get a retail placement for us. Being >800X oversubscribed, that is understandable.

Currently, Ant Group profits are USD$3B for the first 6 months. If we assume that their profits will be the same in the second half of the year, it will mean that their profits are USD$6B in 2020.

In a simple analysis, the PE ratio for Paypal (02 Nov 2020) is 86. This gives a valuation of $516B. The current valuation is $313B.

For some of the advanced folks who have been following my blog and webinars, you know that I use the discounted cashflow frequently to valuate companies. Using a discount rate of 10.5% and the growth rates assumptions, my 20 years DCF shown a figure of $88HKD.

All these points to that fact that the valuations are reasonable.

Is Ant Group An Overhyped Discounted Cashflow

Is Ant Group An Overhyped Discounted Cashflow

 

Final thoughts by Wealthdojo

It is always fun and exciting when a company IPOs. Please treat your investment seriously. My wish is for everyone to invest wisely. If you have not started investing, there are basically 2 ways to do so.

  • Do it Yourself (DIY) – Learn about investing successfully and invest on your own.
  • Do For You (DFY) – Get someone who can invest successfully to invest on your behalf

We wish you good fortune for the rest of 2020. It is not too late to start.

 

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For those of you who want to turbocharge your journey, contact me at chengkokoh@gmail.com. I would like to hear from you what your experiences are currently and from there, we develop a plan specially catered just for your journey.

We wish you all the best! Stay Safe and Take Care!

Chengkok, Sensei of Wealthdojo.