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From the Fund Management Jungles: Value Investing Exposed and Explored (Public Workshop Series)

In Search of Compounding Stocks in Uncertain Times

From the Fund Management Jungles: Value Investing Exposed and Explored (Workshop Series)

In Search of Compounding Stocks in Uncertain Times (Series #1 of 4)

FE Asia Consultancy Pte Ltd

Saturday, 13 July 2013 from 09:00 to 17:00 (SGT)

Singapore, Singapore

Event Details

“In business, I look for economic castles protected by unbreachable ‘moats’.”

– Warren Buffett

With unresolved crises on the horizon, investors are often immobilized in making investment decision. “Wait for the clouds to clear” is the mantra. Value investing appears to provide a way out to see opportunities in cloudy weather by using the “cheap” price signal to identify “out-of-favor” neglected stocks and invest in them for “reversion back to mean”. Hence, pick stocks with “cheap” valuations based on conventional metrics and ratios – how much lower can they go anyway? – and they will bounce back up to their historical average levels. Or simply wait for a market dip, or a crash, before declaring some magical list of top ten stock tips to invest in. This is NOT value investing.

When Li Ning, the “Nike of China”, announced that its founder is going into industrial park and property development in September 2010, the stock has been a darling, having a competitive “moat” with brand recognition and it has recovered strongly since its bottom in March 2009 by climbing 140% to HK$24 per share. Oh, it is already expected that the market will react negatively to the property news, now it is down 20% to HK$19, value stock, be contrarian, BUY! Down another 20% to HK$15, getting cheaper and it’s out-of-favor, it will bounce back up, BUY! And the value investor catches the falling knife until below HK$5 now; while Nike hits an all-time high.

How do value investors distinguish whether “cheap” stocks are value traps or opportunity?Without an understanding of the underlying business model dynamics and analyzing the durability of the economic moat, an investment decision based on price and macro signals and historical valuation metrics can be misleading and costly. Without an understanding of business model, one would also have sold Wal-mart after it was listed in 1972 as the stock crashed over 60% in the next three years. Wal-mart went on to compound 1,200-fold since 1972 to over US$250 billion in market cap – a $100,000 investment in Wal-Mart becomes a $120 million treasure trove. So why is Wal-mart able to bounce back to scale new heights but the same cannot be said for the “Nike of China”?

Can resilient business models – Bamboo Innovators – outperform even in stormy periods? When Shanghai Composite Index crashed 70% from its peak of 6,000 in October 2007 to below 2,000 at the bottom in March 2009, Yunnan Baiyao was UP around 8%. As the index bounce to 2,200, still down 60% from its peak, Baiyao is up over 220% during the same period. Increasingly, such resilient business models are outperforming in Asia and globally; while the “cheap” stocks get cheaper and they become the fertile ground for “insiders” (庄家) who manipulate prices and volumes and inject “action” via exciting corporate news announcement of “sexy” projects or M&As, luring investors in and then offloading to them in a pump-and-dump cycle. Sophisticated value investors can overcome poor and uncertain macro conditions by investing in resilient compounders because they have their own internal rhythm to create value, like the bamboo, which bend, not break even in the wildest of storm that would have snapped the once-mighty oak tree.

Course Highlights:

– Mr Kee, one of the few Asian fund manager being invited to speak at a number of top banking & finance conferences around the world alongside with renowned speakers such as Praveen Kadle, Chief Executive Officer of Tata Capital & Lauren Templeton, President of Lauren Templeton Capital Management

– Learn from an experienced & qualified instructor who has taught in local Universities

Program Outline and Key Learning Points:

  • LEARN the R.E.S.-ilience factors in the business model and economic moat analysis of how Bamboo Innovators create extraordinary value, particularly the “E” factor which stands for “emptiness” in the business model.
  • GAIN the surprising insight of sophisticated institutional investors who understand why growth in sales, profit and tangible asset may not translate to market capitalization growth and sustainable share price gains.
  • ATTAIN the critical knowledge of 12 types of sophisticated institutional investors that climbing from $50 million to $1 billion in market cap takes an entirely different business model dynamics as compared to scaling up sustainably from $1 billion to $20 billion in market cap.
  • RECOGNIZE the 12 types of business models and their profit patterns and acquire the ability to scan through different businesses in various industries to understand the key levers for growth ahead of the investment curve.
  • UNDERSTAND why and how businesses hit a stall point in growth and without a transformation in business model, bigger can be riskier. Thus “Grow or Perish” become “Grow AND Perish”
  • DISSECT a wide range of real-world cases of Asian and global Bamboo Innovators in various industries and understand the intricacies of their business models, their critical success – and failure – factors.
  • UNIFY at the end of the day all the previously disparate loose-hanging concepts, descriptive facts and “checklists” you have learnt from various sources into the practical Bamboo Innovator mental model when it comes to real investment decision-making.

Understand more about the Instructor’s investment approach with the following published articles:

DetectingFrauds

Detecting Frauds Ahead of the Investing Curve (Series 2 of 4)

Saturday, 3 August 2013 from 09:00 to 17:00 (SGT)
Singapore
Event Details

Frauds. Warren Buffett commented in the recent Berkshire Hathaway AGM 2013 that when he’s reading through financial statements, he’d find companies he was virtually certain are frauds. In response to a shareholder’s question on what did he find that made him so certain, both Buffett and Munger replied that “there isn’t a 40-point checklist” and that value investors need to understand the interaction between the underlying business model dynamics and the people running the enterprise when examining the numbers.

In Asia, with outbreaks of accounting frauds and corporate governance lapse erupting on a systematic basis at the firm level, how does a value investor go about generating sustainable outsized returns? To paraphrase Sherlock Holmes, to murder (to engage in earnings management) is easy, but to dispose the murdered body (to expropriate or tunnel out the cash and assets out of the company) is harder as it is detectable by the serious institutional investor with his or her keen observation of the various information signals and clues.

It would be premature to speak of “fundamental” analysis using possibly rigged accounting numbers due to propping and tunneling to fashion elaborate but “garbage-in-garbage-out” quant valuation models. Even “technical” analysis can be misleading given prices and volumes are often manipulated by the “insiders” (庄家) who establish the stock inventory (老鼠仓), luring investors in and then offloading in a pump-and-dump cycle. Such exploits by insiders is made easy as most stocks in Asia are still relatively small-cap and illiquid, given that the median market cap of the listed universe of 23,000 stocks in Asia is around $80 million and over 80% are under a billion dollar in market cap.

Thus, the use of “fundamental” or “technical” analysis, or its combination – without a Mungerian I-O accounting framework using the Bamboo Innovator way – can lead to a false sense of confidence that clever insiders exploit at your expense.

Course Highlights:

– Mr Kee Koon Boon, one of the few Asian fund managers being invited to speak at a number of top banking & finance conferences around the world alongside with renowned speakers such asPraveen Kadle, Chief Executive Officer of Tata Capital & Lauren Templeton, President of Lauren Templeton Capital Management

– Learn from an experienced & qualified instructor who has also taught in local Universities

Program Outline and Key Learning Points:

  • UNDERSTAND the importance of the Mungerian I-O (Incentive-Opportunity) accounting framework to adapt value investing principles in Asia.
  • LEARN the three accounting steps that “set-up” companies commonly use to expropriate assets and the ORECTA and other information signals that sophisticated institutional investors use in their cutting-edge empirical research tool-bag.
  • DEVELOP the ability to scan through thick annual reports and financial statements for the Seven Accounting Sins.
  • DEMYSTIFY the various techniques in “earnings management”, “revenue recognition management”, “real activity management” and “income smoothing” and differentiate between opportunistic bookkeeping mischief and discretionary signaling of private information of leading indicators of firm performance by management to investors.
  • ATTAIN the application tools used by sophisticated institutional investors in the accounting of words, that is, textual analysis of disclosures which are an important source of information with value relevance about the firm.
  • DISSECT actual cases of capex-related fraud in prominent Asian listed companies that are invested by reputable fund management institutions who are also caught flat-footed when things unravel.
  • RE-EXAMINE accounting fundamentals that universities impart without the relevant context of value investing, including the use and abuse of the accruals anomaly (AA) in investing strategies adopted by sophisticated institutional investors in various forms.
  • UNIFY at the end of the day all the previously disparate loose-hanging concepts, “descriptive” facts and “checklists” you have learnt from various sources into the practical Bamboo Innovator mental model when it comes to real investment decision-making.

Tipping Point Analysis in Value Investing
Saturday, 31 August 2013 from 09:00 to 17:00 (SGT)

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Waiting is the main drawback in value investing. Investors often lose patience with their stocks when they don’t perform in the short-term to produce a feel-good comfort that we are right in our stock calls. That’s why fund managers under pressure to deliver short-term results always ask, “Any upcoming catalysts?” This cannot be more misleading when there is an insufficient understanding in the scalability and resilience of the underlying business model.

When iPod was introduced on November 10, 2001, Apple’s share price was US$9.40 per share and had jumped to US$12 by year end. Those who had loaded up on the “iPod effect” or “new product” catalyst suffered for the next year-and-a-half as the shares plunged to US$6.70 in April 2003. Disappointed, momentum traders cloaked under the label of fund managers sell the stock. Then a “tipping point” moment happened in April 2003 to bring about the extraordinary 60-fold returns in the next decade to US$428 per share, or US$400 billion in market cap. What was this “tipping point” event? One such “tipping point” event is the launch of the iTunes Store on April 28, 2003.

Serious institutional investors spend most of their time not in looking at stock price screens or gaining “insider” knowledge of “catalysts” to generate alpha or excess returns, but in analyzing the interaction of business model dynamics with “tipping point” events so that they literally hear and see the “clicking” sound when they occur to produce a resilient compounder. It is our task to have a systematic framework to understand and identify “tipping point” events when they occur to stay ahead of the momentum traders and colluding insiders (庄家) on the investing curve.

Course Highlights:

– Mr Kee, one of the few Asian fund manager being invited to speak at a number of top banking & finance conferences around the world alongside with renowned speakers such as Praveen Kadle, Chief Executive Officer of Tata Capital & Lauren Templeton, President of Lauren Templeton Capital Management

– Learn from an experienced & qualified instructor who has taught in local Universities

Program Outline and Key Learning Points:

  • UNDERSTAND the stock market reactions to a wide-range of “catalysts”:

–          “Post-earnings announcement drift (PEAD)”,

–          “Capital management programs” (e.g. dividends, capital reduction, share buybacks, bonus issue, rights, splits, share/debt placement) and “Financial structure changes”,

–          “Analyst coverage and recommendations”,

–          and many more.

  • GAIN the surprising insight to why certain positive catalyst signals can be      misleading noise, for instance, insider purchase can be negative. And also      why overreaction to certain negative catalyst signals can be an opportunity.
  • DEVELOP the ability to distinguish between “catalysts” with unsustainable short-term      effects and “tipping point” with long-term value relevance.
  • LEARN where M&A pays and where it strays and the pitfalls.
  • DISSECT a wide range of real-world cases of Asian and global Bamboo Innovators in various industries and understand the tipping point in their business models.
  • UNIFY at the end of the day all the previously disparate loose-hanging concepts,      descriptive facts and “checklists” you have learnt from various sources into the practical Bamboo Innovator mental model when it comes to real investment decision-making.

Understand more about the Instructor’s investment approach with the following published articles:

About the Instructor:

Koon Boon is the founder and managing director of the Singapore-based Bamboo Innovator Institute to establish the thought leadership of resilient value creators around the world. KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He was a fund manager and head of research/analyst at a Singapore-based investment management organization dedicated to the craft of value investing in Asia. He had been with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus flagship Asian fund. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. He received his Masters in Finance (magna cum laude) and double degree in Accountancy and Business Management (both summa cum laude) from the Singapore Management University (SMU). He had taught accounting at his alma mater in SMU and at SIM University. He had published research in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary of the Boğaziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value investing and corporate governance in the media. He had also presented in top banking and finance conferences in Sydney, Cape Town, HK, Beijing and in the recent Emerging Value Summit 2013. He had trained CEOs, entrepreneurs, CFOs, management executives in business strategy, macroeconomic and industry trends in Singapore, HK and China.

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