Value Investing

Teh Hooi Ling of Aggregate Asset Management on Value Inveting in Asia

Teh Hooi Ling
Teh Hooi Ling

I recently sat down with Teh Hooi Ling in Aggregate’s office – a quaint shop house along Joo Chiat Road. I must admit a certain bias towards Aggregate’s approach, reading about them in The Edge a few years ago when they struck it out on their own.

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They've come a long way, with assets under management exceeding $200 million.

One cannot help but admire their entrepreneurial spirit in getting to this mark.

Not to mention their exceedingly fair compensation structure.

No management fee is charged. They only get paid when they deliver their results.

Hooi Ling joined Aggregate in 2013, a coup for them and a loss to Singaporeans, who had derived considerable wisdom from her unique and insightful column “Show Me the Money“.

We spent over an hour talking about her own experiences in prior career as a journalist, and her new career at Aggregate.

Among the many lessons I learnt, here are the most memorable:

Teh Hooi Ling  1) The Way You Invest Has To Compliment
Your Personality

Teh Hooi Ling of Aggregate Asset Management on Value Inveting in Asia

Teh Hooi Ling, Head of Research

Some people are born traders. Other investors. Each one of us must do some soul searching, reflection and introspection to see what makes us tick.

There are many ways to invest, but the most successful investors are ones who can exploit their own personalities to their advantage.

There is only so much that can be taught.

In my previous post, I talked about the split between concentration and diversification.

Aggregate's approach adopts wide-spread diversification, investing in over 250 securities.

It helps them sleep easy at night, knowing that a single stock will not bring down their portfolio in the off chance they have misjudged the company.

That tallies with my own thinking on the subject.

Do what you know, do what you're comfortable with.

2) Teh Hooi Ling  Doing The Research To Hold Long Term

Hooi Ling has done Singaporean investors a favour by collating the data on valuation metrics in stocks in South East Asia. You can check out some of her presentations here.

The persistence of the “value factor” has been widely documented in the United States and Europe, whereas much less in-depth work has been done in South East Asia.

At the end of the day, I see it as a good compliment from Aggregate.

Battle worn experience from Eric Kong and Wong Seak Eng in picking stocks using a “value approach” from their prior careers.

“From the top” research done by Hooi Ling in giving them the long term conviction that such a strategy works.

After all, investing is never easy when the markets move against you. And they will.

As Joel Greenblatt has said,
value investing works
because it doesn't always work.

Patience is a wonderful friend, but exceedingly hard to come by in this fast paced world.

3) Teh Hooi Ling The 80/20 Principle of Stock PickingThe-rule-of-80-20

  1. Price-to-Book Ratio
  2. Dividend Yield
  3. Debt to Equity
  4. Cash Flow From Operations

Price-to-book is something I look at a lot.

Reading the prior works of Graham, you notice his tendency to focus on the “liquidation values” of businesses.

Buffett on the other hand prefers to focus on the competitive moat of a business, and the future cash flow that results from it.

Of the two, I find that Graham's approach is much easier.

Projecting cash flows into the future is not an easy feat. On the other hand, I find it a rare instance where honest management purposefully engages in operations with the intent of losing money.

Not all assets are alike of course. Cash and freehold land are much more valuable than receivables, inventories and leasehold land.

4) Teh Hooi Ling  - Weeding out Fraud

Read this to save money.

Investing in South East Asia can be treacherous. A significant number of frauds have been reported in recent years.

Among some of the more memorable ones I've seen are Sino-Forest, once worth $5 billion, proving that even big companies are not immune.

Hooi Ling advocates looking to see if the cash is real by examining their cash flow statements and dividend pay-outs over the years.

I recommend reading Tan Chin Hwee's “Asian Financial Statement Analysis” and “Asian Godfathers” by Joe Studwell.

It will give you a master-class in understanding the murkier aspects of business in South East Asia.

Teh Hooi Ling  - Ending Thoughts:

It's always interesting to see how different investors approach the same problem of allocating capital.

One thing I've learnt is that principles underlying successful investors are always the same.

In the end, investors must decide on their own what works for them, and stick with it despite what other people many tell you. As Graham said:

You're neither right nor wrong because other people agree with you.

You're right because your facts are right and your reasoning is right—and that's the only thing that makes you right.

And if your facts and reasoning are right, you don't have to worry about anybody else.