Value Investing

SHARING THE YEOMAN CAPITAL EXPERIENCE: APPLYING VALUE INVESTING IN JAPAN

SHARING THE YEOMAN CAPITAL EXPERIENCE: APPLYING VALUE INVESTING IN JAPAN

Regular readers will know that we are big fans of Yeo Seng Cheong of Yeoman Capital, which we regard as extremely disciplined practitioners of value investing in South East Asia.

We had the pleasure of interviewing them last year, and you can check out some extracts at the end of the article.

Their long term track record speaks volumes:

Index source: FSSTI / STIOLD, MSELCFFX, MXWO, Gold XAU, Property URA  YEOMAN CAPITAL
YEOMAN CAPITAL

Index source: FSSTI / STIOLD, MSELCFFX, MXWO, Gold XAU, Property URA

For those not lucky to attend the previous Asia Value Investor Conference in Hong Kong, he has kindly agreed to share his video of his experience investing in Japan at the last MOI Asian Investing Summit.

EXTRACTS FROM AN HOUR WITH YEO SENG CHEONG:

YEOMAN CAPITAL – LOOKING BEYOND THE NUMBERS

Mr Yeo attributes a big part of his success to his own multi-disciplinary experiences over the years, which then allow him to home in on what matters most: the business itself, and the value it represents.

Maturity and experiences over his long career have also taught him to keep an open mind, and to connect with people from all lines of work.

Although the numbers are without a doubt the foundation of what he does, but behind that is a highly qualitative judgment that requires experience.

HERDING BEHAVIOR WHEN STRETCHING FOR YIELD

Mr Yeo’s comments are in sync with what other prominent investors such as Howard Marks and Seth Klarman have been warning in recent years – investors are increasingly stretching towards “riskier bets” in this increasingly yield starved world.

He comments that Singapore investors have been attracted to the “perceived safeness” of real estate and corporate bonds, which ironically makes them more dangerous as prices rise beyond the actual fundamentals of the asset.

I can’t help but think of the same “common wisdom” of the crowds back in 2006/2007 in the UK and the US when houses were perceived to be “safe”.

Still, the government stepped in in time to defuse the situation with repeated rounds of cooling measures, and my own data indicates that housing prices have actually gone below their historical trend for now.

Mr Yeo thinks that equities offer a much more compelling risk reward ratio as compared to other asset classes. Put simply, they are unloved and unwanted at this stage.

Once cannot help but recall the words of Sir John Templeton:quote-bull-markets-are-born-on-pessimism-grow-on-skepticism-mature-on-optimism-and-die-on-john-templeton-58-34-87 YEOMAN CAPITAL

THOUGHTS ON MALAYSIA AND PRODUCTIVE ASSETS

The stock markets in Malaysia are cheap – especially if you take into account the dramatic depreciation of the Ringgit in the last six months.

Mr Yeo thinks that this represents an interesting risk/reward situation, with investors benefiting from a potential strengthening of the currency, and an appreciation in the stock price itself.

Still, as he stressed, the key is to invest in productive assets that generate cash flow and dividends, and not to simply hold cash.

DISCIPLINE & PROFESSIONALISM

Mr. Yeo credits the success to his fund to a disciplined approach to investing, that his grounded on the quantitative aspects of a business.

He explains that it is important to be intellectually honest, and working in a professional setting means that it is crucial to always review investments when the fundamentals deteriorate.

Contrast this to the all to common behavior of retails investors in simply forgetting about investments when they sour, or turning short term ideas into “long term holdings” when the thesis doesn’t pan out.

Unlike most funds with high turnover rates, Mr. Yeo moves at a much more glacial pace, with stocks tending to remain in the portfolio for 5 to 6 years on average.