Jay:  Hey, Stanley. How are you doing?

Stanley:  Hey, how are you, Jay?

Jay:  Thank you for joining us. We’re very fortunate to have you because you’re one of the few value investors that I’ve found in Asia that actually preach the value philosophy and method of investing, which I appreciate as well. The fund that I work at, we also are very value-driven and long-biased, bottom-up, very deep fundamental-type approach to investing.

I’ve found it’s rare to encounter that even amongst the asset managers within Asia. Most of my peers in Hong Kong are very China-focused. A lot of momentum-type traders are in the game. So I’m very happy to have you here. Thank you for your time and for joining us.

Why don’t you start off by giving us a quick introduction of who you are and how you got into the business.

Stanley:  Thank you, Jay. I think you’re quite right. Being a value investor here in Asia like ourselves is definitely an endangered species.

A little bit about myself… I have been investing in the Asian stock market roughly about 10 years now. I started out working as an engineer, but I moved into the finance industry about six years ago. Throughout the decade, I have tried to learn more about value investing, and I mainly invest in markets like Hong Kong, Singapore, and my home country in Malaysia previously.

In my investing and in my career, I have worked in both a family office, like a multi-family office, and also, most recently, on the advisory side as an analyst for the Motley Fool, Singapore. We started out about four years ago, and I was one of the first few staff to start up the business. Right now, we are more focusing on our investment block, ValueInvestAsia.com, and I also manage some portion of funds for my family as well.

Jay:  I see. So Motley Fool, I didn’t know that they have an Asia presence, but I follow them very closely in the States. David Gardner, who started the site, actually went to the same university as I did, and he was in the same fraternity as me. So I know Motley Fool very well. I met him once back when I was still a college student, and he came back as an alumni. But I love the site. I love the work that gets put out there. It’s very valuable.

I’m intrigued because I haven’t stumbled upon the Motley Fool Asia, but I will definitely go look at that now.

You said that you started off managing some family office money, and now you also do private investments, but you also have your own blog, ValueInvestAsia. Is that right?

Stanley:  Yeah, that’s right.

Jay:  Tell us a little bit about your experience coming up under the value investing school of investing because obviously there are many different ways to make money in the markets. The markets are very abundant. We both know that. And it takes a certain type of personality, I believe, and a certain type of character to be a value investor. I certainly believe that if you don’t know anything about investing in the stock market, particularly stock market, it’s a great way to start by educating yourselves with some of the books from the greats — Benjamin Graham and Warren Buffet and the likes of that. But how did you get into value investing to begin with?

Stanley:  I can’t remember the full story right now, but I started learning about investing maybe at the final year of my university. I started to learn more about investing, but I graduated as an engineer. So when I first moved into a manufacturing company to work as an engineer in Malaysia, my first salary was about maybe $300 USD a month. I was still quite optimistic. I thought maybe I’ll slowly work my way up and save and invest.

But then one day I happened to stumble upon a payslip of my manager which was stuck at the photocopy machine. It was my direct manager who had been working at the company for about 20-odd years. I will not repeat the figure here, but it made my resolve to start to look for an alternative. And so I really got very interested in investing. And then I went on to take the CFA course in the hope to change my career, which I did, to move into the finance line. That’s basically how I got started in value investing.

Jay:  I see. The initial family office that you joined, were they also practicing value investing as well?

Stanley:  Yeah, definitely. But they manage it more of totality. They might invest in other things like bonds and all the other assets as well, but for my part, as an analyst, I focused more on value.

Jay:  It sounds like there was some self-study involved, and you had a glimpse of your future by looking at your boss’ pay stub. Fortunately for you, you were able to make a move and take matters into your own hands.

Now let’s fast-forward. You spent some time working at the family office, and then what made you want to start this blog, ValueInvestAsia? And subsequently, you’re running some money yourself — friends and family, I imagine — and I also know you’re writing a book that’s about the be released, which we’ll talk about later. But what made you want to go all-in on this value investing thing?

Stanley:  The main reason why we started to blog and even write the book is because after investing for quite some time in the market, we realized that Asia stocks are not that well researched or covered in Asia. And even on the internet, a lot of the value investing stuff is geared towards the US market. And so we really wanted a space where we provide fundamental research and independent research on Asia’s stocks based on the value investing concept. And that’s why we created the blog, and that’s why we wrote the book. We just wanted to introduce to people, “Hey, there’s a way of investing that is more logical rather than following the crowd.” And we want to run them through the process of how to do that and help them to have a space to connect with each other.

Jay:  How long have you been running the blog?

Stanley:  We only officially launched it at the beginning of the year. But in the past, we were just writing it more or less like a hobby for a year, and then we just officially launched it with me working full time on the blog starting this year.

Jay:  Congrats. I think a lot of investors and people in finance, they have thoughts, and they have musings, and a blog is a great way for them to capture that, whether people read it or not. But a lot of times, you can get a following. I know for myself, a lot of things that I want to say at work, I can’t say out loud, so I just write it down because I might offend someone, or it might just sound ludicrous or crazy. But that’s just one of these things that I think all of us investors go through.

Let’s dive into value investing then. It’s one of my favorite topics because, like I said, I myself am very… When it comes to certain types of investing — investments and globally — we look at global equities. As you’ve said, it’s very much catered towards the West and more developed markets such as the US and maybe Europe.

In Asia, there is a lot of nuances, just structural differences between the markets here — less mature. And a lot of things are not as efficient as the West. So value investing is all the more challenging.

Let’s start from the beginning. If you were to educate someone, how can you be a value investor in Asia successfully? What’s the best framework or the structure to walk someone through that process?

Stanley:  I think maybe we can go back to what value investing is really about in the beginning. I think a lot of people might have a different understanding of what value investing is about, and they might see it as a strategy to invest. But to us, value investing is more a philosophy of investing, and you can be a value investor, or you can be a growth investor or income investor, but we can all be considered as value investors.

Some of the main, common traits of a value investor comes down to four points where all of us will look at a stock as a business. I think Benjamin Graham famously said that investing is most intelligent when it’s most business-like. That’s what most value investors want to do. We want to view stocks as businesses and focus on the risk and reward that the business provides. And also, a value investor will focus on maybe coupling the intrinsic value of a business. We feel that a business should have a value to it, and we will try to estimate what the value is. And together with the concept of margin of safety, for someone who does not know what margin of safety is, if you’re an engineer, you will know what the safety factor is about. If we have to design a bridge to withstand, say, a thousand tons, we’re not going to design the bridge to just hold a thousand tons. We’re going to want to design it to hold 2000 or 3000 tons to have some safety factor.

Similarly, in investing, margin of safety is a way for us to have a buffer. If I estimate the intrinsic value of a company to be $5, I’m not going to buy it at $5. I might buy it at $3 or $2.50 to give me a margin of safety of, say, 50%. That’s something that most value investors would agree on.

Lastly, I would say that value investors would agree that the market sometimes can be illogical and very emotional. It’s our job to take advantage of the market when it is overly excited, become greedy, and take advantage of it when it’s in a panic mode.

I think these four points are what put value investors together as one, regardless of whether you are a deep-value who focused on valuation more, or you’re a growth person who focused more on the growth story of the company.

Jay:  That’s a pretty good synopsis. Seth Klarman wrote Margin of Safety, which is one of the all-time classic books regarding value investing. When you talk about margin of safety, it’s one of these things where, again, you’re focused on asymmetric risk-reward, so you want to make sure that whichever position or bet that you’re making, the worst-case scenario, you’ll lose a manage smaller percentage of money than the potential upside. I think when you talk about that last point, which is the emotion behind investing, I think that’s… To me, value investing is very emotional. It’s the balance and control of your emotion. So many people that jump into investing without really knowing what they’re doing get very emotional with trading. They’ll buy high and sell low and just perform like the rest of the market, and they’ll always underperform because you’re just trading off of emotion. And so logic goes out the door.

I’ve been there too. I’m not going to lie. When I first started off, eager, coming out of school, I made my first paycheck or bonus, and I threw it in the market, and I thought I knew what I was doing, and then I lost it all because when it’s your real money, you just don’t think rationally anymore. So I think the psychology behind value investing is very important to master.

And, like you said, when there is blood in the streets and dislocation in the markets, those are the opportunities that you need to be able to take advantage of to generate those outsize returns. And they don’t come around very often. But to have enough gun powder or cash… From a portfolio theory perspective, having enough cash on the sideline ready to take advantage of those points in the market, disruptions in the market, is also a way of modeling your portfolio to have a margin of safety. You need to have gun powder to take advantage of these situations.

Let’s focus more on Asia now. When you talk about traditional stock market in the US and shareholder return and what good corporate governance is and this sort of thing, in my opinion — I haven’t been out here as long as you have, but I’ve been out here for over a decade and been trading in the market for a while — the level of corporate governance and shareholder friendliness is just night and day different than the US. That’s an additional challenge, a huge challenge, especially for a value investor because these are the sort of things that you rely on corporations to do and management to do, to be following the same tenants that all companies should be doing, which is trying to maximize shareholder value and returns. How do you navigate around the potential pitfall that we’re faced with here in Asia just due to the lack of transparency, the lack of corporate governance, and just nuances of the infrastructure? Governments sometimes are heavily involved in China. Government can come in or an SEO can come in bail out a company and completely destroy any sort of fundamentals that companies trade on. How do you navigate through this, Stanley?

Stanley:  I think you gave a very good summary of what investing in Asia is really about. People have to understand that investing in Asia, sometimes when you spot a good business, it might not necessarily be a good investment. There is a difference between a good business and a good investment. A lot of time, it’s due to what the meeting view of minority shareholder is and also what the main shareholders’ view on minority shareholders are.

We take it for granted in the West or in the US market. When we buy a stock, we assume the managers will treat us fairly. That’s not to say that all the companies in the West will treat shareholders fairly. There is also the other end of the spectrum. But in Asia, I think we have to assume it’s the other way. All of them are guilty unless proven otherwise.

Jay:  That’s actually pretty good.

Stanley:  A way to do it is just try to invest in companies with a longer track record and that has proven over the longer term that they have not done anything too wild to harm the minority shareholders, diluting them or having all the family members in the board of directors or working the family or just having a lot of related party transactions and things like that.

We have to understand what is fair is actually a very subjective view because Asia is still predominantly a lot of corporations. Even big corporations are family-owned businesses, and they might not see that having a minority shareholder coming into the business, they might not feel that the percentage of profit from the business is fair to them because they have to run the business themselves, and we are just someone who wanted to tap into their growth.

In a way, I kind of understand both sides of the story, but we have to find a balance. There is a wide spectrum of fairness, and I think sometimes we have to be able to reach a point where we say, “Yeah, they are relatively fair to minority shareholders, and that should be good enough for us.”

In the whole Asia market, we are still talking about, I think, close to maybe 10,000 companies. We don’t really need that much to build a portfolio, anywhere around 30 is more than enough for a personal portfolio. So I think still be very selective and always assume the worst until you find proof that that is not the case.

Jay:  I like that methodology. It’s very much opposite. It’s funny when you say always assume that they’re guilty first… In the same way, when a company goes public in the West, you assume that the company treats the shareholders as owners of the business, whereas in Asia, they just view them, like you said, “They’re just trying to latch onto the growth of our family business that just so happens to be listed. But I don’t know who the shareholders are.” Very funny.

If you don’t mind, can you walk us through your investment process? Let’s say you want to screen Asia for companies that could fall into a bucket where you could then spend some more time and analyze them closer. What are some simple metrics that some of our audience members, listeners can use to just do a general screening and some simple red flags that you can just rule out? “Oh, this company is no good. I don’t want to even waste my time looking further into this. Maybe I can just focus on this handful.”

Stanley:  I first have to say maybe my method of investing has evolved over time. In the beginning, I was very quantitative. I would screen for red chip stock, white chip priced to book or very low PE and things like that. But over time, more recently, I tend to focus more on the business first. We will come across companies even now if you just read the news, and I will read the company annual report and understand what the business is really about. And only when the business is attractive to me and I like the dynamics of the business, the future of the business, then I will start looking at the valuation.

A lot of my friends are still focusing on the valuation, and I can see that both strategies have worked out quite well, but if you’re more quantitative, when you want to view more on the valuation, you have to be prepared to invest or come across more questionable companies and you have to do your due diligence more carefully whereas, for myself, if I focus more on the good business and the good entrepreneur running the business and things like that, more often than not, I will have a better business partner, in a sense, running the business.

Interestingly, sometimes even if you’re talking about markets like Singapore where it’s very yield driven and some of the rich themselves, they don’t really need specialized management, and they provide a reasonable return as well. It’s just how I build my portfolio. At the base, I will have very stable and defensive companies and only venture into higher-growth companies at the very top of my portfolio. In a way, it’s more building up the proper portfolio and take the risk at a portion that you’re comfortable losing.

Jay:  I tend to agree with the way you initially screen companies. There is saying. I think it’s Buffet or someone that says, “A bad company at a cheap price is still a bad company,” or something along those lines. It’s exactly what you’re saying. You could have the bombed-out, cheapest valuation trading under book or historical all-time lows, but if it’s still a bad company, that’s not really going to change anything. You might get a trading pop where you could see some growth in a short amount of time, but that’s not going to change the nature of the business or the manager or how it’s run. I completely agree with you on that front.

I would say it probably takes a lot more work to go to really qualitatively understand a company and be comfortable with the type of business they’re running and the management as opposed to just quickly screening for valuation. A lot of times when you find good companies, they’re not actually trading at the right price yet, but the good thing is if you keep the money radar, you do the work ahead of time, then you just need patience. And when those markets dislocate and you have cash ready, you could pick these companies up at the right price.

Those are the perfect opportunities. Value investors always love major market corrections and long-tail events because they’re sitting there waiting with their pile of cash ready to buy in on these great companies that they’ve done all their work ahead of time and just ready and waiting at the right entry price.

Do you look at Pan-Asia, or are there certain countries that you favor that perhaps have better corporate governance or management or companies in general?

Stanley:  I generally look across Pan-Asia focusing more on the Asian market and also in Hong Kong and Asia, but in way, I feel that different markets offer different opportunities. If you talk about the Singapore market, it’s a very [inaudible 0:26:45] oriented market. If you’re looking at good dividend countries, those are the good places to hunt for them. Especially in the real estate investment, trust space in Singapore, I think a lot of them are still quite attractive. You can get like 6-8%, and owning some of the best assets in Singapore. To me, it’s relatively good enough if you’re just looking for a stable return.

But if you’re venturing more into growth, it sounds a bit cliche, but I think China is the way to go. China still has a lot of growth opportunities for their companies, and many of them are starting to expand overseas. And we’re starting to see this trend where Chinese companies and brands are becoming more mainstream, in a way, similar to, I guess, what’s happened to Japan in the ’80s or Korea in the ’90s where they all started out as just a low-quality knockoff, but then slowly gaining acceptance and becoming more mainstream.

So I wouldn’t be surprised if some of the brands in China like Lenovo or Huawei or even the cars, automotive brands, a few of them might become as global as Toyota or Samsung.

Jay:  I think you’re right there. China, for all its shortcomings, I think in the last five to 10 years, the innovation that has happened is just incredible. Like you said, an example that comes to the top of my head is the drone company, DJI. That’s a world-class product. Everyone knows that, and it’s made in China. It’s probably the best drone in the world right now for consumer use.

Just going back to your Singapore suggestions, those dividend-yield plays there, Singapore is very easy to trade. I know that almost every broker platform will offer Singapore shares if people want to get involved in that. One question I wanted to ask you since it seems like you have some experience in the Singapore market, there are talks that the market itself is undervalued and there might be some room for growth as a whole. Asian markets are on fire this year. I’m an Asian fund manager, and I’m not really benchmarked against indices, but when I look at the indices, they’re all beating me. HSI is up 25%. It’s insane. If you’re a relative performance fund, it’s going to be difficult to match.

Singapore, I know that liquidity was an issue within the equity markets for a while. I know the exchange has been trying to aggressively bring some more companies to list there and just trying to take some measures to market Singapore a little bit better and boost liquidity. What are your views on Singapore and the market as a whole?

Stanley:  I think you’re right to point out the Singapore market has been struggling a little bit over the past few years. And even if you look at the overall valuation now, I think the Singapore market is still one of the more reasonably priced market across Asia. The last I checked, the indices PE was about 12 times where [inaudible 0:30:41] is about 15. Even Malaysia, KLCI, is about 16. So it’s still one of the relatively cheaper ones.

And we have been seeing in Singapore a long strain of buyouts. A lot of companies have been buying out either with the venture capital funds coming in to buy out them or even just a main shareholder taking them private due to the valuation. Of course, the low financing interest now does help in the buyout space.

But I think Singapore, more or less, has found a niche in the REITs market in the business trust market. Like I said before, it’s a very [inaudible 0:31:29] oriented market. The investors here really like dividends and high yield. So I think they have been able to attract more of this investment trust to list in Singapore, and we are starting to see a lot of even Chinese assets coming into Singapore to list. I think the most recent one they’re going to IPO soon is the HNA-related REIT. We might see more and more of that coming to Singapore because it’s a space where the market likes yield.

Jay:  I think it’s good to have a layer of yield in your portfolio as a baseline product. Even as you’re diversifying your portfolio, it’s always good to have that stable yield element to it. I think that given the fundamentals of the market there, it’s an attractive place to be looking for those types of plays in Singapore.

Stanley, as we look to transition to the second half of this chat, can you give us a broad-market view for this year? This has been a very interesting year. From a value investor perspective, you’ve seen the debates going on in the States. “Value investing is dead,” this sort of thing. And the markets are ridiculously overpriced and expensive. At least US equity markets. After the change of the administration, there is a lot of strange things happening. [Inaudible 0:33:23] is at all-time lows. People are scratching their heads, trying to figure out what’s going to happen with the markets. From a value investor’s perspective, what does this mean to you? Where are you looking for potential opportunities going forward?

Stanley:  I think you are right that a lot of people are seeing value investing as a dead strategy, and the performance of the market is really worrying me as well because the last I checked, about 95% of all my stocks are in the green this year. So it’s a bit worrying because I know I’m not that smart.

Jay:  Which is a value investor’s fright. When things are going too well, you get very, very nervous. That’s something only value investors will experience. Most people will be out partying, high-fiving, opening champagne. But value investors are very, very nervous right now.

Stanley:  Yeah, definitely. What I have been doing for the past few months is just pairing down a lot of the companies that I’m not that comfortable with in the longer team and just raising the cash portion of my portfolio. I think I’m around about 20% cash right now.

Most of the companies that I own will be companies where I am really optimistic about the long-term future of the company. I do not mind holding them through a market downturn. Plus, no one has a crystal ball, so I have no idea when the market will correct. In a way, we want to be prepared, but since we have no crystal ball, we still have to invest, and we will just invest in a company that we are really comfortable and optimistic about in the next 10 to 20 years down the road.

Jay:  We’ve heard analogies of value investing parallels to running a PE fund. Let’s say you couldn’t touch the investment for 10 years. Would that change the way you invest? It really shouldn’t as a value investor. Just the fact that you can’t touch it in 10 years, that should actually make you more confident in your picks and really fall in love with the company that you are partnering up with or investing in.

Last market-type question before we move to our last segment here. You can answer either one of these. If there is one trade or investing idea that you’re really excited about, what is it? Or if you don’t want to talk about that, if there is one piece of value-investing advice you can give to the audience, what would that be? Or you can give both if you want.

Stanley:  Maybe I’ll start with the company that I’m more optimistic about. As we discussed previously on the future of some of the Chinese companies, I think although the big brands like Lenovo, things like that, they may become more international in the future, but I think what’s really leading the charge of Chinese companies becoming the leader in the future is the tech space. The likes of the BAT, Baidu, Alibaba, and Tencent, although I didn’t invest them in this year, I’ve been holding them for quite a few years now, and those are companies I still would continue to hold and own them just because of the huge pace of innovation that is coming out from these companies. In the past, we saw that Chinese companies were the copycats of the world, but in the tech space, we are starting to a lot of the global companies, the Western companies, starting to copy what these three companies are doing.

In a way, I see it as a big shift, and I’m really, really optimistic about them in the future.

Jay:  I was going to interject real quick. I think you hit the nail on the head. The first thing that comes to my mind is obviously Tencent with their mobile wallet. You go up to China, and no one carries a wallet anymore. Everyone just pays with their mobile phone. This is something that China has far quickly exceeded the West, and the West is now scrambling to try to catch up to this technology. And that’s integrated in a chat. It was a chat program. It was a gaming program and a chat program. Now it’s everything. Their entire life is in that one program.

Sorry to interrupt.

Stanley:  Tencent is definitely a very interesting company. In fact, I’m not based in China, so we don’t really use Tencent or WeChat here in Singapore, but in the past, I listened to a lot of speeches by Jack Ma. A lot of times when he talks about Tencent, he tends to not say the company name. Like Tencent is the one who must not be named. By all the other companies, he’s comfortable naming them out. So, in a way, he led me to think there must be something in Tecnet he himself is [inaudible 0:39:22]. So that got me interested in the company.

Jay:  Very intuitive.

Stanley:  But on tips for a foreign investor who wants to start investing in Asia, I would say definitely start with a market that you have a little bit of information about, that you’re already comfortable with, and if you’ve spotted a country to start investing in, try to work your way from the larger company first where they are the most established company in the region. Don’t try running to find the next Alibaba or the next Tencent in the market. Especially in the market now, I think more often than not, the next Tencent might be just Tencent.

And also, find a company with a good track record, a long track record. Don’t rush into buying IPOs because we don’t just want to buy into good companies. We want to buy into good management, and we have to have a good long track record on how the management is treating shareholders to give you a better understanding of if for return from the company can actually flow to you as the investor.

Jay:  That’s great advice, Stanley. Thank you for that. I want to talk about you. You’re working on something exciting things. You have a book that’s not out yet. It’s coming out very soon. You want to talk about that?

Stanley:  Sure. My co-writer and I, also a cofounder of our blog, we’ve just written a book called Value Investing in Asia. When we started out, we felt that a lot of the books and references are geared toward the US, so we wanted to create a book that is more practical and that shows you how to apply value investing in Asia, and we include a lot of real-life examples and case studies and even companies that we have invested in, and we tried to go around and interview some of the more famous fund managers in Asia and talk to them about their strategy in investing in Asia. And these are people who have achieved like 15-20% annual return for the past 10-20 years. So these are people who really know how to invest in Asia. And we tack onto them to learn from them how they do it.

That’s what the book is about. Like you said, it’s not officially out yet, but it’s already out for pre-order on Amazon and on Book Depository. You can just search for it — Value Investing in Asia.

Jay:  Fantastic. That’s awesome. We will have all the links in the notes. I’m looking forward to that book. I think I might have already preordered it because I’m really interested to read it. Look, if you google search “Value investing in Asia,” you’re like the only hit that comes up. And then when I search for it, this was maybe a couple of months ago, but it hadn’t been out for preorder yet, so the only book out there on value investing in Asia wasn’t even available yet. So I’m glad that it’s coming to print soon.

Where can people find you, follow you, maybe learn a little bit more about you? You’re not taking outside money at the moment, right? You’re just managing internal cash. Right?

Stanley:  Yeah.

Jay:  Are there plans to potentially launch a fund down the line?

Stanley:  Never say never, but I don’t see it happening now because we’re more focused on the financial blog that we’re doing. And if you want to get in touch, we are on Facebook and Twitter, or you can just go to our website. It’s ValueInvestAsia.com. For all the listeners here, we have a free ebook for you to download if you want. It’s our stock guide, which includes our top ten watch-list stock for the year. It’s free to download on the website, or you can just follow us on Facebook or Twitter.

Jay:  Perfect. We will definitely have that linked up. That’s a great way for investors to start if they want to start looking into Asia. Like I said, obviously the markets for very abundant. There are many ways to make money off the market, but if there is one way that you should start off with, no matter which direction you go later on, it is learning the fundamentals about value investing. So there you go.

We will have that book linked up. Stanley, thanks so much for your time. I had a really good time catching up with you. I really appreciate you sharing your experience and giving a lot of insight to the audience about how to invest in Asia. I really appreciate it.

Stanley:  Thank you, Jay. Then you for inviting us.

Jay:  Alright. Take care.

Stanley:  Cheers.