Transcript: Diary Of A Private Investor

Published in Investing on 1 May 2012

David Kuo chats to financial journalist and author James Bartholomew.

You can download or listen to this podcast here.

David:

This is Money Talk, the weekly investing podcast from The Motley Fool. I am David Kuo, and this week we will be peeking into the diary of a private investor. My guest is not just any investor – he is James Bartholomew, a freelance journalist and author, and his column, 'Diary of a Private Investor', is a must-read for anyone interested in investing. Welcome to Money Talk, James.

James:

Good morning.

David:

Good morning to you. I'm delighted that you are able to take time to chat to us today, and I would like to kick things off by asking your views about Europe. How do you feel about what is happening in the eurozone at the moment?

James:

Extremely nervous. I've been rather slow in being nervous about the union, and I've been criticised for that, but that's partly because I didn't need to be – I'd never invested much in Europe, regarding it as a low-growth place whose time had gone. But from now, I'm very nervous about it. I think I've met up with one economist in Australia, and there's a number of people, as in Ambrose Evans-Pritchard in the Telegraph, who's always worth reading; they've combined to make me very, very nervous about what's going to happen and how it's all going to end. Although we had a relief when Dragi at the European Central Bank pumped lots of money into the banks, and that provided a boost for the market in the first quarter, which I mean, I was expecting, and it came, and it was wonderful, but it now seems to be mostly over, and I just don't see where it's going to end, and with Hollande looking likely to be elected in France, it seems to be possible that will make France then into another Spain at best; perhaps worst than that, because they're just denying reality. So I'm very gloomy about it, and I'm spending a lot of my time trying to think, how can I get my investments away from Europe.

David:

You say denying reality, but isn't it also true that America, to some extent, denying reality by pumping a trillion US dollars into the US economy; the UK has pumped 325 billion into our economy, and ultimately the Europeans are doing exactly the same. They've pumped a trillion euros into their economy, and maybe they will have to pump some more into it, just to get it going again.

James:

Well, I'm a private investor, not a professional, and I'm not a proper economist. I don't think most people understand what's going on. I certainly think that most of the commentary in the UK is ignorant and ill-informed, and that's in many newspapers and outlets, certainly the BBC. The person I tend to look to for guidance about what's really going on is Professor Tim Congdon, the economist, who, when he first became well-known, was warning about inflation in the 1970s, and was right, and again and again through the decades, he's been right. He argues that these increases in money supply, which is what quantitative easing is, that are really just taking, are counteracting, the decreases in money supply that have been going on. If you look at the money supply figures, as people use to do an awful lot but seem to have given up doing now, you'll see the money supply of the UK is practically flat as a pancake, if not falling. You cannot have an economy growing, if the money supply is declining, so it's got to be counter-active. It seems to me, absolutely essential, and we'd be in a far worse condition if this hadn't taken place. I suspect something pretty similar is the case in the States.

David:

Okay, so I gather what you're saying is that you're not really a big fan of Europe. So how do you feel about the US, then? Are you a big fan of US equities?

James:

No, not particularly. I do have one little nibble in it, which is a rather speculative situation, invested in residential real estate, but I prefer, if I'm going to be outside the UK, obviously I have most of my investments in UK companies, but they are often ones which have most of their investments outside the UK. So, for example, my biggest holding is in a plantation company which invests in Indonesia. When I want to go outside the UK, the first place I look to is the Far East, and I've been increasing my investments in my, get-away-as-far-from-Europe-as-possible phase, in Singapore and Australia and I've already got quite a lot in Hong Kong and a bit in Thailand. I suppose I'm about a quarter invested directly in the Far East, and I've also got other indirect investments, such as my palm oil plantations are also in the Far East.

David:

So the thing is, is this a recent development as far as your portfolio is concerned? Because I know you've been writing your column for the Daily Telegraph for almost 15 years now, so is this something that's happened recently as a result of what's going on in Europe? Or is this has been a long-term trend of yours, that you actually prefer equities outside of the eurozone?

James:

It's both. It's long term in the sense that I've always looked to the Far East more, because I've lived in Hong Kong in 1980 and 1981, and I also then lived in Japan, and I travelled round the region a lot at the time, and became a fan of the growth and development that was taking place there. But the percentage that I've had there has varied quite substantially, and has been virtually nil at some stages in terms of direct investment, but I've now increased it from 5% to 25% in the last five or six months, because I just want to get well away from Europe. Even when you're in ... I mean, the frustrating thing is, that even if you're investing in a Hong Kong company investing in Chinese property development, somebody in some Greek negotiations go badly, and those shares will still go down. It is astonishing how the reaction takes place. I've been trying to think, where can I go that's so far away, so unconnected, so uncorrelated with the Europe situation, that it's relatively immune if Europe explodes. So I resorted to a finance company in Australia which only does Australian businesses, as far as I can see, and also Vietnam, I've been investing in recently, which seems to be less correlated than places like Hong Kong, for example, which is very much, it's part of the global village.

David:

Okay, so let's talk about Australia in particular. What do you find attractive about Australian companies?

James:

Well, the value's not bad. Westfield, for example, is an Australian company. We in Britain, especially in London, are very familiar with Westfield, because of the two big shopping centres, and that's what made me aware of the company, but in fact this is a giant company. I think it is the biggest retail property-owning company in the world. It's gigantic. I don't know how many billions it's worth, an awful lot of them, and actually the UK activities are only a minority of what it does. I think the majority is in the States. So it's got a good yield, it's got 5.5% or so, and it's mostly outside Europe. If you wanted to get away from the horrors of eurozone in order to, and be in bonds, short-term to medium-term bonds, the trouble is the yields are practically non-existent, and they're so small. So again and again, tempted back to shares, and Westfield seems to be a pretty canny, well-run company, and it has a pretty good yield, and so that's one of the places where I put my money.

David:

I'm a little surprised that you didn't mention mining companies in Australia, because as far as most people are concerned -- you mentioned Australia, well, anybody that mentions Australia -- the first thing that springs into their mind is, mining companies. So do you find mining companies attractive in Australia?

James:

Well, I haven't looked closely at them. It seems to be like you're gambling on China, and how much is China going to rise up, and the world economy generally, I suppose. I have been in resource stocks, I am very heavily in palm oil. I prefer palm oil to mining, because I think there's two things you can rely on: one is that Chinese growth will continue, and Indian, for that matter, which is almost as important; two, they will eat, and they will eat more and more well, so there's bound to be increasing demand for food products. So I think the demand side, for the food side, is more reliable than the demand side for minerals.

David:

Okay, now you also mentioned Singapore. Now, as someone from that part of the world, I can appreciate both the beauty spots of Singapore, as well as the warts. So what do you like about Singapore?

James:

Well, I was there a couple of months ago, and there were all sorts of things. From an economic point of view, and this is just keeping off the politics completely, from an economics point of view, there is an awful lot to like about Singapore. This is a country which has a balanced budget. This is a country which has low tax. This is a country which, when I first went to it back in 1979, I could look at with a sort of patronising, post-colonial warmth and affection, and some condescension even. Obviously it wasn't justified, and I'm rather ashamed of, but if I'm being honest, there was a bit of it there. I had my Singapore Sling drink at the famous Raffles Hotel, and I felt that I was one of the privileged people in the worldwide. Now I go to Singapore, and it's come on so dramatically, it's so prosperous. I couldn't go in the Raffles any more – it's far too expensive.

David:

Did you throw your peanut shells on the floor in the Raffles Hotel, like everybody else?

James:

Well, I didn't go there this time, and when I first went there, there was a very prosperous-looking cockroach in my bedroom on the ground floor. It was humid, I suppose there was air-conditioning, but it was probably rudimentary – it was just a different world from the highly efficient, highly prosperous Singapore of today. And anyway, more important than that, though, is the fact that the people I met there, again and again, were people who'd been promoted on merit, who were very, very clever, who were positive, hard-working – these kind of people, and I see Singapore as becoming a kind of Switzerland of the Far East, the place that punches vastly above its weight, where the companies are now again not to be patronised. You look at a company there that you've never heard of, and you find out it's worth a billion dollars – much bigger and richer than many of the companies I invest in in the UK. They're not tiddlers. They're putting in water systems in China, they're doing developments in Shanghai, they're doing things all over the world – they are really ambitious, successful companies, and I feel very comfortable investing in them, especially if I get a reasonable valuation and a reasonable yield.

David:

Some people might say that Singapore is a bit like a poor man's Hong Kong. So what kind of shares in Singapore do you find particularly attractive? Could you give us maybe a couple of names there in Singapore that might be worthwhile looking at?

James:

Yes, well the ones I hold, again I'm not an expert in Singapore shares, I'm not a specialist in them, but my stock selection is not exactly scientific. But anyway, I picked up some shares in two companies which develop property in China: one is called Keppel Land, which is worth a few billion, and another one is called Yanlord, which I regard as a bit more speculative, but I'm not an expert. Keppel Land I like, because it also does a bit of stuff in Vietnam as well, which I think has a lot of potential, to combine Singaporean sort of seriousness and enterprise with the potential of Vietnam – I think that's pretty exciting. I think it also has some investments in India as well. So it gives you a spread, and it's connected to Keppel, which is a very old established company in Singapore, so you've got a bit of sort of comfort factor from the long history of that company.

David:

Because Keppel was a ship-building company, wasn't it?

James:

Yes, I mean I don't know all its history, but it's a name to be conjured with, and it's rather amusing it's the same name as that former mistress of that king in England, too! The Keppel family got up to all sorts of stuff. A company called Sound Global I came across, which does water treatment in China and elsewhere, and seems quite well valued, although I'm a little more nervous of that, because I mean water treatment is a very competitive area, and lots of companies are fighting in it. I do prefer to have companies where they're not in a life-or-death struggle with other companies. I prefer to have ones which actually own their own land, or something of that sort, and so they have assets or talent which cannot be taken away from them, or niches which cannot be taken away from them easily.

David:

It's quite interesting that you mention these three companies that also have some relationship with China, or that they invest in China.

James:

Yes, well, I mean obviously China is a huge growth story that you want to be connected with. It's better to be invested in a company that's growing at 8% a year plus than one like, shall we say, France, which is growing at sort of 1.5% minus. It doesn't take a great brain to say, where would you rather be?

David:

Right, okay. Now, you also mentioned Vietnam. Vietnam really piques my interest, because in previous podcasts we've had people come on and talk about Vietnam being the next big growth area, as far as south-east Asia is concerned. How easy is it to invest in Vietnam, and in Vietnamese companies?

James:

Well, I don't think it's at all easy to invest directly in them, and I don't. If somebody could find me a way of directly investing in them, I would much prefer it, because I always prefer to do that rather than pay a management fee to anybody. But what I invest in is a tracker fund called DBX Tracker Vietnam, or some complicated name a bit like that, starting with DBX, and having Vietnam in it, and that's obviously meant to be a low-cost thing, and it's meant to have a dividend yield of 4.5%, I think, internally, although it doesn't actually pay it out – it holds it into itself, I believe, and then takes its management charges off it. That sounds quite a good yield. I think there's also one, there's an investment trust that I invest in which is called PXP Vietnam, and I rather like the annual report there – I think the manager there's called Chris Snowdon, and he wrote a rather amusing and realistic-sounding annual report, I thought. I am actually often influenced by the way these reports are written. If they admit problems, and have a sort of sense of intelligence rather than just filling in boxes, then I certainly prefer whatever organisation that is.

David:

Now James, you've mentioned 'yield' a number of times in this podcast. Do I get from what you're saying that you are primarily an income investor, rather than a growth investor?

James:

I am primarily a value investor, I suppose. I would say I am sort of 70% a value investor, but not entirely, because you can really end up losing a lot of money being entirely, I think almost any kind of investor, certainly a value investor. After all, you can have shares which you say to yourself, "oh gosh – shares are cheap, they're yielding 3.5%". Then the shares will yield 5%, and you've just lost an awful lot of money, because you just looked at whether it was good value or not. I think it's also actually crucial to look at charts and momentum and where things are going, and the overall economic environment. It's more than a value investment, too – it's also, the shares I'm really looking for, the target shares that I dream of, and shout "Eureka!" when I find them, are the ones which I would call a value growth share; that's to say, that's a company that's going to grow, going to grow ideally quite a lot, but which is valued as if it was a value share. It was valued as if it was just a trundling old company, going to produce a few bits of profit and pay out dividends and never go anywhere. So if I can find a share that's actually a growth share, but it's valued as a value share, then you've got the possibility of it multiplying three, four times, and that's the sort of thing that I'm really looking for.

David:

Have you ever found that elusive share?

James:

Oh yes – a number of times, but I'm not sure I've got any at the moment, sadly. I mean, my whole financial situation has been transformed by a series of these. When the plantation company I referred to, REA Holdings, was one when it was valued at about three times, this is at the depths of the misery. I forget exactly which year it was, but it was when value shares were out of favour, and dotcom shares, everybody loved them, and it had had, the palm oil price had been bad, and it had a legal conflict with one of the former partners, and there were worries over Indonesia, everything was combining, and then nobody wanted to own small company shares at the time. So the valuation became terribly low, like sort of three times the forecast earnings in a couple of years' time, or three years' time, and I bought an awful lot of those, and they've just transformed my financial well-being, because I'd put this behind my one big gamble of my life, if you like, financially; the other big gamble, of course, being marriage!

David:

Okay, right – I shan't delve too deeply into that, but when you mentioned Indonesia, one thing that sprung into my mind was corporate governance. Is that something that worries you about investing overseas, particularly in south-east Asia, about the corporate governance that goes on with those companies?

James:

Yes, it is – it does worry me, and that's partly why I'm invested in Indonesia through a British company, because obviously I've been invested in it for a long time. I know the company well, and have great confidence in it, whereas I would be nervous otherwise – it's probably also why I chose Keppel Land, that has one of my places that I invest in, and in Singapore generally, I think that I have more trust in Singapore, because it is a less corrupt place than many other parts of the Far East. You want to invest in places that do have corruption through vehicles at least which are less corrupt, or ideally not corrupt at all, if you can find such a thing.

David:

Well, that's right. Now then, just for the benefit of our listeners, would it be possible for you to give us some idea as to how many shares, how many different companies you are following in south-east Asia, and also Australia, in total?

James:

Well, in Australia I've got Westfield and this finance company called Flexigroup. Those are probably the only two I've got there. In Vietnam, I've got the two investments I've mentioned. In Singapore, I've got the ones I mentioned: Keppel Land, Yanlord and I've also got SIA Engineering, that's Singapore Airlines sort of --

David:

They do the maintenance, yeah.

James:

-- ground maintenance people, which is a very sort of steady utility-type investment, and I've also got Kingsmen Creatives there, which does displays for exhibitions and retail, so it sets shops up, but very smart ones – the big labels, like Gucci and so forth, they will be set up by Kingsmen Creatives, which does that kind of work not only in Singapore, but again in China as well, and they'll swear, but that's a company which, in theory, is not the sort of company I like, because it really has to compete and be very good all the time to survive, but so far it is doing that, and again it's been a very steady performer, hardly moving from month to month, but it is now finally gradually moving up. So, is that it? I think in Hong Kong I've got KWG Property, which again is a public company investing in China, and in Thailand I've got IT City, which is like a personal computer company, so it's like PC World in Thailand – growing fast.

David:

So it's actually quite a diversified portfolio you have. Is it quite difficult to keep track of all the news that's coming out from these various companies?

James:

I'd say probably impossible for a private investor. No professional investor could know as little about the company they invest in, without getting into trouble. It's only because this is my own money, which is why I can do this, and there's no way that a professional investor could know so little about the company you invest in. You might say, "Well, how come I can do this reasonably successfully without knowing that much about it?" It's a question of being responsive. If I see the share price of one of these companies move suddenly, one way or another, I will immediately have a look at it, and see what's going on. I almost am price movement-led, in terms of monitoring, and if something happens, then I will react to it, and either buy more, or sell, or hold. I'll make a decision each time.

David:

And you make it sort of fairly instantaneously, as well, I take it?

James:

Yes, and the great beauty of being a private investor, and this is the thing which most private investors don't realise, they have this as a huge advantage over the professional investors – however idiotic you may look, you don't have to justify it. So I can change my mind in a day, in an hour, in a minute, and I don't have to go towards the management committee, and say, well, I changed my mind because I just felt more optimistic! You don't have to do that, and I think that investment professionals are completely immobilised by the fact that they have to look as if they're consistent, and it really makes life much more difficult for them. They can't say actually, I had a conversation with George down the pub, and now I realise that the eurozone is going bust, whereas previously I assured you it wasn't going to go bust – I've now changed my mind. You can't say that. So as a result, he doesn't react fast. One of the beauties of being a private investor is, you can react just like that, and sometimes I've had the opportunity where the company had produced results that were much better than expected by the market. I can imagine all these professional investors saying to themselves, I can't just immediately buy lots, saying I didn't realise they were going to have such good profits, because that would make me look like an idiot. I've got to wait a few days and pretend that I've seen something that nobody else has seen, and then say I'm going to buy lots more, whereas the private investor, you say, "Well, okay – this company's vastly better positioned than anybody realised before, it's gone up 5%, but I'm going to buy it because it's going to go up 30% within a week".

David:

You're painting us a very wonderful picture of how fund managers actually sort of work, and how they invest.

James:

Well, I worked briefly for a fund management company, and I just began to perceive what kind of pressures they were under, and how the office politics is part of the professional investor's life, sounding sensible in front of each other. This is office-land, and anybody who's worked in an office knows that people are trying to maintain their credibility.

David:

And there's a lot of politics going on as well. Now, one question that private investors will be asking with regards to investing in overseas is currency risk. Is this something that UK investors need to be concerned about, when investing in places like Singapore, Vietnam, Thailand, Hong Kong and Australia?

James:

Yes, of course you've got to worry about currency risk, but what you've got to remember is that being all in the UK is taking the biggest currency risk. If you're going to put all your money in one basket, that is taking a risk – it doesn't matter what the basket is, if it's all in one basket, you're taking a risk. So I'm very reluctant, ever, to be entirely invested in the UK, directly or indirectly. I want to be outside it as well. I suppose if I'm old enough to have lived through the 1970s and seen the currency completely debauched by two or three incompetent governments, and indeed people of course voted for those governments, so they can't escape responsibility. But countries can go badly, badly wrong and you don't really want to be dependent on any of them. So I regard investing overseas as a way of reducing risk, not increasing risk.

David:

So if somebody is interested in investing in overseas stock markets, how easy is it to find a broker in this country that will allow you to buy shares in these far-flung lands like Singapore, Hong Kong, China, Australia?

James:

Well, very easy. If you've got one of these brokers which are sort of cheap, you've got to have very brief conversations or deal online, then they often won't do it. They may do America, but they may not do many other places. But any regular broker, any full service broker, should be able to do it. Certainly I've never had any problem, and I've been through a number of brokers in my investing life, I've never had any problem. My broker, which is Brewin Dolphin, they've said they will invest more or less any recognised stock exchange, so I've invested directly through my regular British broker, and they have agents overseas, which is all very regular. In fact, the commission they pay to the local brokers are often very, very small, especially in places like Hong Kong and Singapore, which have got very competitive broker markets.

David:

And does this also mean that you're up at strange hours of the night, trying to deal with places like Hong Kong and Singapore? Because I still have family in those two countries, and sometimes trying to communicate with them is quite difficult, because they're up when I'm asleep, and when I'm up, they're asleep?

James:

Yes, but I deal with my British broker in British working hours, and if I want to buy in Hong Kong, for example, I will typically say to the broker, deal overnight in Hong Kong, and the phase we use, somewhat laughingly, is "with careful discretion", which means, please don't go in first thing, and pay the highest price that your mate on the other side is trying to get away with. There's different ways to leave the order, you can either leave a limit, which often can be very damaging, or you can stay at best, or we say, with careful discretion, and with mixed success using that formula. Occasionally they're actually open at the same time – it depends on the time zones, I think at the moment, for example, if you're up at eight, and the brokers are in their offices at eight, you can still deal in Hong Kong and Singapore in their working hours.

David:

Okay, so my final question, James, is, to have a look at a very successful fund manager here in the UK, who has moved over to Hong Kong, and is dealing primarily in Chinese shares. That man in Anthony Bolton. He doesn't seem to be having an easy time in China at the moment. Where do you think he is going wrong?

James:

Well, I don't follow celebrity fund managers, because I don't use fund managers; I'm my own fund manager. But I feel a lot of sympathy with Bolton, because I think he's obviously established a very, very good track record. He's not exactly the first person to discover the Far East, but all credit to him for going there, and doing it. I think it must be a very exciting thing for him to do, and he's learnt a few lessons, he invested in some companies, I read, where the corporate governance wasn't too good, and made some mistakes in some of these smaller companies. I feel it's understandable mistakes, and he'll probably actually come through to doing it pretty well, but that's partly because I was worried about corporate governance, that I've tended to invest in China through other companies. I've had a bit of bitter experience there myself, but no investor gets good without bitter experience. I invested directly in some Chinese companies, and I just felt I didn't really have a close enough connection, not good enough broker reports, didn't know enough, and wasn't quite sure of the corporate governance, so that's why I've ended up, partly through the same sort of bitter experience as Bolton has had, going through Singaporean and Hong Kong and British companies.

David:

Well, hopefully Anthony Bolton will be listening to this podcast and maybe he'll give you a call one of these days, and sort of say, "James – can you just give me a few pointers on how to invest in Chinese companies?"

James:

I doubt it – he won't need to.

David:

Okay, well thank you very much for joining me today on Money Talk, James. I have one more chore to perform, which is to find a quotation to sum up today's podcast, and the quote comes from William Arthur Ward, who said: "Opportunity is often difficult to recognise. We usually expect it to beckon us with beepers and billboards", and I think what he's trying to say is that there are opportunities everywhere in the world, provided you are prepared to go and have a look. Do you think that sounds right?

James:

Yes, I think there are lots of opportunities. There are always opportunities, and one of the wonderful things about portfolio investment, there's a constant variety and interest, and an understanding about the world that you get through it.

David:

Okay, well that's wonderful. Well, thank you very much for joining me today, James. I have been David Kuo, and my guest has been James Bartholomew. If you have a comment about today's show, please post it on the Money Talk web page, which you can find at fool.co.uk/podcast, and don't forget we are now on Twitter, @TheMotleyFoolUK. Until next week, have a great week.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

goodlifer 02 May 2012 , 1:00pm

Sorry to say I found all this rather boring and unhelpful.
Hope other Fools feel differently.

XMFSonia 02 May 2012 , 9:03pm

Hi goodlifer

The next podcast is with Natalie Berg from Planet Retail. She'll be discussing her key insights and practical lessons from the world's largest retailer - Walmart.

I hope you'll find that interesting.

Kind regards
Sonia


goodlifer 02 May 2012 , 11:59pm

Many thanks
I look forward to seeing what Natalie Berg has to say.

TMFDragon 03 May 2012 , 9:39am

Hi goodlifer

Please let us know the topics that you are interested in.

You can email me at moneytalk@fool.co.uk with your suggestions.

We are always on the lookout for topics and guests. So if you see, hear or read something of interest, do let us know.

Foolish best

David

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