My Lesson in Ho Bee

Based on my memory, in year 2007-8, Ho bee directors buy ho bee at $1.40 -$1.80. The financial crisis was beginning to hit.

Directors continued to buy ho bee at 70-80 cts, after it dropped more than half.

In september -oct 2008, The crisis really hit hard, and the newspapers headlines were filled everyday with negative news of" great recession", financial crisis".

Ho Bee share price fell further to 30-40 cts. At this price, Ho bee nav is at 70-80cts. The market cap was about $210 M. (700 M shares x30 cts.)

I once read that in the year 2009, Ho bee has many projects fully sold going TOP. When the projects TOP, Ho bee will receive the balance of the 80% of the project sales. How much is this? The jewel in the crown was The Coast at Sentosa. 300 units (land size about 2000 psf) fully sold at $1800 psf . That means each unit cost about $4M. The expected revenue based on the Coast = $4m x 300 = $1.2B. However, we must net off the 20% downpayment which has been included. Therefore, the revenue will be reduced to $1B.

How much is the expected profit? As ho bee usually has a profit margin of 30%. I expect the profit from The Coast to be $1B x 0.3 = $300M. If a company market cap is $200 M, the net profit is $200 M, then the PE =1. If the Coast can provide this much profit, the rest of the projects( also mostly sold) will add more profit to it. This make ho bee a terrific buy at 30 cts.

As expected the projects TOP and provided huge cash flow for ho bee. The share price rose from 30 cts to $1.60. The earnings per share rose to 30 cts. which make this stock at 30 cts a PE of 1. This lesson highlights the importance of PE. At $1.60, the pe is now 5-6. If next year, the profit fall, the share price may not be sustained at this level. (note that there are not many projects top next year)

A few points to note is that if the projects are mostly not sold, i will be concerned and not buy as well even if ho bee fell from $2 to 20 cts. But as we have read in year 2007-8, the projects were mainly sold and at high prices. Thus, the shareholders who sold Ho bee must have forgotten what is the Ho bee story. It is important to Stay tuned to the stock and the story in the business.

Stock trading volume

During the world cup, I noted that stock trading volume hit a year low of 1 Billion. If this situation persists for the rest of the year after the world cup fever, we must be prepared for a second economy dip. This is a sure sign of smart money withdrawing from the market. Without smart money interest, the market is likely to fall when bad news hit again. I read in a book that predicted the economy is likely to dip again from last year 2009 to this year. The question is when? So far, the prediction in the book is unerringly right. It is scary to know someone can predict the economy with such accuracy.

My gut feel is as long as we hold good stocks with low PE ratio, high cash per share, low or zero debt and good prospects, we are likely to be delighted with our investment in the next 3 to 5 years. It is time to ignore the noise in the market and reinvest our funds into good stocks when the market falls again.

Citigroup

Recently, I noted that Citigroup which is traded in the USA (symbol = C) has many insiders selling. One of the officer has just sold 100,000 shares worth $400,000. This insider still has another 2 Million shares remaining which is worth $8 Million at market price. Something in Peter Lynch book came to my mind. Peter mentioned that if you can’t imagine an officer being so rich, then most likely the share prices is unsustainable.

Since I cannot imagine an officer can be so rich, I suspect the share price is over-valued. As many insiders are selling almost at once, I suspect they know something that we don’t know. They are preparing to exit now. More bad news on the financial market may come. Please be prepared.

Who can help them?

Many people have complained that the government has forsaken the people and do not help them. I pray that the people will unite and believe in their own family. If our own government cannot even believe and help singaporean, who will help them. If their own parents or family do not even help or even support them, who will help them. Myself, if my family do not help and believe in me, I wondered where will I be. Will I be searching for rubbish at nite collecting cardboards or I will be a security guard for the rest of my life. As I write these, my tears swelled in my eyes, cos of the difficulties facing the average middle class family. I hope GOD, their family, the community and the government will help them and bless them.

Older workers

I understand that those people in their 30s to 40s who were retrenched have difficulty to find a job. I hope that their family, the community, the government, and employers will continue to believe in them and give them a second chance. To employ young people is good but employers must weigh the pros and cons of their loyalty, attitude and their reliability compared to the older workers. If not many of my friends will continue to be disappointed with their job prospects and their future in Singapore.

Smart governement

I do highly respect our government in their business dealings. They took a piece of land (free to them of course) and build a HDB flat to sell to 100 families. Next they charge property tax for 99 year lease and then charge them $65-$90 per month for car park space. This is one of the best cash flow plans. 99 years later, they took back the land and re-package it again and sell it to another 100 families. In short, they collected one lump sum of money when they sell 100 units. Next, they collect monthly cash flow in terms of property tax and car park charges.

To summarize, they got all their money back when they sell 100 units to the people, and they still own the asset and enjoy the benefits of cash flowing from the asset. Really, we must hand it to the government. For the car park and flat, they got low-cost foreign workers to take care of the maintenance, like lift, grass cutting, and etc.

How to help the US to get back on its feet?

Why do I want to help the US?

Because I am indebted to the US people in learning from investing guru Warren Buffet, Peter Lynch, Sales guru Brian Tracy, Frank Bettger, and Rich Dad Poor Dad Author Robert Kiyosaki.

This is only a suggestion because I am not a person specialize in public administration and a turnaround specialist. Besides, the US people has the wisdom and resources to get through anything like the great depression and world war 2.

On energy, the US must learn from France to ensure energy independence. The US must build more nuclear plants to ensure 80% of energy sources came from nuclear. Safety issues can be tackled on.

For education and health care, the US must learn from Singapore where high standards are maintained and health care is compulsory unless opted out.

For R&D, the US must learn from Israel and Japan in developing best practices and also new areas of collaboration.

On infrastructure, the US can learn from Singapore and Japan and China. It can also weigh the pros and cons of developing more roads or new technology such as a flying car, water submersible car and water vehicle. This made roads, highways and railroads less relevant.