Richard Li, his dad and PCCW

What is the deal here?
Many moons ago, Mr Richard Li, son of Mr Li Ka-shing, presented his intention to sell the 22.64% stake in PCCW, a telco listed in Hong Kong.

There were suitors with big monies but they were turned down. Why? It was rumoured that IT does not favour strategic assets such as telcos to go under control of foreign owners.

Then some recent months ago, I read that Mr Richard Li has agreed to sell the stake in PCCW to financier, Mr Francis Leung.

The 22.64% stake is held under Pacific Century Regional Developments (PCRD), a company listed in Singapore.

Why and how would a financier want to own a telco with a price tag in the billions?
On 14 Nov 2006, Business Times reported that the 22.6% will be taken as follows

• 12% by 2 charitable foundations of the elder Li,
• 8% by Spanish telecoms giant Telefonica and;
• the remaining 2.64% goes to (guess who?) Mr Francis Leung.
  

Given the line-up, has the answer presented itself? It doesn't look that Mr Leung is the intended ultimate buyer.

What will be interesting in days to come?
The sale is conditional upon approval from shareholders of PCRD. As Mr Li is a substantial shareholder of PCRD, the approval would be a simple technicality to be executed until the Singapore Exchange (SGX) enters into the story.

SGX banned the younger Li from voting on the sale of his stake after it was unable to get assurances that parties connected to him - including his father - were not involved in the sale.

A significant part of the deal's future now lies in the hand of minority shareholders of PCRD as they convene for an EOGM on 30 Nov 2006.

Conclusion
Why must Mr Richard Li sell PCCW? Is PCCW no good and will thus hurt PCRD in future? Then how come got suitors ha? How come got to get daddy involved if it is no good? So PCCW must be good. Then why sell? But daddy already got its own telco business in Hutchison Whampoa.

Can someone explain to me for my academic understanding, please? Good nite.

P/S - I am not a shareholder of PCRD and PCCW.

Meeting management a waste of time?

This is precisely the article's title by Ms TEH HOOI LING of Business Times dated 11 Nov 2006.

For the uninitiated, she referring to equity analysts or fund managers meeting with management of companies they are covering. Ms Teh reviewed Dresdner Kleinwort Wasserstein analyst James Montier's 100-page report on the seven sins of fund management last year.

The third sin is - Why waste time listening to company management?

Mr Montier cited it is a waste of time due to some inherent flaws in human.

• We tend to follow the instruction of the authority. He quoted an interesting study where more than 90% of students in various countries will do something to hurt themselves when told to do so by their teachers. This is despite the fact that action will hurt them. Translating that to investment environment, the more "god-like" the business personality or management is, the easier it is to influence the weak or inexperience minds of these analysts.

• Can you tell the difference when someone try to pull a fast one on you? Again the studies showed the general population would have about 50-50 chance of calling it right.
  

Meanwhile, Mr Montier's other six sins of fund management are:

• Our insistence on relying on forecasts when it has been proved time and again that we simply cannot forecast. Ed says - While I may agree to forecasts up to 2 years, anything longer would have a good chance of being rated "Fiction".
  

• The illusion that more information is better information. Ed says - My students may measure how good a lecturer is by the thickness of notes given to them.
  

• Thinking that you can outsmart everyone. Ed says - Who can blame us for that? We must be optimistic right?
  

• Being short-term focused. Ed says - Boh pian when short term is 6 months and long term is 1 year in this era where all things are disposable (including relationship).
  

• Believing everything you read. Ed says - This is definitely a no-no to me.
  

• Believing that group decision-making is better. Ed says - Someone ever use this as "common sense management" ie. when you are not sure, ask a few people and you will know what to do.
  

The list now confirms my gut feel that the stock analysts are no better than me.

Ha ha!!! Just kidding.

Hour Glass, Gems TV and FRS39

Hour Glass paid $15.5 million for a 5% stake in Gems TV Holdings towards the end June 2006.

Who is Hour Glass and who is Gems TV?
Hour Glass is in business of retailing luxury watches and accessories and listed in the SGX.

Gems TV buys cut gemstones, makes them into handcrafted jewellery in Thailand and sells the goods through a 'reverse auction' over television shopping networks to home buyers in the UK. Gems TV is currently offering nearly 285.8mio shares at $1.08 apiece in its IPO now.

What is the expected profit to Hour Glass?
At the offer price of $1.08, that stake will be worth $44.5mio ie. a potential unrealised investment gain of $29 million after just 4 months!!!

What an investment!! What an early Christmas windfall!!

Are you one of the 2.443 million people?

How many jobs were created?
On 31 October 2006, the economy created 41, 600 new jobs in Q3 (36,400 in Q2). In total, all 3 quarters in 2006 to date have created 123,100 jobs (113,300 for whole year of 2005).

There are now 2 headline unemployment rates. The first unemployment rate showed a decline from 2.8% to 2.7% in Q2 (not sure what this is). The resident jobless rate, which excludes foreign workers, remained unchanged at 3.6%.

How many human beings are gainfully employed in Singapore at Q3?
Answer - 2.443 million.

Where can you find most of the new jobs?
Answer - Manufacturing.

Job created by sector
Manufacturing - 11,300 jobs in Q3 (8,400 in Q2).
Services - 24,600 jobs in Q3 (24,400 in Q2).
As I have mentioned in class a few months ago, even the construction sector is coming alive and is set to hire even more people (5,500 jobs in Q3 / 3,500 in Q2).

I wonder who will take up the construction jobs. But someone must do the job for otherwise the IR owners and the many en-bloc buyers-cum-developers can only look at their dream$ on architect drawings.

There are many possibilities in attempting to translate the above information in what stocks or sectors to put your investment dollars in.

One thing for sure, the property counters are relatively well-valued.

More people working --> more income --> more disposable income --> to be spent where? Think, my friends. Cheers :)

You want to hire a financial planner?

Then ask the right questions for the right person.

1. Always follow the monies.
Ask him how is he compensated for providing the service. You pay him consultation fees or will he receive commission rebates from products that you invest in or BOTH?

2. How long have they been doing this?
Experience really counts in this trade. There is no room for theoretical knowledge in my opinion.

3. What are their qualifications and licences? Is there an active organisation backing their qualification with regular monitoring of business ethics and learning needs?

4. What is the service scope?
For the fees that you are generating for him, what are getting in return ie.
- report - by type and regularity
- interaction - by mode (ie. phone/sms/email/face to face) and regularity

Source - Hiring a Financial Planner - Jack Waymire, ST22Oct 2006 page 20

Picking Small Cap Stocks

Ms Teh of Business Times polled 5 stock broking firms for their respective top 5 picks among the small cap companies in Singapore.

After 1 year since that fateful poll, she presented the following conclusion.

1. Avoid stocks that are recommended by many analysts. Too many investors have already stocked up on the counter. Limited upside should be expected.
2. Be careful in chasing after recent big winners unless you are familiar with the industry.
3. But don't dimiss all recent winners too. You maybe able to ride on the strong upside momentum.
4. To appreciate the fact that picking a winner is difficult and staying with the winner is even more difficult.

How do you know you have done well?

When you "beat the market" , then you have done well.

ie. when your return exceeds the respective indices or when your return exceeds cost of funds and rate of inflation.

Happy investing... :)

Reference - "The art of picking small cap stocks", BT Oct 14-15, 2006 pp 6.