Wednesday, April 14, 2010

Novice investment fund outperforms big guns

A testament to prudent fundamental investing.

Guess I got a lot more to learn from then... especially the sentence

'Benjamin Graham said you buy a company at two-thirds its 'net net working capital'. It's very stringent,' Mr Wong said.

Novice investment fund outperforms big guns
S'pore-registered fund sees 155% gain against 30% by MSCI Asia Index
By Gabriel Chen

AN INVESTMENT fund set up by two Singaporean novices has lit up the investment world - leaving far more established funds in the dark.

The Lumiere Value Fund started in 2007 by the pair has been named by financial data provider Thomson Reuters as the 'best performing Singapore-registered fund' over the last 12 months.

Their portfolio posted a dazzling gain of 155 per cent for all of last year, benefiting from strong price rises of small-cap stocks such as massage chairmaker Osim and sofamaker HTL International.

The fund's performance left many established benchmarks trailing in its wake;

MSCI Asia Index returned only 30 per cent during the same period.

Mr Victor Khoo and Mr Wong Yu Liang, both aged 33, started their fund in 2007, but they were not new to the world of stocks. They had been buying and selling shares since 2001, when they were accountancy undergraduates at Nanyang Technological University, although they did not know each other then.

Both, however, had adopted the same approach to investing - trading on noise and speculation. 'Like many others, we just punted stocks. I didn't know who Warren Buffett was then,' Mr Khoo told The Straits Times.

Both joined accounting firm Arthur Andersen in 2001 after graduation, and they met during a company trip to Malaysia later that year. Around the same time, both men began questioning their approach to dabbling in the market.

They read books by investment gurus like the late Benjamin Graham, Mr Buffett and Mr Peter Lynch, and agreed that the fundamental analysis approach would work better for them.

They saw themselves as long-term investors, setting their sights on picking good stocks at a deep discount to their intrinsic value. With this in mind, one of the things they first did was to trawl through all the stocks listed on the Singapore Exchange - putting into practice the concepts they picked up from their reading.

'Benjamin Graham said you buy a company at two-thirds its 'net net working capital'. It's very stringent,' Mr Wong said.

Using this formula, he spotted Hour Glass shares in 2002. However, before he sank money into the watchmaker, he looked at its competitors.

In the end, he picked rival Sincere Watch and not Hour Glass. He had observed that Sincere does not sell only watches, but also has a brand management arm, giving it higher margins due to the exclusive brands it brings into Asia.

'We liked the Sincere story more. At that time, Sincere was a growth firm and was trading at four times earnings.'

Over the six years to September 2007, Mr Wong and Mr Khoo achieved a compounded annual return of 41 per cent and 46 per cent, respectively on their investments. In 2007, they quit their jobs and started their Lumiere fund full-time.

Mr Khoo had been working in the Supreme Court's finance department, while Mr Wong was a management consultant.

They each put in $1.5 million, and after roping in various other investors, they had $5 million ready to be deployed. The fund has now grown to about $14 million.

Mr Khoo advised investors not to take short cuts. 'Investing is not about IQ or being the smartest guy. It's about having the temperament and the discipline.'


  1. http://thefinance.sg/2010/04/17/a-super-return-fund/

    Most of the time we only hear the good side. Rarely, we hear investors talking about their losses especially fund managers.

  2. Hi CW8888, that's very true.

    I always tell my friends that although they hear me and some others saying how much we have earned from this and that, this is only one side of the story. Then I will proceed to tell them about my losses as well.

    There's never risk free... just lesser risks, which can be managed as well.

  3. Their are many investment funds that do very well when their small but as their size increases their performance often nosedives. The reasons for this vary from the inability of the money manager to make their own unencumbered decisions because the organization becomes large and many of the decisions that the money manager was able to make on his own when the organization was small are now drowned out by his superiors in a much larger organization. Or because of the funds great investing success the amount of money pouring into the fund is so large its harder and harder to find enough good stocks for the fund to invest in because of the huge amounts of money needed to be put to work. In other words the fund becomes a victim of its own success.


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