Stock Acquired! Facebook (FB:NASDAQ)

I bought some FB shares a couple of days ago!

So here is why I bought some FB shares @ $149.80.

Strengths

Reach: Saying many people knows about FB is probably an understatement. According to FB, there are reportedly 2.27 billion monthly active users on Facebook as of September 30, 2018. Based on a world population of 7.53 billion people, it means about 30% of the world population uses Facebook. There are not that many companies that can claim to have 30% of the world population as users, many of them on a daily basis. Imagine the amount of data which FB is collecting from these 2.27 billion users on a daily basis! And what FB essentially sells is our data; to advertisers. So while it is free to use, we are essentially paying with our personal data, our likes, our comments and everything we do on FB. 

Diversification: I am not too sure about you, but I have heard a couple of times on the street or from friends and relatives, FB is passé already, now i am on Instagram! But did you know besides Facebook, FB also owns Whatapps (WA) and Instagram (IG), if you are not on FB, you are likely on Instagram and most likely you already use whatapps! So just how big are WA and IG? 

WA: In Jan this year, a Techcrunch article shared that there are 1.5 billion WA users who send 60 billion messages daily. 

IG: According to Techcrunch, as of June this year, IG has about 1 billion users. While FB do not report IG revenues separately, I am inclined to think it should be quite a sizable amount, considering the user base. While I have heard some people leaving FB for IG, no worries there if you are vested in FB! Besides, actually i do not think people really delete their FB account per se, it is just they use it less as compared to using IG. Going forward, IG will be launching IGTV, which essentially is IG version of Youtube. 

Source

So if you added up the numbers, FB group has about 4.8 billion users. No doubt, many of these are double / triple counting as many users use all three apps. But the scale of it just amazes me personally at least. 

Stickiness: I have to say the FB / IG / WA, are extremely sticky. You just need to travel on the public transport in Singapore to see that. With everyone glued to their phones during their morning / evening commute, you can see that at least 70% of people are on FB app. Even in office, you can see the prominent blue bar of FB on many laptop screens! It seems like when people are bored, people will just turn to FB to fill up these gaps. Some might turn to reading the news or a book, but it seems to me that MANY turn to FB / IG / WA for their daily source of entertainment, news, videos, and communication. Though what I see is only in Singapore, I believe it is pretty similar in many developed countries in Singapore. 

In short, FB / IG / WA is very pervasive and very sticky, in Singapore at least, as well as many other countries, which is good for a company.

Weakness

Concentration risk: While FB, WA and IG provide diversification, they are all social media platform related after all. If something drastic happens to the online social media platform, FB would no doubt be affected. Though at this point in time, I am unable to think of something like that could happen in the foreseeable future. 

One-off businesses: Advertisers are not sticky, they will bring their money to whichever medium is most effective. So there is no incentive for them to stay with FB related products if they find FB do not translate eyeballs to dollars. Advertising on FB is also relatively cheap compared to traditional kind of advertising so FB will need to continue to keep their customers base wide. 

Competing needs / wants of users and advertisers: Having advertisements on their platform are the main form of revenue generation for FB / IG, but at the same time, users can get pissed off if there are too many such ads. You might have already experienced it (I have) where the ads just auto play in the middle of the video you are watching and you have no way of skipping it. Many a times, i simply scroll down to the next video once the ad starts, not watching the rest of the video thereafter. [Important point here i scroll down and do not switch off the app altogether, so i am still in the FB app, dammit FB is sticky!]

Reputation as a social media behemoth: The fact FB is the number one social media platform in itself could be seen as a weakness when it become a magnet for almost all social media related problems / criticisms e.g. privacy leak, Mark traveling to Washington to answer questions on FB data mishandling, US election / Russia influence probe. All of which, could distract FB from their main business. 


Opportunities

Further business diversification: With the money and customer based, FB is able to diversify outside its core social media and online advertising business e.g. payments perhaps within it's Messenger / WA, similar to Wechat in China where this one app can do so much more than just sending message.

Any other areas they wish to venture into: Ok, i am a little hard pressed to think of other areas, but with the money and user numbers, FB does have a very good starting point to launch / venture into new areas complementary to FB.

Threats

Substitutes: FB is not the first social networking site created and it will not be the last. There was Myspace and Friendster before FB but FB have emerged top (at least for now), but going forward, no one knows which other new platform might pop up. But do not rule out FB buying them outright, like in the case of IG. Though anti-competition regulations might stop this from happening in future.

Privacy and new regulations: Cambridge Analytica Scandal, new regulations being introduced on data privacy, e.g. The EU General Data Protection Regulation (GDPR). The GDPR can implement fines of up to 4% of a company’s annual revenue for data violation!

Cybersecurity: Holding so much data will make FB a prime target for cyber security attacks. If there was ever a successful attack, confidence in FB would drop tremendously and it reputation will definitely be affected adversely. [that said, this is also the same for all social media companies.]

Market saturation: Getting more users = more data to sell to advertisers. But market saturation will kick in (or already has) so FB will need to find new ways to increase membership e.g. digital inclusion initiatives that would bring the unconnected online. [likewise for all other social media companies to be as well]

Numbers, numbers, numbers (from Reuters)

FB:NASDAQ

GOOG:NASDAQ [quite attractive numbers as well, but net profit margin is lower and management effectiveness not as high as FB]

SNAP:NYSE [not quite a worthy comparison to FB, not yet anyway]

TWTR:NYSE [President Trump fave means of comms. I was quite surprised at Twitter's number actually cos they are quite attractive in itself per se. But maybe i am not a twitter user/ fan, i just feel 240 characters are no match for FB's suite of offerings.]

And so that is why I have invested in FB. 😉

Phew, doing up such a post took much longer than I thought it will need. But I am happy to have finally done up my first investment journal. 

I hope you find the above analysis useful and do let me know if you have any alternative views. Happy to discuss! 

Bye for now!
Frugal Singa

Today, i shall start my journalling!

Today, i shall attempt to start something which I had held off doing for some time, though i know that it is good for me. 

I will do up my first investment journal entry on a recent stock i bought (just 2 days ago actually.)

Many a times, when I buy a stock, like everyone else, I would expect it to rise for a number of reasons. However, sometime down the road, when the stock price is moving sideways or even downwards, I will start to doubt myself and wonder if this was the right stock to buy in the first place, what if I had bought Y stock instead of X stock, i would have made money, should i sell now etc. But hindsight is always 20/20. 

By keeping a journal, I hope it will allow me to be more committed to my positions and allow me to learn from my mistakes and hopefully able to replicate my wins! Writing the thought process behind buying a particular stock will allow me to understand and more importantly remember the reasons / motivations behind my decisions further down the road as well. And hopefully, I will emerge a better informed investor, by knowing more about my very own investment decisions. 

Before going any further, I just wish to share I am more of a (lazy) fundamental investor. As much as I wish to learn more about Technical Analysis and all their modelling, I have not found the time to do so and it just seemed pretty overwhelming to me, so I will probably never ever learn it. Therefore, my stock analysis might seem pretty primitive to some. But to me simple is good and well... simple enough for me. 😁 Lastly, I am also a long term (>5 years) investors, simply because no one can predict the market in the short term, but in the long run, the trend is usually upward, so the longer the term, the better your odds of making profits. 

And also because of this, it is also unlikely I will buy an obscure undervalued stock and watch it magically reach for the moon (not within a short time frame anyway). No doubt there are plenty of such multi-baggers in small / micro / med cap stocks, but I feel they are simply too high risk for me and I prefer to avoid them.  

Disclaimer: While I enjoy picking stocks, I try as much as possible to avoid buying individual stocks as I am a believer in passive broad market tracking ETFs, so while I pick stocks, they do not form a majority of my portfolio. But sometimes, I gotta admit picking stock is just more exciting than ETFs. 💥

So my considerations when picking a stock actually just comprises a simple SWOT analysis and also a look at their profit margins, P/E, P/B, ROE as compared to their peers to decide if they are fairly priced at the point in time.

Given I am only starting my first stock journal entry, there might be further refinements to the above considerations. But without further ado, lets go to my next entry!

Feeling excited for my next post!

Frugal Singa

CPF- Yay or Nay?

This would be the first of many CPF-related posts, simply because i think CPF is an important and prominent part of a Singaporean working adult life (whether we like it a not). At the ripe old age of 32, I have only recently started to realise that CPF is not such a bad deal for Singaporeans after all. The following is my personal opinion. I am happy to hear alternative views as well. 😀 

As a young adult, many of the things we learn about, we learnt though social media. And social media thrives on controversies. Controversies are called controversies for a reason, because they stir up emotions and bring out strong opinions. Many times, the loudest (not necessarily the correct- correct in my opinion at least) get heard and people can get convinced or confused accordingly.

In June 2014, it was reported about 2,000 people gathered at Hong Lim Park to hear speakers talk about CPF and demanded the government return CPF monies to citizens. That event certainly generated a lot of publicity / spotlight on CPF and talks if it was being misused. I personally gave it some thought but finally personally decided that my CPF funds are in good hands. Or rather put it in another way, would you know if there are better hands out there whom we should hand our CPF monies to? 

Four years ago, I was even more ignorant about CPF than I am today, but thankfully, I have learnt a bit more about our CPF systems along the way and have also grown to trust it more.  

It is sometimes thought that many people (especially our parents' generation) did not have the luxury of being financial trained and are hence not financial-savvy, given a huge amount of money at 55 years old, would they know how to deal with it? For those who are more risk adverse may choose to put the funds into banks saving accounts which pays out peanuts compared to CPF interest rates which could be =>6% for those older than 55, which bank would be able to pay such high interest rates? 

People say that "Its their money, let them deal with it themselves." which is fine in itself, but if after their money runs out, who would these people turn to? I am not saying they would definitely turn to the government but there is a high chance they would look to the government for handouts. If their children do not support them as well, then who would these people turn to? Though it seems like a rather pessimistic point of view to take, I would rather be pessimistic and be proven wrong then optimistic and proven wrong, cos then, there would be a much higher price to pay for both government and citizens. 

Singapore is not quite a welfare state as compared to the Scandinavian countries (which comes with high tax rates correspondingly). I am not saying which is the better systems but they are fundamentally different systems which different governments have adopted.

My views on CPF:

• Yes, 20% of our monthly wages is not a small sum, but your employer also needs to contribute another 17% to your CPF as well. So it is like bonus of 17% each month. So effectively, if your salary is X (for cases where X=<$6,000), you are effectively getting 1.17X monthly, just that you do not get them all in cash in hand. Putting in 20% for an extra 17%, I think it is still alright for me personally. I feel I should be able to survive on 80% of my salary, basing on a fresh graduate (normal local uni degree) starting salary.
• The returns on our CPF monies is (nearly) risk-free with government's backing. Should something major detrimental happen to Singapore government / economy, I personally think there will be bigger issues for us to worry about than our CPF returns. Granted, CPF is still very important to all of us and in no way I hope to see anything unfortunate happen to it. 
• Interest rates are quite decent ranging from 2.5% to 5% (<55 yrs old) and 6% (>55 yrs old). No banks / insurance company out there can provide this guaranteed risk free high interest rate.
• The minimum interest rate of 2.5% for OA and has been there since the beginning of CPF, I am pretty assured it should continue for the foreseeable future.
• Assuming one starts to work at about 23 (for females) or 25 (for males), one is able to make use of CPF's favorable interest rates (compounded) to their advantage for a good 30 plus years. Assuming you contribute just $500 to your SA which pays you 4% interest, at the end of 30 years, you would have almost $350,000. From your investment of $500*12 months*30 years= 180,000, you would have almost doubled your money. [This is a conservative estimate since you would earn an additional 1% on your first 40,000 of your SA funds.]

• If you are able to double the contribution to $1000/ month, you would end up with $700,000! That is more than half a million!  Granted this is provided you do not use your CPF to buy your house, which many of us in Singapore do, me included. Regardless, these figures made me pause and forced me to re-assess my then decision to pay for my home using CPF back then, though that is another post for another time.

Therefore, at the age of 32, with a tinge of regret, I did not realise the eighth wonder of the world earlier (in my 20s). I am now trying to make it work for me to the best of my abilities by transferring my OA to SA and am also considering if i should make Early repayment of my HDB loan to inject some spare cash on hand into my SA. Some might say it is a drastic move, but missing out on the 4% interest compounded over many many years is also pretty drastic as well.

A neat tip for those who have just started working. If you do not have need to use your CPF for housing, you could starve your OA, and stuff your SA for additional interest. 

E.g if you had 20k in OA (earning 3.5%) and 40k in your SA (earning 5%). But if you starve your OA by transferring your 20k in OA to SA (20+40K=60k) you will have 60k in your SA earning you 5% instead of part 3.5% and part 5%. Do bear in mind that by doing so, you "lose" the usage of the 20k for your housing and can possibly only touch it at 55.

I will touch on CPF for housing in my next post. Do stay tuned. 

Frugal Singa

Investment mis-adventures (so called lessons)...

No more trust in Unit Trusts...

Many many years ago while I was still schooling, I recalled my parents investing in something called unit trusts (called mutual funds in the US) at the advice of a relative. Being naive and foolish, I asked to invest some money too (who don't wanna make more money!) Because "they" said there was a "professional" fund manager who was going to manage my money and there wasn't any apparent fees involved! Because Professional = Good = Sure Win right!??

It was only after a few years when I asked to check on its performance, i realised it was actually worth much lesser than its initial value. 😖 Besides the investment being underwater, I was still being charged management fees and some other front load fees and other what not (this is regardless if my investment made / lost money!). That was my first painful lesson when it comes to investment. Lesson learnt then: There is no sure win investment. Not even with the so-called Professionals. (that was before i learnt about CPF.)

Pay peanuts, get monkey (largely speaking)

There were many more painful lessons to come through my investment in China penny companies in the SGX. 

The temptation of buying a 1 cent China company stock on SGX (it could be other country company as well, just that there were many Sino-type companies on SGX, even till today) and potentially doubling my money when it rose to 2 cent was simply too great and yes, I eventually got burnt when the stock tanked (that's a relatively positive thing actually) or company got de-listed (lost all money) due to some governance issues crap. When investing, one tend to always look the potential upside and fantasise how much we can profit. While I was aware I would lose 50% of my capital if the 1 cent stock dropped to half a cent! (how is there even HALF a cent!?), that thought wasn't quite strong enough to prevent me from buying the penny stocks (greed was stronger). Being aware of the risks sometimes do not mean much IF you keep thinking to yourself, nah, wont be so sway one la, my penny stock will not be the one to tank. 😛

Those losses are what I call tuition fees... and also learning that prices do usually indicate quality. These companies are cheap, for a (or many many) reason(s). Notwithstanding, there could be some great value penny stocks out there which may eventually outgrown its "penny" status over time, but of those that do, many many many more do not and eventually fail, so the odds are not really in our favor. 

So lesson learnt: Do not be greedy and avoid the temptation of penny stocks (or invest a tiny bit of money you are prepared to not see them again).

The above happened during the days where minimum purchase "lot" of SGX-listed securities was 1,000 shares, which was partly why one would look more to cheaper penny stocks, simply because buying 1 lot of DBS at $17 would require $17,000! A positive change SGX made in 2014 made buying blue chips stocks more accessible when one could now buy 100 shares instead of 1000 shares. e.g. you could now buy 100 shares of DBS at $1700. Too little too late for me at least...

Still learning, after all these years...

Fast forward to this year. 

Together with my wife, we recently took another loss of a couple of thousands when we used our CPFIS-OA to invest. At the advice of an independent financial adviser (FA), we parked about 100k CPF funds for him to invest. I was initially uncertain if we should be investing our CPF OA but the adviser shared that he would be able to make >2.5% in the long run. Granted, I believed that it was possible, but I always had that nagging feeling in me that the fees were going to eat into the returns. 

In addition, I had only recently learnt about CPF tips and hacks. Took the effort to sit down and read up on CPF tips from blogs and books and came to realise that CPF was actually quite a good investment vehicle with 5% for first 40k in SA and 4% thereafter. The FA did not touch our funds in our CPF SA because he said that 4 - 5% were decent returns. But it did not dawn upon me (yes, late to realise 😞) that i could transfer my OA to SA to get those amount instead of investing them in unit trusts. Yes, i understand there are implications in transferring OA to SA and will share more in another post.

My wife and I gave it serious thought and decided to bite the bullet and divest our CPFIS-OA investments after only about half a year and stopped our regular investment via CPFIS as well. Given the short time frame, it was no surprise we lost money, both in the UTs as well as the management / processing fees. But given the 4% interest in SA, we should be able to "recover" them within the next two year. So another tuition fee paid. 😓

Lesson learnt: Do your own research and learn / understand / digest all the schemes (e.g CPF) available to you before committing any big moves on your investments because no one will care about your money more than yourself! 


Frugal Singa