Sold: a bunch of smaller positions

I started to reduce the number of shares in my portfolio, as described in my last blog. First, I decided which 4% positions to top up to 5% and which 1% positions to double to 2%. To finance these top-ups, I sold all the remaining positions where I did not feel comfortable to top them up. I already described a bunch of earlier sells. Here are some more shares that didn't make the cut.

Sold: Tong Ren Tang Technologies Co Ltd (HKEX:1666), Tianjin Pharmaceutical Da Ren Tang Group Corp Ltd (SGX:T14), Guangzhou Baiyunshan Pharmaceutical (HKSE:00874)

These companies are Chinese state-owned enterprises (SOE) that make and sell traditional Chinese medicine (TCM) products. I bought all three simultaneously to diversify the risks because I do not have the sector knowledge to select specific companies. I do not speak Chinese, and I don't have access to sales channels like WeChat and Taobao. I can't evaluate which of the three companies is doing best. I changed my vision on portfolio management since these buys. I abandoned this basket-type strategy and started focusing on companies I can study in detail. It was time to sell off this TCM basket to make room for this new approach. I booked a good overall profit thanks to Tianjin Pharmaceutical Da Ren Tang Group Corp Ltd.'s significant share price increase. It was more luck than wisdom. 

Sold: Natural Food International Holding Ltd (HKEX:1837)

This company sells healthy food and snacks, mainly breakfast cereals. This food category is still a small and fragmented market in mainland China. The sector holds a promising future with an increased focus on health by consumers. Natural Food International is backed by PepsiCo Inc., with all its knowledge and experience, as a minority shareholder. Yet, Natural Food's revenues and earnings have not grown much during the last few years. The stock has been a value stock all this time with a P/B below 1 and a P/E of currently 6. Dividends were cancelled in 2022 and 2023, although the company had and still has plenty of cash in the bank. 

The company's market cap of 129M USD violates my minimal market cap rule for Chinese companies. At the time, I decided to allow this rule violation because of PepsiCo's involvement. However, it is possible that I obtained too much trust from that involvement. The value of the participation is small potatoes for a global corporation like PepsiCo. It could be a venture capital type of investment for them. 

All considered, I did not dare to top up Natural Food from 1% to 2% in my portfolio reorganization. I see some red flags, and I do not have much information to ease those worries. 

Sold: PT Uni-Charm Indonesia Tbk (ISX:UCID)

Uni-Charm sells paper diapers under the name MamyPoko. One year ago, I bought this share as a long-term bet on a rising Indonesian population. A rising middle class should create a growing demand for higher-quality household products like diapers. The diapers that Uni-Charm Indonesia sells have been developed by Japanese multi-national Unicharm Corp. Pulp and paper are the main commodities used for the production of diapers. The market prices of these commodities are much more volatile than I had realized when buying the share. As a result, the margins of Uni-Charm fluctuate a lot too. The company is not as financially boring as a typical consumer staples producer. In addition, the stock price keeps going down.

Uni-Charm Indonesia is a joint venture between Unicharm Corp and  PT APP Purinusa Ekapersada, an Indonesian paper & pulp manufacturer owned by Sinarmas Group, a vehicle of the Widjaja family. A combination of a multi-national company and a local family enterprise is perhaps not ideal. Both joint-venture partners are also suppliers to Uni-Charm Indonesia. This creates an opportunity to siphon off Uni-Charm's profits by charging supply prices higher than market prices. Should this ever happen, it will be almost impossible to detect. In summary, I did not have the confidence to top-up this share and sold it off. 

Sold: Kotra Industries Bhd (0002.KL)

I recently bought this share, also known as Kotra Pharma. As you can read in the blog post, I already wondered whether I truly understood their prescribed medicine division. The pharmaceutical business can not be analysed in the same manner as the over-the-counter Appeton product division. I lack insights into factors such as pharmaceutical development pipelines and regulations. I did not have the conviction to top up Kotra, so I decided to sell it.  

Disclosure: No more positions in the shares mentioned. 

My position sizing system

• 5% initial position for a company incorporated in a developed market
• 2% initial position for a company incorporated in an emerging market

My old position sizing system was a two percent initial buy plus an additional two percent later for companies incorporated in a developed market. I usually did this second buy after a few months of holding the first portion. The purpose of this lag was to get comfortable with the company in the meantime. Sometimes, I did not get such comfort and sold the share. Similarly, I bought half percent positions plus a half percent later on in emerging market companies. It was a careful start because I started a whole new portfolio. However, I ended up holding 75 shares. There is no way to follow 75 companies as a part-time private investor. 

There is a lot of research addressing the proper diversification of a stock portfolio. I believe the picture below illustrates somewhat of a consensus conclusion.

We can see that a portfolio with only one stock results in a huge standard deviation of its annual returns. Adding one stock reduces this standard deviation considerably. Assuming that the added stocks are equally weighted, the variability of the total portfolio goes down as we add more stocks. At some point, let's say at 25 stocks where the arrow is placed in the graph, adding stocks does not reduce variability in any significant way. 

The graph is compiled by looking at a large number of portfolios. We are looking at reality, not a theory. Nevertheless, this perspective on diversification is debated. Many value investors argue that variability does not represent risk; only permanent loss of capital does. The number of shares does not matter either, but rather how confident you are about the business prospects of the underlying companies after intense research. Charlie Munger was not afraid to hold only three shares. However, I do not have the quality of information, insight, experience, and advisors that Charlie Munger had access to. For now, I will go with the traditional concept of risk as expressed by the diversification graph above. 

In any case, I was severely over-diversified, holding 75 shares. It will be nearly impossible to beat an index fund with so many shares. I already experienced that a very successful 0.5% position, such as my triple return with Luckin Coffee, will barely affect my overall portfolio performance. I concluded that my 1% positions in emerging markets China, Thailand, Malaysia and Indonesia did not make sense. I decided to take 5% positions in Malaysian companies from now on. For China, Thailand, Indonesia, and other emerging markets I will allocate 2% per company. That is still a small allocation, but I currently do not have the confidence to take a 5% position per company in these markets.

The reorganization

After deciding on my new position sizing rules, it was time to take action. I sold off a bunch of shares where I did not have the conviction to top them up to 5% or to 2% for a range of different reasons. This was a useful exercise in itself. I increased the allocations of all the remaining holdings, except for Greggs, ABF, Reckitt and Haleon, which already got too expensive. In the case of turn-around situation LG H&H, I want to wait for the Q4 2023 results. With the reorganization mostly done, I own 25 shares now. 

Further concentration?

Looking at the chart above, I could reduce my 25 positions further to 10 positions. The variability of the portfolio as a whole would not increase that much. I could start with taking 5% positions to 10% where I feel confident that a company is extremely undervalued, such as Boustead Singapore and Ibersol. However, from my past experiences as an investor, I have learned that my ex-ante level of confidence is often misplaced and irrelevant. There is no correlation between my level of confidence in a share pick and the subsequent performance of that share. 

As an example, my current best performers are Exotic Food PCL, Tianjin Pharmaceutical Da Ren Tang Group Corp Ltd and Associated British Foods PLC. I would never have guessed these picks as being my winners two years ago. I would probably have guessed Alibaba or Tencent then. Without a mechanical allocation system, I would have doubled down on these two stocks. This doubling-down behaviour is known as Get‐Evenitis or, more officially, loss-aversion bias. A mechanical sizing system is an antidote to this bias. It saved me from a bigger disaster in the Chinese tech space. 

Hence, I will stick to my mechanical allocation system. Should I ever change the current 5% and 2% sizing numbers, it will be wise to apply the new rules to all my shares, not to a selection.  

Disclosure: long position in all the shares mentioned, except Alibaba, Tencent, Tianjin Pharmaceutical Da Ren Tang Group Corp Ltd and Luckin Coffee, which I sold off

Sold: a bunch of consumer staples stocks

 I sell a stock for one of the following reasons:

•  I discovered a mistake or omission in my earlier analysis of the business. The issue is so serious that I do not want to own the share any longer. See below for the cases of TVO, SPI, BATS, IMB, JDEP, 00506 and 00288. 
• The valuation of the share looks very high. I prefer to take my profit. See below for 01475 and Luckin Coffee earlier.
• Management changes the direction of the company. I disagree with the new plans.  
• The business circumstances for the company changed. This could be a macroeconomic change or political developments as described in the cases of 4137, 01475, 00220, and 00506 below. 
• I found a better risk/reward opportunity with another stock. I need to free up cash to buy it.

For some shares, it could be more than one factor. Let me go through my recent consumer staples sells.

Sold: Chlitina Holding Ltd (TPE:4137)

I mentioned this Taiwanese company as a buy in a recent blog. After posting that blog, I came across a few in-depth media articles about the upcoming Taiwanese elections and the political tensions with Mainland China. I am not sure whether Chlitina is considered a Taiwanese brand within Mainland China, where most of its revenues are generated. If so, it might face a consumer boycott at some point. Businesswise, the prospects of Chlitina seem good. However, I am unable to assess the political risks.

Sold: Nissin Foods Co Ltd (HKEX:01475)

Nissin Foods sells instant noodles, beverages and other food products in Hong Kong and China. The brand names it uses are originally from Japan. The majority shareholder Nissin Foods Holdings Co Ltd is located in Japan. Like Chlitina, Nissin could be prone to a consumer boycott following political tensions. Apart from this concern, the Nissin Foods share price seems to be quite high, both in terms of P/E and according to my value estimate based on a DCF calculation. I had a good run with this share, with +24% gains in price appreciation and dividends. I lean more towards value investing since buying this share two years ago. In addition, I started to focus on family-owned companies. Neither Nissin Foods Co Ltd nor Nissin Foods Holdings in Japan are family-owned. Nevertheless, I put both shares on my watch list. I may buy in again at a very low valuation.

Sold: Uni-President China Holdings Ltd (HKEX:00220)

Uni-President is a competitor of Nissin Foods in the instant noodles and beverages markets. The company is about 70% owned by its parent company, Uni-President Enterprises Corp, a major conglomerate based in Taiwan. Alas, there are political concerns again. Otherwise, the business is stable, albeit with low ROIC averages of 5% and not much growth. Dividend yield is high at 7.5%. However, the payout ratio has been above 1 for a few years already. It may not be sustainable to keep this up. Eventually, funds will be needed to re-invest in the maintenance of the manufacturing and distribution infrastructure. All things considered, there are not enough reasons to hold on to this share. 

Sold: China Foods Ltd. (HKEX:00506)

This company is the bottler of Coca Cola in 19 Chinese provincial markets that cover 81% geographically of the land mass and 51% of the population of Mainland China. It is a joint venture of state-owned enterprise (SOE) COFCO Corporation and The Coca-Cola Company, USA. Besides Coca Cola, China Foods sells other brands of The Coca-Cola Company, such as Minute Maid, Powerade, Fuze Tea, and Monster. Most of these drinks contain high levels of sugar, which has attracted the attention of certain Chinese authorities. The Shanghai Municipal Center for Disease Control & Prevention started a labelling system in supermarkets to alert consumers to the health risks of sugary drinks. 

You may conclude that the Chinese government intervenes in every aspect of its citizen's life and that China is uninvestable. This may be true, but the labelling system is based on a similar campaign in Singapore. As another example, the Malaysian Health Ministry introduced an extra tax on sugar-sweetened drinks in 2019. I agree with attempts to reduce the consumption of sugar. I am mindful of my own sugar intake, too. However, as an investor in China Foods, I can sense the foreboding of extra taxation. 

On another note, the margin numbers and return-on-investment ratios for China Foods are consistently low compared to other Coca-Cola bottlers, such as Coca-Cola Consolidated, Cocal-Cola HBC AG, and Coca-Cola Femsa SAB. Possibly because China Foods transports their beverages into a large number of very remote areas that have low populations with little spending power. As a SOE, China Foods may not be the most efficient company in the first place, although the profitability numbers are improving somewhat. 

In summary, it is not the best company to hold unless the share becomes extremely cheap. I put it on my watch list for that reason. 

Sold: Thai Vegetable Oil PCL (BKK:TVO)

As investors in high-quality shares, we should seek out companies with high return-on-investment numbers, such as Thai Vegetable Oil. However, there is a catch. High ROIC has no purpose when a company does not re-invest in expansion. It looks like the Thai vegetable oil market is saturated. The company may actually be correct to avoid investing in growth when there are no good prospects. It also means there is little upside to the share price. Thai Vegetable Oil may interest a dividend investor. Mature companies like these can also be interesting at a very low share price. I placed Thai Vegetable Oil back on my watch list for this reason.

Sold: Saha Pathana Inter-Holding PCL (BKK:SPI)

This is a conglomerate that invests in Thai consumer products, often in joint ventures with Japanese partners. It also develops industrial parks. There is not much growth, but the company seems to be well-run. Hence, I tried to double my investment from 0.5% to 1.0% of my portfolio. However, the liquidity of this share is extremely low, at least for non-Thai investors. I failed to buy any shares for a reasonable price. After some further digging, I learned that the already low liquidity is even decreasing more. I don't mind buying shares with limited liquidity. I have several of those in my portfolio. However, in this case, I could get stuck forever without any opportunity to get out of the share if necessary. Therefore, I made a 180-degree turn and sold off Saha Pathana. While selling, I also faced the low liquidity issue, but I managed to get rid of the stock without any overall losses. I recommend staying away from this share until the liquidity issue has been fixed.  

Sold: British American Tobacco PLC (LSE:BATS), Imperial Brands PLC (LSE:IMB)

Warren Buffett has three baskets for investment proposals: yes, no and too-hard-to-understand. Lately, I have come to realize that tobacco shares should be in my too-hard-to-understand basket. Governments seem increasingly concerned about the effect of tobacco on public health. In 2022, New Zealand passed a law forbidding those born after January 2009 to ever buy cigarettes. British PM Rishi Sunak suggested a similar law for the UK, as well as the Malaysian Health Ministry for Malaysian youths. While all three proposals have been withdrawn, the writing is on the wall. 

Tobacco giants like British American Tobacco PLC are working on non-cigarette products like vaping. However, we are learning that these alternatives are not healthier at all. They are increasingly becoming a target of strict regulation too. 

I concluded that the future of tobacco companies is too hard to predict with any confidence. I like to invest in consumer staples for the relative predictability of their business. That argument does not fly for tobacco companies. I will not buy any shares in the tobacco industry again.

Sold: WH Group Ltd. (HKEX:00288)

I also put WH Group on the too-hard-to-understand pile. WH Group is a meat processing company with operations in China, the US and Europe. It has brands like Nathan's Famous and Smithfields. However, meat sales is not really a brand-based business. It is very cyclical, driven by factors such as cattle diseases and droughts, which require specific expertise to analyze. Recently, I invested in cultivated meat through Agronomics, partially for ethical reasons. In that light, it feels right to forgo this bet on traditional meat production.

Sold: JDE Peet's (AMS:JDEP)

JDE Peet's is a worldwide seller of coffee to consumers using a range of brands. OldTown and Super are its regional brands in Southeast Asia. The share price has been stable, as we can expect from this type of business. The dividend yield is a modest 2.65% because the company is still paying off debt and making acquisitions. I had a 2% portfolio position for over a year in JDE Peet's. Following my mechanical allocation rules, I considered adding another 2%. However, I found myself lacking the confidence. At a P/E ratio of 18, the shares look somewhat expensive. A quick discounted cash flow valuation confirms this impression. I decided not to add to this position.

Next, I found myself questioning my original purchase of JDE Peet's. I might have overpaid for my initial position and decided to sell off my existing JDE Peet's position. I still like the company. It just was - and still is - too expensive. I will look at this share again should the price drop -25%, for example, during a general market collapse.

Sold: United Plantation Berhad (KLSE:2089), Spritzer Bhd (KLSE:7103), Ajinomoto (Malaysia) Bhd (KLSE:2658), Apex Healthcare Bhd (KLSE:7090), Oriental Holdings Bhd (KLSE:4006)

These are all well-run companies. I only sold them off because I reorganized my Malaysian portfolio. After careful consideration, I decided that I have sufficient confidence in the Malaysian business environment to take 5% positions in Malaysian shares instead of 1% positions. I already take 5% positions for all my European, British and Singaporean shares. For Malaysia, I decided to top up InNature Berhad and DKSH Holdings Malaysia Berhad to 5%. Both shares seem undervalued. 

I sold all my other Malaysian 1% positions. Apex Healthcare, United Plantation and Oriental Holdings did not really fit in my consumer staples strategy in the first place. Healthcare, palm oil and automotive are not within my circle of competence. I find Spritzer (bottled water) and Ajinomoto (condiments) easier to analyze. However, both stocks seem fairly valued at the moment. I placed them on my watch list. 

Disclosure: Currently no positions in any of the companies mentioned, except for Agronomics Ltd, InNature Bhd, and DKSH Holdings Malaysia Bhd, which I still hold.  

Breaking my own checklist rules

Earlier, I revealed my Stock Buy Checklist on this blog. Today, I will review the stock holdings violating this checklist's rules. This gives me a chance to explain some rules in more detail and the reasons for violating them sometimes.

United Plantation Berhad is not in the consumer staples or infrastructure industry.

My most constricting rule is to only buy consumer staples and infrastructure-related companies. United Plantation Berhad is the only real exception to this super rule. It runs oil palm plantations, counting it as a commodity producer. They sell some consumer products like NutroPalm Golden Palm Oil through their associate Unitata, but these activities are minimal. I decided to buy United Plantation shares anyway because its operations are run very efficiently. There are only so many great companies on the Malaysian stock exchange.

Several Malaysian companies have a market cap below 100 mln USD

InNature, Able Global, HAIO/Beshom, Suria Capital, and Spritzer are all flirting with the 100 mln USD market cap threshold. All these companies were well above this threshold when I bought their shares. However, the Malaysian Ringgit has devaluated against the US Dollar since then. That's not enough reason to suddenly remove these companies from my portfolio. The purpose of the market cap rule is to avoid buying a company so small that a black-swan event like a fire, a flood, or a fraudulent employee might threaten the continuity of its operations. In that light, it is not really relevant that a market cap goes from 100 to 98 mln in USD when the actually used currency is the Malaysian Ringgit.

Natural Food International Holding Ltd has a market cap and book value below USD 500 mln.

This company produces cereals and other healthy food products in the Chinese market. The book value is not even 200 mln USD, which is far below my threshold rule for mainland Chinese companies. As I wrote above, the market cap rule is set for my peace of mind regarding the stability of a company. In the case of Natural Food, we have the presence of US food giant PepsiCo as a significant shareholder. PepsiCo is also represented by a board member. I will assume that PepsiCo did due diligence into Natural Food before buying its shares and will continue to keep an eye on developments within the company.

Camellia PLC depends on operations in India and Africa for most of its revenues.

I focus my research on Asia Pacific, Europe, and US-based companies. Although Camellia is based in Kent, United Kingdom, its lands, gardens and plantations are located worldwide. It owns a few brand names, like Jing Tea and Goodricke. However, the bulk of its production should be considered agricultural commodities. Finally, Camellia is a conglomerate. So, here we have three violations of my checklist rules: 1. geography, 2. conglomerate, and 3. commodity-related. I bought Camellia long before I compiled my checklist. Likely, my experience with this company's poor management and its collapsing share price inspired some of the checklist rules. I will sell this share to finance an investment idea that conforms to my checklist better.

Boustead Singapore, CK Hutchison, Saha Pathana, ABF, F&N, and LG H&H are conglomerates.

Talking about conglomerates, I have a few others in my portfolio, although my checklist encourages me to avoid them. Like Camellia, I bought most of these shares before I wrote my checklist. In those days, I still had a value-investing approach where you would calculate the sum-of-the-parts of the different businesses and assets and then compare the grand total with the market cap. You often see a big 'holding company discount' making the share seem like a bargain. Value investing blogs and fora keep pouncing on such 'deep-value bargains'. The problem with this approach is that the discount usually does not close. The management and majority shareholders are simply not interested in closing the discount. You will remain stuck in these poorly performing conglomerate shares until management changes its priorities and reorganises the company's structure and activities, if ever. 

This is not a concern for the six conglomerates mentioned in the title. I gladly hold them for the long term, even if they remain conglomerates. Saha Pathana, Associated British Foods (ABF), and LG H&H are primarily active in consumer staples which is my portfolio focus. The same goes for Fraser and Neave Ltd (F&N), which also has a printing and publishing division, but it is only responsible for 11% of the total revenues within F&N.

CK Hutchison has consumer staples operations through their retail activities (A.S. Watson) and infrastructure-related assets with their ports and mobile telecom operators. This fits within my 'consumer staples and infrastructure' philosophy, although CK Hutchison also has investments in sectors such as utilities, pharmaceuticals, media, and energy, of which I have no knowledge. 

The same goes for Boustead Singapore Ltd, which is active in software, energy, and medical services, besides developing business parks through the listed Boustead Projects subsidiary. This share is also a relic of my deep-value investing days, long gone. The share price has been going nowhere for the last ten years, but the dividend yield is reasonable, and I trust the management. Because of the Boustead Projects activities, the stock fits in my infrastructure bucket. Although Boustead's other activities do not fit my philosophy, they seem stable.

Ho Bee Land and Boustead are developers.

Adding to my Boustead objections: its most significant subsidiary Boustead Projects, is a developer, not a REIT. I typically prefer a REIT over a developer because developers tend to have very cyclical earnings, and it is difficult to get reliable profit projections on the properties still under construction. In contrast, properties in a REIT portfolio are already operational and easier to value. In addition, the various regulations governing a REIT limit the opportunities to abuse minority investors. In fact, Boustead Projects recently initiated a REIT (Boustead Industrial Fund), but unfortunately, it is not publicly listed. 

Ho Bee Land is also a developer, but most revenues come from renting out its existing investment properties. It owns an impressive portfolio of offices in London and Singapore. Shareholders have repeatedly pressured management to divest this portfolio into a REIT. At a minimum, this will yield tax benefits, but it might also benefit the share performance. However, management has yet to honour this request. Ho Bee Land does not have many development projects compared to its portfolio of investment properties, so the company is safe enough for me to keep holding. The company seems significantly undervalued too.

DFI retail group and Imperial Brands have more debt than equity.

Two companies in my current portfolio violate the debt/equity < 1 rule. However, the Interest Coverage ratio in both cases is more than sufficient. Dairy Farm (DFI) runs supermarkets and restaurants. Most of its debt is the liability for its future store leases. According to current account rules, DFI has to list these under 'debt', but store lease liabilities are much safer than actual debts resulting from loans. When a company takes out a regular loan, it is to finance a new factory or some new business activity where the ultimate payoffs can only be guesstimated. In contrast, the expected yields on long-existing retail store rentals are much more certain than a new factory or a new business activity. I don't worry much about these store leases for existing restaurants, convenience stores, and supermarkets.

Imperial Brands is a tobacco company. The balance sheet seems weak at a quick glance, but incoming cash flows from smoking-addicted customers seem reliable and will relieve the debt burden over time. The management sets a "target leverage towards the lower end of our net debt to EBITDA range of 2-2.5 times." They are at 2.4 now and still reducing debt. If they indeed reach a net-debt/EBITDA = 2, that looks pretty safe. Fitch rates their debt as BBB. I am not worried but will keep an eye on debt repayments.

Luckin Coffee pays no dividends.

I prefer my holdings to pay dividends, but it is not a strict requirement. For growing companies, it usually makes sense to skip dividend payments and re-invest profits into the business instead. Luckin Coffee invests in the fast expansion of its coffee shop chain. 

Luckin Coffee is listed as an over-the-counter (OTC) stock.

OTC and Pink Sheet stocks are hardly regulated. I had never bought an OTC stock before Luckin, and I don't plan to do that again. There is a high chance of running into fraudulent companies in these markets. Luckin Coffee had also admitted to committing fraud when I started looking at the stock. My research mainly focussed on whether the fraud could be even bigger, as was exposed already. So far, that has not proven true, and the stock price has been going upward throughout 2022.

When I bought my Luckin stock in May 2022, the fraud-committing people were already removed from management positions. Luckin was entering arrangements to compensate the defrauded parties. My thesis is that Luckin can successfully move on from this dark era. It was a gamble when I took my position, but I considered that the most prominent Chinese coffee shop chain should be in a portfolio called The Coffee Can APAC. As I am writing this in December 2022, we can witness Luckin Coffee solving its legacy fraud issues while growing its operations quickly. I hope Luckin can re-list soon on the Nasdaq, preferably with a secondary listing in Hong Kong.

ABF's Primark is a fashion brand. 

Even worse than being listed as an OTC stock is running a fashion brand. I am not a follower of fashion myself, but I am aware that brands come and go, sometimes very quickly. It is impossible to assess those cycles in advance. Hence, I usually avoid investing in fashion retail companies. Nevertheless, in the case of Associated British Foods (ABF), I got comfortable with their Primark business, which delivers about half the profits for the overall conglomerate.

ABF started the Primark clothing stores initially in Ireland, then Great Brittain, then Europe, and recently jumped over to the United States. I visited several stores myself. Primark sells cheap clothes, packed to the brim in large stores at city-centre, triple-A locations. Customers love it, judging from the Google Map reviews and the consistent queues to pay at the cashier registers. The Primark brand signals a low price level and straightforward buying process rather than style and fashionability. I am confident that Primark customers will keep going to its stores as long as Primark sticks to its approach. It may be successful in Asia and South America too.

Daiwa House Logistics REIT is active in Japan. 

I am still contemplating whether I want to invest in Japanese companies. The demographics in this country predict a terrible economic future. Japanese company managements are often not shareholder friendly at all. Dividend payments are low and charged with a steep 20.42% withholding tax. Japanese stocks are generally priced relatively high from a value-investing perspective.

Daiwa House Logistics REIT seemed reasonably priced at its IPO and has an impressive portfolio of large, modern warehouses. Despite all properties being located in Japan, the REIT is a Singaporean entity. This means there is no dividend withholding tax for individual investors. Also, the Singaporean REIT regime requires the REIT manager to pay out at least 90% of earnings. This restricts the REIT manager from hoarding excessive cash on the balance sheet as many Japanese companies tend to do. For these reasons, I bought the REIT a few months after its IPO. My doubts about Japan's demographics and economic future still stand. Is this a Coffee Can REIT that I can hold for decades while sleeping well?  

Dairy Farm and Hutchison Port have sizeable operations in Hong Kong.

I reduce my portfolio exposure to companies that generate a lot of their profits from within Hong Kong. The city's future has been clouded for a few years already. Let's not get into the political details here, but it looks like the role of Hong Kong as a gateway into China is diminishing. Currently, Hong Kong is still ranked very high on surveys that estimate the cost of living. However, measured over the medium and long term, I wonder if much of this wealth may disappear. 

My holding Dairy Farm derives a lot of income from Hong Kong consumers. The management does not disclose the exact amount, but by combining other metrics, I estimate it to be about a quarter of total earnings. On the other hand, Dairy Farm is also exposed to many retail opportunities in China and South-East Asia. These could balance out deterioration in the Hong Kong market.

Hutchison Port Holdings Trust derives a lot of income from its Hong Kong port. This is obviously based on the geographical location as a deep-sea port which will remain unchanged. Different demographical and political circumstances are unlikely to affect these port operations.

Conclusion

I do not use my checklist blindly. As illustrated in this article, I break my rules when there are good reasons to do so. It is more important to keep an eye on the underlying concerns behind the rules. I felt some of these concerns while preparing and writing this article, for example, in the case of my last remaining Japanese stock, Daiwa House Logistics REIT. In addition, I feel uncomfortable around companies where several rules are broken simultaneously, as with Camellia and Dairy Farm. 

Coffee in my portfolio

I named my investment approach the Coffee Can Portfolio APAC after a buy-and-hold method developed by American analyst Rob Kirby. I tweaked the approach he suggested by focusing on infrastructure and consumer staples stocks. As a result, I have a bunch of coffee-related companies in my portfolio. I thought it would be fun to highlight those.

JDE Peet's is the unmistakable coffee king in my portfolio. The company offers many coffee brands all over the world: Peet's Coffee, Jacobs, Douwe Egberts, Campos, Tassimo, Senseo, L'OR, Super (Singapore), Old Town White Coffee (Malaysia), and tens of other brands. Some of those have cafe-type outlets which you can visit. The picture shows a pop-up store of Peet's Coffee in Shanghai.

Luckin Coffee is a Chinese coffee giant which runs cafes but has no packaged product yet. In some of their outlets, you can sit down to enjoy your coffee, but most are takeaway only. They have more stores than Starbucks in China, but in revenue, Luckin is still second because their products are cheaper.

Maxim's Caterers is a 50% participation of my holding DFI (Dairy Farm International). Maxim's has the license to exclusively run Starbucks stores in Singapore, Hong Kong, Macau, Vietnam, and Cambodia.

Maxim's Caterers has a joint venture with Fraser & Neave, another holding of mine, to run Starbucks stores in Thailand. This joint venture is also 50/50.

Staying with Dairy Farm International, its house brand Meadows offers instant coffee and 3-in-1 coffee mix in their supermarkets, such as Giant and Cold Storage as well as in third-party outlets (Foodpanda).

South-Korean consumer goods conglomerate LG H&H runs a beverage bottling operation that produces drinks from the Coca-Cola Company. The canned coffee brand GEORGIA is one of the Coca-Cola drinks they licensed for Korea. 

China Foods Limited is licensed to sell Coca-Cola beverages in 19 provinces of China. They don't offer GEORGIA, but they do have another canned coffee drink in their portfolio called Costa RTD coffee. Costa is a coffee shop chain acquired by the Coca-Cola Company in 2019. There are Costa coffee shops in China too, but it seems that China Foods is not involved in those. 

The strangest coffee drink from my holdings comes from Want Want China: Mr. Bond Coffee. I could not find any information about it. Are they referring to James Bond? The man shown on the can resembles detective Sherlock Holmes rather than master spy James Bond. Also, I am pretty sure Bond prefers Martini over coffee.

For the final two coffee servings, we leave Asia. British bakery chain Greggs sells coffee to go with their sausage rolls and sandwiches. Classics such as Mocha, Americano, and Latte, with special editions during holidays. Recently they added two canned coffee offerings: Caramel Latte and Original Latte, as the picture shows.

Associated British Foods offers various grocery items all over the world. In their long listing of those, I found Jarrah, which is an Australian brand of powdered coffee. You pour hot water over the powder to make it ready for consumption. Jarrah offers a hot chocolate variant too.

Family-owned REITs in my portfolio

Earlier, I discussed the pros and cons of investing in a family business. In the same post, I went through my own stock portfolio to identify all family businesses and the families behind them. Among them were a few of my REIT holdings too. Let's discuss those first.

A REIT is a property business which must be run according to a set of strict guidelines. Formal restrictions are meant to prevent the majority shareholder or REIT manager from taking advantage of the other, minority shareholders. Of course, abuse is still possible and we should be alert to it. A family that controls a REIT is able to dump their undesirable properties into it, for example when they also own a property developer which is in need of cash. This means the REIT does not buy the best properties available in the market. Additionally, the family could also be overcharging for such properties. It's a subtle form of abuse, but let's still try to determine if this could potentially happen in my current REIT holdings.

ESR-LOGOS REIT

ESR-LOGOS has a 6% shareholder in the person of Mr Tong Jinquan. He is the owner of Summit Group, a real-estate developer in Shanghai. I don't think there is any overlap in the activities of Summit and ESR. As a side note, ESR Group is a larger shareholder and Mr Tong recently sold a large part of his shareholding to them. ESR-LOGOS was likely just an investment to Mr Tong and he seems to be withdrawing his involvement.

AIMS APAC REIT

On the list of major shareholders in AIMS APAC REIT two private shareholders attract our attention: Chan Wai Kheong 5.83% and George Wang 9.28%. Mr Chan is a hedge fund manager, who was also involved in a recent boardroom drama within Sabana Industrial REIT. Besides Sabana, I could not find any other real estate interests of him. Mr Wang, on the other hand,  is not only a shareholder of AIMS APAC REIT but also Chairman of The Board of Directors of its manager. Furthermore, he is the founder of AIMS Financial Group which still has an interest of 7.61% in AIMS APAC REIT which they founded, as the name already suggests. All in all, a powerful position, but I could not find any cases where AIMS APAC bought properties in which Mr Wang had an interest. Also, in this REIT we find the ESR Group again with a shareholding of 12.82% to somewhat counterpoint his influence.

Frasers Centrepoint Trust, Frasers Logistics & Commercial 

The Sirivadhanabhakdi family has large stakes in Frasers Centrepoint Trust and Frasers Logistics & Commercial Trust through their stake in Frasers Property. All three entities are multi-billion dollar operations with their own business dynamics. Although they still share the same website, I did not see any suspicious transactions between them. Let us also note that Charoen Sirivadhanabhakdi did not set up this network of companies himself. He inherited this structure when he took over Fraser Property after winning the battle for its parent company the Fraser & Neave conglomerate in 2013. A battle that he mainly fought for the soft drinks division of Fraser & Neave rather than its real-estate holdings.

Sunway REIT

40.89% of the shares in Sunway Real Estate Investment Trust are owned by Sunway Berhad, which is controlled by the Cheah family. Sunway Berhad is a large Malaysian conglomerate with a lot of property development activities. As such, Sunway REIT taking over properties developed by Sunway Berhad is the whole idea behind the REIT. It owns malls, hotels, offices, a medical centre, industrial properties and a university campus, all developed by Sunway Berhad. I am not aware of any signals that these acquisitions were executed at any disadvantage to the minority shareholders of Sunway REIT.

Hutchison Port Holdings Trust

Hutchison Port Holdings Trust is not a REIT, but a business trust, which is comparable in nature. CK Hutchison Holdings Limited holds 30.07%, with the Li Ka-Shing family controlling CK Hutchison. Part of the port activities of CK Hutchison was disposed to the trust at its conception in 2011, more specifically the container terminals in the Pearl River Delta, China. I don't think any assets were added to the trust ever since, so there is not much to watch here. The share has been performing quite bad for other reasons. It looks like the valuation (P/E, P/B) simply deteriorated rather than the business performance. Maybe the stock is too boring to hold for a long time and consequently it can now be bought at a very low valuation, which I did.

The other REITs I hold have no family involvement. If I overlooked anything, feel free to alert me in the comments below. 

ESR Group Ltd

I am not invested in ESR Group, but I noticed their presence in AIMS APAC, ESR-LOGOS (obviously), Sabana Industrial REIT (20%) and Cromwell European REIT (28% through Cromwell Property Group).

Perhaps this should not surprise me because I prefer to invest in industrial and logistics properties and ESR considers itself a REIM (Real Estate Investment Manager) in this particular sector and focused on Asia too. This means they develop, buy, sell and manage logistics properties, similar to the recently transformed Capitaland Investment Ltd. I don't like to invest in REIM's, since it is basically trading and the profits come and go depending on economic cycles. It's also a key people-based business and those key people may leave. There is not really any moat. Besides all that, the balance sheet of ESR looks quite over-levered with debt.

ESR Group grew fast in recent years. In 2021, they took over ARA/LOGOS. Their holdings in Cromwell and ARA-LOGOS (now ESR-LOGOS) are the result of this acquisition. The last one is clearly within the focus of ESR Group, but I am not so sure about the office-oriented Cromwell Property Group, which is an Australian developer. Their Cromwell European REIT is 50/50 invested in offices and logistics properties in Europe. But note that ESR Group's focus is Asia rather than Europe. I wonder if Cromwell Property Group and Cromwell European REIT might be disposed of by ESR at some time. 

Maybe the conclusion from this review is that I should monitor ESR Group more closely rather than the family holdings in the REITs I own. 

Disclosure: at the time of posting this article, I hold shares in Sunway REIT, ESR-LOGOS REIT, AIMS APAC REIT, CK Hutchison, Hutchison Port Holdings Trust, Cromwell European REIT, Sabana Industrial REIT, Fraser & Neave, Frasers Centrepoint Trust and Frasers Logistics & Commercial.

Family-owned companies in my portfolio

I prefer investing in family-owned companies compared to corporations run by outside managers. It is comforting to know that the people running the company also own it for a large part. 

Pros of family-owned companies

• Skin in the game. The owner-family shares the same risks and rewards as outside investors.
• They typically run their business with a long-term view.
• They take less risk and keep leverage low.
• With significant family shareholdings or even a majority vote, they can withstand pressure from other shareholders for quick, non-sustainable profits.
• Owner-operators usually have more passion for the business than outsiders.
• The owner families develop deep industrial know-how in their area of business.
• Most owner-operators do not reward themselves with extravagant pay packages.
• They do more rational mergers and acquisitions.
• There is evidence that family-owned businesses outperform the overall stock markets.

For more details on these pros, I recommend the article Why Family Business Stocks Are Better – Why They Outperform (Owner-Operated Businesses Have Skin In The Game) posted on April 26, 2022, by Oddmund Groette. Unfortunately, this article does not address the disadvantages of family-owned companies. Let me try to make that list from my own observations.

Cons of family-owned companies

• Conflicts can arise within the owning family, sometimes crippling the business.
• The next generation of the family has little entrepreneurial talent. 
• The next generation is not close to politicians or other businesspeople who were critical to the company's success.
• Non-family managers and workers within the company may not be loyal to the new generation.
• Non-family managers may be better qualified for positions given to family members through nepotism, leading to tensions.
• The owner-operator family treats outside investors poorly by siphoning off money or assets through Related Party Transactions or excessive management compensation.
• There may be different classes of shares, limiting even a little bit of influence and feedback from outside investors.
• The family may attempt to de-list the share for a lowball offer at a time when the valuation of the company is low.

These red flags can sometimes be detected by careful observation of the developments around the company. As outside minority shareholders, we can at least attempt to flag possible corporate governance issues before it's too late. As a starting point for such an exercise, I went through all my current holdings to identify the family-owned companies in my portfolio.

As you can see below, more than half of my portfolio holdings fit the definition of a family-owned company. When I mention the name of one controlling shareholder, I consider him or her as the family behind the business. Often, it is also the founder. Where I put 'family' behind a name, more members of the family seem to be actively involved in the business. 

The ownership percentages mentioned are rounded off and may have changed somewhat since the last publication. This share count is a very rough indication in the first place since a portion of shares does not always represent the same portion of voting rights: voting rights can be split off, or there are different share classes. The main goal is to identify the key person or family behind the company and to measure their influence to some extent. Obviously, 60% ownership yields a lot more power than 11%.

Exotic Food PCL     60%    Jantarach family

VTech Holdings Ltd       37%    Allan WONG Chi Yun

QAF Ltd         69%    Andree Halim (Liem)

United Plantation Berhad      50%    Bek-Nielsen family

Frasers Centrepoint Trust      41%    Sirivadhanabhakdi family

Fraser and Neave Ltd           88%    Sirivadhanabhakdi family

Frasers Logistics & Commercial Trust   21%    Sirivadhanabhakdi family

Sunway Real Estate Investment Trust   41%    Cheah family

Saha Pathana Inter-Holding PCL    17%    Chokwatana family

Delfi Ltd                52%    Chuang family

Ho Bee Land Ltd       76% Dr Chua Thian Poh

InNature Bhd         75%    Foong & Cheah family

Able Global Bhd            29%    Goh family

PT Tempo Scan Pacific Tbk   82%    Handojo Selamet Muljadi

DFI Retail Group Holdings Ltd       78%    Keswick family

LG H&H       34%    Koo family

Vinda International Holdings Ltd  22%    Li Chao Wang

CK Hutchison Holdings Ltd            30%    Li family

CK Infrastructure Holdings Ltd        30%    Li family

Hutchison Port Holdings Trust          30%    Li family

Want Want China Holdings Ltd    52% Mr Tsai Eng-Meng

PT Ultrajaya Milk Industry & Trading Co Tbk    79%    Prawirawidjaja family

JDE Peets NV            55%    Reimann family

Yihai International Holdings Ltd    53%    Shi/Lee and Shu/Zhang families

Hai-O Enterprise Bhd          22%    Tan family

Thai Vegetable Oil PCL      49%    Vitayatanagorn family

Associated British Foods PLC   58%    Weston family

Boustead Singapore Ltd      43%    Wong family

Spritzer Bhd       45%    Y Bhg Dato’ Lim A Heng

Natural Food International Holding Ltd      42%    Zhang family

PT Uni-Charm Indonesia Tbk     21%    Widjaja family

AIMS APAC REIT     15%    George Wang, Chan Wai Kheong

ESR LOGOS REIT       6%    Mr. Tong Jinquan

With this list completed, a more significant task will now start. In the coming articles, I will go through these names and determine if there are any corporate governance concerns. In the next post, I will start with the REITs that have family involvement.

Disclosure: I hold all the stocks mentioned in this post at the time of writing.

My stock buy checklist

Here are all my current stock buy requirements. These are not listed in any particular order but are grouped by:

• Facts which can be checked quickly. 
• Mandatory requirements, no compromises here.
• Preferences and somewhat soft criteria, where at least a few should be fulfilled.
• Three sanity checks to execute just before buying.

I will just publish my checklist to keep this post manageable. Some requirements may need more explanation. I will add those later in separate articles. 

Quick checks 

• The company must be in the consumer staples or infrastructure industry.
• Market cap or tangible book value minimal USD 100 million. Higher threshold for Mainland China: a minimum of USD 500 million. 
• Market liquidity of the share is sufficient to support buying and selling by a small, private investor like me.
• Financial reports in English or at least a summary in English. 
• Not a turn-around, spin-off or other special situation. Keep it simple. Not a company which is mainly valued for its stake in another company, 'hidden' treasures on the balance sheet, supposedly undervalued properties, cash balances or other 'workout' situations. Only focus on the operational activities.
• Not an ETF, OTC, RTO, SPAC, IPO, fund, investing company, finance company, or venture capital firm.
• Does not rely on just one fashion brand in the clothing or cosmetics industry.
• Not a commodity producer or trader.
• Not a project-based income earner.
• No negative equity or book value. 
• There is at least one research publication of decent quality on the company, such as broker research,  rating agency debt report, or an industry publication.
• There are no (credible) short-sell reports on the company.
• Does not significantly depend on operations in Africa, the Middle East, Latin America, Japan, Hong Kong, India, Russia or any frontier markets. I am not familiar with these regions.
• Does not depend on a single customer or only a handful of customers.
• Not a real-estate developer or a REIM. A REIT is fine, but not when invested in mortgages or private residences. Also, no REIT's with just one party as a dominant tenant. 

Mandatory requirements

• Growth or a reasonable growth expectation. 
• Reasonable or low valuation. 
• I understand the business operations and significant drivers of business success. 
• Not over-leveraged with debt. Debt/Equity < 1. Or if it is larger than 1, then Debt/EBITDA < 3  or Interest Coverage > 3.
• The company is operating and performing right now. Not a story stock with promises for the future. The company is profitable or likely profitable soon. Free cash flow (FCFF) is also positive or will be soon. A temporary negative free cash flow might be acceptable if it results from sensible investments.
• No concerns about management ethics and honesty.

Preferences

• Pays regular dividends or dividend payments were temporarily stopped for a good reason. 
• Incorporated in a jurisdiction with no or low dividend withholding taxes.
• Activities with a competitive advantage (moat) as proven by good returns on capital.
• As non-cyclical as possible. 
• For the consumer staples: one or more brands, a large and diversified customer base. The company is making money from many daily, small and predictable transactions.
• Diversified. Does business in several countries, regions, and through different brands.
• Owned and operated by a reputable founder or founding family with skin in the game.
• The company has existed for a long time already.
• Not in a web of companies manipulated by some tycoon or syndicate of investors with unclear reputations and goals.
• No outsourcing of core activities.
• Conglomerates: only when the business operations were initiated, not bought, by the management. They have skin in the game and articulate a clear strategy. I will never count on a realization of value by breaking up the conglomerate. (It won't happen).

Pre-buy sanity check

• Am I relying upon a future catalyst to realize value? If so, consider another stock.
• Will I sleep well at night while holding this stock for the long term?
• Do I feel comfortable when I imagine being the majority owner? 

There may be some other red flag, not mentioned in this checklist, leading me to reject a stock. Also, I may still buy a stock even when it violates a requirement mentioned above. I always look at the complete picture surrounding a stock.

There are no political or moral judgements behind any of my criteria. They are based on practical considerations. To focus on specific areas, I want to block everything else out. Otherwise, I will go crazy from the information overload. 

How I bought 75 shares. And why?

Most value investors recommend holding a concentrated portfolio of stocks in which we have high convictions. Any number higher than 10 or 15 stocks is considered 'diworsification'. Once, Warren Buffett invested 50% of his net worth in GEICO stock. However, I want to avoid such concentrations. I currently hold 75 shares in my portfolio. This is a lot more than most private investors. Starting this blog is an excellent moment to explain why I diversify that widely. I will also detail how I size a stock position.

Reason #1 : I am not Warren Buffett

I have been investing for almost 20 years. My stock picks did reasonably well, but I also observed that my highest conviction buys did not yield the highest returns. I concluded that I shouldn't take my own convictions overly seriously. I am not as experienced as Warren Buffett or Charlie Munger, who make large, concentrated investments.

Reason #2 : I invest in emerging markets

When Asian value investing pioneer Dato' Seri Cheah Cheng Hye started Value Partners Group in 1993 in Hong Kong, he still believed in having a concentrated portfolio. He told everybody they would not find more than 40 companies in his fund. As the years went by, he realised that the Asian market differed from the US. There were a lot of company managers that did not do what they told you they were going to do. There were a lot of crooks. Cheah Cheng Hye told this anecdote at the Graham and Dodd Breakfast Keynote Speech, at Columbia University, New York City in October 2010. Around that time, I started investing in Asian stocks myself. I decided to heed the warning. 

There is a lot of company-specific risk in Asia related to fraud and mismanagement. It seems that Cheah considers 40 companies already too concentrated. Therefore, I decided never to invest more than 1% of my portfolio in any company incorporated in an emerging economy country. In that case, even if a company turns out to be a complete fraud, despite my checking all the red flags before investing, I am bound to lose 1% at most.

My position sizing system

2% + 2% position for a company incorporated in a developed market

0.5% + 0.5% position for a company incorporated in an emerging market

Let me remind you that, as I wrote earlier, I don't trust my own conviction and excitement for a particular stock too much. That's why I made a strict system with fixed, equal allocations per share: 2% extendable to 4% for companies in developed markets and 0.5% extendable to 1% for emerging markets. 

For example, a new buy of a UK-incorporated company share initially gets a 2% allocation within my portfolio. I hold this position for at least a few weeks to get a better feel for the company. If it is again the best possible buy after this probationary period and I have cash available, I double down to a 4% holding. It also happens that something feels amiss during the probationary period, or I actually discover some worrying detail. I noticed that I look more critically at a stock once I own it. So, if my conviction decreases, I just sell the 2% position off again and make a note to never repurchase it.

For emerging markets, such as China, Malaysia, Indonesia and Thailand, I use the same system but 0.5% plus potentially another 0.5% at a double-down occasion, leading to a maximum of 1%. An 0.5% position hardly impacts the total portfolio performance, so I prefer to double down on these positions at some point. This contrasts the 2% positions, which I usually double down on if they genuinely become a deep-value bargain.

With most stocks at 1% or 2% positions, I leave the portfolio alone. Remember, this is a Coffee Can portfolio for the long term. The fundamental principle is not to mess with it. I have a small list of valid reasons to sell a stock, for example, when management changes dramatically, or the things they do are hard to understand. In such cases, I always sell the entire position. 

Just to resume. If you see a 3% position in my portfolio and its headquarters are in a developed country, then it was initially a 2% position that went up. It could also be a 4% position that went down. It is also possible that the currency of that stock went up or down against the USD. The positions in my portfolio overview are sorted on their value in USD. Also, events like dividends in specie and spin-offs over time diffuse my system away from the initial 0.5%, 1%, 2% and 4% positions. These movements are not really a problem because the goal of this system is to force discipline upon the purchase process and not on the holding phase.

Final note: You may argue that 'emerging economy' definition is unclear and debatable. Several organisations keep track of national economies, and their categorisations are summarised in the Wikipedia entry for emerging market. I follow these, in particular the IMF categorisation. Note further that many companies have their headquarters in a jurisdiction where they have none or few operations. For example, many Chinese companies have a registered office in Hong Kong, while their activities are mostly within China. In such cases, I usually assume the risks to be associated with the country where most of the company's operations occur.

Introducing the Coffee Can portfolio

Coffee Can Portfolio is a metaphor for 'buy and forget' investing. Before the existence of reliable banks in the US, people used to keep their valuables in used coffee cans without touching them for years at end. Financial researcher Rob Kirby discovered that keeping your stocks untouched in your portfolio for extended periods leads to higher performance. He called this strategy the Coffee Can Portfolio. 

Goal: capital preservation, even in the event of hyperinflation.

I only buy within my circle of competence:

1. Consumer staples ("The Coffee")
2. Infrastructure ("The Can")

About half of the portfolio is in consumer staple stocks, and the other half is in infrastructure-related stocks. Note that I do define these two categories somewhat loosely:

Infrastructure: telcos, offices, malls, business parks, ports, warehouses, toll roads, industrial and agricultural land. As much as possible in REIT structures. The key is that the invested company is the asset owner or long-term leaseholder, so the assets will function as an inflation hedge. 

Consumer staples: I look for suppliers of food & beverage products, household & personal products, tobacco, and non-prescription medicines catering to the end-consumer. The key is that these companies are the brand name owners of their products. Online retailers, supermarkets, and convenience stores that sell house-branded items are included here too. I also count branded fast-food chains that offer affordable meals. 

Approach: Make many small bets, take each of them serious and maintain a value-investing mindset. Although the intended holding period is forever, I do not literally forget my holdings. I keep track of the significant news events concerning them and occasionally replace poor performers with stronger candidates. I prefer companies where the total debt is smaller than the owner's equity value and where there are positive free cash flows and dividend distributions.

I avoid highly cyclical companies, consumer discretionary, residential and hospitality real estate, momentum plays, meme-stocks, micro-caps, SPACs, short-selling, IPOs, turnarounds, special situations, funds, crypto and other distractions. I generally avoid any investments where I am waiting on some dramatic catalyst, like a super-dividend, take-over or activist involvement. Such catalysts often do not happen; if they do, I have to search for another case to re-invest the proceeds. I prefer to focus on companies where I am happy with the dividends, the revenue growth or both. In short, buy, hold, forget and sleep well at night.

I will add conglomerates only with hesitation. This corporate structure is outdated but still commonly found in Asia. I will consider it only if management is exceptional and most of their revenues are in the two categories above.