Coffee with FFN and Ken Chee

Ken is the CEO and Co Founder of a private investment company, 8 Investment Pte Ltd, which focuses on business, equity investments and education.

FFN: At what age did you get started in investing? 

Ken: I started investing in 2003 when SARS hit. First stock I bought was Singapore Stock Exchange (SGX) but I was studying this stock since 2002.

FFN: How did you get interested in investing and who inspired you to get started?

Ken: The situation that “inspired” me was when my family went through the Pan Electric Crisis in 1985. My father lost a lot of money in the stock market during that period. The lesson learnt was very painful.

I took a diploma in Singapore Poly from 1982 – 1985. During that period, I was thought to be a trader instead of being an investor. In 1995, I met Nick Leeson, the guy who brought down Barings Bank, in SIMEX. Since then, I decided not to become a trader. I took a degree after my National Service and worked for the financial industry. During my interactions with industry veterans, someone told me about value investing.

FFN: How do you choose which stocks to invest in?

Ken: First I start with circle of competence. The reason why I bought SGX was that it was the only company I understood. I was working in a financial information company. Our customer and supplier was SGX. My ex-company took real-time information from SGX and processed the information and then we sold it to banks. Although I sell information to banks, I don’t understand banks. Even up to today, I still don’t understand how some banks operate. However, for SGX, I understand it. They have a monopoly, asset-light, low capital expenditure, among others.

FFN: So has your circle of competence become bigger over the years?

Ken: I hope so. I’m still learning everyday and we make mistakes. We still can make mistakes. Overall, I have made more gains than losses. It’s ok to be wrong but it’s not ok to stay wrong. Just admit the mistakes. From the mistakes, we start to learn more and more.

FFN: Warren Buffett didn’t go into technology stocks until very recently. Do you don’t like technology stocks too?

Ken: I think it depends on what kind of technology you are talking about. I like companies that supply certain parts to a technology company. For example, Corning makes the glass screen for smartphones. I rather look at the part suppliers than the technology company itself.

FFN: What are some of your strategies you use to buy stocks?

Ken: We use the 3R approach which is buy the right business model, with the right management and at the right undervalued price.

FFN: What are some of the stocks in your portfolio currently?

Ken: I bought SGX at $1.60 in 2003 when SARS hit and it was a great opportunity to buy this company. I sold it at around $7.50 – $8.

Another will be Vicom. I bought it at about $1.70 and I’m still holding it. The dividend yield I’m getting now is around 9%.

I also bought SATS. Not a fantastic business model but I bought at a low price at around $1.30-$1.40. Dividend yield is also around 8-9%.

FFN: Where and how do you look for companies to invest in?

Ken: By daily observation. I will be very curious and ask questions to unearth it.

FFN: What are the mistakes you have done pertaining to investing and what are the lessons learnt?

Ken: Plenty. Being overconfidence, making wrong assumptions, moving out of circle of competence without realizing it. Talking about the last one, 2-3 years ago, we were looking into the shipping industry as they were going through a rough patch. We bought into Courage Marine. Financially, they are stable and have prudent management but the industry mechanics itself is eroding and there’s oversupply of ships.

Some companies we bought into seem like a value buy at first but it turned out to be a value trap.

FFN: So, how do you know you have bought into a wrong company?

Ken: The business itself will reflect the results. Quarter to quarter, the revenue tanks, earnings keeps going down. Free cash flow becomes no free cash flow.

I feel it’s not really prudent to watch quarter-to-quarter results too closely as it’s being short-term biased whereas value investing is for the long-term. We should instead be looking at yearly results. What’s your take on this?

I think the key thing is not to buy at one shot. Watch the story unfold and buy bit-by-bit. Buy with the right margin of safety. We saw the net profit and revenue was coming down but we bought more. It was stupid of us. Not only that, after we realized our mistake, we didn’t cut loss, that’s even more stupid of us. Holding our view too strongly is sometimes our downfall. We need to accept that we have made the wrong judgment call and cut loss.

When we invest in a company, the questions we need to ask is “Will this company be still around 10 years’ down the road?” and “Will it be more valuable 10 years’ down the road?”. I think if you cannot answer these two questions, looking at quarter-to-quarter results is not going to help.

FFN: You said one needs to ask if the company will be around 10 years’ down the road. Taking Corning as an example, you wouldn’t know ten years’ down the road if the company will still provide to smartphones as technology is evolving so fast.

Ken: Corning is not only doing for smartphones. They can scale this business into other things into the future when technology picks up more. This is a small piece but in the future, they can make it into a big piece (size of a conference table). For example, the whole conference table can be made into a screen in the future and you wouldn’t even need a phone. All the communication can take place through the conference table. It’s the vision and how you imagine it into the future. It’s whether you can visualize and see the usage of the products in the future. Sustainability is important.

FFN: What psychology do people need to succeed in investing?

Ken: Emotional stability. You must be able to understand what you are investing in. There are four emotions that are deadly for value investors – excitement, fear, greed, envy.

FFN: So, how can investors be more emotionally stable?

Ken: Awareness leading to choices. Being aware emotionally will help you make better choices.

FFN: What lessons have you learnt over the years as an investor?

Ken: I’m still learning. In life, you never stop learning. The more I read, the more I realize I don’t know. Life is constant learning.

FFN: There are cases where you learn more and you get confused more. You get diluted by other people’s views of investing. How do you mitigate this?

Ken: When you are learning, you need to exercise independent thinking. We need to ask ourselves, “Whatever I’m learning, is it based on facts or opinions?”

FFN: How was it meeting Warren Buffett face-to-face?

Ken: I met him in 2009. It was cool meeting him. He’s a very nice guy. I bought his “Snowball” book and he autographed on it. Bill Gates, Charlie Munger, Warren Buffett were in the room. It was fantastic and amazing. I encourage all shareholders of Berkshire Hathaway to go. It was a rock concert with 35,000 people.

FFN: How about an advice for the youth who are looking to build up their future?

Ken: Very good question. Develop a habit of saving. Get the right investing knowledge. The greatest resource they have is time as time allows compounding. Don’t ever get yourself into debt. Buy things they can afford. Understand the greatest things in life is not money and passion they have in their work. They must develop a sense of purpose in life and the money will have a meaning. Without a sense of purpose and they are only in the pursuit of money, life itself will become meaningless.

FFN: What kind of knowledge does one need to start investing?

Ken: The basic accounting knowledge must be there and must understand company from an investor’s point of view. Investing requires intellect. Investing is simple but not easy due to emotional stability.

FFN: How did your personal financial planning changed after a big change in your life eg. marriage, having kids, buying a house, buying a car?

Ken: I lived a very lean life when I started working. I cycled to work. During lunch, I went swimming without eating lunch. I only ate fruits during lunch.  There are certain periods where I don’t even use a single dollar. Sometimes people will buy me lunch or I cooked at home. I saved 70% of my income and started investing. This was from 2003 to 2007. I did all these to save money and invest.

My lifestyle changed after I got married in 2009. I got a HDB flat even though I could afford a condominium or landed property. My first car was a 9^th hand BMW. One year later, sold it away and bought a Mitsubishi when COE was $0 (undervalued). I got married, bought a house and bought a car all within 6 months.

FFN: Would your lifestyle change after having kids, for example?

Ken: I don’t think my lifestyle will change. Today, I pamper my wife a bit. We go for cruise. We no longer need to be very tight. I will spend money on things that give moments of happiness, like travelling and eating out.

FFN: What does financial freedom mean to you?

Ken: Having choices to do what you want.

FFN: Give us an “insider look” of a typical day in your life from the moment you wake up to the moment you sleep

Ken: I wake up at 5am and go for exercise like running. I will come back and read. Reach office at around 9.30am. Work till 4-5pm. I will attend talks, meetings, spend time with family and friends for dinner. At night, continue to read. If possible, watch movie at home with my wife. Back to bed around 12am.

FFN: If you could summarise your whole life in one word, what would it be?

Ken: Integrity.

FFN: A parting shot for the readers…

Ken: Come and learn more about value investing at our Millionaire Investor Program Asia. To find out more, go to http://millionaireinvestor.asia.