Transforming Singapore from a Penny Stock to a Blue Chip in 50 years

Ein55 Newsletter No 014 - image - Singapore While Singapore is celebrating 50 years of independence, now is a sad moment for the entire nation for the leaving of Mr Lee Kuan Yew.  Although he has left the physical world, his wealth of wisdom is a valuable legacy for us.  As a tribute to him, I would like to relate his styles of governing the nation with the investment world, many similarities which we could learn from him to be a successful investor and contribute to the nation in a positive way.

Most people would agree that Warren Buffett is the most successful investor in the world.  However, in my opinion, Mr Lee is the Ultimate Investor because Warren Buffett is only good in choosing good stocks or businesses, benefiting a small group of rich shareholders, but Mr Lee could transform a poor nation without much natural resources (as if a penny stock) into a developed country (as if a blue chip) in the last 50 years.  More importantly, Mr Lee’s dedication to his only life investment, Singapore, not only benefiting 5 millions people living now, but also for many generations to come.

Let’s analyze the key management styles of Mr Lee, relating to the following Ein55 styles of investment:

Optimism = FA + TA + PA

where FA = Fundamental Analysis, TA = Technical Analysis, PA = Personal Analysis

 

1) Fundamental Analysis (FA):  National Leader <=> Company Management

The little red dot, Singapore, is a nation having the size of a city. Mr Lee has fully utilized its strength, most of the policies could be enforced effectively in a short time.  If Singapore is a miniaturization of a company, the President is as if the Chairman, the Prime Minister is as if the CEO, ministers are as if the Department Heads, while the people are as if the hardworking staffs.

We know that a good company is like a good nation, both needs strong leadership.   This is the first step for the success of a nation or a company.  When we invest in a company or a stock, we need to consider the leader.  Eg, a powerful leader such as Steve Jobs could bring new life the Apple Inc.  Detection of a strong leadership is easy: within a period of 5 years (a typical market cycle) or longer, the company business is moving in a positive direction, eg. increasing earning and net asset value.  A company business could seldom do well when the leadership quality is poor.

From a nation perspective, the measurement of performance could be also every 5 years, the term given by the voters in each general election.  Mr Lee has a very different management styles, he may not need to “please” the voters with short term benefits to gain their votes, which may slow down the future national progress.  Instead, he made decisions which he believes would be beneficial in a longer term, the people may not gain much immediately, but they would enjoy the bigger fruit eventually. 5 years is long enough for a company, also for a nation to show whether the past policies are truly working.  Mr Lee is like a value investor who implemented the investing strategies consistently, different from a trader who may change positions from time to time depending on the situations.  This is how he received the support again and again every 5 years when he showed the report card to the people.

Although we are not as good as Mr Lee who could build up a little giant of nation, we still could learn to select companies which are giants, having patience for their growth, naturally we will enjoy the reward of investment.  This is different from some weak stocks which the businesses are poor, the management may still decide to give lots of dividend to retain the shareholders.  This is also true for a nation, if the national reserve is not properly managed, the wealth of nation may only be enjoyed for one generation, then many generations to come would have to pay for the prices.

 

2) Personal Analysis (PA):  Government System <=> Company SOP

Mr Lee himself could not build up the nation alone.  He needs a strong team which requires a strong and transparent system.  Mr Lee is a lawyer by his profession, fully integrating this legal belief to enforce a high integrity management system (eg. corruption free), selection of talented people regardless of races based on their capabilities (meritocracy), focusing in end results (eg.  economy).  Although Mr Lee was not directly involved in the daily government decisions for many years, the well-established system is like an automated program, executing on behalf of him.  He has duplicated many “mini” Lee Kuan Yew through this system, an important asset for Singapore to last for many generations to come.

Early years of Singapore was like a growing penny stock, now maturing to be a blue chip. Similarly from a company perspective, a blue chip company usually has a well-established system, although the growth could be limited by the lack of creativity due to following the system, the upward trend could be gradual but stable.  A good company SOP could help to improve productivity and also minimize major financial loopholes which are common in certain companies which went bankrupt suddenly.

 

3) Technical Analysis (TA): Global Trends <=> Stock Prices

TA is critical for both traders and investors to ride the upward trends, saving the waiting time which is an opportunity cost.  Similarly, Mr Lee has world vision, he knows who and how to make friends and form alliance with other bigger nations while maintaining the integrity of a small nation.  With the rise of China in the past few decades, Singapore has benefited greatly, not just depending on western worlds in the early years.  Mr Lee was GIC founding Chairman, his understanding of Political Economy helps him in making critical investment decisions for the nation, speeding up the growth of Singapore economy.  Working hard is not enough, one also needs to work smart.  This is true for investing, a combination of FA + TA + PA will help us to look for the best investing opportunity with the lowest cost within our capabilities.  We look for investment giants not when they are at the peak of their strength, but we wait for them to fall down due to the crisis, helping them at the right time to climb up again, the giants will reward us after they have recovered.

 

4) Optimism: Up & Down of a Nation <=> Company

A company, regardless good or bad, is susceptible to market cycling, doing well during bullish market, suffering during bearish market. Main difference is a good company will survive through the global financial crisis but a bad one may go bankrupt half way.  Singapore is like a strong company, the national reserve is like net asset value (NAV) of a company, an anchor to the nation during the difficult time.

The optimism level of Singapore may not be high all the time, there is always up and down due to various reasons. Like a valued stock, Singapore will overcome the market cycling, having a positive CAGR (Compound Annual Growth Rate), moving upward in the long run, as long as the Singapore people (as if the investors of the nation) continue to have the faith and confidence, contributing their best to the nation.
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Many people may be wondering why Mr Lee could be so successful in his whole life, almost every major decision made becomes positive eventually.  In my opinion, regardless of Mr Lee’s final choices, Singapore will still become successful (may be a different perspective or definition of success) eventually because as long as a government cares for the people with practical considerations, each of the policy could have a positive outcome eventually.  This explains why in a post Mr Lee era, Singapore will continue to grow, as long as the basic principles or pillars remain intact.  It is like a value investor with consideration of FA, regardless of final stocks chosen in the investment portfolio, the outcome will be positive eventually.

Lives are made up of decisions and choices, sometimes there is no right or wrong choice, as long as we have clear mindset of our beliefs, both personal and national levels, we shall move in the positive directions eventually.  All roads lead to Rome!

Mr Lee has contributed his whole life “investing” in Singapore without personal benefit (if any, will be just self-satisfaction to see the growth of the tree planted with lots of ripe fruits to share with others).  The entire nation should view his leaving positively as this is a natural life cycle. More importantly he has taught us many lessons with observation of the success of his life and Singapore as a nation.  He is a true timeless giant and hope we could share his wisdom to benefit more people to grow the nation together…

 

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