Today, I had the opportunity of speaking with Asian equities investor Sid Choraria. We talk about his experience with Goldman Sachs, Asian markets and negative interest rates, as well as the investors and experiences that influenced him.
What is your background?
I am currently a Vice President at APS Asset Management, a hedge fund in Singapore, managing $3 billion in firm-wide assets across various long-only and long-short strategies. APS Asset Management was founded in 1995 by its founder and CIO, Wong Kok Hoi, to specialize in Asian equities. Prior to this, I worked at Goldman Sachs, Morgan Stanley and Merrill Lynch in New York and Hong Kong. I am a member of Value Investors Club – which was started by Joel Greenblatt (Trades, Portfolio).
How did you get started investing?
My first trade was at age 18. Although not typical, it was a short, but fortunately worked out OK. At the time, I would say luck played a huge role. Subsequently, I got hooked investing during the 2008 crisis, as I stumbled upon the 1957-1970 partnership letters of Mr. Buffett, it was like the holy grail. I was, at the time, an analyst at Merrill Lynch in Hong Kong, when there was maximum pessimism. During the crisis, I made some of my biggest bets – crisis indeed is opportunity. The same year, I had flown to Omaha to attend the Berkshire Hathaway shareholder meeting – that was a life-changing moment. Alongside my MBA at NYU, I gained experience working on small-cap activist situations at a value fund, Bandera Partners, run by Columbia Business School professor, Jeff Gramm and author of "Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism." I was a portfolio manager at the NYU student small-cap endowment fund, seeded by legendary value investor Michael Price (Trades, Portfolio), where I had successes on off-the-radar small-cap stocks. As I really enjoyed fundamental research, this soon became a passion.
How did you join APS?
After my MBA I got a job in tech, media and telecom investing banking at Goldman Sachs back in Hong Kong. While Goldman was a special firm and an intensive training ground with lots of talented people, being a career banker till one made partner 10-12 did not appeal to me. In 2013, I left Goldman to pursue my dream career in alternative investment and had raised some money to start a fund. At the same time, I wishfully wrote to Warren Buffett (Trades, Portfolio) with an investment research write-up on an Asian company I thought he should look closely at. To my surprise, he wrote back saying “keep your eyes open”. It was good advice. As life would have it, a colleague made a chance introduction to Wong Kok Hoi, the founder and CIO of the company I now work for, APS Asset Management, a Singapore hedge fund established in 1995 which focuses on Asian equity investments and now manages $3 billion in assets. Instead of starting something which meant running a business, what really appealed to me about APS was the investigative research approach it took as well as its long-term approach to businesses – and then fishing in inefficient markets in Asia.
Describe APS investing strategy. Where do you get your ideas from?
APS’ philosophy is centered on investigative research, rigorous valuation work and constant testing of our own investment theses. Understanding intimately how business models and companies make their profits and cash flow is crucial to avoiding torpedoes, key to generating alpha. We try not to do what others do. In other words, you have to be a contrarian, independent thinker. When investors all rush in, you had better dash for the exit. We focus on generating original ideas. Ideas can come from popular and unpopular industries/stocks, new industries/maturing industries as well as company specific leads for our short and long books. Different types of companies/stocks produce different types of alpha and we broadly classify them into four clusters – structural (long-term business trends), economic, dynamic and opportunistic. Identifying the source of alpha is important in portfolio construction. We would construct our own earnings and valuation model and spend time investigating and validating the reputation of management. We closely monitor changes in company and industry fundamentals.
What drew you to this value investing approach/strategy?
One has to work extremely hard to find just a few very attractive investment opportunities. Such a situation is where the risk reward is greatly skewed to your favor, and beating the markets. Ultimately, what you want to avoid is a torpedo. Given that, value investing works – and by that I do not mean headline price-to-earnings or price-to-book – if investing were that simple, one could simply use screens and computers – but then what are you doing that others cannot do? What is your edge? What drew me to the APS approach is conducting primary investigative research – focused on business models and competition. For every lemon you have, one must come up with many big winners. The key is to avoid the lemons – that is easier said than done, but rigorous research and hard work – and tons of business/common sense go a long way. Originally, I am a native of India -- and learned early on the crucial importance of return on capital and compounding from my father, who started his business with limited capital -- and then grew it to over a few hundred employees across 20 cities.
What makes the Asian markets a fertile hunting ground for stock picking and generating alpha?
Asian markets are more inefficient than the developed Western markets. At APS, we have local professionals who speak the languages and have closely followed their sectors/countries over the years, field investigations including interviews with competitors, suppliers, industry specialists and verification of information with independent sources. In Asia, fundamental research tends to be preached more than practised and we tend to find analysts placing blind faith in reported numbers and over reliance on secondary research. Asian markets also tend to be short-term focused, and therefore taking a longer view to a business is a competitive edge for us. Asian markets from China, India, Japan, South Korea to Indonesia are disparate and complex – political, regulatory, culture, languages spoken – and having a history investing in the region enables us to appreciate the differences and nuances.
What books or other investors influenced you?
As I mentioned, the holy grail is Mr. Buffett’s early partnership letters. Next is Charlie Munger (Trades, Portfolio)’s wisdom and advice. Creative Cash Flow Reporting is a must read for any serious investor to understand sustainable operating cash flow, a much ignored skill set by 99% of investors out there. I really like Mohnish Pabrai (Trades, Portfolio)’s "Dhandho Investor" – perhaps I am biased coming from India, but Mr. Pabrai provides some simple, easy to understand examples. The other one is Daniel Kahneman’s book "Thinking, Fast and Slow," a favorite of APS founder and CIO, Wong Kok Hoi, which describes aptly the irrational side of decision making. Besides learning from the greats, the investors that have influenced me the most are Wong Kok Hoi, APS founder for his conviction to go against the crowd -- if one has to make meaningful alpha. There are just too many group thinkers and index huggers out there, who pretend to be investors.
Name some of the things that you do that other investors do not.
I rarely read any sell-side reports. My preference is to read the original filings – and then come up with a view independently. Reading secondary sources is perhaps helpful – but could lead you to a biased view as most analysts writing those reports have incentives that are far different to what buy-side analysts and fund managers are looking for. Therefore, I like to do the work myself, and not rely on anyone else’s opinion.
Name some of the traits that a company must have for you to invest in.
The most important thing is to understand what makes the company special – different from its competitors, that allows it to earns the profits or cash flow, relative to the invested capital it spends. Without understanding this intricately – I’d suggest not investing or passing on the opportunity. Next is to understand the people behind the company – this is crucial especially in Asia where corporate governance can get you into trouble. A great company is one that does not require ever growing capital to grow – and still operates in a large addressable market.
How do you feel about the market today? Do you see it as overvalued?
What concerns me is the phenomenon of negative interest rates – it will end badly. Given this environment – investors are justifying to themselves the risks they are taking on which is more pronounced in certain areas of the market than others.
Any advice to a new investor?
Crisis is opportunity. Learn from your mistakes – more than successes, which may just be plain luck. Don’t buy stocks if you don’t learn the tricks of accounting. Diligently work on your goals by writing them down.
Disclosure: No position in the stock mentioned.
Start a free 7-day trial of Premium Membership to GuruFocus.
