How I Will Vote In GE2011

Posted On: April 27, 2011
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Most Singaporeans should know that the country is run like a profit-making organization. Profit for the government that is. There are those who are genuinely ignorant, while some choose to ignore the fact while they are enjoying their riches, or others are too occupied by their day-to-day struggles making a livelihood. This is not a post that aims to examine the pros and cons of this approach to total domination, however. Rather, since the Polling Day for General Elections 2011 has been set on 7 May, I have decided to cast my vote based on the same strategies by which I would invest in companies.

If you go with the analogy that the ruling party – PAP, is the management team of the corporation called Singapore, then its Singaporean citizens are the shareholders of the company, who have vested interests in the growth of the business. Each and every year, an Annual General Meeting is called where recommendations will be put forward to reappoint the executives of the company. But in this case, we are talking about an “AGM” that takes place every 5 years or so. Regardless of the amount of shareholdings (wealth), one has a right to vote.

Factors for consideration

Here is where it gets tricky. Here, you have an existing management team who has the experience and past results to support their case. Choosing the existing team will mean that the management style will continue as before, and the directions of policies and ideas will move along the same path. But on the side, there are people fresh, eager and full of new ideas, wanting to contribute. Choosing them may potentially introduce risks, but could help steer the corporation in new directions.

EPS versus Intrinsic Value

A lot of investors look at Earnings Per Share (EPS) as an indication of a company’s performance, before buying into the position. But as Warren Buffett points out, EPS is nothing but a smokescreen. Buffett always look into the intrinsic value of a company in his decisions to invest. As I see it, Gross Domestic Product (GDP) is similar to EPS. Year after year, our citizens (shareholders) see in reports that say the country’s GDP has increased by X%. However, it is widely recognized that GDP is neither an indication of wealth distribution, standard of living nor sustainability of growth. It is merely a number that indicates the total national economic activity. A better indication of performance is really the standard of living, which is really the intrinsic value that we are all concerned about, as citizens. Just like the intrinsic value of a company that Buffett talks about, the standard of living is an indicator that is harder to quantify. Can I buy the same amount of goods by putting in the same amount of work? Has leisure time and life expectancy increased? Has my annual work hours decreased? Have wages gone up relative to inflation rates and the costs of living?

Historical Performance

One thing we know for sure, is that historical performance is not a guarantee of future performance. The current management, however, keeps harping on this point and selling the same idea to its shareholders that they can deliver based on past performances. Maybe the management team delivered results 30, 40 years ago, but even as I look back 10 years and compare it with today, I argue that we are worse off in many aspects. My thoughts on this is to think long term, 10 years and beyond – which directions will I want my investments to move in the future? By laying the groundwork today, introducing more new faces into the management team, we bring in new perspectives and fresh ideas that the incumbent is unable to produce.

Management Tenet

One of the major management tenets that Warren Buffett look at is the rationality of the management team. As a shareholder, you expect the custodian management to manage costs properly. In particular when investing, “look for companies that generate high cash earnings and require low capital expenditures”, and it is said that “the biggest test of management’s rationality is the decision on how to allocate extra cash” (The Essential Buffett, Hagstrom, 2001, pg, 86). Blowing the budget for YOG by 3 times is not proper management of expenditures. Having an overpaid management, with salaries and bonuses way above the market practice is not rational and outright obscene. Invest in strong management, and that team should be rational and candid with its shareholders (report their financial performance fully and genuinely). Until today, I have not seen any reports on the actual costs for HDB flats – there is absolutely no transparency in this regards.

Conclusion

While the above barely scratches the surface of investment tenets, I have enough to form the right decisions for my vote of the management team that I want. The worst type of shareholders or investors are those without an opinion or does not care – they probably follow what others do and are just letting other people decide their fates. Be rational as a shareholder of this corporation we call Singapore – don’t be afraid to say “No” to the incumbent if you believe that change is required. As a shareholder, you need to believe that no company can audit its own books, and believe in the need for strong third party auditors. Learn from history and do not be the Enron, Worldcom, Arthur Andersen or Lehman of our time.

Note: I am by no means an investment guru. Most of my investment knowledge came from reading books such as “The Essential Buffett” and “The Warren Buffett Way” by Robert G. Hagstrom, as well as other investment books, and personal investment experiences over the years.


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