1. Newspaper Articles
http://www.asiaone.com/Business/SME%2BCentral/Talking%2Bpoint/Story/A1Story20100611-221572.html
Business Times Singapore
Published May 15, 2010
The power of vision
The success of Berkshire Hathaway and Singapore can be traced to their visionary leaders who work with
winning teams. By Tan Seng Hock and Kee Koon Boon
WHAT do Berkshire Hathaway - the US$180 billion insurance, industrial and consumer conglomerate that
billionaire Warren Buffett skilfully crafted - and Singapore have in common?
Both are 'listed' in the same year - in 1965.
Both are 'multibaggers' in the breathtaking sense. Berkshire
compounded its net book value by 4,340-fold over the last 45 years
to US$147 billion. Singapore grew from a small fishing village to
around US$180 billion in GDP, and its GDP (PPP) per capita is
ranked fourth in the world by the International Monetary Fund
(IMF).
With the 'float' provided by its foreign currency reserves, high
savings rate, and fiscal prudence, Singapore's competitive
economic dynamo is augmented by GIC and Temasek, to allocate
its capital over the long-term.
LION CITY
The Ministry of Finance, Monetary
Authority of Singapore, Economic Both have visionary founders who bring important experiences and
Development Board, Temasek and GIC make critical choices early in the firm's or country's history that
that Singapore has today were the leave a lasting organisational imprint. Mr Buffett is the capital
creations of the entrepreneurs of allocation genius and investor-extraordinaire at Berkshire; Minister
Singapore Inc Mentor Lee Kuan Yew is credited by Charlie Munger, the vice-
chairman of Berkshire and billionaire partner of Mr Buffett, at the
recent Wesco 2010 Annual Meeting, as the 'George Washington of Singapore'.
Mr Munger added that Mr Lee is a 'very practical man' who 'tuned a country with
no resources or agriculture into a prosperous country, starting from zero miles per
hour'. In his usual pragmatic advice, Mr Munger said that his countrymen 'need to
The best way to pay more attention to the Singapore model'.
preserve and grow
capital in the long Also, both Berkshire and Singapore took off from a winning combination of
run is to identify teamwork.
honest, hardworking
and far-sighted Lion Mr Munger's contribution was to nudge Mr Buffett towards 'the direction of not
entrepreneurs in just paying for bargains', as was taught to Mr Buffett by Ben Graham. Mr Buffett
whom to invest. went on to add: 'It took a powerful force to move me on from Graham's limiting
Value investing is view. It was the power of Charlie's mind. Boy, if I had listened only to Ben, would I
really about looking ever be a lot poorer; I became very interested in buying a wonderful business at a
for this winning moderate price.'
team combination.
Singapore had the winning team of Lee Kuan Yew as the political visionary, Goh
Keng Swee as the economic and financial architect, and Hon Sui Sen as the builder
and administrator par excellence. The Ministry of Finance, Monetary Authority of
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2. Singapore (MAS), Economic Development Board (EDB), Temasek and GIC that Singapore has today were the
creations of the entrepreneurs of Singapore Inc.
Like Lions, which are the only social cats that form 'prides', the winning team plan ahead to hunt together to
go after bigger game; bigger game means more food for everyone. They surround themselves with 'like-
minded' people - and there is a remarkable transformative effect. They affect deeply the people around them
with their unwavering commitment, attracting a network of partners who respect them and want to work
together with them.
The central tenet of value investing is really about finding and investing in the Lion entrepreneurs, the team of
people with the character to make things happen and with a long-term vision to build their business models
into a durable legacy.
Lions can be compared with Hyenas, who, although also possess entrepreneurial characteristics and survival
skills to win in the stern strife of actual life, are short-term thinkers with a trading mentality.
Hyenas are the most formidable African predators, with jaws which are the most powerful in proportion to the
body size of any mammal. These opportunistic killing machines are capable of running down and killing
unaided a bull wildebeest three times its own weight, targeting the weak, injured, diseased, old and very
young, and also stealing from the kills of other predators.
When chance and fortune present easy kills, Hyenas hunt in packs; following which, the pack then disbands
and the Hyena is back to working on its own in the dark to scavenge for carcasses and quick gains.
Yet, the Hyena's immense respect for the Lion is unmistakable. The Lion is also the only natural predator of the
Hyena. Of all predators, the Lion is truly the king. Their regal mane and authority, their bond with each other,
their speed and prowess, and of course their knowledge - knowledge of all animals and their habitat - is
incredible.
The best way to preserve and grow capital in the long run is to identify honest, hardworking and far-sighted
Lion entrepreneurs in whom to invest. Value investing is really about looking for this winning team
combination.
Risk, in this sense, is therefore clearly not sigma or standard deviation. In other words, measures of volatility of
returns.
Risk is about the wrong judgment of the intrinsic value of the business, resulting in the possibility of absolute
capital losses. Risk is about owning a business whose entrepreneur and manager are more interested in
enriching themselves than building their company.
But risk is definitely reduced tremendously when investments in true Lions are made.
Lion entrepreneurs are alert to existing paradigms of how things ought to function and behave in the
marketplace. It is this alertness that leads to their discovery through their strong conviction and belief that
they can do it significantly better. And if the Lions sacrifice and persevere in doing this well enough, they will
soon have a country or business which can survive the vicissitudes of commercial life, booms and busts, mania
and panics.
Only then can the country or business begin to have a life on its own. That is what is called 'going concern', in
accounting terms, so that the numbers make sense, and a 'PE' (price earnings ratio) can be applied to value the
business meaningfully. But this is not enough. The next generation of Lions is needed to bring the country or
business to the next level of success.
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3. Value investing has to be augmented by a qualitative assessment of how people, ideas, experiences, and
structures come together to create a firm or country. Understanding the teams that come together and
develop over time, and the Lion Infrastructure they build, is essential to understanding the sustainable
performance of any country or business.
And we think finding and investing in Lions in Asia is all the more fascinating in this Lion City - Singapore.
Tan Seng Hock is the Group CEO and CIO of Aegis Group of Companies, a Singapore-based investment
management organisation. Kee Koon Boon is a lecturer of accounting at Singapore Management University
(SMU), and a director of Aegis Group of Companies. The writers were recently in Pasadena for the Wesco
2010 Annual Meeting
http://www.asiaone.com/Business/SME%2BCentral/Talking%2Bpoint/Story/A1Story20100610-221337.html
Business Times Singapore
Published June 10, 2010
Lion Infrastructure and value investing
Both of them are an ongoing team process that demands sacrifice, hard work and soberness to scale new
heights
By TAN SENG HOCK AND KEE KOON BOON
THE 'Singapore model'. This is what Charlie Munger, the vice-chairman of Berkshire and partner of Warren
Buffett, wished for his countrymen to pay more attention to, in addition to the visionary and pragmatic
leadership provided by Minister Mentor Lee Kuan Yew and the team of entrepreneurs of Singapore Inc.
So what is this 'Singapore model'?
And how did Apple Inc catapult from US$5 billion in market
capitalisation in early 2003 to US$220 billion, and earn much more
profits now than its entire market cap was during the dormant
period of 2001 to 2003; whereas Palm, founded in 1992, which had
helped pioneer the market for handheld organisers with its
innovative PalmPilot devices and had a US$90 billion market cap at
its peak, was bought out recently by Hewlett-Packard for a mere
Solid foundation: Political stability; a US$1.2 billion?
clean government; a multilingual,
multicultural, multiracial society; Also, how did Capital Group Companies, founded in 1931 by
meritocracy - these values together form Jonathan Bell Lovelace and built by his son Jon Lovelace, defy the
the Lion Infrastructure of Singapore with gravitational pull from managing a bigger asset size that perils
a scalable global outlook - a rugged performance to achieve superior long-run investment returns and
nation that stays relevant to face become one of the largest and most successful investment
challenges and harness global management organisations in the world?
opportunities from all fronts
Singapore, Apple and Capital Group Companies are, what we
coined, 'Lion Infrastructure'. A Lion Entrepreneur needs a Lion Infrastructure, and vice versa. This mental
imagery of long-term and far-sighted entrepreneurs as Lion Entrepreneurs is an extension of our article on
May 15, 2010 in the BT Weekend edition.
To illustrate this, we use the analogy of a skyscraper and a shophouse.
'Serving other decks', a melodious voice filled the lift from the intercom - heard only in a double-deck lift. This
technology is important because the floor area required by lifts can be significant and they occupy less building
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4. core space and can take twice as many people in the same shaft than traditional single-deck lifts do.
Architecturally, this technology allowed for the building of a 100-storey skyscraper in an efficient and sound
manner.
Only Lion Entrepreneurs - with their teamwork - are willing and capable of building a 100-storey skyscraper, a
Lion Infrastructure.
In contrast, the Hyena Entrepreneur is eager to construct a five-storey shophouse as it can be done in no time.
The lone Hyena Entrepreneur can walk to the top of the shophouse by himself and without the need for a lift
(what more a double-decked one!); investing and building the 'technology' slows him down.
After constructing a shophouse, to keep busy in enriching themselves, they sell the shophouse and build
another one, and the cycle repeats.
The Hyena Entrepreneur is an opportunistic trader, not an all-season builder of lasting structure. The 100-
storey skyscraper can carry more people and last longer than a five-storey shophouse; the skyscraper accorded
multibagger returns to its group of stayers, whereas the flipped shophouse, although viably profitable (to the
lone Hyena), has a far lower quantum of profit.
Apple was not exclusively about the discovery and commercialisation of the innovative new products from
iPod (unveiled in October 2001), iPhone (June 2007) to the latest iPad (April 2010). Its success comes from
wrapping the new products around the Lion Infrastructure to provide game-changing portable entertainment
experience to the consumer by combining hardware, software and service, making downloading of digital
music, video, games and apps via iTunes Store (since April 2003) easy and convenient.
Akin to Gillette's blades-and-razor model, Apple reversed it by 'giving' away the 'blades' (low-margin iTunes
music and apps) to 'lock-in' purchase of the 'razor' (the high-margin iPod, iPhone and iPad) that is sold at the
Apple Retail Stores (May 2001), creating a 'network effect'.
Still, a Lion Infrastructure takes time to build before that breathtaking 'multibagger' (outsized) burst of growth
and success.
After Steve Jobs returned to the company he co-founded when Apple acquired NeXT in 1996, Apple was back
to be the passionate design company that believed technology could change the world.
Mr Jobs spotted, upon his return, the designer Jonathan Ive who joined in 1992. Soon, as a team, the
technology at NeXT found its way into Apple's products, most notably iMac. Mr Ive led the iMac design team,
who would later design iPod, iPhone and iPad. Mr Jobs is the creative director, shaping everything from
product design and user interfaces to the customer experience at Apple's stores. Mr Ive is the designer. COO
Tim Cook, who joined in 1998, handles the day-to-day running of the business.
Successful countries and companies have operational and managerial team processes that allow them to
deliver value in a way they can successfully repeat and increase in scale. Having a Lion Infrastructure means
the business gets easier, not harder, as it gets bigger.
An undying, purposeful sacrifice is needed to build a Lion Infrastructure.
The founders at Capital Group Companies are willing to plough all their profits back into the business - for
many years - knowing full well that it would take years to get their money back, to support strategic
commitments that can prove rewarding over the long-run.
These investments include building up the 'multiple-counsellor' investment decision structure to handle assets
as a team in order to overcome the fund size barrier to investment performance.
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5. Political stability; a clean government; a multilingual, multicultural, multiracial society; meritocracy - these
values together form the Lion Infrastructure of Singapore with a scalable global outlook - a rugged nation
relevant to face challenges and harness global opportunities from all fronts. It is like the solid foundation of a
100-storey skyscraper that is built upon pilings that are deep and over a wide area, and not just on a few stone
columns.
The scale and constancy of the investments involved in building the Lion Infrastructure in Singapore and at
Apple and Capital Group Companies discourage imitators - Hyenas.
In value investing, it is important to be able to recognise this Lion Infrastructure that Lion Entrepreneurs are
building - that persistent, purposeful and painful sacrifice required to build the 'technology' and 'teamwork'
that leads to 'multibagger' success.
To build a Lion Infrastructure is hard; to keep a Lion Infrastructure is much harder. The longer an organisation
has been successful, the harder it is to sustain the creativity and competitive commitments required to
continue improving.
The late Goh Keng Swee left behind words for Lion Entrepreneurs at various stages of their work in building
the Lion Infrastructure: 'Regard the present condition . . . not as a pinnacle of achievement but as a base from
which to scale new heights.'
Building a Lion Infrastructure is an ongoing team process that demands sacrifice, hard work and soberness to
scale new heights - as does value investing.
Tan Seng Hock is the group CEO and CIO of Aegis Group of Companies, a Singapore-based investment
management organisation since 2000. Kee Koon Boon is a lecturer of accounting at the Singapore
Management University and a director of Aegis Group of Companies
http://www.zaobao.com.sg/yl/yl100809_001.shtml
管理狮城的“狮子企业家”
（2010-08-09）
● 陈星福 纪钧文
你可知道由“股神”沃伦· 巴菲特（Warren E. Buffett）呕心沥血打造、拥有 1800 亿美元的综合性企业
集团——伯克希尔· 哈撒韦（Berkshire Hathaway）——和新加坡有什么共同之处吗？
其一，两者都在 1965 年“上市”。
其二，两者都具有令人叹为观止的业绩。伯克希尔的账面净值，在过去的 45 年里狂翻 4340 倍，到
现今的 1470 亿美元。新加坡从一个弹丸小岛腾飞至全球最具竞争力国家，其国内生产总值已达 1800 亿
美元。因为拥有着高储蓄率、庞大的外汇储备和审慎的财政政策所提供的“浮存金”（Float），新加坡才
能塑造世界上两个最大的主权财富基金：新加坡政府投资公司（GIC）和淡马锡控股。长期的资本配置
才得以有效的实现。
其三，两者都有高瞻远瞩的领导人。他们将毕生的心血投入到国家或公司的早期成长史中，并在关
键时期做出睿智的决策，而其效果有着深远持久的影响。巴菲特是伯克希尔的资本配置奇才。作为巴菲
特战略投资伙伴的查理· 芒格（Charles T. Munger），在西科国际的 2010 年会中，高度赞扬李光耀资政是
“新加坡的华盛顿”。86 岁的投资大师芒格还说，86 岁的李资政是个“非常务实的人”，能将“一个自然资
源稀缺，农业工业欠发达的小岛，建设成一个繁荣昌盛的国家。”他希望美国人“能多加关注‘新加坡模
式’”。
其四，两者的腾飞都得利于天衣无缝的团队配合。
芒格的贡献是通过循循善诱的方式，将巴菲特原先的投资方式，转向现今享赋盛誉的价值投资理
念。巴菲特说：“本杰明曾经教我只买便宜的股票。查理让我改变了这种想法。他指出了我思维上的盲
点，扩大了我的视野。从此，我另辟蹊径，对购买优秀但合理价位的企业产生强烈的兴趣。” 于是，巴
5

6. 菲特便在 2008 年购买比亚迪 9.9%的股份，成就了中国和美国具有重大意义的价值投资，使伯克希尔在
其投资的 2 亿 3200 万美元，翻了 8 倍以上。
狮群团队是新加坡成功的要素
新加坡的金牌团队，是由李资政为政治宏观体系的领导人、吴庆瑞博士为经济和金融构架的总建筑
师、韩瑞生为行政总监所配合成。新加坡现今的财政部、金融管理局、经济发展局、淡马锡控股和新加
坡政府投资公司，都是这组“新加坡 Inc”的企业家所创作。他们纤细、务实、正气的个人命运紧连起来，
奏成了新加坡这部巍巍交响乐。卓越的团队犹如狮群，谋划在先而群起攻之，以捕获更大的猎物。大的
战利品意味着更多的食物得以分配予大众。他们与志同道合者歃血为盟，并以其王者风范，感染和吸引
着一班敬仰他们和乐于共谋大业的能人志士。
价值投资的核心，在于鉴别并投资于“狮子企业家”（Lion Entrepreneur），那种有着刚健质朴、求实
创 新 精 神 ， 能 把 国 家 或 企 业 建 造 成 一 个 可 持 续 增 长 伟 业 的 领 导 人 。 而 “ 豺 狼 企 业 家 ” （ Hyena
Entrepreneur）虽然也具有一般创业者的特质，能在残酷的环境下生存，但与“狮子企业家”相比，他们仅
是目光短浅的投机者。豺狼是非洲草原上最残暴的食肉动物。它能轻易的杀伤一头三倍于其体形的公
牛。豺狼也是名副其实的食腐动物，任何东西都吃干榨净。当机会来临时，它们也会成群捕杀猎物。但
完成厮杀后，这伙投机性的豺狼便自动解散，重新做回在黑暗里搜寻猎物残骸和近利的独行者。狮子则
是草原之王，也是豺狼唯一的捕食性天敌。当狮子行走在草原上，他非凡的气宇和那飘动的鬣毛便能勾
勒出其王者风范。狮群彼此间情感深厚，而豺狼之间只有利益关系。狮子对所有动物和它们起居习性的
知识是博大精深的。
从长期来看，资本保值和增值的最佳方式，是将其投资于“狮子企业家”，而鉴别和筛选诚实苦干、勇于
创新、远见卓识的企业管理团队，就是价值投资的真谛。从这个角度来看，风险不再是由西格玛
（sigma）或标准偏差（standard deviation）来衡量的波动性回报。真正的风险，是对公司或商业模式的
内在价值的错误判断而导致的绝对资本损失。风险也存在于将资本投资在那些仅注重短期经济回报，而
非企业长期发展的经营者。但投资于狮子企业家将能有效地降低风险。狮子企业家对于市场微妙的变动
和未来走向有极大的敏感度。正是这种敏感度，赋予了他们强大的信心，让他们坚信他们可以做得更
好。只要狮子企业家坚定不移地将他们的信念贯彻到长期性的国家或公司建设，他们便能自如的驾驭市
场的兴衰枯荣。惟有如此，国家或企业才能有自己的生命力，也就是会计术语里的“持续营业能力”。财
务报表上的数字也才真正具有意义，而投资者则能更有效的通过本益比或其他的估价方式，来对公司进
行价值评估。但这还不够，下一代的管理团队需要百尺竿头更进一步，将狮子领导人的精神延续下去，
并实现国家或企业可持续发展。
价值投资必须通过对管理者素质、经营理念、市场经验和商业模式进行综合性的定性分析。理解经
营团队如何形成和发展，还有他们所建造的“狮子型基础建设”（Lion Infrastructure），是认识国家或企
业的精髓。而我们深信在狮城（新加坡）发掘和投资亚洲的狮子企业家，有着无穷的魅力。
陈星福是某基金管理公司的执行和投资总裁；纪钧文是新加坡管理大学会计学院的会计讲师和保盾基金
公司的董事。
http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,414782-1290715140,00.html?
Reforming corporate governance
Business Times Singapore
Published November 25, 2010
Investors need to understand interaction between underlying business model dynamics and those running the
enterprises
By KEE Koon Boon
Snatch. The action undertaken by Harpies, the spirits of sudden, sharp gusts of wind in Greek mythology who
would snatch away (harpazô) things from the earth. They had plagued the old blind King Phineus such that
whenever a plate of food was placed before him, the winged Harpies would swoop down and snatch it away,
befouling any scraps left behind.
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7. CORPORATE governance, as elucidated by leading finance researchers Andrei Schleifer and Robert Vishny,
'deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their
investment. How do they make sure that managers do not steal the capital they supply or invest in bad
projects?'
A formerly popular group with retail and institutional investors of around 150 Singapore-listed Chinese
companies, the worth of the S-chips has dwindled significantly from around S$40 billion in market value by
more than half due to the continuous gust of cold wind in mis-governance and accounting scandals blowing
across these firms.
Attention and discussion on corporate governance reforms in minimising managerial agency costs and to align
managerial interests with the shareholders had centred, perhaps narrowly, on the 'agents' or the 'chess pieces',
some of which include the independence and quality of the independent directors in their monitoring efforts.
We need to step back and look instead at the 'chess board', the rules of the game in Asia that influences
ownership behaviour and the accounting mechanism, in order to avoid the plight of Phineus with managers or
controlling owners leaving defiled returns for the minority shareholders and an awful mess for the authorities
to clean up.
Wedge. The word to understand the Game. That sharp divergence between cash-flow or equity rights and
control rights in the typical Asian firms. Controlling owners are tempted to tunnel assets out of firms where
they have low cash-flow rights but high controlling rights to firms where they have both high cash-flow and
controlling rights, oftentimes their closely held private firms in which they are the dominant shareholders.
Let's take the case of Satyam to understand the Wedge.
Ramalinga Raju tunnelled out US$1 billion in cash and assets from his listed vehicle Satyam, where he and his
family held around 8 per cent equity rights, to his 100 per cent owned private property firm Maytas, to
participate in Hyderabad's property market. With Maytas, they can get 100 per cent of the cash flow as
compared to 8 per cent in Satyam.
When the credit crunch started to melt away the prospects faced by his private firms, especially as Hyderabad's
property market cooled with prices and rents falling more than 30 per cent, he could not bring the dwindling
money back to Satyam from his 300-odd private business vehicles for accounts-keeping and maintenance of a
competitive dividend yield.
Raju decided to raise cash from investors to make up for the bogus US$1 billion in cash and assets by injecting
some of his private assets into the listed Satyam. The price tag of the acquisition to 'de-risk' the business?
US$1.6 billion.
Minority shareholders rejected his plan, decrying a 'woeful misuse of cash'. Past enamoured investors
abandoned Satyam one by one, and share prices fell, which triggered the margin call in Raju's personal pledged
shares. Bankers force-sold his shares, resulting in the price to plunge further.
Like Raju, many of the S-chip controlling owners have multiple private business interests, property
development in particular, outside of their listed vehicles.
How did the distorted incentives in the Wedge work its way to be manifested in the accounts?
First, the controlling shareholders will engage in 'propping' activities to artificially inflate the sales and assets of
the listed firms through related-party transactions (RPTs) to entice the funds of investors who did their
'fundamental analysis' of the firms. Artificial accrued sales are booked under 'other receivables', while the
bogus cash-based sales stay hidden in the 'cash & cash equivalents'.
7

8. After 'propping', 'tunnelling' or expropriation of these assets out of the listed firm follows, engineered through
related-lending and transfer activities which are rarely paid back by the controlling shareholders. These cash
transfers are done artfully, often in short-term transactions in order to be qualified as 'cash equivalents'. That
explains why most of the artificial cash balances in these firms typically earn low average interest rates, at
below one per cent, when the typical bank rate in China varies between 5 and 10 per cent.
In other words, there is left-side in via propping, and right-side out via tunnelling.
Take the case of the high-profile and 'highly profitable' S-chip Sino-Environment. Footnote 12 of their 2008
Annual Report revealed that the average interest rate earned from their 728 million yuan (S$143 million) cash
in the balance sheet is merely 0.56 per cent. In Footnote 13, the amount due and dividend receivable from its
subsidiaries in the company accounts is 282 million yuan. In their group accounts, the amount of non-trade
receivables is 240 million yuan out of the 276.5 million yuan in total receivables.
From Footnote 12, Sino-Environment possibly made dubious related-party acquisitions, financed by the IPO
and secondary equity offerings, to cancel the artificial receivables that were created in collusion with the
related parties, and booking the set-off as goodwill and intangible assets which stood at 228 million yuan.
In a Raju-deja vu fashion, property was involved. According to news articles reporting about the firm's situation,
its chairman Sun Jiangrong reportedly tried to siphon away a 100 per cent stake in Chongqing Daqing Property,
which owned properties in China worth 10 billion yuan, to his Hong Kong private firm called Top One Property
Group, and later to a Chinese firm owned by his brother.
Thus, rather than hearing again that inevitable lament why boards - often skin-deep installations - work so
poorly so often, regulators should thrust the corporate governance stake right into the heart of perverse
behavioural incentives where it matters most: by having mandatory disclosure of the ultimate unseen
ownership and private business interests of the controlling owners at these Asian firms to hopefully curb the
growing opaqueness in the Wedge between ownership rights and cash-flow rights disguised under the
increased usage of nominee shareholdings and non-disclosure.
While controlling owners may view the tunnelling of that $1 out of the firm to be enhancing or protecting their
own interests - albeit at the detriment of the minority shareholders - particularly in bad times when they fear
losing the value of what they have built, they need to appreciate that they are putting to risk the going concern
of their companies to enjoy that elusive valuation premium of a multibagger that usually comes from putting
that $1 - and more - back into a single, focused business vehicle, and riding through the ups and especially
downs of the business cycles with their reputations intact.
Investors should take heed of the rules of the game, and pay due respect in seeking to understand the
interaction between the underlying business model dynamics and the people running the enterprises. It would
be premature to speak of 'fundamental' analysis using possibly rigged or incomplete accounting numbers due
to propping and tunnelling to fashion elaborate, but garbage-in-garbage-out, valuation models, or 'technical'
analysis of possibly manipulated prices and volume.
When value investing is applied properly and rigorously in Asia to identify the right entrepreneurs and
managers who are serious in building their business model into a legacy, and to protect, to guard, to preserve
the assets of the investors, the rewards can only be bountiful, especially in a tempest-tossed environment.
The writer is a lecturer of accounting at Singapore Management University, and a director of Aegis Group of
Companies, a Singapore-based investment management organization
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9. http://www.businesstimes.com.sg/sub/views/story/0,4574,419680,00.html
Business Times Singapore
Published December 30, 2010
Lion Infrastructure is the way to go
To reach a US$2 trillion GDP in 2065, Singapore must create and build commercial assets with a special quality
By TAN SENG HOCK AND KEE KOON BOON
HUNDREDFOLD. That's the breathtaking growth of Singapore's gross domestic product (GDP), from US$1 billion
after its independence in 1965 to US$100 billion in 2004 when Prime Minister Lee Hsien Loong took over the
reins from his predecessor, Senior Minister Goh Chok Tong.
Another tenfold increase in value creation in the years to 2065 (that
is, 100 years since its independence) - from an estimated US$200
billion GDP in 2010 to around US$2 trillion then - and Singapore
may well surpass the present level of US$2.2 trillion GDP of the UK,
its former colonial master. This will likely take place, particularly as
Asia successfully seizes the growth opportunity to be the global
leader, in economic and cultural terms, in this century.
Consider the case of Procter & Gamble (P&G). Founded by English
storekeeper William Procter and candle maker James Gamble, P&G
surged more than hundredfold in 'Stage 1' since its incorporation as
Mission not impossible: Singapore has a company in 1890 to S$20 billion in 1987. The company found
been a powerful magnet for global capital itself in an advanced phase of market maturity with its products
flows and MNCs. If it can cultivate 10 and battling on all fronts with intensifying competition from
$100 billion companies and 50 $20-billion competent rivals. Yet, P&G grew by another tenfold in 'Stage 2' to
companies of Lion calibre in the next 50 current S$230 billion.
years, a $2 trillion GDP economy may well
be achievable Consider the case of Nestle. The famous company grew more than
hundredfold since Frankfurt-born pharmacy assistant Heinrich Nestle left his hometown to set up the Nestle
shop in Switzerland in 1866, to S$20 billion in 1980s, and again by another tenfold, to current S$250 billion.
Most competent 'Stage 1' companies do not cross the chasm to 'Stage 2' because they lack the Lion
Infrastructure - the teamwork, the knowhow, the necessary institutional structures and the culture - in order to
not only survive but also thrive upon changes in the marketplace to become multibagger Lions.
Sustained performance
These Lions are akin to the Berkshire Hathaway, Singapore, Apple and The Capital Group Companies that
generate a sustained and outsized investment management performance, as discussed in our earlier BT articles
on May 15 and June 10. Value investors take delight in understanding what urges and qualifies an entrepreneur
to perform acts that lead to the building of a Lion Infrastructure in a business.
In 'Stage 2', the Lion Infrastructure and culture are the sails that determine the course, not the wind. P&G
cultivated US$23 billion brands, while Nestle groomed 27 such brands with over US$1 billion in sales. These
multibagger billion-dollar brands are profound sources of vitality to sustain the competitive edge and value
relevance at P&G and Nestle.
A company creates value at different stages of its corporate life cycle, arising from the relentless and eternal
pursuit of excellence to perfect its offerings to the marketplace.
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10. In the context of Asia, a competent entrepreneur in 'Stage 1' may be able to build his or her business from a
size of under S$100 million to S$1 billion. This is achieved with the right emotional incentives aligned to
encourage decisive stewardship in the process to create lasting cost or demand advantage over competitors.
However, to be able to build up the enterprise further to S$10 billion and beyond in 'Stage 2', sacrifice and
stable capital in long-term investments since 'Stage 1' - to build a cohesive team and a Lion Infrastructure,
which include governance, operational and financial management system - are required.
Most 'Stage 1' companies are content - and may even display smugness - to conserve the sizeable gains that
they have achieved and fail to invest to build an ongoing and lasting business.
Investing in the team and a Lion Infrastructure slows down the lone, powerful Hyena entrepreneur; he or she
prefers to continue to capitalise on short-term opportunistic quick gains. The difficulty is often closest at the
finishing line; these companies remain in the lower gears, even risking blowing up, when they are, in fact, at
the tipping point to enter 'Stage 2'.
Take the case of the quintessential supply chain manager and asset-light business model, Li & Fung, also one of
the best-performing stocks in Hong Kong, that catapulted nearly hundredfold from S$290 million to S$28 billion
since its listing in 1992. Li & Fung produces S$20 billion in garments and other goods for the world's top brands
and retailers - without owning a single factory.
Penang, Malaysia-born CFO Frank Leong played an important role in helping the visionary Fung brothers,
running the OSG (Operation Support Group) from 1995 until his retirement in 2004. OSG keeps a database of
more than 8,000 factories, suppliers and clients around the world and uses it to orchestrate the various
members in its network so that they can compete like a pride of Lions to generate a greater quantum of profits
for all partners and developers around its core offerings.
OSG oiled the machinery that enabled the entrepreneurial leaders in Li & Fung's multiple business units to
focus on its core competencies to meet the needs of customers and fighting battles with competitors, growing
multibaggers in the process.
The Lion Infrastructure at Nestle propelled the Swiss enterprise to become the world's biggest food company,
helping the Swiss economy, which has 7.8 million people, grow at twice the rate of the European Union. On a
per capita basis, Switzerland hosts about eight times more of the world's 500 largest publicly traded companies
than Germany, the region's biggest economy.
Seventeen of the world's 500 biggest companies are Swiss, amounting to about one for every 500,000 residents,
compared with one for every four million people in Germany. These multibagger Lions in Switzerland are a
major asset to the country; they helped the economy to prosper by boosting exports, creating jobs and
spurring consumption.
Powerful magnet
For Singapore to reach a US$2 trillion GDP in 100 years since independence, it must create and build
commercial assets with a 'special' quality. Like the 'special' Nestles, these commercial assets cannot be taken
away or destroyed by foreigners and become even more valuable with the participation of multinational
talents.
They possess values which are not determined by the arbitrary fluctuations in the foreign currency of any one
country, such as the US dollar. The company assets are also not like land values influenced by foreign demand
or reap transient windfall gains when sold to foreigners at high prices. These are intangible assets representing
real wealth to sustain a nation, not just tangible monetary assets which can be brittle.
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11. Singapore has been a powerful magnet in attracting global capital flows and multinational corporations (MNCs)
to capital-deepen its economy, demonstrating exemplary efficiency in organising the resources and tangible
infrastructure to execute the strategy, resulting in the hundredfold value creation in 'Stage 1'.
In 'Stage 2', we need hundreds of Nestles more than we need hundreds of billions of US dollars or gold; we
need the golden goose and not just rely on eggs from other people's golden goose.
If Singapore can cultivate 10 S$100 billion companies and 50 S$20-billion companies of such Lion calibre in the
next half a century, a S$2 trillion GDP economy may well be achievable.
The writer is the Group CEO and CIO of Aegis Group of Companies, a Singapore-based investment management
organisation since 2000. Kee Koon Boon is a lecturer of accounting at the Singapore Management University
and a director of Aegis Group of Companies.
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