Sharing  Wisdom  (26th  March  2012)  

Small  change;  What  you  should  do  if  you  hit  the  jackpot    
  The  Straits  Times     25th  March  2012       ©  2012  Singapore  Press  Holdings  Limited     Gambling,  smoking  and  drinking  may  be  bad,  but  they  make  excellent  investments   Some  of  my  friends  are  adamant  about  not  touching  stocks  of  companies  that  promote  sinful   habits  such  as  gambling,  smoking  or  drinking.   They  say  that  people  who  invest  in  such  stocks  are  helping  to  fund  the  immoral  and  unethical   activities  those  companies  engage  in.   As  my  former  colleague  Gabriel  Chen  noted  in  an  earlier  column,  there  are  investors  like   himself  who  look  for  solid  performance-­‐driven  companies  and  consider  it  a  big  plus  if  these  are   also  socially  responsible  and  do  good  things.   But  bottom  line-­‐driven  investors  will  beg  to  differ.   True,  we  have  made  great  strides  in  the  past  two  millennia  in  areas  such  as  agriculture,   transportation,  medicine  and  technology.  This  has,  in  turn,  led  to  a  big  improvement  in  living   standards  and  quality  of  life.   But  as  human  beings,  we  remain  as  flawed  as  our  ancestors  -­‐  struggling  with  the  same  deadly   sins  such  as  greed,  gluttony,  anger,  envy  and  lust.   Of  course,  consumers  will  cut  back  on  spending  during  an  economic  slowdown.  But  this  does   not  mean  that  people  will  drop  their  bad  habits  in  hard  times.   In  fact,  they  may  feel  an  even  stronger  urge  to  escape  from  their  financial  woes  by  smoking   more,  drinking  more,  or  visiting  the  casino  more  frequently.   It  is  also  worthwhile  noting  that  the  companies  issuing  so-­‐called  sin  stocks  are  deeply  rooted  in   markets  across  the  region.   Deutsche  Bank  strategist  Teoh  Su-­‐Yin,  in  a  recent  report  on  Asean  sin  stocks,  notes  that  there   are  26  listed  stocks  in  South-­‐east  Asia  whose  businesses  are  linked  to  casinos,  alcohol,  gaming   and  smoking  (CAGS).  These  stocks  are  worth  between  9  per  cent  and  11  per  cent  of  their   respective  stock  markets'  total  value.   Investing  in  sin  stocks  pays  in  a  big  way.  Ms  Teoh  said  that  from  1990  to  the  end  of  last  year,   the  CAGS  stocks  outperformed  the  rest  of  the  market  by  about  5.2  per  cent  every  year.   Her  colleague  Ajay  Kapur  told  investors  looking  for  profitable  investing  ideas  to  simply  buy  a   basket  of  stocks  focusing  on  casinos,  alcohol,  gaming  and  smoking.  He  said  this  makes  a   powerful  investment  theme,  as  rising  incomes  in  Asia  put  more  money  into  consumers'  hands.  

 Sharing  Wisdom  (26th  March  2012)  
Looking  at  my  own  stock  portfolio,  I  am  not  surprised  at  the  two  analysts'  bullish  call.   Even  though  I  do  not  deliberately  go  out  of  my  way  to  buy  into  sin  stocks,  my  portfolio  is   crammed  so  full  of  them  that  it  will  make  an  ethical  investor  squeal.   I  tumbled  into  sin  stocks  early  on.  One  of  my  earliest  investments  was  in  an  old  cigarette  firm,   Rothmans  Industries,  which  has  since  been  taken  private  by  tobacco  giant  British  American   Tobacco  (BAT).   The  company's  forerunner,  Rothmans  of  Pall  Mall,  had  marked  an  old  friend's  first  foray  into   the  stock  market  way  back  during  the  1972  bull  run  when  he  was  given  a  'hot  tip'  by  a  colleague   about  an  impending  bonus  share  issue.   When  the  bonus  issue  finally  materialised,  with  the  company  rewarding  shareholders  with  a   new  share  for  every  five  existing  ones  held  by  them,  my  friend  made  a  few  hundred  dollars   from  selling  the  original  1,000  shares  he  owned,  but  kept  the  200  bonus  shares  as  a  memento.   That  later  grew  into  a  tidy  pile  of  shares  in  two  firms  -­‐  Rothmans  Industries  and  Rothmans   Malaysia,  now  renamed  as  BAT  (Malaysia).   I  remembered  the  story  when  I  had  some  savings  to  put  into  the  stock  market,  after  I  started   working  many  years  back.  Investing  in  Rothmans  Industries  helped  me  reap  a  regular  dividend   every  year,  until  it  was  taken  private  in  1999  at  three  times  the  price  I  had  paid  for  the  shares  a   decade  earlier.   Then  there  is  the  enduring  love  affair  which  some  investors  have  with  gaming  stocks.   When  Resorts  World  Sentosa,  the  casino  resort  operated  by  Genting  Singapore,  opened  its   doors  two  years  ago,  one  of  the  first  performances  which  I  caught  there  was  a  concert  by  the   popular  Taiwanese  singer  Cai  Qin.   I  can  still  recall  my  surprise  at  the  hive  of  activity  as  I  made  my  way  to  the  carpark  after  the   concert  -­‐  a  good  number  of  people  were  alighting  from  buses  to  troop  into  the  casino,  even   though  it  was  close  to  midnight.   Surely,  if  such  a  good  crowd  is  going  to  the  casino  and  if  you  are  not  a  gambler  yourself,  the   next  best  thing  to  do  is  to  buy  into  the  shares  of  the  casino  operator.   One  old  businessman  friend  recounted  he  bought  his  first  lot  in  Kuala  Lumpur-­‐listed  Genting   Berhad  -­‐  the  parent  company  of  Genting  Singapore  -­‐  after  visiting  the  mountain  casino  resort   decades  ago.   That  subsequently  spawned  other  stock  spin-­‐offs  such  as  Resorts  World,  Genting  Singapore  and   Star  Cruises  shares,  which  multiplied  the  value  of  his  initial  investment  many  times  over.  That  is   on  top  of  the  rich  dividend  payout  which  he  gets  from  the  casino  operator.   And  when  Genting  Singapore  was  listed  in  Singapore  in  2005,  he  subscribed  in  a  big  way  to  its   initial  public  offering.  That  turned  out  to  be  a  shrewd  bet,  as  the  company  subsequently   clinched  one  of  the  two  lucrative  casino  licences  on  offer  here.  

 Sharing  Wisdom  (26th  March  2012)  
His  initial  outlay  in  Genting  Singapore  had  more  than  quadrupled  in  value  in  the  past  six  years.   In  giving  these  examples,  I  must  make  it  clear  that  I  am  not  endorsing  sin  industries.   I  do  not  smoke  and  I  drink  a  glass  of  wine  or  two  only  on  festive  occasions.  My  occasional  forays   to  Marina  Bay  Sands  and  Resorts  World  Sentosa  are  confined  to  the  excellent  performances   that  are  put  up  regularly  there,  rather  than  the  casinos.   Companies  in  such  businesses  have  always  been  subject  to  strict  regulations,  and  safeguards   have  been  put  in  place  to  warn  consumers  of  the  dangers  of  smoking,  gambling  and  alcohol.   But  rather  than  try  to  make  grand  moral  statements  on  our  investment  portfolio  which  may   end  up  giving  us  a  whopping  loss,  we  should  try  to  maximise  the  returns  by  investing  in   companies  with  good  business  franchises.  That  should  include  sin  stocks.   There  are  26  listed  stocks  in  South-­‐east  Asia  whose  businesses  are  linked  to  casinos,  alcohol,   gaming  and  smoking.  These  stocks  are  worth  between  9  per  cent  and  11  per  cent  of  their   respective  stock  markets'  total  value.  -­‐-­‐  ST  FILE  PHOTO

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