Sunday, November 27, 2011

3Rs – the right business run by the right people and selling at the right price

IT’S NOT often, if at all, that a fund manager declares that his company has made mistakes in a third of its investment decisions. But that’s what Mr Cheah Cheng Hye, 54, said in a matter-of-fact way during a recent teleconference with Singapore journalists from his Hong Kong office.

“We are far from infallible. I’ve done a study of our decision-making process going back to 1993 and found that one third of the time, we made mistakes. One third were good moves and one third were neutral.

“If you isolate the mistakes of Value Partners, the single largest reason we find is our poor judgment of management’s integrity and quality. We thought the guy was honest but he turned out to be a crook.”

Yes, and the bad guys also come up with new ways to fool you!”

“We are talking about a generation of people who are in their 40s and 50s now and are captains of industry. They came out of the Cultural Revolution when values collapsed. These are people who don’t necessarily want to play by the book.”

It’s something that could go away, or diminish, over time. “As they get richer and have more at stake – in terms of reputation and wealth – they would be less and less naughty. They want to be more and more respectable, which means our stock investing risks go down.”

And among the important things that he is sure of, it is that the renminbi is going to resume its rise. “It will go up because America wants it to go up and because it’s in China’s self-interest for it to go up. You don’t want to go out of your way to annoy the US and if it’s not against your self-interest, why not let it rise? This is also one of the ways that China can help stimulate domestic consumption.

Mr Cheah added: “I’ll buy you lunch if the renminbi is not higher next year than where it is today.

For the last 10 years, he has meditated for an hour almost daily before going to sleep. On plane journeys, and that’s pretty frequent, he would meditate too.

For his part, Mr Cheah said that unlike most people who sought to make as much money as possible, he “had always come from the opposite angle - that you must be passionate about what you do and be very good in it. The money will come naturally.”

Cheah Cheng Hye, co-founder of Value Partners.

This article appeared recently in Pulses magazine and is produced as a form of record.

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