I sat down recently with Mr. Yeo Seng Chong in his office at Robertson Walk. He is the founder and CIO of Yeoman Capital Management, which in turn manages the Yeoman 3-Rights Value Asia Fund.
Since inception, his fund has yielded an absolute cumulative return of +788.16% or a CAGR of +12.96% p.a. nett of all fees for the 17 years and 11 months to end 3Q 2015, in SGD terms with dividends re-invested.
Over the same period, this Index increased by +91.61% implying a CAGR of +3.70% p.a.
I think its safe to say that his results have been most satisfactory, and that investors in Yeoman are happy with his results thus far.
Looking Beyond the Numbers
Mr Yeo attributes a big part of his success to his own multi-disciplinary experiences over the years, which then allow him to home in on what matters most: the business itself, and the value it represents.
Maturity and experiences over his long career have also taught him to keep an open mind, and to connect with people from all lines of work.
Although the numbers are without a doubt the foundation of what he does, but behind that is a highly qualitative judgment that requires experience.
Herding Behavior When Stretching For Yield
Mr Yeo’s comments are in sync with what other prominent investors such as Howard Marks and Seth Klarman have been warning in recent years – investors are increasingly stretching towards “riskier bets” in this increasingly yield starved world.
He comments that Singapore investors have been attracted to the “perceived safeness” of real estate and corporate bonds, which ironically makes them more dangerous as prices rise beyond the actual fundamentals of the asset.
I can’t help but think of the same “common wisdom” of the crowds back in 2006/2007 in the UK and the US when houses were perceived to be “safe”.
Still, the government stepped in in time to defuse the situation with repeated rounds of cooling measures, and my own data indicates that housing prices have actually gone below their historical trend for now.
Mr Yeo thinks that equities offer a much more compelling risk reward ratio as compared to other asset classes. Put simply, they are unloved and unwanted at this stage.
Thoughts on Malaysia and Productive Assets
The stock markets in Malaysia are cheap – especially if you take into account the dramatic depreciation of the Ringgit in the last six months.
Mr Yeo thinks that this represents an interesting risk/reward situation, with investors benefiting from a potential strengthening of the currency, and an appreciation in the stock price itself.
Still, as he stressed, the key is to invest in productive assets that generate cash flow and dividends, and not to simply hold cash.
Discipline & Professionalism
Mr. Yeo credits the success to his fund to a disciplined approach to investing, that his grounded on the quantitative aspects of a business.
He explains that it is important to be intellectually honest, and working in a professional setting means that it is crucial to always review investments when the fundamentals deteriorate.
Contrast this to the all to common behavior of retails investors in simply forgetting about investments when they sour, or turning short term ideas into “long term holdings” when the thesis doesn’t pan out.
Unlike most funds with high turnover rates, Mr. Yeo moves at a much more glacial pace, with stocks tending to remain in the portfolio for 5 to 6 years on average.
Thoughts from the Interview
I think 18 years is as long a time as any to judge the long-term success of a fund, and Yeoman Capital is testament to what applying sound investing principles can do.
Still, if you take a look at his original 3-Rights Value Fund, you will see that the results are volatile, with significant down years in 2000, 2008 and 2011.
Therein lies a valuable lesson.
Investors must always remember that investing in stocks involves living with volatility.
However, if one can overcome short-term price fluctuations and take a long term view, then satisfactory results are possible with hard work and diligence.
Mr Yeo Seng Chong will be speaking at the upcoming Asia Value Investor Conference in Hong Kong on the 8th December 2015. You can find out more here.