2020 will be an unforgettable year, for both the quantity of major global events and the far-reaching scale and consequences of such events. Uncontrollable wildfires, assassination of a key political figure, shooting down of a civilian aircraft, the actual Brexit(no more delays!) as well as the impeachment and acquittal of a controversial president. With all the above occurring in just the first quarter of the year, who could have known or foresaw the biggest event of them all: a health pandemic of such epic proportions? Certainly not me, I do not possess 20/20 vision (actually I do, physically speaking).
I cracked the same joke 4 years back as I entered freshman year in university as I pondered on what I will be doing in 4 years time upon graduation. 4 years on since that day, I have found my answer. It appears that I will be stuck at home, partly due to the imbalance in the supply and demand of labor and recommended social restrictions implemented to curb the spread of this virus.
New Domain (Goodbye OfBlue)
First off, let’s address the change in address (no pun intended) of this site. Due to changes in the cPanel licensing structure, my previous webhost was unable to continue supporting free accounts starting from March 1. If you happened to scroll to the next post, you will see that it is dated 17 February. In the duration between then and 1 March, I had not logged on to my webhost and also missed out the email reminders send to my strangely deactivated alternate email account. It’s hard to believe the coincidence of it all, but such things do happen. In the grand scheme of things, the site was destined to reach its premature death regardless of my decisions, unless I forked out abit of dollars each month to keep it on life support.
Imagine my confusion when I received an email from a third party app informing me my site has been offline for some time and is currently uncontactable. Upon verification, my suspicions were confirmed. For the third (fourth?) time counting, my site has once again, suffered the fate of deletion and forced scrubbed from existence by the webhost (different webhost each time). This certainly fulfills the age old adage, nothing is free in this world. Either you pay or someone else is gonna pay for it. Good old capitalism.
The Search for alternate hosts
Kicking off the search for a new home for my site, I shortlisted a couple of potential webhosts with the following features: cPanel, php support, free basic tier hosting, reasonable storage and bandwidth allowances, database support and SSL certificate issuance. Times have indeed changed, for I could not find a single webhost which fulfilled all the above requirements. My previous 2 webhosts certainly did, though they no longer do so, perhaps they too were hard pressed by the cPanel licensing issues.
Eventually, I settled on 3 webhosts and began the restoration procedure to revive my site. The first webhost was kind of shady, hence I terminated the plan instead of handing over my data. The next webhost gave a multitude of problems like short php timeouts which interfered with the scripts I was running and also unconventional propriety interfaces which was severely lacking in features, compromising on my ability to freely tweak and configure my site. The third and final host, the one I am currently on, was stuck on the verification phase post registration as the host wanted to manually verify the site, hence some delays was experienced.
Back Online….for good?
Learning from the cold hard lessons of my previous tramatic experience of sudden termination of one of my previous webhosts, I implemented a comprehensive backup plan with third party data transfer redundancy and the predecessor site. Fortunately, the plan worked and I was able to successfully recover and redeploy my site onto the new domain.
However, there were still some minor kinks to be worked out. Firstly, the restoration process was a simple copy and paste of the entire site structure onto the new domain. Everything was replaced, including the admin account and domain names, meaning I had to manually reconfigure the credentials and redirect all references pointing to the old domain back to the current host. Not a very hard task, just tedious as a single misstep would require the entire process to be repeated from scratch.
The site also experienced significant server load upon restoration. It appears to be a DDOS attack, which doesn’t make sense. Why would my site actively DDOS itself? I figured it had to be a problem with one of the plugins, perhaps a compatibility issue. After some digging, the hypothesis turned out to be true. Subsequent attempts to solve the incompatibilities failed miserably, introducing further problems which almost devastated the site once more.
Despite being the best compromise amongst the three shortlisted webhosts, there exists major shortcomings of this solution. Lack of SSL certificates, spotty access to phpmyadmin and strange unexplained failures top the list.
Nothing lasts forever, but I do hope that this site would no longer have to endure the days of eviction and living like an internet refugee anymore from this day on.
Covid19 Pandemic
Unless you have just emerged from years of meditation in a deep cave and deprived of news/current affairs, you certainly would have heard of and at least possess enough knowledge of this pandemic which plagues humankind these days. The situation has escalated dramatically since February, truly demonstrating the effects of exponential growth in real life.
I am not interested in bashing any forms of governance or to criticise any groups/organisations. However, I do wish to point out that the best way to overcome this situation is to work together and minimise the spread of the virus. China and South Korea have set an example and proved that social distancing and conducting more tests to identify and isolate patients is effective in reducing community spread and limit the rise in the number of infected cases.
What truly saddens me is that certain events which eventually led to fatalities could have been avoidable, yet wasn’t, because of differences in ideology or motives in the interests of certain exclusive groups of people. The people elect their leaders through elections. The leaders implement policies which helps shape the future of the population, who in in turn, vote for the next batch of leaders. Therein exists a feedback loop which amplifies any decisions made, which then requires checks and balances to counter potential shortcomings. The significance of the corrections matters in times like today.
World Economy
Where do I begin on this one? Well, the outlook certainly doesn’t seem all rosy and the crash we have seen in the stock markets only point to further bloodshed in the coming days. To a graduating student soon to step into the adult world looking for employment, coupled with the burden of a 5 figure student debt, what can I say?
Bear Markets Appear
Global markets have officially entered bear territory with indices blowing past the 20% mark with the ease of a knife cutting through birthday cakes. Not entirely surprising given the PE multiple certain sectors were trading at, with cheap debt and the backing of the entire Fed driving up the market cap/GDP ratio over the years.
Given such sentiments, I couldn’t convince myself to allocate more capital towards the US/EU market, missing out on the huge rally seen in 2019 where it seems nothing could stop the momentum of the stock market’s rocketing rise. FOMO did cross my mind and I started to doubt myself. Could I have misread the signs and could this really be the new norm I have to adapt to? Indeed, we cannot predict the future just solely by looking at historical data. However, one thing still remains the same: capital is valued above labor in today’s society. Therefore, my direction is clear and continues to be my strategy going forward.
The question I have is will this economic downturn trigger and end to the reliance on debt for growth as well as the hunger for share buybacks in an endless bid to push up shareholder value? As a long term investor, my wish is to see organic growth through technological improvements and productivity growth, instead of financial engineering to artificially boost EPS or ROE. The US Tax Cuts and Jobs Act of 2017 was supposed to provide companies with more cash to boost employee wages, however that did not seem to materialise as much as intended, instead flowing towards share buybacks which ultimately tilted the benefits more towards owners of capital rather than the providers of labor. A failure in legislation, or an outright ruse disguised as a carrot to gain support from the public voter base? We may never find out.
WeWork and Startups
These are indeed bad times for startups like WeWork which rely heavily on VC cash for survival. Oftentimes, these startups, unicorns or not, have a business model focused on grabbing market share and ignoring profitability in the hopes that their VC cashflow doesn’t get interrupted. Well, in this current context, the funding could well get heavily reduced if not cut off completely.
Consider the case of the classic overvalued startup WeWork. With billions of dollars worth of rental obligations on their long term leases and inability to come close to earning as much in revenue even in good times, it is not hard to see that things are about to get much worse in bad times. Part of WeWork’s marketing claims that in a economic downturn, companies would turn away from renting entire buildings and turn to short term leases, which WeWork could benefit from. It seems that health pandemics are the Achilles heel of coworking leasing companies, since social interactions are discouraged and more firms transition to a work from home arrangement.
Do startups bring benefits to the table? Yes, although that may come attached with tremendous cost. Do we need startups to fill gaps which traditional companies would not touch? Maybe, or maybe not. A 2015 Forbes report states that 90% of startups fail. Some do not make it past the very first year. As the days goes by, fewer and fewer are left as they burn through their cash and fail to seek further rounds of funding. Needless to say, it is not an easy journey for startups.
Unprofitable Ventures
An interesting observation can be made for Grab, the company which was supposed to address inefficiencies in the Southeast Asia taxi and transport industry. When Grab first appeared in a fight with Uber, it came off as a Uber clone, offering similar services at lower cost for consumers with frequent discounted rides. Oftentimes I hear from friends that there is yet another Grab coupon and using that coupon gets you a ride which cost less than what a typical bus journey would have cost. I struggled to understand how is it possible for a consumer to pay a dollar for transportation, beating the cost of Singapore’s relatively cheap public transport system?
The answer is simple. Grab isn’t earning money from the rides. The providers of public transportation in Singapore, namely SBS and SMRT, are for profit companies till SMRT was acquired by Temasek Holdings. Even so, a loss making transportation business model is unsound as the shortfall has to come from somewhere. For public transportation, the subsidy comes from the government’s annual budget. However, for a private entity such as Grab, they have to rely on investor’s funding to sustain the high levels of cash burn, funding which eventually runs dry. Cue the classic example of WeWork. At this stage, it just doesn’t make financial sense to continue dumping good money after bad.
Consider the prices of Grab rides and the frequency of discount codes post the Uber-Grab merger. Cost cutting measures continue to be put in place with more and more reduction in benefits both to drivers and riders. To the consumer, erosion of benefits is met with an unfavorable response and bit by bit, the dissatisfaction with the company grows. Past a certain point, this mentality sticks and further cuts to the rewards tiers or increase in fares only serves to reinforce this belief. To make matters worse, even after all the cost cutting measures, the company as a whole is still unprofitable!
No investor of sound mind is willing to put their money in a business that never turns profitable. This inevitably translates to pressure for the company to have a clear plan to profitability, be it increasing the revenue stream or reducing costs. Covid19 presents the challenge of reduced demand for rides as people increasingly stay home and avoid heading out, leading to decreased revenue. Food delivery services are expected to spike in demand, which normally would be good news except that the food business is also loss making and thus a higher volume of a loss making transaction leads to higher losses on the bottom line. To sum it all up, this is indeed a very challenging period for certain startups, should they not have sufficiently fat cash vaults.
Taxis or Private Hire?
Both taxis and private hire vehicles transport passengers from point to point. Ride sharing/private hire was supposed to compliment taxis to provide capacity in response to any fluctuations in demand and not totally replace the taxi industry. In the early days of the war between taxis and Uber/Grab, the price difference between these two services were staggering. These days, not so much. In fact, the tides have turned with the introduction of ComfortRide fixed fare pricing, which sometimes could be cheaper than the equivalent Grab ride.
If the consumer switched from taxis to Uber/Grab for cheaper fares, then following the same logic, the same price conscious consumer would simply compare the prices for both apps and pick the cheaper one. Slightly more effort and time, in exchange for saving of a few bucks. Of course, things are not so simple. Factors like waiting times, ease of getting a vehicle, service standards and app user experience all affect the decision making process. The benefit of this price war is evident in that Comfortdelgro’s app has improved and consumers have benefitted from this increased competition in the form of cheaper rides.
Personally, I do not expect this price war to last as a dragged out war is of no benefit to all parties. This applies to the telecom data price war as well. The threat of TPG no longer looms over the incumbents and some MVNOs are starting to fail. Consolidation may occur and end the days of cheap data plans. Profitability is the keyword here, especially so as 5G begins to rollout and spectrum charges push up capex requirements.
Equities and Net Worth
We have witnessed in these past few weeks, the most rapid decline in global equities in recorded history. Never before had there been such strong and consecutive drops day after day, easily erasing all the gains of the past 4 years in the span of just a few months.
These are the sort of events that are probabilistic in nature, something one has to be mentally prepared for and expect, before one starts investing. The saying goes, if you cannot bear to see yourself losing money, do not enter the stock market. However, no amount of books or preparation is enough to support the shock that comes from seeing that much red all at once.
My current positions unfortunately stands firmly in the red, resulting in an underwater portfolio to the tunes exceeding 20%. This is the first and hopefully the last time this occurs. An opportunity presents itself for me to consolidate the portfolio and buy into fundamentally strong companies. My strategy remains unchanged, as I await the reversion to the mean and verify the resilience of my initial portfolio. Granted, there were some speculative investments which I am now prepared to write off completely. However, the portfolio as a whole is defensive in nature and is fully able, in theory, to maintain their earnings even in this climate. These companies form what we call today the “essential services”. I remain confident that the dark days will pass and we shall emerge stronger than before, ready to defend against the next crisis.