Musings on Investing

Hong Kong: Inexpensive Luxury

Core Gold, etc.

As I write from my four-star hotel in Hong Kong, which costs me a mere $25 per day, I cannot but think about how erroneously risk is priced in the market. When I arrived, Hong Kong airport was eerily quiet, with tourists avoiding it. Unbeknownst to them, however, Hong Kong continues to be one of the safest places on the planet.

This is my second visit to Hong Kong in about a month. It has become the focal point of my travel plans. Flights going via Hong Kong have become cheap. And breaking my trips is worth-while in this extremely efficient city, where I am out of the airport a short time after my arrival. And, yes, as should be the case, I hardly ever wait for my luggage to arrive on the carousel. I am registered to enter the city using the scanning machine that citizens use, which makes my life extra easy.

While I am here to attend conferences and meet companies, I have spent most of my time watching protesters. I have even worked out where to find them next.

The situation of Hong Kong puzzles me. I have vacillated between being for and against the protesters.

I admire restraints China has shown and that it has avoided interfering in Hong Kong. Given the rapid economic and social changes I continue to see during my frequent visits to China, I am very optimistic about its future.

I also hugely admire the protesters in Hong Kong, who have no central authority, operate through distributed intelligence, are very well-organized, very disciplined, chivalrous, focused on high-leverage ways, and well-behaved. I admire the resilience and integrity they have shown to fight what they see as tyranny. It is not easy to defeat them.

I also admire Hong Kong police, who have been worn down by the protesters, for continuing to be as calm as is humanly possible.

There is a legitimate fear among Hongkongers that in 2047 Hong Kong will be fully incorporated into China. What they are failing to see is that China is rapidly becoming a prosperous, stable, and increasingly open-minded country. Given this, does it make sense to worry about 2047 now? Moreover, Hong Kong protesters have demands, which, if implemented, will certainly worsen it now, not later. This is the reason why I don’t like the ongoing protests. That said, when I am at a protest, I cannot avoid shedding a few tears watching the energy, passion, focus, and organization of the protesters.

Hong Kong is starting to exemplify what a non-statist society can look like. Given the pressure on the police, there is likely no police available for affairs other than to deal with protesters. Tourists and girls, however, walk around without an iota of fear, even in areas where protests are happening. Today’s Hong Kong is a living proof that a reasonably enlightened society does not need policing and central control. Citizens police themselves.

Whatever happens, Hong Kong will stay my favorite “country.”

In this video, protesters are throwing bricks on the road to obstruct traffic. At the same time, some people are removing the bricks. Both sides are acting oblivious to each other as if this were a voting system. In any non-East Asian society, a fight would have broken out between the opposing sides. How can you avoid being impressed with Hong Kong? 

I have many videos of the protests, which I intend to show during my speech at PDAC in Toronto. But here is one from 22 December 2019, when there was a massive demonstration in support of Uyghur at Edinburgh Place. This location is a short distance from the People Liberation Army’s building, and the seat of the government in Hong Kong. A Hong Kong and a Chinese flag flies there. I was sitting right below where the Chinese flag pole is. Then I saw a kid taking down the Chinese flag. They had an American flag to replace, but the hooks did not match. Soon afterword was the biggest show of strength by the police that I saw. Here is the video, just after the kid had taken down the Chinese flag:

On Investments…

I recently talked with Cory Fleck about a few companies, including Irving Resources and First Mining Gold. Linked is our discussion. (There is a big seller of FF at C$0.24, so I would give a stink order, say, at C$0.22 or lower).

Here are some more companies that I am paying attention to:

  • Core Gold (CGLD; C$0.195): I have written about CGLD in the past. The merger process has taken forever, and one offer has failed. Based on the two offers on the plate, the worst one values CGLD at >C$0.33. I am happy to have to wait, for in my view, the downside risk is limited and upside substantial. And, yes, I am not crazy about investing only in possible ten-baggers, for when you invest based on greed or fantasy, you lose money.
  • Century Sunshine (HK:0509; HK$0.21): This is a Chinese-company listed in Hong Kong. It has a dolomite mine and a serpentine mine. They extract magnesium to make alloys, and produce fertilizers. The ownership of a listed company that Century has (which is a bit of an incestuous relationship though) is worth ~50% more than the market capitalization of Century. Century has a property in China, where they have recently had to discontinue production, given that it was seen to be too close to a city. This property is likely worth more than the market capitalization of the company. On top of all this, Century makes a decent profit from its fertilizer business. Century’s book value is HK$0.82 and P/E ~2.3. I like such small companies where liquidity discourages big players from participating.

If you have trouble buying Hong Kong stocks, it might be worth looking at Interactive Brokers, who provide excellent service and have low-commission for several jurisdictions, including Hong Kong and Australia. They can become expensive for penny-stocks that trade on Canadian exchanges, though. Because Interactive Brokers lets you trade virtually everywhere in the world, any arbitrage that I invest in where the merger is cross-border, my converted shares are also trade-able without my having to worry about what happens if my Canadian stock becomes an Australian stock.

Finally, if you haven’t already booked your ticket for the next Capitalism & Morality seminar, please go to the bottom of the linked page to register. It will be a very exciting day.

Merry Christmas. And wish you a very happy new year.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

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