My First Few Pots of Gold
My First Pot of Gold
While in college in London, I saw that many fellow international students could not afford to travel home or even tour Europe. Air travel then was horrendously expensive, especially for Asian students who had to convert their home currencies into the then-mighty sterling.
To meet this gap in the market I decided to set up an aircraft chartering business. I started Inter Asia Travel in 1967 with GBP100 – which was all I had then – and within three years, established 12 international offices with 300 staff.
As I had to raise thousands of pounds to pay the deposit for each air charter, I decided on an unorthodox method to raise funds – playing poker in a London casino. Somehow, I managed to win a few thousand pounds which I immediately put down as deposit for the aircraft. I was in business – the boss of an airline who did not own any aircraft. Soon, I was flying students to and from Asia and England and organising tours to Europe.
Over the next few years, each time I ran out of cash I went back to the poker tables. (I certainly don’t recommend gambling; in fact, I have not stepped into a casino for years. One of the photos shows a birthday cake in the form of a poker card table which my daughter Maryann baked for my 65th birthday.)
Inter Asia expanded quickly and had regular flight schedules. It had a reservation network spanning eight countries and had ground staff at the main airports that it operated from. But we were starting to hurt the major airlines, and they struck back. Most airlines then were run as national carriers who negotiated landing rights through their governments. Soon, Inter Asia was facing serious difficulty in securing landing rights and many flights had to be delayed or even cancelled. We handled one crisis after another.
It was under these circumstances that I decided to sell Inter Asia to a Malaysian buyer who could handle the landing rights problem better than me. And so, in 1972 and five years after starting the business, I sold off Inter-Asia for GBP500,000. That amount, adjusted for inflation, would be approximately US$100 million today.
Out of circumstance and necessity I had set up a new business which had not been done before. I had succeeded as a foreigner in England who went on to own an international air travel network. After the sale, I was all of 26 years old and felt very rich from my first pot of gold. I was also very stupid, as I would go on to lose every penny of it.
Losing & Finding Second Pot of Gold
While running my air charter business, I began dabbling in stock trading. A broker approached me and I gave some orders and made money. After selling Inter Asia and making some money from stock trading, I think that at the peak I was worth over GBP700,000, a princely amount in the early seventies. In 1973, with nothing much left for me to do in Britain, I decided to return to Hong Kong. I had married Mabel, a Malaysian student who had worked in Inter Asia, and we were starting a family. What would I do after chalking up 16-hour days running the air charter business? I decided to trade stocks full time.
In the market crash of 1973, within months of my return to Hong Kong, I not only lost all my money but – because of margin trading – owed the broking house HK$3-4 million. I asked the owner of Winfull Securities, Mr Woo, to allow me to take the lowly job of order taker while I slowly paid him back from my salary. Hurt by the losses but somehow determined to make it all back, I bought or borrowed every available book on stock investing and trading that I could find. I must have read at least 50 books, and devoured countless articles in newspapers and magazine – in English and Chinese.
Better prepared and having understood the importance of risk management, I returned to trade and was slowly making a name within the securities house as a stockpicker. Soon, Mr Woo allowed me to carry out proprietary trades for the house, and split the profits. With my share of the profits I paid off all my debts to Winfull Securities.
One day, after settling all that I owed, I asked Mr Woo to recommend me to secure a stockbroking license. I was successful in my application and established Asset Securities (HK) in the late seventies. Within five years it grew to five branches and pioneered day trading, liquidity and momentum trading; technical analysis in Hong Kong.
When Margaret Thatcher announced in 1982 that Britain would return sovereignty of Hong Kong to China by 1997, I sold off Asset Securities to relocate to Canada with my young family.
To this day, I count it a blessing that I lost my first pot of gold in stock trading. It shook me up to realise the importance of risk management and understanding of trading fundamentals. It also opened my door to the finance industry, in particular the equity capital markets. Over the next few decades, I would go on to own finance and credit card companies and to have the honour of owning and two financial institutions in the United States – an investment bank and a commercial bank that was once ranked as one of the best run in America.
A few years ago, on a quiet day, I decided to add up my total financial losses over the decades. These included failed ventures, wrong investments and companies which I sold way too early. These were losses from my mistakes made around the world. I can only blame myself for them. After an hour or so I simply could not go on – it was running to hundreds of millions of U.S. dollars. I was overcome with a combination of sadness, regret and anger with myself.
I have long made peace with myself. The sands of time have a way of mellowing a man as he takes stock of his life as a grandfather in his 70th year. At this time in my life, I really don’t care much about the millions more that could come my way. There is only one unfinished business in my corporate career, and because I essentially control only one publicly listed company – HengFai Enterprises Limited, which I refer to as “185” after its Hong Kong listing code – it is important that I share my thoughts about this unfinished business.
In 2013, shortly after 185 sold its remaining stake in Singapore-listed SingHaiyi Group Limited (which was our property development arm), I again analysed the mistakes made. But this time I asked myself only one question, “if there was one business decision I could make that would change things for the better, what would it be?” I huddled down with my senior management and we came away with a very clear analysis of 185’s two main problems.
The first problem was that as an investment holding company, it had very lumpy earnings. If it disposed of an asset, it booked in a lumpy one-time profit (which could be substantial). But then it could end up with subsequent losses the next few years because it had nothing else worthwhile to sell. And not all remaining investee companies were winners. It was like a yo-yo – one day up and one day down. The second problem – much related to the first – was that it could not pay shareholders regular dividends. As Managing Chairman and major shareholder, I could blame myself for the shortcomings of this business model.
You see, because I had done so much corporate restructuring globally over the decades, I started to pride myself as an expert. In reality, I was compulsive about buying troubled companies and turning them around. It would seem like I was doing a good thing. The unintended consequence was that I was disposing these assets each time they had exceeded their fair value. We worked hard to unlock value and when the business cycle was favourable and there was a willing buyer, we became a willing seller. But where was the continuity and recurring income for dividends?
Because I was so attached to restructuring and timing markets I did not see the wood from the trees! When I finally saw through the weakness of 185 – and myself – the epiphany was like a bolt of lightning. I quickly set in motion our biggest strategic shift of 185 – one that would also reflect a sea change in my thinking.
The first step was to change the name of 185 from Xpress Group Limited to Heng Fai Enterprises Limited (which we completed on 7 October 2013). Far from some huge ego trip, the real reason for this is to stop myself from selling the company! Even if the price is right, I can’t sell myself!
The second and more significant move was to announce (on 6 December 2013) our new corporate strategy. In brief, 185 will focus on developing housing or medical REITS, initially in the United States, where the real estate market is recovering.
These REITs will be listed and will offer higher-than-average yields while 185 will derive income from managing these REITs directly. To fund this expansion, 185 is seeking dual or secondary listings on international exchanges. This way, 185 will transform from an investment holding company (with lumpy incomes) to a growth company that offers regular dividends. Instead of looking for companies to restructure and sell, we will build a company which can share the fruits if its success with shareholders on a consistent basis.
And it is my hope that this company can truly stand the test of time.