Conversation with Clive Tan, Executive Director, and Co-founder of 8I Holdings Limited

Jan 12, 2017

Q: Tell me a little bit about your background and the background of the business.

I started off my career as a secondary school teacher, and during the time that I was teaching, I was also investing as much as I could in the stock market with my limited salaries. It was then that I learnt and reaped the benefits of value investing. With that foundation, I left my education career after four years and started a childcare business with my wife from the profits of our equity investments and our savings.

Due to my foray into the Childcare business, I participated in an entrepreneurship programme. That was when I met Ken Chee, my current business partner, the other co-founder of 8I Holdings. My interest in value investing continued to grow and we started an investing interest group soon thereafter realizing our common interest. We would get together every month either in my office or Ken’s office to evaluate investment opportunities. During the financial crisis in 2008, we saw the opportunity to buy into an undervalued market and that was when we decided to start 8I to educate the public about value investing.

Q: Do you feel that your background in education is helping you to pass on the concept of value investing?

I think my teaching background has supported me in the way I transmit the knowledge and know-how to our education participants. But it was also the experience during my time as a teacher that gave me the confidence and certainty that even when you are an employee and working for a salary – which most people in modern society are – you are still able to hit a million dollars if you invest intelligently and do your homework diligently. When I was teaching, I did my mathematics and it was very clear to me then that I would be a millionaire when I hit between age 45 and 50 if I continued investing the way I did. This reinforced my belief in value investing and my conviction that our programme will help a lot of people to attain their financial goals.

Q: What is 8I Group’s value investing methodology?

In terms of methodology when we first started off, we were researching the companies with primarily a quantitative focus. That means we looked a lot more at the figures and financial results, but often the financial results and numbers on their own do not tell the full story of a business. Over time, we came up with our own methodology which has evolved to include more qualitative considerations. We focus on the management and industry prospects much more deeply, because these are the underlying causes of the financial results of a business. As we continue to look more in depth into various companies and businesses, our methodologies in evaluating companies have also evolved, especially regarding public-listed companies. As these companies must disclose public information, there is an opportunity to actually probe further, even into possible fraudulent cases where the businesses are not reflected and presented accurately. This does unfortunately happen from time to time. When we first started with our quantitative methodology, it was actually easy to miss the fraudulent cases if we were not careful enough. A lot of the financial figures and numbers can be made up, and in order to have full picture of what’s happening within a business, we have to reconcile both the numbers and the actual operations. We now have a more refined investment process to evaluate businesses and sift out a number of these cases as our investment portfolio has grown substantially.

Q: How does one maintain a sustainable portfolio? 

In order to build a sustainable portfolio, the underlying asset must be sustainable. For example, a REIT is much more straightforward and easier to understand than most other investments because the underlying asset - property (hospital, office building or similar that can continuously collect rental) is sustainable. The stock that you’re holding is just a legal document and if the underlying asset is stable and sustainable, that makes the stocks that you buy or the REITs that you buy sustainable. It’s all about the fundamentals. 

Q: How do you select the companies you choose to invest in?

We currently look at two main segments. One is our public investments segment which we call the “Hidden Champions”. These are public companies that are winners in very niche markets. They have the potential to grow into or are already the market leaders of their respective niches and we want to be a part of their journey.

The other is our private investments segment where we look at the growth potential of private and young businesses. We call these our “Growth Champions”. When a public company has grown to a certain size, it’s very difficult to continue to expect them to grow another 30, 40, 50% annually. But for a private company, that kind of growth rate is much more possible, because they are starting from a much lower base. Very often, this growth potential is developed from the acumen and drive of its founders, their values and business model. As the founders of our own business, we realise what often makes the difference in private and young businesses is the founders and the management.

Q: What makes a company promising, in your mind, in terms of potential growth and how do you protect, preserve, or safeguard your own shareholders’ funds?

Apart from financials, we look at their founders – who set the tone of the company – we look at their integrity, their character, their intelligence, whether they are smart in the way they do business in their area, and also their energy levels. We understand that all businesses have their own issues and problems, but the challenge and what makes a company different from the rest, is whether they can surmount those issues that will keep arising.
 

For Growth Champions, we use the 3Rs methodology to make our assessment. The 3Rs are:

  • Right Business
  • Right Management ; and
  • Right Financials and Valuation

We will look at the industry that they’re in. If the industry is something that we foresee to have future growth potential and gels with our view of what the future will transform into, then we would want to invest in them, especially if we can invest at a very early but fair valuation stage.

We take due diligence very seriously. Before we go into any investment, we look at the business model itself and also the management – these two are the main drivers of business success. Our due diligence process often includes the team’s understanding of the business, research into the industry, comparison with industry benchmarks or competitors, and other indicators such as background checks.

Once they pass the initial due diligence and we are invested in them, we put in place a shareholders’ agreement that will safeguard our interests, such as making sure that the accounts are reported monthly or appointing our selected auditor.

Q: How are you helping entrepreneurs, your customers who already have a good business background or understanding?

We have our own ideas, knowledge and experience and together with the relevant professionals, put them together into a programme called Capital Precession Programme (CPP) that presents our own and relevant professionals’ experiences for the business owners and entrepreneurs.

In CPP, we advocate and pass on good business practices that are not just about building up a business, but also getting it ready for potential listing, or at least the stage where it will meet the various listing criteria. We examine different business models in different industries and share them with the participants so they can evaluate, and consider using some suggested practices with a few tweaks to improve their own businesses.

We also share insights with these businesses on subjects like how to assess the value of your business, how to build your brand and corporate culture, how to execute effective marketing and implement compliance processes. CPP is a thought leadership program which also provides a platform for the business owners to network and get connected. As a business grows bigger, one of the biggest challenges that entrepreneurs face is human capital management. Being a homegrown enterprise that grew from just Ken and me to what we are today, we are able to share with our fellow entrepreneurs not just from an academic or theoretical point of view, but more so from an experiential point of view.

Q: Are you grooming yourself as the Berkshire Hathaway or BlackRock of Asia?

That’s the model we are looking at. In life, we all have role models and without role models, I think it’s very hard for a person to just discover their own path – it’s the same for a company. As a company, we are especially inspired by Berkshire Hathaway and also Blackrock, because they both took on a much more active role in terms of private investments, as well as how they structure their dealmaking. We also look at how they run their businesses, the letters to shareholders by Buffett, the values he advocates, and adopt those practices which we think are relevant to our company.

Q: Tell me about 8I Group’s Millionaire Investor Program

The Millionaire Investor Program (MIP) is the very first programme that we started in 2008, and today it remains our flagship and best-selling programme. It is called the Millionaire Investor Program because for a person to truly retire, especially at the age of 65, with all factors considered, they will need at least a million dollars. But people don’t realise that inflation is going to eat into that million dollars. They might be looking at a million dollars today to comfortably carry on with their standard of living but when we talk about 30, 40, 50 years down the road, their purchasing power would have been reduced tremendously. What this programme does is share with participants what we strongly advocate: doing good financial planning for themselves, such as paying themselves first, and how to look at companies to invest in.

Q: What other financial education platforms does 8I Group have?

One of our other programmes is the REITs programme, which is actually run by one of our business associates who attended our programme himself. In addition to passing him our knowledge, we learnt from him that at some point, especially for people who are a bit more senior, many of our education participants want to have more passive and dividend income. A REITs structure or investment is a very straightforward structure to address that need because the underlying asset is real estate which we are familiar with, based in Singapore, and located in places where property prices tend to go up because of lack of supply for the majority of the REITs in Singapore.

Besides that, we now offer our Millionaire Investor Programme in Chinese, to capture the large pool of Chinese-speaking participants. We also run our youth programme called Grow Your Dollar Sense, which I’m very proud of. It was advocated by 8I’s internal team members who started the entire process including planning and execution, without our intervention or interference.

Q: How difficult is it to teach financial awareness to young people?

It’s definitely more difficult than teaching those who already have more life experience! I always think that in this world, we have about 50% spenders and 50% savers. For those people who tend to be savers, we want to make sure that they don’t just save, they actually have the awareness to invest so that their money can grow. For those people who are spenders, we do our best to educate them about what to spend on, but we also realise that not everybody can be converted. For people to change, first they must have the awareness and understand the need to change. In our case, we don’t simply just teach them in a classroom setting, we share with them using games because games are experiential. From the games, they will gain the knowledge and investing experience in a fun way, the financial concepts will begin to dawn on them and when they are aware of those concepts, they can make a choice whether they want to change or not. This is our approach to educating young people.

Q: Which markets are you most interested in?

If you look at our private investment arm, Asia Pacific is the natural market that we are focused on. From a macro view, the Asia Pacific region still comprises the majority of the population of the world, a region in which many are still living below an acceptable standard of living. Many of them, both businesses and people, are hungry and driven, especially in developing countries, so they have the potential to grow further.

From the private business perspective, the growth and opportunities tend to come from Singapore and Malaysia. If we are looking at public-listed companies, we are spreading our wings further in Asia with positions in Japan, India, Australia, and Hong Kong.

Q: What is 8I Group’s outlook for 2017 and in the medium term?

I am always optimistic about the outlook in the medium term and especially so in the long term. It’s common to underestimate humanity’s ability to innovate and achieve progress. Human beings are, by nature, very linear thinkers – we tend to think in a direct cause-and-effect way – and miss the potential for trends to bring about exponential change. I think technology is going to have a big impact on how the world is moving forward, it is the trend that will bring about exponential change in how we do things in the future, and that is something that I am very excited and optimistic about. In spite of the fact that people are saying we are not going to have enough jobs, I believe that new, creative and productive jobs will be created, new and more empowering jobs will be created, and we want to be part of that empowerment.

About Clive Tan

Clive Tan started his career as a secondary school educator in Singapore. While teaching, the concept of value investing caught his attention and ignited his interest in investments. Within five years his investments enabled him to acquire a struggling childcare franchise and turn it into a highly profitable business, before selling it for a profit.

Clive Tan and Ken Chee identified a strong need in the Singaporean market for education in value investing in 2008 financial crisis, leading to the formation of 8I Education, which is now a part of ASX-listed 8I Holdings Limited (8IH). As a speaker and trainer, Clive has touched the lives of more than 10,000 individuals through numerous educational programs, engagements and at their annual Value Investing Summit – the region’s largest conference for value investing.

Clive is involved in the 8IH’s strategic planning, development and risk management, corporate policies and managing the group’s human capital.
 

About

With offices in Singapore, Kuala Lumpur and Shanghai, 8I Holdings Limited is an investment holding company focused on investing in public listed companies and private businesses based on the principles of value investing. Through 8I Education, it is also one of the leading financial education and training providers in Singapore and Malaysia, supporting its participants to build a foundation of value investing knowledge and methodology.

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