This article first appeared in our October 2012 issue.
In celebration of our 10th anniversary, we put together for you in this issue some of our most memorable articles.
Cheah Cheng Hye, alumnus of Penang Free School, has been called the Warren Buffett of the East. Although he claims that gives him way too much credit, the reasons why he is one of Asia’s most respected fund managers are many.
For one thing, Value Partners Group Limited, the asset management company he co-founded in 1993 and in which he is the largest shareholder, is the biggest of its kind in Hong Kong. It is also the first and only one listed on the Hong Kong Stock Exchange. This took place in 2007, and the turbulent times since then have been a great challenge to him personally, since he sets the Group’s overall strategy.
But the hard times have been weathered. Growth over the last two years has been impressive. The company now has a market capitalisation of HK$6.1bil (US$782mil) and employs about 150 people. It manages more than 30 funds and has offices in Hong Kong, Shanghai, Chengdu and Taipei. Its clients are mainly global institutional investors.
In October 2010, Cheah was named one of the 25 most influential persons in Asian hedge funds by Asian Investor. This came on top of an already impressive list of awards. In 2003, he was already voted the “Most Astute Investor” in The Asset Benchmark Survey; and in 2007, Finance Asia recognised him as “Capital Markets Person of the Year”.
In his business, a good reputation is everything; and Value Partners has been raking in awards since the very beginning. It has won 70 performance awards so far – I repeat, 70… and counting.
Ooi Kee Beng: What anyone would want to ask you, and of course I would as well, is, crudely put, how did you – a Penang boy with humble beginnings – become so successful in the tough world of assets management?
Cheah Cheng Hye: I never went to any business school, so in some ways, I can say that I was free from business school indoctrination or thinking. However, I have always had the advantage of being a voracious reader as well.
I was self-taught in different disciplines, in that sense. But then, the thing about the late 20th century and the 21st century now, is that we live in very open times where information is concerned. If you have the curiosity and the passion, you can find the answers.
To me, the great minds in value investing are people like Prof Benjamin Graham, Warren Buffett and John Templeton, to name just a few. Their ideas and their books were easily accessible. Simply having the interest and the passion, I was able to access what they know easily, literally for a few dollars.
I had the good fortune to practice on and make my mistakes in a market that was very young, that people like me were not killed off despite my mistakes, and I was able to start a fairly large business. The environment then was a very forgiving one.
All this started in 1971. I was in Form Five then, in Penang Free School. In December that year, I began working for the Penang newspaper, The Star. The Vietnam War was raging at that time, and the US was running huge deficits. President Richard Nixon took the dollar off the gold standard. In the old days, you could only print a certain amount of currency based on the amount of gold you had in the Federal Reserve.
But after that time, the US was free to print as much paper money as it wanted to. Other countries quickly got the idea and followed suit. There was no more discipline left in the monetary affairs of the human race. All of a sudden, we could create huge quantities of money and huge quantities of credit, and buy huge amounts of things on leverage. It was an unreal world, and the party lasted approximately from 1971 to 2008.
And that is practically the summary of my own career [laughs].
This is why I keep saying that I am among the luckiest people ever. So much of what we did was not due to us being smart but to timing – to our starting our career at the right time and riding the wave.
Now when the party is over, we know that the system was a huge manipulating machine that produced huge quantities of paper – we can call it loans, credit, deficits, bonds, mortgages.
But they were all paper prints and IOUs created for many countries in the world to have a very enjoyable party. They ran up huge debts that future generations could worry about. Our times were not going to worry about it.
But in the 21st century, it became clear that there is a limit to the game. People with credit, people growing old, etc. began asking some very awkward questions. And so, the financial market crashed. But by then, my generation had already made our money.
We made so many mistakes; we were on a very long learning curve, experimenting with ideas we had picked up from books, or learned in school. Had the environment been less forgiving, we would not have survived. Not only did we survive, we prospered.
So what I want to tell you is that 50% of my visible success is due to external luck, not to me being very smart. Having said that, the rest is due to effort and hard work.
I had a strong passion to study, a total devotion and faith in investing, and a passion for the value investment discipline.
Given that you were a boy from poor circumstances, your self-confidence must have been enormous for you to have such staying power and to have come so far.
Confidence is not the right word. I would attribute it to a “nothing-to-lose mentality”. Since my dad passed away when I was nine, I had felt that I had nothing to lose taking on anything at all. Even in those days, for a Penang boy of my means to come to Hong Kong was quite a mental exercise. We are islanders; we are very conservative.
I left Penang in 1974. I was 20 years old, and had never left Malaysia before. Within Malaysia, I had only travelled to Kuala Lumpur twice. It was considered brave, and maybe foolhardy to do it.
At that time, one of the subjects I loved reading about was the British Empire. We were part of that empire until 1957, and the headmaster of Penang Free School during my time as a student there was the first non-White head of that esteemed institution.
I must say I was inspired by stories of how young Englishmen, maybe 21-year-olds, would be sent out to British India to become district officers and such. And they would run the place, lording over hundreds of thousands of people, as judges and what not. Their previous experiences would have been nothing like what they got themselves into. So I thought, if those guys could do, then so could I.
So, maybe you are right. It is self-confidence, isn’t it? The British Empire did inspire me a lot. I wouldn’t have said that in the old days because I was very anti-colonial in my general outlook, and did not feel inclined to admit it. But there was definitely something there.
You can take the case of Quebec. Now that place was French to start with, but the English General James Wolfe climbed the steep cliffs undetected and engaged the French Marquis de Montcalm at the Battle of the Plains of Abraham. This was in 1759. By doing the unexpected, Wolfe captured the place, though at the cost of his life. That inspired me greatly. I felt I would have wanted to do the same thing – do the unexpected, the heroic, and capture the situation for my country and for my people.
But what I found most unacceptable in colonialism was the racism embedded in it, and realised what a disaster it was for my people and for me.
I read a lot in Penang in those days, making use of a lot of the free libraries that were around back then. The school library was very bureaucratic, sad to say. But in those days, Penang kids had access to the Penang Library, which was on Farquhar Street then; we had the USIS Library and the British Council. These had excellent books.
I was an inhabitant of those libraries. I would stay there rather than go home. While my body may have been in Penang, my mind was always someplace else.
My main point here is that so very much depends on fate, or luck. I happened to be born in the right place, in the right year, and at the right time. That has carried me very far over the last four decades.
I went to Westlands Primary School. I have two siblings – a sister in Australia and a brother who runs a travel agency in Penang. My father was a bicycle repairer, but he was also a minor bookie. My mother has always been a housewife. She is a very tough woman.
Although the family was not of means, I never felt deprived. People around us were no doubt very poor. Many were food hawkers, and there were gangsters about who would seek protection money. No one in the area would have felt that they were rich, so I never felt out of place. The richest person around was a guy who had a motorcycle and went around selling Milo chocolate.
There was no need to pity others or oneself. There was no sense of entitlement, which seems to be the case nowadays all over the world.
In fact, I was very driven. I was and am a very organised person. Self-teaching means that I schematically work out what I need to know and to learn, and then I just obtain whatever knowledge and skill are required.
For us, life was not simply for enjoying. We were to make something out of ourselves. I was always a man on a mission, strongly self-disciplined.
You were a financial writer with the Asian Wall Street Journal and the Far Eastern Economic Review, reporting on the East and Southeast Asian markets, were you not?
Half my career was in journalism. I left that exactly at the right time, in 1989, to join the Morgan Grenfell Group and start its Hong Kong/China Equities Research Department. That year, the Tiananmen Incident took place, and the market here in Hong Kong collapsed. The China market was at its worst, and embargoes were being slapped on it. But as you know, it soon rose to become what it is today. And I went into it at the worst time, against the advice of everyone.
One could say that I rode the elevator from the bottom floor up to the very top. The good thing about being poor and not having a good education is that there is hardly any downside. You have little to lose.
Looking back now, I will say that Penang back then was a good place for breeding world-class human capital. This is my strong belief to this day. If I were looking for talents, I bet that I could have found what I wanted in Penang. This was due to a combination of good education, strong achievement and work ethics and a culture that placed emphasis on doing your duty and respecting scholarship. On top of that, it had the “advantage” of falling on bad times after being rich. People where hungry for success.
The libraries were important in my case, as was the museum. The school support system was also critical.
Being a place where East and West meet has also been a great advantage for it. We did not have to spend too much time trying to adjust wherever we went. I was already on my first date after one week in Hong Kong, and I am Hokkien. I didn’t speak Cantonese.
I stayed in the worst possible place after coming to Hong Kong, Chungking Mansion. It was a boarding house and is known as Little India today. I didn’t need to adapt; I was in my element, in fact.
Will you be writing an autobiography anytime soon, about your childhood in Penang and your success in Hong Kong?
No, not yet. My work isn’t finished yet. I may get down to analysing my life in 10 years’ time or so. Right now, I want to take Value Partners to the next stage. Because of the exceptional growth in East and Southeast Asia, we are very well placed to make the company a world-class fund manager. We have that historical opportunity, and I want to make the most of it. We are two-thirds of the way up the mountain as yet.
I get the sense that you, living here in Hong Kong, and working with China, see yourself as being part of a historical process that started in the region with the Opium Wars, through which China and the whole of East and Southeast Asia is trying to gain, or regain, whichever the case may be, a stature and position it can be proud of. Am I right?
Yes, that is certainly true. I do feel that. However, the problems are many still. I do worry that moral values in the region will deteriorate further. We all live on the same planet after all, and we should fight the falling of lived values in our time and age.
Personally, I would very much welcome a revival of Buddhist values in China, for example. I am very much a philosophical Buddhist, one that does not accept the supernatural bits. I meditate two to three times a week before going to work, just to clear my mind. It’s all a part of my lifestyle; it’s not something I think about much. Other than that, I exercise a lot in the gym, and I am also a founding member of the Hong Kong Book Club that meets once a month. So, basically I am the same guy as before. I haven’t really changed. I am not someone who has hobbies and engages in what others may call leisure activities.
Being from Penang, being based in Hong Kong and being English speaking, people like me are more approachable for businessmen and investors from outside the region who feel that the Mainland Chinese are too powerful and threatening.
We are sympathetic to the West and to many Western values, and we believe in mutual understanding between Western and Eastern countries. We are not faking it really. The world needs liberal values.
Tell me something about how you manage your company.
I practice Buddhist ideas. Whenever I make decisions, I try to keep my ego out of it. When I think about an investment, I try to remove the “I” from the equation. Buddhism does teach us that our worst enemy is our own ego.
When I work, I must also place myself as a person checking on that work. This self-check is important, and after 40 years of doing that, I am now very good at giving myself critical feedback. I do that even when talking to my wife. She runs a school for autistic children.
Whenever I deal with people, I am very engaged and very focused. I believe you would have noticed that.
Yes, I have noticed an intensity in you. I suppose it to come from your meditation. You see Buddhism as psychology and ethics, I gather.
Yes, I do. You summed it up. That’s what it is – psychology and ethics… a certain commitment to good values, although without the religious content.