Tuesday, March 29, 2011

Work Matters

I found out through chance that a former colleague of mine had changed jobs. She joined my old company in early 2010 and was a looker. However, I realized that she was only just that because she did not do the work she was tasked to do. I made it a point to highlight to my supervisor, the glaring absence of work done. His  response that she "did not know she has to do them".

The way I observed, she spent most of the time doing close to nothing, because the productivity charts did not raise an inch. In the end, that female colleague left my old company within 6 months for a new job at ABC Co, just as about they were to fire her. 6 months into ABC, she has left XYZ Co.

What struck me immediately was how someone could easily change jobs within a span of 2-3 years. I knew she told me that she was working as a financial adviser after leaving the university. The spent 6 months with my then company, which was in the media industry. After that, she moved to a transport company before arriving at her current position as a market researcher.

I related to my friend yesterday and he praised that colleague. He said that he admired people who can quit their job without being confirmed into the position for they do not see a job fit. I told him that I agree with his point, but he heard wrongly, because in my example, the former colleague tweedled her thumbs and did nothing else. Maybe some facebook and online shopping.

In my opinion, while I dislike my former colleague for her lack of work ethic, it is the company that hired her, despite knowing that she changes jobs rather frequently that puzzles me. The benefit of the doubt could be that my former colleague is very good at interviews (male interviewer perhaps). She could say that the job description did not match what was done, or that she did the job as a stop gap measure. Or maybe for her qualifications and the salary she was asking for a very low salary, edging her from the other

But from an organizational perspective, hiring a job hopper - defined as changing two permanent jobs within  a year - carries the risk that she will again leave the job soon. The organization would then have to incur costs in searching for a new candidate. Also, if you hire a candidate who does not seem to have a clear progression as to where he or she is going, it may imply that the candidate lacks focus and passion in what he or she is doing. I believe that if a candidate does not have passion, much less a work ethic, then the organization would not be able to harness the revenue or productivity gains that was suppose to come with the hiring.

What are your views on job hopping from either side of the interview table?

Saturday, March 26, 2011

Bought 10 lots of Etika On Friday

Bought 10 lots of Etika International at 33 cents on Friday, bringing the total number of shares I have in the company to 30 lots. Was trying to queue for them at 32 cents but the market seems to be rallying up, having discounted all of Japan's nuclear woes. The purchase should bring my average cost per share to about 24 cents each. Will exclude them for the review due end of the month.

If the cash is not there, does it matter?

Somebody pointed out that for the S-Chips with problem, they were all being audited by Ernst and Young. It could be that they have been directed to be zealous in checking their books, rather than any misgovernance taking place in those companies. But it occurred to me, just before I was about to sleep, that if the cash balances cannot be verified (plus minus one million perhaps?), then all the numbers in the financial statements are just beautiful equations.

For example you have a business selling paper clips. You sell some paper clips that cost $500 for $1,000, but you receive only $500 first, the rest 30 days later, so you will have $500 worth of cash and $500 trade receivables. If you are an investor, which number must be the most real to you to matter? Revenue, COGS, cash of trade receivables?

The answer to this poorly thought out example is, it all depends. A company may fib all the numbers above for various reasons. It may want to inflate revenue so that it can make it look like a growing company. It may over report COGS to avoid paying higher taxes (since it leads to lower profit). And so on. 

I have not been an auditor before so I am assuming that, the only way to verify that the company's account is to check if the cash is really there. This is because a company can fake everything from, invoices and receipts.

However, in the case of the S-Chips, they have taken things to a new level, in that even cash balances can be forged. In one instance, since China is so big, bank officers belonging to dubious banks can be made accomplices to the crime of "cheat the investors".

More needs to be done to protect Singaporean investors. It is one thing to buy a company that has a terrible business, thinking that it will turnaround. It is another to buy into a seemingly good company, when in actual fact, there has been a great deal of financial forgery. However, there can be no commercially viable way to make S-Chips here give investors the assurance that they really have the money in the banks, unless they keep it in a Singapore bank. Till then, we can only say buyer beware.

Wednesday, March 23, 2011

The role of an auditor or why is China Hong Xing suspended

And you should beware the S-Chip

I won't lie to you and say that I do not enjoy bashing S-Chips. The reason that I do not like S-Chips is that they generally belong to crappy industries, have poor and declining ROEs as a result of huge cash piles, as well as a lot of supporters in the forums and the media (particularly small PR companies). I say generally because there are a few S-Chips that have managed to stay out of trouble. COSCO and Yangzijiang are two of them.

Given my dislike for this type of counters, I was taken aback to see that the CFO of China Hongxing, has come out to talk to the media even though the company is still pending suspension and a special audit. In an article written in TheEdge, Kelvin Yeung, CFO of China Hongxing, hinted that the problem might lie in the amount of information requested by the newly-appointed auditors, Ernst & Young, versus what the company was willing to disclose.

There are a few questions arising from his statement. One, why did not the previous auditors ask for the same questions? Two, there must be a way to work out with the auditor that the said material information would not be disclosed? Three, why is the CFO talking to the media rather than doing his job taking charge of financial matters?

The CFO is right to say that the newly-appointed auditors may have been overzealous in doing their jobs, but they are doing their jobs are not they not? Secondly, based on my limited understanding, assuming that the material requested is literally material and may cause the company to lose their competitive advantage, there must be a way that the company or the auditor can work it that it tells the truth without giving away everything. Some manufacturing companies do not present information like margins for certain business segments, but still get an all clear for their books.

Finally, why does the CFO find it necessary to talk to the press before matters are cleared up? If you re-read what was written, the article seems to imply that it is much ado about nothing. Someone can refresh my memory, not so long ago when another S-Chip had this cash issue and the independent director wanted to do a special audit, an executive director actually called David Gerald, the head of SIAS, to tell him that the money is there (which company is it?). While the reproduced article was a thinly veiled attempt to allay investors' aversion of buying S-Chips,  it actually raises more questions than it answers.

The biggest lie is the lie you tell yourself. Buyer beware.

What's with China GaoXian

How long does it take to find out why the stock price plunge? To be honest, I believe SGX can find out the reason faster, than if it were to ask China GaoXian's management. All it takes is just to find out which parties were responsible for the big blocks of shares being sold, and piece that together. On China Gao Xian's part, there really is no need for a halt, because if the person really wants to sell, what can you do? Unless there is material information that is not being disclosed.

Monday, March 21, 2011

Buy on weakness

Maybe the weekend was too long. Long enough for the Japanese to think of a plan to contain the nuclear reactor. Hence, the stock market staged a strong rally even though the Japanese market is closed for a bank holiday. But for some strange reason, the bombing of Libya seems like the stronger reason for the surge in the stock market. I mean, Libya does not even have weapons of mass destruction and going there to scare Qaddafi (that was not their stated intention, but rather a no-fly zone) could give the  America and its European allies reasons to spend on weapons. And at least for Libya, there is no need for ground troops, so another messy Iraq and Afghanistan scenario looks unlikely. So I will say that it is time to buy into weakness as any nuclear explosion has been fully discounted. Unless of course, you are thinking there is another Black Swan appearing.

Friday, March 18, 2011

Sometime Next Week

This has been a very interesting week for the stock market because of the volatility. We have now sunk below the 3,000 level that I have predicted, but in a manner that no one would have guessed it, even by a very long shot. Unless of course you have been living under your basement stocked up with food and water.

It might sound insensitive if not callous, but I guess those who make money from the financial markets, are trying to guess whether the nuclear reactors in Japan will or will not overheat and explode. And to a large extent, most of the funds in the country have left, and that the BOJ has stepped in to fill the vacuum, pumping in as much as 8 trillion yen.

So for those who do not care about the human aspect of the crisis, the next two days will be time for your to glue yourself to whatever news you can get. If the people on the ground can successfully avert a full scale nuclear explosion, then a sharp surge is on the cards. Otherwise, it is going to be about how well the radioactive cloud can be contained. If the people in the region think that the winds will carry too much radiation for their own good, a sharp sell off is in the cards.

My guess is as good as yours. I too will be watching the news to see how the events unfold over the weekend.

Wednesday, March 16, 2011

The Time To Buy Is Still Yet

The earthquake in Japan has caused panic selling but buying when there is literally blood on the streets is not advised. The jitters is caused by fears of a nuclear fallout in Japan rather than the damage done to the economy, and the sharp fall across the region is due to the fact that Japan is the second largest economy and also has a significant carry-trade. And since this means that since the big boys (hedge funds and institutional funds) - are affected,  their holdings mainly in blue chips and large caps will be first to be sold and converted to cash. I will watch a while more before taking action this week to buy stocks but those keeping an eye should look at those that I just mentioned.

Sunday, March 13, 2011

Hey CFO, very free argh?

I think there was only one time that I had email a company whose stock I owned - TPV Tech. The people who got back to me were the investor relations people and they replied me promptly on that same day. Only just did I read about someone doing a writeup because he had access to the CFO. I had to write this because I remember reading some other finance blog about how it bothers him that the CFO can have time to reply to individual emails. His point was that the CFO should be using his time to find ways to cut costs as well as competitive advantages. There is of course nothing wrong talking to fund people or the media.  In the latter, it can help improve valuations without really having to do much, due to greater awareness. For example, if the Business Times writes something good/bad about your company, you are sure that the volume will pickup. But if any Tom, Dick and Henry can get the CFO's attention, then I guess the company's priorities might need some re-ordering. Case in point, how often do you see Wilmar's CEO, Kuok Koon Hong, doing a full interview. For that matter, Wilmar's CFO? If I remember correctly, the last full exclusive interview was done probably 2-3 years back. Correct me if I am wrong.

Wednesday, March 9, 2011

Local Stock Market Not Attractive?

It is getting harder to invest in the local stock market, while expecting a decent return (more than 10% excluding dividends) for a holding period over 1 year. The low hanging fruit have all been taken.

However, my feelings (yup, my feelings) tell me that I have and need to buy stocks. At the back of my head, some part where my feelings are stored, a little voice is telling me, "you are missing out on a good opportunity!"

But this is what I see. The Straits Times Index is currently trading at about 1.8 times book value and 15.9 times earnings. PE-wise, this as close as the historical average as it can get, plus minus 1 times, or an up and downside of 6.3 percent. The logical part of me tells me that all things equal, the risk-reward ratio is not there for the stock market as a whole.

What about picking individual stocks? So far, most of my stock picks have crumbled like the broader stock market. In terms of what I have in the portfolio, some of them, like Etika International, have taken a walloping. Interestingly though, my stock screen has churned out stocks like Boustead, Kingsmen and Etika International as good businesses at cheap prices. I dare not bite. Yet.

Do you have any good businesses at cheap prices you would like to share? No S-Chips please, I am allergic to them!

Sunday, March 6, 2011

Kenneth Fisher recommends buying Keppel Corp

You have to read it here to see it. This is quite a first for me, seeing a foreign columnist recommending Singapore stocks.

Saturday, March 5, 2011

A Hub For Serious Investors

Peter Madhavan was recently handed a jail sentence for his role in misleading the SGX. Charges were filed some time in 2007 but the sentence was only passed earlier this month. This reminded me of the alleged insider trading by an asset management fund here. The said insider trading occurred some time in 2004 but a verdict was also passed recently. Now, if an S-Chip submits financial statements that were knowingly false, misleading the SGX, how long do you think it will take for the case to be heard in court?

Wednesday, March 2, 2011

The 'magic formula' still works - but be careful to not follow blindly

Teh Hooi Ling Senior Correspondent
4 September 2010
Business Times Singapore

Updated study shows highest ROE/PTB stocks yield best returns, while stocks with low ROE and high PTB are toxic

IN cyberspace, words or ideas have a life of their own. You see, sometimes my articles get picked up by some investment blogs out there. And AsiaOne, the online portal of Singapore Press Holdings, also puts up some of our articles on their pages. So occasionally, I receive e-mail messages about articles published years ago.