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?

The most recent cases of corporate governance failure have surfaced at S-Chips (again) with regards to their accounts. But most investors in Singapore have given up hope that MAS, SGX or the Singapore Government can do anything to recover their monies. You went in with your eyes open.

On a more positive note, SIAS has made statements likely relating to the events that have unfolded. David Gerald, the president of the organization borne from the CLOB Saga, said something along the lines that if companies have burgeoning cash balances, they should provide reasons why they are not declaring a cash dividend. The other thing was something about trading halts that turn into indefinite suspensions. But talk is cheap.

What is left for minority investors is to avoid the obviously dodgy companies (that statement is subjective of course). These are companies that have high cash balances but do not pay out a cash dividend. Unfortunately, this seems to be most of the S-Chips. The problem of identifying the proverbial unwanted baby, is that some of the dodgy companies do pay a dividend, but the payout rate is very low. The reason for saying so is obvious, we have learnt that it is impossible to verify the cash balances that held in banks in countries other than Singapore.

I was surfing a forum and saw a post touting an S-Chip along the same lines - high cash per share exceeding its market capitalization, margin-of-safety! But what if most of that cash was not there, when the truth is out, like in the China Milk Products case, do you think the margin-of-safety works. Incidentally, there is nary mention of bad news and scandals at that forum, which I think there should. I repeat, when the truth is out, there is a high chance that your money will be locked up indefinitely (you become a long term investor), and you will be left with that baby. And no matter how angry you are with the system or yourself, you will be reminded this: you went in with your eyes open.

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