Portfolio sinks on rights issues, penny plays

I realised how difficult it was to show what was the current score of the portfolio and decided to lump all the stocks that were held since the start of the year with those that were recently acquired. It does not look good.

YTD unrealized loss: SGD 12,936
YTD unused dividends/gains : SGD 167
YTD portfolio value: SGD 39,361

In another words, I am down 25% for 2011!

Most of the losses were from Etika and GMG Global, the latter has gone XR and so the price is really low. I have to cough up about SGD 1,840 cash for GMG Global's rights.

There will be some money coming in for me in 2012 February, once the acquisition of the remaining C&O shares get completed. The surprising thing was that the offer price will be adjusted for the dividend paid out. In any case, this will be factored into my profit and loss.

It has been a very humbling 2011 so far. I hope that there will be a strong finish.

Bear markets makes clear purpose of stock exchange

In a bear market, the reason why a company sells stock to the public becomes clear: to raise capital by all means necessary. One way has been to sell stocks in a company that does not have the money there and then runaway after you have been found out. The S-Chips are most guilty of doing that, as the down turn called their bluff. Fortunately for them, Singaporean investors go in with their eyes open and hence not very well protected.

Another way is to issue a rights issue. This has happened to myself a few times this year. Companies that already have billions of shares floating and trading in the pennies, have asked for more cash by issuing more stock. Some like GMG Global have a better story. Others like Stratech are tapping shareholders for more liquidity. The end results is likely the same: once too much shares have been issued, they are consolidated.

The final way is to take the company out of the stock exchange. Consider for a moment, when a company lists itself on the exchange, what is it really selling? A shareholder who owns 10% of all outstanding shares does not get all the earnings of the company, but dividends which are a smaller fraction of that amount. Thus, an IPO makes the existing shareholders very rich on paper, and they can realize it by selling in the open market bit by bit. Then in a bear market when valuations are depressed, they can take them private by claiming that they are unloved. Usually, a company that is making very good gets taken public this way. And if things do not work out possibly in the future, take them public again!

Bought Noble Group 3 lots @ $1.21

Tapped SGD 3,000 in cash and some of my unused dividends to buy 3 lots of Noble Group at SGD 1.21. I think the stock still has some legs despite its precipitous decline in stock price after announcing its third quarter results.

My investment thesis is simple: Noble is a good stock with a good business model but has management succession issues. I strong believe that the stock is oversold and that the market has over reacted on its first quarterly loss in a decade.

That said, the guy on the right will have to find the right guy to take over the commodities giant. After hiding in the background for two year, Richard Elman appeared to the press saying he was "unhappy". At the moment, they are looking at getting an ex-Goldman Sachs guy to takeover the position. I would think such a move be extremely short sighted.

I will wait at least three quarters if its results do not improve before selling off. This is probably my first opportunistic buy with almost minimal research. That said, the total capital invested rises SGD 28,000.

Portfolio Major Corporate Updates - Part 1

Asiatic Group
1H12 revenue increased 3.9% but earnings fell 27.7% to SGD 0.8 million. For both the biomass project in Malaysia and hydro project in Vietnam, construction has commenced and project financing of both projects are undergoing negotiation and an update of the progress will be made known in due course.

Action Asia
9M11 revenue fell 37% while earnings fell by more than half to SGD 9.0 million. The company said that problems in Europe and US will cause electronic consumption to remain tepid.

Auric Pacific
9M11 revenue inched slightly higher by 0.7% while earnings rebounded to SGD 9.7 million, from SGD 3.1 million a year ago. The sharp gains resulted from the divestment of a project in Shenzhen China.


Biosensors International
Plenty of news coming out from drug trials, which were unsurprisingly positive. 1H12 revenue increased 72% while earnings grew to USD 45.5 million from USD 11.7 million a year ago.  Due to its acquisition of the remaining shares in JWMS and other reasons, the company has guided FY12 revenue to be 70-80% higher year-on-year.

C&O Pharmaceutical
Suspended. Will be taken private and details of the compulsory acquisition of the remaining shares will be announced by November 30, 2011. 


China Animal Healthcare
The company has said that it might restructure its shares such that they are all listed in Hong Kong, contrast to the current dual-listing. 9M11 revenue increased 33.8% while earning increased 84.2% to RMB 174 million. The strong increase in earnings was due to the surge in biological drug sales. The company warned that the subsequent fair value adjustments on the derivative financial instruments relating to the conversion option component of the convertible bonds may adversely affect its results.

Elite KSB
FY11 revenue increased 5.5% while earnings dipped 2.6%. The company said the cost of live chickens increased significantly in the second half of the last financial year. Also, the Australian dollar also strengthened against the Singapore dollar in the same period, resulting in higher cost of chilled pork. If the trend continues and we continue to be unable to pass on these cost increases to its customers, its performance for the next 12 months may be adversely affected.

Etika
9M11 revenue increased 30.1% while earnings fell 32.7%. The decline has been attributed to the higher cost of goods sold, which increased 39.4% for the first nine months of its financial year.

Investing though insurance policies

My friend G met her friend R. G has been working for three years as a civil servant while R currently works as a financial planner. G told me that after her meeting with R, G felt is seriously considering buying a policy which covers 15 years and costs about 300 dollars a month, including some riders.

I told G that 300 dollars a month is a significant commitment and that if she bought a pure protection plan, such as term insurance, it need not cost that much. After a few iteration of the discussions, it appears that G was interested in using the policy to invest her money.

As a person who invests in stocks directly, first I told her that her friend R would benefit most from a protection plan that had a return component. Second, I told her that investing directly in the market would get about the same returns, if done correctly.

Did I exaggerate here, that if we were to invest in the correct manner, we can get better returns than through the returns of an insurance policy?

I do not think so. G herself admitted that she knows that investing though the insurance plan would involve multiple layers of transaction cost. A John Bogle pointed out, it is these costs that eats into the returns from a portfolio. However, G is not confident of investing on her own and possibly such a scheme might enforce discipline. 

Well, I guess everyone's approach to investing is different. But I strongly believe that we should not mix protection with investment because it confuses you to the benefit of the sales person. If you want to insure yourself, get a term insurance and the related riders. If you want to invest, use an online brokerage and stick to ordinary stocks. An insurance is a long time commitment and my own experience tells me that even when you realise that the returns are poor, you are averse to quit, because you do not want to realise that loss.

Can I be a risk taker?

I have a copy of the Straits Times but I have yet to finish reading the article (on pages 2 and 3), because I did not bring down that front section for my breakfast routine.

A possible summary of the report would be how some young people dabble in stocks and derivatives and made it big or burnt their fingers. The catalyst for this story would have been the collapse of MF Global.

There is nothing wrong with investing in anything. But the article seems to glorify these group of not so old adults (smell jealousy?). There is nothing wrong with glorifying them for taking market risk, but I understand from the profile, that they tend to be from well-to-do families. Also, a repeated theme has been that some of them started trading in shares on their parents account. What is that suppose to imply?

I will go read the article slightly later once I finish watching my online programmes. Share you thoughts if you have read it.

Is SIA's Scoot a good idea?

scoot is Singapore Airlines (SIA) budget carrier. This is a response to the competition posed by other low cost carriers such as Tiger Airways and Jetstar. In my opinion, SIA's move into the budget segment is not a good idea because it will confuse customers and is a sign of a confused strategy. SIA should continue creating value for existing customers and new customers who want the SQuality and premium. This has been SIA's competitive edge.

Of course by having scoot, SIA would have an additional stream of revenue. Budget air travel is a growing market. I myself only travel on SQ for business purposes and find it much better than either SilkAir or other budget carriers.

However, it is likely that this venture will not work out well because it does not gel with SIA's current competitive edge. For instance, how are you going to convince your own staff that working for scoot is better than SQ, which is a carrier by the same company? The lack of motivation may result in a reduced customer experience, even for a budget carrier.

Therefore, I would think that it is likely that the low cost carrier be unprofitable going 2-3 years in the future.

screwed my blog up

Wanted to try the new templates but ended up deleting the poll results. Given the circumstances, will have to migrate my blog to another address, leaving this one intact for archival purposes. My apologies!

Updated

From January 1, 2012, please visit http://investorsingaporean.blogspot.com/ . The old blog will remain intact but all the updates will be done on the new one. I will only migrate the pages to the new blog, but not the existing posts.

100 connections on LinkedIn

I recently reached 100 connections on LinkedIn, when a very senior guy in the oversea office invited me to join his network. For those of you who do not use it, it is like FaceBook but for professional networking purposes. 

Instead of telling people your emotional issues, what you do for LinkedIn is that you post your career and education experience on a profile and you go around adding people. The idea behind it is that you may find someone who needs you expertise and vice-versa, which may lead to business deals or jobs.

For me, I just like to read people's profile online. Some of them are really great in that they are highly credentialed. You should join LinkedIn too if you like to network professionally,

Go go Biosensors

 Things have been going well for Biosensors International. It recently announced another good set of results for the second quarter ended September 30, 2011. Revenue for the quarter increased 71% due to higher product, licensing and royalties revenue. This helped drive earnings to USD 23 million.

The company announced that it had completed the proposed acquisition of the remaining 50% in JW Medical Systems. This has been an extremely protracted process due to the regulatory approvals needed and with its completion, will allow Biosensors an effective channel into the Chinese market.

Its share price has responded positively to both consistent earnings growth and corporate developments, gaining more than 20% on a year-to-date basis.