Wilmar: Why I Lost Money and Regretted

The chart above shows why Wilmar is currently languishing at just above $3 when at its peak in 2010, it was worth $7. After a strong run up, crude palm oil prices have come down sharply. As per the index, the CPO prices were at the 1,300 level in February 2011, but the latest end-September index is 710. The supply of CPO has adjusted to demand and prices hence have collapsed and producers such as Wilmar have a difficult time improving margins. Other producers such as First Resources seem to have de-trended from CPO price levels, but I still think the fundamentals are still weak at the moment. 

I took a big hit on my investment in Wilmar and to a large extent I regretted. This is because I bought the stock because it looked like a discount from its old days. However, the old days, like the VHS, never did come back. That is why good thinking processes must be in place to make sure silly purchases like this are kept to the minimum. Good processes such as understanding the industry's and company's fundamentals are crucial to protect profits. 

Clearing stock and counting the losers - Wilmar, FJ Benjamin

It has been a crazy past few days. After months of inertia, I have finally sold off Action Asia, Biosensors, FJ Benjamin and Wilmar. I have held the first three stocks since almost the beginning of my investing journey, close to 5 years each on average. Wilmar on the other hand, was bought and sold after 20 months.

For this transaction, Wilmar and FJ Benjamin were losers. Perhaps I was too optimistic of the prospects of crude palm oil and hence Wilmar's future. I lost 18% or SGD 1,440 on Wilmar, a blow that was softened by the dividends the company distributed. Also, I could never imagined that fashion retailer FJ Benjamin would sink so deep in the red for the latest full year end, after years of small profits. I lost 14% on FJ Benjamin and again, the dividends collected over the past 4 years helped cushion the impact of capital depreciation.

The winners were not really winners. Action Asia raked in 10.5%, or just SGD 154 for me, but that was mainly because the manufacturer was consistent in its dividend payout, and after close to 6 years holding on to the stock. Biosensors, raked in 36.2%, or SGD 587 but this was mainly capital appreciation. At one point, Biosensors was my two-bagger, but after one of the substantial shareholder dispose of its stake, it began on a steady downtrend that it has yet to recover.

Portfolio ends Q3 2.8% up YTD; high on free cash

My portfolio including the value of dividends and free cash at the end of September, increased 2.8%, versus the 3.4% increase over the similar period by the STI. Approximately 30% of the portfolio was in cash or unused dividends, meaning given the recent meltdown as a result of the demonstrations in Hong Kong, the decline would have been worst. I personally think that give 1-2 weeks, the whole issue will settle down, although the downtrend has been terrifying for some.

I did some transactions on the final day of September. I sold my two lots of Wilmar at a 20% loss of value. I also bought some 10 lots of shares in waste collector, Colex. I have since added another 43 lots to my portfolio. It is a very illiquid stock which makes me wonder how am I able to dispose of my holdings in the company without incurring high transaction costs.

Entering the last quarter of 2014, I think it is time for me to clean up my portfolio even further.

The To-Sell List: Wilmar, Noble Group, FJ Benjamin, Action Asia

I have been thinking of selling Noble Group and Wilmar International for a very long time. FJ Benjamin and Action Asia have been added to this list because they just sank into the red in my portfolio, while at the same time not showing uplift possibility.

Noble Group has seen increases in revenue without a corresponding increase in net profit. The same goes for Wilmar International, although Wilmar has had a relatively stronger showing in the third quarter of 2013. The weakness of the result further confirms the end of the commodity super cycle but Wilmar's exposure to the food market puts it in a slightly better position going forward.

For FJ Benjamin, perhaps the lesson to be learnt here is that fashion retailing is a very difficult business. At the superficial level, FJ Benjamin has no peers in the Singapore stock market and would justify some premium. But when you realise that it has to compete with the likes of Zara, Uniqlo and H&M, the outlook gets bleaker. There was some wishful thinking on my part that the stock may someday go to the 40 cents level in 2010.

Action Asia could well be the victim of trends moving too fast in the sector. The scenario that everyone in China who has a car and have a display monitor made by Action Asia excited me. However, just look around now and everyone is using a tablet PC, be it a Samsung or an IPad.

Selling a share is never an easy job since we have to admit that we made a mistake and incur the pain of a loss. At the same time, I guess to be successful in the longer term, I would have to accept the changing business reality as well as the system that I put in place to trigger a sale.

S$50,000 capital invested level

With my purchase of 3 more lots of Petra Foods, the level of capital invested (i.e. income) has reached S$50,000 with a market value of about S$83,000. About 65% of the portfolio is into Food, and I have entertained the thought of selling off my loss-making stocks (FJ Benjamin, Noble and Wilmar) and hence there is an "Other" slice of 16% to be allocated. 

FJ Benjamin has not been booming as I had expected, since 2009. Noble Group and Wilmar are tanking for more fundamental reasons, namely the end of the commodity cycle. I could be wrong and there might be more upside when the market turns.

That said, with that money from selling, I could possible leave it in cash until the next market breakdown, buy more Etika or Super Group, or some banking stock. Option 2 will cause me to be very overweight in Food, and not much of a stock picker. For the banking stock, I am thinking of Hong Leong Finance. The problem is, the smaller "local" banks are being crowded out by the established "foreign" banks.

S$13,000 is quite a bit of money I can play around me. The search for my next stock is on.

When is the time to sell Noble and Wilmar?

Both Noble Group and Wilmar have touched the 20% loss threshold  that I would prescribe as a cut loss point. That would mean taking a hit of S$2,300 and add on to the string of losses. The sale would also free up about S$9,000 for me to play around with.

It is an agonising decision to make because at least 3-4 years back, both companies were the best stocks to have and helped investors make a lot of money during the run up in commodity prices. Noble Group is now faced with a succession issue and hard commodity prices have seen a slump in prices. Wilmar Group also faces a stockpile of crude palm oil and possible backlash over the recent haze furore.

Here is one scenario that stops me from selling: what if when we are in a full blown bull market and commodity stocks make a comeback? That would mean me losing out on a good deal now. the antidote to this thinking would be that if I were to cut loss now, the money could be used for a set of stocks that too could benefit from the upswing.

Then the new question arises: which stock? My colleague commented that I play very safe with money in the food stocks. I guess she is not wrong. Even then, not all food stocks are created the same. I guess I will have to do some research the coming weeks.

Biting the bullet on Noble Group and Wilmar

I will be going for a holiday from tomorrow onward and only be back on June 10. However, I am very tempted to sell off my stake in Noble Group and Wilmar International today and use the proceeds to increase my holdings of Petra. As mentioned earlier, I think that we are in the down cycle of the commodities boom and unless there are further acquisition targets or assets to be injected, it is time to close a chapter on this play. Although I have incurred an almost 20 per cent loss on the stock, cutting loss will be the better option. It seems that as the portfolio gets bigger, my appetite for "riskier" stocks has decreased because on an absolute basis, the fluctuations in portfolio value are nauseating.

Wilmar or Petra

I am going to work soon but by the end of the day, I might have two more lots of either Petra Foods or Wilmar International. If I were to buy Petra, I would overweight my position in one stock with limited price upside.  However, I would more or less get back some cash in the form of dividend (I think). For Wilmar, I foresee price upside but the question is how long must I wait and that there are no dividends (or very few) every half year.

Updated

I bought 2 lots of Wilmar at SGD 3.88 and that means about SGD 500 in free cash left.

End-January Update

I was way off in my prediction for the the Punngol East By election 2013. The Worker's Party Lee Lilian overcame the People's Action Party's Dr Koh Poh Koon by slightly more than 10% of total valid votes. That was not the reason I was away for a while. For the past 2-3 weeks, I was called away and thus could not find the time to blog my thoughts nor could I access terminals to make any investments.

Back on my computer and my spreadsheet for tracking returns, I was pleasantly surprised that my total portfolio (including cash of around SGD 8,303) increased 14% compared to the STI 4%. This was due largely to news that Sam Goi was on board Etika International and that the monies raised from the earlier placement would be used for expansion plan. Follow the money.

Stocks that have fallen into my radar are Wilmar International, RH Petrogas and SingPost. I see Wilmar International as a short term sentiment play. The consensus is that this is not a SGD 4.00 stock but somewhere close to SGD 5.00. It has taken quite a beating the past few months due to weaker-than-expected margins. RH Petrogas is a small and illiquid stock which markets itself as the only pure upstream stock on the SGX. I feel that there is upside for this stock to SGD 0.80 but it might just be due to slow bid up. SingPost, well, is just the usual dividend play.