Farewell ARA Asset Management

Thursday, 23 March 2017 19:52
Posted by owq 0 comments
Yet another delisting of a quality company from SGX. This is my third delisting since I started investing in September 2014.

First was Select Group which I only managed to hold for 3 months before it got taken over.

Second was China Merchant Pacific Holdings which I only managed to hold for 10 months before it got taken over.

And now ARA which I managed to hold for 1 years 4 months and even subscribed for their rights issue.

Wonder who's next?

Diversification of risk: marriage, property

Sunday, 26 February 2017 19:53
Posted by owq 0 comments
Inspired by http://www.my15hourworkweek.com/2017/02/14/thank-you-my-mrs/

He was talking about how marriage is like putting all his resources into one egg... It's true. You put a lot of your time, emotions and money into one person. Usually the guy puts in more, because let's face it, even though there's supposed to be gender equality, guys are still expected to take most of the risks and girls actually end up with more power now. But I digress. I'm not here to rally against marriage or girls but rather to encourage a more rational look at relationships in general. I'll talk about this from the viewpoint of a guy but the other side is somewhat similar.

A long-term relationship is not as costly as a marriage but the terms are similar. You're expected to invest emotionally and sexually in only one person as doing otherwise is considered cheating. Sure you may have your own life and your own friends but in general you'll end up spending most of your resources on this person, because if not then what is the relationship for? So something to consider is the risk of putting everything in one egg. You have spent all your time and resources on this girl. What if she leaves you? What if she becomes a liability? "Someone to take care of you" is a double-edged sword. Love conquers all? In sickness or in health? Sure... But girls change their mind and they are notoriously more so than guys. No guy married a girl thinking that she'll leave him! Same for the girl! But it happens, and girls initiate the divorces more often than guys. So the risk is there. At my company we have a 60% divorce rate already (this is just for fun as sample size is too small). Anyway what I'm saying that we need to consider the downsides as well. The possibility of your spouse leaving you amicably, leaving you with a host of lawyer debts and stolen stuff, getting sick, or even treating you badly. If you're in a marriage, never take it for granted. Anything could happen, and I'm not trying to scare you. And when you're in "love", you never think that your loved one could treat you so badly. So we need some adjustment for the "in love" state.

Now, usually, marriage comes with property, in typical Singaporean fashion. And chances are, you get a flat quite early on with debt. A FLAT IS NOT A SURE WIN THING. It can be a good deal, but don't forget the debt. Usually debt is required in some way as couples don't earn enough to pay in full. And that means most of your assets is stuck in ONE property. With corresponding liabilities to boot.

So now you have all your emotional needs invested in ONE person and your financial assets in ONE property. How is that not risky? You tell me.

Sino Grandness Rights Issue

Sunday, 8 January 2017 12:03
Posted by owq 0 comments
I sold my Sino Grandness shares at 0.37 when they first announced a rights issue. I was planning to hold the cash to buy some shares back after the rights issue but my hands got itchy after waiting for so long without any news, I decided to buy some at 0.33. A week after they announced the amendment of the rights issue with some ridiculous terms and the price dropped all the way to 0.21 which is the new rights issue offer price.

I am still holding. This is a stock which I have been buying since I started investing and I've seen it go from 0.50 to 0.23, and to 0.79. I've always maintained a core position because I believe it was undervalued. Well, there are a lot of red flags but I feel that it's worth the risk. At least I'm not gambling with more than 10% of my money.

Now, the first time they announced the rights issue it was underwritten by UOB at a commission of around 6%. Huang also undertook to subscribe for his whole allotment. This time there's NO underwritting, and Huang will subscribe for a variable amount of shares subject to the amount of uptake. I'm not an expert, but this is really disgusting. What are they thinking? If they really need the money, how will these terms ensure they get what they need? There seems to be some cashflow problems at the company. I am getting mixed feelings about this counter.

ARA Asset Management takeover by Scheme of Arrangement

Sunday, 1 January 2017 11:52
Posted by owq 0 comments
And yet another stock is being taken over by private equity. I have only invested for 2 years and a lot of my stocks are being delisted. First, Saizen, then China Merchants Pacific, and Select Group.

I'm not selling ARA yet and I will definitely vote no. This is because the offer is by scheme of arrangement, where number of investor count also plays a part. So there's a good fighting chance for the minority investors. I would probably have sold if it was a general offer. Anyway the price is around 1.70 right now. It is about a 4.7% at the takeover price, which is worth the wait anyway even if the deal passes. It is likely that the deal will pass by at least June 2017. So close to 9.4% p.a. return.

Furthermore, the company has good prospects and I'm unwilling to sell it cheap. Especially after they announced such a good set of results and increased their AUM by so much. The PE right now is at least less than 20x. And in 2007, they IPOed at 43.6x. Granted PE might not be the best way but if we look at the AUM I definitely feel that the company is worth more.

There is no other comparable company on SGX that has a business model like ARA. So if ARA really gets delisted it'll be hard to find a replacement. For now I bought Frasers Centrepoint (FCL) as a pseudo replacement in case ARA is sold. I like the recurring cashflows of FCL even though it is not as asset-light as ARA.

Irrational behaviour: being happy when stock prices rise

Friday, 15 July 2016 23:03
Posted by owq 0 comments
As observed on HardwareZone SSI. Why are people so happy when stocks are getting more expensive? In a bear market, you're going to earn more money! As you reinvest more dividends or other income, you compound your capital at a cheaper rate. Of course it's a different story if you urgently need to liquidate. Then you shouldn't be buying stocks?!

In a bear market, usually pessimism will cause stock prices to depress more than their fundamentals deserve. I mean, a couple of quarters of 20% reduction in earnings simply shouldn't deserve a >20% reduction in price! After all, you're paying for the cash flows of the company in the long term.

So stay invested and don't market time, because eventually reversion to the mean will occur, and you don't know when it will occur.

Value stock vs growth stock: are they really different?

Monday, 11 July 2016 09:48
Posted by owq 0 comments

From Investopedia:
"A value stock is a security trading at a lower price than how the company’s performance may otherwise indicate."
"A growth stock is a share in a company whose earnings are expected to grow at an above-average rate relative to the market."
 I have always thought that "value stock" and "growth stock" don't really mean anything. All I am concerned with is that I'm paying less for the value that I get. If I'm paying less for the expected growth of a company, then it is a value stock. Of course, it's hard to predict the future, so it's good to be conservative in case you're wrong.

Price is what you pay, value is what you get. And value is a function of all the cash flows the company will give in the future, and that is affected by growth. However, it is important to see things on a per-share basis, as earnings may shrink on a company level but increase on a share level. So rather than look at growth on a company level, we should look at growth on a share level.

In the end, it is really just buy low and sell high. A simple concept, but yet hard to act on due to our human biases.

China Merchant Pacific Holdings takeover

Sunday, 29 May 2016 17:59
Posted by owq 0 comments
Yet another one of my stocks getting delisted. Unfortunately the offer is at a discount to my cost. I suppose this is why buying at a good discount to NAV is prudent for stocks like these. I bought it at NAV last year, and it dropped due to acquisitions. Well, at least I managed to sell it at $1.03 somehow, $0.01 above the offer price. I find the offer a bit undervalued, but at least it's not as bad as the Indiabulls saga. That one is really super lowball.

Anyway, with this unlocking of capital, I put my money on Silverlake Axis. The share price dropped to a reasonable level. I think around 13-15 PE is quite reasonable for such a company. Their track record with acquisitions seem to be quite okay, and I look forward to see what they can do with Sungard Ambit.