Sunday, October 21, 2007

The Uni-Asia Fiasco

As many market watchers and investors would know by now, the company Uni-Asia is currently in the middle of an investigation by SGX, brought about by 33 retail investors who stormed towards SGX to complain about possible share price manipulation. This action is unusual in that there have been previous cases of share prices soaring and crashing within weeks for no apparent reason, yet somehow, for this case a group of people actually stepped forward to protest ! So what’s going on actually and what can we learn from this incident ?

First, the background scoop on the company. Uni-Asia is a company an Asia-based structured finance arrangement and alternative assets direct investment firm. The company provides transport-related finance arrangement and investment/management of alternative assets such as ships, distressed assets and real estate. In other words, this is a finance company which earns income based on returns from asset investments and divestments. It is not in a “sexy” industry and neither does it have a compelling growth story; but it does have pretty high margins of abut 50% when I reviewed the IPO prospectus prior to listing. Still, with no definite growth prospects, I had a desire to monitor the company first to see what it planned to do post-IPO.

Suffice to say that Uni-Asia made a relatively lackluster debut on SGX, dropping at one point to 50 cents versus its 55 cent IPO price. However, in the recent 3 weeks or so, the price (for apparently no reason at all) skyrocketed nearly 400% to a high of about S$2.79, then crashed about 30-40% to the current S$1.59. SGX had queried the company on two occasions regarding the surge in the share price, but of course the company replied in the negative because after all, they were NOT the ones trading their own shares, but rather institutional investors, retail investors as well as brokerage firms. Investors and punters were totally in the dark about what was happening, and someone even asked me on another forum a week ago (before the crash) what I thought about the company and its share price. Lacking suitable catalysts, I replied that this kind of “greater fool game” was bound to end someday and the price would crash. Sure enough, brokerages such as Kim Eng and CIMB GK Goh started to institute trading curbs to control speculation in the counter, causing a massive crash of 60 cents in a single day ! Subsequent to that, the share price has lost nearly 50% of its value from its peak, leaving many punters and speculators with massive losses.

There are several points to note in this entire fiaso:-

1) Brokerages seem to have an amazing amount of “control” over trading curbs and one trader even commented that this was standard practice for counters which have been traded to “speculative proportions”. Brokerages are thus assuming that they know best and that such trading curbs will reduce volatility in prices and “force” people to think of why they are buying into a company in the first place. Thus, it seems that investors will be left to their own devices when such fiascos break out.

2) SGX has the “normal” practice of querying a company when its share price goes north too suddenly or rapidly. This is standard procedure on the part of SGX and is part of its corporate governance code but usually, such queries do not lead to any form of enlightenment of information for the retail investor. The companies concerned are in the dark about their share price (which they should rightly be) and no one wants to take the “blame” should anything bad occur. Regulators could do more to come up with more stringent procedures to ensure there is no price manipulation or insider trading. At the least, this issue should be discussed and debated amongst an expert panel to review existing procedures to see if they could be beefed up.

3) Finally, the burden lies on the retail investor himself to ensure that he is not paying for more than he can handle. As mentioned in a report in BT, most of those who complained were CONTRA TRADERS. Hence, they intended to make money from price movements within the T+3 period without having to cough up capital for their shares. Such speculative and dangerous practices should be labeled as highly risky, thus these “investors” should not cry and complain when prices suddenly slump. I had warned of the many dangers in engaging in contra trading, even during a bull market when any share you buy seems to be rising. A further point is that it was mentioned that some of these “investors” were on margin, and any further drop in price may render them bankrupt. This is another point I cannot stress further; do NOT gamble on margin for contra purposes ! It’s like you already stab yourself in the foot (by doing contra), and now you proceed to take a gun and shoot yourself further in the same foot (by using margin to contra). It’s double damage when the price suddenly plunges, and can leave a speculator licking his wounds for many months of years to come.

Comments will be welcome regarding this highly controversial saga. I think we will soon see more news on Uni-Asia in the coming weeks before the curtain is finally closed on this drama.

28 comments:

Simon said...

It is interesting to note that these particular investors only started protesting when they suffer losses, putting the blame on the regulators and 'market manipulators' rather than on themselves.
We don't hear investors protesting about market manipulation when the price went up 400% in the first place.
I feel their actions are just lame. Someone should give them a good scolding and let them know that if they are happy to keep all the gains, they should likewise take their losses on the chin.

musicwhiz said...

Hi Simon,

Agree wholeheartedly with you. It seems that the perennial problem with people is that they love showering themselves with praise when things go right, and pushing the blame to others when things go wrong.

For proper investing, the opposite should be true. Gains are nothing to shout about (anyway, it was more or less certain with the margin of safety concept), yet losses are something to be studied carefully; at the same time one should take 100% of the blame cos as an investor, we should do our own research. People who rely on incomplete information, tips and rumours from vested interests tend to fall into the trap of thinking they KNOW what they are doing, when actually they do not.

In his book, Mark Tier called this unconscious incompetence, meaning you are not aware of what you don't know ! For good investors, we have conscious incompetence, meaning we are fully aware of what we do not know or understand (similar to the concept of circle of competence).

Regards, Musicwhiz

novice said...

Hi Musicwhiz,

I happened to 'pass by' your site while reading the SI forum. I have to say that in my opinion, you have put up alot of good analysis in selected companies as well as market views for novice trader like me to learn from. I am more incline to TA as I have found that it is easier for me to understand but FA is an area which I am not familiar with though it is an essential tool for most of us to pick good return companies.

Reading your portfolio, I seem to believe that you are quite comfortable with the O&G and marine sector. For a FA person like you, do you select an area that you know and scrutinize the companies related? Or.. do you base on certain financial ratio and then do a research on these companies and determind if they are worth investing? I somehow believe that I would need to know a sector well before I can pick the right company but to know an industry well, it could be years of reading and reseaching. Can you kindly shed some light on how I should go about starting my journey on FA?

Many many thanks and best rgds.

novice

Anonymous said...

MW,

I read your post to BOJ in the SI forum.

The SGX in my view is a toothless (useless) tiger. When its own price sky rocketed as Tokyo SE was buying about 5%, they actually claim that they did not know (standard response to standard queries). How can they ever not know who is buying them? How sad....

The stock market in Singapore is totally rigged, IMO, but not in favor of the retail investors. I have been sitting in front of the computer this week just watching the bid/ask Q.

If you want to see manipulation, just check out STX PO, among other stocks.

I have seen the BBs squeeze the poor retail contra players down for 4 days straight by placing huge 1000lot sell queues that those with no holding power will have to sell to them. Then when they have collected, the 1000lot sell q just magically disappears before mkt close. Go figure!

Just watch the stock, it will start to rebound in Tuesday-Thu and draw the next batch of suckers in, when all the poor old contra players from Mon-Fri last week have been squeezed out. Sob sob...

There is NO reason why a stock should move down 20% one week and then move up another 25% the next. If this is not manipulation, what is?

That is why I like the US markets better. I invest in both markets as I used to live in the US. ANy stock with price >$30 and a daily turnover of >1MM shares cannot be manipulated like our market.

Singapore market is a suckers market. Don't get me wrong, I have made a lot of money this year from it (six figure gains so far). But I am just saddened that our retail investors still do not see the LIGHT in our rigged market.

I hope this post will help some ppe.

Regards,
MM

musicwhiz said...

Hi novice,

Thanks for dropping by and leaving your comments. What I have learnt after reading more investment books is that TA can be just as effective as FA (i.e. value investing) as long as one applies proper techniques and mental discipline. One has to assess one's character and temperament to see which is more suitable. For myself, I know I can never take the frantic and hectic pace of trading and reacting "on the fly"; thus I know I cannot be a good trader. For this reason, I choose to specialize and excel in value investing, though it is always a learning process.

Coincidentally, DanielXX did comment some time back on my choosing of 2 companies in the O&G sector, that it is risky not to diversify among industries. But for me, I base my investment decision on the company (with an eye on the industry as well, of course). Ezra had a vision for deepwater exploration and charter rates were going up, so I saw an opportunity there. As for Swiber, it occupies a niche in the EPCIC market and so it can price itself competitively while maintaining demand in the years ahead for its services. Notice that I did not buy Labroy or Swissco because the former has only just ventured into the rig business, thus earnings accretion is uncertain, while for Swissco I commented some time back that Management was too laid-back and not aggressive enough in growing their earnings base. Thus, I would say that I tend to examine each company's policies and strategies before deciding to invest, and I demand a certain level of growth as well. Companies which have commoditized their products or are in a cutthroat pricing situation cannot hope to increase their earnings base effectively as costs are always increasing. Look at Delong's recent profit warning and you will know what I mean.

I believe you do not need years or months of researching an industry. What you need to do is understand the margins which companies make in the business they are engaged in, then see if they can be maintained or increased. This is the "bottom up" approach rather than "top-down". Certain industries have historically low margins and I usually avoid those (e.g. retail or micro-chips). Keep up with the news and read more before you decide to invest. I read up a lot on the market and on business news before even making my first investment back in 2004.

Good luck !

Regards, Musicwhiz

musicwhiz said...

Hi MM,

First of all, let me congratulate you on your gains ! 6-figure is very impressive and you must have a lot of capital to start with in order to achieve such high gains (in $ terms). For me, I start from a low base, thus 5-figure gains are hard enough for me. But I hope to be able to increase this gradually as I increase my savings base.

As for manipulation, yes I am very aware that it occurs daily, for selected counters. For STX PO, I have noted the almost daily price rises and have an unconscious sense that it is being "played up" due to its listing in South Korea. As you say, players get sucked in only to get suckered to sell at lower prices and the cycle repeats again. The problem is that most people don't know how it works (but I think you do !) and get suckered anyway.

Frankly, I do not know much about buy/sell queues but I know that contra players are regularly "squeezed", which is why I avoid contra altogether. I just do not think I can win the "big boys" and syndicates at this game. Thus, long-term investing works better for me.

It is good to know you have investments in USA as well as I view that market as being more mature (unlike our infant SGX) and harder to manipulate. However, there are still the talking heads on TV always trying to talk up o talk down the market; something which is happening to Singapore too. Of course, SGX denying that it knows who is buying it seems like baloney, which is why I did not buy into the rapid price increase till S$16 plus (I still believe it is worth less than half of that !).

Thanks for your comments and please continue to contribute your valuable insights. I am learning a lot from you too ! :D

Regards, Musicwhiz

novice said...

Dear Musicwhiz..

Many thanks for the reply.

I believed TA is more for traders to decide their entry and exit levels while FA is base on fundamentals. I fully agreed with you that rewards will certainly come along if we can excel the techniques correctly..thats why we are seeing so many successful traders and investors over the years. However to be an investor, which I hope to be, fundamental and value analysis will be a key criteria to play.

I am not against investing in diversifying industries but I also see nothing wrong in putting all your eggs into 1 basket and watch closely. I think investment guru WB said something like that before about focus investment..but please correct me if I am wrong :)

Many thanks for sharing your experience on stocks pick like Ezra, Swiber, Swissco and Labroy. I certainly hope to read more of your analysis to learn the essence of FA.

Best wishes

novice

Anonymous said...

Hi MW,

One of the main reasons why I visit your blog is because I think you have done a wonderful job analyzing the companies, dare I say, better than 99% of the Singapore analysts ;-)

Your blog is one of the best blogs I have visited - Well maintained, thought out and well responded.

Although we are on different investment strategy, I must admire you for sticking to yours ;-)

I am not sure why you are not in the Finance sector or out there managing money. We probably do need ppe. like you in the Finance industry. If you start actively managing money and can maintain these returns, I will then pass some of my money to you so that I can concentrate fully on my volunteer work ;-)

Although when I reviewed my returns yesterday, I found that I have beaten all the actively managed funds listed in The Edge magazine, I am not completely satisfied with myself cos' I am sometimes blindsided by my own thinking, causing me to make investment as well as trading mistakes which I should have avoided.

It is our thinking that makes the difference whether we are a successful investor or trader, or a mediocre one at best.

I am currently reading the book The Only 3 Questions That Count by Ken Fisher. Very interesting book, I must say. YOu might want to consider picking it up.

I am trading a little more than I used to in the last 6 weeks since the market follow thro' rally on August 30. One of the reasons is because there is much more volatility now and the other, I joined an online trading forum and I got itchy fingers ;-)

Please keep blogging and I will come back every few days to read it.

Regards,
MM

musicwhiz said...

Hi novice,

Thanks too for your views. I feel that for every constructive comment that is made on my blog, I also learn a little more about investing and the stock market.

I am also on a learning curve when it comes to other companies, as I only know those I own best. Nevertheless, I strive to read as much as I can from available literature so that I can absorb and assimilate the most from it.

Good luck too on your investments, and hope you can refine your investment technique over time. I suggest reading books on WB (or even Peter Lynch if you like his style) to capture the essence of value investing. Phil Fisher and Benjamin Graham are also recommended.

Regards, Musicwhiz

musicwhiz said...

Hi MM,

Thanks a lot for the compliments ! I will make a blog posting sometimes when I get the inspiration to say something; there are some days when I run "dry" of ideas while on other days I can have a glut of ideas. What I do is that I usuall type out what I want to say in a Word Doc then slowly post it one by one (one article per day) to make up for any "writers' block". haha.

You are a person who knows how to review his mistakes and learn from them, which is a key step to becoming a better investor/trader. Kudos to you for that !

I will check out the book by Ken Fisher. I understand that he is the son of the renowned Philip A. Fisher.

Yes, I will definitely keep blogging as long as I do not run out of ideas. There are still so many things for me to say and express regarding investing; I hope I can continue this blog for many months or years to go !

Regards, Musicwhiz

Anonymous said...

Hi MW,
Was surprised to that most of the book you read I have read in recent years. Common Stock Uncommon Profit, Intelligent Investor, Mark Tier's book and Buffett Way.

And another similiarity was you pick O&G and marine sector which I also have. Though yours have rapid growth, mine was more of a slow and steady one. In fact when I read that marine industry could grow for the next 7-10 years, I was more delighted to hold my stock for another 3 years at least.

Will stay in your wonderful blog and probably share of knowledge together. :)

Vectra

musicwhiz said...

Hi Vectra (nice nick !),

Yes, I think those books we read are the better ones with regards to investing. There are too many books on trading and TA and very few good books on value investing and FA.

I think the industry can definitely grow, but it will probably start to slow down around FY 2009 to FY 2010, which is why I am cautiously optimistic for now.

Thanks for visiting ! Yes, let's share knowledge !

Regards, Musicwhiz

Anonymous said...

That's the reason why I choose a more long term stock though its return is not something like Ezra or Swiber. Mine is a the same industry but is in consumables and supplies.

Even with today correction, it's still sitting pretty stable. ;)

musicwhiz said...

Yes, as long as you choose a company which is fundamentally strong, you do not have to worry too much.

Regards, Musicwhiz

Anonymous said...

we've to use word to its strict sense when 'manipulation' for stock is concerned, at least that is how the regulators will used it. also not sure if the coy actually know you bought their shares, unless one try to acquire it? there is also every reason why a stock should move up 20% on one day and down 20% next day, and still no 'manipulation' occurs.. anyhow, with people making 6 figures, i don't see why sgx shouldn't be $17.. i hope one can continue to make $$, but sgx make $ in any case, whether one make or loose... see the picture?

musicwhiz said...

Yes, although it is unlikely that a company does not know who is purchasing more than a 5% stake in it, it could still possible. I guess the onus is on the company to provide adequate disclosure so that their shareholders are kept well-informed of what is happening.

In the case of SGX, yes they will continue to make money as trading volumes average around 2 billion shares daily. But the question is whether it is sustainable and if valuations are currently too high to justify its share price.

Regards, Musicwhiz

Anonymous said...

Onus in this case need effort and cost money, if not require (Tokyo SE bought 4.99%), not sure why waste time and money!? this is the kind of coy - being cost effective, one should keep, right?

Sustainable? Your guess is as good as mine... with volatility at this level, TA more prevalent than FA, fear and greed pry the markets, every one value investor, there are 1000 speculators... well it benefits some coy. rgds.

Anonymous said...

Just as a thread posted on the CNA forum saying stock market is gambling den. I replied that the stock market is a gambling, biz invest and speculative activities all come into ONE.

So it's really up to individual how to see it in the first place. BTW, speculate mean able to get niche info prior to others knowing. A bit differ from gambling.

Vectra

Anonymous said...

i can follow your discussions on all acts come into one, with sgx being one good sole winner.

guess you have to educate me on speculate vs gambling, don't get the idea with respect to the chance of making money out of stock and shares?

musicwhiz said...

Hi, yes in a way a company should definitely keep costs down and not spend too much on corporate disclosure, to the point of it being onerous.

As for SGX, speculators will always be there I guess; but it's being taken to a new level with the introduction of derivatives such as covered warrants. I guess this is what will propel SGX's revenues in future, and any other type of "financial weapons of mass wealth destruction". LOL !

Regards, Musicwhiz

musicwhiz said...

Hi Vectra,

I would partially agree that stock market has everything come into one. There will be gamblers and punters as well as true investors but some people can be a mixture of both as well. Human beings are complex and so it is difficult to classify them according to strictly speculator or investor.

And, getting information before someone else is considered insider trading, and is considered illegal. Of course, information is always assymetrical and that is why the EMH will never work in its purest form. That is something for the theorists to discuss, we who are practitioners in the actual stock market know better about so-called perfect information being incorporated into existing prices.

Cheers, Musicwhiz

musicwhiz said...

It's quite simple. If you speculate, chances are you could win big or lose big. If you invest properly (note I use the word "properly"), then you should see steady and consistent gains which more than outweigh minor losses. Losses are inevitable, but as value investors we limit the losses impact by using the margin of safety principle, while capturing the upside to any company whose earnings are growing over the years.

Regards, Musicwhiz

Anonymous said...

Hi MW,
Yes I agree that emotional feeling blur out between, gambling, speculate, and investing.

Speculate(Speculari) in Roman ancient mean "to spy or watch out". They carry out in commodities activities. But in modern times now, it more often use in stock market to predict the future.

For investing, it is based on history of facts and past earning to make investment decision. Gambling(to me) is having no idea just follow the herd feeling trying out one luck.

I do have time fall from investing to speculate mode. Fortunately or unforately, my speculating still based on my historical info of the company.

Vectra

Anonymous said...

There is intelligent speculating and non-intelligent speculating, but uncertainty abounds. Gambling is taking risks and the distributions (outcomes) are known. Non-intelligent speculation can be dangerous when one do not know he is speculating and thought he is investing, when he speculate beyond his affortability, when he speculate seriouly beyond his pastime, not unlike gambling.

musicwhiz said...

Hi Vectra,

Hey thanks for the roman definition of "speculate". I did not know this before and it certainly helps to cast some light on the origins of the word !

For investing, we make intelligent decisions based on objective facts and reasonable. For gambling and speculation, we tend to rely more on subjective "gut" feel and luck, which may or may not turn in your favour. The speculator will always try to win more than he loses, so that he gains the "spread". A true investor will minimize risk so well that he almost never has to lose, or only lose a little.

I guess it is ok to speculate as long as you do not confuse it wit investing. :) Good luck !

Regards, Musicwhiz

musicwhiz said...

Hi Anonymous,

Yes, in a way I will call intelligent speculation beating the odds as you know they are tipped heavily in your favour. An example would be master card players in casinos who bet heavily when they know the odds are in their favour, and fold when they see a potential loss.

Many people in the market seem to speculate without much clue as to how it can be "intelligent", thus they lose tons of money in the process and label the market as "risky" or "dangerous". In truth, the market is only dangerous if you do not understand it or try to outsmart it.

Value Investors go with the flow and adapt to Mr. Market's mood swings. Thus, they never feel "controlled" by him as they are clear about margin of safety and valuation.

Cheers, Musicwhiz

Anonymous said...

It's really hard to draw a clear line between speculation, investing, or gambling.

An good example will be Warren Buffett is a investor, and George Soro is a speculator. Soro return is better if you only calculate what he hit. But for long term of 30 yrs, Buffett obviously is better.

As for gambling, anything can be use not only stock market.

Vectra

musicwhiz said...

Haha Vectra, for me the line is clear enough. I invest when I have thorough knowledge of the facts and they always go through my thought process and reasoning first. If I make a mistake, it shows I have to improve in the future.

Although Soros was a player of the market (rather than investing in companies), I know for one thing that he did read up a LOT on economies, interest rates, Fed policies and etc. and he also did some of his own research and came up with his own theories which he tested in the market. Thus, he is minimizing risk by understanding the market better, similar to WB understanding companies better and thus minimizing the risk that he chooses a wrong company.

Gambling is prevalent in every human being; because greed is part of human nature. :)

Regards, Musicwhiz