Mid-March 2008 Portfolio Summary and Review

I suddenly realized, after the previous 2 weeks of March had passed fitfully, that valuations in the Singapore stock market are becoming attractive at last. Since the time I began value investing, it has been hard to see such valuations as for most of FY 2007, valuations were through the roof and one cannot find a smidgen of margin of safety anywhere in sight. Value could usually only be found in companies which had yet to demonstrate their market dominance and increased earnings and margins, which means one has to assume Mr. Market was manic on the “right” companies in order for one to buy from him cheaply. This had only happened twice in the last year, leading me to make two purchases: Swiber and China Fishery.

Interestingly, gold has managed to hit US$1,000 an ounce, the US$ has fallen to an all-time low against the SGD at below S$1.38 and oil prices have actually breached US$111 per barrel. World markets are in turmoil over the sub-prime crisis, the Fed is being pressured to cut interest rates by 75 basis points and also badgered to come up with a large enough “stimulus” plan to ensure the economy and banks get back on track. And I am not even mentioning about global inflation hitting food prices and China’s inflation rate rising past 8% ! My point is that it is all doom and gloom now when just 9 months ago, share prices were somehow hitting new highs in spite of the fact that these problems were already festering. It is akin to a wounded man who walks around seemingly not noticing the large bleeding wound on this leg. When someone points this out to him, suddenly he gets all weak and stumbles and can hardly walk. So is it simply a mental realization or merely “risk re-pricing” kicking in ?

My opinion is that human beings in general tend to under-estimate the bad news when all seems good, which is why bull runs can last for so long. However, when the crap really hits the fan (and there is no denying it), sentiment can turn sour faster than you can blink. The over-reaction bias inherent in our brains makes us go “manic” and over-estimate the impact of bad news; which is why bear markets are often so severe in terms of its impact (e.g. crashes, sharp price drops) but rarely last longer than 2 years. This is a very interesting piece of human psychology which I will attempt to talk more about in a subsequent posting under “Behavioural Finance Series”.

Below is the summary of my investments and related news as at March 14, 2008 (STI at 2,839.01 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $1.90, Gain 195%, YTD Loss 42.8%. There was no news from Ezra during the half month ended March 14, 2008, except for some insider purchases which I will not put too much emphasis on, as well as a non-executive director Ms. Goh Gaik Choo resigning due to retirement. Incidentally, she is the wife of the Chairman Mr. Lee Kian Soo and the mother of the CEO Mr. Lionel Lee. I would expect Ezra to report their 1H FY 2008 results by mid-April 2008 (last year, it was April 9, 2007).

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $1.295 (average), Market Price $1.99, Gain 53.7%, YTD Loss 17.4%. On March 5, 2008, Boustead announced that they would be entering a joint venture with AP Strategic as well as Representations International for a series of projects in Vietnam. The nature of the projects was not specified but Boustead will take a 30% stake, while AP will take a 60% stake and Representations a 10% stake. On March 10, 2008, the Group announced that their energy-related business had snared S$24 million worth of contracts. Notice that their water and wastewater division has been conspicuously quiet for FY 2008, which is kind of a disappointment even though the CEO was already preparing shareholders for this division’s non-performance.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $2.03, Gain 101%, YTD Loss 40.8%. Swiber had, on March 7, 2008, announced their second-largest EPCIC contract from an existing customer BG Exploration from India. This would mark the Group’s first entry into India with an EPCIC project and it is worth US$127 million to be executed from 1Q 2008 to 2Q 2009. The Group also announced, on March 12, 2008, that they had secured their third Malaysian LOI worth US$29 million for an offshore installation project. This would commence in 2Q 2008 and be completed by 3Q 2008. These two contracts have boosted Swiber’s order book from US$350 million to a record US$506 million. Yesterday, the company also announced the incorporation of a new subsidiary company in Brunei called Swiber Offshore (B) Sdn Bhd, as well as the incorporation of a joint-venture company called Swiber Rahaman Sendirian Berhad in which the Group will hold a 51%-stake. I see these as positive signs of their foothold establishment in key territories where they plan to expand their presence.

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.40, Gain 26.1%, YTD Loss 18.1%. There was not much eventful news on Suntec REIT, other than the fact that the convertible bonds have been approved.

5) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 2007 at S$0.52 per share; averaged down August 17, 2007) - Buy Price $0.655 (rights-adjusted), Market Price $0.51, Loss 22.1%, YTD Loss 19.0%. There was no news on Pacific Andes during the period ended March 14, 2008.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.50 (average), Market Price $1.69, Gain 12.7%, YTD Loss 8.6%. There was no news for CFG for the period ended March 14, 2008. However, CIMB did release a “China Plays” report which stated that CFG had gone into the fishmeal business to build up a presence in South America and Peru, even though fishmeal net margins are only 3.3%. According to the company, it is part of their long-term strategy to establish a firm base in South America and to increase net margins eventually to 10%. The negotiation of their 4th VOA should also be concluded by 1H 2008, according to the report; and this will significantly increase margins as the expense on this 4th VOA is on a daily operating basis currently.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.10, Loss 0.5%. There was no significant news from this shipping trust during the period.

Overall Portfolio

My overall portfolio has increased by 43.1% without taking into FSL Trust’s cost. If included, the gain is 31.0% from a cost of S$80.4K as at March 14, 2008. The market value of my portfolio without FSL Trust is S$83.4K, and if FSL Trust is included then the portfolio value is S$105.3K. Realized gains remain at about S$4.9K until the ex-dividend date for China Fishery comes along.

Comparison against STI

The FTSE STI had declined by 18.5% since the start of 2008. Without FSL Trust, my portfolio has declined 28.5%.To date in 2008, my portfolio has under-performed the new benchmark FTSE STI by 10 percentage points. Hardly impressive but considering the "Super-Investors of Graham and Doddsville" experienced rather volatile returns as well over certain years, I think this is acceptable as part of the value investing mantra. Of course, if some of my investments turn out to be "duds", then I would have failed to capitalize on the compounding effect of my gains and hence would have lost out to time itself. Although there is no way to reverse this, at least it will make me learn from my mistakes better and become a better investor.

My next portfolio review will be on Monday, March 31, 2008 after market close.