Monday, September 15, 2008

Mid-September 2008 Portfolio Summary and Review

Interestingly, this was the half-month where everyone’s long awaited “crash” scenario came finally came true. The instability of the economic situation, coupled with the global slowdown as a result of the sub-prime crisis, finally hit home as the Straits Times Index fell through the 2,500 level. As a gauge of market sentiment, the index is very useful and there is currently a lot of uncertainty and fear going around as investors are finding out that every rally is simply a bear market rally which “traps” them to buy, even as prices go inexorably lower. Mr. Market is ferociously thrashing every stock that made a fool of him a year ago (by being over-valued) !

The fascinating aspect of the current bear market (and probably previous ones too, which I have not lived through as an investor) is that prices have the tendency to dip downwards almost every single day without fail, as if the selling is so pronounced the savage that it resembles a tidal wave. It is only with such ferocious and brutal selling that one uncover gems of companies selling at bargain basement prices. However, as Mark Sellers said, not many have the guts to purchase when the entire world seems to be selling, and the psychology of human behaviour is indeed fascinating when it comes to the stock market, as people start avoiding stocks like the plague when they become better bargains !

I took the opportunity to purchase more of China Fishery, seeing that Mr. Market was extremely manic-depressive today. Please also note that due to time constraints and the nature of value investing, I will NOT be providing half-monthly updates for my portfolio from October 2008 onwards. In future, all portfolio updates will be on a monthly basis.

Below is the summary of my investments and related news as at September 15, 2008 (STI at 2,486.55 points).:-

1) Ezra (Vested since October 6, 2005) - Buy Price $0.645 (bonus adjusted), Market Price $1.23, Gain 90.7%, YTD Loss 63%. There was no news for Ezra for the half-month ended September 15, 2008.

2) Boustead (Vested since September 13, 2006; averaged down November 13, 2006) - Buy Price $0.6475 (split-adjusted), Market Price $0.965, Gain 50.2%, YTD Loss 19.9%. There was no news from Boustead for the half-month ended September 15, 2008, other than a brief notice of the striking off of a dormant subsidiary in the United Kingdom. FF Wong purchased shares in Boustead from September 9 through 12, at S$1.00 a piece, for a total of 600,000 shares.

3) Swiber (Vested since February 14, 2007) - Buy Price $1.01, Market Price $1.22, Gain 20.8%, YTD Loss 64.4%. Swiber had a string of announcements this half-month, beginning with their third sale and leaseback arrangement with Platou Finans for US$225 million. This was announced on September 2, 2008 and involves three 18,000 bhp AHTS as well as two 78-metre DP2 subsea support vessels. I will not go into too much detail as all the numbers have been presented in the press release, I just wish to highlight that Swiber will receive 25% downpayment on each vessel and the total consideration will be US$225 million. US$18 million will be recognized in stages in an exceptional gain as this represents the excess of the proceeds over the book value of the vessels. The next day on September 3, 2008, Swiber announced that they had achieved a milestone for pipelaying installation whereby Swiber Conquest, the Group’s flagship pipelay barge, has laid 150 kilometres of pipelay work within 6 months. This press release sounds more like a PR exercise though, as there is not much informational content which can be construed as being useful for the investor to alter his evaluation of the company’s capabilites (no comparison was made with industry standards – so we will not know how “good” 150 km of pipelay work in 6 months is !). On September 4, 2008, Swiber announced the formal inking of the contract (formerly LOI) with CUEL in Thailand for a 5-year job beginning September 2008 (worth an estimated US$50 million per annum). The company has also been consistently buying back its shares from the open market (check SGXNet for details).

4) Suntec REIT (Vested since December 9, 2004) - Buy Price $1.11, Market Price $1.29, Gain 16.2%, YTD Loss 24.6%. There was no news for Suntec REIT for the period ending September 15, 2008.

5) Pacific Andes (Vested since March 29, 2006; Rights Issue July 11, 2007 at S$0.52 per share; averaged down August 17, 2007 and July 3, 2008) - Buy Price $0.5475, Market Price $0.24, Loss 56.2%, YTD Loss 61.9%. There was no news from PAH for the half-month ended September 15, 2008.

6) China Fishery Group (Vested since November 20, 2007) - Buy Price $1.211 (average), Market Price $0.90, Loss 25.7%, YTD Loss 51.4%. There was no from CFG for the half-month ended September 15, 2008. I have added to my position in CFG at prices of S$0.925 and S$0.90 on September 15, 2008, bringing down my average cost to S$1.211 from S$1.50.

7) First Ship Lease Trust (Vested since January 14, 2008) - Buy Price (Averaged Down) $1.105, Market Price $1.07, Loss 3.2%. There was no news from FSL Trust for the half-month ended September 15, 2008, except for a small news snippet of FSL Trust wanting to list on ADR (USA OTC Bourse).

Overall Portfolio

The loss on my current portfolio is 6.9% from a new cost of S$98.4K as at September 15, 2008. The market value of my portfolio is S$91.6K. Realized gains amount to S$8.6K as a result of the dividend from FSL Trust, Boustead, Suntec REIT (inclusive of the dividend from Pacific Andes which I will choose to accept in cash instead of scrip). Including realized gains, the total gain as a % of my cost is 1.8% (about S$1.8K).

Note that this will be the last half-monthly review for portfolio. In future, I will just be providing an update on the companies I own and how their businesses are doing. I am also exploring a better method of benchmarking performance, probably to book value growth of my companies. Comparison to the STI is inaccurate as the index components are switched over time – thus there is survivorship bias involved.

My next portfolio review will be on Monday, September 30, 2008 after market close.

50 comments:

Brendan Lee said...

I think the more you buy the more you will lose. I am predicting S&P500 will fall below 1000 level easily.

See here:
http://www.commoditiestradingpro.com/2008/09/where-is-s-500-index-heading-to-part-2.html

Anonymous said...

Brendan, obviously you don't get the whole picture. Value investing is not about short term gains with high volatility. There are all sorts of trading/investment methods out there with different terms(short/medium/long) coupled with different risks involved. Which ever method you apply is not important it is whether it can satisfy you investment goals that mattters.

Brendan Lee said...

I am not looking for short term gains in stocks. I just do not see any light in the stock market for the next 6 months at least.

River & Heaven said...

We better read all these articles with a pinch of salt. Treat it as casual reading still OK, but better don't take it too seriously.

He and a fellow called qiaofeng from the CNA forum have been cheering for Pac Andes and China Fish since long time ago. If you follow their buy calls, easily down at least 70% now liao.

I read in earlier comment that 1 reader heed his advice and bought Pac Andes earlier and now lose 40% and panic now liao. Buyer beware.

musicwhiz said...

Hi Brendan Lee,

My time horizon is not 6 months, it's more like a couple of years at least (I will monitor the business in the meantime for any major changes). So I am not worried about a 6-month outlook.

Regards,
Musicwhiz

musicwhiz said...

Hi river& heaven,

Yes, please do your own research before purchasing any companies. This blog is meant to inform, not to advise. Do not treat blogs as a final source of information - please verify everything on your own because it's your money at stake after all.

I think it's important to note the difference between promoting a company and stating facts about a company. Please do try to take note of such differences, thanks. As investors, we are in the business of analyzing facts, not opinions.

Cheers,
Musicwhiz

Anonymous said...

Hi, many are losing money even me included,one don't need value investing to lose money,whatever style if you are holding stocks or commodities or soon even properties all are in deflation trend.Part and parcel of investing.Thats why they say invest only with your spare cash so you have holding power.If this is your first bear experience,can't blame you,next time can use cut loss (10-15% cutloss limit) to minimise one's losses or to reduce your exposure to sleeping level.This is only an example,only you yourself know your own risk level.
The only people making money are the shortist,if you like to profit from somebody else miseries.You can do shorting.All the best.

Anonymous said...

Value Investing....is it worth it? Good investment guidance. But make sure company fundamental remains sound.

(Source from Nextinsight)
In short, value investing is not widely embraced because most of the principles advocated are counter-intuitive. When everyone is running screaming from a building on fire, nobody instinctively runs into the building. The value approach, however, suggests the latter is the wiser option – you run into the building to see if anyone abandoned anything of value. Being a value investor requires you to cast aside emotion and invest only with your head.

And while you are at that, I hope you have a high tolerance for pain. Suffice to say these are not qualities or instincts that occur naturally to the human mind. But if you believe as I do, that value investing is the only sensible form of investing, then these obstacles are merely walls meant to keep the rest out. I will conclude with an anecdote about Warren Buffett.

A Wall Street banker once recalled a dinner with Mr. Buffett where he had an exceptional sandwich at a restaurant. A few days later, while deciding the venue for dinner, Mr. Buffett said, “Let’s go back to the same restaurant.” The banker recoiled and protested that they were there just a few days back. “Precisely. Why take the risk somewhere else? We know exactly what we are going to get.” Mr. Buffett answered. Clearly, Mr. Buffett invests in companies where the odds are great that they will not disappoint. Likewise, I will stick to an investment approach where the odds are great that it will deliver.

GG said...

Everything is so bearish any investment now will only look good in 3 - 5 years time. The US economy is push into abyss.

Wealth Journey said...

Different strokes for Different Folks.

There is no right or wrong as long as your portfolio have increased in value 5 years from now.

My stroke is I believe that investing with a 3-5years horizon is easier than short-term investing of around 1 year. I believe in Asset Allocation. I believe that one cannot time the market but one should also be more prudent and refrain from investing when a bear is right in front of you (I believe in trend).

In today's investing, one have to consider all 3 aspects of fundamental, Technical and behavioural before making any investment decision

Simon said...

ah...it is good that so many bears around. this is the time for me to accumulate more! why waste time arguing? just buy already! im a value investor too. when ppl say they cannot see any light for the next 6 mths, i can't be any happier. been waiting for this for so long...

Anonymous said...

I agree quite a lot of counters can now be bought today at prices below their intrinsic values. But just think we need patience for a better bargain tomorrow.

Ryan said...

In that period, one must conserve bullets and buy good companies ( less/no debt + cash-rich) with greater margin of safety. Slowly buying, I also don't know what is going to happen in 6 mths but I know in 5 yrs time, I will be rewarded.

But I think the worst is yet to come.. :P

Cheng said...

Quote anon: (Source from Nextinsight)
In short, value investing is not widely embraced because most of the principles advocated are counter-intuitive. When everyone is running screaming from a building on fire, nobody instinctively runs into the building. The value approach, however, suggests the latter is the wiser option – you run into the building to see if anyone abandoned anything of value.

Buying when the building is on fire is like buying cigar butts, you only have one puff left.

What we value investors are interested in are sound businesses. When people shout fire, we go in and take a look to see if it is real. It can be psychological fear that buildings far away that caught fire might affect this building. If we know that this building wont catch fire and people are rushing out, we go in and enjoy the food and drinks where it is not so crowded.

After some periods of enjoying the luxury building, more and more people come in over time. Once we felt that it is too crowded, no more comfort liao. :D We leave to find other nice places.

Anonymous said...

All of you know how to talk a good game leh. May I ask how many of you have been in the markets at least 10 years and gone through a few recession cycles?

The only person who has put up his portfolio for scrutiny is musicwhiz and the results aint pretty leh.

I always see a lot of anoynomous strategy talk on the net very sat ki one, but so many years liao I still havent meet one person in real life who make it big by playing the markets...

humble investor said...

When the bears are out the gurus go into hibernation.

When will we see the silver lining? Are we there yet? Will we slip into recession?

Simon said...

wah...so many bears...good good. =)

u don't need to invest for at least 10 yrs and see all the recessions. just read lots of books, educate yourself, become more knowledgeable, u can have an investment experience of 5 yrs and probably gain more knowledge than somebody who just stare at the screen for the past 20 yrs.

Anonymous said...

In this fearful market, my view is that the rally will be more sustainable this time round for the stock market. Consider LONG now . Yesterday about 3pm , I already sms to my client to go long and cover all short . Continue to added on the long position for now. This is my personal view .

Anonymous said...

I am pissed by people who keep losing money yet still want to trade/gamble.
I am sick and tired of clients losing money in this market .
Today, I stop clients from trading because they are going to continue to lose if they don’t change. THERE IS A WAY TO MAKE MONEY IN THE STOCK MARKET IF YOU ARE NOT MAKING YOUR METHOD IS WRONG.
This is 100% not good for my commissions but I don’t care . I am doing this for their own good.

Simon said...

fsl down to 82 cents. wooo....
is the dividend like 20% yet? haha

musicwhiz said...

Hi Anonymous @ Sep 16 3.43 p.m.

I think the method you are suggesting (i.e. cutting losses at 10-15%) pertains more to traders, rather than investors. Thanks for the suggestion though.

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 16 3.46 p.m,

Thanks I had read that article and found it to be very true in many aspects. Value investing is certainly not easy and has taken up a lot of my personal time. I just hope that experience over time can teach me to be a much better investor, and I have this bear market to help me learn moer as well.

Cheers,
Musicwhiz

Anonymous said...

The problem about all this talk on being "long-term" is that nobody really has a good idea how long is "long". Many also don't understand the implication of "long term".

Think about it, why do you all spend so much time and effort doing FA? Incur so much money at risk? Needless to say, it's to make money so that we can fulfill whatever our wants that can be bought with money.

If that's the case, one must have a timeline in getting and spending a certain amount of money to fulfill our needs. I have seen estimates by value investors that range anywhere from 5 to 20 years.

In short, nobody knows. For argument's sake let's take a mid point at 15 years. Suppose you start whatever investment strategy you adopt at the age of 30. By the time you can safely say for sure your strategy works and beat the market consistently, you are already 45.

What if after 15 years you found out that your strategy was wrong and you underperform market. At the age of 45, you only have one last chance cause by the next 15 you will be 60 already.

For people who raise capital and start off later than 30, you probably only have 1 chance to get it correct, otherwise it's a goner, a waste of an entire life of effort resulting in financially inferior result to an index fund.

This long wait for your betting results is the real risk that many people ignore. Many of these self proclaimed value investors need to seriously ask themselves if they want to take risk in betting on a game that takes 15 years of time and effort in flipping through annual reports, chasing company news, briefings etc. Remember, your probably only have 1 or at most 2 shots in your lifetime to get it correct.

Anonymous said...

guys, in case you didn't realise, i think the mkt has bottomed. so have u guys taken action? or still moaning abt falling prices and staring at the screen with jaws wide open? =)

8percentpa said...

Hihi

Very good advice: we only have 1 or 2 chance in life. That is very true.

However it does not necessarily contradict with value investing. Perhaps a value investor should incorporate that advice into his/her investment process smartly. E.g. incorporating a larger margin of safety during bullish times.

Actually, a lot of things don't necessarily contradict one another,(FA/ TA /trading/value/growth etc) just somehow, pple like to classify them as such. Which reminds me, so sorry to MW for creating a big commotion in your previous review. My sincere apologies.

About the market bottoming, I am not too sure, last time they say US$400bn out of US$1trn of sub-prime written down, so maybe halfway done. Now it is not just about sub-prime. We have got all US mortgages, CDS, Lehman's debt, AIG's unwinding etc. Yes there might be a rebound soon. But the general trend is still down. Be careful!

Invest SGX said...

Other then cutting lost, we should know how to take profit.

We shall not wait for the marco market correction to wipe off our gains from many years.

http://investsgx.blogspot.com/

Wealth Journey said...

My definition of long-term is 3-5years 'coz anything beyond is really not foreseable.

Short-term is within a year. Mid term is 1-3years.

musicwhiz said...

Hi gg,

Yes I do believe that 3-5 years is a sufficiently long horizon for investments to show their true value.

Cheers,
Musicwhiz

musicwhiz said...

HI wealth journey,

Yes, everyone has their own methods and styles when it comes to investing, so it really is a very personal choice. For me, as long as I generate a decent return over the long-term and do not destroy my capital, it's a good result for me.

Regards,
Musicwhiz

musicwhiz said...

Hi Simon,

Yep, the bearish sentiment has noticeably increased in recent days, making it very good for investing. Value investors should be ready to "pounce" when sentiment is so frail, but of course one should also keep an eye on your potential investment to ensure all risks are covered.

Cheers,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 16, 7:31 p.m,

There are many cheap bargains around these days, and one cannot have sufficient cash to buy them all, so it's a matter of the most rational allocation of our capital to the best opportunity. There could always be a better bargain, but it's hard to time Mr. Market's moods.

Regards,
Musicwhiz

musicwhiz said...

Hi Ryan,

I do agree that cash-rich companies will do well during such a credit crunch, but then the growth prospects of such companies should also be subject to scrutiny to see if they are deploying the cash to generate high ROE for shareholders. Lots of cash is NOT always good unless you know what to do with it; leaving it idle means letting it generate sub-par returns which cannot even beat inflation.

The worst is yet to come ? No one knows, so we'll wait and see.

Cheers,
Musicwhiz

musicwhiz said...

Hi Cheng,

Thanks for visiting and your blog is very informative too !

Yes, value investing is indeed counter-intuitive and I often find that I need to "fight" my basic instinct just to be able to act. Such behaviour does not come naturally to humans as part of our emotional make-up and requires conscious thought to be able to dispel the notions of "harm" and "risk". Ultimately, it comes down to self-control and a willingness not to "follow the crowd".

Cheers,
Musicwhiz

musicwhiz said...

To Anonymous @ Sep 17, 1:56 p.m.,

So far I am one of the few to put up my exact portfolio for scrutiny, this is to help readers to see whether value investing really works (over a period of 3-5 years at least) or whether it's a bunch of bollocks. :P

Of course, during a bear market the "results ain't pretty", but value investing is not about a short time period. As long as over the long term I can generate a decent return, I will be satisifed. It's very difficult to time the market and for those who talk about selling on hindsight, that's precisely what I am talking about ! Everyhing can be seen in such crystal clear ligh ON HINDSIGHT. :)

I am comfortable with my investing style and what I've bought thus far, but of course I welcome comments/remarks such as Ryan's on some of the companies I own, which is very helpful for me to follow-up on.

Thanks,
Musicwhiz

musicwhiz said...

To humble investor,

I think we just saw one "guru", Mr. Buffett, spring into action by buying up companies on the cheap recently. So I think it's not true that such people go into "hibernation" once the bear comes.

As to the question of recession, no one (not even economists) can accurately predict this !

Cheers,
Musicwhiz

musicwhiz said...

Hi Simon @ Sep 17 4:36 p.m.,

To a certain extent books can "teach" you about such economic cycles and about investing, but nothing like real life experience to add a dose of realism to what one may have read. :)

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 18 9:53 a.m.,

You sound like a broker/remisier. What are your opinions on why one should go LONG at this juncture ?

Thanks,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 18 9:54 a.m.,

I think a good remisier will be able to advise their clients on how they should react and control their obsessive trading during bear markets, so I salute you for being a responsible broker.

Regards,
Musicwhiz

musicwhiz said...

Hi Simon @ Sep 18 10:51 a.m.,

Yes, there was a small window of opportunity to get FSLT at 80 cents implying a 21% yield, but I had to conserve cash for other investments.

Cheers,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 18 5:28 p.m.,

Of course I agree long-term means 5-20 years, and we don't have many 5-20 years with us. That's not to say one should not TRY to get a decent return from the market, even if it means you may eventually fail.

It's much better than leaving your money idle in a bank, or letting fund managers handle it (you have no idea what's happening to it) and pay them a fee annually. To me, this is a personal choice and I prefer to manage my own money by investing in equities.

And yes, I do want to spend my time and life flipping through annual reports and doing research on companies, because I have a passion and liking for it. Even if I eventually do NOT make money consistently, at least I would have learnt something about how companies work and function. I would say knowledge is priceless, wouldn't you agree ?

Regards,
Musicwhiz

musicwhiz said...

Hi Anonymous @ Sep 18 9:16 p.m.,

How would you know if the "market has bottomed" unless on hindsight ? What actions will you be taking to capture this golden opportunity ? Valuations are good but one must also be highly selective.

Cheers,
Musicwhiz

musicwhiz said...

Hi again 8percentpa,

Yep, I do concur with your view that one should incorporate a higher margin of safety during bullish times. Each person has to develop their own style I guess, value investing may not be suitable for everyone.

Regards,
Musicwhiz

musicwhiz said...

Hi Invest SGX,

My view is that as long as a company is doing well and growing, one should stay a shareholder all the way through and enjoy the benefits (such as dividends). It may not always be possible to buy the company back at such cheap prices even if a bear market hits, and it's only on hindsight that we will know this. So I would rather stay put and not do anything unless something fundamentally changes my view of the companies I own.

Regards,
Musicwhiz

musicwhiz said...

Hi Wealth Journey @ Sep 20 4:33 p.m,

Yeah I do agree it can be very murky to look beyond 5 years, as things can change quite rapidly these days. Problem is it's hard to find a company with a very deep economic moat listed on SGX (an eternal problem), so I keep close watch on the businesses of my companies.

Thanks for visiting,
Musicwhiz

Anonymous said...

actually it's quite easy to know if a market has more or less bottom. you have to know a bit of history of previous market bottoms. previous market bottoms have been marked by some sort of government interventions, usually that of a collaborate effort. And the interventions have to be broad in scope and not just on a piecemeal basis and the government has to show firm commitment to it.
Im quite confident STI has bottomed already at 2310. Moreover, there was so much fear on that fateful morning! I hope you guys took the opportunity to add some positions. =)

at 2310, it is already more than 2 standard deviations below the mean, on par with valuations during previous crisis. And it could even go up to 3000 soon, since 3000 is still 1 standard deviation below the mean! Having said that, although market has bottomed, the real pain in the economy will be felt next year. So brace yourself for the rough times ahead!

musicwhiz said...

Hi Anonymous @ Sep 20 11:58 p.m.,

I don't think it's really so straightforward because sometimes there are amendments and changes to the bailout or govt intervention which makes it hard to accurately predict when markets bottom. The best solution is to just buy when you see value.

I don't really buy the theory about standard deviations, but thanks for sharing your views here. Let's all brace ourselves for the coming recession !

Cheers,
Musicwhiz

Anonymous said...

hello,

for the 2 stocks (swiber and china fishery), their total debt to equity ratios were high.
wonder they can raise fund to tie over any financial crisis if there is.
may i know your view about the total debt to equity ratio?
will it be a part of the criteria in stock selection?

thank you.

peter lee

Anonymous said...

to peter lee's comment. you have hit the nail on its head, i think. this is precisely what "investors" need to be careful about. there is only so much breathing space before creditors/lenders will start demanding repayments, and becoming less and less tolerant of payment delays.

"....over any financial crisis, if any..." - aren't we already in a financial crisis, which is far worse than the liquidity crunch of late 90s. banks are now so cautious on providing liquidity, especially so to high risk companies. these companies are so dependent on short-term funding for their day to day operations...if any of their relationship banks start to pull away their lifeline, i would think these companies will start to crumble. i believe many of them have serious cash management problems which are not evident to the outside world. think about their financial reporting really seriously....when are these audited? just my two-cents worth. just be careful if you still feel itchy-hand to invest.

musicwhiz said...

Hi peter lee,

I have replied to you in another post. Thanks.

Musicwhiz

musicwhiz said...

Hi Anonymous,

Yes that is something to take note of. But that is the risk facing most companies, so it's not limited to just listed companies. I would count on the Management to have good cash flow Management. That is the risk investors take up when investing in companies.

Regards,
Musicwhiz