A Review of Past Divestments

I had mentioned in one of my previous posts about reviewing past divestments in order to ascertain if they were indeed good choices or bad decisions. This is because the measure of an investor is not only in the performance of the companies he currently owns, but also the decisions he had made in the past with regards to companies which he felt did not fit his criteria. Measured as such, one can safely conclude that certain decisions should have or should not have been made. Of course, there may be other extenuating factors involved in each decision, but let’s keep the analysis simple for now in order to avoid confusing parallel possibilities which may open up further complex debates. Luckily, I had kept very meticulous records since I started investing in Dec 2004, and I have the exact details (down to the dollar) of each trade and divestment gain/loss, which is why I can compile a very accurate portfolio summary of realized gains to date.

Below is a table in which I have detailed the companies I used to own (all the way since I started investing in the stock market, to date) and the original rationale for divestment. These are also chronicled under my “Investment Mistakes” section which you are free to access to read on more details on why I sold each company, and to be truthful many were divested before I adopted value investing (except, of course, for the more recent ones). The next table then shows the difference between my original cost, my divested price and the last done market price. The simple table does not account for dividends along the way, but seeks to determine if a decision was, on hindsight, a good or poor one based on current information about the company and also how it has been doing since I divested it. Admittedly, a full and detailed analysis would take up a lot more space (and probably more posts) than this, so I am keeping it simple just to illustrate the principle of reflection on one’s decision and how it can help improve one’s thought process and investment philosophy.



As can be seen above, much of my 2005 record consisted of various IPO “stags” (i.e. selling IPO shares on the first day of trading to make an immediate profit), short-term trading positions and one lousy contra loss. Most of these were totally clueless bets based more on sentiment and price action than fundamentals. Even up till mid to late 2007, most of the companies I bought were purely speculative, and this was partly due to the irrational exuberance in 2006 through late 2007 which infected penny stocks as well, causing them to rise along with the tide. Only my last two divestments were of a purely investment nature based on my value investing philosophy; I can safely say that before mid-2007 I was a trader and one of my trades even used rudimentary Technical Analysis methods which a friend had taught me (UTAC).



The above table shows the effects of divestment when comparing against the last done share price (or for the delisted companies, against the exit offer price). It can actually be seen that for the trading positions, I might have done way better in hanging on to those positions, especially in fundamentally sound companies which grew over time. But if you note, the “duds” can fall as much as 80-90%, and one of them (Celestial) was even suspended due to some issues with convertible bonds. Thus, a meaningful comparison of whether it was wise to divest can only come from my latter decisions which were more geared towards investment, rather than mindless speculation. On the whole, it can be summarized that for companies with viable business models and growing earnings, it would have been much wiser to buy and hold (i.e. invest) rather than trade them for short-term gains.

If I view the divestments relating to Trek, Global Voice and C&O Pharmaceutical, it would be apparent that the decision to divest early and quickly upon first signs of trouble were wise, and have led to the successful deployment of the funds to more worthy investments. This is because these companies did not have an enduring economic moat or high barriers to entry, and thus were prone to loss in market share. Global Voice was one of the consistent loss-makers back from 2005, and even with a slew of marketing-style press releases and even the CEO voicing support for the share price (then at 6.5 cents), it could not stop the inevitable tumble to the current 2.5-3 cents. An EBITDA profit (as always mentioned by the company) does not count – in fact cash flows and net profit are far more important measures of business success than simply using EBITDA (which conveniently removes the effects of depreciation and amortization) and revenues.

To conclude, this rather academic exercise is just to show how holding on to good companies can result in very massive gains over the years, as demonstrated by Pearl Energy, Labroy Marine and even Olam (though now I argue that gearing is too high for this to be a good investment). Conversely, one should also bail out the moment an investment does not stand up to scrutiny, otherwise it may end up as another Global Voice or worse still, get suspended like Celestial Nutrifoods.