Friday, July 17, 2015

Random thoughts: Can we really buy at near bottom?

I am not sure if you have such a question/ remark when you do your company prospecting/ research.

After doing your due diligence, both qualitatively and quantitatively,  you like what you saw, and the only problem you have is, you would rather it be at a slightly lower price, or you felt you should have gotten in earlier.

So the next remark I usually have in my mind in: I will put it in my radar screen and will get it when it is cheaper.

The problem is, when it is indeed cheaper, it is cheaper for a reason, so do we invest?

I saw from CW post that he bought OSIM recently.

Truth to be told, I was watching OSIM too, maybe not in great details, but I do think that TWG brand hold great promise and with a good balance sheet (abeit due to fund raising), and with a more respectable yield of close to 4% now than just a few months ago, it did look rather "cheap" overall.

But I didn't. I want to keep ammo dry, and I wonder how long will TWG capex expansion bear fruits, and how long the retail weakness in general will last.

My own example- Sembcorp Industries.

I sold 1 lot away much earlier at a higher price, and I thought $4 might be a attractive re-entry price.

It did make a bid at $3.8 but I didn't get it. But what the heck is the difference between 3.8 and 3.85 when I am only buying an additional lot. Truth to be told again, I lack the balls and conviction.

Sembmarine's drill ships problems with Petrobas and competition of utilities and lower rate at home, etc.

It was just months ago when many were screaming "cheap" at $4.40, so it is $3.9, why is it not cheaper?

The question is not why it fallen from $4.4 to $3.9, just google it and you will plenty of answers. The real question is, it is possible to get Sembcorp at $3.9 WITHOUT the bad news that you see now.

I think if you want to get a company cheap, you can, provided you are looking at

1) Small caps with minimum coverage.

Otherwise, we really need to look beyond the bad news and challenges and ask ourselves what is next and what is the longer term earning powers.

But how do we calculate DCF and earning powers conservatively? Earnings can fall by a lot during bad times and you will start questioning your calculations and assumptions. Of course we can have really conservative input in our calculations, but that would most probably mean we have to wait till sentiments is really bad to get our valuation, and do you still have the balls with you then?

I am looking at companies that have people questioning its moat. For example, Sembcorp industries and SIA engineering.

SIA engineering face the problem of new engines requiring less maintenance, and rightly, we should be worried especially since they have already cut dividends, a signal that management themselves wish to conserve cash.

So how do you keep your convictions that a company can "turn", it is still some valuation calculations or was it some qualitative analysis (Perhaps from the angle of insider) that gave you the confidence?

Or you simply do asset re balancing and know the bigger picture will sort itself out?

Maybe you can share with me? Will appreciate that generosity.



21 comments:

  1. Sillyinvestor,

    Looking at the "silence", I think you've got your answer ;)

    If it were "easy", anyone and everyone would do it already....

    And who will do the actual working?

    ReplyDelete
    Replies
    1. SMOL,

      Hmm... I have no answers, u have??

      Maybe my posts getting "bo liao" and hence no one really read it hence the "silence", so I have to treat u sogurt ( yougurt ice cream) for your support.

      Why sogurt, because that shop at nex has a pretty shop owner to go with it. Lol.

      When u free? LOL

      Delete
    2. Sillyinvestor,

      Not your post "bo liao" - it makes readers reflect what what they think they know versus what they really know ;)

      I also dare not answer as my track record in 2009 tells it all in hindsight - I wished I had went in with all-in lump sum instead of scaling-in...

      I remember during 2nd half of 2011, I was more worried about giving back my 2009 capital gains than about taking advantage of the freaking dip...

      Well, we know how that turned out :(

      Is there an answer?

      If world economy tanks and SIA engineering goes down another 20%, you'll be happy you didn't buy now...

      If global markets rally and SIA engineering goes up 20%, you'll be sorry you didn't buy more now...

      Opinion is cheap.

      That's why when we buy, there is an opposite seller; and when we sell, there's a buyer.

      Someone out there obviously not only have different opinion than us, also ACTS upon it ;)

      Hands up anyone who got in near the 2009 lows?

      Delete
    3. Hi SMOL,

      I am thinking of "convictions" like true blue value investors.

      I do not necessarily think if someone buy SIA engineering and of went down 20% mean he lack convinction. He is a really cool winner if Enginnering keep feeding him the yield and at the right cycle release it at 100% profits.

      But that need conviction. I know from the bloghersphere that someone bought MtQ but didn't sell it when it is a multi baggers, now it was back to less than 100% gain. But the Cash flow from
      It allow him to keep the warchest expanding....

      Maybe that's the conviction! Maybe complicated analysis cannot be put down in words...

      I too busy recently to do In depth research, so I only hope those one radar go cheaper. But from the looks of it, the short term is going to be bullish unless earnings disappointed ...

      Delete
    4. Sillyinvestor,

      I'll take you up on the "free" sogurt. This month cannot. I'll let you know.

      See? Who says your blog no one read?

      In 对口相声, I'll come to support if you need a partner ;)

      I practice 群口相声 at my blog.

      To avoid becoming 单口相声 , first say what's your opinion/stand/position, etc. Then it becomes easier for others to either agree or disagree with you (this will cost you another sogurt).


      Start with conviction in yourself.

      If you want to pursue a income strategy, that conviction should come for within you; not what others have said or done. They are they; you are you.

      If your conviction is the realisation you are too busy to do in depth research YOURSELF, well, there are other strategies for people just like you.

      For eg, to say no time to research and "convinced" income is the right strategy just doesn't make intellectual sense... I would think an outsource (to active managers) or passive investing strategy would be more matching...

      Unless of course you are one of those clowns who believe you can just spend 5 minutes a day/week/year doing research; and that's all you need for DIY ACTIVE portfolio management!? Wow!

      Delete
    5. Hi SMOL,

      As usual, some sound advice from u.

      Indeed, company analysis started off as a interešt, and money as an external motivation and it is a twin engines.

      Engines flattering... But there is no need to buy every month of quarter, so j can pick it up again during the holiday.

      What's up this month? Busy trading??

      Delete
    6. Sillyinvestor,

      1) Yup, the currency market is starting to trend again ;) Finally!

      2) My elder sibling will be coming back from overseas to Singapore for vacation end of this month. I gonna have "free" staycation at Sentosa again :)

      Family time!

      Delete
  2. Hi Sillyinvestor,

    Like what SMOL mentioned, there's no easy answer to this. Very few can go "all-in" at lows and you are right that when stocks become cheaper, more often than not, there's a reason to accompany it. Although the probability of Sembcorp going "kaput" is very low, I think many underestimate the possibility of it going the way of "NOL".

    SMOL's behaviour of scaling in is less profitable but definitely much easier to execute and it's something I have been doing it for the past 5 years. Unless valuations are extremely cheap or expensive, a 40-60% allocation for stocks could be prudent. There's room to wriggle if circumstances change.

    Once you're in the blogosphere long enough (which I think you have), you will also notice that some people hold >20 stocks while some hold <10. It all depends on your conviction and comfort level. If you're worried your analysis is wrong, and the company goes kaput, can you sleep with that loss? Or is 2.5% more palatable?

    Conviction is also a double-edged sword that cuts both ways.

    Truth be told, as the days, months and years pass, I inch towards more "passive" methods of investing.

    ReplyDelete
    Replies
    1. Hi 15 HWW,

      Thanks for your input. I assume 40-60 means equity-cash.

      I seriously do not think Sembcorp will go the way of NOL. The 1 strongest reason is management.

      NOL IS RUN by people not from shipping background. The one from rickemers left. Maybe he is not good enough but I am not sure how the current one is any better.

      While the excess capacity is beyond NOL control, there are many profitable shipping companies around the world, and not all are necessarily bigger. BDI are going to the dogs yet there are Pure bulk carriers play still profitable. ( my I do is 2 years ago, maybe they making loss now?)

      It says a lot about the competency of management in managing industry cycle.

      That Semb utilities has it good for years and kept te balance sheet sound for expansion during low cycle did not sound "stupid" to me.

      Last but not least, I believe Sembcorp being relatively clean, can do plenty of finacial engineering while NOL can't.

      Utilities rate at India are sold to municipal govt on long term lease, so are some of the water concession deals. They will be cash generating or stable when the time comes, and how about a Utility reit? Like what hyflux is doing ? But I RATHER sembcorp not do it ...

      Sembcorp is WInning contracts as usual... And the most recent win by marine is a boast in confidence...

      Maybe. I should stop writing... I do want to get it cheap

      Delete
  3. I would ask a close qn: do we really need to buy at close bottom?
    Not really. So long as the biz is fundamentally alright n pays dividends, imo its ok to miss the bottom or near bottom.
    As a personal eg i bought 3m shares taisin at 18-19c..cant remember exact in 2010-11. Pple around me thought i was crazy.
    it did went to 17c. Paper loss of ???. Pple thought i jialat liao.
    But still pays dividends which i used to feed other counters.
    i din catch bottom. But i got conviction that thus stock with 60yr hx will be ok n stuck to this conviction.
    It soon rose to 25c then 30c then 35 n 40c. I sold off in parts as they rise above nav.
    So my morale of story,
    Believe in ur homework. Have a workable plan. Stick to it.

    ReplyDelete
    Replies
    1. Paul, thanks for weighing in.

      I believed your convictons. Judging by the amount u hold.

      But seriously hor. Buy 19 cents and reach 17cents, then went up? That is buying at near bottom la.

      U got better example a not? I think at least 30% la, otherwise seriously no one will have their "convictions" shaken.

      Better examples?

      Delete
    2. I got hiap hoe at ard 10c. Then it went to 5c not long later. Huge paper losses. Stuck to it. Believed in teo kb n my conviction.

      Delete
    3. Thumb up!! Like button.

      Your conviction derived from your research that dividends will go on..

      And from your blog post, you track dividends and not portfolio value.

      Just like AK is focused on income...

      Getting something here. Thanks !

      Delete
  4. Yes. Cos sooner or later the portfolio has to catch up with the income it produces.
    dun think too much of absolute losses..cos no one knows market direction.
    Be concerned instead of what one can do to increase income.

    ReplyDelete
    Replies
    1. Thanks... Paul.

      The middle part... I go for income and prepare war chest ....

      No build-up also never mind la...

      Slowly ...

      I seriously think no matter how seriously I take this exercise, I cannot say I will be able to FI say at age 50? Or 60?

      But I will build whatever I could.

      The cheong period of investing is rather unhealthy ... Both mentally and financially

      Delete
  5. Hi SI

    Hindsight makes things easier to see.

    Binary position of all in or all out makes it even harder to make decision.

    Luckily, we are just a normal retail investor. We are our own shareholder. We account for our own mistakes, and our own glory. :)

    ReplyDelete
    Replies
    1. Hi B,

      Actually, our family is out stakeholders.

      Even if there is no financial hardship, a bad investment or over -focus on money will hurt the ties.

      But I understand what u mean by there is no need to answer to any clients ... No KPI to meet and its ok to make mistakes

      Delete
  6. Dear Si,

    The question you have asked is the fundamental question for most investors. I think that the "Gut" is the compass to be followed here. As B just pointed out in the post above, we are responsible for our own decisions & the decisions we take are the best decisions at the point of time.

    Jia yu & follow your heart. The heart is usually not wrong.

    ReplyDelete
    Replies
    1. Hi GP blogger,

      You are frugal daddy right?

      I like the word "frugality", it is a value underempasized in schools.

      Not that I am a good example. ;)

      Delete
    2. I am not frugal daddy but I do read his blog
      I agree with you on the part about frugality, but I think family plays a bigger role in imparting values. Schools can help but parents are the role Models.
      I still have a long way to go though.

      Delete
    3. Hi GP blogger,

      Sorry for the late reply, when work starts, is crazy.

      Agree with the family part on frugality ...

      My son don't seem to understand it, but with a sticker system, at least now he will say w so ex

      Delete