Saturday, September 24, 2016

Doing company prospecting is risk management rather than prediction

This is somewhat triggered by B's post on swiber and the issue of hindsight commentary.

It is not difficult to find what's wrong with swiber, MPM, etc. but personally, DYODD is more about self-accountability and comfort level rather than anything else.

I remembered MPM had a price surge when it first announced its foray into Rig, if u have exited then, MPM is still a profitable (perhaps very) for some. I didn't because I am not comfortable with the rig being built without a charterer. Does that mean I am a genius? No la, just that I am uncomfortable with that fact. Similarly, I thought oxley will blow itself up sooner or later, but it's properties keep selling like hot cakes and it's going places, and those overseas projects are also generally successful. But I am still uncomfortable, it's not about whether we are right or wrong, but how u think of its risk reward profile. And if can u forgive yourself if you are right and uncomfortable about the risk but went in nonetheless. 

Cases of I am wrong about the companies earnings and still make money:
1) CMPH
2) Gaoxian (exited when dual listed)
3) Venture (growth drivers did not come from 3D printing and Penang cost control ,rather it's from life sciences) 
4) ST engineering ( AIMs and LSG did provide the growth, but offset by MRO) 

Cases of being right about the companies' earnings but still lose money:
1) Lee metals
2) LMIR


Then there is many cases of being right about the earnings but sold too early:
1) CES
2) Cogent
3) Silverlake axis

So all in all, I agree with B that "I told u so" is rather meaningless.

We need to get BOTH the earning forecast right, as well as the entry and exit right.

But the fun part is "reading the industry and management", equally fun as making money. 





9 comments:

  1. Hi Silly,

    I must say that's it really all about how much we know about the business and the environment in which they operate in.

    Eg.
    For Marco, they have certain advantages because of the cabotage law however the price of oil is not within their control. N at that point of time, no one could have imagine that oil will drop so much.

    If you have invested in overseas properties eg, London (which Oxley is heavily) involved in, you will have the experience of just paying the downpayment and the loan only kicks in when its time for completion. That's why Oxley has to be so highly geared as they need to cover the entire construction cost and majority of payment only comes in at the end, That's why their results looked bad till the last two quarters when their London project is progressively being completed.

    This is unlike Singapore where our loan kicks in once the construction hits a certain stage so developers can be assured of cashflow at the different stages of constructions.

    Regards,
    FFE

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    Replies
    1. Hi FFE,

      I agreed. It's when we disagree with "'market assessment" that we get a "steal" otherwise we are chasing "hot stocks"

      Hot stocks can continue to be hot if growth materialize but the downside is scary too. Generally I preferred picking unloved stocks which I think are unfairly valued.

      Oh hindsight, I give Oxley management A for execution. But I still have this to ask for Oxley followers, there and then if they have 1-2 projects that "failed" what happens?

      OUE, Wingtai etc have projects that can't sell, it will affect profitability but not survivability. I would still hold my stand that things can easily go the other way and unravel very quickly if oxley has 2-3 unsuccessful projects because all of them are heavily geared and they are too close to one another...

      As for MPM, the sheer price of the rig is a big turn off even for yeh advantage of cabotage law. Of course, as I said, things can well go the other way too, with oil prices still high

      The key question is "what if"

      I ask myself what if HTM blows for Yangzijiang? I believe there is no way there will be a "Total Blow-up" and market is over discounting. Until recently, it is reducing it HTM too, hope they dun reverse course. Hence the investment

      Same point about Singpost, what if alibaba dun invest anymore. My analysis is it will still do well. What if "Sembmarine" is no longer profitable (I thought they could at least hold flat profits, which I am wrong, hence I loss money) utitility can still offset it

      If my analysis is the "what if" happens and I can't sleep, I give it a miss.

      Delete
  2. Hi SI,
    Fully agreed , is about risk management and tolerance,,,than prediction and analysis,,, how much risk we can take is important ,, but in good time ,,, is very nature that we will forget about it ,,become more optimistic and overconfident.
    In investing,,, some time we win some time we loss ,,, not to over analysis reasons that which is really uncontrollable,,, that's why I have a very " Kia Shu and Kia Shi " portfolio,, hahaha :)
    Cheers !

    ReplyDelete
    Replies
    1. STE,

      I dun think your portfolio is Kia Shu and kiashi, it's a balance portfolio, just that not many have built it ... I would like to build something like that too, maybe less on reits ...

      Kiashi is when there are around 50 counters, such that each only takes 2% of weightage and not 1 takes more than 5%

      Kiashu is diversity across asset class and currency. Property, metals cash in several currency

      We are all very Normal LOL

      Delete
  3. Hi SI

    Thanks for pointing out one thing that I missed.

    I agree that even in a bad company there can be profitable investment and vice versa. The important of doing dd is to make sure one knows what they are getting into. Actually, if one had invested in SCI at their 52 weeks low of 2.12 and sold when they rebound at 3, thats a very savvy move. What could be bad investment for one could be good investment for others. Maybe the shortist is a winner in the swiber saga.

    ReplyDelete
    Replies
    1. Hi B,

      I think for most people, we are not shorting any companies to profit. It's either buy and hold or buy and sell.

      If a company can do good over a long term, we can buy and hold... But even good companies fall on tough Time.

      Then there is the third dimension, the investor himself, whether he can have the 3 M at his disposal when required to take advantage of "miscalculations". In such cases, miscalculations are not "miscalculations" isn't it ?

      Delete
  4. It is already 2 yrs since oil crisis... maybe it's a bit late to take about oil crisis now... for what need to be said should be earlier..

    Maybe for a more constructive talk, is let's say: how to protect a bank crisis now! Haha... maybe only... at least it's lesson learnt!

    For most men are lovers of themselves so much that even one day even the Truth find it so hard to cover their ego!

    End of the day, no use saying who is right or wrong, but just that for those who is wrong, acknowledged and confess UR mistake and for those who are right, with humility be thankful.

    ReplyDelete
    Replies
    1. Hi Rolf,

      I cannot see the next crisis as I have no crystal ball. In fact, I think there is too much fear that things might hum along for the next few years.

      Currency and debt crisis perhaps, but not China.

      Delete
    2. Hi SI,

      You can or cannot see the next crisis coming is NOT as important as do you believe that it will becoming worst or better? That is more important. For once your belief is strong, then it will lead to corrective action, and somehow automatically. This is when the real crisis take place, you will not be frightened or worry, for you already believe it is going to happen, and will not do anything to prevent it, because you can't anyway.

      The crystal ball is like medicine. When you are ill, you take it. If you are spiritually healthy, why then do you still need medicine? Which means what good does the crystal ball do then?

      End of the day, it is what is inside the human body that is more important, isn't it?

      Delete