Buy on a story, sell when plot turns bad

This will be a short post.

I believe in investing, we need the connect the numbers to a story to make better sense of a business. U can call it growth modeling or revenue projection, but I feel both u can't really make it buy or sell call without both.

For a stock that I owned, I usually sit up when it falls 20 percent. I will ask my self to do 3 things. 1) Buy more, 2) Sell some or all, 3) find out more so that I can do 1) or 2) within days or a week.

This approach has mix results but it keeps me sanity and allow me to sleep well. I will share examples and what I have learn from them

A few examples. 

Sembcorp Industries, SIA engineering etc. Both I have been accumulating as they retreat. SIA engineering has rebound from a low of near 2 dollars and to a high of close to 3 dollars before this covid 19 wreck havoc on the aviation industry again. My story then was, supply of planes has been increasing year after year, although new design of planes lengthen the time before a D check is required, it is cyclical and the market demand will return, as long as SIA Engineering is competitive enough in the demand side of the equation. ST engineering aviation seem to turn earlier than SIA engineering, but I kept faith as long as they dun go into loss. If there is no loss, where is the chance of permanent loss? 

Sembcorp industries as a whole is still profitable. O and G has reached bottom although no one knows how long the bottom will last. Recently there is some question mark on the competency of management having gotten the UK electric demand wrong. But since Sembcorp is a cyclical play story, and that the story is intact without high risk of  permanent loss, I am still accumulating. The story of Sembcorp industries is it has skins in both traditional and renewable utility business capability. Wind farms, solar, coal fired plants, etc... The question is whether the management will continue to dig holes for themselves. I am also still waiting for a potential catalyst to spin off their mature utility business into a trust which will usually yield better valuation than the holding company itself. At 0.5 to NTA now, I dun see why white knights will just let this company go the way to the dodo.

Net link

The story is that their growth will offset the 40 Mio loans taken to push up their dividends, and I am happy to sit of a 6 percent yield for a defensive business. 

There ahould also be more demand due to starhub cables being phase out, and 5G innovations ( longer term ) 

When the growth didn't materialize, I sold at a 10 percent profits. On hindsight, that 10 percent will.have become a 40 percent capital gain have I hold on to it.

SLA

From a low base in 2018, I correctly projected it earnings could double in 2019 and is sitting on almost 40 percent gain at one point of time. I did sold some to locked in profits but the 40 percent gains has  turn into 30 percent loss.

In 2020, I no longer expect doubling of profits but I am expecting around 10 percent growth. Yet the last 2 quarters disappoint. Given that SLA project earnings could be lumpy, I waited for clarity and the price continue to slump.

Recently SLA trigger that 20 percent fall decision time. The story of high demand for digital platform for fintech and existing financial companies is still intact, but it seems the good year sof SLA is over. They do not seem to be able to capture the market, and the injection of Goh companies did not improve topline. 

Yet, SLA is still highly profitable. The mix signals that affect my decision is that SLA is on a shares buyback spree for quite a while and since GOH owns more than 65 percent of the company, I am.also speculating if he intent to bring the company private. 

I did make another bid to accumulate the shares but I didn't manage to get any. I seem to be quite luckless with this counter as the counter rebounds after that failed bid. I would think the next quarter will be decision time to really halve the investment or even divest completely if the company still do not show that the plot of story has not done bad, by either showing they can get good contracts or that their lumpy recognition is at work and next quarter is much better than previous. 

QAF, HK land, Koufu, DFI, Cosco 517, GA pack

All these are recent buys for the month of Feb or March. They all have turnaround story to tell. I shall not go into individual companies but cash flow is good and except QAF, they are all sold down due to a event, back swan or not. As someone said, events pass. Covid 19 will not be a structural disruptive event. People are not going to stop taking cabs or visit restaurants once this is over.  All have maintain their dividends and if their balance sheet and cash flow continue to hold up, I will accumulate as they fall. The only counter nearing the 20 percent fall threshold is DFI, the rest are holding up well or are already above purchase price.

Conclusion:

1) always continue to look forward the next story, SLA after the doubling, does not have a projection number although the number is intact. When the quarter is bad, they should have been some aggressive trimming of position. While I gotten Netlink wrong, my portfolio is not hurt in anyway by my quick decision. Have I been equally decisive in triming, I could have gotten out at break even price and collected dividends for free. 

2) the stronger the projection of numbers, the better it is to guage whether the plot has turned bad. Pan United is just like SLA, having already double its earnings, and increase its dividends. However, what is different is the 9 billions construction demand from IRs is still not in the picture. I believe Pan united can have a good 2020 given RMC price is on a roll. I should have the same level of story to tell when I make my decision about SLA.

3) Its damn dumb luck.

Hahahahahah the best anticlimax of the story. Could I have guess what will happen? I already said, I connect story (frictional) with numbers (a pack of lies) and hope to do well. This is because I simply enjoy doing it. I have not the slightest idea that QAF will turn this quarter. I just feel that their bakery business is still doing very well and Riviera should turn given beconan prices have improved and feed price has stabilized.