On 2 November 2012, I grabbed a copy of the share tables in the Daily Telegraph and started trawling through the list, aiming to start at A and ending at Z. For several years, I have screened shares using rudimentary software provided by Etrade. I cannot help but feel I am playing a mugs game. Everyone will be screening for shares using popular criteria such as PE, ROE, Book Value, etc.
So I finally overcame my laziness and procrastination and took Buffett's advice. There is really no other way, given that I am not blessed with talents of imagination and creativity, and that I am basically an introvert without a benefit of a wide network to draw information upon.
It was not as painful as I feared. As at today, I have finished all industrials up to G. At this rate, this exercise will be done and dusted well within a month. True to Buffett's experience, there are many names which I spent very little time on. There are also quite a number of decent companies which I already own or have kept on my watchlist for a good entry price.
As a matter of perspective, there are over 2000 listed entities on the ASX. Only 1/3rd of them are making profits. Let's see whether there are some gems hidden in there.
Like I said, simple as ABC. I never said it will be easy.
Monday, November 5, 2012
Sunday, November 4, 2012
It is Obvious, Stooopid!
I regularly re-examine my past investments. I look at moves where I lost money. I try to determine where a mistake was made. Trust me, it has always been mistakes, not bad luck.
I also look at winners. I have found that with winners, the value was very obvious. I did not have to sweat it. I did not even need a back of envelope calculation. In fact, when I found value, I usually have to do a quick re-check to make sure I have not made any mistakes.
Here are some examples:
IMF- I have explained this in previous posts. Just to recap, I found this in July 2008 trading at $82m market cap. It has just won the Aristocrat case, and the proceeds of that case would see IMF's net cash at $68m. I was paying $14m for a $1 billion case portfolio. Since then, IMF has paid dividends in excess of $82m, if you account for the imputation credits ie I have already covered my purchase price from dividends alone.
ASW- I found this in June 2009 trading at a market cap of $16m, with no debt and nearly $4m in cash. Cashflow exceeded $1m per annum, and it was growing from a small base, and paying a dividend. Market cap eventually flew to $40m, and this investment was sold as a 2.5 bagger in about 20 months.
EPY- in March 2011, this had a market cap of $7.2m. Its net current assets totalled $13.5m, and cash stood at $12.5m. A bidding war ensued, and this investment was sold for 48% gain in 6 months. The sale may have been a mistake, as the company has paid $4.6m return of capital since then and is still trading at $7.2m.
UOS- in Feb 2011, this had a market cap of $330m. With very little debt, investment properties on the balance sheet already totalled $433m. Within a year, the company floated a subsidiary on the KLSE and returned $80m in capital plus $20m in dividends to shareholders. Currently trading at $400m, this investment has returned 42% in capital returns and dividends within 2.5 years.
CTE- in April 2012, this had a market cap of $7.3m. It had no debt, had cash of $3.5m on the balance sheet, and management had just announced full year earnings update of $1m. Backing out cash, this was trading at a PE of 3.8. As at the date of this post, CTE is trading at market cap of $16.5m, with $4.5m of cash on the balance sheet. A satisfactory 133% return in 6 months is not too shabby.
As you can see, the value was very obvious in all of these cases. Yet someone was selling shares to me.
Now, a word of caution. I do not believe in absolutes, as there are always exceptions. At the time of writing, there are two companies looking very cheap at first glance. Firstly, RIS is trading below cash. Secondly, SSL is trading at half the value of its net assets. In both cases, unlike the above winners, I am not confident at all that the value will be realised in the hands of minority shareholders.
Disclaimer: the contents of this post is not to be relied on as financial advice. It contains my personal opinion only, plus facts that I cannot verify to be accurate. Do your own research and seek financial advice where appropriate. I have made many mistakes in the past, and will continue to do so in the future.
I also look at winners. I have found that with winners, the value was very obvious. I did not have to sweat it. I did not even need a back of envelope calculation. In fact, when I found value, I usually have to do a quick re-check to make sure I have not made any mistakes.
Here are some examples:
IMF- I have explained this in previous posts. Just to recap, I found this in July 2008 trading at $82m market cap. It has just won the Aristocrat case, and the proceeds of that case would see IMF's net cash at $68m. I was paying $14m for a $1 billion case portfolio. Since then, IMF has paid dividends in excess of $82m, if you account for the imputation credits ie I have already covered my purchase price from dividends alone.
ASW- I found this in June 2009 trading at a market cap of $16m, with no debt and nearly $4m in cash. Cashflow exceeded $1m per annum, and it was growing from a small base, and paying a dividend. Market cap eventually flew to $40m, and this investment was sold as a 2.5 bagger in about 20 months.
EPY- in March 2011, this had a market cap of $7.2m. Its net current assets totalled $13.5m, and cash stood at $12.5m. A bidding war ensued, and this investment was sold for 48% gain in 6 months. The sale may have been a mistake, as the company has paid $4.6m return of capital since then and is still trading at $7.2m.
UOS- in Feb 2011, this had a market cap of $330m. With very little debt, investment properties on the balance sheet already totalled $433m. Within a year, the company floated a subsidiary on the KLSE and returned $80m in capital plus $20m in dividends to shareholders. Currently trading at $400m, this investment has returned 42% in capital returns and dividends within 2.5 years.
CTE- in April 2012, this had a market cap of $7.3m. It had no debt, had cash of $3.5m on the balance sheet, and management had just announced full year earnings update of $1m. Backing out cash, this was trading at a PE of 3.8. As at the date of this post, CTE is trading at market cap of $16.5m, with $4.5m of cash on the balance sheet. A satisfactory 133% return in 6 months is not too shabby.
As you can see, the value was very obvious in all of these cases. Yet someone was selling shares to me.
Now, a word of caution. I do not believe in absolutes, as there are always exceptions. At the time of writing, there are two companies looking very cheap at first glance. Firstly, RIS is trading below cash. Secondly, SSL is trading at half the value of its net assets. In both cases, unlike the above winners, I am not confident at all that the value will be realised in the hands of minority shareholders.
Disclaimer: the contents of this post is not to be relied on as financial advice. It contains my personal opinion only, plus facts that I cannot verify to be accurate. Do your own research and seek financial advice where appropriate. I have made many mistakes in the past, and will continue to do so in the future.
Back After Lengthy Hiatus
It has been nearly 3 years and 2 months after my last post.
I wished I could say in that time, I have returned a market-stomping 25% per annum compounding on my portfolio. Alas, it is not to be.
Rather, what had happened was as follows:
In year 2008- X capital allocated to shares.
In year 2009- X capital became 1/2 X- you read that right. The portfolio declined by 50%.
In year 2010- portfolio recovered to 0.8 X.
In year 2011- portfolio recovered fully to X. A further 1.5X capital injected, thus portfolio totalled 2.5X.
In year 2012- portfolio of 2.5X gained 60%. Portfolio now 4X.
In hindsight, the mistake was simple. I did not buy when others were fearful. The most glaring example seared in my memory is FLT at $5.50, after Skroo Turner bought heavily at $3.50. This would have been a five-bagger in 3 years, not counting dividends.
The consolation is that it has not been time wasted. I have come to appreciate the huge importance of having a disciplined process. The resurrection of this blog is intended to ensure I keep to my process, and to share with readers the daily trials and tribulations of a value investor. Hopefully, we will all learn something in the process.
Rather, what had happened was as follows:
In year 2008- X capital allocated to shares.
In year 2009- X capital became 1/2 X- you read that right. The portfolio declined by 50%.
In year 2010- portfolio recovered to 0.8 X.
In year 2011- portfolio recovered fully to X. A further 1.5X capital injected, thus portfolio totalled 2.5X.
In year 2012- portfolio of 2.5X gained 60%. Portfolio now 4X.
In hindsight, the mistake was simple. I did not buy when others were fearful. The most glaring example seared in my memory is FLT at $5.50, after Skroo Turner bought heavily at $3.50. This would have been a five-bagger in 3 years, not counting dividends.
The consolation is that it has not been time wasted. I have come to appreciate the huge importance of having a disciplined process. The resurrection of this blog is intended to ensure I keep to my process, and to share with readers the daily trials and tribulations of a value investor. Hopefully, we will all learn something in the process.
Monday, August 31, 2009
IMF a year on
Since I last wrote, IMF has moved to a high of $1.98. This was met by heavy selling...by a director, as it later turned out... and the reason given was that the shares were sold to fund a take up of a similar number of options. The sale pushed the price back to about $1.38, and at time of writing, the shares are at $1.57.
At 120 m shares, the market cap is $188 m. The company is in a stronger position, with funded claims of about $1 b. On 30 June 2009, it has 61 m of cash with no debt. It has since announced settlements which will boost cash by at least 20 m. Accounting for dividend payment in July, the company should have about 75 to 80 m in cash. It has since announced a buy-back.
My view is that IMF continues to be undervalued. The claim "book" I have estimated a probable value of about $150-200m. Add back cash, and we get $225m to $280 m, which equates to $1.88 to $2.30 per share, with the enterprise value as a free option. I would ascribe fair value to be about $2.00 to $2.50.
There has been no significant judgments or developments affecting the claims book. With an expected fully franked yield approaching 9%, I am only too happy to hold.
At 120 m shares, the market cap is $188 m. The company is in a stronger position, with funded claims of about $1 b. On 30 June 2009, it has 61 m of cash with no debt. It has since announced settlements which will boost cash by at least 20 m. Accounting for dividend payment in July, the company should have about 75 to 80 m in cash. It has since announced a buy-back.
My view is that IMF continues to be undervalued. The claim "book" I have estimated a probable value of about $150-200m. Add back cash, and we get $225m to $280 m, which equates to $1.88 to $2.30 per share, with the enterprise value as a free option. I would ascribe fair value to be about $2.00 to $2.50.
There has been no significant judgments or developments affecting the claims book. With an expected fully franked yield approaching 9%, I am only too happy to hold.
Thursday, April 23, 2009
Fast Track Cases
The Federal Court has just announced the commencement of a fast track case management system. It is expected that cases under fast track can be finalised within 5 to 8 months from the date of filing.
The positives are quite compelling. Commercial parties could now have a more reliable estimate as to the length of any litigation. Because of compressed time and regulated procedures minimising delays and pre-trial skirmishes, estimate of legal costs will be much more accurate. Certainty, or at least a reduction of uncertainty, will be very welcomed by commercial clients. My view is that every commercial dispute should be fast-tracked, or at least very closely case-managed. From my experience, the dynamics of commercial litigation is such that more often than not, one party benefits from delays, and that party is more often, but not always, the defendant. Think insurance companies, debtors, etc. I was recently in proceedings in the Supreme Court where my calculations arrived at the compelling conclusion that the defendant had a clear economic incentive to delay and fight without settling, since the legal costs (plus adverse costs orders) and interests on the amount claimed from the defendant does not exceed the funding costs of the defendant if that amount should be sourced externally from a bank (if any were available, such was the financing bottleneck during the subprime crisis). Therefore my client unwittingly became a financier!!
On an investment note, there are clear benefits to litigation funders, since one of the risks of litigation funding is that funds are tied up for such a long time waiting for a matter to go to trial.
The positives are quite compelling. Commercial parties could now have a more reliable estimate as to the length of any litigation. Because of compressed time and regulated procedures minimising delays and pre-trial skirmishes, estimate of legal costs will be much more accurate. Certainty, or at least a reduction of uncertainty, will be very welcomed by commercial clients. My view is that every commercial dispute should be fast-tracked, or at least very closely case-managed. From my experience, the dynamics of commercial litigation is such that more often than not, one party benefits from delays, and that party is more often, but not always, the defendant. Think insurance companies, debtors, etc. I was recently in proceedings in the Supreme Court where my calculations arrived at the compelling conclusion that the defendant had a clear economic incentive to delay and fight without settling, since the legal costs (plus adverse costs orders) and interests on the amount claimed from the defendant does not exceed the funding costs of the defendant if that amount should be sourced externally from a bank (if any were available, such was the financing bottleneck during the subprime crisis). Therefore my client unwittingly became a financier!!
On an investment note, there are clear benefits to litigation funders, since one of the risks of litigation funding is that funds are tied up for such a long time waiting for a matter to go to trial.
Thursday, March 12, 2009
The End is Near
Perhaps it is due to irrational exuberance from the stock market bounce today. I came across two articles today which appear to indicate that the financial markets have hit rock bottom and is due for a turnaround. The first article is titled "The End of Economic Growth". The article suggests that perhaps we may be entering a critical phase where economic crash will merge with ecological crash, and 2008 may be the year of "the Great Disruption". This reminds me that we have gone through a "new paradigm" once in the 1980s with leveraged buyouts, and then again in the 1990s internet boom. My father-in-law tells me of his experience in the 1970s with rampant inflation, oil shock and gold prices, and the end of the world as everyone knew it, also a so-called "new paradigm". The doomsayers are out, and the end is near, a "new paradigm" is emerging, which signals to me BUY BUY BUY. The other article concerns Macquarie Bank written by a once staunch supporter who was bullish on the stock. Now he has thrown in the towel, and citing Charlie Munger to wit. Reminds me of James Cramer's story- the market bottoms when the most bullish of the bulls throw in the towel.
We'll see.
We'll see.
Making good leased premises
It is usual for leases to stipulate that at the end of the lease, the tenant has to make good and restore the premises to its state and condition at the commencement of the lease, fair wear and tear excepted.
Consider a lease with 5 years initial term and 5 years option, and the option has been exercised. When an option is exercised, a new lease comes into place. Therefore, at the expiry of the option lease, the tenant has to make good the premises and restore the premises to its state and condition at the commencement of the option lease, not the original lease.
There may be a big difference between condition of the premises at commencement of the original lease and the condition of the premises at the commencement of the option lease!!
For tenants, take pictures of the premises at commencement, even at option commencement date.
For landlords, keep pictures and records of the condition of premises at commencement. When an option is exercised, inspect the premises. Include a lease condition to ensure that all damage is made good before commencement of the option period, the failure of which will either void the tenant's right to exercise the option, or becomes a serious breach allowing landlord to terminate. Or perhaps draft the make good clause clearly to stipulate the exact condition in which the premises must be restored to (eg bare concrete shell), rather than making references to commencement dates.
This issue must also be considered by purchasers of lease properties, and also incoming tenants taking an assignment of lease. Get it wrong, and someone will spend millions making good, perhaps at the expense of their lawyer!
Consider a lease with 5 years initial term and 5 years option, and the option has been exercised. When an option is exercised, a new lease comes into place. Therefore, at the expiry of the option lease, the tenant has to make good the premises and restore the premises to its state and condition at the commencement of the option lease, not the original lease.
There may be a big difference between condition of the premises at commencement of the original lease and the condition of the premises at the commencement of the option lease!!
For tenants, take pictures of the premises at commencement, even at option commencement date.
For landlords, keep pictures and records of the condition of premises at commencement. When an option is exercised, inspect the premises. Include a lease condition to ensure that all damage is made good before commencement of the option period, the failure of which will either void the tenant's right to exercise the option, or becomes a serious breach allowing landlord to terminate. Or perhaps draft the make good clause clearly to stipulate the exact condition in which the premises must be restored to (eg bare concrete shell), rather than making references to commencement dates.
This issue must also be considered by purchasers of lease properties, and also incoming tenants taking an assignment of lease. Get it wrong, and someone will spend millions making good, perhaps at the expense of their lawyer!
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