I have been selling and buying over the past week. Out goes my position in SP Chem, and in comes a HK stock, additional positions in Global Test and China Precision, and a new stake Shanghai Turbo.
SP Chem was sold mainly to finance my purchases. Maybe I may buy it back again if it falls to $1. Earlier on, I have also sold my largest holding, C&O Pharm as it seems to have recovered fully from the inventory problem.
I shall not reveal the HK stock as the stock idea is not mine. The addition of Global Test was more of an emotional reaction to the rising price of Global Test. Despite the knowledge that I wa reacting to the price rise when I am buying, I did not cancel my purchase as I did not wish to suffer any regret if Global Test continued to rise. However, I did know that my purchase price of Global Test was still at an acceptable range and Global Test, to me, is a play on semiconductor recovery. Recently, I have seen reports that the semiconductor sales recovery this year may not be as strong as predicted. I may have to wait longer for my stake in Global Test to bear fruit.
My addition of China Precision was due to the price fall to around 6.9 historical P\E. Besides the sufficiently low valuation, this addition was done partly also due to my preference for stock to cash.
My new stake in Shanghai Turbo is rather speculative as it is done more based on gut feel than valuation. My purchase of Shanghai Turbo was prompted by a Westcomb report hinting at the likely recovery of Shanghai Turbo sales. Shanghai Turbo produces vanes for steam turbines used in power plants. Its business was badly hit last year as its main customer decided to in-source the production of vanes and the expansion of power plants in PRC was reined in by the government. In buying Shanghai Turbo, I am betting on the odds that Shanghai Turbo sales would recover due to its expansion into new products (vanes \ components for gas turbines) which would be sold to international customers.
I suppose that international customers would tend not to in-source outsourced components as they would not enjoy the same cost advantages if these customers do not have production in PRC. Nevertheless, as the odds of a recovery in Shanghai Turbo sales remain uncertain, my stake in Shanghai Turbo remains small relative to other stocks. In the worst case scenario, I may lose up to one-third of my stake in Shanghai Turbo. Whatever the outcome is, my stake in Shanghai Turbo will be a good learning experience for me.
Saturday, May 26, 2007
Saturday, May 19, 2007
Looking for blind spots
“You can get away with more than you deserve in life by being slightly more rational.”
-- Charlie Munger
I am back to urban lifestyle after a week of national reservist. Back to reading and blogging. First, I shall blog on looking for blind spots
One can be more rational by knowing that blind spots (or more technically, unknown unknowns or known unknowns) always exist. And one should try to look for these blind spots, especially in financial stuffs. Hopefully, not much important stones are not left unturned.
Why do I say so? Just look at this article on poverty business. http://www.businessweek.com/magazine/content/07_21/b4035001.htm The articles show that people may have been outsmart by lending corporations because they do not look for blind spots before they decide. They may forget to read the clauses or ask how the other party benefits when they do business with you. Or perhaps, they didn’t know to ask the salesperson to convert the interest rates into effective interest rate per annum.
In another blog, I read that a lot of people are unaware of the high managerial fees in Cityspring. And the fees are clearly shown in the ipo prospectus of Cityspring. This is another case to illustrate why one should detect for unknowns to avoid negative surprises.
Charlie Munger may be right that you can benefit more than you deserve by being more rational. And you can be more rational by first trying to look for blind spots.
-- Charlie Munger
I am back to urban lifestyle after a week of national reservist. Back to reading and blogging. First, I shall blog on looking for blind spots
One can be more rational by knowing that blind spots (or more technically, unknown unknowns or known unknowns) always exist. And one should try to look for these blind spots, especially in financial stuffs. Hopefully, not much important stones are not left unturned.
Why do I say so? Just look at this article on poverty business. http://www.businessweek.com/magazine/content/07_21/b4035001.htm The articles show that people may have been outsmart by lending corporations because they do not look for blind spots before they decide. They may forget to read the clauses or ask how the other party benefits when they do business with you. Or perhaps, they didn’t know to ask the salesperson to convert the interest rates into effective interest rate per annum.
In another blog, I read that a lot of people are unaware of the high managerial fees in Cityspring. And the fees are clearly shown in the ipo prospectus of Cityspring. This is another case to illustrate why one should detect for unknowns to avoid negative surprises.
Charlie Munger may be right that you can benefit more than you deserve by being more rational. And you can be more rational by first trying to look for blind spots.
Saturday, May 5, 2007
Been Reading
My ordered books from Amazon have arrived two weeks ago. Currently, I am spending my time reading on “The Three Questions that count” by Kenneth Fisher and “The Black Swan” by Nassim Taleb.
“The Three Questions that count”, as described by Fisher, are three questions that can be used to answer one question.”What is it, that you know and others do not know, which gives you the advantage over others in the market?” The book is thick but worth the time reading. I have not finished the book. However, I can give you the three questions here. You will learn much more by reading the book to know how these three questions can be applied. For more details, you can refer to www.onlythreequestions.com/ or the Jan –Feb articles in http://www.wallstraits.com/main/index.php
The three questions are:
1) What do you believe that is actually false?
2) What can you fathom that others find unfathomable?
3) What the heck is my brain doing to blindside me now?
The other book “The Black Swan” discuss on the topic of extreme events that are of high impact and low frequency. It is much more philosophical than the author’s first book “Fooled by Randomness” (2nd ed). So far, I have read around half of the book but it seems insufficient to provide a review here. However, I do envy the author having the financial freedom to live by thinking about philosophical stuffs.
Nonetheless, extreme events do deserve our attentions; especially since they do happen in the field of finance. For example, the collapse of LTCM is caused by extreme event(s). For more details on the book or on Nassim’s thoughts on extreme events, you can refer to http://www.fooledbyrandomness.com/. Or for a complete and long review of the book, see http://econophysics.blogspot.com/2007/05/black-swan-well-thats-life.html (too long for me to finish at one go).
“The Three Questions that count”, as described by Fisher, are three questions that can be used to answer one question.”What is it, that you know and others do not know, which gives you the advantage over others in the market?” The book is thick but worth the time reading. I have not finished the book. However, I can give you the three questions here. You will learn much more by reading the book to know how these three questions can be applied. For more details, you can refer to www.onlythreequestions.com/ or the Jan –Feb articles in http://www.wallstraits.com/main/index.php
The three questions are:
1) What do you believe that is actually false?
2) What can you fathom that others find unfathomable?
3) What the heck is my brain doing to blindside me now?
The other book “The Black Swan” discuss on the topic of extreme events that are of high impact and low frequency. It is much more philosophical than the author’s first book “Fooled by Randomness” (2nd ed). So far, I have read around half of the book but it seems insufficient to provide a review here. However, I do envy the author having the financial freedom to live by thinking about philosophical stuffs.
Nonetheless, extreme events do deserve our attentions; especially since they do happen in the field of finance. For example, the collapse of LTCM is caused by extreme event(s). For more details on the book or on Nassim’s thoughts on extreme events, you can refer to http://www.fooledbyrandomness.com/. Or for a complete and long review of the book, see http://econophysics.blogspot.com/2007/05/black-swan-well-thats-life.html (too long for me to finish at one go).
Sunday, April 29, 2007
Nothing to post
I guess I have nothing to post for this weekend. I see that people are posting their portfolio in channelnewasia. Maybe I will do the same here. My portfolio is as followed:
C&O
China Preci
SP Chem
Techcomp
Shanghai Asia
China Printing
Jardine Strategic
Global Test
In value terms, it is just a small and poor portfolio. That's all, it is a short post this weekend.
C&O
China Preci
SP Chem
Techcomp
Shanghai Asia
China Printing
Jardine Strategic
Global Test
In value terms, it is just a small and poor portfolio. That's all, it is a short post this weekend.
Saturday, April 21, 2007
Which is more undervalued: Jardine Strategic or Jardine Matheson?
I have bought into Jardine Strategic (JSH) this week. In my opinion, I think that JSH is undervalued as it trades at around 70% of its end 2006 market net asset value (MNav). I define MNav at valuing the company’s net asset at market value. This opinion has been addressed in my previous post.
In this post, I will attempt to illustrate another opinion. That is, I think JSH is more undervalued than Jardine Matheson (JMH). In my previous post, I have stated that JMH and JSH have cross-holdings in one another. JMH owns 80% of JSH and JSH owns 53% of JMH. After I has attempted to remove the cross-holdings, I find that JMH’s annual report uses the net number of shares after accounting for cross-holdings to compute its Nav and EPS (earnings per share).
The table below shows my finding on MNav of JSH and JMH. My finding show that JSH may be trading at a discount of 30% to its MNav, while JMH trades at a discount of 5% to its MNav. Again, this finding may be wrong as there are some assumptions behind the findings.
First, the total number of shares is derived by taking its Issued & Paid-up Capital divided its par value per share. Next, the net shares after cross-holdings are derived mathematically by accounting for JMH and JSH cross-holdings. JSH’s MNAV is taken from its 2006 annual report. However, JMH’s MNAV is derived mathematically by roughly taking 2/3 of the JSH’s MNAV and adding back the JMH portion not owned by JSH. (You may have to refer to the Market Value Net Asset Basis portion in JSH 2006 annual report for better understanding.)
The 2/3 proportion is obtained by taking the remaining JMH’s stake in JSH after deducting away JSH’s share of JMH’s share of JSH. To illustrate, given that JSH owns 53% of JMH and JMH owns 80% of JSH, JSH owns around 40% of its total shares on paper. Therefore, JSH’s net shares after cross-holdings are roughly 60% of its total shares, of which 40% belongs to JMH and 20% belongs to the public. Therefore, JMH’s MNav excluding the companies not owned by JSH is 2/3 (or 40% over 60%) of JSH’s MNav.
I repeat that my finding is dependent on the above assumptions being plausible and representative of the actual situation. As I may make mistakes in my fact-findings or in my computation, it would be best if one does one’s own research.
In any case, the present market does not seem to be interested in JSH. The market seems more interested in penny stocks. However, I have observed that Aberdeen Spore trust has JSH in one of its top 10 holdings in its factsheet. Furthermore, a renowned value fund management, Tweedy Browne, has JSH in its 20 largest holdings of its Global Value Fund as shown in its Q1 2007 commentary. I guess I can sleep soundly given this information.
In this post, I will attempt to illustrate another opinion. That is, I think JSH is more undervalued than Jardine Matheson (JMH). In my previous post, I have stated that JMH and JSH have cross-holdings in one another. JMH owns 80% of JSH and JSH owns 53% of JMH. After I has attempted to remove the cross-holdings, I find that JMH’s annual report uses the net number of shares after accounting for cross-holdings to compute its Nav and EPS (earnings per share).
The table below shows my finding on MNav of JSH and JMH. My finding show that JSH may be trading at a discount of 30% to its MNav, while JMH trades at a discount of 5% to its MNav. Again, this finding may be wrong as there are some assumptions behind the findings.
First, the total number of shares is derived by taking its Issued & Paid-up Capital divided its par value per share. Next, the net shares after cross-holdings are derived mathematically by accounting for JMH and JSH cross-holdings. JSH’s MNAV is taken from its 2006 annual report. However, JMH’s MNAV is derived mathematically by roughly taking 2/3 of the JSH’s MNAV and adding back the JMH portion not owned by JSH. (You may have to refer to the Market Value Net Asset Basis portion in JSH 2006 annual report for better understanding.)
The 2/3 proportion is obtained by taking the remaining JMH’s stake in JSH after deducting away JSH’s share of JMH’s share of JSH. To illustrate, given that JSH owns 53% of JMH and JMH owns 80% of JSH, JSH owns around 40% of its total shares on paper. Therefore, JSH’s net shares after cross-holdings are roughly 60% of its total shares, of which 40% belongs to JMH and 20% belongs to the public. Therefore, JMH’s MNav excluding the companies not owned by JSH is 2/3 (or 40% over 60%) of JSH’s MNav.
I repeat that my finding is dependent on the above assumptions being plausible and representative of the actual situation. As I may make mistakes in my fact-findings or in my computation, it would be best if one does one’s own research.
In any case, the present market does not seem to be interested in JSH. The market seems more interested in penny stocks. However, I have observed that Aberdeen Spore trust has JSH in one of its top 10 holdings in its factsheet. Furthermore, a renowned value fund management, Tweedy Browne, has JSH in its 20 largest holdings of its Global Value Fund as shown in its Q1 2007 commentary. I guess I can sleep soundly given this information.
Monday, April 16, 2007
What is the true NAV for Jardine Strategic?
Looking on page 5 of its 2006 Annual Report, Jardine Startegic (JSH) at US$13.40 may be trading at 70% of its net asset value (NAV) of US$19.38, which is calculated based on market price of its holdings and excluding 455 million shares held by Jardine Matheson (JMH).
JSH excludes JMH's 455m shares due to cross holdings. JMH owns 80% of JSH and JSH owns 53% of JMH. JSH has a total of 1072m shares. As such, JSH effectively owns the 455 shares out of the JMH's 858m shares in JSH, which may mean that there are effectively 617m shares, instead of the 1072m shares on paper.
If we use the full 1072m shares to compute JSH's NAV, the undervaluation disappears as the NAV will then be at around US$11.15 per share using the figures in its 2006 AR.
JSH owns, besides 53% of JMH (note: JMH owns 80% of JSH),
- 64% of Jar C&C
- 78% of Diary farm
- 74% of Mandarin Oriental
- 47% of HongKong Land (HK Lands owns 70+% of MCL Land and is also one of the three partners for Marina Biz Fin Centre and the recently built One Raffles Link) You can find this information in its 2006 Annual Report too.
Another good question to ask may be what the difference is between JSH and JMH and why they need the cross holdings. This is something that I have yet to figure out.
What is the true NAV for Jardine Strategic? I don't know. I have just posted in www.shareowl.com to ask the professor there. Maybe he may be able to provide an answer there. If you wish to know his answer (supposing that there will be an answer), you may have to subscribe to it. It is not right for me to post his answer in my blog.
As usual, please do your own research and do not simply accept my thoughts here. Only recently, I have discovered again another mis-calculation in my excel spreadsheet. I am rather prone to error now and then.
JSH excludes JMH's 455m shares due to cross holdings. JMH owns 80% of JSH and JSH owns 53% of JMH. JSH has a total of 1072m shares. As such, JSH effectively owns the 455 shares out of the JMH's 858m shares in JSH, which may mean that there are effectively 617m shares, instead of the 1072m shares on paper.
If we use the full 1072m shares to compute JSH's NAV, the undervaluation disappears as the NAV will then be at around US$11.15 per share using the figures in its 2006 AR.
JSH owns, besides 53% of JMH (note: JMH owns 80% of JSH),
- 64% of Jar C&C
- 78% of Diary farm
- 74% of Mandarin Oriental
- 47% of HongKong Land (HK Lands owns 70+% of MCL Land and is also one of the three partners for Marina Biz Fin Centre and the recently built One Raffles Link) You can find this information in its 2006 Annual Report too.
Another good question to ask may be what the difference is between JSH and JMH and why they need the cross holdings. This is something that I have yet to figure out.
What is the true NAV for Jardine Strategic? I don't know. I have just posted in www.shareowl.com to ask the professor there. Maybe he may be able to provide an answer there. If you wish to know his answer (supposing that there will be an answer), you may have to subscribe to it. It is not right for me to post his answer in my blog.
As usual, please do your own research and do not simply accept my thoughts here. Only recently, I have discovered again another mis-calculation in my excel spreadsheet. I am rather prone to error now and then.
Friday, April 13, 2007
Pain from Investing Process
I have mentioned that investing (or more precisely, DIY investing) is a painful process to me. I shall elaborate on why investing is painful in this post. However, I shall start with what I enjoy about investing.
I do enjoy certain aspect of investing. I enjoy the ideas generation and the merging of ideas in investing. For example, you will encounter the idea of expected value in statistics. Simply put, expect value is the sum of the multiples between the probabilities and its outcomes
Expected value is quite dry to me in terms of statistics until I see it taking place in the field of stocks investment. In stock investment, your expected returns on a stock can then be derived in a similar manner, by taking the sum of subjective probabilities multiplied by the respective outcomes. If one invests using value-investing approach, one is basically buying below stocks at prices below one’s subjective expected value of a stock.
Why is investing painful? One, it is painful because investing, when done correctly, is boring. Or some famous value investors put it as “it’s like watching your paint dry”. I guess I am already quite bored presently. Investing seems to worsen my boredom.
Furthermore, it is no fun that I have to restrain myself constantly from acting or trading too much. Often, it is only after my trades that I can detect if my (numerous) trades turn out to be fine or plain silly.
Probably investing in stocks is painful because I have to endure the uncertainty in stocks. Almost everyone hates uncertainty; else there will be no such thing as risk premium. Enduring uncertainty is painful. I may have to ignore the present volatility in the stock prices. I may have to think about whether the stock at its current price is still offering a sufficient margin of safety for me to hold or for me to have the current large position. Such thinking about uncertainty is perhaps what I am doing around once every week.
Finally investing is painful when one encounters a correction. I will, by instinct, panic in a correction. Overtime, the panic feeling may lessen when I experience more and more corrections. However, panic is not a nice feeling to have. And it clouds my thoughts; especially when my thoughts are trying to get me to act differently from what my emotions require. Acting differently or in a way opposed to your emotions is painful.
Given the pain in investing, my view is that I will continue to invest in DIY manner if I am confident of achieving market beating performance. Else, I should consider buying more unit trusts or ETFs. If my holdings solely consist of unit trust, I can always blame the fund managers, instead of blaming myself, for the poor performance.
Unfortunately (or fortunately), the pain will have to continue since my returns are currently better than the market. Maybe, pain from investing stocks can help to relieve boredom. I don’t know. I don’t know which is more preferable, pain or boredom.
I do enjoy certain aspect of investing. I enjoy the ideas generation and the merging of ideas in investing. For example, you will encounter the idea of expected value in statistics. Simply put, expect value is the sum of the multiples between the probabilities and its outcomes
Expected value is quite dry to me in terms of statistics until I see it taking place in the field of stocks investment. In stock investment, your expected returns on a stock can then be derived in a similar manner, by taking the sum of subjective probabilities multiplied by the respective outcomes. If one invests using value-investing approach, one is basically buying below stocks at prices below one’s subjective expected value of a stock.
Why is investing painful? One, it is painful because investing, when done correctly, is boring. Or some famous value investors put it as “it’s like watching your paint dry”. I guess I am already quite bored presently. Investing seems to worsen my boredom.
Furthermore, it is no fun that I have to restrain myself constantly from acting or trading too much. Often, it is only after my trades that I can detect if my (numerous) trades turn out to be fine or plain silly.
Probably investing in stocks is painful because I have to endure the uncertainty in stocks. Almost everyone hates uncertainty; else there will be no such thing as risk premium. Enduring uncertainty is painful. I may have to ignore the present volatility in the stock prices. I may have to think about whether the stock at its current price is still offering a sufficient margin of safety for me to hold or for me to have the current large position. Such thinking about uncertainty is perhaps what I am doing around once every week.
Finally investing is painful when one encounters a correction. I will, by instinct, panic in a correction. Overtime, the panic feeling may lessen when I experience more and more corrections. However, panic is not a nice feeling to have. And it clouds my thoughts; especially when my thoughts are trying to get me to act differently from what my emotions require. Acting differently or in a way opposed to your emotions is painful.
Given the pain in investing, my view is that I will continue to invest in DIY manner if I am confident of achieving market beating performance. Else, I should consider buying more unit trusts or ETFs. If my holdings solely consist of unit trust, I can always blame the fund managers, instead of blaming myself, for the poor performance.
Unfortunately (or fortunately), the pain will have to continue since my returns are currently better than the market. Maybe, pain from investing stocks can help to relieve boredom. I don’t know. I don’t know which is more preferable, pain or boredom.
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