53 shares of STI ETF at $3.32
15 shares of F&N at $6.57
18 Jan 2011
Friday, January 21, 2011
More selling from the portfolio: Time to weed out "junk"?
We sold our small position in Courage Marine on 18 Jan (18 lots at $0.215), following the sudden spike in the stock. The previous day, the company announced that it had plans to list in Hong Kong, which would improve liquidity and branding. While we still think that the company holds decent value, we remain cautious on holding "junk" in our portfolio for the longer term, and we see the rapid move in the stock price as a good opportunity to monetise our position and lock in profits.
We do not have a terribly optimistic outlook on the BDI; the measure has remained depressed by the weak global trade outlook, while the floods in Queensland will weigh on dry-bulk rates for some time. Coupled with the high price of crude oil, we think that dry-bulk shippers like Courage Marine will have to depend largely on prudent cost management for profit. While the company remains one of the most prudently-financed shipping companies available for investment, we have decided to take profits and raise our cash level to above 20% of the portfolio.
We do not have a terribly optimistic outlook on the BDI; the measure has remained depressed by the weak global trade outlook, while the floods in Queensland will weigh on dry-bulk rates for some time. Coupled with the high price of crude oil, we think that dry-bulk shippers like Courage Marine will have to depend largely on prudent cost management for profit. While the company remains one of the most prudently-financed shipping companies available for investment, we have decided to take profits and raise our cash level to above 20% of the portfolio.
Tuesday, January 11, 2011
Sold Memtech International; What makes a well-financed company
We sold out of Memtech International yesterday at $0.14 (25,000 shares), reaping a tidy profit on our cost price of $0.12 (in April 2010). We have also collected a $187.50 dividend on our holdings, adding substantially to total profits (over 20%). While the company still remains cheap, we are happy to take profits on a lower-quality company like Memtech (just as we did for Gallant Venture, albeit a little early).
We continue to endorse long-term investing, but will prefer to hold companies which have the wherewithal to survive economic downturns via strong business moats (as Warren Buffett would allude to), well-financed positions, or a combination of both. Such companies within the portfolio would include SPH, Keppel Corp, Noble Group and Capitaland. We would even consider a company like Fraser and Neave with its high leverage (given its property exposure) as well-financed, as we believe that the company's strategic assets and portfolio of brands would allow it to access financing even under distressed market conditions.
We identify that access to financing is far more critical than temporary balance sheet strength, as in the case of the US government's continued ability to refinance at ridiculously-low yields, despite already being heavily indebted. All things equal, we would prefer companies which have both strong balance sheets and easy access to financing, but we remain cognizant that strong balance sheets can sometimes be a temporary blip. We recall several apparently well-financed S-Chips on the local Singapore bourse whose balance sheets were suddenly burdened by trade receivables that could not be identified, or the inability to service debt obligations due to cash remmittance issues.
We are not saying that Memtech International falls into such a category; the company has a healthy track-record of keeping its balance sheet in order. Unfortunately, the company's business moat is nearly non-existent, and we buy such companies to sell once the stock price moves from "deep-undervaluation" to "slight-undervaluation".
We continue to endorse long-term investing, but will prefer to hold companies which have the wherewithal to survive economic downturns via strong business moats (as Warren Buffett would allude to), well-financed positions, or a combination of both. Such companies within the portfolio would include SPH, Keppel Corp, Noble Group and Capitaland. We would even consider a company like Fraser and Neave with its high leverage (given its property exposure) as well-financed, as we believe that the company's strategic assets and portfolio of brands would allow it to access financing even under distressed market conditions.
We identify that access to financing is far more critical than temporary balance sheet strength, as in the case of the US government's continued ability to refinance at ridiculously-low yields, despite already being heavily indebted. All things equal, we would prefer companies which have both strong balance sheets and easy access to financing, but we remain cognizant that strong balance sheets can sometimes be a temporary blip. We recall several apparently well-financed S-Chips on the local Singapore bourse whose balance sheets were suddenly burdened by trade receivables that could not be identified, or the inability to service debt obligations due to cash remmittance issues.
We are not saying that Memtech International falls into such a category; the company has a healthy track-record of keeping its balance sheet in order. Unfortunately, the company's business moat is nearly non-existent, and we buy such companies to sell once the stock price moves from "deep-undervaluation" to "slight-undervaluation".
Friday, January 7, 2011
2010 portfolio summary
2010 performance summary
Our portfolio finished 2010 higher by 8.7% (9.4% without the subtraction of performance fees), outperforming our 6% annual hurdle rate, but underperforming the benchmark Straits Times Index's 13.4% gain. We are less concerned about our portfolio's underperformance over the past one year, but will continue to focus on picking undervalued companies for the portfolio in a prudent manner, without any regard for the Singapore stock market benchmark.
Cash holdings detracted
As of end December 2010, the portfolio held a cash position of 16.2% of portfolio assets, a fairly large percentage which weighed down on performance vis-a-vis the STI. The average cash position the portfolio held in 2010 was about 12%, and while we have no target cash level for the portfolio, our sizable cash holding is indicative of the lack of good investment opportunities we can find under current market conditions. We are also cognizant of the need to keep some powder dry to benefit from distressed market conditions, instead of watching in envy while others scoop up bargain buys. Nevertheless, we are also not terribly confident of timing the market, and will remain largely invested unless the market heads into an extremely euphoric state. We do not see this happening yet though.
Saturday, December 25, 2010
Monday, December 13, 2010
Sold Gallant Venture
We sold our 10,000 shares of Gallant Venture on 10 December 2010 at $0.37 apiece, representing a 37% gain from our investment price of $0.27 in October this year. Gallant Venture has been a "hot" stock recently, with Kim Eng citing a $0.75 target price. While the stock looks still looks cheap relative to book value, we are not terribly confident about management's ability to translate its undervalued landbank into cashflow over the next few years, that is to say, our investment in Gallant Venture was slightly speculative.
While we tend to avoid speculative purchases, our investment in Gallant Venture appeared to have sufficient downside protection, with substantial upside potential should positive newsflow trigger a re-rating. The company does not have the quality which will render it a longer-term investment prospect in our opinion, and we are also mindful that the company does not have a solid business model. The strong gains have come over just under 2 months, and we find this 37% return sufficient to justify a sell.
While we tend to avoid speculative purchases, our investment in Gallant Venture appeared to have sufficient downside protection, with substantial upside potential should positive newsflow trigger a re-rating. The company does not have the quality which will render it a longer-term investment prospect in our opinion, and we are also mindful that the company does not have a solid business model. The strong gains have come over just under 2 months, and we find this 37% return sufficient to justify a sell.
Sunday, December 5, 2010
Portfolio gains 0.5% in Nov 10, STI up 0.2%
In a largely flat month for the benchmark Straits Times Index, our portfolio gained 0.5% in November 2010, outpacing the 0.2% return for the STI. This comes even as we hold 13.7% of the portfolio's assets in cash, and on a year-to-date basis, the portfolio is up 6.2% (net of accrued performance fees), attaining its 6% annual target one month early.
Noble Group was a strong contributor to the portfolio, gaining 10.2% in November, while Memtech rose 9.5%. Keppel Corp benefitted from renewed interest in the offshore drilling segment, while Tat Hong and Mermaid suffered with declines of 10.7% and 11% respectively. Wells Fargo remains our second-largest holding, and gained 6.6% in the month.
Noble Group was a strong contributor to the portfolio, gaining 10.2% in November, while Memtech rose 9.5%. Keppel Corp benefitted from renewed interest in the offshore drilling segment, while Tat Hong and Mermaid suffered with declines of 10.7% and 11% respectively. Wells Fargo remains our second-largest holding, and gained 6.6% in the month.
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