The Who, the why and the when (Part 1)

I am treating this blog as a reflections of my thought. Sort of like a wall to bounce off ideas. Do we ever ponder deeply into the reasons why we bought certain stocks on that fateful day in the past? Looking at the stocks I bought it is easy for me to compare them to each other now. But then again shouldn’t it be comparing apples to apples (eg. CapitaLand vs CDL, Golden Agri vs First Resource, SMRT to other transport stocks), but this post is not about this. It is about the reasons behind each stock when I bought it – the who, the why and the when. Maybe today these are still relevant, maybe not.

Part of the reasons for keeping certain stocks is to remind me of my past mistakes. And to remind myself that as much as technical analysis goes – we can minimize risks but not eliminate risks.

A) Golden Agri :

1) The Who: This is simple enough. The family of Golden Agri-Resources’ chairman and chief executive, Franky Oesman Widjaja, collectively owns half of the company with institutional investors. It is good to know that Mr Widjaja has a primary stake in the company, a company that is close to his heart.

2) The Why: Not a lousy company. Palm oil is used in almost everything – so there is a market. Low price to book. Earning yield of 5.8. Debt to equity ratio comes up to 30% (not excessively high). Good efficiency, GAR Asset Turnover is 0.5. However, no strong brand and dependent on CPO price. If one is to compare it to First Resource, it would not be as efficient.

3) The When: Perhaps this may be the most important question. To buy a company when it is undervalued. Am holding to stocks bought since Dec 2010. At that time, prices for this company was 0.76 to 0.8. Approx. coincide to the high price of CPO. A high price for Golden Agri stock or is it?

Dec 2010, Golden Agri stock price was 0.76 ~ 0.8. Palm oil price: US 1170 per metric ton.

31 Dec 2007, Golden Agri stock price was 1.0333. Palm oil price: US 877 per metric ton in Dec 2007.

So in Dec 2010, is it a good time to buy? Well on the basis of Palm Oil prices, it would seem so. Wouldn’t Golden Agri stock prices be higher than 1.0333 in Dec 2010 if it was 1.0333 when palm oil price was US 877 and in Dec 2010, palm oil price is US 1170? What changed? Same company selling palm oil.

It is hard to apply Discounted Cash Flow Value onto Golden Agri as their revenues are erratic. But in July 2013, my calculation was 0.79, Today a search on the web revealed 0.64 (http://www.gurufocus.com/term/iv_dcf_share/LSE:E5H/Intrinsic%2BValue%2B%2528DCF%2BProjected%2529/Golden%2BAgri-Resources%2BLtd).

B) SMRT

Another of my earlier stock. The reasons for buying are a bit fuzzy. Guess I wasn’t thinking and analyzing much then.

1) The Who: Not simple to answer for this counter. Public transport company that focuses purely on Singapore with interests in almost all types of land-based public transport services such as rail, buses, and taxis. Simply put- there is no who.

2) The Why: Simple- strong moat. Almost perfect but not perfect (http://www.fool.sg/2014/05/15/smrt-has-gained-25-in-less-than-a-month-whats-next/).

Problem with this company, it is heavily influenced by govt policies. Unable to raise prices. A public transport for the public (common folks), not for profit. Bus and rails transport are cheaper than taxis (ComfortDelGro) and cars (Vicom). Its moat is its liabililty as well. If taxi fares are raised, there is always the bus and rail. Kind of a dilemna / oxymoron – eg. can low cost housing developer HDB be a company whose focus is to generate money for share holders while providing cheap and affordable housing for the masses.

The future of this company  is highly dependent on is the government polices:

– SMRT and the LTA regarding the rail financing framework

– New public bus contracting model

If SMRT is able break free from the frame work find a way to reduce expediture, the dynamics and fundamental will change. Currently, it is still safe, not great (not high in ROE). But won’t crash – this country need rail and buses.

3) The When: Again this is critical for this stock. I am holding stocks bought in May 2010. Prices then was 2.11. In 17 Oct 2011, train services disrupted in NS Line. Subsequently there were more service disruptions. Did not chase the prices down. This is unlike Golden Agri which I did (since fundamentals of Golden Agri is intact while macro factors like CPO price caused price drop – cyclical stock). The stock price for SMRT has since dropped (from May 2010) and has never recovered to anywhere near this level. Did I forsee this – nope. Who would have thought the disruptions would be so frequent.

Are things improving for this company – it appears so (http://www.fool.sg/2014/12/02/can-smrt-drive-up-its-dividends/).

Why did I buy it then? It would be easy to explain if I bought these stocks after end 2011. Would Warren Buffett buy a company with a wide moat that is in trouble? ( https://books.google.com.sg/books?id=lHZHHSKUSbUC&pg=PA3&lpg=PA3&dq=warren+buffett+and+buy+troubled+companies&source=bl&ots=AlMqR51sqX&sig=8XMEDWx3jHNj60YBuvry9JYDKAU&hl=en&sa=X&ei=RVitVOOMOoKJuwTQrIHAAg&ved=0CDYQ6AEwBDgU#v=onepage&q=warren%20buffett%20and%20buy%20troubled%20companies&f=false
However I bought them in May 2010. Ah yes I remember, after what happened in 2009 and the wild swings with many stocks after 2009 – SMRT seems like a stable stock with a wide moat which was at that time a blue chip in the STI Components (minus the rail disruptions then), which everyone knows, what could go wrong? :p
Post May 2010, DCF value (Discounted Cash Flows Value) done in July 2013 was 0.59. But profits and revenue are erratic.
Now: Another factor (beside govt policies) is I do not know the Who in SMRT. Knew the previous (Saw Phaik Hwa).
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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
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One Response to The Who, the why and the when (Part 1)

  1. Pingback: Hazy outlook… | A Pen Quotes

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