Portfolio update

Given the upheaval in the China markets recently and the uncertainty over the Greek crisis, Singapore market has been pretty quiet.

You have companies trading near their 52 weeks low like Super Group Ltd, Osim International Ltd, Genting Singapore PLC, Japan Foods Holding Ltd, Nera Telecommunications Ltd, Boustead and Golden Agri-Resources Ltd. Others have seen their share prices plunge, such as Starhub and M1, Noble Group Ltd though not close to their 52 weeks low.

There are many reasons on why their share prices dived.

“I call investing the greatest business in the world … because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.” Warren Buffett

Now the key question is, are the reasons behind the share price drop valid? Do you have enough conviction to hold on to your existing shares or buy at these depressed prices and hold (even while prices drop further)? These drops prompted me to study companies which I have in the past just glanced over. I do not believe in the efficient-market hypothesis (EMH). I have bought shares when bad news struck the companies and eventually profiting from them after prices rose subsequently when these news fade, eg. Sun Hung Kai and Sarine Tech.

“You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K.” Warren Buffett

However, you should not just buy shares because prices have hit rock bottom. If it is that simple, I would be buying shares that have hit 52 weeks low.

“Bottom fishing is a popular investor pastime, but it’s usually the fisherman who gets hooked.” Peter Lynch

In some cases, the share price drop is justified, given the deterioration of the company’s fundamentals. It normally start as a drop in profit / revenue earnings, and if you dig deeper, you would read about structural, operational, future prospects and clientele disruption. When you look at stocks that are declining in price, often you will find recurring themes that, once identified, can help you decide what your next step should be. These themes are typically related to one of three things: market movement as a whole, industry action in which the firm operates, or firm-specific issues. I am particularly worried about the firm-specific issues.

I can further break these 3 factors down:

1) Market Weakness

2) Industry Considerations

Stock Prices and Industry Cycles
Structural Changes in an Industry
Regulatory Changes
Industry Liability Issues
Competitor Announcements

3) Firm-Specific Issues

Company falls short of its consensus earnings estimate figure
Changes in company management
Acquisition, M&A
Lack of new products, innovations

To add to the complications, you have on the other hand, financially fundamentally strong companies, with great narratives and business moat, churning along fine, with share prices reaching new high every week, eg. Riverstone Holdings Ltd, Raffles Medical Group Ltd, Spindex Industries Ltd, and Colex Holdings Ltd. What drop in STI, what Greek crisis, what Chinese market plunge, what Mers?

And then there are those in between, eg. fundamentally strong companies whose share prices have dipped but overall still high. Eg. Vicom Ltd, Silverlake Axis Ltd, Kingsmen Creatives Ltd and Sarine Technologies Ltd. Kind of like what happened to the STI (from high of 3539 to 3342 – 5.6% drop).

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Warren Buffett

It is a never ending charade of opportunities and pitfalls. You have to keep turning over ‘rocks’ and to keep researching to see if the share prices are a ‘bargain’.

“The person that turns over the most rocks wins the game. And that’s always been my philosophy.” Peter Lynch

I still believe in the following:

My thesis on Super Group (and felt that its share price drop is a short term event)
Colex shares though at all time high, is worth a second look, given it strong fundamental and growth.

Beyond that I had reservations on others. Ultimately, there will be a recession sooner or later, why not wait until then when almost every share is a bargain. Who knows maybe the Greek crisis or Chinese market plunge will get worse and blow up, and cause a bigger repercussion to the world markets.

Below is my portfolio performance so far.

Portfolio

I still hold some odd lots of Sun Hung Kai, these are scrip dividends which I have received earlier. I have earlier sold Sun Hung Kai shares for a profit of 71%.

So far, Riverstone is my first two-bagger. Its growth story is still intact, however the price now could have factored in the Mers scare and favourable USD/RM forex rate, and base on my calculations, still over priced.

Among the losers, I am most optimistic about Super Group (though it is definitely not a stock for the weak hearted – high volatility). I see the current price weakness as an opportunity.

Not much has changed for Golden Agri (and Crude Palm Oil outlook). The Palm Oil commodity market is still near multi years low. Cyclical stocks are not easy. SIA and CapitaLand can be considered cyclical stocks and they are not performing well.