I happen to chance upon these 3 companies. This is something they have in common. In the past 5-8 years, they grow very fast and became big company. But something is not right. Their cash balance to long term debt is like 1:5. For example, Ezra has a cash balance of $100 Million and a long term debt of $600 Million. KS Energy has cash balance of $40 Million and a long term debt of $200 Million. Wilmar has $1 Billion in cash and $3 Billion in long term debt. This is what we called a weak balance sheet.
For example, how can a teacher or engineer be financially healthy if he has a debt of $600,000 and a cash balance of $100,000? If interest rate spike, he may have difficulty to service the loan repayment. Something is not right in these companies. Could the tide be turning soon?
Tuesday, August 28, 2012
Thank god I cut loss
In year 2005, I bought 1stsoftware (it is no longer listed today) based on a CEO purchase of 1 Million shares at 10 cents. When its share price fell to 6-7 cents, I bought a few hundred lots. I was thinking to myself how can insider be wrong.
In year 2006, its share price fell even further to 4-5 cents, and the cash balance dropped to a few million dollars. I was very concerned and worried because my holding in 1stsoftware represented a huge chunk of my net worth. I paid a visit to the company in Suntec city and spoke to the CFO.
He presented to me a future plan of the company. As I did not understand much of it, I cut his presentations short. I asked him about the cash balance of the company and questioned if it was sufficient to tide the troubled company over. He seemed unenthusiastic, look down and declined to answer. That convinced me to sell the stock.
But the confirmation to sell was this. When the CFO sends me to the door and we parted, I saw him talking to receptionist and then chatting about the events in the newspapers. When this happened, I knew this company is a goner.
I rushed home and sold all my stocks in 1stsoftware at a loss of 3-4 cents. Thank god, I sold, if not my losses will be 100% and not 50%.
The stock was delisted from SGX a few years later. It never reached 2nd, let alone 1st.
In year 2006, its share price fell even further to 4-5 cents, and the cash balance dropped to a few million dollars. I was very concerned and worried because my holding in 1stsoftware represented a huge chunk of my net worth. I paid a visit to the company in Suntec city and spoke to the CFO.
He presented to me a future plan of the company. As I did not understand much of it, I cut his presentations short. I asked him about the cash balance of the company and questioned if it was sufficient to tide the troubled company over. He seemed unenthusiastic, look down and declined to answer. That convinced me to sell the stock.
But the confirmation to sell was this. When the CFO sends me to the door and we parted, I saw him talking to receptionist and then chatting about the events in the newspapers. When this happened, I knew this company is a goner.
I rushed home and sold all my stocks in 1stsoftware at a loss of 3-4 cents. Thank god, I sold, if not my losses will be 100% and not 50%.
The stock was delisted from SGX a few years later. It never reached 2nd, let alone 1st.
Sunday, August 26, 2012
Insiders sell and urge retail investors to buy
I find this story still valid today. Please look at the latest Sunday times for “Me and my money series”, in one of the section, it was mentioned that an expert on Asian debt capital market is bearish on the market.
“Mark and I have joint bank accounts. He trusts me completely to manage the money.
As we are bearish on the markets, half of what we have is in cash. The rest includes the 25 per cent that we have set aside for property investments, as we are looking to invest in Irish and European commercial real estate, the 15 per cent in equities and the 10 per cent in commodities, bonds and other products.
Mark is a veteran fixed income banker while I have a background in investment banking and equities, so we make a well-hedged team.”
Yet a month ago, I attended a Fundsupermart seminar in which 4 fund managers from East Spring, Lion Capital, Legg Mason and UOB asset management company unanimously urge retail investors to buy high yield bond funds.
Perhaps, they are acting on their boss instructions. Perhaps they have a different opinion than the veteran fixed income banker. Perhaps, they ask the retail investors to buy and they sell.
Which is which? Inside their heart, they knew. And we know.
“Mark and I have joint bank accounts. He trusts me completely to manage the money.
As we are bearish on the markets, half of what we have is in cash. The rest includes the 25 per cent that we have set aside for property investments, as we are looking to invest in Irish and European commercial real estate, the 15 per cent in equities and the 10 per cent in commodities, bonds and other products.
Mark is a veteran fixed income banker while I have a background in investment banking and equities, so we make a well-hedged team.”
Yet a month ago, I attended a Fundsupermart seminar in which 4 fund managers from East Spring, Lion Capital, Legg Mason and UOB asset management company unanimously urge retail investors to buy high yield bond funds.
Perhaps, they are acting on their boss instructions. Perhaps they have a different opinion than the veteran fixed income banker. Perhaps, they ask the retail investors to buy and they sell.
Which is which? Inside their heart, they knew. And we know.
Tuesday, August 21, 2012
Wing Tai Chairman on property outlook 2013-14
This is an insider view of the property outlook in year 2013-14. The message below is the news report which I copied:
Located at Tampines Road near Kovan MRT station, Wing Tai said this latest project which sits on land acquired in the 1960s would help capture any potential uptick in the property market.
But the property developer believes the market is set for a correction ahead.
Chairman of Wing Tai Holdings, Cheng Wai Keung, said: "A number of you have been asking why have we not been tendering for URA projects and we have not been active in the market for quite some time.
"I would still maintain that the correction will be coming and the way I look at it, is that if there is a cycle, if you take away that 2008 temporary drop, you smooth out the curve, it is actually the eighth or ninth year of the rise in this cycle.
Did you note that the property developer believe that market is set for a correction ahead? Let us prepare ourselves for the flood or drought now.
Located at Tampines Road near Kovan MRT station, Wing Tai said this latest project which sits on land acquired in the 1960s would help capture any potential uptick in the property market.
But the property developer believes the market is set for a correction ahead.
Chairman of Wing Tai Holdings, Cheng Wai Keung, said: "A number of you have been asking why have we not been tendering for URA projects and we have not been active in the market for quite some time.
"I would still maintain that the correction will be coming and the way I look at it, is that if there is a cycle, if you take away that 2008 temporary drop, you smooth out the curve, it is actually the eighth or ninth year of the rise in this cycle.
Did you note that the property developer believe that market is set for a correction ahead? Let us prepare ourselves for the flood or drought now.
Wednesday, August 8, 2012
The building of an organization
This is taken from Peter Lynch’s book “One Up on Wall Street”. In his book, Peter mentioned that the lavishness of a company building is inversely proportionate to the willingness of the management to reward shareholders. There is truth in this saying and credit goes to Peter.
In the NKF saga, it was mentioned that gold plating was done in some part of the toilet. Then the scandal followed. Management was called up before court to explain how the funds were used for charity.
In City Harvest church, the church office is in Suntec Tower. As this is the central office area, rental is high. The new church in Jurong also was made of Titanium and has water fountain. This is lavish spending by management on funds for charity.
Today, I rejected a banker suggestion to invest in bonds. His argument was that bond yields are at 4.8% versus bank deposit rates at 0.05% per year. Investing in bonds grows my money faster. As interest rate is at 30 year low and bond prices are at 30 year high, I m worried that I buy high sell low.
My instinct was justified when I check the company that sells this bond. It is called Eastspring and their office is in high rental area, Marina Bay. In a few years, I will know if this theory is proven right again.
In the NKF saga, it was mentioned that gold plating was done in some part of the toilet. Then the scandal followed. Management was called up before court to explain how the funds were used for charity.
In City Harvest church, the church office is in Suntec Tower. As this is the central office area, rental is high. The new church in Jurong also was made of Titanium and has water fountain. This is lavish spending by management on funds for charity.
Today, I rejected a banker suggestion to invest in bonds. His argument was that bond yields are at 4.8% versus bank deposit rates at 0.05% per year. Investing in bonds grows my money faster. As interest rate is at 30 year low and bond prices are at 30 year high, I m worried that I buy high sell low.
My instinct was justified when I check the company that sells this bond. It is called Eastspring and their office is in high rental area, Marina Bay. In a few years, I will know if this theory is proven right again.
Tuesday, August 7, 2012
Child abuse
There are many forms of child abuse. The ruthless and unreasonable physical punishment includes beating the child, rubbing chilli on the child’s eyes, calling the child a dog or locking the child in a dark room alone.
The subtle form of child abuse is not preparing meals for the child or ignoring (bo-chap) the child.
I came across an elderly lady taking care of a 2-3 year-old kid (maybe her grandchild). She was looking in a distant and her thoughts seemed to be far away. Her grandchild was playing a few metres away from her by himself. She seemed unappreciative of her grandchild and did not engage him. I guess if he fell down, she would not have known till he cry out.
That was a sad story.
The subtle form of child abuse is not preparing meals for the child or ignoring (bo-chap) the child.
I came across an elderly lady taking care of a 2-3 year-old kid (maybe her grandchild). She was looking in a distant and her thoughts seemed to be far away. Her grandchild was playing a few metres away from her by himself. She seemed unappreciative of her grandchild and did not engage him. I guess if he fell down, she would not have known till he cry out.
That was a sad story.
Watching the Olympic Games
The Olympic table tennis games remind me of human weakness. For example, one player won 2 sets, and then lost 1set. Later he wins 1 set and loses again.
Nations made up of human beings rise to greatness, then slip into complacency. Then it fell down and then rises again. This is written in history where nations rise and fall and then rise again.
It is a gentle reminder for us not to slip into complacency and to be at our best most of the time.
Nations made up of human beings rise to greatness, then slip into complacency. Then it fell down and then rises again. This is written in history where nations rise and fall and then rise again.
It is a gentle reminder for us not to slip into complacency and to be at our best most of the time.
Wednesday, August 1, 2012
Return on equity (ROE)
A great company has a high return on equity. Returns can be in the form of rent, dividends, profits, royalty etc…generated by the business. Equity is the sum of money the company has put in to build this business.
As the return in rent, dividends, profits etc is somehow similar across many businesses, properties or stocks, a good way to achieve a high ROE is by putting in a low equity. This may only be achieved by buying good assets during an economic downturn.
As the return in rent, dividends, profits etc is somehow similar across many businesses, properties or stocks, a good way to achieve a high ROE is by putting in a low equity. This may only be achieved by buying good assets during an economic downturn.
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