Thursday, July 21, 2016

Trying to be SMART on SMRT

Stupidity induced by greed.

That's the only way to describe it. Upon announcement of the offer by Temasek holding for the delisting of SMRT at $1.68, I wanted to arbitrage on any possible price difference between the opening price and the offer price. These are the assumptions I make:

1. There's a dividend of 2.5 cts waiting for me

2. The price that Temasek Holdings offer is too low ball and will be revised upwards

With that, I queued overnight at a limit price of 1.675 and got it this morning at a entry price of 1.665. With that entry price, I will make about 2% after comms and I'm okay with that. It's like a fixed deposit. I was happy for a while until the news kept streaming in that destroyed my underlying assumption.

Firstly, the dividend of 2.5 cts had already been declared and had gone xd on 18th July 2016. So no more dividend and no safety margin for me to fall back on to make this deal work out right.

Secondly, it's not a general offer in the usual delisting lingo but a scheme of agreement. I thought it meant the same but apparently it's not. This 1.68 is the final offer price and if the resolution is not passed, then Temasek holding will not make another offer until 1 year later. And in order for the offer to be passed, at least 50% of the shareholders present in the meeting must vote yes, and they must collectively hold at least 75% of the shares not owned by Temasek holding. And Temasek hold about 54% of the shares.

That means if the offer is passed through, I get $0.015 returns and if I didn't go through, I might potentially lose anything between $0.125 to $0.150. In dollar terms, if it goes through I win $30 (after comms) and if it didn't I lose $500 to $700? The risk reward is so bad that I cut loss at 1.655 and take a loss of about $100 in all.

Stupidity induced by greed.

The good thing in all these is that upon realization of how stupid this deal is, I cut loss immediately and immediately felt much better.


Anonymous said...

No intention to rub it in.
Just curious to know: How come you're unaware the XD is 18 Jul 2016?
Sorry if I sound offensive.


la papillion said...

Hi anon,

Nah, not offended. It's a good question. I simply take read and take it at face value that shareholders will still have their dividends. It didn't occur to me to check the xd date until too late. It's a mistake on my part not to verify the facts before I get in. I'm very distracted when I keyed in my order and I wanted to get it over and done with. Maybe that's why.

No excuses though. I should have done it or I shouldn't have queued without checking my homework.

SMK said...

Pat pat

Decisive cut loss

owq said...

Let's just say your assumptions were true. I don't think the 2% was worth the possible downside if the offer didn't go through...

Singapore Man of Leisure said...


Well, I'm sure you'll remember it the next time you want to arbitrage on news events!


Crash got sound ;)

P.S. Great job on your cut-loss. When do we get out? When the reasons we got in are not longer valid!

la papillion said...


Thanks..better 100 loss than 5 to 7 times more!

la papillion said...

Hi owq,

I disagree. If the assumptions are true, the lowest returns I get is 2%, the upside depends on the revised offer price. Supposing it's revised to 1.8, then my returns will become 9.1%. It's a gamble that has a very good risk reward. The higher the revised offer, the more likely the acceptance and the lower the risk. What's there not to like?

la papillion said...


Aiyo, I haven't cut loss for a very very long time - possibly years! I hope I don't have to exercise this kind of muscles again soon! I'm pleasantly surprised that I just cut too. If, however, I oversized this position, I might hesitate and it'll be too late already.

SMK said...

Pat pat = consolation

Decisive cut loss = well done.

la papillion said...


Haha :D

Anonymous said...

Hello, I'll like to ask a noobie question, may I know what's XD?

la papillion said...

It means ex-dividend. Before XD is CD or cum dividend. If you buy during CD, you'll still be entitled to dividends. If you buy during XD, you'll no longer be entitled to the dividends. Until the next one, that is.

Anonymous said...

Hi la papillion, appreciate your explanation, thanks.

yeh said...

hi LP
i no lost slept la.
so far me and husband doing fine in job and we have about 30% of cash reserve and more than 100k emergency fund.

so i just patiently wait for they become abalone again:)

heng that they are salted abalone. not salted fish.