Friday, July 29, 2016

The first domino falls

We just heard news of Swiber sudden winding down. DBS is one of the main banks that loans money to Swiber, so their exposure is about 700 million. That's not a lot of loans, relatively speaking. 700 million is about 0.25% of their total outstanding loans in 2015 and it's about 15% of their total 2015 net profit. But they are confident of getting half of it back and after tapping onto their general provision, they are net loss of about 150 million. How much is that? It's about 3.3% of their 2015 net profit.

Is that significant? No, but the trouble is that it might not end there. Most likely, this is just the beginning of the oil and gas sector contagion that will spread eventually to the banks. When Swiber falls, people will be wondering who is the next company to fail. Ezra, ezion, vallianz, swissco and even sembcorp marine are possibly candidates. They might also have inter-related business interest that joins each other like blood brothers and sisters. So if one fails, it might cause a whole domino effect cascading down the entire oil and gas sector in Singapore.

Whoever is lending most aggressively to them will suffer the most. In their heydays, Swiber is a $6 stock and easily one of the most anticipated growth companies here in SGX. Heck, I even traded Swiber before. DBS and OCBC seems to be the more aggressive of the big local 3 banks, UOB being the more conservative one, so it seems. Maybe that's why the share price of the three banks dropped proportionally to the level of loans linked the the troubled oil and gas sector.

I heard news of 98 million shares of Ezra pledged to DBS and another 98 million shares pledged to OCBC as collateral. When the contagion spreads and the share price falls, it will lead to even more selling as nobody wants to be left with a worthless piece of paper as a collateral. We should expect more of such news in the coming months to come.

Is it a good time to scope up bargains in the oil and gas sector? Be greedy when others are fearful and fearful when others are greedy? I think it depends on your skill in navigating the rubbish from the gems. If you understand the sector well and can see which are the companies that can survive and thrive after the crisis blows over, you'll be the biggest winner. But I know I don't know anything about this, hence I will skip it. In the event of a major market sell-down catalyzed by the bankruptcy of the oil and gas companies, I will rather buy those companies that having nothing to do with this sector but nevertheless got their share price marked down severely, than to buy the troubled oil and gas company at a cheap price and hope that they will survive and thrive.

a) Good company, non troubled sector, low price
b) Good company, troubled sector, low price
c) Bad company, troubled sector, low price

Between the a,b and c, I think (a) should be the top most priority. (b) and (c) are the ones that can make you really rich, but do you have the skills to see separate the (c) from the (b)? It's not as if there's only this sector to focus on, so I'll skip it and live with my choices.

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.

Friday, July 15, 2016

Growing my investment portfolio

There are only two ways in which my portfolio can grow without leverage - the first is to inject it with fresh capital, and the second is to grow it organically from dividends/capital appreciation.

To grow it by injecting fresh capital, it will have to come from savings. And where do savings come from? From work. After subtracting all the necessary deductions, I'm left with 30k to inject into my warchest every year. When my portfolio is small, say about 100k, this addition of 30k per year into my portfolio will increase it by 30%, which is way more than what I think I can grow my portfolio organically. As my portfolio grows bigger in size, there will come a time when the addition of 30k per year will not be significant. 500k portfolio with 30k injection is 6% while a 800k portfolio with 30k injection is just 3.75%.

That's the effect of having a bigger base.

I suppose if I can grow my portfolio at 5% per year, my portfolio has to be more than 600k in order for the addition of 30k fresh capital to be 'insignificant' compared to the portfolio's organic growth. It's a little bit more complicated than that, I know. The fresh capital of 30k that is pumped into the portfolio will generate more dividends, that will result in more savings and thus having more fresh capital to be pumped into it. Let's ignore that fact for now and keep things simple. Whatever extra compounding will offset any losses that will come from time to time in the stock market.

I've a warchest plus portfolio size of 200k right now. To reach 600k with injection of 30k per year, I'll need 14 years to do so. This also means that in the next 14 years or so, it's more important to focus on my job and make sure I can continue to contribute 30k into my portfolio, rather than to depend on my portfolio for organic growth. Eventually, when the size of the portfolio increases to such an extent that the annual 30k increment is no longer significant, then I'll have to be a lot better in my portfolio growth. It's not that I have to choose one or the other, but it's good to know what will contribute to a greater extent to my portfolio growth so that I know what is the most effective way to grow it.

The conclusion is that it's still important to work and earn and save to grow your portfolio. To do that, you need to study to get yourself the required certification to earn a good pay for the greater part of your life, while learning to improve your skills in growing your portfolio that will only kick in towards the later part of your life. Whoever thinks he can skip school and start making big bucks in the stock market when they haven't even stepped into the working world is either delusional or privileged.

I hope it's the latter.

The day SGX stopped trading for 5.5 hrs

On Thurs, 14th July 2016, SGX had to halt trading for all its counters around 1130 am. At first, it's supposed to resume trading at 2pm after lunch, but at 2pm when I was eagerly waiting to see if there's any movement from my brokerage platform, I was disappointed. Nothing moved. Later it was announced that it trading will be resumed at 4pm instead. Yet again, at 4pm, none of the counters moved. The last announcement regarding this screw up was that there won't be any trading for the rest of the day and the market is closed.

I don't think I've seen SGX closed for trading longer than this time round, which lasted about 5.5 hours. It really didn't affected me much, but I can imagine the following groups of people being frustrated with the whole fiasco:

1. Those who naked short in the morning and wanting to close towards market end.

I wonder what will happen to these group of people. Technically it's not their fault to do a naked short since the market is closed so they can't buy back and close their positions even if they wanted to. I wonder how SGX will handle this case.

2. Those who are playing around with Noble rights.

It happened that 14th July is the last day of the nil paid trading rights period, so for those who wanted to sell their nil paid rights without subscribing or wanting to get more nil paid rights, they are prevented from doing so after 1130am. This is resolved when it was announced that the Noble nil paid rights trading period is extended for one more day until Fri. That much was certain and it's easy to solve.

3. Those who are playing around with companies going XD on Fri

That means that Thurs was the last day with the CD status. And since nobody can trade after 1130am, those buyers who wanted to buy to be entitled the upcoming dividends will miss the chance. Or those who want to sell their shares before XD won't be able to do so.

4. Those playing with HSI put/call warrants

HSI market is very much open while STI is closed for the day. This will result in arbitrage situations that may result in gain/loss for people. It's unfair, but I don't think SGX can do anything about it.

I'll be the first to admit that the above 4 groups of people are in the minority. These are generally complex stuff that most people won't even touch at all. If one brokerage firm screws up, we can 'insure' ourselves by having another brokerage platform to trade on. If SGX breaks down, what can we do?

Nothing. Sometimes shit happens and we just have to roll with the punches.

Or, we can really be careful with all the open trading positions we have and limit our exposure. I'm not talking about cut loss or stop losses here. It's just the number of open positions we have. If, for example, Dow jones dropped 10% after we had to stop trading on Thurs, I think the price might open much lower than your stop losses as the price gapped down, which means you will stop your losses lower than what your stop loss limit are. That can be disastrous.

Don't say such things won't happen. I think it'll happen more often when the market is unstable, like in a huge downturn and the volume surged so much that the server can't handle it.

Thursday, July 07, 2016

Who is being speculative?

A value investor, a trader and a gambler goes into a bar. After a drink or two, they started arguing over which of them is speculating in the market.

The value investor says that the other two are not basing their investments on fundamental reasons and treating the buying of their part business ownership like digits, hence the two are speculative.

The traders says that the other two did not consult the technical aspect and the price action of the charts before putting in their money, hence the two are speculative.

The gambler says the other two did not seek insider's news or throng the forums for the hottest rumors, hence they could not possibly know what the BBs are doing without a ear on the ground, hence the two are speculative.

As you can imagine, they couldn't come to a consensus, so they suggested asking the worldly bartender for his opinion on this subject matter.

The bartender says that since all of them would rather spend their time talking about philosophical difference instead of making money like him working on a second job at night, so all of them have no business talking about money, and therefore also investment, and hence all of them are speculative.

Friday, July 01, 2016

Croesus Retail trust preferential offering

Those holding Croesus retail trust needs to fork out money again. This was after their most recent rights back in Oct 2015 which I've blogged about here, here and here. There is now a preferential offering exercise going on, and in all respects, we can treat this as a rights exercise.

Here's the details:

The dilution isn't that much. It's an offer of 10 new shares for every 259 shares held before it goes XR, priced at $0.797 for every new shares. Why 259? I've no idea, must be the doing of their financial wizards. If you own 10,000 shares of Croesus before XR, you'll need to fork out $307.72 to subscribe to the new shares. It's not that much, really.

The price went up to a high of 0.82 today strangely, but perhaps not surprisingly. It wouldn't look too good if the new shares is priced at $0.797 but the share price is trading below that.

I'll be subscribing to it, and applying for excess if available.