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Well, as we can see from the Eratat saga, Mr. Market
1) Is emotional, euphoric
2) Is often irrational
3) Is there to serve you, not to guide you.

Hence, do not be fooled by Mr. Market as he would irrationally and euphorically overvalue a piece of worthless junk even though there is no such justification for Mr. Market's valuation.

Of course as members of this forum are value investing practitioners, you'd all already have known this.

If Mas and SGX can't do much , who else can ?

(30-01-2014, 10:14 AM)ghchua Wrote: [ -> ]

(30-01-2014, 09:50 AM)GPD Wrote: [ -> ]So what is going on with the company audit. Seems like it gives no assurance to the authenticity of the company financial. Surely it is auditor's duty to verify cash do exist during audit. No?

Auditor can verify with bank balance. But for more detailed scope, a special audit is required.

How auditor verify cash balance is actually kinda contentious. Usually what auditors do is mail the bank a balance confirmation sheet to ask the bank to confirm that the cash is there for the respective account. But actually in the past few years wih rampant china stocks fraud (not just s chip but those sites in states n Hk), there have been several cash fraud n ultimately the cash was "verified" by auditors through bank confirmation but still cash is gone.

One example of how this could happen is the auditor mail the bank confirmation to local bank branch rather than head office. N sometimes local bank branch is just not that solid n sound. (Local bank branch officers just anyhow confirm n lie)

(30-01-2014, 07:34 PM)minimax Wrote: [ -> ]

(30-01-2014, 07:18 PM)wahkao Wrote: [ -> ]

(30-01-2014, 07:12 PM)minimax Wrote: [ -> ]As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

You mean Eratat is worth more than last traded price of $0.1?
How did you arrive at such a conclusion?

It is actually undervalued if you exclude fraud. On hindsight, it is obvious that the company is indeed troubled. However, there was no indication of fraud prior to this. Yes, cash balance may be too high and they took on a loan of huge amount. But Apple did exactly the same thing. It is not an absolute answer that it is a fraud.

Exclude fraud out of the picture, Eratat is very undervalued. Except no one can really verify if there is a fraud. It was mere speculation. There wouldn't have been a fraud if it was so easily verified.

(30-01-2014, 10:45 AM)dzwm87 Wrote: [ -> ]Always tempted to look into this company since management has been open with IR meetings and fashion show. But I think the lesson learned for me is to always look at the company wearing the owner's hat.

Balance sheet is rich with cash and valuations are so low yet there has been no insider purchase while management is trying to convince the public that things are going to be better. Yet, they need to raise bonds at illogical rates with SHK.

I think the current issue is not as simple as it is. It has been 1 month since the last interest payment in Dec 2013. Management is not stupid. If the company's cash is real, they would have done all they could to get the cash. Now SHK is calling for full redemption.

When things doesn't square, it is always better to walk away.

It's a good thing that esteemed members of this forum have exercised their independent and superior judgement and have not blindly followed Mr. Market's overvaluation of this worthless piece of junk.

(31-01-2014, 10:23 AM)arriyana Wrote: [ -> ]

(30-01-2014, 07:34 PM)minimax Wrote: [ -> ]

(30-01-2014, 07:18 PM)wahkao Wrote: [ -> ]

(30-01-2014, 07:12 PM)minimax Wrote: [ -> ]As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

You mean Eratat is worth more than last traded price of $0.1?
How did you arrive at such a conclusion?

It is actually undervalued if you exclude fraud. On hindsight, it is obvious that the company is indeed troubled. However, there was no indication of fraud prior to this. Yes, cash balance may be too high and they took on a loan of huge amount. But Apple did exactly the same thing. It is not an absolute answer that it is a fraud.

Exclude fraud out of the picture, Eratat is very undervalued. Except no one can really verify if there is a fraud. It was mere speculation. There wouldn't have been a fraud if it was so easily verified.

yes this is exactly what I had in mind

(30-01-2014, 07:34 PM)minimax Wrote: [ -> ]

(30-01-2014, 07:18 PM)wahkao Wrote: [ -> ]

(30-01-2014, 07:12 PM)minimax Wrote: [ -> ]As usual, Mr. Market has totally screwed up by overvaluing Eratat by a wide margin in spite of heaps of warning signs.

nope. it actually undervalued eratat. I think you should get your facts right before posting this remark

You mean Eratat is worth more than last traded price of $0.1?
How did you arrive at such a conclusion?

its PE is less than 2, price/NAV is around 0.5, and it has good fundamentals. good debt/equity, good earnings.
top 10 cheapest stock on SGX.

(31-01-2014, 12:45 PM)minimax Wrote: [ -> ]

(30-01-2014, 10:45 AM)dzwm87 Wrote: [ -> ]Always tempted to look into this company since management has been open with IR meetings and fashion show. But I think the lesson learned for me is to always look at the company wearing the owner's hat.

Balance sheet is rich with cash and valuations are so low yet there has been no insider purchase while management is trying to convince the public that things are going to be better. Yet, they need to raise bonds at illogical rates with SHK.

I think the current issue is not as simple as it is. It has been 1 month since the last interest payment in Dec 2013. Management is not stupid. If the company's cash is real, they would have done all they could to get the cash. Now SHK is calling for full redemption.

When things doesn't square, it is always better to walk away.

It's a good thing that esteemed members of this forum have exercised their independent and superior judgement and have not blindly followed Mr. Market's overvaluation of this worthless piece of junk.

on foresight, market undervalued it, not over valued. because the valuation was before the news about the default come to light.

on hindsight now that we know about the default, we can indeed say market indeed over valued.

if your comment refers in the context of hindsight, then you are right

There were 2 serious red flags:

1) the bonds terms there were way too ex. Given the amt raised in relation to cash

2) which I highlight at Nextinsight forum, according to the top 100 Coporate tax payers in jinjiang , Eratat haimingwei shoes did not appear, not paying even 3 million rmb. I ask investors to questioned the CFO as it is quite serious, but I have never heard of them.

In comparison, YZJ is the 50 tax payers for the past 3 years. It is the top 15 payers in 2012 I think.


I have consider trading it when it reached 8 cents, but once I think of the Bonds, I passed. After the tax issue, I never looked at it again.

As the sino grandness saga taught me, SAFe and Trade figures can be call to questions, but taxes should be the most reliable. Simple, what good would the authorities have inflating tax collected from companies?

It is not about valuation on hindsight, it is about risk assessment. It might be possible to trade Eratat profitably with it forming only a wry small amount of portfolio, but how do you assess such wanton risk? Maybe 50% of dividends income for such speculation at max?

A stock's fundamentals does not just depend on it's PE and P/NAV.

I have said many things about this company before and anything more will now be hindsight bias and totally irrelevant. Someone has pointed out the absence of Eratat's subsidiary in Jinjiang tax report way before, which probably mean the profits were not really there? Investors were already pre-warned yet none bothered to compile these discrepancies to shoot the CEO during AGMs, preferring to just brush them aside and listen to only positive news.

If you tracked their reports, the majority of earnings went into receivables, and a huge portion of receivables were subsequently written off by renovation subsidies and sales incentives. So are the earnings really good?


Many lessons I learned from studying this company. Some examples are:
1) Growing cash pile, appears to come mainly from investors and bonds. Most of operational cash went into receivables.
2) Warren Buffet's, or was it Charlie Munger's, advice to look more closely at assets than liabilities. In this case, majority of assets were in receivables. Not the first company with this sign. I think previously, Beauty China (can't really remember) accounts were similar. History repeats. 1 fund manager documented it in his monthly newsletter about all these. It pays to study different companies even though we may not invest in it. I was frequently asked on why I analyse a company I don't invest in.
3) CEOs will frequently paint a positive picture. If not positive, do business for what right? A common business sense that is sometimes not that common.

I learned a few more things about running a business with this company that I didn't think of before, both from forumers and library books. The most key of all, about sales and marketing.
1) Marketing failures. Eratat done a fair bit of marketing on their products, which on hindsight, are failures. Was reading up on marketing theories recently and trying to apply to different businesses.
2) Marketing successes. Eratat's marketing of its company to shareholders was a success and there are many lessons to pick up from.



Of course, I may turn out wrong, and the CEO suddenly appears with a huge pile of cash and declares he was merely on CNY holiday. I highly doubt it.

Anyway, Happy Chinese New Year. For investors who believed in the company, I wished you the best. Money lost can always be made back.