ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

(28-08-2013, 08:39 AM)minimax Wrote: [ -> ]Value investing doesn't work for the market for lemons (en.wikipedia.org/wiki/The_Market_for_Lemons ).

The S-chips market is a market for lemons. So please stop looking for values in the S-chip market.

I think we should still stay open-minded to S-chips. Each case by its own instead of just thinking all S-chips are bad. If because of MINZ's incident and YZJ or Yanlord fell by 50% too, will you not take a second look?

In fact, some of the other counters which fell due to MINZ's collateral damage could prove to be interesting.

I am not disheartened by the fact that more brokerage houses are ceasing coverage on S-chips. Less coverage, more possibility for value. But of course, the bottom line is one has to do the sufficient amount of homework (while considering the time needed) before taking the call. More so for S-chips.

(28-08-2013, 08:42 AM)Ray168 Wrote: [ -> ]China Minzhong just an easy target?

US short-seller's ambush of firm flies in the face of experts' assessment

Published on Aug 28, 2013 By Goh Eng Yeow Senior Correspondent

FUJIAN vegetable seller China Minzhong makes the perfect target for short-sellers - and they have not been wasting any time showing it in recent days.

2 important lessons I learn with regard to short-sell:
1. Never short a company where the owner has a huge stake in the company. The small public float is unlikely going to trigger the chain-effect seen in MINZ
2. Never short a penny stock. Because of the small base, any jump in price will kill you.

(28-08-2013, 08:49 AM)dzwm87 Wrote: [ -> ]

(28-08-2013, 08:39 AM)minimax Wrote: [ -> ]Value investing doesn't work for the market for lemons (en.wikipedia.org/wiki/The_Market_for_Lemons ).

The S-chips market is a market for lemons. So please stop looking for values in the S-chip market.

I think we should still stay open-minded to S-chips. Each case by its own instead of just thinking all S-chips are bad. If because of MINZ's incident and YZJ or Yanlord fell by 50% too, will you not take a second look?

In fact, some of the other counters which fell due to MINZ's collateral damage could prove to be interesting.

I am not disheartened by the fact that more brokerage houses are ceasing coverage on S-chips. Less coverage, more possibility for value. But of course, the bottom line is one has to do the sufficient amount of homework (while considering the time needed) before taking the call. More so for S-chips.

(28-08-2013, 08:42 AM)Ray168 Wrote: [ -> ]China Minzhong just an easy target?

US short-seller's ambush of firm flies in the face of experts' assessment

Published on Aug 28, 2013 By Goh Eng Yeow Senior Correspondent

FUJIAN vegetable seller China Minzhong makes the perfect target for short-sellers - and they have not been wasting any time showing it in recent days.

2 important lessons I learn with regard to short-sell:
1. Never short a company where the owner has a huge stake in the company. The small public float is unlikely going to trigger the chain-effect seen in MINZ
2. Never short a penny stock. Because of the small base, any jump in price will kill you.

If a stock is undervalued due to concerns over veracity of the financial statements, how do you apply your value investing skills to determine whether the financial statements are true or not?

If you choose to invest in such counters, you are taking the stand that you have superior abilities to differentiate between companies that are cooking the books and companies that are not.

---

I'd just like to clarify that of course that there are legit S-chips, but the fact is that the S-chips market has turned into a market for lemons and in the market for lemons, nobody can tell the difference between the good ("cherries") from the bad ("lemons").

So please stop trying to find value in S-chips.

Quote:Still, if the jittery investors who dumped their shares on Monday had cared to take a closer look, they would discover that Glaucus rests many of its allegations on historical information that arose before China Minzhong listed in 2010.

I am rather amused by this sentence. If the allegations are proven to be trued, it will call into questions of the information in the IPO prospectus and technically speaking, SGX will have to suspend CMZ and ask CMZ to perform an independent audit in the name of protecting the interest of the minority shareholders.
If SGX is not going to do anything, does it mean that the future IPO aspirants can just supply dubious information in IPO prospectus??

And, as what Glaucus had said, it is almost for sure SGX has to suspend CMZ to conduct investigations.

The only way that CMZ can get away with it is that the SAIC filings are fake, the chairman somehow was not an interested party and the customers somehow existed prior before 2009 by another name.

That process will take at least a year and most likely, it will whip up even more dirts along the way. Even if the audit shows no real wrongdoings, the "damage" to the retail investors will already be done.

Quote:It is easy to see why the firm is vulnerable to this sort of attack.
The share price has doubled in just over a year, it is reasonably liquid, with more than six million shares traded a day, and its fragmented shareholding structure means it does not have a strong anchor investor.

These are stock ticker related issues which have nothing to do with fundamentals - they merely make the counter "shortable". These same characteristics define many index stocks.

Quote:This calls into question the sanctity of numbers that have been certified by the company's auditors Crowe Horwath and the framework of safeguards put in place by the Singapore Exchange to protect investor interests.

Is this a sick joke? It has been repeatedly demonstrated that a clean bill of health from auditors is meaningless as far as fraud is concerned (but a refusal to issue an unqualified opinion is a clear red flag). As for safeguards by the Singapore Exchange, my own list of "S-Chip Disasters" is ample evidence that the real level of protection is woefully inadequate.

Quote:Granted a fresh pair of eyes may pick up details others may have overlooked, but in putting a price target of zero on China Minzhong, Glaucus also makes a mockery of the four "buy" calls made by analysts who have been painstakingly tracking the firm.

In fact, when Glaucus released its report on Monday, Maybank Kim Eng analyst Wei Bin reiterated his "buy" call, expecting a "seasonally weak quarter, with nothing to worry (about)".

So, who are investors to believe? China Minzhong, which has halted trading of its shares, says "it will take all necessary steps to defend its reputation and will not hesitate to take legal action".

Short-selling is a difficult and dangerous profession. Everyone hates you. By "everyone" I mean the company, the management, the shareholders, the commercial banks, the investment banks, the stockbrokers, and the stock exchange. Even the politicians. That's a long enough list to include approximately everyone, I think.

Only academics and fellow short-sellers appreciate the work done by a short-seller. Nobody does it on a whim. At least, not anyone who has survived in the capital markets for any meaningful period of time. Relatively speaking, sell-side research work is easy (if you are lazy, you can just repeat what the company tells you) and well-paid (driven by trading commissions, not investment results).

All things being equal, the short-seller has put more effort into his work than the sell-side analyst. But things are not equal - Glaucus has targeted other companies before and revealed that their emperors also had no clothes. Read the other research reports on their website. Especially on Shougang Fushan Resources and China Metal Recycling. The Hong Kong Securities and Futures Commission is now seeking to liquidate China Metal Recycling after its exposure as a fraud.

Who do I believe? I believe the report that backs up its claims with evidence.

Quote:Billionaire Anthoni Salim, who runs Indofood, is known to be one of the shrewdest businessmen in Asia and whose forebears hailed from an area near China Minzhong's Putian base.

Try telling a lay investor that Mr Salim had not done his homework when he was investing in China Minzhong and that two young Americans have managed to dig up dirt on the company that he may not be aware of.

Now, who do you think the investor will believe?

Anthoni Salim is not a self-made billionaire. It was his father Sudono Salim who built the family fortune. And that fortune was made in the Indonesia of 1952-1992 (Anthoni took over in 1992). Sudono Salim did not make his money in 21st century China.

For Anthoni Salim to continue his father's success in Indonesia is hard enough. To replicate it in China may be one bridge too far for him to cross. For sure there are many, many local Sudono Salims in China who have built their fortunes there and will not willingly surrender their economic fiefdoms to an interloper, however many millions he pours in. Not many people in Indonesia would dare to cross Anthoni Salim. But in China he is nobody. The local police and neighbourhood gangsters (who may be one and the same) are on the side of the local tycoon, not the foreigner.

As to who the investor believes, that is a separate issue from the truth. Regardless of who or what the investors believe, the truth is more important because if the company is real, it will survive this attack and prosper. If the company is a fraud, it will eventually collapse*.

*unless it manages to raise enough money in time to buy a real business. Peace Mark almost pulled this off in trying to buy Sincere Watch.

Of course, YMMV.

(27-08-2013, 03:35 PM)Drizzt Wrote: [ -> ]Cityfarmer, usually for MOS we determine a high enough return with determinable risk. the problem with s-chip is that there is the determinable risk and undeterminable risk are hard to quantify. more background work needs to be done and if its not safe enough perhaps we shouldnt take up

Let me present my view indirectly, once for all.

First of all, Mr. d.o.g is a senior buddy here which I respect. His opinions are always have my attention, and never disregarded easily. I have also reminded myself, not to disagree for the sake of disagree, just to prove something meaningless.

To walk away is always an easy solution. It may be a best solution, may be not, depend on choices available.

This is not a new topic, but a topic already raised for some time.

The first question for me, was on definition of S-Chip. There is no formal definition of S-Chip, so let me refer to wiki

"S chips (Chinese: S股) are Chinese companies listed on the Singapore Exchange. Their shares are known as S-Shares. S-Chips are incorporated in Singapore, the British Virgin Islands, the Cayman Islands and Bermuda and have their business operations in mainland China."

http://en.wikipedia.org/wiki/S_chip

The key word is "Chinese companies listed in SGX" and "business operations in mainland China".

The next question was, should I walk away from companies doing business operations in mainland China? The answer seemed no, China market should not be excluded for a serious investor. So a better choice seemed was walk away from Chinese companies, instead of China market.

Next question was, what if non-Chinese companies are doing much worse, or too high a valuation to put money in. So it was not an easy choice.

My conclusion was, no blanket "no" to S-Chip, but taking a more caution approach on selected markets, which should not be ignored, in my opinion

E.g. For waster water treatment market, non-S-Chips are valued at PE 20, and most projects are acquired, rather than bid. But a S-Chip, SoundGlobal, with PE <10 and better projects.

This is not a stock call, but a presentation on personal view.

(not vested, and never vested)

(28-08-2013, 10:05 AM)CityFarmer Wrote: [ -> ]

(27-08-2013, 03:35 PM)Drizzt Wrote: [ -> ]Cityfarmer, usually for MOS we determine a high enough return with determinable risk. the problem with s-chip is that there is the determinable risk and undeterminable risk are hard to quantify. more background work needs to be done and if its not safe enough perhaps we shouldnt take up

Let me present my view indirectly, once for all.

First of all, Mr. d.o.g is a senior buddy here which I respect. His opinions are always have my attention, and never disregarded easily. I have also reminded myself, not to disagree for the sake of disagree, just to prove something meaningless.

To walk away is always an easy solution. It may be a best solution, may be not, depend on choices available.

This is not a new topic, but a topic already raised for some time.

The first question for me, was on definition of S-Chip. There is no formal definition of S-Chip, so let me refer to wiki

"S chips (Chinese: S股) are Chinese companies listed on the Singapore Exchange. Their shares are known as S-Shares. S-Chips are incorporated in Singapore, the British Virgin Islands, the Cayman Islands and Bermuda and have their business operations in mainland China."

http://en.wikipedia.org/wiki/S_chip

The key word is "Chinese companies listed in SGX" and "business operations in mainland China".

The next question was, should I walk away from companies doing business operations in mainland China? The answer seemed no, China market should not be excluded for a serious investor. So a better choice seemed was walk away from Chinese companies, instead of China market.

Next question was, what if non-Chinese companies are doing much worse, or too high a valuation to put money in. So it was not an easy choice.

My conclusion was, no blanket "no" to S-Chip, but taking a more caution approach on selected markets, which should not be ignored, in my opinion

E.g. For waster water treatment market, non-S-Chips are valued at PE 20, and most projects are acquired, rather than bid. But a S-Chip, SoundGlobal, with PE <10 and better projects.

This is not a stock call, but a presentation on personal view.

(not vested, and never vested)

Have to disagree with you.

Sure, there are bad apples in a barrel but they are outliers and part of the cost of doing business.

Sure there are legit S-chips. But the S-chips market has degenerated into a market for lemons and in the market for lemons, nobody can tell the legit ("cherries") from the fake ("lemons").

So please stop trying to find value in S-chips.

(28-08-2013, 10:18 AM)minimax Wrote: [ -> ]

(28-08-2013, 10:05 AM)CityFarmer Wrote: [ -> ]

(27-08-2013, 03:35 PM)Drizzt Wrote: [ -> ]Cityfarmer, usually for MOS we determine a high enough return with determinable risk. the problem with s-chip is that there is the determinable risk and undeterminable risk are hard to quantify. more background work needs to be done and if its not safe enough perhaps we shouldnt take up

Let me present my view indirectly, once for all.

First of all, Mr. d.o.g is a senior buddy here which I respect. His opinions are always have my attention, and never disregarded easily. I have also reminded myself, not to disagree for the sake of disagree, just to prove something meaningless.

To walk away is always an easy solution. It may be a best solution, may be not, depend on choices available.

This is not a new topic, but a topic already raised for some time.

The first question for me, was on definition of S-Chip. There is no formal definition of S-Chip, so let me refer to wiki

"S chips (Chinese: S股) are Chinese companies listed on the Singapore Exchange. Their shares are known as S-Shares. S-Chips are incorporated in Singapore, the British Virgin Islands, the Cayman Islands and Bermuda and have their business operations in mainland China."

http://en.wikipedia.org/wiki/S_chip

The key word is "Chinese companies listed in SGX" and "business operations in mainland China".

The next question was, should I walk away from companies doing business operations in mainland China? The answer seemed no, China market should not be excluded for a serious investor. So a better choice seemed was walk away from Chinese companies, instead of China market.

Next question was, what if non-Chinese companies are doing much worse, or too high a valuation to put money in. So it was not an easy choice.

My conclusion was, no blanket "no" to S-Chip, but taking a more caution approach on selected markets, which should not be ignored, in my opinion

E.g. For waster water treatment market, non-S-Chips are valued at PE 20, and most projects are acquired, rather than bid. But a S-Chip, SoundGlobal, with PE <10 and better projects.

This is not a stock call, but a presentation on personal view.

(not vested, and never vested)

Have to disagree with you.

Sure, there are bad apples in a barrel but they are outliers and part of the cost of doing business.

Sure there are legit S-chips. But the S-chips market has degenerated into a market for lemons and in the market for lemons, nobody can tell the legit ("cherries") from the fake ("lemons").

So please stop trying to find value in S-chips.

Didn't want city farmer to be the Lone Ranger here, yes I am vested in s-chip, YZJ. I believe it's also nonsense to push agruments to the extreme. Even d.o.g says he could not find more than 10 s -chips in the most prob not a fraud category, I assume he feel that there might be a handful which he thinks might be worth digging deeper, to say all is worthless, is saying any companies that deal with china are frauds. Please note that frauds dun just happen to s-chips, Singapore companies and us companies have them too.

For YZJ, I can check their sales (deals) with their customers, mostly also listed companies such as seaspan, I can also chk the figures announced with third party industry website such as Hellenics shipping. How many Singapore companies can u do such a counter check? When the ships are delivered, u can also check if they are lying, as the buy side with have such info too.

Not saying its a good company, but research does lower the risks, finacial results are not the only source for checks. I know ppl will start talking about the 12 billion HTM, I would like to say that even if they are inflated, it's cash, not loans, ther core shipping business should survive.

Yes, I am one of the victim of CAO, and I have made plenty and lost plenty money trading in s-chips, one of the worst is qingmei. But I still would not brush off all s chips

Quote:Even d.o.g says he could not find more than 10 s -chips in the most prob not a fraud category, I assume he feel that there might be a handful which he thinks might be worth digging deeper, to say all is worthless, is saying any companies that deal with china are frauds.

Sure, there are legit S-chips. But the S-chips market has degenerated into a market for lemons and in the market for lemons, nobody can tell the legit ("cherries") from the fake ("lemons").

Quote:Please note that frauds dun just happen to s-chips, Singapore companies and us companies have them too.

Sure, there are bad apples in a barrel but they are outliers and part of the cost of doing business.

My view is this, if we cannot trust the financial statements, value investing is not valid. Yes you can make money by speculating but over long term it is not going to be one of your 'home runs'. I prefer to stick to safe Singapore companies or great brands.

Learnt the lesson from one of the greats here:

http://www.bloomberg.com/news/2013-06-17...-year.html