Focused minority shareholders grp (stock specific) e.g. Top 20 shareholders

[dreamybear]

Over the years, there have been a no. of discussions(including in this forum) regarding retail shareholders’ interest with regards to corporate actions e.g. privatization offers, suspensions. It shows (a) there isn’t much minority shareholders can do; (b) OPMI are dispersed; (c ) the rarity of large activist shareholders (e.g. fund manager). It will not be a surprise if the great sage himself had already known OPMI issues and perhaps explain why it was mentioned in WB related books that he prefers to buy entire companies so that he has control of capital allocation.

Under the existing circumstances, I wonder if there is a way for retail shareholders to help ourselves ? If not, history will just keep repeating itself ….

Drawing inspiration from Straits Trading shareholder group / Best World telegram chat group, I was thinking whether it would be beneficial to bring together serious committed shareholders of the same stock. Specifically, forming a focus group of long term dedicated shareholders(ideally who are already/ready to invest a significant amt of time – not just a chit chat group), e.g. Top 20 shareholders or shareholders with a substantial amount of net worth in the particular stock, e.g. TTJ* shareholders club, Dutech Holdings* shareholders club etc.
(*stock delisted, for illustration purposes only)

Other than leveraging on each group member’s strengths to maximize effectiveness and resources for efficiency, the purpose/advantages of such a group include : (a) uniting OPMI during corporate actions when necessary  (b) hopefully collectively own close to 10% shareholding to be eligible to call EGM if necessary; (c ) meet up quarterly/half-yearly to discuss company financial results/developments ; (d) request to participate in analysts’ earnings calls (e) organize company site visits(local/overseas offices) ; (f) suggest improvements to the business, etc ……

To be clear, the objective is to work alongside mgmt & contribute positively to benefit both parties(controlling + OPMI) rather than against one another. It is most effective when OPMI has an intricate understanding of the business. However, I think (a) this approach may be more applicable to small-cap stocks (b) the main challenge would be to find like-minded shareholders all holding significant interests in that particular same stock.

If such an arrangement proves to be successful, I believe there's a lot more development potential, e.g. other co-investment opportunities.

Would be most grateful to tap on the wisdom and extensive investing experience of buddies for comments on my ideas below, e.g. were my ideas already tried earlier by some but failed or is it just plain dreamybear's dreaming(i.e. unfeasible) or is there a better suggestion  …. 

Interested buddies who have already been thinking along similar lines, pls feel free to PM me, maybe we can work something out.
 
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Straits Trading
https://shareholdersclub.sg/
 
Forum: Time to set up Ombudsman Office to seek recourse for aggrieved investors
https://www.straitstimes.com/opinion/for...-investors
“….More importantly, how will the aggrieved investors seek recourse, especially the retail investors, who have neither the resources nor legal expertise to do so? Thousands of investors have lost substantial amounts of money and some even their life savings, and are suffering in silence.…….
 
It is now more critical than ever for the MAS to institute processes or set up an Ombudsman Office with some urgency to hear investor grievances and seek recourse for aggrieved investors. There are many other companies listed in the Singapore Exchange that have been suspended and under investigation for a long time, with no indication of when investigations will be concluded. Meanwhile, the investors are waiting patiently for the outcome of these investigations and whether they will be able to recoup at least some of their money…..”
 
Pangolin fund says it's close to getting 10% of votes to block Challenger exit offer
https://www.businesstimes.com.sg/technol...exit-offer

[CY09]

Hi Dreamybear,

The thought and the execution is there. As its stock specific, there will be a need for you to create multiple groups as each company will have a different group of shareholders with a few overlapping. I thank you in advance for the logisitcs and bandwidth in the need to create specific company groups which consists of shareholders well versed in a company and able to work with the mgmt.

Searching for like minded shareholders, do note valuebuddies is small community; therefore it will be difficult to secure a shareholder % that is large enough to be a force. As a start, I suggest you search the users of ¯|_(ツ)_/¯, dydx, squirrel, bluekelah as they do evaluations of specific SGX companies and I think they may have stakes in the company they cover.

An alternative method is to buy stakes in companies which you think are value stocks, attend the AGM and slowly mingle with the shareholders to form a group. You may find knowledgeable shareholders during such AGMs

About me, a forward disclaimer is that while I have done many brief reviews of companies, I do not own many SGX listed companies- in fact only CDG and YZJFH are my local investments. I invest in Hong Kong & US listed and these companies tend to be market caps in the billions (and no I am not invested/short Sea Group and Grab); I have developed an aversion to investing in many SGX listed companies.

[BlueKelah]

Good idea, but not feasible due to a few things.

To have a group of OPMI with significant stake you will need to have a database of all the members and their exact shareholding. This will need to be updated on a regular basis, so you will need to have some admin cost for every stock.

Also financial information is very very private, I dont think anyone wants to share their exact holdings, and even if they did you then have the issue of securing the privacy of that data. Who is going to oversee the storage of that information?

lastly every group has to have a way of making a group decision, how are you going to ensure that even a smal group of 20 shareholders would have no conflict in decisions and how would you make decisions as a group? via voting according to your shares?

Also most of the stocks where opmi can effect change are usually small or microcaps, bigger stocks would be majority funds and owner controlled. And for many small caps the boss and friends/funds will have majority decision making power from the shareholdings they obtained when the stocks IPOed.

Best course of action for OPMI is to make sure that when buying small caps to look at company history and management track record. My usual first question is "how friendly are mgtment". Do they prefer to payout generous dividends, or keep money in the company and pay themselves good salaries instead? Have they in the history of the company do anything that shortchanges OPMI? are they doing share buybacks to increase their stakes % and then using those treasury shares to reward themselves later?

If the company mgt. is not aligned with your investment strategy then why bother with it in the first place. and if you dont bother with it, why do you need an OPMI group? There are many other stocks both overseas and local market which will likely offer better performance, better treatment of OPMI.

Locally my fav stocks mainly small caps are Hotung/PNE/Multichem/Powermatic/CSE/Namlee/Valuetronics/Riverstone. These have mgt. that proven to be OPMI friendly throughout the years and just quietly chugging along.

I have had some learning failures like CDW / New Toyo etc.. which at some point looked like value buys with good dividends but crappy industry and poor management has destroyed value.

I also like some bigger caps like and ShengS/Wilmar recently for insurance against any coming food/commodity crisis.

More recently have gotten a bit of Food Empire as the numbers look really good and Management + sector seems to be moving in the right direction despite war/global recession.

End of the day, Any company you think needs OPMI to organise and speak out against management is probably a company you want to stay out of, not worth the hassle or the risk.

[brattzz]

it's a good clause, but there will be many trust issues... if is this is driven by SIAS, it will be more trust-worthy... i guess..

reference to BK's line, which is best suited for current situation,

"End of the day, Any company you think needs OPMI to organize and speak out against management is probably a company you want to stay out of, not worth the hassle or the risk."

[dreamybear]

I thank the buddies who have shared their views (including the generous sharing of the individual portfolio of stocks to substantiate the discussions using real life examples) which has enabled me to relook at the issue from different perspectives:

- To begin with, I am not vested into many counters, and naturally only interested in forming groups for the very few which I am (more significantly) vested in. But initially, I was thinking abt the possibility of a platform which benefit all retail shareholders, and where the substantial shareholders of a stock are responsible for their own groups. In any case, I guess it’s just unfeasible.

- I think the trust issue can be resolved if everyone in the group knows each other personally and have met up in-person. However, the consensus issue is probably more tricky since everyone may have divergent views.

- SGX listed companies' ARs publish the names of the Top 20 shareholders, and thus it cld be relatively straightfwd to verify those shareholders. I got to know a couple of Top 20 shareholders in different companies, so from experience, I think there's a way around initial trust issues but I suppose it cld be another story for people holding multiple nominee accounts. 

- It seems that the shareholders’ landscape of SGX companies is just too deeply fragmented and there is a likelihood that the Top 20 are associated in one way or another with the controlling shareholders. Thus, only a big fund that has the resources to take a substantial stake singly, has a realistic chance to take actions.

It's indeed an excellent idea to factor in OPMI friendliness into our stock selection criteria. Some of the "OPMI ideal" SGX listed stocks (e.g. the Micro-Mechnics, Riverstones) have indeed performed very well since IPO, but over the years, they have probably matured, become well-known to investors and with their qualities already well factored into the valuation. Given the increasingly polarized world, the innovative disruption by cash-rich loss-making companies, mkt distortion by long periods of low interest rates, etc, it could be harder for companies to continue their outstanding financial performance in the future.

Logically, for a mid/small sized listed company (especially one that is not in need of mkt funding and have strong cash reserves), there is no compelling reason to "excessively" reward OPMI when most OPMI do not contribute to the company's performance anyway. It probably remains listed because (a) of the "prestige" / better visibility; (b) wants a higher financial valuation of the company vs if it were a private company ( c) insufficient financial resources to be taken private.

What I have in mind is more than just "speaking out agst mgmt". It is more of a value-add focused shareholder group who seeks an uncompromised understanding on the business and speaking out only when necessary. To give an example - private equity Novo Tellus having taken a stake in ISDN, has worked with ISDN to improve its operations, and the end result includes better operational efficiency and profitability for the company. Of course, as a group of retail shareholders, our expectations for effectiveness have to be tempered accordingly but every little constructive and effective help counts when running a business and more so in this disruptive knowledge-based economy.

While luck beats smarts, by helping to improve the operations of the vested company, our investing outperformance depends lesser on hope and luck (e.g. higher valuation accorded by the mkt due to external factors, privatization offer at a high premium, generosity of the controlling shareholders for return of capital)

[weijian]

Under the existing circumstances, I wonder if there is a way for retail shareholders to help ourselves ? If not, history will just keep repeating itself ….

hi dreamybear,
I see this conundrum primarily a feature, than a bug.

As in life, investing cannot be smooth sailing. If there is no uncertainty and risks involved, then there would be no equity risk premium for investing. So in similar vein, if such small and local markets (eg. SGX) do not have such "problems", then it would be much more efficient than it is.

BUT it is precisely because of the disadvantaged playing field and more importantly the perceive of it, that market inefficiencies more often than not present itself, compared to more developed markets.

So, of course there are issues that will penalize the OPMIs and disadvantages the playing field. But IMHO, it represents more opportunities than risk, in terms of market inefficiency. So the challenge is - rather than fixing the issues, it would be "How do I equip myself to take advantage of the inefficiencies that are a product of these issues?

In summary, sometimes we just have to play the hands that we are dealt with, not the one we wished we got (ditto Will Smith's memoir).

[CY09]

I am thinking one main problem in Singapore is that many of the smaller listed companies are unfriendly that they are the controlling shareholders and will install themselves and family members in board positions and pay high salaries in proportion to the company's net profit.

SGX can revise the takeover code where "If 90% of more of share, excluding the controlling shareholder, approves to the takeover offer, a mandatory takeover occurs where even the shares of the controlling shareholder are acquired to the acquirer"

In this way, many family businesses will be on guard to prevent the loss of a company which is serving to give them a juicy dividend in the form of a high salary remuneration for doing nothing much. And when a takeover bid comes, they will counterbid like in the SPH case

[ghchua]

SGX can revise the takeover code where "If 90% of more of share, excluding the controlling shareholder, approves to the takeover offer, a mandatory takeover occurs where even the shares of the controlling shareholder are acquired to the acquirer"

I think I have discussed this before here in this forum but I don't mind repeating it again. The takeover code is under Company Act and SGX do not have the power to amend it.

[dreamybear]

Comparing the STI vs S&P charts, we can see that 1998 to 2000 / 2003 to 2007 were the "golden period" for STI. While I am not exactly sure what were the actual factors, I am guessing one of them could be the increase in our population. Comparatively, the STI was range-bound for the last 10 years or so. I wonder if this is related to the relatively lesser discussions in this forum in recent years (I noticed some buddies that used to be pretty active were no longer so). But ultimately, I believe there needs to be a sufficiently high reward to risk for the mkt to be attractive to investors.

Interesting enough, even though the S&P has done very well e.g. over the last 20 years, the protegee of WB seems to favour taking majority stakes in businesses with a hands-on approach, rather than picking stocks and investing in the stock market for the long term.

Thus, even as we accept and make the most of the circumstances we are in, it does make me wonder if we are playing the right game or playing it correctly or have the rules of the game changed, particularly when it comes to stock business value investing.

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STI
https://sg.finance.yahoo.com/quote/%5ESTI/

S&P
https://finance.yahoo.com/quote/%5EGSPC/

SG Population Growth
https://data.worldbank.org/indicator/SP....cations=SG

A Warren Buffett protegee strikes out on her own
https://www.businesstimes.com.sg/wealth-...on-her-own

Kanbrick
https://www.kanbrick.com/

[dreamybear]

Reading the recent posts in the "Boustead Projects"(regarding BP offer) & "What is really challenging about value investing ?* " threads, it reminds me of this thread which I created.   *https://www.valuebuddies.com/thread-9243-post-167541.html#pid167541

My suggestions had included aggregating OPMI shareholdings to make it count and gathering a very selected few of focussed and dedicated investors to leverage on each other' strengths and efforts. Speaking of which, I discovered the term "mosaic theory" - the analysis of public and non-public material and non-material information to determine a security's underlying value. Alas, the concept is more succinct to my long-windedness and could have saved me considerable brain juice : essentially, leverage on each group members' efforts to implement the mosaic theory approach. 

As a serious investor, I think we need to put in the laborious effort to thoroughly understand the company and the eco-system it operates in, and value-add to the company if possible. At the same time, perhaps during the AGM, OPMI can request the mgmt for doing more roadshows, investor briefings, etc. Hopefully, these will bring forth a more positive, fruitful relationship btn controlling shareholders / OPMI and lead to more positive outcomes.

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Mosaic Theory
https://corporatefinanceinstitute.com/re...ic-theory/

Shareholder Rights and Engagement
https://www.eguide.sid.org.sg/index.php/...engagement
"....Companies should consider other avenues of engaging shareholders, such as through townhall meetings, briefings and roadshows...."