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09-02-2014, 01:44 PM
(This post was last modified: 09-02-2014, 01:46 PM by corydorus.)
Getting out from SMRT early is quite easy to take. It may pass the Dividend test on prior years but not the business case which is quite obvious they are in trouble with the breakdowns.This can't be fix immediately. Likewise I sold but with few hundred loss only.
There are also a few times you have ample time to get out with lesser loss. One by the profit warning and the other higher cost to invest on personnel announcements.
The tougher part is to "time" your return and many people probably is betting for policy turnaround rather than execution improvements which is a function of cost and time.
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(09-02-2014, 01:44 PM)corydorus Wrote: Getting out from SMRT early is quite easy to take. It may pass the Dividend test on prior years but not the business case which is quite obvious they are in trouble with the breakdowns.This can't be fix immediately. Likewise I sold but with few hundred loss only.
There are also a few times you have ample time to get out with lesser loss. One by the profit warning and the other higher cost to invest on personnel announcements.
The tougher part is to "time" your return and many people probably is betting for policy turnaround rather than execution improvements which is a function of cost and time. Prior to miss Saw appointment (aka where got breakdowns?), i think most value buddies will think SMRT is a feasible income yield stocks for the long-term. At least me think so.
The question of when to get back is indeed not so easy.
Maybe it will not be worth to get into this stock again, i think.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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09-02-2014, 03:43 PM
(This post was last modified: 09-02-2014, 03:44 PM by Tiggerbee.)
I think you really need to scrutinize how a company accounts for depreciation costs on their income statement. If a capex intensive company was applying linear depreciation on their assets, then it's not right. Such companies should apply accelerated depreciation with higher depreciation as the equipment aged.
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09-02-2014, 10:01 PM
(This post was last modified: 09-02-2014, 10:07 PM by mrEngineer.)
When I saw yeokiwi's reply, I thought he will mention something about diversification. But anyway, I believe the most important thing in investing is about managing your portfolio and then followed by individual stocks. A good portfolio strategy is more important than scrutinizing the company financials. Even if you were an employee or even in the top management of SMRT in 2011, you probably would have continued to believe that SMRT is an excellent dividend yield generator. However, when bad news happen and the decision or indecision to make changes to your portfolio will show a lot more about your ultimate performance.
Nonetheless, I concur with dominihaihai. The more you are exposed to the industry or the more you scuttle-butt, you will accumulate experience on what's important and not. For e.g. when I first started investing, I did not even bother about the porter 5 forces about the company I am investing in. However nowadays, this is probably one of the first criteria in my company research
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When we say a company has high/low operating cost, it has to be compared to something e.g. revenue, net profit, gross profit, peers of similar scale, etc.
Some common "contributions" to operating cost are labour, PPE, logistics, marketing, rental... The more moving parts we have, the more unpredictable operating cost will be. One has to look into the business operation to understand the operating cost. Without an understanding of the business, one can be easily deceived by the numbers.
There is a difference between the operating cost for business and operating cost for the company simply because a company can have multiple businesses. Must look at the segmented results if the company has multiple businesses.
Operating cost is controlled by the management. How aggressive? Short term or long term? To put whose money at risk?
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(09-02-2014, 10:01 PM)mrEngineer Wrote: When I saw yeokiwi's reply, I thought he will mention something about diversification. But anyway, I believe the most important thing in investing is about managing your portfolio and then followed by individual stocks. A good portfolio strategy is more important than scrutinizing the company financials. Even if you were an employee or even in the top management of SMRT in 2011, you probably would have continued to believe that SMRT is an excellent dividend yield generator. However, when bad news happen and the decision or indecision to make changes to your portfolio will show a lot more about your ultimate performance.
Nonetheless, I concur with dominihaihai. The more you are exposed to the industry or the more you scuttle-butt, you will accumulate experience on what's important and not. For e.g. when I first started investing, I did not even bother about the porter 5 forces about the company I am investing in. However nowadays, this is probably one of the first criteria in my company research
Not everyone can be a good scuttlebutt and a good scuttlebutt requires a lot of time and effort.
I admit that I am not good in this and I do not feel like going around finding out every details of the companies that I invested in.
Therefore, a bigger basket of undervalued stocks suits me better. I just have to accept that a few of them in the basket will turn rotten and have to be gotten rid as soon as possible.
In the SMRT case, unless you knew someone in the engineering division, you probably would not know the under-maintained state of the trains and railways and overuse of the trains to cope with the demands.
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(10-02-2014, 06:49 AM)yeokiwi Wrote: Not everyone can be a good scuttlebutt and a good scuttlebutt requires a lot of time and effort.
I admit that I am not good in this and I do not feel like going around finding out every details of the companies that I invested in.
Therefore, a bigger basket of undervalued stocks suits me better. I just have to accept that a few of them in the basket will turn rotten and have to be gotten rid as soon as possible.
In the SMRT case, unless you knew someone in the engineering division, you probably would not know the under-maintained state of the trains and railways and overuse of the trains to cope with the demands.
I think you are speaking base on hindsight. Back then even if you knew of someone in engineering you won't have come to the conclusion that they are under-maintain their trains. Instead your conclusion would be that they have purchased such reliable trains and the whole system is so well design such that there is very low maintenance required. A very superior business model with high returns on asset as until then the records said so.
The only way you could have avoided such a disaster investment is if you knew the trains is about to break down from the insiders but that would bother on insider trading. Example is the SAC Martomar case where he knew the drug is going to fail qualification. Nowadays scuttlebutt is eye with caution. if you knew too much you cannot trade on it, too little and info is of no use.
The only anti-dote to a rotten egg which is unavoidable is diversification with a basket of undervalue stocks.
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SMRT on foresight was fairly easy to spot as a poor share. Its operating cost were increasing drastically because of their lack of expenditure in the past to boost profits.
Comparing SMRT to similar companies in overseas, their operating cost/revenue were one of the lowest in the entire world, which means they are either working extremely efficiently or they are not investing enough into maintainence. When the breakdowns occurred, it was clear which was the case (hence most investors cut when the breakdowns became recurring).
The only sliver lining SMRT could depend on was the good location of each MRT station as a shopping location, hence drawing in good rental income with growth potential. That potential still exists but remains untapped by the current CEO.
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The best protection against unanticipated cost increase is to look for products or services with pricing power. In the case of smrt, they don't decide the price so it's tougher.
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(10-02-2014, 08:28 AM)Jacmar Wrote: I think you are speaking base on hindsight. Back then even if you knew of someone in engineering you won't have come to the conclusion that they are under-maintain their trains. Instead your conclusion would be that they have purchased such reliable trains and the whole system is so well design such that there is very low maintenance required. A very superior business model with high returns on asset as until then the records said so.
The only way you could have avoided such a disaster investment is if you knew the trains is about to break down from the insiders but that would bother on insider trading. Example is the SAC Martomar case where he knew the drug is going to fail qualification. Nowadays scuttlebutt is eye with caution. if you knew too much you cannot trade on it, too little and info is of no use.
Yes, it is probably hindsight. But, there were no way to tell whether SMRT was diligently doing its maintenance from annual reports, ,analyst reports, going to AGMs, taking MRT or talking to staffs in MRT stations. The only possible source of information was likely to come from those that were doing the maintenance and the attrition rate of the engineering division. I could not verify but I guessed that the engineering division was likely to have pretty high attrition rate due to the overemphasis of the profit centre.
Quote:The only anti-dote to a rotten egg which is unavoidable is diversification with a basket of undervalue stocks.
I agree. It is difficult to know that it is a rotten egg from appearance until someone cracks it or tells you the production date.
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