Sunday, April 29, 2007

Nothing to post

I guess I have nothing to post for this weekend. I see that people are posting their portfolio in channelnewasia. Maybe I will do the same here. My portfolio is as followed:

China Preci
SP Chem
Shanghai Asia
China Printing
Jardine Strategic
Global Test

In value terms, it is just a small and poor portfolio. That's all, it is a short post this weekend.

Saturday, April 21, 2007

Which is more undervalued: Jardine Strategic or Jardine Matheson?

I have bought into Jardine Strategic (JSH) this week. In my opinion, I think that JSH is undervalued as it trades at around 70% of its end 2006 market net asset value (MNav). I define MNav at valuing the company’s net asset at market value. This opinion has been addressed in my previous post.

In this post, I will attempt to illustrate another opinion. That is, I think JSH is more undervalued than Jardine Matheson (JMH). In my previous post, I have stated that JMH and JSH have cross-holdings in one another. JMH owns 80% of JSH and JSH owns 53% of JMH. After I has attempted to remove the cross-holdings, I find that JMH’s annual report uses the net number of shares after accounting for cross-holdings to compute its Nav and EPS (earnings per share).

The table below shows my finding on MNav of JSH and JMH. My finding show that JSH may be trading at a discount of 30% to its MNav, while JMH trades at a discount of 5% to its MNav. Again, this finding may be wrong as there are some assumptions behind the findings.

First, the total number of shares is derived by taking its Issued & Paid-up Capital divided its par value per share. Next, the net shares after cross-holdings are derived mathematically by accounting for JMH and JSH cross-holdings. JSH’s MNAV is taken from its 2006 annual report. However, JMH’s MNAV is derived mathematically by roughly taking 2/3 of the JSH’s MNAV and adding back the JMH portion not owned by JSH. (You may have to refer to the Market Value Net Asset Basis portion in JSH 2006 annual report for better understanding.)

The 2/3 proportion is obtained by taking the remaining JMH’s stake in JSH after deducting away JSH’s share of JMH’s share of JSH. To illustrate, given that JSH owns 53% of JMH and JMH owns 80% of JSH, JSH owns around 40% of its total shares on paper. Therefore, JSH’s net shares after cross-holdings are roughly 60% of its total shares, of which 40% belongs to JMH and 20% belongs to the public. Therefore, JMH’s MNav excluding the companies not owned by JSH is 2/3 (or 40% over 60%) of JSH’s MNav.

I repeat that my finding is dependent on the above assumptions being plausible and representative of the actual situation. As I may make mistakes in my fact-findings or in my computation, it would be best if one does one’s own research.

In any case, the present market does not seem to be interested in JSH. The market seems more interested in penny stocks. However, I have observed that Aberdeen Spore trust has JSH in one of its top 10 holdings in its factsheet. Furthermore, a renowned value fund management, Tweedy Browne, has JSH in its 20 largest holdings of its Global Value Fund as shown in its Q1 2007 commentary. I guess I can sleep soundly given this information.

Monday, April 16, 2007

What is the true NAV for Jardine Strategic?

Looking on page 5 of its 2006 Annual Report, Jardine Startegic (JSH) at US$13.40 may be trading at 70% of its net asset value (NAV) of US$19.38, which is calculated based on market price of its holdings and excluding 455 million shares held by Jardine Matheson (JMH).

JSH excludes JMH's 455m shares due to cross holdings. JMH owns 80% of JSH and JSH owns 53% of JMH. JSH has a total of 1072m shares. As such, JSH effectively owns the 455 shares out of the JMH's 858m shares in JSH, which may mean that there are effectively 617m shares, instead of the 1072m shares on paper.

If we use the full 1072m shares to compute JSH's NAV, the undervaluation disappears as the NAV will then be at around US$11.15 per share using the figures in its 2006 AR.

JSH owns, besides 53% of JMH (note: JMH owns 80% of JSH),
- 64% of Jar C&C
- 78% of Diary farm
- 74% of Mandarin Oriental
- 47% of HongKong Land (HK Lands owns 70+% of MCL Land and is also one of the three partners for Marina Biz Fin Centre and the recently built One Raffles Link) You can find this information in its 2006 Annual Report too.

Another good question to ask may be what the difference is between JSH and JMH and why they need the cross holdings. This is something that I have yet to figure out.

What is the true NAV for Jardine Strategic? I don't know. I have just posted in to ask the professor there. Maybe he may be able to provide an answer there. If you wish to know his answer (supposing that there will be an answer), you may have to subscribe to it. It is not right for me to post his answer in my blog.

As usual, please do your own research and do not simply accept my thoughts here. Only recently, I have discovered again another mis-calculation in my excel spreadsheet. I am rather prone to error now and then.

Friday, April 13, 2007

Pain from Investing Process

I have mentioned that investing (or more precisely, DIY investing) is a painful process to me. I shall elaborate on why investing is painful in this post. However, I shall start with what I enjoy about investing.

I do enjoy certain aspect of investing. I enjoy the ideas generation and the merging of ideas in investing. For example, you will encounter the idea of expected value in statistics. Simply put, expect value is the sum of the multiples between the probabilities and its outcomes

Expected value is quite dry to me in terms of statistics until I see it taking place in the field of stocks investment. In stock investment, your expected returns on a stock can then be derived in a similar manner, by taking the sum of subjective probabilities multiplied by the respective outcomes. If one invests using value-investing approach, one is basically buying below stocks at prices below one’s subjective expected value of a stock.

Why is investing painful? One, it is painful because investing, when done correctly, is boring. Or some famous value investors put it as “it’s like watching your paint dry”. I guess I am already quite bored presently. Investing seems to worsen my boredom.

Furthermore, it is no fun that I have to restrain myself constantly from acting or trading too much. Often, it is only after my trades that I can detect if my (numerous) trades turn out to be fine or plain silly.

Probably investing in stocks is painful because I have to endure the uncertainty in stocks. Almost everyone hates uncertainty; else there will be no such thing as risk premium. Enduring uncertainty is painful. I may have to ignore the present volatility in the stock prices. I may have to think about whether the stock at its current price is still offering a sufficient margin of safety for me to hold or for me to have the current large position. Such thinking about uncertainty is perhaps what I am doing around once every week.

Finally investing is painful when one encounters a correction. I will, by instinct, panic in a correction. Overtime, the panic feeling may lessen when I experience more and more corrections. However, panic is not a nice feeling to have. And it clouds my thoughts; especially when my thoughts are trying to get me to act differently from what my emotions require. Acting differently or in a way opposed to your emotions is painful.

Given the pain in investing, my view is that I will continue to invest in DIY manner if I am confident of achieving market beating performance. Else, I should consider buying more unit trusts or ETFs. If my holdings solely consist of unit trust, I can always blame the fund managers, instead of blaming myself, for the poor performance.

Unfortunately (or fortunately), the pain will have to continue since my returns are currently better than the market. Maybe, pain from investing stocks can help to relieve boredom. I don’t know. I don’t know which is more preferable, pain or boredom.

Thursday, April 5, 2007

Short Review on my Disposed and Added positions in March Correction

The market has recovered and soared since the March correction. Perhaps it is a good time for me to look at the positions I have disposed or added during the March correction.

During the late February and early March, I have disposed two positions, CG Tech at around 0.71 and Sunray at around 0.22. CG Tech is quite profitable to me as I have last bought it at late 2006. Sunray is a loss for me as my average price is around 0.27.

At that period, I have also added three new positions. They are China Precision, Techcomp and Orchard Parade. I have discussed Orchard Parade in my earlier post.

So far, all these three new positions are profitable and I have not cut down on any of my positions in these three stocks. Techcomp was more of an undiscovered stock when I bought it, so it may be luck that its price has reached 0.40 in around a month.

China Precision was a stock that I have bought much earlier at 0.40 and sold it at a slight loss before its poor 2006 FY announcement. Thus I have been following China Precision all this while and started buying at 0.285 when I observe that an independent director have started to accumulate the stock. Its current price at 0.28 is also a minor surprise to me as I do not expect such fast price recovery from its low.

At their current prices, these three stocks have not reached my target price. I suppose I will continue to hold on to these three stocks given no adverse news or better stock buys. Nonetheless, please do not ask me on my target price or my views on these stocks. It may be better for one to do their own research and act according to one’s own convictions.

In my opinion, the recent profits from these three stocks are mostly due to luck. I should not be too optimistic regarding the future. Instead, I must remind myself that any adverse event may happen and, I should be cautious and hope that I can obtain above market returns in the long run. Investing, to me, is a painful process after all. I should adopt passive investing if I cannot get above market returns despite my efforts.