Wednesday, November 23, 2016

I Managed To Close All My Positions Using Deep Value Strategy

If you have read about my previous post about changing plans, I have finally did it.
 
I had CLOSED all my positions in my portfolio that was involved in the deep value strategy.
 
I have always emphasize that this is a high risk, high return strategy. However, during such bad times, I came to a realisation that eventually all the stocks in SGX will be in deep value. In that situation, will you rather buy a deep value penny stock or a deep value blue chip?

After all, once STI reach lower grounds, blue chip will soon become "blue cheap*".
 
*Just to digress a bit, some of the reasons I read that explain why Blue Chips becoming Blue Cheap are that:
  • Funds maybe exiting Singapore to go back to USA after Trump won, maybe due to the high possibility of protectionism of USA Businesses.
  • There could also be margin call from the banks and investors were made to force sell some of their positions.

Anyway, back to the topic, I did have some good capital gains from this deep value strategy before. But as time goes by, losses increased as well.
 
Eventually, my position in this part of my portfolio was about negative 10%.
 
One of the main contributor (to the losses) was USP Group Ltd. I recognized it was a gamble. However, I was pleased that I calculated the Net Asset Value correctly prior to them releasing their consolidated financials (after the acquisitions of Koon Cheng Development Pte Ltd and Supratechnic Pte Ltd). This meant that I had the first mover advantage. My expectation was that the price will SHOOT UP when the company announced the consolidated financial statements.
 
But I have forget to expect the unexpected. Even after announcing of the financial statements and turnaround from losses to profit, the stock continue to be on a downtrend.
 
Along the few months that I was holding on to this stock, many people actually advised me to give up. But I held on. Nevertheless, I gave up after their most recent release of their quarterly financials.
 
It stated, "For the FYE March 2016, the Group made an impairment of S$1.5 mil and reclassified the remaining investment as available for sale quoted equity securities amounting to S$3.655 million. Unfortunately the discussions have not progressed and in October, the major shareholder attempted to trigger a voluntarily winding up of SGSS. The Group is seeking legal advice and have secured access to SGSS accounts to evaluate its options. In the meanwhile, the Directors are of the opinion that the remaining investment will have to be impaired in the next reporting period, Q3 2017. This may significantly impact the results for Q3 2017."

 
This is not their first impairment. This is not their first "seeking of legal advice". Their small profit obtained will may end up as a loss in the 3rd Quarter. Furthermore, the company's  response to SGX queries was like "you might as well don't answer".
 
So I said bye bye to USP Group Ltd and was hit by a 60% loss.

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6 comments:

  1. Hi TUB

    Sorry to hear about the 60% loss.
    While I don't have any idea why there'd be an impairment, from the way you described it, it does sound like it's one of those situations whereby you can't pre-empt or predict it, no matter how well researched it is.
    In this kinda situations, deep value investing is all about position sizing: limiting your bets on certain "not too sure" investments, while going "all-in" on high certainty investments.
    If it's any comfort, nobody gets it right all the time. Not WB, not soros, not icahn.
    Cheers
    TTI

    ReplyDelete
    Replies
    1. Hi TTI,

      I totally agree. Thanks for your comment. Appreciated.

      The position is "ok" - not big or small.

      The main thing is the lesson learnt here. I realize the management team is very important.

      Regards,
      TUB

      Delete
    2. U are ahead of the flops till the river card deal u a big blow :(

      Is pain but life goes on as usual

      Delete
    3. Yeah. Life goes on. Finding the next opportunity to gain back the 60%. Think positive!

      Delete
  2. hey tub,

    just curious. what are the factors that led to your investment in usp? do you have a link to your analysis on usp?

    ReplyDelete
    Replies
    1. Hi AsianContrarian,

      http://tubinvesting.blogspot.sg/2016/03/usp-group-limited-my-major-bet-on.html

      As per blog post, I calculated my purchase price was 0.033 vs 0.06+ prior to consolidation and announcement of financials after acquisitions.

      But after consolidation, 1 bad news after another, makes the stock keep dropping. Although it has turnard, but the SGSS litigation suits make me doubt the management skills.

      Furthermore, if you read my comments section, many had said USP is a bad investment. In valuebuddies, many have also warn against my investment.

      There is really something wrong in the management in my view after vested for more than 6 months.

      Regards,
      TUB

      Delete