Retail investors need a different perspective when analysing companies

[i4value]

When I first started to learn value investing about 20 years ago, I had already spent about more than 2 decades in the C-Suite. I thought that there was sufficient experience to enabled me to easily analyze companies.

I quickly found (through losing money) that analyzing a company when running a company is different from analyzing it as a retail investor. When you run the company, the analysis is about finding opportunities and addressing weaknesses. Techniques like SWOT analysis can be useful.

But as an outsider analysing companies from data provided in the Annual Reports, you are not running the company. If you identified opportunities, it does not mean that the company have seen them or will take advantage of them. When you see weaknesses, you cannot assume that management are able to address them.

As a retail investor, you have to accept the company’s results and direction as they are. Unless you are an activist investor, you cannot change the company’s path.

That is why I look at historical operating trends as this provide a better picture of what happened and the company’s trajectory. I then accept them as they are and try not to be too clever to project paths that the company may not take.

Moral of story? Many of the MBA-type analysis meant for CEO to identify issues and direct the company’s may not be relevant.

For more insights in analysing companies go to “Can we learn anything from investment case studies? “ 

[weijian]

hi i4value,

Thanks for giving me (the non C-suite) the POV from the C-suite. This affirms to my personal experience of spending too much time to look at the business, when that "limited" time could be more efficiently used in alternate ways.

For alternate usage of those precious limited time we have, it would be better to understand the quality, motivation and actions of the Mgt/controlling shareholders. And see how we could position ourselves within the correct structure of the company.

Sometimes when I read those Q&A from minorities during AGM, asking the Mgt/controlling shareholder to do this do that. I would really "shake my head and chuckle"....ie. when one is complied to tell the jockey how to ride HIS/HER horse, then this jockey ain't worth betting on!

[specuvestor]

Just to add that I heard first hand an investor asking a major company to liquidate cause it is trading below book Study so much to think that it's just a numbers game. There are multitutes of stakeholders involved including the supply chain and thousands of employees, governance etc.

I think there is a difference between constructive suggestion and actually advising the company what to do.

Indeed running a business helps to understand investing in a business but they are not the same thing. When businesses were bracing for COVID shut down in 2Q20 market already bottomed.

Sometimes when I read those Q&A from minorities during AGM, asking the Mgt/controlling shareholder to do this do that. I would really "shake my head and chuckle"....ie. when one is complied to tell the jockey how to ride HIS/HER horse, then this jockey ain't worth betting on!

[CY09]

Think we forgot another aspect of why C-suite can keep fumbling is due to their intention to keep their job than close the curtains (think Dasin Retail REIT, where C-suite wanted to keep drawing pay from the failing REIT).

The other possibility is the conflict of interest that can happen where a company purchase properties at the heights of a cycle where it makes little sense to buy at the peak of a cycle even though the purchase is marked to the valuation of that time (look at some REITs and where the C-suites were previousely from).

Many many factors in play to determine if the value of a company is undervalued or otherwise

[weijian]

Just to add that I heard first hand an investor asking a major company to liquidate cause it is trading below book Study so much to think that it's just a numbers game. There are multitutes of stakeholders involved including the supply chain and thousands of employees, governance etc.

I think there is a difference between constructive suggestion and actually advising the company what to do.

Indeed running a business helps to understand investing in a business but they are not the same thing. When businesses were bracing for COVID shut down in 2Q20 market already bottomed.

Sometimes when I read those Q&A from minorities during AGM, asking the Mgt/controlling shareholder to do this do that. I would really "shake my head and chuckle"....ie. when one is complied to tell the jockey how to ride HIS/HER horse, then this jockey ain't worth betting on!

An OPMI asking for the company to liquidate, is asking an audacious question. Some time back, I encountered a similar audacious question during the AGM of a Temasek-linked company - The OPMI asked the BOD why did they appoint a foreigner as the chairman to a major TLC? The BOD (and probably those present) seemed to be offended by the question....

That intent of asking the audacious question circled in my head for a long time. Until I realized that the OPMI was shrewd in throwing out such an audacious question as a bait. The bait was trying to bring out the true temperament of those managing the company.

So since then, I have learnt that sometimes, "roll eye" questions, especially those audacious ones, could be the clever OPMI trying to bait someone to learn a new insight. But definitely not those that ask the C-suite to consider a non-C suite's POV on business development/operations...

[ghchua]

Hi weijian,

Minorities have the right to ask questions at meetings under Code of Corporate Governance guidelines. They also have the right to table a resolution for liquidation of a company, if they have sufficient stake to do it. The UIS case study is a good example. Although, the liquidation resolution failed, they tried again after a few years. Eventually, UIS was liquidated.

Of course, practically, you can say that they do not have much power to change anything, other than giving their suggestions and opinions on the running of the business. But don't discount the OPMIs. Some of them are definitely qualified to give opinions at AGMs. There are retired audit firm partners, former CEOs, retired auditors/accountants, former company directors etc.

[weijian]

hi ghchua,

I am definitely not discounting the quality of the general OPMIs. A lot of OPMIs risk with their own money but many in the C-suite don't. There are surely OPMIs of better quality than those sitting on the BOD, C-suite or upper Mgt tiers. But ironically, the OPMIs who are qualified, will reveal the quality based on the type of questions they ask (or not ask).

[EnSabahNur]

"Until I realized that the OPMI was shrewd in throwing out such an audacious question as a bait. The bait was trying to bring out the true temperament of those managing the company."

What do you think he or she was trying to test? Why did you think it was a test rather than a true question?

[¯|_(ツ)_/¯]

Hi weijian,

Minorities have the right to ask questions at meetings under Code of Corporate Governance guidelines. They also have the right to table a resolution for liquidation of a company, if they have sufficient stake to do it. The UIS case study is a good example. Although, the liquidation resolution failed, they tried again after a few years. Eventually, UIS was liquidated.

Of course, practically, you can say that they do not have much power to change anything, other than giving their suggestions and opinions on the running of the business. But don't discount the OPMIs. Some of them are definitely qualified to give opinions at AGMs. There are retired audit firm partners, former CEOs, retired auditors/accountants, former company directors etc.

Thanks Sifu Chua - yes, UIS  (link to vb.com posts) - fond memories indeed.

The idea for this particular market operation was mooted - thanks to  vb.com.

First was just an education session learning the difference between Closed-end fund and Open-end fund.  Not many know about Closed-end fund and so this was a great learning experience.

One of the big difference (from what I see) is open-end fund always traded at it's NTA but this particular closed-end fund was always traded at a discount to NTA.  There are a lot of reasons why this is so and in my mind, I was thinking, if one is willing to buy open-end fund at NTA, what's wrong in buying UIS at a discounted NTA?

UIS becomes my watchlist and I just need to know what is a good entry price.

Thanks to d.o.g. - his comments in vb.com gives me an idea.  Basically, he said (somethink like that) that UIS always fluctuate aka trading within a range of it's discounted NTA.  

Based on this, I calculated the min and max discount against NTA and plotted a chart and sure enough, d.o.g. is right!

With this, I just wait patiently for the max discount (in term of %) and start to buy.  Sure enough, UIS price will quickly rebounced and when it is nearer to the min discount %, the price will begin to drop.

The buying and selling operation was rather simple and rewarding too.  Wait patiently for the low and then wait patiently for the high. 
QED.

Everythings works well until when Laxey's sold all it's stocks.  Actually, the bosses refused to do anything when Laxey was telling them what to do. Nope, they are not going to reward Laxey.

When Laxey give up and diverse their holdings, the bosses wake up and decided to teach Laxey a lessons - everyone got a good price except Laxey.  



Gratitude!

[specuvestor]

Just to sidetrack a bit: boss at UIS didn't suddenly wake up a few months after Laxey gave up. He is a fighter and intended to humiliate and make a fool of Laxey. But then again without Laxey would he be compelled to liquidate? But he didn't trumpet his victory. Ditto the Singapore Land tussle with Gokongwei

We can't analyse this