Sarine Technologies

[Wildreamz]

Simply put - it belongs to the "Too Difficult to Understand" tray ")

Indeed, to me at least. It might be different for you.

Sounds like you are still vested in this counter. Are you considering other opportunities as well?

Personally, I like to look at opportunities outside my portfolio from time to time, and if an obviously better opportunity arises, I will not hesitate to book my loses (or take profits) in some of my weaker/more doubtful positions. Painful, but saved my portfolio countless times. 

Even if there are no obvious better opportunity, I often ask myself, does it make sense to hold my position in any specific counter, when I could sell my position and buy the Index (that gives an average 7% return annually)? Why is investing in any counter the obvious better choice? Considering the opportunity costs, also help me be more decisive in taking the necessary action.

[apenquotes]

Hi apenquotes, it looks like you are down with a case of the stock market blues. As most stocks trend lower over the past 12 months, some investors may feel excited at being able to buy more of their favourite stocks at a lower price, while others cringe each time their portfolio value decline. I believe investors' response towards market downturns is a reflection of the conviction they have in their own investment thesis. You are certainly not the first in VB to feel aggrieved as your stock continues to go lower as you average down. We wonder why the market behaves in this manner, as we tell ourselves that our investment thesis remains sound. As a check on myself, I frequently ask 3 questions.

1) How do I know that my investment thesis is sound?

Most investors have their thesis/reasons for whatever they purchased, the problem is there is nobody to verify whether the investment thesis is correct or wrong, or at least 'more correct' or 'more wrong.' Unlike in school where your professors may point out and discuss the weaknesses in your thesis, the market only tells you whether your predicted outcome is correct or wrong, and usually only after a long period of time. Even if you post your thesis for all to see, few may be able to give constructive feedback because few may know better. And there are also those who possess insights but do not share.

Nobody can say their investment thesis is foolproof; that is, 100% sure make money. But those who have their own proven method will make money more often than they lose. Therefore...

2) How much confidence do I have in my method?

I started by basing my buy decisions on inadequate methods (e.g. p/b, p/e low means buy). When the market tells me that I'm wrong, I reflect on my method, and make changes. But during a bull market, the market rewards us even if our methods are inadequate. It is only during periods of less market euphoria that the inadequacies of our method are exposed, and catch us by surprise when they fail to work. Since it usually takes some time for the market to tell us that we are wrong -- and time and money are precious --
it is better to not only realise our mistake when the market tells us so. Hence...

3) How can I improve my method?

The basic of investing is investment analysis. Investment analysis is difficult for most because there is no formal training for this skill. As a learner, my personal solution is to continuously reflect on my process by learning the investment success and (especially) failure of others, and then apply the learning on our own investment theses. WB's annual letter to shareholders is one popular source for learning materials. Locally, Lighthouse Advisors has -- as of this date -- 39 newsletters offering 39 lessons, and numerous investment theses and reflections on mistakes. I read them over and over again. If you want to make your own cake, you must learn how to bake.

http://www.lighthouse-advisors.com/index.htm

...

As for Sarine's business, I must say that it is something I do not fully understand, so I'm unable to offer any insight. Its fortunes could turn around in years to come. I have no idea.

But with regards to any investments in general, the key aspect is knowing how much the company is going to earn in the next 5-10 years. With that, you can decide whether you want to pay more or less for those earnings. If you can't be sure about its earnings -- which means this business is not in your circle of competence -- you are free to walk away. Plenty of other companies to prospect.

Even if you cannot forecast earnings, you can still play the game by giving yourself plenty of MOS; by buying at very low valuations. Usually the kind of prices that are only available during market shocks. Personally, I consider anything more than 20x p/e to be very expensive. So 60x p/e wouldn't even make sense to me at all. There are many people who have made money buying high p/e stocks, but I don't know how, so I'm never going to try.

Hmm... stock market blues... You are right in the sense some people get excited while others cringe. I am not really sure if I belong to which camp. On one hand, the remaining stocks in my portfolio did not do well (still a small portion of my net worth), but on the other hand, the values of stocks (or at least those I am eyeing), in general, did not plunge as much, to give a sense of 'plenty of MOS'. Not exactly devastating but also not exactly euphoric. Still waiting for that 'Market Shock'.

No thesis is ever 100% correct, but more importantly, just don't be too wrong. The point of my earlier post (without sounding too blue I hope hahaha), is not to focus too much on the rise of Synthetic Diamond. It did not just happen in recent years. And as much as I search, the hard figures are lacking. If possible, find out the reasons behind the decline in Sarine's earnings in recent years / past quarters.
If I can expand on the analogy of SIA and Scoot (which I don't think is that exact). If SIA is De Beers and Scoot is Lightbox, then what is Sarine? SAT? Hmmm... Just a flawed analogy.
Is SAT big enough to make any changes in this monopolistic industry?

Some companies fail or perish in chaos, while others in fact actually flourish.

I guess as investors we all like companies with the straight linear upward growth trajectory, simple to understand, etc. But these are few, and their prices may not make them value buys. Even those that appear straightforward may not be that straightforward (for long). Every now and then we have whole industries or companies being disrupted. 
SMRT was once very stable - until the break-downs happened, Comfortdegro is disrupted by Grab, REITs (with Retail and Office being disrupted by online retail and co-working spaces), full-service airlines by budget airlines. As to when the equilibrium will ever reach - I do not know - decades maybe.
Even utility companies (Hyflux and Sanli) and telco companies - businesses we thought we understand, don't always mean stable recurring revenue.

You are right in the sense, that there is nobody to verify the thesis. People with insights may not want to share. Investing can be quite lonely.
Thanks for the Lighthouse Advisors link.

[chialc88]

Dear apenquotes and other valuebuddies,
Thank you for sharing all the wonderful tips.

@A,
beyond investment analysis, you should consider your temperament too.
like K says, the market might be right.
when I am in doubt, I will sell to my sleeping level.

I personally benefited in your posts tremendously.
Once again, thank you for generous sharing.


formal diamond mine in Russia: pinterest

[pianist]

Regarding the recently announced dividends to be paid, there is this repeated accompanying instructions to submit declare tax status to enjoy lower rate. Is there still a need to resubmit all those docs n info that have been received by the company appointed agent in the previous round?

[karlmarx]

"On one hand, the remaining stocks in my portfolio did not do well (still a small portion of my net worth), but on the other hand, the values of stocks (or at least those I am eyeing), in general, did not plunge as much, to give a sense of 'plenty of MOS'. Not exactly devastating but also not exactly euphoric. Still waiting for that 'Market Shock'."

The market is efficient most of the time, this means that companies of better quality are usually priced at higher multiples or go down less when compared to the rest of the market. It can be a very long time before the big discount comes around; the US market has rallied for 10 years. If we were to just keep our eyes on the 10 or 20 stocks on our watchlist, and sit and wait for X years, there is a possibility that we end up not having bought anything during these X years because the prices do not become cheap enough. RMs and salesmen of financial products will describe such situation as money that has been eroded by inflation, lost through opportunity costs. Another way to look at this approach is that if you do manage to purchase your desired stocks at knock out prices, the probability of gains are much higher. Of course, this is assuming that the stocks that you have chosen to put on your shopping list are good and does not blow during the market shock.

If an investor does attempt such an approach, the long waiting time will certainly make them feel restless, and itching to buy something. So what usually happens then is that purchases are made with less than adequate homework done, and/or purchases are made at prices higher than what we would like. Sometimes, we justify such purchases based on what others are doing; Mr X has also bought this at such a price, so this should be okay for me too. And as mentioned previously, we sometimes get away with such poorly supported decisions. But over the long-term, our abilities will be clearly reflected in our results.

The cure for the restless investor itching to buy something is to spend the time and energy on analysing the investment merits of companies. Not just the companies on their watchlist, but as many companies as they come across. This will ensure they they keep themselves occupied, and just as important, improve their overall ability to analyse and price companies. Furthermore, how do you know for sure that the 10-20 companies in your watchlist are the best, if you haven't seen the rest?

...

"Even those that appear straightforward may not be that straightforward (for long). Every now and then we have whole industries or companies being disrupted."

That is how capitalism work. The profit-seeking motive constantly seeks more efficient ways of delivering a product or service, and in so doing, creating alternative business models. As new technology continuously emerge, there will always be new ways of delivering a product or service. SMRT actually continues to be a very stable business, even though its service is not. Disruption to train service is not disruption to business model. You could say that some pissed off passengers now take other forms of transportation, however there is no significant decrease in train passenger volume. But if we had devices which could allow teleportation, then train services -- and traditional transportation in general -- could very well be phased out. So the question that we must ask ourselves is, 'What could possibly change the way this product or service is currently offered? And how likely is this to happen?' Answering such questions, where some forecasting of the future is required, is usually difficult. That is why WB usually sticks to the simple stuff.

...

"You are right in the sense, that there is nobody to verify the thesis. People with insights may not want to share. Investing can be quite lonely."

Alice Schroeder wrote that during WB's formative years when he started his partnerships, he can spend the entire day at home reading reports, or in the library browsing materials. And he does that on a daily basis. It wasn't until many years later that he rented an office and hired a secretary. So yes, investing can be a 'lonely' activity. This is probably why WB ran investment classes at night. Since the primary input activity of an investor is reading and thinking, the investor is 'lonely' due to his job design. And since the competitive advantage of one investor against another is partly based on the quality of his analysis, there is less sharing and interaction between (serious) investors. WB never shared his ideas before he executed them, except with his partner CM, and mentor BG.

...

"The point of my earlier post (without sounding too blue I hope hahaha), is not to focus too much on the rise of Synthetic Diamond. It did not just happen in recent years. And as much as I search, the hard figures are lacking. If possible, find out the reasons behind the decline in Sarine's earnings in recent years / past quarters."

It has been mentioned by some VBs that synthetic diamonds still require mapping and cutting, and therefore will still require Sarine's products and services. However, synthetics sell for much lower prices, which may or may not make sense to use Sarine's products and services, even after taking into account the lower input costs. Even if Sarine does lower the price of its services and products for use in the production of synthetics, the manufacturer will still go to the cheapest competitor. The infringement of its IP has been, and continues to be, its biggest problem.

Part of the problem lie with Sarine. Its products and services are not cheap. And since manufacturers can see how much margins and returns that Sarine is making -- from the public annual reports -- they surely must not be too happy with it. When retail diamond prices are high, manufacturers are able to pay for Sarine's products and services and still earn an acceptable margin and return. But when retail prices decrease, and manufacturers' prices follow, urgency to cut cost became desperate. Since cutting labour cost is not an option (it is already so low), Sarine became the victim.

Even when retail diamond prices increase, manufacturers are unlikely to switch back to legitimate Sarine products. Why would they, if they could earn even higher margins if they used cheaper alternative? Unless Sarine is able to offer mapping and cutting tools that are exceptional compared to its illicit competitors, and is able to block them from copying its products, it is likely that Sarine will have to change its business model (which it has been doing).

...

"If I can expand on the analogy of SIA and Scoot (which I don't think is that exact). If SIA is De Beers and Scoot is Lightbox, then what is Sarine? SAT? Hmmm... Just a flawed analogy."

You are correct to suggest that Sarine offers an important service to a larger industry. But there are two difference between SATS and Sarine which favour the former.

SATS is definitely the biggest local player providing essential services to SIA, Scoot, and many other airlines. Its large market share is probably due to some strict regulatory requirements which pose as barrier to those interested to compete. This is one difference it has compared to Sarine; there are no regulation in India (or elsewhere) which restrain diamond manufacturers from using other mapping and cutting tools. In other words, airlines based in Changi do not have much alternative when it comes to baggage handling and food, but diamond manufacturers has plenty of other mapping and cutting alternatives to choose from.

SATS, like SIAEC, originated as a provider of support service to SIA. Since SATS and SIA are owned by the same parent, there is vested interest in ensuring the success of the former, by relying on the latter. This is another difference compared to Sarine; Sarine has no large parent or sister company supporting its sales.

[apenquotes]

Dear apenquotes and other valuebuddies,
Thank you for sharing all the wonderful tips.

@A,
beyond investment analysis, you should consider your temperament too.
like K says, the market might be right.
when I am in doubt, I will sell to my sleeping level.

I personally benefited in your posts tremendously.
Once again, thank you for generous sharing.


formal diamond mine in Russia: pinterest

Hi Chialc88, 

Yup, temperament and sizing are important too. Actually, I haven't been active (in investing) for ages. And my stock holdings have been the lowest (as a percentage) in my record.
Probably below my 'sleeping' level. Definitely much much much lower as compared to previous years - when close to 80%+ of my net worth invested in stocks. 
Actually - in investing in any stocks - I am always in doubt (even for those stocks whose prices are doing well). I will still read up on their earnings performance. And see if the thesis is still intact. However, I only have so much free time. I have been busier at work too.

I always have a problem selling, I have more of a collector mindset than a trading mindset. Bad habit.
But there are always 'easy' sell stocks. Those which are fundamentally bad.

The 'issue' with Sarine, which makes it not an easy 'sell' target - at least in my definition:
Putting aside its dismal stock price performance. Yes, the industry is tough (under-going changes), and as what Karl mentioned, it may not has a great moat. Given it doesn't have exactly cheap services against the backdrop of cheap synthetic diamonds (and lacklustre diamond markets) and other competitors, is that its earnings are starting to improve. And their management is doing many things which seems to steer the company in the right direction, with recurring revenue increasing every quarter, every year. It may not be as great as before.
Fundamentally it is actually a very strong company which is also very rewarding towards stock-holders (share buybacks and high dividend yield).

The only problem stopping me from accumulating more is - for me at least, at this time (perhaps I like the slower pace now), this is the max capital allocation I want to have in stock (given the yield curve flat-lining).

[bardsmanship]

I think a bit of research will shed light on what's going on.

Remember, Sarine's main customers are diamantaires in India, the companies and people that cut and polish rough diamonds into gems. They're the midstream of the diamond industry, sandwiched between the upstream miners and downstream retailers. Because they're typically small outfits they lack bargaining power, so their profit margins are slim. This means that they are reliant on credit to keep their businesses going. That's why the Nirav Modi scandal this year was damaging; it made banks more reluctant to finance diamantaires. As a result the midstream has slowed their buying of rough diamonds, so they have fewer rough diamonds to scan uisng Sarine's equipment.

There's also the fact that Sarine's already the market leader in this segment, which accounts for the lion's share of their revenue and profits. If Sarine has 70% market share and its revenue is USD 70 mil, then the entire market is USD 100 mil. That's not a lot of room for more growth just by sticking to this segment of the diamond industry. To Sarine's credit they saw this coming a long time ago, and have focused their R&D for the past few years on new products for the downstream retail segment. That's where the Sarine Light, automated 4Cs grading using AI, and Sarine Profile come in. Management estimates that the market for diamond grading reports is USD 500 mil, or ~5x the size of their original market. They haven't made great inroads into this market yet (still only 2% of revenue), but the most recent results show decent growth (25% yoy). Personally I think they have a chance of making it work since the biggest player in this space, GIA, is a non-profit, and the second-biggest player, IGI, doesn't exactly have a great reputation.

And then there's De Beers' bombshell from a few months ago that they're going to start selling lab-grown diamonds, which injected even more uncertainty into the industry. Lightbox's supposed to start sales in September; it'll be interesting to see how popular their products are, and to track what happens to the other lab-grown diamond producers' pricing.

So yeah, plenty of things happened this year that affected sentiment. I'm not surprised that Sarine's share price has taken a beating. Not a stock I'd put all my money into, to be sure, but that's what diversification is for - to limit losses in case one's analysis turns out to be wrongheaded. 

[Wildreamz]

I always have a problem selling, I have more of a collector mindset than a trading mindset. Bad habit.

That is not a bad mindset to have, but it only "works" (outperform the market in the long term) if the company brand equity is entrenched, company management is consistently outstanding, and the business is of really high quality and the future is visible. Once you buy a stock in those, you can sit on your ass, and not have to worry anymore. 
I'm just not sure if Sarine falls under this category. Only a few stocks qualifies, and perhaps I can only name Berkshire in this forum, without causing too much controversy. 

https://www.gurufocus.com/news/655619/wh...lie-munger
https://fundooprofessor.wordpress.com/20...2/paradox/

[apenquotes]

I always have a problem selling, I have more of a collector mindset than a trading mindset. Bad habit.

That is not a bad mindset to have, but it only "works" (outperform the market in the long term) if the company brand equity is entrenched, company management is consistently outstanding, and the business is of really high quality and the future is visible. Once you buy a stock in those, you can sit on your ass, and not have to worry anymore. 
I'm just not sure if Sarine falls under this category. Only a few stocks qualifies, and perhaps I can only name Berkshire in this forum, without causing too much controversy. 

https://www.gurufocus.com/news/655619/wh...lie-munger
https://fundooprofessor.wordpress.com/20...2/paradox/

Yup - only a few stocks qualify.
Hence the MOS.
As time goes, I see myself as getting more and more 'unreasonable'. Eg. Great companies selling at P/E of 1 .....hahahaha...
Ok, don't take my words too literally.

[karlmarx]

If the Chinese are mass-producing 'fake' diamonds, are they also creating their own supply chains, such as cutters and polishers? If so, will the market start seeing 'Chinese versions' of Sarine's mapping, cutting, and polishing tools?

https://www.scmp.com/news/hong-kong/soci...-real-fake