on Foresight, How could we have known that a company has high operating cost

[wahkao]

on Foresight, How could we have known that a company has high operating cost enough to make a loss

I take SMRT as an example case study for this. Pls contribute and add other stocks case study. There is a lot to be learnt from analyzing history and avoiding the mistake in future.

Lets say we are at Jun 2011 now where the stock price is 2.3. The financials were great. I would have attracted many value investors. Good earnings, good operating cashflow. Strong moat. year on year increasing revenue.
How could we have known that it will have upcoming higher operating cost high enough to make a loss and tell us to decide to sell it away before earning results 2013 Q4?

if you ask me, only after 2013 Q4 earnings results are out on 30th Apr 2013, would be where I would have started to notice this.

by the time the stock price already took a Beating drop from 2.3 to 1.4

On hightsight, everything is easy to analyse. On foresight, i seriously would not have avoided the plunge from $2.3 to $1.4. How could I improve my foresight? Where could I have analyzed to avoid exposing myself to this plunge?
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sorry if i posted this in the wrong section.

[CityFarmer]

There is a limit on the length of title. Please use a shorter title instead, otherwise it might become unreadable. Thanks

I did a trim on the title length of this thread.

Regards
Moderator

[Temperament]

For SMRT, since Miss SAW's fiasco almost every Singaporeans know till today, why do i bother to investigate further. In fact i dump as quick as possible. But that is my style. i do pay attention to what is happening to SMRT. i think may be nationalised in the end if the people really keep on insisting especially at every GE.

[wahkao]

For SMRT, since Miss SAW's fiasco almost every Singaporeans know till today, why do i bother to investigate further. In fact i dump as quick as possible. But that is my style. i do pay attention to what is happening to SMRT. i think may be nationalised in the end if the people really keep on insisting especially at every GE.

i was actually thinking, wow! everyone is selling. Finally some discount on SMRT. I will use this price weakness average down even more.
almost went into it on its way down from 2.3 to 1.4

[BlueKelah]

this is a classic case of one of my investing caveats.

I NEVER EVER buy into a company trading at or near its highs no matter what the fundamentals. Through much experience I find that most of the time you already missed the boat and should hop on the next one. Somehow a stock trading at high no matter how solid fundamentals look, has a very very high chance of crashing down for whatever reason.

SMRT was definitely not low at $2.4 Having said that, SMRT can be very profitable if it is allowed to capitalise on its market monopoly and raise fares to cover any future capex, but ppl might complain...

[wahkao]

this is a classic case of one of my investing caveats.

I NEVER EVER buy into a company trading at or near its highs no matter what the fundamentals. Through much experience I find that most of the time you already missed the boat and should hop on the next one. Somehow a stock trading at high no matter how solid fundamentals look, has a very very high chance of crashing down for whatever reason.

SMRT was definitely not low at $2.4 Having said that, SMRT can be very profitable if it is allowed to capitalise on its market monopoly and raise fares to cover any future capex, but ppl might complain...

what if its trading at its all time high, but its valuations is very very low? Giving a lot of margin of safety?
example valuetronics, PE(TTM) is 5, P/NAV is 0.9 ??
Not to mention its low debt and strong operating cashflow
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[donmihaihai]

This is a very good question and I spend most of my time trying to avoid situations like these.

Other than some kind of "never buy into near highs" kind of thing, there is only one way. That is to know why margin is so high or asset turnover is so high. Lack of maintenance or up cycle in the industry.

Other than being in the industry so you know the number make sense, the other way to know is keep reading, studying the industry and of course annual reports. Take it wholesale and the number will make some sense after sometime.

[Temperament]

Another question related to high operating cost is, "Is there a company that is normal to need high operating cost to run yet ROI or ROA is acceptable or even attractive? Should we invest in such a company?"

[yeokiwi]

I remembered I was asked to recommend a relatively less volatile blue chip during the period where SMRT was doing pretty well. I popped a few others with SMRT.

In the end, I thought Singpost was relatively safer if capital preservation was a key requirement.

Besides a higher valuation that was attached to SMRT at that time, Singpost's assets required less maintenance, replacement and upgrade than SMRT. The postage rate is also not closely watched as compared with fare price and neither it is being regulated by some committee/council. Lastly, even though the local mail service is opened to competitors in 2007, no viable challenger emerged so far and the postage services scale up nicely with the population growth.

Of course, I did not forseen the degradation of the SMRT services that came after that and the impacts.

[Temperament]

I remembered I was asked to recommend a relatively less volatile blue chip during the period where SMRT was doing pretty well. I popped a few others with SMRT.

In the end, I thought Singpost was relatively safer if capital preservation was a key requirement.

Besides a higher valuation that was attached to SMRT at that time, Singpost's assets required less maintenance, replacement and upgrade than SMRT. The postage rate is also not closely watched as compared with fare price and neither it is being regulated by some committee/council. Lastly, even though the local mail service is opened to competitors in 2007, no viable challenger emerged so far and the postage services scale up nicely with the population growth.

Of course, I did not forseen the degradation of the SMRT services that came after that and the impacts.

Ha! Ha!
i was ask by a relative almost the same question and i recommended SMRT almost due to the same logic(like yours) then. i was vested in SMRT, myself.
But then when Miss Saw's fiasco came out i dumped as fast as possible. i still made some profit. But i don't remember my relative ask me about SMRT again.
It seems it is no good to give any "advice" on stock as market conditions or situations can change adversely beyond our current rosy expectations; Which we have to keep monitoring the market UTD and take action accordingly.
i wonder what my relative thinks of my recommendation now?

STI ETF is the way to go for folks not savvy or interested to monitor the market for long-term investment. imho.