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03-04-2011, 08:05 AM
Apr 3, 2011
small change
Seek out your starfish moment
Popular fable holds lessons forthe minority shareholder
By Dennis Chan , DEPUTY MONEY EDITOR
You may have heard of 'The Starfish' story based on the writings of American scholar and natural science writer Loren Eiseley. If you have not, I'd love to share this interesting fable. Bear with me even if you have, as it's worth a retelling.
The story goes like this:
A beachcomber was strolling by the beach one morning when he saw thousands of starfish stranded on the sand after the tide went out.
Next he caught sight of a boy hurrying along the shoreline, picking up as many starfish as he could, one by one, and flinging them into the water.
The beachcomber asked the boy: 'What are you doing?'
'I'm throwing the starfish back into the sea,' he replied.
'Why bother?' asked the beachcomber, 'the few you save out of the thousands cannot possibly make much difference.'
The boy listened politely. Then he bent down, picked up another starfish, threw it back into the sea and said: 'It made a difference for that one.'
When it comes to share investing, many seasoned investors may think or behave like the cynical beachcomber.
It's understandable. After all, most retail investors are best described as small-timers who own less than 1 per cent of a company's stock on an individual basis.
Being a small-time investor means one does not have much of a say or leverage over the management of the company.
So when he feels that management is not acting in the best interest of minority shareholders, there is very little he feels he can do except to grin and bear it or walk away and sell the shares in the market.
And there have been plenty of occasions when company directors ride roughshod over their minority shareholders - from overpaying for assets in interested party transactions to hiring cronies to forced delistings and privatisations.
If you are miffed enough to attend a shareholders' meeting to argue or vote against management-backed resolutions that you consider to be adverse to minority shareholders, you are likely to find yourself outgunned by big shareholders who sometimes are one and the same as management.
Arrayed against the big boys, the voting rights that the small investor may muster cannot possibly make much of a difference.
Doesn't this sound like the beachcomber?
As a retail investor, you don't have to be like him - jaded and defeated. Instead, you can take a leaf out of the boy's book and make a difference.
To be an effective investor, try to avoid dubious investments as a start. If you don't pick a bad apple, the chances of a tummy ache are also lessened.
This means minimising your investment exposure to companies that don't look after their minority shareholders.
You have to do a bit of research.
Ask yourself the following questions about the company that you are planning to invest in:
- Who are the controlling shareholders and what kind of track record do they have?
- Does its management comprise mainly professional employees or insiders such as family members?
- Does it engage investors actively as well as respond to their queries?
- Are its financial announcements rich in detail or presented in broad strokes?
- Does it practise good corporate governance?
- Does the stock have an institutional following?
- Is the stock traded actively or intermittently?
Obviously, a company that has controlling shareholders who are well respected, is professionally managed and actively engages investors, and has a high disclosure standard and good institutional following, is less likely to oppress minority shareholders than another that has fewer of these attributes.
Ticking all the right boxes on this list is, of course, no guarantee that the stock will do well as stock prices are affected by economic and market conditions.
Nonetheless, the checklist is important. It is hard enough dealing with business and market risks without worrying about non-economic factors like a chief executive who runs the company like a fiefdom.
If, despite your best endeavours to pick a well-managed company to invest in, you still end up feeling your rights as a shareholder have been trampled on, all is not lost.
Sure, as a lone shareholder, your influence is limited. But there is no need to suffer in silence. Try to reach out to other like-minded investors through letters to newspapers and postings on social media or Internet stock market forums.
If you are able to find other equally dissatisfied shareholders and organise a block vote, you could make a difference together.
In recent history, I can think of two instances in which minority shareholders successfully thwarted corporate action despite the overwhelming odds against them.
In 2002, minority shareholders scuttled a bid by parent Sembcorp Industries to take Sembcorp Marine private.
In 2006, minority investors of Pacific Century Regional Developments soundly defeated a proposal by controlling shareholder Richard Li to sell its stake in PCCW - a telecommunications giant he created after taking over HK Telecom.
The SembMarine case was remarkable in that it was achieved by just 14 shareholders voting against the privatisation offer. Their combined stake was just slightly more than 6 per cent of the share capital.
Of course, one could also argue that the triumph of a small minority of shareholders was an injustice that went against the will of the majority, many of whom are small investors who did not act in concert with Sembcorp Industries.
Indeed, SembMarine's share price plunged to 84 cents from the offer price of $1.10 on the day the privatisation offer failed.
This was a fantastic outcome in hindsight.
Under the offer, shareholders would have pocketed $1,100 for every 1,000 shares they held. Shareholders who stayed invested have fared better. The 1,000 shares, which have become 1,400 shares after the company undertook a two-for-five bonus issue, are worth $8,260 today. That's not taking into account the $700 to $800 worth of dividends the company has paid out over the years since.
The stock has also outperformed Sembcorp Industries', underscoring the value of SembMarine as an independent business.
The 14 dissenting SembMarine shareholders have had the last laugh. Thwarting the deal was their starfish moment. As a small investor, I hope to find my starfish moment one day.
dennis@sph.com.sg
small change
Seek out your starfish moment
Popular fable holds lessons forthe minority shareholder
By Dennis Chan , DEPUTY MONEY EDITOR
You may have heard of 'The Starfish' story based on the writings of American scholar and natural science writer Loren Eiseley. If you have not, I'd love to share this interesting fable. Bear with me even if you have, as it's worth a retelling.
The story goes like this:
A beachcomber was strolling by the beach one morning when he saw thousands of starfish stranded on the sand after the tide went out.
Next he caught sight of a boy hurrying along the shoreline, picking up as many starfish as he could, one by one, and flinging them into the water.
The beachcomber asked the boy: 'What are you doing?'
'I'm throwing the starfish back into the sea,' he replied.
'Why bother?' asked the beachcomber, 'the few you save out of the thousands cannot possibly make much difference.'
The boy listened politely. Then he bent down, picked up another starfish, threw it back into the sea and said: 'It made a difference for that one.'
When it comes to share investing, many seasoned investors may think or behave like the cynical beachcomber.
It's understandable. After all, most retail investors are best described as small-timers who own less than 1 per cent of a company's stock on an individual basis.
Being a small-time investor means one does not have much of a say or leverage over the management of the company.
So when he feels that management is not acting in the best interest of minority shareholders, there is very little he feels he can do except to grin and bear it or walk away and sell the shares in the market.
And there have been plenty of occasions when company directors ride roughshod over their minority shareholders - from overpaying for assets in interested party transactions to hiring cronies to forced delistings and privatisations.
If you are miffed enough to attend a shareholders' meeting to argue or vote against management-backed resolutions that you consider to be adverse to minority shareholders, you are likely to find yourself outgunned by big shareholders who sometimes are one and the same as management.
Arrayed against the big boys, the voting rights that the small investor may muster cannot possibly make much of a difference.
Doesn't this sound like the beachcomber?
As a retail investor, you don't have to be like him - jaded and defeated. Instead, you can take a leaf out of the boy's book and make a difference.
To be an effective investor, try to avoid dubious investments as a start. If you don't pick a bad apple, the chances of a tummy ache are also lessened.
This means minimising your investment exposure to companies that don't look after their minority shareholders.
You have to do a bit of research.
Ask yourself the following questions about the company that you are planning to invest in:
- Who are the controlling shareholders and what kind of track record do they have?
- Does its management comprise mainly professional employees or insiders such as family members?
- Does it engage investors actively as well as respond to their queries?
- Are its financial announcements rich in detail or presented in broad strokes?
- Does it practise good corporate governance?
- Does the stock have an institutional following?
- Is the stock traded actively or intermittently?
Obviously, a company that has controlling shareholders who are well respected, is professionally managed and actively engages investors, and has a high disclosure standard and good institutional following, is less likely to oppress minority shareholders than another that has fewer of these attributes.
Ticking all the right boxes on this list is, of course, no guarantee that the stock will do well as stock prices are affected by economic and market conditions.
Nonetheless, the checklist is important. It is hard enough dealing with business and market risks without worrying about non-economic factors like a chief executive who runs the company like a fiefdom.
If, despite your best endeavours to pick a well-managed company to invest in, you still end up feeling your rights as a shareholder have been trampled on, all is not lost.
Sure, as a lone shareholder, your influence is limited. But there is no need to suffer in silence. Try to reach out to other like-minded investors through letters to newspapers and postings on social media or Internet stock market forums.
If you are able to find other equally dissatisfied shareholders and organise a block vote, you could make a difference together.
In recent history, I can think of two instances in which minority shareholders successfully thwarted corporate action despite the overwhelming odds against them.
In 2002, minority shareholders scuttled a bid by parent Sembcorp Industries to take Sembcorp Marine private.
In 2006, minority investors of Pacific Century Regional Developments soundly defeated a proposal by controlling shareholder Richard Li to sell its stake in PCCW - a telecommunications giant he created after taking over HK Telecom.
The SembMarine case was remarkable in that it was achieved by just 14 shareholders voting against the privatisation offer. Their combined stake was just slightly more than 6 per cent of the share capital.
Of course, one could also argue that the triumph of a small minority of shareholders was an injustice that went against the will of the majority, many of whom are small investors who did not act in concert with Sembcorp Industries.
Indeed, SembMarine's share price plunged to 84 cents from the offer price of $1.10 on the day the privatisation offer failed.
This was a fantastic outcome in hindsight.
Under the offer, shareholders would have pocketed $1,100 for every 1,000 shares they held. Shareholders who stayed invested have fared better. The 1,000 shares, which have become 1,400 shares after the company undertook a two-for-five bonus issue, are worth $8,260 today. That's not taking into account the $700 to $800 worth of dividends the company has paid out over the years since.
The stock has also outperformed Sembcorp Industries', underscoring the value of SembMarine as an independent business.
The 14 dissenting SembMarine shareholders have had the last laugh. Thwarting the deal was their starfish moment. As a small investor, I hope to find my starfish moment one day.
dennis@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/