Contrarianism

Qian Hu Reversion To Mean

At some point recently, I looked on interestingly at Qian Hu. At a price of 9 cents, many investors felt uncomfortable with it. Well for one, its profitability had decreased drastically over the last 3 years from 0.39 million to 0.07 million. On a price to earnings basis, investors would have been turned off by Qian Hu, looking instead to blue chips such as SIA,Singtel, Starhub and maybe SPH. SPH by the way is having the time of their life right now. Maybe, I will detail this in another article. Do look out for it.

In another article, I spoke about glamour stocks versus beaten down stocks. This is an apt example of what I was trying to convey. Buying beaten down stocks, if you have the mettle and the stomach for it, may prove more profitable than buying the blue chips, the well known and the well loved by all.

So what happened?

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Case Study

Disney’s Star Wars Acquisition Was Brilliant!

Disney's Amazing Purchase

I find it hard to fathom that an idea in someone's mind could blossom into a business empire spanning more than 4 decades. That idea of a quirky universe filled with 17000 characters and a few thousand planets was borne out of the legendary film maker's mind, George Lucas. Like Harry Porter, its success would be considered by any means a positive black swan.

George Lucas's Big Bet

At a point in time when movie executives did not believe in the power of the franchise and its characters, George Lucas took a bet, and a big one at that . In 1973, instead of a pay raise offered to him, he opted to receive $50,000 and all the rights to all the sequels of star wars plus all the rights to the merchandising.

What fascinates me about George Lucas was that he wasn't in it for the money. He was thinking about protecting the creative integrity of his project from what I believe. As I read these articles about George Lucas, it sure reminds me of the "why" that one should stay true to himself and not be a follower merely another has attained success in a particular way. Those values sure do speak to me as a person, as an investor.

Back to George Lucas. Those decisions made a huge dent to his life. As the franchise of star wars grew exponentially, so did the sale of merchandise, earning George Lucas hundreds of millions of dollars. The moral of this short story so far is thus this : Stay true to yourself and express yourself honestly.

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Eddie Lampert

The Failure Of Sears, FJ Benjamin & The Future Of Retail

If one were to step foot into a Sears store today, one might find a truly sad state of affairs for the retailer, run by once former high flyer and billionaire, Eddie Lampert of ESL Investments.  Empty carparks, chaotic arrangement of goods that are in no demand and a sparse density of people will greet you as you walk in. And we wonder what the heck is going on? Afterall, this wunderkid, Eddie Lampert, used to have the midas touch. Whatever he touched used to turn to gold. Not so anymore!  And a company  spokesperson mentions that they are still in the midst of turning operations around. Is that a joke and who are they kidding? This is the chart of Sears Holdings from the year 2004. And it isn't a pretty picture for shareholders. The share price has been languishing from 2007. To find out what had been happening to Sears, let us examine some of the numbers reported by the company. Now revenues are the lifeblood of a retailer. Falling revenues mean serious trouble. This of course can be attributed in part to the  closure of retail outlets. And partly, Sears no longer carries the kind of products that its customers value. This has been exacerbated by the fact that retail is dying, largely due to the effects of ecommerce. I think Eddie didn't see that coming ten years ago. More on the effects on ecommerce later. (more…)

Issues On Debt

Oil Prices Are Recovering, Upstream Operators Are Still In Agony But Pockets Of Opportunity Avail

The 2008 economic crisis brought the world to its knees. Some 6 to 8 years later, another crisis of sorts in our midst - an unprecedented fall in the price of oil to drastically low levels of around $20. On the surface of it, not much going on there. Looking deeper though, we see a loss of amounting to close to a trillion dollars. Don't take our word for it though! "Global upstream capital spend from 2015 out to 2020 has been reduced by 22% or US$740 billion. When we include cuts to conventional exploration investment, the figure increases to just over US$1 trillion. The impact of the drop in oil prices on global upstream development spend has been enormous. Companies have responded to the fall by deferring or cancelling projects. " `Wood Mackenzie (more…)

Issues On Debt

Swiber Holdings : Case Study Of A Failure

The whole fiasco surrounding Swiber reminds of a slow contrast effect, not visible to human perception. People, investors, bankers, creditors do not notice extremely slow changes taking place until *wham* - A slap in the face takes place. This was pretty much what happened to Swiber Holdings.  That slap in the face happened to be an inability to pay off its bondholders in terms of coupon payment and eventual redemption. And on hindsight, I am glad to say that we were just bystanders on the sidelines looking on with compassion for the many investors and bondholders who got burnt as a result. This reminds me of the frog in boiling water syndrome. If one were to put a live frog in boiling water, it feels the pain and danger to itself immediately and leaps out of the boiling water. But if one were to put a live frog into a pot of water and begin boiling it, the frog would just go along with what was happening, not noticing the small changes that are taking place to its surroundings. Eventually, the frog is boiled alive and dies. This is a great metaphor of explaining our inability to adjust and be aware of changes occurring in our world today. That awareness, incidentally, is what we need as investors. (more…)