Ezra Holdings 

Ezra Holdings! When inspiration hits me and the juices flow and I feel an explosion of information welling up, my outlet is to share and tell. It may be amongst good friends and confidantes or it could be a humble blog as such. And with a feeling of perkiness, I entitled this article Ezra Ezra, No Longer The Bella Of Dreams. I was reading the newspapers recently. The headlines. ” Winding Up Application Filed Against Ezra” . Another headline . “Ezra Receives A Statutory Demand From Forland for $25.5 Million”. The thing is this. Before it even makes the headlines, the smart investors have already scooted off elsewhere, leaving thousands of ignorant investors in a trail of financial destruction.

Many retail investors have been bruised financially as a result.  In investing , being formally educated is wise and cheap. Being an ignoramus is bloody expensive. Let not your negative experiences be your tuition fee. Let the prominent investors of our time guide you! Read their books. Digest them! Assimilate them! Educate yourself through the eyes of another I say to you. And you shall surely find your way! Slowly but surely!

One bullet in the barrel

Let us play a simple thought experiment here. Someone has a gun. He puts a single bullet in the barrel. He gives it to you and tells you that if you pull the trigger and survive, you will be the recipient of $1 million. If not, well, you will be dead. What would you do then?

Accept the challenge and pull the trigger? Most likely, you will decline the challenge. That’s a smart move there. “The risk is too much to bear. And given another 10 years in my life, I could very well be more than a millionaire!” Those are my biased thoughts. And if you are not answering that way or in a way that allows you to survive, check yourself. You may be insane! In that case, stay away from the stock market then!

1 bullet in 1 gun out of 100 guns

Now take the example that there are a 100 guns and 1 of them is loaded with just 1 bullet. You are asked to do the same as above. Pick 1 gun out of a 100. Also, instead, the offer is now 10 million. What just happened is that the odds of losing went way down and the odds of winning went way up. I am not sure if this is too extreme an example but by way of analogy, investing is pretty much the same game.

Of course in real life, 1 bullet out of a 100 guns is still a risk though! But you get the drift there don’t you?

While the amateur investor, seduced by greed, puts a large amount into situations he does not understand and into situations that has that fatal bullet, the experienced investors put less into those with that fatal bullet and more into those that have that nonexistent bullet. We are all guilty of this of the former situation here. Me included. That is why investing is a life long challenge but incrementally, one will get better with time.

Other investors have fallen prey to the “too much in the investment with a fatal bullet too”. I can name one by way of example. He is Bill Ackman. Think Valeant Pharmaceuticals.

And then there is the consistency bias that we all fall prey to as well. We have a need to be consistent. This I am well aware of  in my own psyche, my own experiences.

How do we rewrite those biases? Can we even rewrite them? The trick is to be aware, or to practice awareness. Then, the narrative fallacy has no chance of creeping in. In fact, this is the only way to conquer these biases.

With regards to Ezra, this may have been the 1 gun with a single bullet situation for some investors, that is, some may have bet too much on it. For those who saw it coming, they could  have gotten out way before all of this happened. In fact, 2014 revenues were halved from the year prior.

Revenues for 2006 to 2015 in billions is 0.07, 0.14, 0.27, 0.33, 0.35, 0.56, 0.98, 1.26, 0.49, 0.54. 2014’s revenues were 0.49 billion, less than half or the previous year’s.

Evidently, there are loads of similarities between Ezra and Swiber. Falling revenues is one. And increasing indebtedness. And a whole lot more. This is a recipe of disaster. Some of the things I have learnt in investing is that if the price is not right, it is not worth it to bet on management’s story of execution.

This is the 2015 annual report of Ezra Holdings.

It says : Sailing Forth!

Forging Ahead!

Not!

In the annual reports, the chairman painted some picture of realism, and then, some operational positives. One really does need to read between the lines very often when reading these reports. You have the right to disagree with the author of the report.

As a point of observation, companies in capital intensive industries with a high need for growth capital expenditures and hence high levels of debt to grow earnings will sustain a drastic drop in book value (shareholder wealth) when the industry changes for the worse.  This is one classic example. And the same happened to Swiber. If you wish, you may want to read  more about Swiber Holdings. If it interests you read also : Oil Prices Are Recovering, Upstream Operators Are Still In Agony But Pockets Of Opportunity Avail

Ezra’s falling book value. There was a time lag between industry underperformance and company underperformance. Source : www.sgx.com

You will not be able to predict the bankruptcy but you can be aware of what is happening to the industry and take a quick guess at the company’s future. Unless you are a forensic accountant yourself, the numbers, sometimes will look okay until the sh*t hits the fan. It will happen suddenly like earthquake caused by the movement of tectonic plates. But if you are aware, and you know the signs, and you have taken the pain to educate yourself, you would be able to make meaningful guesses of the company’s future and avoid these negative events that hurt your portfolio!

 


kingsley

I have been an investor for 15 years now and my journey has meandered from Warren Buffett to Ben Graham. My start, like many, really was the naive idea that Buffett's skills could be replicated in some fashion. I was proven wrong when some of the supposed stock picks that I chose had dismal performances. Then, I learnt that it is no point trying to be someone I am not. Gradually, through failure and some success in deep value investing, my approach towards stocks gradually shifted to an approach based around Graham's techniques. So, I give credit where credit is due and to Ben Graham, I and many other investors around the world, owe him a great deal. So, if you want to read up on biographies, read about Ben Graham. His seminal work, Security Analysis is a gem. My books are just rich interpretations of what he has taught.

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