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?

Mean Reversion happened.

In fact, in the latest filing, losses occurred as compared to the same period  a year ago to a $128,000 loss.

This mean reversion may have been caused by a multitude of factors, one of them being talk that Kenny Yap may take the company private at the right price. This was reported a few years ago by Businesstimes. See a snippet of it below.

Mr Yap: Would consider trying to take the company private only if he felt Qian Hu’s share price had become ‘so much ridiculously low’. 
THE chairman of Qian Hu, Kenny Yap, finds himself once more having to prove the doubters wrong as he guides the fish and aquarium accessories supplier to the verge of its latest transformation. “When we listed the company in 2000, I read some forums and some people criticising the Singapore Exchange for allowing a fishy, small family-run business to be listed on the stock exchange,” said Mr Yap, whose nickname is The Fish. “I looked at it, I didn’t agree with this kind of criticism … I want to send the message, it’s not about fishy or not fishy, family or non-family, small or big. It’s about running a good company.”

And of course, we are talking about certain “whispers” that are taking place as we speak. These “whispers” of course are not reported by the media and may just be plain rumors. Whatever it is, mean reversion, however it is caused, however it takes place, does occur for companies that are trading cheaply. And sometimes, it occurs for no apparent reason at all such as in Qian Hu’s case.

 


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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