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Investors who have stayed with my blog for the entire duration of the bear market (yes, 16 months so far) and have been invested fully throughout will probably be wondering if there is ever any light at the end of the tunnel ! The fact is that market conditions are always dictated by Mr. Market and he follows economic cycles to determine his mood swings, and whether he decides to pay a high price or a very low price for a business.
As investors, our job is to evaluate the underlying business and not pay too high a price for it, in order to maintain margin of safety. The bear market and sharp recession has challenged my notion of margin of safety and also afforded me some insights into my investment choices, some of which I would admit to be mistakes which could have been either avoided or mitigated. When the going gets tough, frankly usually the tough get going (i.e. exit the market). But I am not about to succumb to Mr. Market's manic mood swings, even though the psychological effects of his swath of destruction have pummelled many an investor (including myself). A back to basics analysis would tell one if holding on and averaging down is wise; or if one should just cut loss and re-deploy the funds.
A more obvious boo-boo made by yours truly was to purchase companies which leveraged heavily for fast growth. Evidently, this strategy worked well during times of economic expansion and with the availability of easy credit. However, with a severe credit crunch under way and banks being unwilling to lend, these highly leveraged companies became prime candidates for implosion, due to their inability to refinance their short-term debt and also the cash flow burden which they had to bear in the meantime.
Companies like Ezra, China Fishery and Swiber which geared up to expand found that the going was very tough over the last 6 months, to the extent that I did perspire quite a bit and went through a few sleepless nights wondering if they could pull through the crisis. Though Ezra and Swiber employed sale and leasebacks, there's no argument that operating lease expenses would still represent a major cash flow drain, while they still have bank loans to service and refinance. China Fishery had to issue senior notes at about 9.25% interest rate (extremely high), and though they are due in 2013, the huge interest expense is eating up valuable cash at an alarming rate. If not for the fact that China Fishery had good net margins and a lot of their debt is collateralized using their own vessels, plants and inventories, I suspect they may face financial problems similar to the ones recently faced by S-Shares. Read more...[caption id="attachment_2113" align="alignright" width="216" caption="Photo by Shermeee"][/caption]
Investors who have stayed with my blog for the entire duration of the bear market (yes, 16 months so far) and have been invested fully throughout will probably be wondering if there is ever any light at the end of the tunnel ! The fact is that market conditions are always dictated by Mr. Market and he follows economic cycles to determine his mood swings, and whether he decides to pay a high price or a very low price for a business.
As investors, our job is to evaluate the underlying business and not pay too high a price for it, in order to maintain margin of safety. The bear market and sharp recession has challenged my notion of margin of safety and also afforded me some insights into my investment choices, some of which I would admit to be mistakes which could have been either avoided or mitigated. When the going gets tough, frankly usually the tough get going (i.e. exit the market). But I am not about to succumb to Mr. Market's manic mood swings, even though the psychological effects of his swath of destruction have pummelled many an investor (including myself). A back to basics analysis would tell one if holding on and averaging down is wise; or if one should just cut loss and re-deploy the funds.
A more obvious boo-boo made by yours truly was to purchase companies which leveraged heavily for fast growth. Evidently, this strategy worked well during times of economic expansion and with the availability of easy credit. However, with a severe credit crunch under way and banks being unwilling to lend, these highly leveraged companies became prime candidates for implosion, due to their inability to refinance their short-term debt and also the cash flow burden which they had to bear in the meantime.
Companies like Ezra, China Fishery and Swiber which geared up to expand found that the going was very tough over the last 6 months, to the extent that I did perspire quite a bit and went through a few sleepless nights wondering if they could pull through the crisis. Though Ezra and Swiber employed sale and leasebacks, there's no argument that operating lease expenses would still represent a major cash flow drain, while they still have bank loans to service and refinance. China Fishery had to issue senior notes at about 9.25% interest rate (extremely high), and though they are due in 2013, the huge interest expense is eating up valuable cash at an alarming rate. If not for the fact that China Fishery had good net margins and a lot of their debt is collateralized using their own vessels, plants and inventories, I suspect they may face financial problems similar to the ones recently faced by S-Shares. Read more...
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Investors who have stayed with my blog for the entire duration of the bear market (yes, 16 months so far) and have been invested fully throughout will probably be wondering if there is ever any light at the end of the tunnel ! The fact is that market conditions are always dictated by Mr. Market and he follows economic cycles to determine his mood swings, and whether he decides to pay a high price or a very low price for a business.
As investors, our job is to evaluate the underlying business and not pay too high a price for it, in order to maintain margin of safety. The bear market and sharp recession has challenged my notion of margin of safety and also afforded me some insights into my investment choices, some of which I would admit to be mistakes which could have been either avoided or mitigated. When the going gets tough, frankly usually the tough get going (i.e. exit the market). But I am not about to succumb to Mr. Market's manic mood swings, even though the psychological effects of his swath of destruction have pummelled many an investor (including myself). A back to basics analysis would tell one if holding on and averaging down is wise; or if one should just cut loss and re-deploy the funds.
A more obvious boo-boo made by yours truly was to purchase companies which leveraged heavily for fast growth. Evidently, this strategy worked well during times of economic expansion and with the availability of easy credit. However, with a severe credit crunch under way and banks being unwilling to lend, these highly leveraged companies became prime candidates for implosion, due to their inability to refinance their short-term debt and also the cash flow burden which they had to bear in the meantime.
Companies like Ezra, China Fishery and Swiber which geared up to expand found that the going was very tough over the last 6 months, to the extent that I did perspire quite a bit and went through a few sleepless nights wondering if they could pull through the crisis. Though Ezra and Swiber employed sale and leasebacks, there's no argument that operating lease expenses would still represent a major cash flow drain, while they still have bank loans to service and refinance. China Fishery had to issue senior notes at about 9.25% interest rate (extremely high), and though they are due in 2013, the huge interest expense is eating up valuable cash at an alarming rate. If not for the fact that China Fishery had good net margins and a lot of their debt is collateralized using their own vessels, plants and inventories, I suspect they may face financial problems similar to the ones recently faced by S-Shares. Read more...
