Shares & Derivatives
Divestment of FSL Trust
By Musicwhiz  •  August 11, 2010
[caption id="attachment_2449" align="alignright" width="150" caption="Photo by Pink Sherbet Photography"]Photo by Pink Sherbet Photography[/caption] I guess this was an action which should have been taken some time back, but trust me to allow inertia and false hope to dull my thought processes, rationality and objectivity; thus causing me to delay my decision to completely divest First Ship Lease Trust (“FSL Trust”). For the record, I have completely divested my position in FSL Trust on August 3, 2010 at an average price of S$0.41125, crystallizing a realized loss of about S$14,000 (or about -64%). If dividends of S$6,300 are taken into account over the years, the actual loss from this investment stands at S$7,700 or about -35%, still nothing to sneeze about. Since I had recognized realized gains from dividends under realized gains/losses in my portfolio review, I shall now take in the full S$14,000 loss there to offset the $6,300 recognized over the years (as per proper accounting procedures). Let me categorically state right now that even as early back as mid-2008, I was “warned” about the structure of Shipping Trusts and of FSL Trust in particular as being vulnerable and unsustainable. An expert and very detailed forum poster by the nickname of d.o.g. (Disciple of Graham, no doubt) pointed out that a shipping trust could be evaluated and valued based on a DCF (Discounted Cash Flow) basis, since its cash flows were “supposed” to be predictable, stable and consistent. When he ran the model through using an appropriate discount rate, it was discovered that the discounted cash flow value of FSL Trust was less than the share price at the time (above S$1.00). I chose to ignore that pertinent piece of advice at the time as I was indignant and obstinate and wanted to prove that the Shipping Trust model was sustainable and that the value of the cash flows would grow (through M&A of vessels) over time to render the original DCF analysis invalid. All I can say was that it was a very expensive piece of advice to ignore, and if you count in the opportunity costs of having the capital invested in FSL Trust, then the mistake is sadly compounded many times! Read more...
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By Musicwhiz
Musicwhiz who is in his 30s is educated in accounting and works in the investment line (but not in a bank, financial institution, brokerage or fund house). He has a have a full-time job and investing is his side-line as well as passion. Musicwhiz is a value investor and his technique is derived from the teachings of Warren Buffett, Benjamin Graham and Phil Fisher. He incorporate all aspects of their investing style, and modify his value investing style to the Singapore market.
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