Eight years recap

For those who need a recap on what has happened in the investment world for the past 108 years, The Global Investment Returns Yearbook (GIRY), compiled by London Business School experts is definitely an eye opener. The core of the Yearbook is provided by a long-run study since 1900 in all the main asset categories in Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Italy, Japan, the … [Read more...]

Crude oil price is all rubbish!

By: Level13 Around 4 months ago, crude oil price was at about USD140 per barrel. Fast forward to the last weekend, after a slew of bad news and poor earnings outlook hit the market, crude oil is only trading at about USD62 per barrel. After witnessing a drop of 55% in crude oil price, I have a few questions in my mind. Did the oil consumption in the world reduce by half over the previous 4 … [Read more...]

Sweeteners for Bright World takeover

By: Level13 A few days ago, CHAC and BW jointly announced the terms of the amended agreement in the takeover offer. Things that have been changed: 1) Valuation and purchase price of BW. The revised transaction results in a minimum valuation of Bright World at approximately USD255 million (assuming CHAC acquires all issued Bright World shares, the initial shares of CHAC issued to World … [Read more...]

Saving mini investors

By: Level13 Currently the Hong Kong government is trying very hard to intervene and arrange for a compensation package to all minibond investors. There has been immense pressure by the Singapore minibond investors on the local authorities to step in and arrange a similar bailout. With all due respect, I personally do not think that it is a good idea for the authorities to step in. MAS, which … [Read more...]

My view on Bright World takeover (Part 1)

By: Level13 This write-up on Bright World (BW) is divided into 2 parts. It contains my deductions based on publicly available info on the takeover of BW. Before I begin, please take note that i am vested in BW and my views may be biased. What is mentioned in this posting cannot and should not be taken as professional investment advice. Lets recap what has happened so far: On 21 July, China … [Read more...]

Value in textile industry? No way!

By: Level13 Below is a recent recommendation by one of the brokerage companies on the SGX comapnies involved in the textile industry: Risk-reward ratio getting attractive. In fact, these textile companies are generally financially sound. They are in net cash position and are still garnering lucrative net margin of 26%-30%, rewarding investors with adecent ROE of >20%. As high-end textile … [Read more...]

Price Movement

By: Level13 This posting is not to encourage readers to trade. For most people, it has been proven that constant trading is detrimental to their investment return. However, as a retail investor, we should have a general knowledge of the signals that the price movement is indicating to us. The price movement of a stock is dependent on the demand and supply of the stock, which in turn is … [Read more...]

Temasek reduces Merrill Lynch stake – True or False

Though it has been confirmed to be incorrect now, Level13 shares his view on how one should always double check on the reports and not follow blindly. By: Level13 Before you come to the conclusion that Temasek has made a lousy investment decision which has resulted in losses, it seems like nobody can verify on the accuracy of this news. According to the Mutual Fund Facts website, they have … [Read more...]

RTO = Ready to offload

By: Level13 In the Business Times on Thursday: Backdoor listing is the flavour of the season as companies are taking the reverse takeover (RTO) route to the stock exchange instead of initial public offerings (IPOs). In the first half of this year, the value of announced reverse takeovers (RTOs) on the Singapore Exchange surged to US$969 million - an all-time high that even exceeded the … [Read more...]

Who’s the real culprit?

By: Level13 Below are some of the versions we read about recently on the reasons behind the relentless price increase of commodities. VERSION 1: Speculators In the current global economic slowdown, it would be fundamentally reasonable to assume that consumption has gone down and prices have weakened. This indeed is the case for lead, zinc and nickel. Copper on the other hand has remained … [Read more...]

Competitive advantage period (CAP) — Part 3

By: Level13 The CAP for the U.S. stock market, as a whole, is estimated to be between 10 and15 years. However, within that aggregate, individual company CAPs can vary from 0-2 years to over 20 years. As a general rule, companies with low multiples tend to have shorter CAPs. Alternatively, companies with high multiples typically have long CAPs. For example, companies like Microsoft and … [Read more...]

Competitive advantage period (CAP) — Part 2

By: Level13 Competitive advantage period (CAP) is the time during which a company is expected to generate returns on incremental investment that exceed its cost of capital. Economic theory suggests that competitive forces will drive returns down to the cost of capital over time. If a company earns above market required returns, it will attract competitors that will accept lower returns, … [Read more...]

Competitive advantage period (CAP) — Part 1

By: Level13 In 1991, Barrie Wigmore, a Goldman Sachs limited partner, released a study that attempted to determine what factors drove the stock market’s above-average returns in the decade of the 1980s. After carefully accounting for earnings growth, interest rate declines, M&A activity and analysts’ rosy forecasts, it appeared a full 38% of the shareholder value created in the 1980s … [Read more...]

Economic Value Added (EVA) Ratio

By: Level13 Economic Value Added (EVA) is a frequently used ratio by investors from developed market economies. The basic idea of this formula is based on the foundation that the main goal of a company is to maximize profit. However it does not mean book profit (the difference between revenues and costs) but economical profit. The difference between economical and book profit is that … [Read more...]

What is Competitive Advantage?

By: Level13 The true definition i got from the internet for competitive advantage is as follows: An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more … [Read more...]

Acquiring a business – How not to do it (China Powerplus case)

By: Level13 Investors need to evaluate motives for a merger in order to asses whether the newly formed entity is likely to create long-term value or not. There are numerous questions concerning motives for any merger that need to be asked and answered when evaluating the new company. Among others, investors need to know if a merger makes sense and what are the chances of the new company making … [Read more...]

Realization-of-value problem

By: Level13 What kind of business do you want to own? Investors out there know that identifying what to invest in is a mind-challenging event. There is no better reward than seeing our money appreciate based on our own decisions and conviction. We are taught by the grandmasters (Buffett, Fisher) that one should only invest in businesses that have superior economics and selling for the right … [Read more...]