Friday, September 23, 2016

Looking Back Is Always Easier Than Prospecting Future Events

The recent news surrounding Swiber default case and Marco Polo potentially operating as a going concern have led many financial bloggers to pen their views on the matter. Many have condemned the act of investing in such companies or asset structure because they seemed "dangerous" or "unsustainable" and the bloggers have come out strong to make their point on the importance of having a sound investing knowledge.

I am going to provide a slightly different viewpoint here.




All of us here knows that investing can either be very easy or extremely difficult, depending on where you stand.

Folks who find them easy do so because they have not yet met with an event that will trigger and tweak their mind into thinking investing is difficult. On the other hand, folks who find it difficult usually do so because they've usually been there at the event, experience and gone through what is needed to survive.

Writing and condemning folks who invest in companies such as Swiber and Marco Polo is always easy after news have surfaced out. Similarly, when we look back at how past recessions have destroyed many lives and families, we look back and think it was silly. For those who did not participate, the magic mantra was always going to be "just hold and buy more, market will rebound back". Never did anyone think that the psychology required to conquer past that difficult moment back then was entirely different than if we look back at it is today.

We may think folks who invest in companies such as Swiber, Ezion or Marco Polo are always dumb, greedy and uneducated. Contrary, we may think folks who invest in companies such as Capitamall Trust, Singtel and Cityneon (I purposely chose this for a reason) are always smart and have done their due diligence. For me, the only difference between the first and the second investors is that the first investor has got all the carrot sticks stuffed up their throats while the second investors are not seeing it that yet. Heck, if you are an investor who bought Singtel at the high of $4.50 and are making a paper loss now, I think that's equally "uneducated" as investors who bought into Swiber bond or Marco Polo, whatever you want to call it.

Prospecting future events is what makes investing difficult.

We can compile many past historical data and come up with our very own magic formula or theory but the fact is that share prices are usually going to react for future events, not historical. 

Folks who invest in O&G companies may be feeling the pain now, but that's only after news have surfaced out that oil as a commodity is struggling. If circumstances happen such that oil was up instead of down, we may look the one that are "stupid" and "uneducated".

The same goes for popular asset class such as investing in Reits. Until circumstances hit the fans, Reits investor may look like a genius knowing they are getting some 7-8% yield on an annual basis. This is not yet even accounting for potential capital gain which will push an investor's return into double digit. But what happens when retail sales goes down, tourism hit by events such as Sars and industrial capacity gone through the roof?

Investing is easy or difficult? Depending on who you are asking at which point in time, I'd say.


22 comments:

  1. So whats the reason u chose cityneon?

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    1. Hi Charmerz

      Thanks for reminding, I forgot to mention inside on the reason I chose Cityneon.

      I specifically chose that as an example where share price is driven by substantial growth in earnings when they had acquired deals on Victoria Hills and the share price just shoots sharply up to reflect that.

      Delete
  2. Hi B,
    Well said ! Yah .. thanks for a more balance view and the understanding of " hindsight bias " ... nobody really know oil price will dropped that much and affecting badly on Swiber/ Marco Polo ...even the blue chips of Keppel / Semcorp Ind and Marine . But those invested in these counters or bond really need to take his own risk and responsibility by not blaming anyone like bankers or analyst .

    Cheers !

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    1. Hi STE

      Yeah, I guess when these guys were trying to make things right on these sort of investment, they are looking for a greater returns than say safer investments such as ETF or Singtel. I guess the downside is you take in more risks which should be accounted for and that'll be fine.

      Delete
  3. B,

    As they say, history is written by winners. Lol

    Although there and then I cannot understand why MPM wants a rig without charterer.

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    1. Hi SI

      Historians are always right, we seldom debate about it ;)

      Delete
  4. My top 2 positions in my investment portfolio is related to O&G but still giving reasonable yield on investment cost. Market timing and time in the market does help to mitigate the long and harsh winter ahead and hope that they are able survive it and become stronger.

    Most investment writers and including those branded ones are all hindsight warriors.

    Actually; I prefer investment writers who put their money on the table and then write about it.

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    Replies
    1. my top holdings are O&G too... feeling the pain from the capital loss, but looking beyond that... at least for now..
      like u said, there is still some kinda yield. more than FD in the banks. but of coz lesser than it was previously.

      Delete
    2. Actually to me, all companies have their own "cycles".
      The most important criteria to consider is will this company still be around?
      How to know?
      If only i am sure, i will buy some O & G too.

      Delete
    3. I think if one keeps long enough of bigger O&G companies, he would have get back the yield on cost on that investment by now. A good example is Uncle CW investment on SCI and Keppel Corp over the years.

      Yeah, I agree with Temperament too... this round is the O&G cycles... it could have easily been any other industries around. We've already are experiencing residential properties here...

      Delete
  5. Investing is easy lol if you always buy the stocks that go up and sell the stocks the that go down.
    Eh! why you bought the stocks that go down in the first place?

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    Replies
    1. Hahaha, buy low sell high, but market makes as such that there are always winners and losers everytime.

      Delete
  6. "The stock market is a device for transferring money from the impatient to the patient." -- Warren Buffett

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  7. I was like to relate the O&G investors to the book "The art of execution" by Freeman Shoe. When you know that your O&G has fallen by, say, 25%, did you sell, hold or buy more? And, what makes you choose to hold, sell or buy more?

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    1. Hi ThinkNotLeft

      I think the answer to that is anchoring bias.

      People always look to Keppel Corp as a $10 stock for a very long time, and hence when the share price fell to say $8, many people bought in and were "trapped" by it, thinking that the cycle is short lived and they will soon go back to the past.

      The million dollar question is of course if no one knows its past record is $10, will they still think its cheap at current price? That's a difficult one to answer.

      Delete
  8. Nice blog and absolutely outstanding. You can do something much better but i still say this perfect.Keep trying for the best.
    financial planner

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  9. Hi,

    I generally agree with your article. However, there are certain stocks which an investor may want to avoid like Swiber who are highly geared and aggressively bidding for contracts.
    This will apply a lot more to Swiber bondholders which entice bondholders with high yields and highly geared.

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    1. Hi Blanc Fable

      You are right.

      I would generally avoid such companies too when I see their financial health hence (and hopefully) I will be avoided on such misfortune for the rest of my investing life.

      I was more triggered towards those who were invested in such companies. What generally are their thoughts of cap when they buy? Are they perhaps looking for greater returns, more thrilling experience or simply just buy and dump?

      Delete
  10. B,

    your argument is something logically correct, your blog seems to me presenting a msg that it is only hinder sight that makes the difference.

    however, i'd like to point out, based on my own experience, if enough details are carefully examined by the buyer of that counter, indeed some of them can be avoided upfront; many times, a buyer bought the counter simply because its price had come down so much(how much more could it be kind of mentality). i'm sometimes myself a victim of this thought.

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    1. Hi Bruce

      You are right that conservative guys like us would normally avoid such companies on first glance. I think we would never even go near to it.

      However, it is important to think on the other side because even folks like the banks (e.g DBS) who has done their due diligence, are still willing to lend money to these companies. Perhaps, the idea that these companies yield greater returns to them seem appealing which is why they are involved in the first place. Same thing to investors who put their hard earned money to these companies.

      If everyone just wanted a simple easy life with absolutely minimal risk, then everyone would have placed their money in STI ETF or perhaps just Singtel and be over and done with.

      Delete
  11. Definitely agree with you on this. It is never easy to forecasting the future. I wrote a blog post about this too: http://lazysingaporean.blogspot.sg/2016/10/the-1-investing-rule-from-swiber-saga.html.

    Lazy Singaporean

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