Saturday, December 24, 2005

Socially responsible stock recommending 8 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
I was reading a very interesting thread on the Wallstraits forum the other day on this share forum called THE Value Investment Community by Analytics Asia. Basically, it was a backlash against Curtis Montgomery, otherwise known as Sage on the Wallstraits site, for some dubious practices, which allegedly included (1) selling some of his recommended stocks without informing forummers (especially his paid Intellivest subscribers) until much later; (2) having related-party interests in some of the companies he recommended, such as providing investor relations services; (3) engaging in non-Buffett style wheeling and dealing of stocks even as he professed to be the Singapore equivalent of the American billionaire.

For those not clued in on Wallstraits, it is basically a value investing site which has modelled itself on Warren Buffett's investing philosophy and techniques, and has made some inspired stock picks in the early years of the new millenium, such as multibaggers in Osim (its star pick), People's Food and Celestial Nutrifoods. It has a paid subscriber's site called Intellivest where Sage reveals his portfolio picks (he actually buys into his stock recommendations) and promises to inform subscribers when he buys and sells the stocks. On the strength of its stellar 2001-2003 portfolio performance, the site has managed to garner a substantial number of followers, both paying and non-paying. Sage has even written a few books on his investment philosophy and techniques, such as Building The Perfect Portfolio.

My first thought on reading the anti-Sage comments in the Analytics forum was that if the Wallstraits portfolio had continued to perform well over 2004-05 there would not have been any complaints. That is basic human nature: waxing lyrical when things go smoothly, witchhunting when they turn sour. The Wallstraits portfolio has not exactly outperformed the market over this 2003-05 multi-year bull rally, its picks having done poorly (eg. United Food, JEL, Ace Achieve, Bright Orient, Westcomb, and recently its core holding Zhongguo Powerplus). Hence the knights of the long knives.

I cannot help but sympathise with Sage; his professed value-add of recommending Intellivest stock picks to subscribers and his personal objective of making money from his stock portfolio are difficult to reconcile, especially as his operations, both on the Wallstraits forum and his personal portfolio, have reached a significant scale. Imagine: if he fulfils his promise and declares his buy or sell intentions to subscribers almost immediately, how is he going to get a significant line of stock at cheap prices, or dispose of his existing line at good price levels? The prices of his stock picks will be bid up, and that of those he intends to sell will be bid down. Yet if he chooses to undertake distribution quietly and inform subscribers after the event, his significant selling (given that each of his portfolio stocks tend to be $200K or more) would have caused a drag on prices (especially given the illiquid nature that his stock picks tend to exhibit) and subscribers would be complaining (as they are now) of being kept in the dark (or they could even be buying on Sage's recommendation while he was selling). The curse of the large investor is now compounded by the moral duty of the stock advisor.

I remember Jim Cramer, a well-known hedge fund manager in the 1990s, who wrote newspaper stock recommendation columns on the side. He was once investigated (although later exonerated) by the SEC for pumping up stocks (through the newspaper columns) that he held in his portfolio and then disposing of them in the buying interest that followed his newspaper recommendation. Singapore is probably less advanced and stringent than the US in terms of market regulatory practices, but I wonder if there will come a day where regulatory scrutiny will make it impossible for business models like Wallstraits' to operate. They would probably have to get some kind of broker's or investment advisor's licence which would subject them to all kinds of regulatory audits and standards. And they would have to make sure that they follow buy-and-sell rules that would not get them embroiled in "pump and dump" accusations every now and then. I don't know about Sage, but if I were managing a personal portfolio of his size (~S$3M), and compared to the Wallstraits subscriber income(say, 100 paid subscribers X $100 annual subscription fee = $10000 annually) I would prefer to concentrate on maximising income from the former.




Anonymous Anonymous said...

Not a good guess: 100 members. Too low if you think about the no. of people who visit some of the popular forums. The correct figure for Wallstraits is 1,400.

12/25/2005 11:29 PM  
Blogger DanielXX said...

Wow that means $140K in annual revenue. Not bad indeed. I guess you got it from the Wallstraits site? More lucrative that I thought....

But just to be sure, is it the total number of members or is it only the paid subscribers to the Intellivest site? There is a free forum section (you can join as a member, but it's free) and the subscribers only section.

12/26/2005 7:13 PM  
Anonymous Anonymous said...

I think that number of 1,400 counts both existing and ex-members in the paying site. But from the recent responses and grumbles in that forum, there seem to be increasingly non-renewal of memberships.

12/30/2005 1:13 AM  
Anonymous Anonymous said...

danielxx, there's some ambiguity over the 1,400 figure. It proabbly includes non-subscribers who register to post - for free - in the public site of Wallstraits.

other thing is, that the figure of subscribers, whatever that is, is misleading. Faced with a decline in popularity and anger over recent events at Wallstraits, some subscribers whose membership has lapsed find that they can still continue to access the paid site. Cld this be a tactical move by Wallstraits to keep up the subscriber number?

1/02/2006 1:21 AM  
Blogger DanielXX said...

The uproar is normal but at the end of the day I suspect those paid subscribers will continue to pay. I mean, if you play the market, $100 is peanuts if you think you can get good advice there.

Some of the forumers there are really good. I especially think d.o.g's posts are worth reading. For Shareinvestor, the owner's comments are the best (ie. Oldman).

1/09/2006 3:47 PM  
Anonymous Anonymous said...

How can you sympathise with Sage, Daniel XXX??? - the only good thing I can think to say about his site is it provides a forum, but why anyone should pay to go on to the paying site is beyond me. Sage's practices are rife with conflicts of interest, where, to put it frankly, he can profit at the expense of his subscribers. (Cramer was the same, regardless of whether he was "exonerated"). You can get sites or blogs like yours, or CNA, or VIC or Shareinvestor, where these issues are not present. If you want to read d.o.g., then you can read him on the wallstraits general (non-paying) forum. (It's typical of Sage to offer d.o.g. a free membership (this and last year) to the paying forum - what a joke - $126 "free" for input from d.o.g. worth thousands of dollars of d.o.g's time. I very sincerely hope d.o.g doesn't take up the "offer" again.

1/18/2006 11:28 AM  
Blogger DanielXX said...

Haha yes I also think d.o.g's comments are definitely worth more than $126 a year.

Not to say that it's not worth the paying to access top sites. The ready access to past histories of forum exchanges is an underrated tool. In fact, the further back it is, the more valuable it becomes, because you get to understand the company operations from another angle many years back (instead of what analysts or people are currently touting). Shareinvestor is the best for that, and I subscribe to their (cheapest) membership.

1/19/2006 4:09 PM  

Great info excellent info.

1/14/2014 10:49 AM  

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