Tuesday, March 14, 2006

My Investing Journey: 2001 A Stock Odyssey 0 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
I am very familiar with the small cap stocks on the SGX nowadays (with the exception of new IPOs which I tend to look at after a few months), largely because I decided to bargain-hunt among the small caps: a new year resolution I made in early 2001.

Investors harking back to 2001 will remember it as the dark ages of the stock market. The STI collapsed from 2000 at the beginning of the year to 1300 in September 2001, when of course the antics of Osama bin Laden plunged world markets into deep pessimism about the future. On retrospect, this was the best time to buy value, and the worst time to buy growth, because everybody was rushing for cover amongst stocks with good asset backing and reliable earnings.

And again in retrospect, I was lucky that I made the decision to buy mostly steady-earnings and dividend-paying small and mid-caps, a back-to-basics stockpicking strategy. Below is a list of stocks I bought in 2001:

Nera Telecom @ 82.5 cts (exited @ 83.5 cts 6 mths later)
SCS @ 2.29 (exited @ 73 cts in 2005!!)
Asiapower @ 13 cts (exited @ 16.5 cts 2 mths later)
IDT @ 1.42 (exited @ 1.42 1 mth later)
NOL @ 1.28 (exited @ 1.43 1 mth later)
Sembcorp @ 1.59 (exited @ 1.61 1 mth later)
Teck Wah @ 20 cts (exited @ 27.5 cts 9 mths later)
Fu Yu @ 53 cts (exited @ 53 cts 1 mth later)
United Food @ 55 cts (exited @ 60.5 cts 1 mth later)

And as you can see, I adopted a rapid-fire short-term buy-sell strategy for most stocks without much of an element of "hold" in between. With the exception of NOL and Sembcorp, the rest were mostly small and mid-caps. I had gone through a systematic process of sifting out the stocks which had maintained steady earnings and were close to NTA. These were to maintain relatively strong during the period when I held them in 2001 in a year of falling stock prices, a credit to their intrinsic value, but it may be interesting to note their performance had I continued to hold: IDT today trades substantially below $1, Asiapower has still not gone above 20 cents, Teck Wah is below 20 cts, Fu Yu is below 50 cents, and the infamous United Food is at half its price in 2001. I had bought into SCS believing that it was near its bottom, being a government-linked IT company, but had ended up catching a falling knife which I had to extract from my bleeding fingers in 2005 at a third of its cost. So, what looked like a sound risk management stock-picking strategy at the end of 2001 could well have turned out to be a nightmare in terms of opportunity costs had I practised Warren Buffett's buy-and-hold.

So my conclusion at the end of 2001, when I compared my performance against the market and was satisfied that I had "outperformed" the market (basically, I had lost less than the general market), and my retrospective views 4 years later, vary rather greatly. I thought I had found a reliable way to pick good stocks (by tracking their historic growth and paying attention to dividend yields) ---- a quantitative strategy. Now, I believe it was my quick trading that had saved me: past earnings growth was not a guarantee of long-term earnings growth.

And yet, a good stock picker (not me) would have picked up great bargains in that fateful year of 2001. Osim was trading at 35 cents in late 2001, Jurong Technologies at 15 cents, HTL at below 20 cents. They also had good earnings track records, yet they had something else going for them: improving margins, as a result of strong competitive advantages --- consumer branding, manufacturing niches, low production cost bases respectively. That was the part which I missed out in my 2001 stock picks.




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