Tuesday, July 31, 2007

My Investing Journey: Boustead Part 1 6 comments

(P.S: Sorry for any disturbances the advertisements above may have caused you)
My general approach these days is skewed towards a typical medium-term holding period of less than a year, because as a stock in my portfolio rises in price an alternative often arises in the overall market with a better value proposition. I have often maintained that Warren Buffett's buy-and-hold approach that he preaches is a consequence of his enormous holdings necessitating such a style in order to limit market impact costs (see "Warren Buffett Platitudes"); however I will admit that I am also, at the core, partial to this approach because of my fundamental inclinations. Boustead would be a prime example of the success of the buy-and-hold method.

I eased into Boustead in mid-2004 and have stayed with at least half of my original position till now. How did I pick it? I never had any intention of making it a long-term buy-and-hold stock then; only Buffett can have the acumen to do that kind of trick. But quite simply, I had noted then that it had risen from 30-odd cents to 80-odd cents over late-2003 before the penny-stock correction in early 2004 cut it down to size by 20-30%, despite a slew of new positive broker coverages --- initiation of analyst coverage was usually a good sign, because it meant increased liquidity and market attention; it was also trading after the correction at a reasonably bargain price of ~12X PE. I was searching for a diversified engineering company then, and Boustead had a good mix of water plus oil and gas engineering which sounded appealing. And so I bought at 60 cents, the start of a long and beautiful relationship.

Most long-term relationships are built on continuous communication and deepened understanding resulting in a positive feedback mechanism; as I said, I never set out to make it a buy-and-hold. I accumulated my initial line, found out more about the company, liked what I read and bought more. Between Sembcorp Industries (my other choice for the diversified engineering company pick) and Boustead, both would have roughly gained the same percentage amount (4X initial investment) by now, but there turned out to be other serendipitious turns of luck that enabled me to derive much more return out of this stock than purely the abovementioned capital gain (to be mentioned in next part).

Boustead today enjoys wide institutional support from several funds and I think a large part of it is due to its impressive management and investor relations efforts. This point was evident to me from the start, and was a strong factor in my continuing to hold over these years. Those in the loop about the company would know about Wong Fong Fui and his reputation as a turnaround specialist, with previous experience in restructuring QAF. I was also impressed as I read his online exchanges with retail investors (an online Q&A session after every results announcement), not just the technical aspects, but also a particular instance where a forummer posed some questions after the forum had already closed the Q&A, but FF Wong actually came back and answered the forummer's questions in detail. Little things like that count for a lot; to me it demonstrated quietly the management's shareholder orientation. FF Wong himself owned a big chunk of the company, around 30%.

Where management and shareholder objectives are aligned and management show a record of looking after shareholders' interests, I reasoned, it fulfilled a critical condition for holding on, just to see what value could be unlocked. Over 2004-07, the topline and bottomline continued to grow, and these obviously further supported my decision to sit tight.




Blogger Musicwhiz said...

Thanks very much for your enlightening write-up on Boustead. It's hard to find people who even talk about this little-known company whose earnings have been increasing steadily for the last 5 finanicial years.

Unlike you, I was vested much later in late 2006 at a price of S$1.295, which I still perceive as giving a decent margin of safety.

I also have made some comments on the company and the recent AGM. Please visit my humble blog at http://sgmusicwhiz.blogspot.com

Would like to also thank you for your marvellous contributions over the years to your blog. It's a pleasure to read !

8/03/2007 10:51 AM  
Blogger DanielXX said...

Hello musicwhiz,
1.20 was still a good price. I remember being a little concerned around that time about the Yogyakarta earthquake around that time because Boustead had a water project there, and sold out part of it, only to regret when the price momentum didn't abate and I had to buy back at a higher price. At various times, its different arms have surfaced as the most promising: first the water arm, then the oil&gas engineering arm, and now it seems the hot one is the industrial construction arm. Says a lot about FF Wong's vision.

8/05/2007 7:22 AM  
Blogger sm@ll.fry said...

Hi danielxx,

I read with interest your investing process. Unlike you, I'm very new to the world of value investing, but like you I'm highly tunes in to it. Perhaps its a character thing?!

Would certainly visit your blog regularly in future. Wonder would you like to exchange link? Thanks!

8/11/2007 5:27 PM  
Blogger DanielXX said...

Hi fishman,
Thanks for linking to my blog. Your blog is also very interesting, anecdotal and good to read. I have just added it to my blogroll. Cheers.


8/11/2007 9:56 PM  
Blogger Musicwhiz said...

Hi Danielxx,

I will be linking your blog to mine as it is a goldmine of information ! Could you also kindly link mine to yours as well ?

Many thanks.


8/12/2007 12:16 AM  
Blogger DanielXX said...

Hi musicwhiz, sure! Done.


8/12/2007 2:46 AM  

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