Opinions vs Facts

In your day-to-day life, you're bound to read or hear ideas from others. Quite often, these ideas are presented so strongly and confidently as if they are facts. However, one should think slowly, and critically, if they are actually just strongly-worded opinions.

Consider a little over a year ago, I was involved in a snooker (that is a table-game/sport, for the uninitiated) match with pretty high networth individuals. We were talking about investing in general... and soon we were talking about opportunities.

One of those discussed was First REIT ("First"), which had its stock price fell from 1.4x to 0.9x. This particular individual was quite confident that it was a good idea. My first reaction was that the shareholding changes involving Lippo group/OUE would mean that any future rental arrangement (First is on triple-net lease, and do not have to suffer from currency-risk as all rental is collected in SGD) would tilt towards Lippo's favour. 

His conviction arises that "the price is below book value already, and management would have to acquire income accretive properties for the sake of shareholders."

Let's go through the points very quickly

---My Points---

1. Major shareholding changes in favor of Lippo/OUE - fact.

2. Cash crunch in Lippo group due to problems with overly ambitious development in Indonesia (Meikarta?) - Fact.

3. Rental arrangement that would be less favourable for First, given that Lippo now enjoys a larger shareholding now in the REIT management than before - Opinion (though likely)

--- His Points---

4. Price is below book value- fact. 

5. Management would acquire properties that are accretive- Opinion. 

The key point is #5. There is an obvious conflict of interest between rentee and landlord here.

My view is that when a company is in trouble, the management must not be part of the problem. Management can think of one hundred and one ways to tilt things in their favor.

Today, First's share price is a paltry 0.46 a share. One should be open-minded and evaluate it...It might be an opportunity.