July 2022 Portfolio Update

As of 14-July-2022:

S&P 500 Index Fund: -19.97% -> -16.2%

Hong Kong Tracker Fund: -6.18% -> -5.65%

Straits Times Index Fund: 0.53% -> 1.4%

My portfolio: -2.63% -> -5.49% 

Notable Transactions:

-Complete divestment of TTJ due to forceful acquisition of shares. I have tendered all but a token amount of them (in my SCB trading account). More on this in a latter section.

-Slight increase in Embecta.

-Increase in YZJ Finance in CPF due to the impending liquidation of TTJ

General Commentary

It does feel like my investments are largely inline with market performance. Most market participants would tell you that the first half of 2022 is horrid. 

Superficially, my portfolio reported a 40% gain at the end of 2021. But really...the nightmare started in 2021 itself, right after the start of 2nd half 2021. 

This is the trailing 12 month performance as captured by Stocks.Cafe

It should be much lower than 33%, had I not have such a huge stake in OKP (largely illiquid stock), and the 20+% upward price revision by TTJ (although it was a ridiculously low ball offer, and felt more like a loss than a gain). 

What was responsible? In short, China. Bulk of the poor performance could be attributed to 4 stocks. Alibaba, Central China Management, Central China Ltd and Didi Global.

After divesting my stake in Perfect Shape (now called Perfect Medical) for a handsome gain, I was looking to put the funds to use. Now... success is a very bad teacher. I was laxed in my valuation.

Purchases in Alibaba started in Aug 2021, at the price of 160-ish HKD. We knew the price fell to 72 HKD. Through my persistent (and foolish?) buying as price fall day after day, my average price is now 115 HKD. I had to endure a 30% paper loss for most part, and reflect on why I had not insist on a larger margin of safety. Alibaba has since regain ground but appears to be selling off again for the last two trading days.

Central China Management (9982) and Central China Real Estate had a far, far worse fate. CCMGT was purchased from 1.77 HKD. Today it is only worth 0.88 HKD. Purchases for CCRE started at 1.17 and today it is worth half... at 0.58. Both of these are large positions. At present prices, it makes up for 13.7% of the entire portfolio (in terms of value). But on a cost basis, it is actually about 19%.

The case with Didi Global has been mentioned before so I shall not repeat it here.

With the exception of Central China RE (which I sold my parents' stake and reimburse them for the loss out of my own pocket, I do not wish for them to be exposed to this risk), I had not sell a single share for the rest of the counters. Unlike the sold down experienced by tech stock holders, these companies mentioned did not enjoy the post-COVID boom since 2020, and have contribute nothing but losses to my net worth. More frustratingly, none of them were bought during "good times." 

China is also responsible for another holding of mine-- YZJ Finance Holdings. Over a span of two months, it managed to make a 20% gain, only for it to crumble again amidst China's debt issues again. The position is now in red.

Overall, there were no mercy from the markets in 22-H1... and it had been a year of continuous bad news. 

Various positions in American exchange did not do well and all of them, except for the arbitrage position in Activision, is in loss of around 10-15%.

TTJ-- The end of the road.

When the offer was announced, efforts were made by investors, regretfully mostly individually, to push the owner for a better offer. IMO I do not think the shame and expose method is a great approach, but looking back, I do have my doubts that a gentler approach would help . 

However, I wish I had at least tried. I wished I had at least given Samarang Asset a call. I wished I had deliver the letter directly to TTJ to prod the owner to do the noble thing. I wished I had done more..

The most regretful part of the story is that some of the major shareholders prefer to adopt a wait and see attitude at the early stages. Moving early, banding up, and getting the message clear to everyone is the key. With no leadership, and no unified voice, each and every investor is trapped into their own little cells, i.e. a prisoners' dilemma, most will be inclined in a way that doesn't benefit them.

The longer the inaction, the greater the number of investors that would tender.

Risk arbitrages pretty much succeed most of the time, as long as there is 20-30% increase over the last traded price. Whether there is a 20-30% gain over the value, that is the matter, since everyone's idea of value differs. 

A decent increase over the last traded price typically works well for the acquirer, because
a) most market participants are not long term share holders. If they were, their annualized returns would have been low to normal due to lengthy time that share prices are depressed.

b) most buyers, post announcements, are risk arbitrageurs. They are motivated to close the deal as soon as possible (the sooner the deal closes, the better their returns look, annualized). 

c) Sellers are motivated to sell because no one wants to be a minority shareholder of a company where the owner has clearly and blatantly taken advantage of shareholders. Should the deal be off, there is really too many ways where the value a company can be suppressed through legal means. It is even more likely so for an illiquid company like TTJ

d) Shareholding structure is fragmented and in most parts of Asia, particularly Singapore, majority shareholding is concentrated in the hands of a few, making activism extremely difficult.

e) weak regulatory body/laws.

***

With the offer all but compulsory, I had no choice to tender and went looking for those forms. Earlier on, I told my fellow investors, who are considering to tender after THC had refused to increase the offer price, that I am still thinking it through. 

.... since I have discarded the forms right from the beginning, I realize that subconsciously, right from the beginning, I have never wanted to sell out...

Luckily, a fellow investor alert me that it is possible to approve digitally. 

 I try to live a life where one should do the right thing without considering if it is beneficial, but I am finding myself increasingly alone. Why is it that nobody cares about reputation anymore... which is something... even money could not buy?

This chapter had left me terribly bitter and deflated, and this is further compound by my portfolio's performance in recent months.

These are very dark days. Now all I could wish is that my mother's impending check up- would turn out fine..