Portfolio Transaction Q2 (comments on Asset Play and Good Companies)

Since end of March which I release results for my Q1, there have only been 3 transactions done. Without elaborating, I am currently leading STI by 4%. The market has been pretty kind to me.

Reduced half of Xinghua Port Holdings
Sold half of Xinghua Port holdings due to likely poorer results from Stop Work Orders by the government. I perceived the problems to be temporary but this small loss is necessary to control unforeseeable risk.

As of now, one of its ports has resume operations but the insider buying has ceased as well. I will adopt a wait-and-see attitude and resume buying when there is a huge discount from what I feel is its intrinsic value. I will assess if the problem is likely short term. Expected results release for Q1 is late July, if any. HKEx companies usually only announce results twice a year, so it may be October before I get any news.

I do not expect myself to lose too much money from this stock on a 3-5 years basis.

Initiated a small stake in Hanwell; and my opinion on "asset plays"
Hanwell is a company that has a terrible consumer business but is cheap due to it trading at just below its net current asset.

With companies like these, you are buying with the mindset that there the downside is limited. I like buying these type of companies but Hanwell's dividend is on the low side. More importantly, Hanwell is not alone in its cheap-to-asset situation. But it has some anchor investors within. The dividends is the main reason why I do not want to allocate too much capital. I do not intend to hold on to this stock forever (this is exactly what some value investors call, value trading). Cigar butts are not meant to be held forever.

LTC Corp is a good learning opportunity. While it brought some investors 30-60% gains, some folks who got on the bandwagon really early had pitiful annualized gains. It was priced really low to its understated book value.

I still believe diversifying widely on asset plays is the way to go. I had a simulated portfolio of 20-high-ROE-low-PB stocks that returns me a big fat 0 year to date. This experience also reminds me that pure quantitative stock picking techniques don't work too well.

There is an asset play opportunity in HKEx which I intend to invest on a small scale as well. Will talk about it in due time. However, I wasn't the person who discovered it (a clever mate of mine did). So this idea has to be kept secret until it comes to fruit.

Started buying "Good Companies"
The typical purchase of my portfolio in the past will include mainly stocks that are cheap by book value and had a good record of building its net-asset value. The weight of bad news is a major plus (such as Ascendas H-Trust quite some time ago; along with Chuan Hup). Debts must be minimal.

Nevertheless, when you are buying cheap companies, you are hoping that the market is wrong, and value reversion comes one day. However, time could really be the enemy of the mediocre-- the value of a company might slip due to macro conditions. I would confess that I never looked at macro when investing.

Hence with a bit of cash hoard on my side, it is timely to start investing a little on good companies.

I shall not reveal the name of this ..."good" company in question as I wish to accumulate more. This company is not trading at stupid cheap valuation (Xinghua Port is way cheaper at the moment) and have a risk that only myself would perceive as so (I am a strange man). I shall not describe this risk as it is pretty unique to this company.

This company has mathematically good returns on assets over quite a few years, no debt, good cash hoard and trades at a low adjusted PE. It is trading over 2x book value.

The business main source of revenue is from Hong Kong and the company is still working on the major cities of China, appealing to the population with stronger spending power. My hope is that the returns on assets came from the brand and perhaps sound management; this would be a long term play. Looking at the results from its first half earnings, there could be a slight mis-price based on its PE. The adjusted PE based on its cash is 6. I intend to allocate a higher than normal capital in this idea once the risk I saw is no longer there.