Thoughts and Lessons from Best World

During my short 6 year journey in investing, Best World was the brightest and tout-after stock. It is particularly rare that a stock listed in Singapore could return an investor multiple folds of his capital. It was well capitalized than most, at least in its reported financial statements, and it defies repeated sell downs of considerable magnitudes.

However, being the odd-ball value investor that I am, I seem to ignore popular issues, no matter how exciting the numbers are. I see it as a boon and a curse; the former because it protect me from huge drops when growth halts... a curse because well... I do miss out on those gains.

So when Best World was suspended, I do not feel the pain (or relief for not being) of existing stock holders. Time passes very quickly. It is already more than 2 years since that fateful day. Signs of life stirred when an announcement was made that they plan to privatize the company, and they would require financing to do it. That gives me an impression that the offering price would be reasonably high.

Unfortunately, it doesn't feel certainly that way now. Best World offered to buy up to 10% of the existing float at... 1.36 SGD, which was the last traded price, from any shareholders that are willing to give it up.

It is understandable that many are displeased. Some deem the decision as opportunistic and that it is a sign of things to come.

Personally, I felt that it is too early to conclude that the board is not acting with the OPMI's interest at heart. But I cannot claim to understand how shareholders feel, with funds stuck in the dark for 2 years, starving for light, but only to see the dancing flame on the candle blown out by a straying breeze.

This is a timely reminder that capitalism is cruel. Why are companies listed in the stock market? Cheap capital. Great businesses are far and few in between, and great businesses owners that think for OPMI is even more so. A good business owners obtain capital with the least cost (interest from debt; or dividend/equity from stocks). Pre-IPO investors eye for huge slices to be ultimately realized when the company turns public. With the odds stack against him (or her), only an astute retail investor, located at the bottom of the food chain, could plausibly consistently make money off the stock market.

When stock prices go too far south, it makes sense for the owners to load up using their own cash. Sometimes when an impending wave of fortune approaches, they could de-list at a respectable premium (though it is far less than it is actually worth, long term). One cannot expect retail investors to have an edge over the owners in winning this fog of war. 

The market has far too many matured businesses or management with care-taker attitudes, whose only reason for going public is to cash out. After-which, the risk of the business is for us retail investors to bear,

We need to be reminded of this: When going public, owners do not lose control of their business or their incentives, but only of control of its market valuation. 

After listing, stone-hearted owners has a myriad of ways to privately enjoy the spoils. Obscene salaries is one; huge bonuses (often justified by undemanding performance targets) is another; Generous stock options, approved by a pliant remuneration committee is common; others, leaning towards criminal, such as writing off trade receivables due to their own privately owned businesses, and much much more.

It is a cruel world out there.