Posted by: donmihaihai | August 10, 2020

How could SPH lost so much?

Yeah. I got the title from a local blog. A blog that mainly write about investing in stocks. In fact he wrote about how much the fell in a number of well known stocks from 2012 to 2020.

https://limkimtong.wordpress.com/2020/08/01/some-well-known-stocks-fell-dramatically-over-nine-years/

I don’t know that particular well on these few stocks despite them being well known but I do know that over the same period, only a few of the current STI component stocks are trading at above their end 2012 price. Hard not to be as STI is down by more than 20% from their peak. But then there are always more when stocks are down by more than 50%.

An investment into stock is about being shareholder of a company and if the company is private, my return will be the money that thrown off by company. And if the company’s shares is quoted, then my return will include the differences between my buying and selling prices.

How much the company is able to thrown out on a long run depend on their long run ROE. Let not talk about exceptional businesses, an average business like our three local banks can generate good long term return. A long run ROE of 10% is very decent.

Because we are talking about quoted stocks, another key is buy and sell price. Take a look at the top 2, SCM and SPH written on the blog.

SCM

31/12/12 share price – 4.60, NAV- 1.20, P/NAV – 3.9X

Current share price – 0.38, NAV – 1.04, P/NAV – 0.37X

SPH

31/12/12 share price – 4.03, NAV – 1.39, P/NAV – 2.9X

Current share price – 1.07, NAV – 2.16, P/NAV – 0.5X

The above pretty much explain the drop. P/NAV, dropped by just over 90% from 3.9X to 0.37X for SCM. Almost the same as the drop in share price and the remaining is actually because SCM managed to reduce their NAV over the period. SPH increased their NAV over the period which is why the drop in share price(73%) is not as great as the drop in P/NAV (83%).

These 2 are extremes but even a drop of P/NAV of 2X to 1X mean lost of 50%. These representing the buy and sell prices. Something we as an investor has control and can control. If you do exactly as in buying at 2012 valuation and sell in current valuation, good luck.

What we can’t control is how well the company will do in the future. We can make reasonable assessment of the company future. It can be learned but it is not going to be easy. Everyone make mistake. I made mistakes and going to make more mistakes. When situation changed, decision changed. Just like WB with airlines.

This is what make investing interesting.

Looking at the local stocks or especially STI stocks, What will their businesses like in 2028? In 2028, we are unlikely to be still facing COVID 19 but that doesn’t mean their won’t be other challenges. But I can’t make the assessment of the businesses for you.

Are the current valuations attractive for the potential return? Neither can I do it for you but the writer of the blog wrote about P/B of selected stocks which are mainly STI components here

https://limkimtong.wordpress.com/2020/08/07/price-to-book-value-of-selected-stocks/

You can conclude yourself. Doing that is part of the reason why investing is so interesting.


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