Chip Eng Seng – SOLD

Alexandra Chip Eng Seng

chip eng seng

Finally managed to part with Chip Eng Seng (CES).  It was a stock that had made money for me throughout the past few years.  However, due to an overconfident streak I had last year, I had impulsively over-invested in this stock.  Now, it takes up such a huge portion of my portfolio that any slight movement in the stock, be it up or down, causes me great unease and  streams of thoughts have been plaguing my mind ever since it released its latest results.  I have overestimated my so called analytic capability and underestimated the complexities and risks that comes with property development companies due to a big one-time gain off Roxy Pacific that had propelled my portfolio in my earlier years of investing.  ( I shall reserve that story for another blog post.)  So acting on that bias, I had shoved a big chunk into CES hoping to repeat the same result.

 

My investment thesis was kinda right.  I reap about a 28% gain from this stock in about 1 year.  I bought into it twice last year.  But the problem is, after reaching the end of my so-called time frame…. Now what?

 

In my earlier blog post about CES I had said that although CES is a good company, it isn’t revolutionary, unique, or game-changing.  It has no economic moat and neither is it innovative nor scalable.  Trying to look at this business through entrepreneurship lenses leaves me feeling… meh…  I made a decision to sell.

 

After weeks of mulling over this decision, I spent more weeks speculating for its share price to rise due to announcement of dividends.  ( I know, that’s very un-value -investor-like of me, but again, I had been trading that stock in my earlier years and couldn’t help but revert to my old habits and historical patterns which I have identified in the stock.)  This decision didn’t come easily to me.  It’s hard to part with something that always made money for me.  However, the conflicting data that came from the recent annual report has been boggling my mind for quite some time now.

 

Unlike most of the other fellow investment bloggers in the scene, I dislike solving ‘brainteasers’ when it comes to investing.  I find it a time-consuming process and I question the productivity of solving such brain-teasers.  Maybe I will appreciate such intellectual challenges if I had higher IQ,  but when dozen other problems, decisions and tasks are calling out for my attention, solving investing brain teasers is the last thing I would like to do.  Also, I challenge the effectiveness of solving such ‘brain-teasers’ when the direction and goals of the company lies in its own leadership and management, not us, the retail investor, who has compiled massive amounts of data, charted out projections, summed up calculations, and predicted how the stock will perform in the future.  I find this somewhat akin to an illusion of control.  Again, many investors will object to this view and I accept further discussions on it. I am just pointing out the fact that how your investment thesis plays out is actually beyond your control.

 

I decided to stop haggling over the share price and let it all go at $0.965.  Sure, its CNAV is about $1.17.  Of course I think it is undervalued.  However, the mountain of debt that CES has chalked up worries me.  Instead of using cash as a buffer, CES even increased dividend payout this year and continued buying back its shares.  This is the first time I actually feel bad when dividends increase and a company buys back shares!  That really boggles my mind.  But what do I know?  I don’t run a property development company.  I am just trusting my gut this time.

 

Many forummers on the CES Valuebuddies thread have been cheering this stock and praising it to the high heavens.  I don’t blame them. Rising from $0.20 to $0.965, I bet many forummers made good money from it.  Many of them try to explain  how the debt is normal and can be paid off easily when one of CES properties is rented out and cashflow will come in.  They dismiss the sudden departure of one of the top executives of CES.  They talk about the next property that will TOP and how it will boost its NAV.  They laugh and put down other investors who are bearish on the stock.  Seems like the internet exists to breed trolls!

 

Either ways, a gain is still a gain, though I am not very proud of this one.  With a chunk of cash coming out from Chip Eng Seng, I have increased my warchest and I am secretly praying for a big correction in the US stock market as I have identified several awesome companies that I wish to own.  Even if the correction does not come, I will still be dipping into the stocks once their earnings reports gives me more confidence of their growth trajectory.

 

I learnt some lessons from this investment:

1.  I need a time frame longer than 1 year – spending time beating yourself over decisions like this is unproductive and stupid.   All investment time frames are now 10 years.

2.  Don’t touch property development companies if you can’t bear looking at leverage/ debt.

3.  A good investment is supposed to give you a piece of mind  ( Holding this stock makes me feel uneasy every day…whereas I don’t feel the same for my other stocks.)

4.  Don’t over allocate your portfolio into a single investment.  ( Unless you got super analytic skills like Warren Buffet or even some of the more famous investment bloggers in our scene.  I can’t do what they do and I won’t emulate them even though I respect them a lot.  Be honest with your own capabilities!)

5.  There’s more to investing than simply just looking at the valuations.  You need to look at economic moats, competitiveness, management, business models and a host of other factors including understanding your own psychology( – in this case I suffered from overconfidence and historical bias.)

 

Dear Readers I hope you can learn from my experience so that you don’t have to ‘pay school fees’ to the market when you make mistakes!  Perhaps, instead of learning by trial and error, which can be very costly (again this will be in another blog post,) you can simply just find mentors to guide you.  Many people have signed up for the Fifth Person Dividend Machines course but I urge you to try out their Investment Quadrant Course.  It provides a proper foundation of knowledge before you move on to Dividend Machines.  You don’t build a house without laying the piles first right?

And I would like to emphasize that the course fees aren’t that expensive.  In comparison, I lost 15k when I first started ‘investing’ by trial and error.  ( And yet my annulised returns can still be at 10% as of today…imagine how much I would be up today if I hadn’t lost so much at the start.)  Don’t be a cock like me.  Invest in knowledge.  Click the banner below to go to the Fifth Person course page for more info.

 

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8 Comments

  1. Rolf

    Hi BfGf

    CES is a good company, but in an afterall cyclical sector. To reap good returns is sensible for u. I did the same last yr. see my blog article on CES below.

    http://www.rolfsuey.com/2014/06/chip-eng-seng-share-buy-backs-new.html?m=1

    Reply
    1. The Bf (Post author)

      I agree it is a good company. But I am selling because my criteria is now to look for excellent companies!

      Reply
  2. peter

    It is not how much the debt is? Property development company high debt is usual the norm. The main question is whether they can sell all their project which in turn give it the ability to fulfil their debt obligation. In this case, CES is doing excellent. You say of those valuebddies comment are nothing but those of envy forumer who has miss this counter, if you will to read it in proper context..LOL.

    Like that , then everyone is a sell, because we loan heavily on our HDB flat. It is not how much loan we has, it is our ability to pay. What wrong about me taking a 1m dollar loan if my salary is 25K per month!!!

    Reply
    1. The Bf (Post author)

      Good points!

      Again selling is my own personal reason.

      “In my earlier blog post about CES I had said that although CES is a good company, it isn’t revolutionary, unique, or game-changing. It has no economic moat and neither is it innovative nor scalable. Trying to look at this business through entrepreneurship lenses leaves me feeling… meh… I made a decision to sell.”

      Reply
  3. Gan

    1. Don’t put all your eggs in one basket.
    2. know their portfolio.
    3. Read their statement of accounts (Balance sheet)
    4. Where, when and what are the divesting interests
    5. What are their debts and who are the creditors?

    Are the above 5 nonsense?

    Reply
    1. The Bf (Post author)

      Nope it is good advice. Thumbs up!

      Reply
  4. oofuw

    one will sell some when there is profit and reinvest into other counter or wait for correction there is no rt or x just be contented

    Reply
  5. Pingback: Bf Gf Portfolio Update – 21 May 2015

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