Saturday, October 16, 2010

It's time to put MUI on a trial stand

If you looked at my Turtle portfolio, MUI is the only stock that I am losing money. The stock depreciated by 36%. I pick up this stock on Feb 28, 2008. If I include the 8% p.a. opportunity cost, I am sitting on 56% loss. KCLI benchmark was at 1,368 when this stock was bought. Yesterday KLCI closed at 1,489, the difference of Index gain is 8%. That makes me feel better but it is still a 44% loss.

However, assuming I was capitulated in March 2009, sell it for 0.14, take a 50% loss(RM 1,416) and reinvest in FBMKLCI-EA(KLCI ETF), 1,416 would have turned into $ 2,124. I would still won't be able to recover my losses. My original allocated capital will still be 25% lesser(2,800-2,124) than what I put in.

From opportunity cost, not cutting losses when it hit 20%, relative to benchmark return, I am guilty on all three counts.

Now, let's turn turn to my original thesis of the investment. You can view my original entry here:

I listed 5 catalysts:

1. Make it less complicated. Looking at revenue, it has three core businesses: Retail, Financial Services, Hotel. Not too bad.

2. Get rid of their debts. Then was 873 mln debts, 778 mln cash. Now 549 mln debts and 557 mln cash. Not too bad.

3. Expected earnings was around 112 mln net income or $ 0.058/share. Today is $ 0.002/share(based on ICUL dilution). I'm way off the mark here. The share price is experiencing overhang due to this issue. I can blame it on weak economy and etc but hey, since this stock is under-owned by smart money, the simplest way a retail investor will value the stock is PE ratio. They will go straight to this line x 4 and estimate what the stock worth. Boo....booo.....

4. Property was at cost and not at market price that worth more than $ 1.1 billion or 0.38 on diluted basis. Okay

5. 34% Laura Ashley controlling interest. The stock depreciated by 25% from the day I valued MUI. With the dilution effects, 34% interest worth probably around $ 0.09/share today. Could have been better.

(Click on the chart to see Laura Ashley price movement. You can get it from Yahoo with ALY.L ticker)

The stock is still undervalued from asset stand points but it doesn't move because the catalysts were not obvious to smart money and ICUL conversion over-hang. Undiscovered gem is good if I want to buy a big block of illiquid stock that allow me to accumulate for a long period of time.

Overall, I would rate myself C- or D for this pick. Let me leave this stock alone in my portfolio as a reminder: nobody is perfect. Admitting that I have a lemon will not depreciate who I am.

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