Friday, November 9, 2012

Tomorrow will be an interesting day for shareholders. Based on what I read on-line, both Tan Teng Boo and Andrew Pegge seem to get very emotional. We have to brush aside the emotion and analyze things that are affecting our money on the line.

iCapital posted performance of Laxey Partners on their website. Here is this

First it says that the fund that Laxey Partners manage lost almost 70% of its value and the closed end fund discount at one point as bad as 40%. So the argument that if Laxey Partners were to take an active role, where will it be heading? It will be a disaster for shareholders.

Fund discount or premium is a reflection of investors' sentiment. When the market is hot, people tend to pay for premium. When it cold, people will tag discount simply because there are more sellers than buyers. The real long term issue is the performance of the fund manager. If the fund manager can deliver long term results, say 15% 5 years from today, its NAV will be around $ 5.92. Even you tag a discount of 20% the projected market price will be around $ 4.73. Depending on the market price you pay, you will still make money. If Tan can perform, it will be a loss to investors.

The second short term issue on my mind is to consider the impact of regardless Lexey Partners succeed or fail. Since they(Lexey and City of London Investment) have accumulated the shareholding over 18 million shares, what is the impact of they start to dispose shares? If they have accumulated the shares over 2 years, I think the average price is around $ 2.25. If they are willing to absorb 10% loss, $ 2.00 will be the floor.

Let's take a look at United International Securities, a global closed end fund listed in Singapore exchange where Lexey Partners tried to make a similar attempt but failed. The chart below shows the blue is the price of UIS and red is STI index. UIS price fell sharply but STI was also fell in parallel. It was not really a concern since we may think that it is more of general sentiment. However, STI is recovering, UIS price was stuck. One can safely say that someone is trying to exit gradually.

Back to iCapital. If they choose to sell down gradually it will take a while to distribute that 18 million shares. That will take at least 9 - 12 months exit.

What if Lexey Partners successfully elected themselves on the board of directors. It will be a cheer to short term investors but a loss to long term investors.

Back to risk-reward thing. At yesterday closing price of 2.45, risk is 0.45(2.45-2.00) if you lose and reward is 0.51(2.96-2.45). So it is like 0.88 risk reward ratio. At this price, I will not go aggressively.

Meanwhile let's see the plot unfold.


Old Fool said...

No doubt TTB is emotional. I am sure, we would react similar. If years of our hardwork is being destroyed by predator.

Between the two, I am supporting TTB for one simple reason. He has good track good of high level of integrity and off course his investment return.

Back to this tussle. In a capitalism world, such event is normal and common. Without Laxey, there could be another opportunist attempts to do the same.

What I could not tolerate is laxey claiming to be long term value investor but the fact of the matter they are not!

Certainly, this event increases profile of ICAP among potential investor. Perhaps narrowing the discount gap.

I do hope you cast you vote wisely tomorrow.

yauwenchin said...

short term, the market is a voting machine, long term, the market is a weighing machine. If the weighing machine is not broken and works fine, i.e. delivering the NAV, why risk another?

shiv kumar said...

nice posting

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