Tag Archives: Media

Execution strategy: Sell & buy back

In the talk organized by InvestingNote a few weeks ago, we shared several guiding principles when we buy or sell our stocks. Ideally, when we buy into a stock we hope that the moment when we buy into it, the share price immediately rises and stays for a long time, better still, forever. This means that our stock has appreciated and provides us a good margin of safety. The other part of the return is the recurring income that comes in the form of dividends year after year. So basically, we enjoy both the capital appreciation and dividends. This is an ideal situation. It is akin to buying a bungalow that cost $50,000 in the 60s or 70s and the valuation is now at $25million. The recurring income comes in the form of rentals. This is known as the buy-and-hold-strategy, and was famously used by long-term investors like Warren Buffet and John Templeton.

There are, however, situations that are not viable to hold a stock any longer because the underlying fundamentals have eroded with no immediate solution in sight. A good example is the SPH. In the 90s and the start of the new millennium, SPH had been a good stock. It was a near-monopoly in the print business. Hence, it made sense to buy the stock at a reasonably good price and held it long term to take advantage of the dividends that were distributed year after year. But the inauguration of the internet changed the rules of the whole game. Customers now have a choice – either to continue to read the hard printed copy that comes one to two days late or to browse through the internet in search of immediate news. It is so powerful that many newspaper and magazine printers were pushed to the brink of bankruptcies. While we continue to like the stock, we probably have no choice but to change our tact to a sell-and-buy-back-later execution strategy.

By selling into strength and buying back later, it helps us lower of the average cost for the shares. Even if we decide not to buy back the stock any more, we are effectively enjoying a saving that would have otherwise eroded with time. Let me use an actual scenario of a person whom I know very, very, very well. He had 6,000 SPH shares mid-2016.

The share price was dropping very quickly by mid-2016. He was left with 6,000 shares at that time. Feeling that it no longer made sense to hold the shares any longer, he decided to let go of his holding over a period of three months. The proceeds after taking into account of the brokerage and other fees come to about $23,589.61. Hypothetically, if he were to buy back the same quantity of stock yesterday, the amount that he had to pay would be $17,949.73. Deducting further of the loss of dividends of $1,080 which he did not collect as he had sold the shares, he still can make a gain of $4,559.88. This is equivalent to a gain of at least 4 years of dividends without losing out the shareholding instead of losing out one year of dividends originally. In summary, we need to adapt the right buy/sell strategies for our stocks. Buy-and-hold strategy may not always work.

 

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Technology destroyed some traditional businesses (1): SPH

By now, many would have noted that SPH share price has been on a decline from $4, slightly more than a year ago.  It has not been this low since the global financial crisis when it touched $2.32 on 12 March 2009, which coincided with the low of the Straits Times lndex (STI). Following the crisis, it had been oscillating at around $4 for a long, long time before the recent decline to its current price at around $3.25. In fact, since the share split of 1:5 in 2004, the share price has not really enjoyed any strong upside although investors had been lavished with generally good dividends in the past.

In fact, SPH is not the only victim of the technology onslaught. Newsweek, Washington Post, Financial Times, Reader’s Digest and many national newspapers suffered declining sales volume as well.  Technology, in particular the internet, had swept across the globe at such a huge pace that it wiped out many traditional news and printed media businesses. Readers are no longer happy to receive news 1-2 days after it happened, not even hours. We are now talking about minutes or even seconds. Financial market for one is very unforgiving as far as the speed of news is concerned. The news that appeared in print today was already a history that had already moved the market. Certainly, the financial market players are too impatient to wait for the print to reach them before they reacted. Look at US presidency election, the BREXIT, British election, the market had already reacted even before the news were casted in print. By the time the news appeared on the dailies, many snippets would have already splashed all over the internet. Just a simple search through a search engine, one would be able to pick up at least 10 pieces of news stories on the first page of the engine search.

Personally, I think that the management saw it coming at that time, and that was why they decided to sell several properties into SPH REIT in mid-2013. By so doing, it hoped that it can earn a ‘passive income’ as a sponsor and a major shareholder of this REIT. Unfortunately, the rental income is not sufficient to offset the decline in the print business. And this could continue to be so for a long time to come. To be straight to the point, the internet is not going to go away any time soon. In fact, it will definitely not go away unless it is displaced by another faster and more convenient transmission means. That said, it is a long-term threat unless SPH is able to side-step it by finding another growth business.

To be fair, I would think that the management has been doing their best to maintain shareholder’s value. The share price could have declined even more steeply had it not been for the high dividends that were distributed in the last few years. Unfortunately, this is an encroaching external threat that is difficult to defend against, unless they do not want to be in the business at all or to lessen the blow by finding another lucrative business. The final consequence, unfortunately, is an ever-declining share prices, a deep cut in future dividends or both.

 

Brennen has been investing in the stock market for 27 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy. Analyses of some individual stocks can be found in bpwlc.usefedora.com. Registration is free.