This article was recently published on Silly Investor's blog and is republished with permission.


BOTH Straco and UMS were on my radar screen when they were some 30% to 45% lower than their current prices.

That means I lost 50% to 90% of gains.  

I was alerted to Straco when it was trading at 28 cents. I owned UMS at 37.5 cents but sold early at 44 cents.  

It is perhaps important to review why I gave them a miss and learn some lessons.  


       ShanghaiAquarium3.14Shanghai Ocean Aquarium is the key operating asset of Straco Corp.
Photo: www.shanghaifocus.com


Straco Corporation: It is an S-chip, I had doubts about its numbers, especially when a blogger highlighted the low depreciation of its bio assets.

The dividend yield then was rather weak, even when I projected a 50% growth in dividend payout. 

But Straco's dividends more than doubled in 2 years. 

Now we know that quite a bit of its cash is real, and its operations are real. Anyone can visit its Shanghai Ocean Aquarium.

My mistake: I used trailing dividends. 

I should have focused more on its FCF (free cashflow) generating capability, and the fact that it is growing. 
 

 



UMS Holdings: Not an S-chip, it offered a dividend yield of more than 10% when I bought it.

I was aware of its FCF strength and the cyclical sector it is in. I was also aware of its heavy reliance on Applied Materials (AMAT) for profits. 

But I believed I got it with a good margin of safety.  

UMS_mfr3.14UMS manufactures components and systems for semiconductor equipment. Photo: Company

Why did I sell? Because the owners, Andy and company, were selling a significant stake in the company, and it was the second time they did it in a year.

The first selling sparked the price fall which allowed me to collect on the cheap.

I was still hanging on to my shares when the news broke, and then shortly it was announced that Andy’s wife would cease to be a director and would be reassigned a consultant role instead.

This move did not make sense to me -- how effective can an insider be as a consultant or is already not a consultant?

I decided to bail out.  

Well, on hindsight, it was a wrong call. I am fine with my decision as money not made is better than money lost.

But I think I will really should pay more attention to FCF growth, and if a stock sell-off is not too frequent or big such that the ownership of management comes into question, I should keep my steel.

FCF growth may or may not result in dividend growth, and it will take 1-2 years to find out how friendly management is to minority shareholders, but there is a good chance of higher dividends in both Straco and UMS as they are debt free.


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Comments  

#1 Eugenia 2014-03-07 15:58
Straco is an S-chip? No leh.

Chairman Mr Wu and wife are Singaporeans and the controlling shareholders. Mr Wu founded Straco. He was born & bred in SG, and graduated with a Bachelor of Commerce degree from the former Nanyang University (Singapore).

His wife, Madam Chua, was from the same university and same course.

http://www.stracocorp.com/directors.html
 

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