Holiday

On holiday until the end of the year. Hopefully the stock market gets better when I come back :))

Press the Ignore Button!

I found more and more media and analysts/brokers spurting a lot of garbage in this time of financial uncertainty. Well, maybe I am a little harsh, or probably I should just say that they need to go to their training again.  

  

I suppose I have to realise that media make their money from a 'fantastic' breath taking stories and brokers make their money by encouraging frequent trades. But I have to say again for my peace of mind: Brokers or Stock Analyst recommendations and their price targets are useless! (Ok, I feel better now *smile*)

Another thing for us to put in our mind is that majority of analysts are highly compromise by the companies they cover, make them reluctant to report a 'sell' recommendation for fear of their access to the companies info and documents being revoked.  It is said that 'hold' is a new 'sell', because the company will react badly if analysts produce sell recommendation.  

We, as investors, have to realise that everyone has motivation when they're making recommendation, and part of our job is to determine or understand just what that  motivation might be.  Investor can listen, but we have to filter. 

In Australia, the actions of financial analysts came under scrutiny after a Citigroup analyst downgraded the target share of Asciano from $6.08 to a meagre $0.82. This is the same analysts who had issued 20 reports of 'buy' recommendation before, with target price as high as $13.79a few months ago.  How, why, had they have compromise before?

Another case worth mentioning is the one involved BrisConnections (please see my earlier post). Shares in the company slide rapidly from $1 on July IPO price to 0.1c, the lowest value a share can trade on the ASX.  There are three analysts covering the company; Credit Suisse, JP Morgan, and Macquarie.  In the week when BrisConnections fell to $0.05, those analyst posted target prices of $1.91, $2.10 and $0.93.  What can we make of that? And of course the research houses claimed that they're completely independent of their broking arm. 

So why we would read and listen to Broker or Analyst at all? 

It's always a good thing to listen to any individual who have knowledge of a particular industry or company.  It will increase our understanding of the business.  But make sure you shield yourself from the 'buy/hold/sell' recommendation, or even from their number when they make their calculation.  Instead, investor should get a good understanding of the long term picture of the company, their profitability and their position in the industry. 

Is It Worth the Paper It's Written On?

Just came across this Unit Trust recently.  

Brisconnections Unit Trust (BCSCA) was listed on the mid of 2008 at $3.00 per stappled unit (payable in 3 instalments of $1.00). The first day of the listing saw it dropped to $0.41 cents. It is currently the cheapest share on the ASX at the lowest price possible, 0.1 cent.  

Source: ASX website

According to Brisconnection website, Brisconnection is dedicated to the successful delivery of Airport Link, Australia's largest infrastructure project. When completed in June 2012 it will be the first major motorway linking Brisbane CBD to the northers suburbs, the Airport and the Australia Trade Coast, a project that was valued at $4.8 billion.

It's certainly tempting for many investor to buy a stock at 0.1c and doubling their investment if it goes up even just 0.1 cent. However, here's the catcth.  As I mention at the start, BCSCA is a $3.00 stappled stock.  Anyone who purchase the share will also be buying a liability of $1 per share due to April 2009, and another $1 on January 29, 2010 for the shares to become fully paid. This is to say that for every $1 worth of shares an investor is buying now, she or he will be liable for $1000 repayment in April 2009 and another $1000 on January 2010.

An Australian housewife from Victoria, recently become a second largest shareholder (Queensland Investment Corporation is the largest with 10% stake) for a mere AUD 32,300. However, for this purchase, she has to cover a huge $64.6 millions in installment payments.  

I suppose investor can always sell the stake before the installment due, asuming there are buyers. This is what I can see from the market depth this morning:

Source: Suncorp Share Trade website 

There are currently NO buyers on the screen, and around 84 million shares are offered by 172 sellers at 0.1 cent. From 390 million shares on issue, that's accounted for more that 20%.

What happen if you can not pay your installment? Any investor who fails to pay the installment will be charged daily interest until the full sum is paid.  If the company determines this amount can never be paid, it can retake and sell the shares.  

And the Management isn't going to help either, here's some excerpts from Allan Kohler's interview with Brisconnection Chairman Trevor Rowe, on ABC's Inside Business: 

ALAN KOHLER: And so you’ll sue them next April if they don’t pay, is that right?

TREVOR ROWE: We will if they don’t pay in April we have an obligation under the underwriting agreement that we need to pursue the collection of any outstanding instalments, but we get the money anyway because it’s underwritten by Deutsche Bank and Macquarie Bank.

ALAN KOHLER: But you are obliged to pursue the people.

TREVOR ROWE: We are obliged to pursue people.

ALAN KOHLER: And so are you going to do that? Is in there any alternative that you’re looking at? Is there any possible alternative?

TREVOR ROWE: We have an obligation to use best efforts to recover those funds. So in a balanced way we will have to do that.

ALAN KOHLER: What will that involve? Will you put the debt collectors on to them?

TREVOR ROWE: We’ll probably have debt collectors go out and endeavour to collect it, yes.

The Cycle of Market Emotions

It is fascinating to watch the cycle of market emotions, and as any other investors, I certainly can relate it to my own experiences. 

Basically, we start at optimism, which builds in bull markets to Euphoria, then turn all the way down through anxiety and denial to fear and panic before capitulation and despondency set in. And then, after the storms clearing up, there will be some hope and relief, hence optimism starts again once more.

But as the ASX has now officially fallen 51% since it reached a closing all time high of 6828.7 in November last year, the question is: where are we now in the cycle?

The good news is, I do think we passed anxiety, denial, fear, desperation, or even panic. From my own experience, I guess not many things in the market could shock me anymore. We are possibly somewhere between capitulation, despondency and depression.  For a contrarian, probably the bottom is very near, if it's not in. We are nearing the point of maximum financial opportunity!!