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FSL Trust: Where to from here?

Monday, August 9, 2010

I have blogged about how a past decision to invest in FSL Trust was a mistake. Over time, I have discovered more reasons why FSL Trust is a high risk investment and how, in the long run, it is doomed to fail as it is operating based on a flawed business model.

An article, Shipping Trusts: A closer look, 13 July 2010, in Next Insight says it well:

"... problem arises when the trust managers market the trust as a going concern, but then pay out cash as if the trust were self liquidating ... This misleads investors who think that the high payouts are sustainable and do not realise that part of the cash received is a return of capital...

"Until recently, FSLT paid out 100% if cash generated and did not pay down its debt. This essentially made the trust behave like a self-liquidating vehicle, regardless of any management claims to the contrary."

I know of at least two blog masters who have liquidated their investments in FSL Trust recently at a loss: Mike Dirnt and Musicwhiz, admitting that their investments were mistakes.  JW of Wealthbuch almost put some money in FSL Trust just before the recent crash from 60+ cents based on the posts by Grandmaster89 in an investment forum. Grandmaster89 has become more grounded in his views since. More recently, Alvis of A Investor bought some units at a price close to the bottom at 30+ cents based on TA.

I still have units in FSL Trust bought at $1 in the early days, probably at about the same time Musicwhiz bought his units.  I have been thinking of divesting these units but was not as deft as Mike Dirnt to divest at >60c at the recent high; nor did I divest last week like Musicwhiz at a rather much lower price.

I also have some units which I bought in the recent crash. Why? I explained that the purchases were made based on TA and are for a trade. Looking at the charts, FSL Trust's price has not just found a floor, it has most probably bottomed.  So, would I sell at the bottom?  No. 

In fact, the low formed on 11 Jun at 36c would be a strong support if price does decline to that level again.  Market participants would remember that price as the low and they could have made some money if they had bought more then.  More likely, however, the recent many times tested support at 37.5c would act as an effective breakwater in case of a decline. What about the upside? For now, it seems that the price could remain trapped in between the 20d and 50d MAs for a while. These assumptions are valid as long as everything else in FSL Trust's business remains constant.

From a FA perspective, it is true that FSL Trust has very high risks and its propects seem bleak in the longer term but would it go belly up in the next few months? Rather unlikely as the world economy is still on the mend and the fortunes of the shipping industry are looking up.

Related post:
High yields: Successes, failures and the in betweens.
Charts in brief: 26 Jul 10.


Drizzt said...

in the life of an investor you realise alot of things such as business operations and that what might look good initially are full of risks that you are not aware of.

just like in business, you need to take it and learn from it and dun get hit by it again.

AK71 said...

Hi Drizzt,

Yes, you are so right. Will just have to roll with the punches and learn from past mistakes. No point crying over spilt milk, right? Thanks for the encouragement. :)

Dou said...


very sorry for ur loss but i am surprised that u did cut loss at all when it reach 90 cents.

no one can win trades all the time so cut loss is important....dun let 1 trade wipe u out

AK71 said...

Hi Dou,

I guess you are referring to the units I bought at $1. Those were during my pure FA "buy and hold" days. They were never meant for trading. TA is something relatively new to me. :)

My history in brief:

left_ray said...

If you ask me, Allco was the worst, Global investment comes second, and FSL third which I bought in pre-crisis. I sold off Global, but kept Allco because its now own by F&N and FSL because I have faith in the management and still think operating lease base trust is still a good idea.

AK71 said...

Hi left_ray,

All of us have some experience to share regarding bad investments, it seems. ;)

If you are still confident about FSL Trust, it seems that the price has bottomed. Time to accumulate?

left_ray said...

I am reserving cash to prepare a storm. Maybe I should liquidate all? But would it come?

AK71 said...

Hi left_ray,

You have asked a million dollar question. Looking at the charts, it seems that we are in for a correction (<20% decline). Will we see the start of a bear market (20% decline or more)? I don't know. There are many gurus out there who seem to know: bulls vs bears.

I don't believe in being too bullish or bearish, I am a pragmatist.

I make next to nothing in my savings account. I should make my money work harder. I invest most of my money in fundamentally sound REITs which means they should have limited downside. Of course, this could be fairly subjective even though the numbers back my analyses. I keep an eye on the technicals and hopefully would spot any trouble brewing before it hits me. Just hope. ;)

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