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Managing exposure in AK's investment portfolio: Examples.

Monday, August 11, 2014

I received a few emails and comments both in my blog and on my FB wall regarding Yongnam and Marco Polo Marine. In the wake of their dismal results, some are wondering if they should stay invested. Of course, I won't tell people what they should do but I can share with them how I manage my portfolio so that I do not lose sleep over it.


Regular readers and attendees of InvestX Congress a couple of months ago might remember the graphic of a pyramid which I shared. In case you do not remember, it is found in this blog post: Motivations and methods in investing.

Many know that I invest primarily for income and these investments form part of the wider base of the pyramid. It is about investing for a predictable and, ideally, sustainable flow of income. Such investments provide my portfolio with a measure of stability that I desire.

I also invest for income and growth. This is about investing in companies which have the potential to grow and have shown some promise through their track records. On top of this, I like for them to show a commitment to pay dividends. Of course, I said before that both Yongnam and Marco Polo Marine were in this category.

I also invest purely for growth but this is higher up in the pyramid and such investments, without any dividends, should form a smaller portion of my portfolio.

So, for example, I reduced my exposure to Marco Polo Marine as it would probably struggle to pay a dividend now because not all its businesses are doing well but I am still optimistic that the company would see impressive growth if the purchase of the oil rig should work out the way the CEO thinks it should.

Now, what about Yongnam? They announced a bigger loss than expected in its latest results. A question to ask is whether this weakness is enduring or is it temporary? I am inclined to believe that it is temporary. So, I am staying invested.

With Yongnam, it is about securing more projects and, hopefully, those with higher margins. Although I am optimistic that Yongnam will do better in future, in the near term, the thesis for investing in Yongnam for both income and growth has been shaken. So, I might reduce exposure, similar to what I did with my investment in Marco Polo Marine.

Now, some might ask if I would lose money by reducing exposure. I might.

Might? Yes, might, not would.

It is good to remember that in all my investment decisions, it is partly about getting in with a margin of safety. Of course, with trading decisions, it could be quite different.

Also, because I usually invest with an income angle in mind, losses, if any, are less daunting, taking past dividends into consideration.

If I had divested some of my investments when stock prices ran up, then, I could actually end up with a gain even if I were to reduce my remaining long positions at a loss later on. I did this for Yongnam before but, unfortunately, I did not do so for Marco Polo Marine. Why?

Yongnam's share price ran up because of speculation regarding its chances of getting that big job in Myanmar. Marco Polo Marine's share price ran up, I believe, because it was undervalued compared to its peers. So, a partial divestment in Yongnam's case when prices ran up was only reasonable to me but not in Marco Polo Marine's case.

We don't always do well in our investments as conditions change and these changes might throw a spanner or a few in our analyses. However, if we

1. Invest cautiously, always demanding a margin of safety,

2. Take some gains off the table when given the opportunity,

3. Stay invested if the investment still holds promise,

Over time, we won't do too badly.

Finally, it probably pays for some to remember that my investments in Marco Polo Marine and Yongnam are bits of a bigger investment portfolio. They are not my only investments. Remember the pyramid. Know what we are after and our methods should reflect our motivations.

Related posts:
1. Yongnam: DPS of 0.6c.
2. Marco Polo Marine: Reason for weakness.
3. Portfolio review: Unexpectedly eventful.


seefei said...

i expected this post sooner or later. LOL

and your explanation is also nothing new. either your blog are gaining more NEW readers or the older readers are not following your thoughts on these two counters.

for Marco Polo, with the new debt of $200M, i really hope the new rig will bring in the $$. as for Yong Nam it is just waiting for new contract win. for a steel fabrictor with its own yard and stock pile it has that barrier entry that is not easily duplicable. i like its multi-locale operation and track record.

blauereiter said...

Dear Mr Ak71,

This is probably a very noob question, but can you give some examples on how best to execute point number 2 ( Take some gains off the table when given the opportunity. )?

For example, I have some investments in Reits, and at times when the share price is experiencing a series of highs I am tempted to sell off some to lock in earnings, but if I do I would be diluting my lots and therefore my DPU when it comes around, and therein lies the dilemma.

When exactly IS a good opportunity ?

AK71 said...

Hi seefei,

Really? You expected this? LOL.

Actually, I was wondering if I could quietly tip toe around these two counters and not bother blogging about them. Lazy lah. ;p

AK71 said...

Hi blauereiter,

When to take gains off the table?

The easy answer is "when you are happy with the gains". Never wrong to take profit. Of course, don't bang head on wall if prices go higher. ;)

The tougher answer is "know the value of the investment". Then, we sell when we feel that it is overvalued. Again, don't bang head on wall if prices go higher. ;p

We won't be diluting anything if we were to reduce our investment in any REIT or stocks. Our future income from these investments will be proportionally lesser but there won't be any dilution.

Unknown said...

Thanks for the post.

seefei said...

share investment is for the long term. taking $$ of the table is not a bad thing. dont worry about "dilution" as the share market move in cycle. what cheap today can be cheaper tomorrow.

As AK aptly put it, as long as you are happy with your decision it is ok.

AK, i know people will ask you about Marco Polo and Yong Nam as their prices had moved south. You are our anchor when things get rough. So it is just natural to expect the post...

blauereiter said...

seefei - "what is cheap today can be cheaper tomorrow."

I should really keep that in mind, it makes perfect sense but when we factor in our irrationality/insecurity it is not always easy to see/remember.

Thank you for the advice ! :]

Small Time Investor said...

Hi blaureiter

Unrealised gain is not gain , unrealised loss is not loss .

which one you want to realize ?

Cory said...

Mark to Market is core principle especially when i view investment on longer horizon.
If your investment down from $1 to a cts, we are deluding ourselves is not loss because we yet sell.

Gark said...

I divested Marco Polo's subsidiary in Indonesia, BBRM.JK recently due to dismal performance. Was lucky to escape with a small profit.

The subsidiary continue to do badly, even as other similar O&G boat charterers continue to do well is puzzling.

I am still holding on to LEAD.JK which is a subsidiary of Pacific Radiance and the good performance is reflected in the surge of share price recently.

AK71 said...

Hi Gark,

It is their tugs and barges business which is bleeding. OSVs are doing relatively well.

I have reduced my exposure to the stock but remain vested as I still think the commencement of the cabotage law in Indonesia for oil rigs from the year 2016 and MPM's new rig delivery by end 2015 is a big positive.

In the meantime, MPM should consider amputating their tugs and barges business. -.-"

AK71 said...

Following the sale of Marco Polo Marine Group’s 50% stake in Marco Polo Offshore (IV) to Nam Cheong Group, the two companies have formed a joint venture company with a share capital of US$4 million to invest, fund, own and operate vessels such as accommodation work vessels, work barges, and anchor handling tugs and supply vessels.


AK71 said...

A consortium led by Singapore-listed Yongnam Holdings won a US$1.4 billion (S$1.78 billion) contract to build the airport in Myanmar's Yangon, after a previous deal given to Incheon International Airport Corp. was canceled, Bloomberg News reported on Wednesday.


Ray said...

Hi AK,

Yongnam price seemed to have stablized. Are you nibbling? ;)

AK71 said...

Hi Ray,

Yongnam is going through a basing process right now. Although 18c is pretty cheap, I am wondering if we might see 17c tested.

If I did not already have a long position, I might buy some but I will wait a bit more since I already have a significant long position. ;)

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