Fraud: Advice from a fraudster (Updated).

UPDATE:
Two videos on common types of scams and how to avoid being the next victim.


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Often, we hear the saying that if it sounds too good to be true, it probably is. However, could we be missing out on something good if we simply tell ourselves this each time there is a deal which looks too good to be true?

So, how do we tell if something is a genuinely good deal or if it is a well disguised pit. For sure, it is not easy. Even very savvy people have been victims of con jobs because if a con artist is a professional, he could have almost all the grounds covered. I say "almost" because the most elaborate of con jobs would still have loopholes.

How do we discover loopholes, if any? Who better to learn from than a professional con artist?

I read this in the weekend edition of The Business Times, 30 June - 1 July 2012:

"I am a proven liar. Don't believe anything I say," said Samuel Israel. He is the hedge fund manager convicted of running a US$450million Ponzi scheme who faked his own suicide in 2008 to avoid his prison sentence before turning himself in after a worldwide manhunt.

When asked what can an investor do to avoid being conned, he said, "Seek as much transparency as possible. If they do not understand exactly how a manager is making money, do not invest. If there is a secret process that cannot be explained, run."

Investors are sometimes too busy looking for profits to notice where the truth ends and the deception begins.

Related post:
Fraud: Like taking candy from a baby.

Yongnam: Worried about warrants?

Yongnam has been doing very well in recent years. Its management also shows a commitment in sharing the fruits of its achievements with shareholders as it paid steadily higher dividends in the last four years.

Yongnam's order book remains robust although its Q1 revenue and profit declined due to delays in starting up of a couple of projects. Is this why its share price has been languishing? Does Mr. Market expect Yongnam to underperform from this year on?

Well, to be fair, the broader market has been languishing too. It remains to be seen whether the 3,000 points pyschological resistance on the STI could be overcome.

With Yongnam, I am not so worried about its fundamentals. In fact, I expect the company to win more contracts as regional governments spend more on infrastructure projects. This will generate steady revenue for the company. With increasing contribution from its specialised civil engineering arm, profits are likely to improve at a steady clip.

What could be holding back its share price is its outstanding warrants. Warrants? Yes, the company had a 3 for 10 warrants issue in 2007. 3 for 10 is quite a big proportion. If all the warrants were exercised, we could see a 23% dilution in EPS. Then, its shares would look more expensive.

So, the question is whether Yongnam is able to make use of the funds productively to improve its EPS proportionally or more to negate any dilution concerns. This is something that no amount of foresight would be able to throw light on. So, a cautious Mr. Market is understandable.

Now, I would like to suggest that it is possible that holders of the warrants might not exercise the warrants. Reason? The exercise price is 25c a piece. With Yongnam's share price at 23.5c at the last closing, these holders could be better off allowing the warrants to expire and buying more shares of the company in the open market if they wanted to add to their long positions.

Also, if I remember correctly, the warrants were not free. They were sold at 3c a piece. So, the full price of a warrant turned share is actually 28c for the original warrant holders.

There are rather bullish 12 months target prices for Yongnam's shares by various research houses from 30c or so upwards. Unless Yongnam's share price is able go past 25c a piece, the exercise price of its warrants, I doubt holders would exercise their warrants and worries of dilution would evaporate, therefore.

The warrants expire 14 Dec 2012. That is only five months away. I guess I can only wait and see.

Related posts:
1. Yongnam: 3 new contracts worth $63.8m
2. Yongnam: FY2011 results.