Monday, August 04, 2008

Feedback on iCapital's Addressing Of Its Transparent Issue!

Received some interesting comments received on the posting, iCaptal Addresses the Transparent Issue!.

Firstly here are my comments again in the original posting again,iCaptal Addresses the Transparent Issue!.

Well I do like to address several issues.

  • The fact that we have been holding Parkson, etc for years testify to our long-term approach.

A) iCapital declares that it has been holding Parkson for years. Hmm.. iCapital has vested interest in Parkson and iCapital/Capital Dynamics also recommends a buy on that same stock. I do not know but would one consider this as a conflict of interest in this stock recommendation on Parkson?

B) On April 28th 2008, I blogged the following piece, What Do You Think of ICap's Recent Disposal Of Shares Held? , in which I questioned one main issue. Why did ICapital disposed securities worth 50.999 million during this period when Mr. Tan was publicly quoted as being bullish? I find it hard to accept for someone to be publicly saying he is bullish when his fund is massively disposing a lot of shares! The disposal of shares action certainly contradicted his bullish comments!

Now wouldn't it be very nice if iCapital and Capital Dynamics address this very issue directly?

C) And that disposal of shares now poses a huge question in regards iCapitals self declaration of its long-term approach! How can it preach long term approach now when its fund was doing massive disposal of shares recently?! Wasn't it very contradictory?

The next issue that I would like to address is the following statement.

  • Some investors, without their own agenda being transparent, have asked how i Capital can remain independent when we also have a fund management arm. The sceptics and the cynics would say that our fund management arm would buy the stocks first and then recommend the same stocks to the subscribers of i Capital, who would in buying them, then push the share price up.
I am lost here. What does iCapital or Capital Dynamics means by some investors, without their own agenda being transparent?

I find it amazing lah. Someone raised an issue. So why question this person's agenda? Why?

Let's see. By commonsense and logical reasoning, anyone who reads iCapital or Capital Dynamics would surely want to question iCaptal regarding it's independent status since the company conducts a fund management and an investment advisory business at the very same time!

How truly independent can it be in such circumstances?

That for me, would what most readers/investors would want to know about iCapital and I, for one, strongly believes that anyone have the right to question iCapital and Capital Dynamics on this very issue!

And so if they do address the issue, what is iCapital talking about these investors own agenda???

Sigh!

Isn't these investors own agenda is to find out more in order to protect their own vested interest?

Or is iCapital and Capital Dynamics expecting their investors to read without even questioning these issues?

I do not know.

Now, let's consider a scenario where iCapital owns vested interest in a stock and thru no fault of iCapital or Capital Dynamics, the business fortunes of the stock take a drastic turn for the worse.

Now would iCapital be truly independent and transparent and call a sell on the stock?

Let's take a real example. An example which was blogged here live back in 2005.
Mieco: Part II - Ze Buy Recommendation!. Now this was an example where iCapital was owning stake in the stock while making a buy call on it at the same time!

Now, despite the clear deterioration in Mieco's earnings and immense deterioration in Mieco's balance sheet fundamentals, iCapital held firm and ignored the horrendous weakness in Mieco's business.

Let's recall what happened. On Aug 2004, Capital Dynamics made a buy call on Mieco when Mieco was trading around 2.36. Mieco last traded at 0.40! (it's current recommendation is still a HOLD! Amazing! ) (Do read that blog posting:
Mieco: Part II - Ze Buy Recommendation!)

My simple question now is simple, clearly Mieco business has gone bad and if there was no vested interest, would Capital Dynamics have made a SELL recommendation on Mieco?


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Comments and views on that posting:

Opine said...

  • Mieco is a classic definition of "long term investing" of ICAP.

    Not even sure if they still hold any of it or if they have recommended a sell yet either.

    Let's not kid ourselves, one could have bought almost any stock the last couple of years before the first crash occurred in sub-prime and it would have appreciated.

    Now that the reality of the worldwide economic situation is becoming more apparent(at least to some), it is obvious that stocks aren't going to fare as well anymore, let's see how their concept holds here.

    Their article is riddled with contradictions and would make a mockery of Independence, Intelligence and Integrity.

    To put it simply, they are talking their book in the hope of proselytizing all those who would listen to achieve their own ends.

    Those who blindly follow others advice without doing their homework ultimately deserve what they get.

    "You pays your money and yous take your chances".

    My two cents.
Moola said...


  • As far as I know, iCapital still has a HOLD recommendation on Mieco on their website, so I would hope for the sake of their followers that iCapital still HOLDS this stock too! It would certainly be an incredible situation if it no longers hold this stock!

    And I am baffled. A stock like Mieco, whose business has truly underperformed, iCapital held firm with their buy/hold recommendation. Now compared to a stock like Digi, they are holding strongly to their SELL recommendation!! I just cannot understand why! I am also told that iCapital had disposed all their shares in Digi too!

alpha said...

  • Dear Moolah,

    I am not sure what Icap really means of independence, intelligence and integrity. I personally worked in Icap before. I was not an investment analyst there but Mr Tan often wrote great deal about stocks he bought, fair enough but I think it's not so much about true value investing as there's an element of publicity here. And for all you know, other investment houses are actually doing the same thing.

    Perhaps one should also look at the timing of purchase made by Icap for its asset management (Capital Dynamics Asset Management) to have a clearer picture. I was still amazed at how Icap can run these two outfits without any scrutiny from SC.

    On another note which I think one should also be aware of. Mr Tan does churn out great returns, no doubt. But if you look at most stocks he have, they are pretty illiquid, reason being undervalued in most cases. And illiquid stocks do offer great returns if they have strong backing from investment houses. Returns of course are great but can you cash out the investment without causing the share price to drop to levels before the purchase price. Small investors should also be concerned of the definition of "long term" here.

Care to share your views too?

4 comments:

RR said...

Quote " As far as I know, iCapital still has a HOLD recommendation on Mieco on their website, so I would hope for the sake of their followers that iCapital still HOLDS this stock too! It would certainly be an incredible situation if it no longers hold this stock!"

Icapital is still holding this stock.
ICAP is holding 1632100 shares in Mieco with an unrealised losses of RM 1,263,301 as at 11th June 2008.

You can get this info in the latest annual report of ICAP.

Moolah said...

Dearest RR,

Many thanks for the confirmation.

Question. Could you understand why they are insisting on holding to this stock, whose earnings and fundamentals are deteriorating each year? Can't make sense when they have a huge SELL call on Digi. I am simply baffled? Why sell Digi? (Someone told me that icapital no longer hold any Digi shares, is this true?)

rgds

RR said...

Yes. In year 2006-2007, ICAP sold Digi.

Reason was "Digi.com was sold because your Fund was not
prepared to take any risk arising from the requirement that the controlling shareholder of
Digi.com had to reduce its stake from 60% to 49%."

Mieco.. at a glance, it is a stock that I will not touch.


1) 1Q YR 08 net loss RM3 mil.
2) Last Year annual profit is RM2.3 mil.
3) PE around 35.
4) NTA/share is RM1.70.
5) PPE (property,plant,equipment)/ share is RM2.44
6) Cash is RM0.16
7) Total Debt is RM1.67

The only thing that I may consider buying it. Is that, i know how much actually its PPE worth (I need to be someone who knows about the operation of chipboard).
So if I buy the whole Mieco for its PPE,pay all its debt, forget about collecting the receivables and throw all the inventory away. On paper, I will be getting back RM0.77 per share.

But, seeing the earnings of the chipboard company going down, market is not treating it well. I will re-evaluate the PPE.

I think there are a lot more opportunities out there. I am not sure whats the reason behind ICAP call on it.

care to share?

Moolah said...

Dearest RR,

Many thanks for the feedback.

I am still baffled. Ok, that reasoning then was valid but if icap reckons Mieco is worth a HOLD despite its incredible wosening in earnings + fundamentals, then why Digi still considered a sell?

rgds