I received one comment on my blog posting yesterday: More on iCapital Transparent Issue.
The Wanderer said...
- Exactly.....Conflict of interest lah......When they want to sell rrrr, they so scare you sell first hor (if they call a sell in their investment letter first, especialllly during BEAR markettt.)No doubt about that, Kellogg of interest ler...
Dearest Wander,
Yes, a couple of folks have accused me of Bashing iCapital and Tan Teng Boo for No Reason? but surely these facts clearly shows the fuzziness between iCapital's fund management and its investment advisory business.
The simple argument remains, how could the investment advisory make a totally independent investment advice when the very same company owns interest in the very same share!
In my humble opinion, I really think that it is just so wrong for iCapital to be disposing the same shares where their investment advisory has a buy/hold on it.
I find it so shambolic that they tell their subscribers that the shares is worth a buy/hold while their fund management reckons that there exist justifiable reasons to sell these very same shares!
Let's look at the said disposals from iCapital.biz. Now I would assume these disposals were made during the quarter ended Feb 29th 2008, as mentioned on the blog posting, What Do You Think of ICap's Recent Disposal Of Shares Held?
Let's do a simple comparison and compares the highs the stocks that icapital was disposing while their investment advisory recommended a buy/hold on these very same stock. I would look at the highs made during the period, from 1st Dec 2007 to 29th Feb 2008.
Take Boustead Holdings, it traded as high as 7.00+ during this period. It's now 4.74.
Take Intergrax, it traded a as high as 1.40+ during this period. It's now 0.695.
Take Lion Diversified, it traded as high as 2.00 during this period. It's now 1.03.
Take Petronas Dagangan, it traded as high as 8.60+ during this period. It's now 7.00.
Take Poh Kong, it traded as high as 0.70+ during this period. It's now 0.44.
ps: If any error is made on the stock highs, please let me know.
How?
It would appear to me that iCapital fund management was spot on in disposing these shares during that 1st Dec to 29th Feb 2008, where it disposed some 50 million worth of shares. Yes the sum of disposals were as much as 50 million ringgit!
Absolute brilliant for the fund!
But what about their subscribers?
What about their readers?
Remember iCapital has a buy/hold recommendation on these very same stocks! And what if their poor subscribers decides to follow these advice? Look at the end result now! Did you see how those shares that iCapital has sold has fallen?
How?
Again my issue is very simple, how could the investment advisory make a totally independent investment advice when the very same company owns interest in the very same share?!
Posts
6 comments:
Is this the only instance of conflict of interest? No!
Is it restricted only to Icap? No!
Will this be the last? Again no! Will it continue? Oh, Yes!
The so call interviews and expert opinions are usually a sham especially when the markets or stocks are at their turning points. Their aim is to get in or out before the public does.
The most critical part of fund performance is to exit at the prime point in time; frequently the media amplify and assist them to stir or fry up demand for their exit.
Independent report? or Con job?
Hi Moola,
With regards to your gripe, "Again my issue is very simple, how could the investment advisory make a totally independent investment advice when the very same company owns interest in the very same share?!"
Maybe it's part of their "contrarian investing" strategy.
On another note, an interesting article did come to mind :-
Dare to be contrarian
http://thestar.com.my/news/story.asp?file=/2008/3/8/bizweek/20548655&sec=bizweek
Some noteworthy phrases from that article include :-
-“Firstly, the subprime problem remains just that – subprime. Secondly, while many large financial institutions have been badly hit, the central banks have successfully averted a credit or liquidity crunch scenario. Thirdly, the US economy is certainly slowing down but a recession is only a possibility, and not certain.”
-He says that many American companies are still producing stellar results, as their earnings are derived outside of US. Boeing for instance, is selling its planes to Asian and Middle Eastern companies. General Motors, Volkswagen and Tesco, are also international companies that have seen their profits rise despite the slowdown in the US economy.
-“So what was essentially a two year old story was blown out of proportion, although on the level of the real economy, where businesses are actually running, the conditions are more or less normal.”
-“The subprime problem is close to its peak. Banks have written off the debts and are now more transparent about their exposure to subprime. Most of the major losses have been announced. There may be one more round in the first quarter but after that, the worst should be over,” says Tan.
-“It is time to be getting more optimistic on the US housing industry. While property prices generally may remain under pressure, housing starts should be behaving differently. To me, the risk to the US economy is on the upside,” he says.
------------------------------
And many more numerous interesting snippets.
Do not that the article was dated 8th March 2008.
Well, one can construe whether whatever he said then rings true now, just about 5 months later or have things really gone from bad to worse.
Latest updates on subprime and mortgage issues include, Fannie and Freddie reported or will be reporting huge losses, Citi and Merrill are being effectively "forced" by regulators to buy back billions of illiquid auction rate securities.
We all know what happened and is still happening to GM.
One can conclude that not only should they not hold vested interests in shares that they are advising about but also that their "contrarian" advice is really contrary to understanding the global economic situation.
To put it simply, if they had followed their own advice then, they would be sitting on huge losses now.
My two cents.
Thank you.
Dearest Opine,
One can conclude that not only should they not hold vested interests in shares that they are advising about but also that their "contrarian" advice is really contrary to understanding the global economic situation.
Comments: Perhaps they really should evaluate this dual role of investment advisory and fund management in their group. Surely, the company has got to give up one of their role.
I, for one, simply cannot understand it. If they can make so much money managing money, why does the company desperately want to maintain their investment advisory business?
I really wonder why?
Could it be that their investment advisory plays such a massive role in supporting whatever stocks the fund purchases?
I wonder.
Hi Moola,
Interesting and provocative question on why does ICAP provides both investment advisory and fund management services. I think we all know the answer. This is just part of the game being played. ICAP is a very classic and obvious example.
If you do a simple calculation on ICAP earnings (including investment advisory), the owner probably makes at least RM2-3 million a year. Not too bad for a fund manager like TTB with the bulk of commission also going to his pocket through his wife's remisier account. Mind you, CEOs of top notch companies in Malaysia are only getting around RM1 million a year.
I urge the readers to do their own homework before investing in any stocks. Blindly following TTB is not the way for becoming successful in investing. Yes, there are a lot of crooks or fun managers out there who dont even bother to take risk and invest their own money into the fund, BUT you are responsible for what you are making.
I suggest one read a book called "Market Panic", very enlightening for those who are interested in contrarian investing and understanding the game behind markets. Always remember, the market is a place for sharks to make money from the small fishes. Swim with shark if you wish to make money.
Moolah has done great jobs in educating the public about serious investing. We all shall be very grateful with bloggers like him around.
Thank you, Moolah.
Dear alpha,
I read with interest your comment which I quote here "...with the bulk of commission also going to his pocket through his wife's remisier account...."
As I peruse ICAP's 2007 Annual Report in detail, I could not find this information being publicly disclosed in that report.
To be fair, can you disclose the source of that data, that ICAP uses TTB's wife remisier account and thus pocket commissions?
I think before we can make judgements, it is important to also consider the level of brokerages too - a discount may send a different type of message than a premium to market averages.
Seng.
Thanks for query. I dont have any hard and fast info to tell you that the commissions were pocketed by him.I am not sure and I have no idea of the quantum or the spread involved. Legally, I would think it seems alright as his wife would probably offer better rates.
But it's purely my speculation. Therefore, I am ready to retract the "dubious" statement above to avoid confusion to readers. I'll be more objective and cautious in giving out comments next time.
And I wish to reiterate that please do your own homework before investing. Fun managers are part of the equation. There are good and bad ones. TTB, although appears to have some sort of vested-interest business model, but somehow he has managed to beat the average fund managers out there.
"Trade and invest at your own risk and never trust anyone (including myself)."
I would love to share this quote with you all. From the legendary free-market economist, Adam Smith:It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. Self-interest takes precedent for everything that happens in the world.
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