Comments on: Learning from Disappointments – Penrice Soda http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/ Fusing Fundamental and Technical Analysis with lashings of Behavioural Finance. Investing in Australia and North America. Thu, 02 Feb 2012 06:57:27 +0000 hourly 1 http://wordpress.org/?v=3.2 By: Justin http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1814 Justin Mon, 03 May 2010 01:09:22 +0000 http://www.fusioninvesting.com/?p=5455#comment-1814 As with most of these things, I think the outcome was pretty much decided in advance of Ken even putting pen to paper. He must be gutted. I suspect it won't be long before Ken moves on and takes up a nice paying, cushy job in the private sector. As with most of these things, I think the outcome was pretty much decided in advance of Ken even putting pen to paper.

He must be gutted. I suspect it won’t be long before Ken moves on and takes up a nice paying, cushy job in the private sector.

]]> By: Dean Morel http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1813 Dean Morel Sun, 02 May 2010 23:03:36 +0000 http://www.fusioninvesting.com/?p=5455#comment-1813 Wow indeed! I've just been reading it now. While I have little empathy for the resource sector it seems pretty outrageous. Maybe banks will be next with their abnormal profits. I think you're right Sean, small business is looking more and more attractive. I've only scanned the reports, but am left wondering what was the point of the Henry Tax review. It appears the government has gone ahead and done what they wanted with little regard to Henry. Wow indeed! I’ve just been reading it now. While I have little empathy for the resource sector it seems pretty outrageous. Maybe banks will be next with their abnormal profits.
I think you’re right Sean, small business is looking more and more attractive.
I’ve only scanned the reports, but am left wondering what was the point of the Henry Tax review. It appears the government has gone ahead and done what they wanted with little regard to Henry.

]]> By: Sean http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1812 Sean Sun, 02 May 2010 15:22:49 +0000 http://www.fusioninvesting.com/?p=5455#comment-1812 Wow, I had a look at the proposed resources rent tax. I hadn't thought about it before as I had got out of resources. It makes the NBN legislation look like a featherduster whipping. Maybe I won't get back into resources after all... It does make investing in ones small business more attractive though. Which is what I may do along with paying off debt. Wow, I had a look at the proposed resources rent tax. I hadn’t thought about it before as I had got out of resources. It makes the NBN legislation look like a featherduster whipping. Maybe I won’t get back into resources after all…

It does make investing in ones small business more attractive though. Which is what I may do along with paying off debt.

]]> By: Sean http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1806 Sean Fri, 30 Apr 2010 13:41:31 +0000 http://www.fusioninvesting.com/?p=5455#comment-1806 (*) my wife and I bought a small business last year on a PE of 5. It has been an interesting exercise. We managed to preserve the earnings after aquisition, which was challenging. What I learnt is that small business has some breaks. The small business investment tax break last year was a major bonus. You also get other breaks over larger companies such as exemption from payroll tax below a certain threshold. (*) my wife and I bought a small business last year on a PE of 5. It has been an interesting exercise. We managed to preserve the earnings after aquisition, which was challenging. What I learnt is that small business has some breaks. The small business investment tax break last year was a major bonus. You also get other breaks over larger companies such as exemption from payroll tax below a certain threshold.

]]> By: Sean http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1805 Sean Fri, 30 Apr 2010 13:16:33 +0000 http://www.fusioninvesting.com/?p=5455#comment-1805 Hi Dean, I think you did well in identifying discomfort. If I had been in this trade, I would not have sold out in the rally to 0.95. My stoploss would have been 0.75 just above the equity raising. The company is a dissapointment from what I have seen and from my opinion. I think the ethics of managment is an important factor in stocks. In small business, it is not very difficult to pick up a small 100-500k business on a PE of 5-10, particularly with baby boomers wanting to offload their businesses before retirement. Why would you invest in a stock on a PE of that rather than 100% in a small business that you have complete control over? It's mainly for the transparency of the balance sheet and hopefully the rigourousness of being listed. But that is not worth much in some instances. The company structure and listing is a double edged sword. Some companies have management that are there to benefit the management and not to the benefit of shareholders. This can drag on and on. The main concern I have about PSH is that management are disguising a fundamentally flawed business. The bicarb process that they have is energy intensive. They have been operating on PE of 5-10 for the last how many years (?5). Yet the shareprice is going lower and lower and the dividend has been suspended. Where have the earnings been going? If the PE is actually that I cannot see how the shareprice is what it is. I maybe wrong, but that rings alarm bells. I find myself with an interesting internal conflict with my TLS holding. It is an interesting exercise in dividend stripping. It satisfies 1 out 3 desirable features for me. It has compelling dividend value but fails the other 2 criteria which is a good long term business model and good management. Which is why I think I will slowly sell out of it into WOW. Or maybe get back in the resources story. Or both. Again thank you for your blog, it is great to hear your analysis and thoughts. I learn a lot from it. Hi Dean, I think you did well in identifying discomfort. If I had been in this trade, I would not have sold out in the rally to 0.95. My stoploss would have been 0.75 just above the equity raising. The company is a dissapointment from what I have seen and from my opinion. I think the ethics of managment is an important factor in stocks. In small business, it is not very difficult to pick up a small 100-500k business on a PE of 5-10, particularly with baby boomers wanting to offload their businesses before retirement. Why would you invest in a stock on a PE of that rather than 100% in a small business that you have complete control over? It’s mainly for the transparency of the balance sheet and hopefully the rigourousness of being listed. But that is not worth much in some instances. The company structure and listing is a double edged sword. Some companies have management that are there to benefit the management and not to the benefit of shareholders. This can drag on and on.

The main concern I have about PSH is that management are disguising a fundamentally flawed business. The bicarb process that they have is energy intensive. They have been operating on PE of 5-10 for the last how many years (?5). Yet the shareprice is going lower and lower and the dividend has been suspended. Where have the earnings been going? If the PE is actually that I cannot see how the shareprice is what it is. I maybe wrong, but that rings alarm bells.

I find myself with an interesting internal conflict with my TLS holding. It is an interesting exercise in dividend stripping. It satisfies 1 out 3 desirable features for me. It has compelling dividend value but fails the other 2 criteria which is a good long term business model and good management. Which is why I think I will slowly sell out of it into WOW. Or maybe get back in the resources story. Or both.

Again thank you for your blog, it is great to hear your analysis and thoughts. I learn a lot from it.

]]> By: Justin http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1801 Justin Fri, 30 Apr 2010 02:46:59 +0000 http://www.fusioninvesting.com/?p=5455#comment-1801 I know WilsonHTM is no worse or better than the others, I only mentioned them due to the fact that their PSH report came out this morning and I read it just before seeing your post. As I understand it a portion of sell-side analyst remuneration is based on stock call performance, so I am suprised that they are so often wrong (as we all are of course). Perhaps the trading volume commission outweighs the loss of income of making a wrong call :-) I agree with you regarding insider trading. As you say, not neccesarily absolute insider trading, which inevitably ends in tears, but the more subtle kind. I know WilsonHTM is no worse or better than the others, I only mentioned them due to the fact that their PSH report came out this morning and I read it just before seeing your post.

As I understand it a portion of sell-side analyst remuneration is based on stock call performance, so I am suprised that they are so often wrong (as we all are of course). Perhaps the trading volume commission outweighs the loss of income of making a wrong call :-)

I agree with you regarding insider trading. As you say, not neccesarily absolute insider trading, which inevitably ends in tears, but the more subtle kind.

]]> By: Dean Morel http://www.fusioninvesting.com/2010/04/learning-from-disappointments-penrice-soda/comment-page-1/#comment-1800 Dean Morel Fri, 30 Apr 2010 02:24:09 +0000 http://www.fusioninvesting.com/?p=5455#comment-1800 <em>It was pretty clear some people did know, just have a look at the PSH price chart for the past couple of weeks. </em> Great point Justin. Insider trading is rife in Australia, I saw it constantly when I was a business consultant. I use <em>insider trading</em> generically rather than legally. People inside companies know a lot more than the market and people love to show of their knowledge. Take PSH as an example. People inside both Amcor and Penrice would have known about the slow down in sales. As sure as I breathe that information would have been passed on to some people. Perhaps at the pub, perhaps over a casual conversation. "<em>Hey Pete, how's business? I heard you were slowing production.</em>" For those of us on the outside we must hope that our careful analysis is right more often than wrong and that the inside information balances out by the swings and roundabouts. While people may profit on the occasion inside knowledge, unless you are a dodgy hedge fund manager systemically trading on inside information, then it is not a long term path to success. Actually even if you are a dodgy hedge fund manager you still need to get out while the going is good! Is the point of this to heed what the chart is telling you? It often seems to be post hoc. Rather than single out WilsonHTM, I will say that I had fun on a Bloomberg terminal a couple weeks back looking at sell side analyst forecasts. Bloomberg presents them graphically on the stock chart. Anecdotally almost everyone I looked out had a terrible track record. So bad that the only way I could see to make money by following them was to do the exact opposite of what they say. All too often they upgrade near highs and downgrade near lows. I guess it is a tough job. It reminds me of my own recent atrocious record of selling calls on my long positions. AKAM and MMM (US companies) are about to make 4 out of 4 closing considerably above my sold calls. So perhaps people should simply buy the calls I'm selling! In my defense, when I sold the calls I was happy to sell all four and selling the covered calls maximised the potential profit at that time. Plus there's a big difference between leaving money on the table and being flat out wrong. If I had thought all four were going to go down I would have sold them straight out. I thought they were going up, just not as fast and furious as they did. PS Elders was below $1.20 yesterday as you foresaw. It was pretty clear some people did know, just have a look at the PSH price chart for the past couple of weeks. Great point Justin. Insider trading is rife in Australia, I saw it constantly when I was a business consultant. I use insider trading generically rather than legally. People inside companies know a lot more than the market and people love to show of their knowledge. Take PSH as an example. People inside both Amcor and Penrice would have known about the slow down in sales. As sure as I breathe that information would have been passed on to some people. Perhaps at the pub, perhaps over a casual conversation. “Hey Pete, how’s business? I heard you were slowing production.” For those of us on the outside we must hope that our careful analysis is right more often than wrong and that the inside information balances out by the swings and roundabouts. While people may profit on the occasion inside knowledge, unless you are a dodgy hedge fund manager systemically trading on inside information, then it is not a long term path to success. Actually even if you are a dodgy hedge fund manager you still need to get out while the going is good!

Is the point of this to heed what the chart is telling you? It often seems to be post hoc.

Rather than single out WilsonHTM, I will say that I had fun on a Bloomberg terminal a couple weeks back looking at sell side analyst forecasts. Bloomberg presents them graphically on the stock chart. Anecdotally almost everyone I looked out had a terrible track record. So bad that the only way I could see to make money by following them was to do the exact opposite of what they say. All too often they upgrade near highs and downgrade near lows. I guess it is a tough job. It reminds me of my own recent atrocious record of selling calls on my long positions. AKAM and MMM (US companies) are about to make 4 out of 4 closing considerably above my sold calls. So perhaps people should simply buy the calls I’m selling! In my defense, when I sold the calls I was happy to sell all four and selling the covered calls maximised the potential profit at that time. Plus there’s a big difference between leaving money on the table and being flat out wrong. If I had thought all four were going to go down I would have sold them straight out. I thought they were going up, just not as fast and furious as they did.

PS Elders was below $1.20 yesterday as you foresaw.

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