Wednesday, June 13, 2007

Playing the Devil's Advocate

In our last post a week ago, MOS pointed out Soundwill Holdings (878.HK) as trading at at least 60% to readily ascertained NAV. Despite pointing out the fundamental merits of the investment case, the write-up ended with a question on whether "such great bargains exist in the booming market today". MOS then went on to provide a short spiel about why the sharp discount to NAV may exist. As a result of playing the devil's advocate, we received several comments and emails questioning our apparently confusing position. Hence, we see this post as an opportune note to set the record straight.

An astute value investor may have noted that the factors listed were, by and large, macro-economic ones. As fundamental, bottom-up value investors, we pay scant attention to such economic factors. It's true that HIBOR has been and may trend further up. But to a fundamentalist, one can easily incorporate the sensitivity to interest rate changes when modeling the RNAV.

Regarding the factor on a possible market correction, it is unfortunate that our crystal ball isn't a nuclear powered one which will allow us to discern the future more clearly. Hence, our mantra generally is "as long as a clear bargain exists, anytime is a good time to buy". If time permits, we will expound on the foregoing with some data in future. But our general finding is that it is better to remain invested in the market to avoid missing out on the bull-runs. This statement is of course premised on one finding attractively priced securities to invest into.

So, the answer to last week's question is a resounding "Yes!" - such bargains can exist in the booming market today. In fact, we feel that a key to unlocking the value in Soundwill would be the rejuvenation of Tang Lung Street. But before you hit your broker's number on the speed dial, please note that this does not constitute any investment recommendation and investors should also do their own homework and know the risk factors. As Mr Munger always stresses - "Invert"; i.e., no security is perfect and know what can possibly go wrong.



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