And so, I booked my biggest loss in SGX and sold off Triyards.
And what happened? What was my investment thesis and what went wrong?
I entered in early 2016 based on low P/B hoping for a turnaround and based on analysts report. And when it dropped further, I entered twice. My rationale behind it was the shipping industry had shown signs of picking up. There are now more ship owners asking to build new vessels. And the industry looks like it might turn around in late 2017/2018.
And I was wrong.
So what was wrong?
- I failed to analyse their economic moat. In their latest earnings release statement (Jul 17), their margins were hurt. They did not have a competitive advantage and faced with strong competition.
- I had loss aversion bias and averaged down in hope of recovery. That’s a bad strategy when there’s no near term turnaround in sight.
- The low P/B strategy did not work out. There was an impairment charge to the assets and that was one of my primary reasons for selling it out. There’s a possibility that some companies might buy over Triyards but I would not want to place too high hopes for that when the industry is still in consolidating phase and there’s no significant growth of orders in the industry. Another reason that I sold out was a rise in accounts receivables with a reduction in operating cash.
- Watch loss aversion bias!!
- Economic moat matters
- Macroeconomic turnaround takes time