Is market becoming overcrowded?

[Nick]

Thanks Nextwave for the highly educational posting on how companies are structured pre-listing.

I believe the key lesson here is Management track record. It is always best to be a little wary of any company with less than 5 years worth of operating history post-listing. I think 5 years is good enough to judge the quality of the Management based on their ability to make earning accretive investment while keeping the balance sheet in order. Their past actions like regular dividend payment and equity fund raising exercises should be a good indicator of whether they have shareholder's interest in mind. It is nearly impossible to make such a call when a company has less than 2 years worth of data post-listing. Such companies are highly speculative and should be valued as such.

I am not saying that we should ultimately avoid any companies with a short track record - instead we must understand the risk and value the company with that in mind.

[dydx]

We cannot say all S-chips are not worthy as potential good investments. As well, we cannot just use the lower cost of the founders' shares or that of those pre-IPO investors, to conclude that a listed counter's shares are priced unreasonably high, therefore not worth investing into at all.

Well, the business of investing should be to firstly, look for safe and good enough businesses run by at least decent and motivated people, and secondly, only buy into it at an attractive or safe enough price.

I am sure among the many S-chips there are quite a few good enough businesses run by at least decent and motivated people. We just have to look for them, and be prepared to put in a bit more hard work to understand their different market dynamics and risks, cross-cultural thinking, etc.

The lower cost of the founders' shares or that of those pre-IPO investors is really historical, and must be viewed upon based on the different risks and circumstances when they first invested in the earlier development or phases of the business.

[kazukirai]

Well, the business of investing should be to firstly, look for safe and good enough businesses run by at least decent and motivated people, and secondly, only buy into it at an attractive or safe enough price.

Well-said.

We cannot say all S-chips are not worthy as potential good investments. As well, we cannot just use the lower cost of the founders' shares or that of those pre-IPO investors, to conclude that a listed counter's shares are priced unreasonably high, therefore not worth investing into at all.
I am sure among the many S-chips there are quite a few good enough businesses run by at least decent and motivated people. We just have to look for them, and be prepared to put in a bit more hard work to understand their different market dynamics and risks, cross-cultural thinking, etc.

The lower cost of the founders' shares or that of those pre-IPO investors is really historical, and must be viewed upon based on the different risks and circumstances when they first invested in the earlier development or phases of the business.

Note: Not saying that anyone here is right or wrong but just posting to add clarity to the discussion.

I think Nextwave's comments were in relation to the strength of the balance sheets and the suspect nature of the pre-IPO investors. I believe his use of China Eratat- an S-ship was just an example. After all, there have also been discussions here on Amtek's re-listing which was highly suspect as a way for Private Equity to cash out so it's definitely not just S-chips which are suspect.

[Musicwhiz]

Hi all,

I personally think there is a limit to how much Due D and scuttlebutt one can do, as sometimes it is impossible to avoid fraud or to detect that something fishy is going on. While I do agree with dydx that there are many honest businessmen just trying to make a living (and a name for themselves), there are also others who are greedy and even worse, those who are out to cheat the general public.

Analyzing financial statements and numbers alone is insufficient for us to form a complete picture. There has to be face to face interaction and also observation of corporate activities before one can make any conclusions; and even then we must leave some margin for error.

[mikh]

Agree with MW. Many of us would have heard about creative accounting. I feel that mgmt motivation, expertise and majority shareholder strategic intents, ethics, background are rather important for smaller investors like us. A bit of these can be discerned by attending AGMs, historical observations, while if we forumers share what we learn about the corporate activities helps. Perhaps we rely too much on numbers simply because that's what is more easily available and are more definitive.

MW, if this thread continies OT, not sure if you want to do some shifting and re-alignment