My investment style when I first started investing can be described with two words: guess work. I randomly picked on a stock that I liked and hoped it will go up in price. When it did, I felt smart and when it didn’t,I blamed something else. However, after years, I found a particular style that I am quite comfortable with; investing in companies where everyone else hates. This is a case study of how I go about making such an investment.
The Other OSIM
OSIM International (OSIM: SP) is the market leader of lifestyle products such as massage equipment, fitness equipment and diagnostic equipment. It has been a darling of the stock market since its recovery from the global financial crisis. As its share price continues to climb, its biggest competitor OTO Holdings (6880: HK) IPO at the end of 2011. Although OSIM shares continue to do well even today, it was never a share I would feel comfortable investing in after I came across it in 2012. I always believed in managing expectation when investing and investors have some huge expectations for OSIM which I find myself hard to agree to.
On the other hand, in late 2012, OTO Holdings’ shares have dropped more than 65% from its IPO price of HK$1.58 per share to about HK$0.50 per share. It might have been affected by the fact that the management announced a profit warning right after the IPO but had projected good growth in its IPO prospectus. It is hard to comprehend how management can get it wrong so badly. Investors started to abandon the shares. Investors hated it so much that the company is trading below its net cash value of HK$0.63 per share at that time. This is for a company that is still profitable, growing (over the long term), and located in one of the largest consumer market in the world.
I bought into the company at the end of 2012. However, the ride has not been smooth; the shares rallied and fell over a few cycles in such a short period of time. However, over the course of the investment, the fundamental of the companies has not changed. In fact, things are getting better over the past 18 months. Seeing the turnaround as a more possible scenario, investors started to take notice of the company again.
I sold out of it after there have been indications that OTO might became a possible acquisition target. OTO Holdings roughly gained 100% from my entry price while OSIM advanced about 50% during the same period. Although I sold out for a few reasons, the main takeaway from this investment is this;
1) Buying into an “OK” company when others have low expectation can be profitable. Sometimes more profitable than buying a “good” company haunted by huge expectations
2) The turnaround might take years and require a little bit of luck on the investors’ side
3) Never fall in love with a turnaround investment, you invested in hope for an event, once it materialized, you should consider taking profit
Value In Action
Investing is very much a personal exploration process. I do not invest only using one method but this is just one of the methods that I am more comfortable with. Similarly, you do not need to copy this strategy to be a successful investor. Investing is comparable to martial arts, there is never a technique that is better than another, there is only a difference in skill between the practitioners. All you have to do is to experiment with different strategies until you find one that you are comfortable with.Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies![contact-form-7 404 "Not Found"] We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim do not own any shares in the companies mentioned above.