Investor: My 2 big misses -- STRACO and UMS

This article was recently published on Silly Investor's blog and is republished with permission.


BOTH Straco and UMS were on my radar screen when they were some 30% to 45% lower than their current prices.

That means I lost 50% to 90% of gains.  

I was alerted to Straco when it was trading at 28 cents. I owned UMS at 37.5 cents but sold early at 44 cents.  

It is perhaps important to review why I gave them a miss and learn some lessons.  

Shanghai Ocean Aquarium is the key operating asset of Straco Corp. Photo: www.shanghaifocus.com Straco Corporation: It is an S-chip, I had doubts about its numbers, especially when a blogger highlighted the low depreciation of its bio assets. The dividend yield then was rather weak, even when I projected a 50% growth in dividend payout.  But Straco's dividends more than doubled in 2 years.  Now we know that quite a bit of its cash is real, and its operations are real. Anyone can visit its Shanghai Ocean Aquarium. My mistake: I used trailing dividends.  I should have focused more on its FCF (free cashflow) generating capability, and the fact that it is growing.

UMS Holdings: Not an S-chip, it offered a dividend yield of more than 10% when I bought it.

I was aware of its FCF strength and the cyclical sector it is in. I was also aware of its heavy reliance on Applied Materials (AMAT) for profits. 

But I believed I got it with a good margin of safety.  

UMS manufactures components and systems for semiconductor equipment. Photo: Company

Why did I sell? Because the owners, Andy and company, were selling a significant stake in the company, and it was the second time they did it in a year.

The first selling sparked the price fall which allowed me to collect on the cheap.

I was still hanging on to my shares when the news broke, and then shortly it was announced that Andy’s wife would cease to be a director and would be reassigned a consultant role instead.

This move did not make sense to me -- how effective can an insider be as a consultant or is already not a consultant?

I decided to bail out.  

Well, on hindsight, it was a wrong call. I am fine with my decision as money not made is better than money lost.

But I think I will really should pay more attention to FCF growth, and if a stock sell-off is not too frequent or big such that the ownership of management comes into question, I should keep my steel.

FCF growth may or may not result in dividend growth, and it will take 1-2 years to find out how friendly management is to minority shareholders, but there is a good chance of higher dividends in both Straco and UMS as they are debt free.


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