The following is an excerpt from TwinPeak Capital’s Third Quarter Report.

In terms of specific securities within this quarter, we have entered and exited Koyo International, making a decent return of approximately 17%. On 18 January 2016, the share price of Koyo International crashed by more than 80% due to SGX releasing a statement, urging investors to trade with caution. For the past year, a group of investors have been responsible for the majority of volume traded, pushing the share price up from SGD0.05 to SGD0.40. Having been familiar with Koyo International’s fundamentals, we saw the recent collapse in price a good opportunity to initiate a position. At such valuations, the company trades at a discount to net current asset value with minimal debt. The key issue here is, does being slapped with a ‘Trade With Caution’ alert by SGX warrant a significant selldown of more than 80%? Stock selection requires a skilful balance between the facts of the past and possibilities of the future. As investors, we can never be fully certain of the future; hence, we have to bear and manage risks. While Koyo International was a company whose share price was once manipulated upwards, the fact remains that the current risk reward ratio is largely skewed to our advantage. Based on the above logic, we decided to initiate a small position in Koyo International. Over the course of 2 months, the stock remained fairly muted with thinly traded volumes. However, over the last few trading days, the share price spiked to the highs of SGD0.08 on large trading volumes. We decided to exit the stock at this time despite the fact that SGD 0.08 did not fully represent the fair value of the company because of the inherent risks. While our position may be small, it was still roughly 0.5% of the Koyo International’s market capitalisation. Our key concern was if we missed this opportunity, we would face the problem of exiting in future given the poor trading volumes. Hence, given the chance to exit the investment with a respectable return over a short span of time and trading volumes being in our favour, we felt that it was time to make an exit.

Lesson 1: Watching the Markets

Often in value investing, we learn that it is unlike trading where we have to constantly watch the markets. We are actually taught to detach ourselves and not check on the portfolio for a couple of days because it is all about the long term. We do agree with this statement; however, experience has taught us that daily monitoring of the stock market is still required. While we need not glue ourselves to the screen following the constantly fluctuations in the stock price, we should still check the markets a couple of times a day. The opportunity like the one mentioned in the excerpt couldn’t have been realised if we had not been monitoring the markets daily.

Lesson 2: Criteria for selling

Buying is easy, selling is hard. How do we know when to sell a stock? There are many considerations for selling; however, what we wish to focus on sharing here would be when stocks shoot up by > 20% in a day. We have witnessed such moments quite a number of times where the stock price can jump to even 40% (generally more so in Hong Kong than Singapore). Experience has taught us once again that if the stock price shot up by this magnitude and it is not backed by any known news, the smarter option is to sell the stock first. True, the stock may continue this large gains in the next few days. However, why bet on such an event where we do not know the probability of? It is akin to speculation. Moreover, it is like the Aesop theory about the bird in the hand and two birds in the bushes.

Fast Forward Today

Today the stock price has languished back to around SGD0.064 with low trading volumes. We would just like to highlight that the final outcome does not justify if we are right, but rather it is our thought process and logic that justifies if we are right. While we would like to think that our thought process is sound, we are open to criticisms. Hence, do feel free to share your thought process if you have a different one!


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