I Picked Bradken, Did Anyone Else?

Just to recap, back in 2016 I mentioned Bradken three times.

I first mentioned them at 84 cents here...http://kenhorlor.blogspot.com/2016/04/risky-asx-stcoks-worth-checking-out.html

Then I followed up in June http://kenhorlor.blogspot.com/2016/06/advantages-of-investing-in-stocks.html and November http://kenhorlor.blogspot.com/2016/11/update-advantages-of-investing-in-stocks.html

Note that in October 2016 Bradken came under takeover interest by Hitachi Construction Machinery and the full sale was completed in early 2017. Any investor acting upon my initial pick at 84 cents, would have nearly quadrupled their money. The sale price was $3.25 (Australian Dollars).

My hypothetical $135,000 invested in Bradken would be $513,000 less than a year later. Sometimes I even surprise myself with this stuff.

Investing in a Container

Sensible or a scam? I've received an email from someone wanting to know, does it make sense to invest in a shipping container, managed offshore by some company with a dubious reputation.

The short answer is, it makes no sense at all. But not for the reason you may be thinking, that it's all a scam and whoever is selling you the idea is going to run off with your money (but they might, you have to be careful). Container transportation has been around for a while and these containers do have numbers and they can be insured. Large companies do own fleets of them and they do manage containers as well. If you buy one or many, this container will disappear into the fleet and become just another number, being hired out to house cargo travelling the world.

But what happens to that container when no longer needed or the management company goes bust? At worst you'll lose the container all together, but the best that may happen is you'll have to pay for it to be delivered to you and then what will you do with it? It gets worse if you own several.

There are many angles, claiming depreciation on the container, whether the container is leased long term to a shipping company, what condition it is maintained in, how it is handled and what kind of container exactly; high cube, flat rack, 20 foot, 40 foot, open sided, open topped, all these have a demand and risk factor attached and differing returns.

Why do this to yourself when you can simply invest in a container company? For the purpose of illustration, consider Royal Wolf who are listed on the Australian Securities Exchange:

https://www.google.com/finance?cid=8109809

Currently they sit on a dividend yield of 3.70%, with a market capitalisation of AUS$135 million. They're active selling and hiring out containers and with a P/E of 18.33 are not expensive by any means. I'd suggest that investing in this company would be safer and provide returns that are better than directly owning the container itself. Think capital gains. But heh, I'm not pumping this stock, just pointing out there are safer ways to go that would be more financially rewarding.

Portfolio Performance

It's been a year since I posted my portfolio on this blog. As a whole the portfolio is up 54%, with Oshkosh up 107%. Two other favourites of mine, Trinity Industries and Caterpillar are also up more than 70%.  If you want more picks like these then I suggest my readers subscribe to the Stock Tip Hotline.

Check out the portfolio here http://www.siliconinvestor.com/portfolio.aspx?fid=521

Stock Tip Hotline explained here http://kenhorlor.blogspot.com/p/stock-tip-hotline_18.html

We are investing now as well, so if you've got a good business to sell, let me know. Even if it doesn't meet our strict requirements, we may offer the business on our blog to our very wide readership.

Investing now explained here http://kenhorlor.blogspot.com/p/investment.html

Case Study: Martin Jetpack vs Fletcher Building

I often get asked, what do I avoid when investing in a company. My answer goes something like, I avoid dogs and lemons. Which brings me to these two companies, Martin Jetpack and Fletcher Building. They're both New Zealand businesses, the former being listed on the Australian Securities Exchange (ASX MJP), while the latter is listed on both the ASX and NZX (ASX FBU).

First things first, Martin Jetpack is not a jet. It's a contraption which one pilot flies while strapped into. The product can best be described as hype. An early version of the contraption flew at Oshkosh in 2008 and I'm informed the reaction from onlookers there was a wide yawn. They'd seen this before with the SoloTrek XFV which flew back in 2001 some seven years earlier.

The inventor wanted everyone to believe he'd worked on his flying thing for 30 years from his garage in the suburbs of Christchurch, but this assertion was never independently verified. It is truly incredible to think that shareholder money went into this thing. It has yet to enter commercial production and I'm not even sure if anyone outside the company has flown it (put under independent scrutiny). My bet is it will never enter commercial production and if it does the company will promptly go bust as it is a silly proposition with little or no practical use.

Then we have Fletcher Building. This is a large business which carries out wide scale construction projects, and it is NZ's only locally based manufacturer of cement. When the Christchurch earthquakes hit, the only company capable of a rebuild that big was Fletcher Building.

You know Formica, everyone knows what Formica is, well Fletcher own it, and Laminex as well. Get the idea? Fletcher has fingers in many pies. Having said this though, Fletcher does tend to underperform and that's why I own no part of it, but that could change, and here's why: its share price fell 10% in one day on Monday and continues to fall. This is because of a profit downgrade due to cost overruns on two large projects. Construction is a risky business and they've been burned. But heck, 10% off the value in one day?

That's right, completely silly businesses like Martin Jetpack, which has never made anything useful and likely never will, ride up to $1.25 highs then plunge to 14 cents today. Then a solid company like Fletcher is punished harshly for business as usual.

What I'm saying is the market overreacts. It panics on bad news and gets all excited about hype. All commonsense seems to fly out the window. Fletcher Building are a solid buy, Martin Jetpack a joke.

Update: Advantages of Investing in Stocks

I have pointed out how investing in stocks or shares can achieve outstanding returns. I tipped Bradken (ASX: BKN) back then, you can read about it here >>>http://kenhorlor.blogspot.com/2016/06/advantages-of-investing-in-stocks.html

Check out Bradken now; AUS$3.19

Jan 21 they were AUS$0.38

Jun 9 they were AUS$1.22

As at Nov 30...they are AUS$3.19

That's just one year; AUS$50,000 invested upon my tip on June 10, would have acquired 40,000 shares (rounding and allowing for brokerage and such), and that stake would now be worth AUS$127,600.

Also, check my portfolio tracker, now up 48% this year. http://www.siliconinvestor.com/portfolio.aspx?fid=521

My favourites, Oshkosh (NYSE: OSK ) and Trinity Industries (NYSE: TRN)  are up 103% and 72% respectively

Advantages of Investing in Stocks

New Zealanders are obsessed with real estate. Apart from a few savings in the bank, that's about all they invest in, be it their own home or home plus other property as an investment. Residential rental makes up a large proportion of the latter.

With the just announced bank restrictions on financing available to investors, it's possible they may look to the share market. If they do, there are several advantages over direct personal investment in real estate:-

1. It's a relatively passive form of investment (this is not to say you turn your brain off and don't let the company know what you think). With real estate you need to be concerned about maintenance, paying rates, insurance, making mortgage payments, finding tenants - the list goes on. 

2. Gains can be outstanding and so long as you don't buy with the intent to sell, then like real estate investment the capital gains are tax free. With real estate, over time, the gains are definitely there, but do those gains all occur within a year? You can do that in stocks. But like deciding which property to buy you need to do your research and be satisfied that the company you're investing in, and becoming part-owner of along with all those other shareholders, is well managed and has prospects. 

3. You can adjust your portfolio and do it easily. By that I mean, if you own the shares, you can sell as many of them as you like if you choose to (any marketable parcel). Can you sell half of that house you rent out? Or sell doors and windows? And if you can you need to get your hands dirty, and if selling the building you need a lawyer and likely an agent. Then if subdividing the property there are tax implications.

4. Income from dividends, return of capital, bonus issues and dividend reinvestment schemes make the returns often better than real estate.

Think about it, but beware, I think the most important thing is to be disciplined. The share market is a roller coaster and you need to think for yourself and be prepared to go in the opposite direction to the herd. That is, buy when everyone is selling and sell when everyone is buying.

An example of what is possible:-

ASX Bradken (BRK)

Jan 21 - they were at Aus$0.38 

Jun 9 - they closed at Aus$1.22

You'd find it hard to triple your money in months in real estate. Some bright spark will point out, no doubt, that the above company is losing money and having to restructure. And they'd be right. But think about this, the company is not going to disappear overnight and if it fails will be gobbled up by someone else. It's a pretty solid company, not fly-by-night stuff.

Our bright spark will rightly reply that with investment real estate, you get the advantage of mortgage gearing and the tenant pays off the mortgage.  How does mortgage gearing work? Well, the lender is not participating in the asset, they're just lending the investor money and charging for it while keeping the real estate as security. If you buy a $450,000 house and put in the minimum amount of equity, say, $135,000 and the property rises 10% in value during the first year, you book a $45,000 profit (at least on paper). Rounded down that's a 33% return on that $135,000. All the capital gains are yours.

This all sounds good and it looks like real estate is by far the better bet. But think about this - while things are going great, real estate is a sure-fire winner, but as an investor it is you with everything on the line. If the market tanks, you still have that mortgage to pay back. If you can't find tenants, tough, you still have to pay the mortgage. Everyone thinks of the times when things are going great and they never think about what may happen if things go wrong.

I think this is where investing in the companies listed on the share market comes into its own. If things go bad, you have no ongoing obligation to anyone so long as you haven't borrowed to buy those shares. You may have to forgo a dividend, or wait for the company to recover, or even sell at a loss, but that's where your obligations end. The company may ask for a further contribution, a rights issue, but you're never compelled to invest in those (they're often a very good idea by the way).

If we go back to our $135,000 equity example above, it's hard to get that 33% return on the share market across the whole portfolio. But get this, you also have far less risk than with real estate. If you apply the time honoured principle of compounding your investment, by reinvesting capital gains when realised, participating in dividend reinvestment schemes, buying shares offered in a rights issues, and taking your dividend income and reinvesting part of that (I'm assuming at least some of the dividend income is used to pay expenses, such as brokerage when due), then I'm sure returns can be better than real estate investment.

Whatever you do, my own experience of using advisers is they're often useless. My advice is use your own research, like you would when buying a house, know the market and what you want. What company do you like and why?

Risky ASX Stocks Worth Checking Out

These two companies have had serious issues of late, but they're worth a look. They're in Australia and listed on the Australian Securities Exchange:-

1. Bradken

They've been impacted by the mining collapse. They're a foundry and general engineering business, making railway equipment and the like. I call these stocks metal bashing industries.

No dividend, they don't make money. This stock is a total punt. When doing well though you can expect a price over AUS $6.00. From their current 84 cents, that's a staggering return if you're lucky.

2. Macmahon

Macmahon has also been impacted by the mining collapse. Their business is providing mining services. They're the contractor on site actually doing the work. They have the mining machines; drill and blast, crushing and screening, materials handling, mine planning, you name it. From the current 12 cents, if they come back (they may not, be warned), you're looking at a price in excess of a dollar.

These stocks do not afford the investor any margin of safety. They're a gamble. Check them out as I think you'll find they're better than you expected.

[Update @ 24 March 2019; I see people are now seeing this post from years back, check this: Macmahon are still a punt at 23 cents (100% gain from my tip), while Bradken were taken over by Hitachi for $3.25 per share, which is a gain from the tip of 386% = beat that!!]