Too Greedy about Yield : Hyflux 6% CPS




Yes, this has been one of the hottest topics recently “ Hyflux applies for court supervision to re-organize liabilities, businesses “ ( here ). Thousands of investors will be affected by this sudden collapsed of Hyflux, yes, including Me. Nobody knows how things will turn out eventually under this so-called “ debt’s restructuring “ but I think for sure it is not good for ordinary or preference shareholders who’s typically rank lower in term of debt’s seniority as compared to secured bank loans. Hundreds of millions of bond and perps securities holders will also be affected.

In anticipating for the worst, I will need to write off  $114,675.44 from my books as I am holding 1270 units of their 6% CPS.

Total cost = $117,816.81 - $3141.37 ( interest received on 25th April)

Enough of warning has been given by analysts, bloggers on the problems of Hyflux in servicing their loans ( including bonds/ perps / CPS ) due to the company’s inability to generate enough cash flow to pay for the interest. Therefore, we shouldn’t blame anyone except our self in ending up with such losses.



Yes, too greedy about the “ yield “ and bias of “overconfidence “ in hoping that they will be able to divest part of their asset to redeem the CPS once that been done. A series of “ confirmation biases “ caused me to just filtering the news/reports which I wanted to hear in believing that the company’s ability to redeem the CPS eventually.



Why didn’t you “cut loss “ when the price of 6%CPS drops to around $70? Yes, this is the problem of “ loss aversion “, it’s too painful to cut loss and we always end up in “ denial “ stage with self- illusion that hoping “ things is going to be alright “ …





But that’s not ‘Right “ at all as we should always remember that “ Stocks are Stories, Bonds are Mathematics “ ( here ), from mathematical points of view , it’s not difficult to see the RISK in buying those bond with such huge “discounted price  “ and double digits yield.


image credit to investopedian.com


Again,  it is our own fault by trying to analyze the bond with “Stories “ instead of “Mathematics “.

Hope this will be really a good lesson learned for me and all the bondholders out there…

Well, that’s life and no difference in the world of investing, not everything going to be smooth, there is always a “ hiccup “ from time to time and something to learn…..







Cheers !!

Comments

  1. B30 May 2018 at 16:35

    Hi STE

    Sorry to hear that from you but I am sure you made a good calculative decision when you took on this investment.

    Its easier to say on hindsight and you probably could have gone for safer investment but you never know how it turns out the way today.

    ReplyDelete
    Replies
    1. STE30 May 2018 at 17:10

      Hi B,
      Thanks for the kind words and encouragement , nevertheless , this is really a terrible "mistake " on chasing the "Yield " although on whatever calculation I have made on their " possibility " of early redemption of this CPS... "mistake is a mistake" , I would have to admit and put this down as record and reminder...
      Cheers !!

      Delete
    2. apenquotes30 May 2018 at 20:42

      STE,

      Painful to read. And I can totally understand how it feels about your points about 'confirmation biases' and risk aversion.

      Apenquotes

      Delete
    3. STE30 May 2018 at 21:19

      Hi Apenquotes,

      Yes, our brain is not good in handling such emotional and biases behavioral , I am sure this will not be the last . Well , we will need to keep learning and remind ourselves about that...
      Cheers !!

      Delete
  2. Sillyinvestor30 May 2018 at 19:50

    Hi STE,

    Hope the restructuring works well, and most probably it would. Just not sure how big is the haircut.

    Anyway, your mental strength is strong. I would go bonkers le. I say this with respect

    ReplyDelete
    Replies
    1. STE30 May 2018 at 21:14

      Hi Sillyinvestors,
      Thanks for the comments and kind words , yes , that's really painful and need strong mental , but I would say this is still within my overall risk tolerance , life goes on ...
      Cheers ! ;)

      Delete
    2. STE30 May 2018 at 21:27

      Also, in any " debts restructuring " , the haircut will be huge , so I will just preparing for the worst ... :(
      Cheers !!

      Delete
  3. SGDividends30 May 2018 at 20:04

    Thanks for sharing .

    It's good to expect the worst now as it can't get much worse :)

    ReplyDelete
    Replies
    1. STE30 May 2018 at 21:12

      Hi SGDividend,

      Thanks for the comments , yah ! I am expecting the worst ...that's the Risk I would have to bear when buying into such risky asset at that moment.
      Cheers !

      Delete
  4. My Investment Machine30 May 2018 at 21:25

    Hi STE,

    Thanks for sharing the learning points from this. I need to learn to cut lose too and not get too attached to certain shares.

    ReplyDelete
    Replies
    1. STE30 May 2018 at 23:55

      Hi My Investment Machine,

      Yes! indeed , is really hard to learn how to " cut loss " , as you said , we are too attached to stocks we have or own which is part of " endowment effect " that make us hold to what we have , of course together with " loss aversion" ...
      The most important things is "lesson learnt "..
      Cheers !!

      Delete
  5. ThumbTack Investor31 May 2018 at 01:20

    Hi STE
    Although I agree that you should write off the entire investment to be conservative, I think at the end of the day, it won't be a 100% write off: you'd likely get back something after the restructuring and/or if someone bails out Tuas Spring.
    So, haircut yes, but not a complete write off
    (If it involves a court managed bankruptcy, it'd take a looooong time before there's resolution though)
    Cheers

    ReplyDelete
    Replies
    1. STE31 May 2018 at 07:53

      Hi TTI,
      Thanks for the comments, yes, it will be a long process and huge haircut expected eventually as CPS rank much lower in term of seniority among the debts.
      Anyway, it will be a waiting game from now...
      Cheers ! :D

      Delete
  6. Cory31 May 2018 at 08:01

    Sorry and painful to hear the write off. I think you will have something after. I did a cutloss last July with a much smaller size.than yours. Few hundreds dollar fee.

    ReplyDelete
    Replies
    1. STE31 May 2018 at 11:54

      Hi Cory,
      Glad to know that you did a cut loss on your holding , yup.. hope could get something back eventually , but I think the amount will be negligible and small ...well , better than nothing if we have!! :D
      Cheers !!

      Delete
  7. INTJ31 May 2018 at 14:16

    Hi STE

    I am not too familiar with quasi debt equity. What are the possible good and bad outcomes that will surface from this debt restructuring?
    Will you hold or sell away when the court proceedings ended? It is good to form your own independent judgement than be too swept up by negative market sentiment.

    ReplyDelete
    Replies
    1. STE31 May 2018 at 22:55

      Hi INTJ,
      Thanks for the comments , yes , nobody seems to know what will be the out come , but it tend towards high possibility of "bad and worse " which I am prepared for ...
      I shall see what will be the offer ( in case there is any) and decide to hold or sell eventually..
      Cheers !!

      Delete
  8. SA FINANCE1 June 2018 at 01:10

    Hi STE,

    There could be a possibility that GIC or Temasek could come in either as a strategic investor or perhaps buying over the Tuas plant.

    So thou there will be definitely be a haircut but likely not all is lost. Lots of retail investors are in it so there should hopefully be a resolution after the restructuring.


    ReplyDelete
    Replies
    1. STE1 June 2018 at 07:06

      Hi SA FINANCE,
      Yup, that’s also one of the possibility, I think we would have to just keep our fingers crossed and hope for the best.
      Thanks for the comments..
      Cheers! :D

      Delete

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