Sale of AEM Holdings and Purchase of QAF Limited

On 9/5/17, I sold off most of my stake in AEM Holdings at a price of $2.63. Due to the 1 for 2 bonus issue, my average cost was $0.58. This gave me a return of ~352% in a span of approximately 4 months. AEM had a really good run, and was my first 4-bagger. I sold most of my shares off as it made up a significant proportion in my portfolio and I wanted to rebalance it. With that, the remaining shares in AEM are free-of-cost.

On the same day, I bought a small stake into QAF at a price of $1.38. Not many would know of the company, but I’m sure many would have heard or eaten its “Gardenia” brand of breads. I have always wanted to own a piece of QAF, having been a consumer of its products since young. However, I have always steered away as I was not comfortable with its business in primary production. Rivalea, its business unit, is the largest producer of pork meat in Australia, and also a large exporter of pork products internationally. I admit there are economies of scale being the largest in the country and also by having a vertically integrated operation, but I feel that the business is afterall a commodity business. It is still a price taker, and the volatility in feed and sow prices can make or break a quarter. Returns on agricultural businesses aren’t fantastic, as usually huge assets (land, machinery) are required to make such an operation sustainable. Thus, when the company announced that it was conducting a strategic review pertaining to Rivalea through a full sale or a listing, my eyes lit up. I believe QAF would be a leaner and stronger business if it focuses more on the expansion of its bakery business in the near future. Competition is intense, but I’m confident the strong brand of its Gardenia products would help it grow. At my purchase price of $1.38, the company is trading at a PE of 13 and yielding 3.62%, assuming a yearly distribution of $0.05. I nibbled for this stock, as it is still not considered cheap to me. Nevertheless, I’m sure the bread would taste even better now. 🙂

 

 

Disclaimer: The author owns shares in the abovementioned company. The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.

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The Most Important Thing: Uncommon Sense for the Thoughtful Investor


The Most Important Thing by Howard Marks has changed my perception of risk and made me question my investing style. In it, he espouses second-level thinking and prefers defensive investing to offensive investing. He elaborates on the need to be aware and attentive of cycles and the oscillating pendulum between euphoria and extreme pessimism. He also believes in the appreciating the role of luck in our investments and the importance of knowing what we do not know, and as such avoiding pitfalls. To him, lower returns taken with much less risks is always preferred to higher returns achieved by taking on larger risks. He deems it a success if Oaktree (his fund) keeps up with the market during bull years, but outperforms during the bear years. Oaktree Capital Management specializes in off-the-beaten-path and contrarian investments, and favors companies with tangible assets. The firm’s motto is “if we avoid the losers, the winners will take care of themselves.”

This is a very enlightening book, especially for young investors like myself, who lack the experience in the market. It gives one a new perspective on risk and returns, and I would highly encourage any investor looking to refine their thought process to read it. As a person whom Warren Buffet once said, “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something, and that goes double for his book”, I am confident the reader of The Most Important Thing would similarly take back nuggets of wisdom from it.