TGA - Thorn Group

[Klogg]

I have no preference for stocks that carry social stigma - just battered down, dumped, dirt cheap stocks like TGA.

You might have read Peter Lynch's One Up on Wall Street. If not, it's a great investment book and I highly recommend it. Lynch bought stocks in the kinds of industries that you mentioned. If memory serves, they included funeral homes (like IVC) and toxic waste disposal companies (like TOX). Other big winners for Lynch were pizza delivery businesses, motels and discount chain stores like TRS. I read One Up on Wall Street years ago, so when TRS, IVC and DMP first listed I should have jumped on board, since the likelihood of them outperforming was, according to Lynch, high. Moreover, they are business that were and are easy to understand. But it's true, as Buffett says, that one's biggest investment mistakes are typically ones of omission rather than of commission.

I've read that book - I personally prefer Security Analysis as it takes a far more subjective view and is more detailed on the financial side.


Also, as for 'forecasting' (I use the term loosely) 5years ahead, sometimes its not possible, but sometimes it is. I don't pretend to know figures for TGA 5years from now, but given TGA's standing (loans on the books, new areas, repeated use of core offerings, strong financial position), it's very hard to see the company going backwards. In short, the risks bother me (but have been virtually ruled out), the uncertainties do not.

 

[Nutmeg]

I've read that book - I personally prefer Security Analysis as it takes a far more subjective view and is more detailed on the financial side.

Don't you mean objective? I agree that Security Analysis is probably the greatest book on, well, security analysis ever written. One Up On Wall Street is more like an entertaining anecdote of a great investor. But it is still very insightful.

 

[Klogg]

Don't you mean objective? I agree that Security Analysis is probably the greatest book on, well, security analysis ever written. One Up On Wall Street is more like an entertaining anecdote of a great investor. But it is still very insightful.

Sorry, yes. I did mean objective.

 

[odds-on]

I like stocks whose business carries social stigma.

Me too. The market sometimes prices them as if they are not going to survive to the end of the financial year yet they have solid profitable operating histories and recurring revenues. Investing in them is the gentleman’s way to make money on the stock market. Buy then wait for those pesky momentum ruffians to appear 6 months down the line and flog the lot to them.

 

[CanOz]

Investing in them is the gentleman’s way to make money on the stock market. B

LOL, as opposed to what other way to make money on the stock market?

CanOz

 

[McCoy Pauley]

With respect, Nutmeg, I don't see the point in trying to envisage the future of a business in 5 years' time, however strong and "permanent" their business model may appear at present. Too much happens, too quickly, these days for that to be a reliable way to invest.

Just IMO, of course.

As I posted earlier on this thread, I admire the investment philosophy of Warren Buffett. If the books written by his ex-daughter in law are accurate, the basis of his investment philosophy seems to be to identify those businesses where the future of a business in 10 years time is relatively predictable, especially compared to other companies. This is based on the past performance of the company over the previous 10 years.

Of course, the share price of Berkshire Hathaway hasn't been as stellar in the last few years as it has been over the journey, so perhaps your comment may be more applicable now than in the past.

Still, there is a simplicity to TGA's business model that is quite appealing compared to some other companies offering investment opportunities in Australia's market.

 

[recruit2]

Kind of surprising that the May 22 news hasn't at least kicked up the price of TGA even a little bit.

In the mean time, I'm happy to scoop up the great dividends, so no rush, happy to hold and wait...

 

[craft]

Well...

You are able to make a decision to hold your business in the absence of a price chart.

Perhaps others are able to do that as well despite the presence of a price chart?

Very well put post SKC.

Ben Graham first published the Mr Market parable in 1949.

The more things change the more they stay the same. The Psychological issues don’t seem to have changed one little bit.

 

[tech/a]

Well...

You are able to make a decision to hold your business in the absence of a price chart.

Perhaps others are able to do that as well despite the presence of a price chart?

Very well put post SKC.

Ben Graham first published the Mr Market parable in 1949.

The more things change the more they stay the same. The Psychological issues don’t seem to have changed one little bit.

I don't know about it being very well put.

Firstly I own the business not just a small slice of it.
I have a level of control not available to investors.
I can expand or contract the business,hire,fire,liquidate
Or appropriate,I have daily access to cash flows and order book.
I have total control.
But with that I can't open up my computer click on a mouse and sell
It as I can see a down turn coming.

If your an investor in TGA you can of course mitigate your risk
By simply clicking the mouse.

I'm not knocking any investor in any stock who makes a value judgment
What I am doing is pointing out the folly of those who pig headedly
Remain with their valuation while their investment decimates their capital base.
If price falls below their " great opportunity to buy at this price "
Level they can click the mouse and take a baby loss and " buy at an even better "
Price when market conditions see their investment consolidate or move forward.

It's not those who buy at the levels TGA trades at today I'm targeting but those who bought at $2+ and just held and held.

My point is purely RISK MITIGATION something that gets shot down in all cases where I've made the point. Value investors appear to believe they are immune to risk and loss----purely because they have a valuation that they believe will hold them in profit on the long run.

I've NEVER seen on any threads here a down grade by a holding investor of their valuation----and hence a closing of a position!

Truth is I suspect--- The capital LOSS becomes that painful that they believe they have no option other than holding.

Carry on.

 

[skc]

I don't know about it being very well put.

Firstly I own the business not just a small slice of it.
I have a level of control not available to investors.
I can expand or contract the business,hire,fire,liquidate
Or appropriate,I have daily access to cash flows and order book.
I have total control.
But with that I can't open up my computer click on a mouse and sell
It as I can see a down turn coming.

If your an investor in TGA you can of course mitigate your risk
By simply clicking the mouse.

I would argue that the premium of control is more than offset by the lack of liquidity, but that's besides the point. It seems we've agreed that it is possible and rational to buy/hold/sell a business without looking at its price.

I'm not knocking any investor in any stock who makes a value judgment

Yet below you seem to suggest that, since the market price is $1.48, anyone consider fair value to be $2.30 must be wrong. And if they don't admit they are wrong they are pigheaded.

You and a few here have considered fair value to be $2.30.
Given that all is now known with regard to TGA.
Why is fair value NOT $1.48?
Thats what the market prices it at.
Why should anyone consider a higher value is warrented.
Given that ALL is now currently known about TGA.

What would make you sell/exit your business? Perhaps there are many variables you'd look at - but it is not possible for you to make that decision based on the last transaction price, given that your business is not listed. Now assume your business is listed and has a ask/bid price - why would that change your approach suddenly?

And with regards to "decimated capital base"... the share price has fallen from $2.30 to $1.50... that's ~35% fall. Have you ever experienced a 35% peak-to-trough equity drawdown in your trading? Did you cut your loss and quit trading, or did you review your trading methods and systems to make sure you are still happy with continuing (i.e. holding your trading business depsite the "price" drop)?

Everyone's valuation of TGA here may very well be wrong. But that will not be because of what the market price is. Based on the latest annual report, I personally don't consider it irrational to continue to hold. The same cannot be said for some other threads (PEN, RED), but TGA is not in the same bucket based on the last report.

P.S. Most questions are essentially rhetorical so really don't need to respond to them specifically unless you have a few more hours to kill.

P.P.S. I don't have too many hours to kill so forgive me if I don't get to respond to your respond specifically.

 

[Klogg]

It's not those who buy at the levels TGA trades at today I'm targeting but those who bought at $2+ and just held and held.

I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.

That being said, if this thing dropped to $1 without any fundamental changes to the business, I would continue to hold my shares (average price of $1.55) and keep topping up. (Ofcourse, at that point you'd be looking at an ~10% FF dividend and a very nice NTA/share value)

 

[tech/a]

I would argue that the premium of control is more than offset by the lack of liquidity, but that's besides the point. It seems we've agreed that it is possible and rational to buy/hold/sell a business without looking at its price.

Yes of course it is but I don think it's the smartest thing to do.

Yet below you seem to suggest that, since the market price is $1.48, anyone consider fair value to be $2.30 must be wrong. And if they don't admit they are wrong they are pigheaded.

If they haven't taken steps to mitigate risk and had stood by and watched price sail down through their buy price yet still hold on --- yeh

What would make you sell/exit your business? Perhaps there are many variables you'd look at - but it is not possible for you to make that decision based on the last transaction price, given that your business is not listed. Now assume your business is listed and has a ask/bid price - why would that change your approach suddenly?

If I held shares in my company or shares were a patr of my package I'd sell so.
Many directors do--- they don't hang on doggedly so do many major investors in listed companies.

And with regards to "decimated capital base"... the share price has fallen from $2.30 to $1.50... that's ~35% fall. Have you ever experienced a 35% peak-to-trough equity drawdown in your trading? Did you cut your loss and quit trading, or did you review your trading methods and systems to make sure you are still happy with continuing (i.e. holding your trading business depsite the "price" drop)?

19% from memory. Yes I'd did and have exited the market in total--- for position trading and it's recorded in the discussions back in 2008 in the XAO, XJO threads.
I am trading a very small.

Everyone's valuation of TGA here may very well be wrong. But that will not be because of what the market price is. Based on the latest annual report, I personally don't consider it irrational to continue to hold. The same cannot be said for some other threads (PEN, RED), but TGA is not in the same bucket based on the last report.

P.S. Most questions are essentially rhetorical so really don't need to respond to them specifically unless you have a few more hours to kill.

P.P.S. I don't have too many hours to kill so forgive me if I don't get to respond to your respond specifically.

Really
So you've never seen a stock with a price that's way way over valuation?
Remember Davnet.
So you wouldn't participate in a stock which is going to the moon without fundamental reason?
I'm old enough to remember Posiden.
All I'm saying is participate and value stock however you like just don't throw risk mitigation out the window
I'm sure every fundamental buy and hold value seeking trader could dramatically
Increase their profitability by taking care of risk,rather than denying it.

 

[tech/a]

I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.

That being said, if this thing dropped to $1 without any fundamental changes to the business, I would continue to hold my shares (average price of $1.55) and keep topping up. (Ofcourse, at that point you'd be looking at an ~10% FF dividend and a very nice NTA/share value)

So let's say you had a stop at a 10% drop from $ 2
What would your average price be now and how many more shares could you buy if it did go to $1
You can't tell me your maths wouldn't be much better!

 

[craft]

I'm sure every fundamental buy and hold value seeking trader could dramatically
Increase their [profitability] by taking care of risk,rather than denying it.

Price volatility is as much opportunity as risk.

How about digging us out a technical system for trading TGA since listing and then work out the result from taking ‘every’ signal.

What ever parameter you like. Your choice and you have all the historical data to curve fit it to. - All I ask is that you apply your chosen parameter(s) consistently over the entire data set not just cherry pick the last decline.

I'm sure you know what I meant - I think you are just stalling/deflecting.

Whilst we wait for Tech to show us a systematically system to trade TGA I thought I would run the numbers for a buy and hold approach.

The IPO price was 0.50 but I will use the very first trade price as the entry. It opened on 13/12/06 at 71 cents.

Since then it has paid fully franked dividends of 28.83 cents.

Closing Price on Friday was $1.42.

Crunching the numbers the IRR is a CAGR of 19.29% or 21.71% on a grossed up basis

If we had invested 100K on the first day of trading we would have an unrealised gain of 100K today. This is effectively a no interest loan from the government unless we sell out and trigger a CGT event.


There was a renounceable rights offer in July 2011. Those rights were tradable on the ASX and would have had some value – I don’t know what that was, so have not included – but that would bump the IRR up a bit.


Eagerly awaiting your results - get those back testing computers buzzing.

Still waiting.

 

[Klogg]

So let's say you had a stop at a 10% drop from $ 2
What would your average price be now and how many more shares could you buy if it did go to $1
You can't tell me your maths wouldn't be much better!

I'm not denying that, but you're assuming at the time of the fall it will go all the way back to $1. What if it breaks my stop, then comes back up?

I guess my point is a stop-loss doesn't always work well with a value investing approach.

 

[Nutmeg]

What I am doing is pointing out the folly of those who pig headedly remain with their valuation while their investment decimates their capital base... Value investors appear to believe they are immune to risk and loss----purely because they have a valuation that they believe will hold them in profit on the long run.

I've NEVER seen on any threads here a down grade by a holding investor of their valuation----and hence a closing of a position!

Truth is I suspect--- The capital LOSS becomes that painful that they believe they have no option other than holding.

I don't think anyone is unaware of the reluctance to sell out of a position after the price declines below one's entry point. A mix of hope, stubbornness and vanity all enter into persuading one to hang on or, worse, even to average down. However, once you do it and realise that you were wrong because the company tanks, you learn an invaluable lesson: permanent loss of capital. You then go over the entrails of the tanked company, read its previous annaul reports and ASIC disclosures, look for the looming signs of disaster that you should have picked up but missed. Nevertheless, when you identify them after the event, you know what to look for next time and to avoid it. This happened to me with HST.

However, the suggestion that one should sell out of a position every time that the price declines below one's entry point and merely because the price declines below one's entry point is silly. It is evidence that one doesn't know what one is doing.

Last year I bought SMX at $4.75. I invested a third of my portfolio in that one company confident that it was cheap and was fundamentally strong. I valued SMX at between $5.80 and $5.90. It had declined less than 6 months before from $6.39. It had and still has no debt, an average ROE of 30%, good margins and more than 7 years of continual growth. At $4.75 I considered that SMX was cheap and that it provided me with, what I considered to be, a wide margin of safety. Yet no sooner had I bought it than SMX continued to decline to $4.70, then to $4.65, $4.50, $4.40, then to $4.35. It bottomed at $4.32. I was down more than 10% in less than two weeks and with a paper loss of nearly $4,000. Even at $4.32 I had no way of knowing whether the share price would fall further. Yet it was clear to me that there was no reason for the sell off, so I held on.

After bottoming at $4.32 SMX started climbing throughout December 2011. It continued to do so until April 2012. I sold out in April at $5.94 for more than a 20% return.

The moral of the story is that if you have valued a fundamentally strong stock conservatively and bought with a wide margin of safety, you have set yourself up not against further price volatility but against permanent capital loss and with as good an opportunity as I know of achieving an above average return. Whether that return will happen in 6 weeks, 6 months or a year is impossible to tell. But the probability of it occurring is more than 50% - barring unforeseeable disasters.

The point is that you need to learn the art of valuing conservatively a company. And valuation is an art. It is not an exact science. And because it is an art, you need to allow a wide margin between a company's minimum worth and your entry point. I suspect that traders like you, tech/a, ultimately do not believe that any company has any fundamental value onto which you can grasp when the sharemarket is in tempest other than the share price. Consequently, when the sharemarket is choppier than Bass Strait, you freak out and sell because share prices are all that exist for you. When the share price gives, there is no other floor supporting your position.

Personally, I am not aware of any long term successful investor who has achieved above average returns that invests this way.

But, tech/a - carry on.

 

[oldblue]

This thread is becoming rather repetitive and boring. I'm sure there is merit in both approaches but let's get back to discussing TGA.

 

[Nutmeg]

I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.

I agree. For the avoidance of doubt, I don't consider TGA the best small cap stock in the ASX. There are much more superior stocks to it. MMS, SMX, IRE, BKL, SEK, IVC and DMP are all far superior to TGA on a fundamental basis, Yet none of them are cheap. TGA is cheap and it is fundamentally strong. Therefore, it falls onto my radar.

 

[Nutmeg]

This thread is becoming rather repetitive and boring. I'm sure there is merit in both approaches but let's get back to discussing TGA.

If it is boring, then leave. As I read the threads, they are all making relevant contributions to TGA, to the valuation of TGA, to valuation in general and to the merit of holding, continuing to hold and/or of exiting from TGA. Just because the posts are not dealing directly with TGA's financials and business doesn't mean that they are not instructive.

 

[Nutmeg]

Price volatility is as much opportunity as risk.

I don't consider mere price volatility is any risk at all if by price volatility you mean high beta. Risk is the probability that an investment will result in permanent capital loss.