How I Made Money on Auric Pacific Stock
Continuing from my previous post (“How I Built My Wealth“)…
Background Story
I decided that I cannot just SAVE more… I need to save AND multiply together!
Dan Lok’s Wealth Triangle
I like Dan Lok’s triangle so here it is. You have to build a high income skill (earning SGD >$10k), then a scalable business, finally, an investment that will generate extra 10-20% of your capital. It’s like a jigsaw puzzle that creates financial abundance.
However, growing up, I did not have the luxury of knowledge.
I broke my understanding down to this:
3 + 3 = 6
BUT… 3 x 3 = 9
I knew I had to invest.
Not wanting to grow my wealth linearly, I knew I had to grow my wealth exponentially!
This is my personal journey of how I grew my wealth from $40k to half a million with several capital injections throughout the years. Enjoy!
Part 1: Asset Play
My very first stock was HupSteel. It’s a stainless steel supplier of industrial infrastructure. As a young investor, I had no mentor so I turned to ValueBuddies.com for help.
I did not know how to value HupSteel using the earnings approach but I did not want to let this fear frighten me. I decided to ask for help, and went with the Price-to-Book ratio.
It was trading below P/B < 0.9x. My average price was S$19.7cts ~ thereabouts.
I bought it because their properties were on a freehold basis and the value in the balance sheet was recorded as of 1992. But back then in 2013, I was rather sure that the assets are worth much more as compared to 1992’s value .
According to HupSteel’s annual report, the value of the investment properties was worth $78.5mil but it was recorded at $10.8m. This meant the book value stated in HupSteel’s balance sheet was severely understated and I was purchasing it at price-to-book value of below 0.9x! It looked like a no-brainer.
Unfortunately, HupSteel value remains stagnant over time and it did not grow. I sold it off after making a roughly 23-25% gain. That was equivalent to $400~. As a young teenager, I witnessed my first taste of gains from the stock market.
Subsequently, the share price consolidated 5-for-1. On 28 June 2019, HupSteel’s founders decided to privatize the company at S$1.20, which was a premium of >50% on the last closed price.
Throughout my early years, I had invested in Starhub, Colex, SHS, ISR Capital, De Bao, Pollux Properties, Vallianz, Yuuzoo, and lots of other listed companies.
Yup, you may be surprised but I did all sorts of investing because I was figuring out what worked and what did not. I was not born to be a good investor, I had to pay my “tuition fees” too.
Part 2: Towards a Turnaround Investor
In late 2016, I was eating at Food Junction. It is a food court in Singapore.
They own brands such as Delifrance, Food Junction, SCS Butter, Sunshine brand and they distribute iconic brands such Pringles, McCormick, Heinz, Want Want, Tabasco and others.
As I dug into the business of Auric, I found a fascinating scenario! I was so excited!
Legend
A = Sunshine bread, SCS Butter and distribution business
B = Delifrance and Food Junction
Now = current profit
Future = profit after cutting back on loss making segments
The overall profits of the company should be higher if not for the losses it sustained from segments in group B. I sought to find out whether the CEO was going to eliminate the losses, were there concrete plans?
The answer was YES!
The profit would have jumped from $4.5m to $9.7m! The earnings would go up by 2 times! See the table graph “Future”.
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I started to learn ways to value companies better using the EV/FCF method. It was trading at around 1.83 of price multiple. Much lower than any usual company.
Auric Pacific was not a fraud either. The business was also very stable. We eat bread on a daily basis!
After comparing it with their closest peer, QAF Limited, I had strong reasons to believe Auric Pacific was severely undervalued.
Furthermore, the management demonstrated progress in cutting back the losses.
The share price of Auric continued to climb and I continued to buy. For me, I buy based on valuations (price multiple) and not share price movement.
Nothing new was reported until 7 February 2017. The founders decided to privatize the company at S$1.65. Reluctantly, I tendered my shares by selling in the open market at S$1.65.
Based on my average buying price, I netted around close to S$50k in profit.
That was somewhere close to an annual salary of a young graduate! Words could not describe my emotions…
I cemented my belief that stocks was truly the way to build my wealth. My conviction was strengthened and I pushed ahead.
Instead of being complacent, I did not take the money to spend on other things. I took the money and bought more investment books!
Ending
At the beginning, I did not allow my fear of investing stop me at all. I was clueless and I had no mentors. But I knew that surely, there was a way to succeed. I reached out to many investors on public forums, and I bought investment books.
In life, it is always so strange. We tend to overestimate what we can achieve in the short term basis but underestimate what we can achieve in the long term basis.
I was nobody. I started with $20k plus which consisted of my contest money and hard-earned salary.
How did I ended up having a portfolio of >$400k by 2017?
It’s all pure hard work and reading. Learning, unlearning and relearning.
Was it worth it? Definitely yes, if I am able to retire 15 or 20 years earlier than my peers, what is 2 – 3 years worth of learning? What is paying over $3,000 to learn?
Learning how to invest properly is probably the TOP skill set that generates the BEST returns on the time spent!
Many people said investing is risky. But I often questioned this, then why are there so many successful investors? There must be a proven method out there!
Although I had a lot of voices in my head, I chose to believe that I was doing the right thing for my future.
Hope you enjoy this small piece of article!
The story does not end here… there’s part 3! Stay tuned for it.