Tuesday, May 31, 2011

Taiwan Bubble

Earlier this afternoon I got restless and decided to go on a scooter trip. I thought I might just take the fastest route to the ocean but after checking in with my iPhone I realized it would take me about a hour to get there by scooter and by then my ass would hurt, my scooter would be low on fuel again and I wouldn't get anything out of seeing the ocean.

I was about to turn around my scooter and head back to my apartment when I saw a giant empty apartment building. I figured it was a good day to take some photos of some empty apartments.

Here are a few of the buildings I saw. I'll post the whole thing + the videos later.

This is the "My Way" building, large and empty. I walked by there, had a huge chandelier in the lobby and a grand piano. Definitely selling to the folks who are trying to live upper class. Yet, it's ghastly empty.

This is one of the MANY empty buildings by WenShan district. I actually took this picture catty-corner from another empty building.  This is another giant empty apartment complex in WenShan. Notice the decrepit house in front of the opulent building? Yeah, that's ridiculous. So many rooms, so few people inside.

There is a lot more that I haven't posted yet, and I'll eventually do a mega post with all the pictures I took (in one afternoon mind you, maybe within a 3 hour span, not long at all.) I'll also post about the new Luxury Tax and how this is affecting the housing boom.

Monday, May 30, 2011

Simolean Sense Weekly Round Up + Great story on bubbles by NPR

Simoleon Sense's Weekly Round Up

Collection of must read links, I highly suggest subscribing to the blog.

NPR also did a great story on bubbles and they question if gold is a bubble.  In the NPR story they discuss about an experiment where a group of college students are turned into stock traders. They are given one stock, which will release 10 rounds of dividends, and every round will release about a dollar of dividends. Therefore the fundamental value of the stock is worth 10 dollars at the start, and fore very dividend release it's worth 1 less. Yet, according to the researcher, about 90% of the time prices of the stock can be wildly different than the fundamental value. For example, there could have been 3 rounds of dividends, therefore the fundamental value is 7; yet the stock would trade for 15 dollars a share. Yet, everyone knows, eventually the the stock will be worth 0.  P

Pretty interesting stuff huh?

Sunday, May 29, 2011

COGO multiple discoveries & (DELETED) 's excellent past,(DELETED) 's Thesis

On Saturday morning I woke up from my hostel and found an e-mail from a friend saying I should talk to a bright (DELETED) undergraduate named David since we had something in common.

It turned out we definitely did have something in common. (DELETED) had, before I ever started digging around the 10Ks of COGO, written a very intelligent short thesis on COGO. We lived half-way across the world from each other and (DELETED) is a half a decade younger than I am. This was a perfect example of a multiple discovery.

Also (DELETED) comes from (DELETED) , where a group of graduate students over a decade earlier had discovered Enron had very fishy books, this was before Chanos came onto the scene.

I got the greenlight, here is his thesis!


不要 Microsoft

It's amazing how much people don't like Microsoft. Talked to two friends on my trip about Microsoft and their reaction to Microsoft was "that has been a horrible investment owned it for 10 years and nothing" or "Microsoft isn't a growth company, if they would raise their divide then maybe I would buy it"

..I guess I'll continue to add to my Microsoft position if this is the general sentiment behind the company...sigh

Also on my way back up to Taipei right now, looking forward to posting more about COGO and updating links on the blog.

Saturday, May 28, 2011

COGO is getting some love by love river.

Just got an e-mail from a very smart undergraduate at (DELETED) named (DELETED) who is also short COGO and has a very well thought out thesis on it. I'll post it soon via scribd (DELETED).

Here are some photos of Kaoshiung and love river.
Love River at night, taken from a boat ride

Hostel 202 by love river, very nice, would stay there again.

people practicing for the up coming dragon boat race

Ralph , Me,  lovely Rosie

Anyhow, I'm very excited to find someone interested in COGO is well. I'm off to Luye now to see another friend, should be back on my own computer by tomorrow or the day after that.

Friday, May 27, 2011

Changing blog soon

Blog name & address doesn't make sense. Didn't expect to enjoy publishing my thoughts to the random 8 people who accidentally click on my site so much. New site/name coming soon.

Empty Taiwanese Buildings

Went to see a friend today in Kaoshiung. So I hopped on the high speed rail and off I went.

The crazy thing was, I saw dozens of large high end apartment buildings, that were egregiously empty. The worst part was, right next to these buildings were soon to be started apartment buildings adding to the obvious over supply of apartments.

I'll be posting some pictures of these monstrosities soon.

View from my coffee table. (no craziness here, that will come soon)

Thursday, May 26, 2011

Syms Corp Initiates Process to Explore and Evaluate Various Potential Strategic Alternatives -- SECAUCUS, N.J., May 26, 2011 /PRNewswire/ --

Syms Corp Initiates Process to Explore and Evaluate Various Potential Strategic Alternatives -- SECAUCUS, N.J., May 26, 2011 /PRNewswire/ --.

Ok...this will never happen again. The day I add an idea to my long ideas, the company releases a press releases saying it's being put up for sale..

Of course if it does, be expecting a lot more posts on long idea =P

huge hat to to Jeff More at

Barron's Study: Chinese Reverse-Merger Stocks Lag Key Indexes -

Barron's Study: Chinese Reverse-Merger Stocks Lag Key Indexes -

This was written in August 2010, but still very applicable to today.

updated the investment idea section

Now that I've mostly finished my write up for COGO. I had a chance to add some ideas  to my investment idea page.  Nothing amazing, just a few stock tickers, comments and links. Yet, maybe there is an idea in there for you.

Long Ideas

Short Ideas

Other Marketable Securities

Updated Thesis on COGO

Updated Thesis on COGO, I fixed the typos and updated the section on where the cash flow was going. I would appreciate any comments or feedback.

[scribd id=56330466 key=key-2fsj7mqamwhbxkf0ank8 mode=list]

Chanos said he would short all Chinese RTOs

Chans said he would short all Chinese RTO. This is a long video by the way, he mentions the RTOs during the middle.

He also mentioned Longtop, which is a hat tip to John Hempton at

Found a Bloomberg Video wtih COGO's CEO

Found a Bloomberg video with COGO's CEO
In the video he says COGO is an online marketplace...what the...I definitely don't get that from the filings. He also says he gives the designs away for free, but in their filings they say their business is to design modules...


Cogo Group (COGO) Short Thesis [Draft 1]

COGO Group (Nasdaq:COGO)

Market Capitalization


Date Written


Long Term Debt


Current Price


Total Cash


 Estimated Value Per Share


Short % of Float

(as of Apr 29, 2011)


The American listed Chinese RTO space has been a lucrative area for short sellers. Companies like China Agritech, China Media Express, and Tongxin International have all been delisted due to fraud allegations and there are many more Chinese RTOs that have been alleged frauds but they have not been halted yet or delisted.  Most of these Chinese listed companies already have a very high short interest, one of the companies that currently  doesn’t, but I believe does deserves one, is Cogo Group (Nasdaq: COGO) I believe the company has dubiously sold insider shares, bought companies in related party transactions [so what? To syphon off cash?]  and the accounting is suspect of manipulation.

  1. History of hiding Insider selling

When the company first went public, there were three original shareholders.

  • 13,163,199 shares: Comtech Global Investment, controlled by the CEO JingWei (Jeffrey) Kang

  • 5,467,790 shares: Ren Investment International, controlled by CEO JingWei (Jeffrey) Kang

  • 1,620,086 shares: Purple Mountain LTD, controlled by Yue (Justin) Tang

Shares of Ren Investment International would all be sold, but not before Ren Investments oddly changes the director of the company from JingWei Kang to Kang Yi, the CEO’s brother. Comtech Global Invest now owns 9,711,524 shares according to the last 10K. Purple Mountain LTD are no longer listed as a major shareholder and presumed to be sold out.

  1. Insider transactions (Viewtran)

As per the 2004 10K on page 46, the CEO, Jeffrey Kang, owned a 6.1% interest in Viewtran. Viewtran was eventually purchased in 2007 for 58,529,00 RMB. Which is a hefty sum for a company that “has no assessable profits up to 2006” according to the 2007 10K and 47,649,00 RMB was attributable to goodwill and 7,151,000 RMB was attributable to intangibles.  Nowhere in the 2007 report do they disclose the CEO had an interest in Viewtran before they bought it.

  1. Enlarged share count


Shares outstanding have increased 40.9% since going public.

  1. Unsophisticated website

The website,, looks unsophisticated for a company doing 400 million in revenue. The site shows unsophisticated technology and a poor investor relations page. This is a poor reason to short, but it does not look right.

  1. Buying companies with a massive amount of goodwill relative to assets

After the large capital raise in 2006, the company used that money to make acquisitions and pay down debt. Here are some of the acquisitions.

In 2006, COGO purchased Viewtran Technologies (company with ties to the CEO) for 58,529,000 RMB. Of this purchase price, 47,469,000 RMB was in goodwill and 9,707,000 was in intangibles (of the intangibles, 6,610,00 was in customer relationships).

In 2006, COGO purchased the remaining 40% Shaghai E&T for 16,000,000 in cash. Of the purchase price was in 4,264,000 goodwill and 5,467,000 was intangibles assets (all from customer relationships)

In 2007, COGO purchased the remainder of the 45% interest in Comtech Broadband for 113,193,000 RMB  (2/3 in cash, 1/3 in stock) 47,561,000 RMB of this was in Goodwill and 74,578,000 RMB (66,202,000 was in Customer relationships) for the Intangibles.

In 2007 COGO purchased Keen Awards for 66,032,000 RMB, of which 73,007,000 was in intangibles and 63,009,000 RMB was in customer relationships.

In 2008, COGO purchased a 70% interest in Longrise for 60,921,000 RMB. Of that, 21,422,000 was in Goodwill and 34,567,000 was in intangibles.

In 2009 COGO purchased Mega Smart Group for 122,415,00 RMB (paid in installments) Of the purchase price 80,226,000 RMB is attributable to goodwill, and 50, 526,000 RMB to intangibles with 24,580,000 attributable to  customer relationships, and 8,876,000 attributable  to supplier relationships.

In 2011 COGO purchased MDC Technologies for 144,372,000 RMB. Of this purchase price, 49,669,000 RMB was in goodwill, and 113,417,000 RMB was in intangibles assets. Including 21,786,000 for customer relationships and 90,443,000 RMB for non-compete agreements.

None of these acquisitions give a break down the past profitability of these companies, as a stand-alone company. Only Viewtran technologies had a blurb about the past profitability, which was Viewtran “has no assessable profits up to 2006” I am suspicious the company is purchasing these companies at irrational prices in order to surreptitiously move capital from COGO to acquiring companies for sweetheart deals.  I have already pointed out a non-disclosed purchase with Viewtran, I think it is likely the company had interest in these companies without disclosing it to the shareholders. [well, not really since you know about it…]

  1. Obvious typo in the 10K

This might be a small matter, but there was an obvious typo on page 61 of the 2007 10K where the CEO’s name is miss spelled from Jeffrey Kang to Jeffrey KING. This might be nothing but I think it shows the lackadaisical manner the company releases information to the shareholders.

  1. Changing of the Auditors Deliotte to KPMG, no explanation why

In 2007, COGO dismissed the auditing firm Deliotte and hired KPMG. There was no explanation for this change.  [are you sure?  I think SEC requires some sort of reason.]

  1. Funky accounting (net income vs. cash from operations)

For most companies, operating cash flows are higher than net income. Sometimes net income can be higher than operating cash flows for a while, but not in perpetuity.  With COGO, there is a significant disconnect between their operating cash flows and their net income.  (All numbers are in ‘000 RMB)

Net income113,05583,16997,162152,443123,27586,84262,20228,483746,631
Cash from Operations(22,258)(33,510)97,46246,415202,838(35,074)(60,339)(25,406)173,128

There is a dramatic difference between the company’s net income and operating cash flows. This was seen with other Chinese RTO frauds like China AgriTech and RINO.  The company was able to make all their acquisitions due to excessive use of cash from financing.

[this is interesting.  Perhaps you can go a step further and see what’s eating up the cash.  A/R?  Inventory? And what does COGO say why these are increasing.]

Cash from Financing352,283105,913(180,649)217,31872,69545,21272,69545,212730,679

Cash flow from financing mostly came from issuance of shares up until 2009 when the cash flow came from bank debt.

  1. COGO does not own the equity in the main subsidiary ShenZhen Comtech, instead has a contractual agreement with the vice president of Comtech and the CEO’s mother

Cogo group does not the equity of one of their main operating subsidy ShenZhen Comtech. Instead, COGO has a “contractual agreement” with Honghui Li the Vice President who owns 99% of ShenZhen Comtech and Huimo Chen, who owns 1% of the interest of ShenZhen Comtech and is the mother of the CEO Jeffrey Kang.   According to the 2005 10K, it is possible for the COGO group to own the equity interest in Comtech but it “requires special approval from the PRC Ministry of Commerce, which is time consuming to obtain.” I believe it highly unlikely US shareholders would be able to use obtain their economic interest in ShenZhen Comtech if there was ever a problem with COGO.

  1. What the business does exactly is unclear. Press releases & management is gobbledygook.

According to the filings, COGO is in the business of providing customized modules and subsystem design solutions. I have no idea what this means. Yet, looking at the financials it seems the company is really in the business of reselling electronic not in providing their some sort of value added engineering expertise.  According to their recent 10K, 2,554,991,00 RMB comes from product sales and  only 53,307,000 comes from service revenue.  Yet, if you read their press releases it makes it sound like they are doing high end technology announcing contracts for wind turbines, tablets, smart grids, high speed rails, COGO 3.O online strategy.

  1. Questionable stock repurchases due to “negotiated transactions”

Although for most companies, stock repurchases are a sign of company giving back investor capital. I am suspicious that COGO’s stock repurchases were not made on the open market but instead through “negotiated transactions.”  Since the company has a large insider ownership and a couple acquisitions have been made with stock, I am very skeptical these were made on the open market.

  1. Dividend released before the company went public like CCME

The company has not released a dividend to shareholders since going public in 2004. Although before initiating the transaction to go public, COGO released 41.4M RMB in dividends to shareholders.  China MediaExpress also released a dividend to its shareholders before going public.  COGO has no plans to release a dividend I the future and says it will have difficulties due to regulation on Chinese currency. I believe this is a dubious argument, in which COGO hides behind for not paying a dividend.

  1. Extremely hard to contact management

Contacting management is extremely hard. There is no IR contact on their website, either e-mail or number. The number listed on their SEC filings is to their ShenZhen Comtech office where the workers speak very little English. The company does have a quarterly conference call, but no way to get a hold of management other than the quarterly calls.

  1. Heartland advisor is a shareholder, they have also been duped on a Chinese RTO (the car one)

One of the major holders on record in Heartland advisors, a value based mutual fund.  Although most of the time it is good seeing fellow smart investors as part of the holders, heartland was previously duped by another Chinese RTO called Tongxin (TXIC.) I believe Heartland’s ownership is not a sign of confidence.

In conclusion I believe there is a large amount of evidence showing suspicious activities inside COGO group. Although I do believe COGO is a real operation, I do not believe in the company’s accounting or trust the company is making acquisitions in good faith for the shareholder’s interest. Since this company has no intent on paying shareholder a dividend I believe COGO intrinsic value is zero. I think it is unlikely COGO will ever go to zero, but I think it’s likely it will trade far less in the future. I am planning to exist my position around $1.50 a share.


  1. Company is unable to list in hong kong or never ends up listing.

  2. SEC doing investigations in Chinese Shorts

  3. Resignation of KPMG because they don’t want Chinese RTO risk.


  1. Company successfully lists in Hong Kong

  2. A private equity firm like Bain Capital makes an offer on the company.

Disclosure: I am currently short shares of COGO. Please do your own due diligence. This is not investment advice and I am not a financial advisor.  I may choose to cover my short at anytime.

Note: This is currently my first draft of the idea, I am planning to update my thesis as time goes. I welcome feedback from this idea and in fact, I would appreciate it greatly.

Wednesday, May 25, 2011

COGO: Short Thesis [Draft 1]


Tuesday, May 24, 2011

Dealtalk: Private equity wants to take China orphans home | Reuters

Dealtalk: Private equity wants to take China orphans home | Reuters.

Bain Capital bought China Fire & Security Group.  I hope it works out for them, but I am betting it's going to burn them unless they relist it on Hong Kong right away.

Heartland Value Adivsors - COGO - TXIC

I checked out the major holders of COGO and I was surprised to see Heartland Value Advisors . I mean, these guys are supposed to be value investors, doing their own investigative research. Then I noticed one of their other major positions was TXIC, a well known Chinese RTO fraud. So maybe Heartland Value Advisors is, at least in this scenario, part of the dumb money.

A Glickenhause Education on China Agritech and RTOs

A Wall Street Scion's Expensive Education - BusinessWeek.

This is a great article, it talks about a 1.3B AUM hedge fund in New York that was duped into investing into a Chinese RTO. Definitely worth reading.

COGO: more info

Short update:

1) I received an e-mail from Woodrow Zhang. I'll post more on what he said later (he didn't say much)

2) I've uncovered or found a transaction where the CEO had an interest in a company but didn't disclose it to the shareholders (at least at the time of the acquisition) and paid hefty sum for the acquired company of the 58M of RMB company, 47.6M was in goodwill and another 8M was in intangibles. Needless to s

COGO Typo - CEO Jeffrey Kang is now Jeffrey King

I'm checking out the 2007 10K for COGO and on page 61 I see this ridiculous typo.

Dated: March 14, 2008 By: /s/ Jeffrey King
 Name: Jeffrey King
 Title: Chairman and Chief Executive Officer

How do get away with miss spelling the CEO's name in a 10k? I mean, typos happen but this is just weird. Makes me wonder who exactly is filling out these 10K forms.

COGO, wei? ni shi shei? (hello, who are you?) - calling of COGO

I am about done rounding up my research on the SEC filings, now I am trying to contact COGO by phone. Which has been so far an aggravating experience

I tried scanning their craptastic website,, for a phone number. Which there wasn't one, only a number for their conference calls. Then I tried calling the number listed on their SEC filings (86)-755-267-43210.  I think this number got me to the sales department for the ShenZhen Comtech (this is the subsidary owned by contractual agreements...oy vey)

First Call

Called them up to get some clarity on what the heck they do, and their stock repurchases. The lady answering the phone didn't speak good enough English, so I talked to Woodrow Zhang, who didn't speak good English as well but said I should e-mail him at  I e-mailed him, and asked him to e-mail me back right away to confirm this was a useful e-mail address. Thirty-forty minutes later, there was no reply and I am antsy for information. So I called back again to get a hold of Woodrow Zhang.

Second Call

Lady answered the phone didn't speak good enough English and handed the phone to somebody else who said Ni shuo shenme? Wo ting bu dong. Ting bu dong. (What are you saying? I don't understand, I don't understand.)  I asked to speak to someone else who spoke English better, but then the phone hanged up. The jerk just hanged up on me.

Third Call

Once again, the lady who answered the phone didn't speak good enough English. So I was transferred to someone else who did. I asked them why they hanged up on me, and they said because So now I am planning to call back at two when their break time is over.

The ridiculous journey continues.

update: I called at two and got a hold of woodrow and now have a verified address. I sent him my list of questions, we will see if we can get any information now.  

upddate2: Woodrow says the company manly sells equipment, does little of design work. He didn't know about any of my "sucks" (stocks) question. 

I have also found the IR e-mail  I'll update any info I find.

Monday, May 23, 2011

For COGO, better hope the CEO stays forever

One of the odd things about the chinese microcap space is that most companies don't actually own the equity of the underlying chinese company. In the filings, these chinese company report they are unable to give the holding company a 100% equity interest due to regulations, or in COGO case because it's too much of a hassle.
At the time of its incorporation, foreign shareholding in a trading business such as Shenzhen Comtech could not exceed 65%. With subsequent PRC deregulation, foreign ownership of such a trading business can now reach 100%. However, foreign ownership of companies in the PRC engaged in commodity trading businesses—which includes agency trade, wholesale, retail and franchise operations—is subject to restrictions under PRC laws and regulations, and requires special approval from the PRC Ministry of Commerce, which is time consuming to obtain. In order to exercise control over Shenzhen Comtech (a PRC operating company legally permitted to engage in a commodity trading business), without direct shareholding by us (a U.S.-listed company and therefore a foreign-invested entity), our principal shareholder and chief executive officer, Jeffrey Kang and his wife, Nan Ji, own through contractual agreements and for the benefit of our 100% directly owned subsidiary, Comtech China, all of the equity interest in our PRC operating company, Shenzhen Comtech, which, in turn, owns 60% equity interest in another of our PRC operating companies, Shanghai E&T. While we do not have any equity interest in Shenzhen Comtech, through these contractual agreements, we enjoy voting control and are entitled to the economic interests associated with Jeffrey Kang’s and Nan Ji’s equity interest in Shenzhen Comtech. For additional details regarding these contractual agreements, see “Related party transactions.” These contractual agreements may not be as effective in providing us with control over Shenzhen Comtech as direct ownership because we rely on the performance of Jeffrey Kang and Nan Ji under the agreements. If Jeffrey Kang or Nan Ji fail to perform his or her respective obligations under the agreements, we may have to incur substantial costs and resources to enforce such agreements and may not be able to do so in any case. Also, we must rely on legal remedies under applicable law, which may not be as effective as those in the United States. Because we rely on Shenzhen Comtech and Shanghai E&T in conducting our business operations in China, the realization of any of these risks relating to our corporate structure could result in a material disruption of our business, diversion of our resources and the incurrence of substantial costs, any of which could materially and adversely affect our operating results ayound financial condition.

Funny/weird enough they ended up changing this equity arrangement so the wife didn't own part of the company, instead the CEO's wife owns part of the company.
In 2005, Nan Ji has executed an agreement to transfer her 70% equity interest in Shenzhen Comtech to Jeffrey Kang and her 1% equity interest in Shenzhen Comtech to Huimo Chen, the mother of Jeffrey Kang, who is a PRC citizen. Jeffrey Kang and Huimo Chen have also agreed that upon the successful transfer of Nan Ji’s equity interest as described above, they will enter into and be bound by the same contractual arrangements with Comtech China relating to the voting control of Shenzhen Comtech.

You just can't make stuff like this's incredible. Imagine if the board ever decides the CEO (not like this is at all likely), what are they doing to do? The CEO and his mother own the equity interest, and even though they have a "contractual agreement" with the company, I have a hard time foreign investors will be able to enforce this regulation. Even filings say this might be hard to enforce.
In the opinion of our PRC counsel, Grandall Legal Group, the ownership structure of Shenzhen Comtech and the contractual agreements among Comtech China, Mr. Kang and Ms. Ji do not violate existing PRC laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations, including but not limited to the laws and regulations governing the validity and enforcement of these contractual agreements. In particular, this type of contractual agreement is not commonly seen in China and accordingly, we cannot assure you that PRC regulatory authorities will not determine that these contractual agreements with Jeffrey Kang and Nan Ji violate or conflict with PRC laws or regulations, including those regarding restrictions on foreign investments in trading businesses.

This information all comes from the 2005 10K. I've read the 2010 10K and I believe the equity interest has changed, but the crazy contractual agreement still stays on.

Richard Heckmann got dupped on a Chinese RTO

[brightcove vid=719674384001&exp3=673439667001&surl=,AAAAAEBQhPI~,35stD8-Ka9GKFxZcCQe95tSFjP99jVtJ&w=300&h=225]

Video Report of Richard Heckmann's Fraud Loss

The Birth of a COGO RTO

Here are the original shareholders of Comtech LTD (pre-RTO) and their final share count after the RTO was completed.

ShareholderShares of Original Comtech Group (Cayman islands)Percentage of SharesAmount of Shares of COGO owned after RTO*Percentage of COG shares owned after RTO
Comtech Global Investment Ltd.6,500,00065%13,163,19959.26%
Purple Mountain Holding Ltd.800,0008%1,620,0867.29%
Ren Investment International Ltd.2,700,00027%5,467,79024.62

Information from a 2004 SEC filing on page 64
* Note I have adjusted the post-RTO shares of COGO for the 2-1 reverse split that occurred so COGO could list on the Nasdaq.
Why would shareholders wish to dilute themselves so much to go public? Maybe it was worth it but this seems like a heavy price to pay.  Some notes about the shareholders.

Comtech Global Investment Ltd.This is an investment vehicle owned by Jingwei (Jeffrey) Kang the CEO of COGO.

Purple Mountain Holding Ltd.  Investment vehicle owned by Yue (Justin Tang), who was the founder of eLong

Ren Investment International Ltd. This is an investment vehicle originally controlled by the CEO, Jingwei (Jeffrey) Kang.  Yet during sometime in 2007 (haven't found the exact date  yet) Ren Investment International went from being directed by the CEO to the CEO's brother Kang Yi.  You'll also notice from the EDGAR filing that Ren Investment has been a seller of COGO

Insurance Float Valuation for Berkshrie

One of the things that really interests me is insurance float valuation. How do you value  float? One of my most intelligent friends who manages money for Chieh Capital, Agustin Cheih, posted some of his thoughts about how to value Berkshire' float.

COGO, what do you do exactly?

I have read a lot of COGO's SEC filings, their 10K, 10Qs, Prospectuses, Proxy Statement and I still have NO IDEA what exactly they do. Here is a press release from 2010
Cogo Group, Inc. (NASDAQ: COGO) is a leading provider of customized module and subsystem design solutions in China. The Company believes it acts as a proxy to China's technology industry as it works with virtually all the major ODMs and OEMs in China. Cogo leverages these relationships and combines their IP to create designs that Cogo then sells to electronic manufacturers.

So what is a customized module or a subsystem design solution? They also make a pretty slippery statement that they are a proxy for "China's technology industry." Uh, really? That's a pretty ballsy statement. I mean, I can see people using Walmart's  sales numbers a proxy for the American working class, or Intel's sales as a proxy for the IT industry but to say that your small company is a proxy China's technology industry just seems absurd.

My guess is, this is more of a statement to drastically simplify their business and sensationalize the companies prospects.

Saturday, May 21, 2011

Cogo's dividend policy: dividends for me, not for you

Dividend policy

Prior to the share exchange with Trident on July 22, 2004, we declared dividends of RMB41.4 million ($5.0 million) on our common stock and paid such dividend to the shareholders of record prior to the share exchange in September 2004. During the last two fiscal years we have not declared any other cash dividends on our common stock.

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, current and anticipated cash needs, restrictions contained in current or future financing instruments, plans for expansion and such other factors as our board of directors deems relevant.

 What a great policy. I'll pay dividends to myself, but I won't be paying any to you.

The Shanghai Numbers | The Shanghai Numbers | Financial News & Investing Advice | TheStreet

The Shanghai Numbers | The Shanghai Numbers | Financial News & Investing Advice | TheStreet.

Nice article on chinese RTO

Thursday, May 19, 2011

COGO group the next possible chinese short candidate?

I am really amazed by all these flagrant chinese frauds out there. I made a list of all the possible short candidate in the chinese RTO space. You can check out my crappy excel file here

COGO could be the next short candidate. It's cash opex & net income don't make any sense. It also does a lot of share buy backs but might be done through "negotiated transactions" It might be

Here is a screenshot of COGO's financials, and you'll see what I mean.

[caption id="attachment_58" align="aligncenter" width="1024" caption="COGO selected financiald ata"][/caption]

Management also has an incentive for manipulating numbers since they have an incentive to do so in their compensation plan.

Compensation of Chief Executive Officer

In December 2007 the Compensation Committee met to review the salaries that seven PRC-based companies listed on US exchanges with market capitalizations ranging from under $20 million to greater than $147 billion, paid to their chief executive officer.  The companies included SORL Auto Parts, Inc., Inc, Inc., Huaneng Power International Inc., Guangshen Railway Col, Ltd, e-Future Information Technology Inc. and Asiainfo Holdings Inc.  The Compensation Committee’s intent was to target the chief executive officer’s base salary near the median of the range of salaries for executives in a similar position and with similar responsibilities, in line with our compensation philosophy. The Compensation Committee determined that the median base salaries for persons acting as chief executive officer for the above companies were approximately $93,000.

On December 21, 2007, the Compensation Committee of our Board of Directors approved the following compensation package for its Chief Executive Officer: a base salary of $100,000 per year, which was not materially different from the median base salary of the chief executive officers listed above; the grant of 20,000 shares of the Company’s common stock for each of 2008, 2009 and 2010 (for a total of 60,000 shares) that vest quarterly; the potential grant of a bonus on a yearly basis of up to an additional  (i) 40,000 shares of the Company’s common stock if the Company’s pro forma earnings per share CAGR is at or above 30% and (ii) 40,000 shares of the Company’s common stock if the pro forma earnings per share is 40% or more above the previous year’s pro forma earnings per share. The bonus shares would vest in three equal yearly installments beginning immediately after the filing of the Form 10-K for the applicable year.  The Compensation Committee based the level of compensation for our Chief Executive Officer on its belief of what is typical for public companies of our size and type and the fact that the Compensation Committee was satisfied with the performance of the Chief Executive Officer. No executive officer participated in the determination of the salary for the Chief Executive Officer.

Highlights are mine, of course. Here is the link to their proxy statement.

This all might mean nothing, and it probably is. I am no Muddy Waters, Citron Research, or Bronte Capital.  I am also currently not short nor do I have options is this company. What I seen isn't a smoking gun, but a possible place for fire. Also COGO has a big named auditing firm KPMG, but of course big name accounting firms haven't stopped the frauds yet.

long winded post about how stupid i am, and how cogo might by the next chinese short candidate

I bought my first stock in 2004 after I received a 5,000 dollar scholarship from an energy scholarship I applied to.  Since I thought I got the scholarship from a local energy company called APS, I decided to buy stock of it's parent company Pinnacle West Capital (PNW)  I didn't know much about the company other than it paid 4%+ dividend and I was able to buy stock through it's DRIP program for as little as 50 dollars. I was elated after I bought this stock, I thought it was so cool that I can own part of a company and I was a shareholder.

Well, I was pretty stupid back then (still am.) Turned out the scholarship wasn't from APS but from some government energy composite with the same initials.  What about PNW? Well, I had no idea how to read a balance sheet back then and only knew it paid a dividend. Looking at the financial statements now, I can start to see things. Like for example how their cash from operations - capex was starting to get larger than their dividend payout. Which means my precious dividend was going to be threatened. If only knowledge could pass the space-time.

So during my time in college I started to read more about business and investing. I was a bio major in college so sure as hell didn't learn about financial analysis while studying the endoplasmic reticulum. Yet, I slowly gotten better. I ended up taking an accounting class my senior year of college because I was so interested in learning about financial statements. I aced the class, but the joke was on me. I learned too late that I enjoyed learning more about cash flows than about aldehydes.

Enter Taiwan.

So I came to Taiwan to teach English. I really don't like teaching to be honest and I am not a big writer (

Monday, May 9, 2011

Short Idea: Green Mountain Coffee (copy from a post I did on coner of brk/ffh)

This will not be a full write up, but a short summary of the company and it's problems. This idea has been fleshed out on other sites but I wanted to share this idea with the board since short ideas are generally not presented. Links will be provided at the end of the post for further investigation.

[b]Summary of the Business[/b]
Green Mountain Coffee Roasters Inc. makes most of their money from selling a specialty single cup coffee maker called a K-cup. The business has grown rapidly with revenues of 341M in 2007, to revenues of 1,356M in 2007.

[b]Fundamental Statistics[/b] via CapitalIQ

Share Price:
Market Cap: 10.70B
Enterprise Value: 11.81B
Trailing P/E (ttm): 94.90
Forward P/E: 41.40
Price/Sales (ttm): 5.64
Price/Book : 10.30
Enterprise Value/Revenue (ttm): 6.18
Enterprise Value/EBITDA (ttm): 37.18

[u]income statement[/u]
Revenue (ttm): 1.91B
Revenue Per Share (ttm): 13.98
Qtrly Revenue Growth (yoy): 101.20%
Gross Profit (ttm): 425.76M
EBITDA (ttm): 317.57M
Net Income Avl to Common (ttm): 113.18M
Diluted EPS (ttm): 0.79
Qtrly Earnings Growth (yoy): 171.80%

Profit Margin (ttm): 5.92%
Operating Margin (ttm): 12.67%

[u]balance sheet[/u]
Balance Sheet
Total Cash (mrq): 33.99M
Total Cash Per Share (mrq): 0.24
Total Debt (mrq): 1.06B
Total Debt/Equity (mrq): 99.82
Current Ratio (mrq): 2.08
Book Value Per Share (mrq): 7.36

[u]stock price history[/u]
52-Week High (May 4, 2011)3: 78.45
52-Week Low (Jun 8, 2010)3: 21.83

[b]Reasons for Shorting[/b]

[u]K-Cup Patent expiring in 2012[/u]

Currently, Green Mountain has the sole right to produce K-cups once the patent is expired, everyone will be able to make their on K-cup brewing system. This means Kraft and P&G will have their shot at Green Mountains K-cup brewers. Enviably margins should shorten due to competition.

[u]Insider Selling[/u] via MSN Money

Clear insider selling and at much lower prices than the stock is currently trading at.

03/15/11 STILLER ROBERT P Gift 11,144 $58.99 657,384.56
03/10/11 STACY MICHELLE V Sold 9,375 $55.54 520,719.38
03/10/11 STACY MICHELLE V Exercise 9,375 $6.20 58,125.00
02/14/11 STACY MICHELLE V Sold 10,000 $45.13 451,300.00
02/14/11 STACY MICHELLE V Exercise 10,000 $6.20 62,000.00
02/10/11 STILLER ROBERT P Gift 6,360 $41.36 263,049.59
02/07/11 STACY MICHELLE V Sold 15,561 $40.00 622,440.00
02/07/11 STACY MICHELLE V Exercise 15,561 $7.67 119,352.87
12/13/10 MCCREARY RICHARD SCOTT Exercise 10,000 $31.96 319,600.00
11/05/10 STACY MICHELLE V Sold 10,000 $35.00 350,000.00
11/05/10 STACY MICHELLE V Exercise 10,000 $6.20 62,000.00
09/21/10 STACY MICHELLE V* Sold 5,000 $37.00 185,000.00
09/21/10 STACY MICHELLE V* Exercise 5,000 $7.67 38,350.00
09/13/10 STACY MICHELLE V Sold 5,000 $35.40 177,000.00
09/13/10 STACY MICHELLE V Exercise 5,000 $6.20 31,000.00
09/13/10 STACY MICHELLE V* Sold 5,000 $35.40 177,000.00
09/13/10 STACY MICHELLE V* Exercise 5,000 $6.20 31,000.00
08/18/10 MCCREARY RICHARD SCOTT Sold 200,000 $33.08 6.62 Mil
08/18/10 MCCREARY RICHARD SCOTT Exercise 200,000 $1.47 294,000.00

[u]Share Dilution[/u]

Green Mountain is doing a second offering of 8,189,000 shares at $71 a shares or a 5.7% increase total share outstanding. If Green Mountain is such a great business, why dilute your holdings? Although, I do agree the management, they are getting a great price for the dilution.

[u]Possible Funny Accounting[/u]

The share price recently jumped with the company beat analyst estimates. Although, there might have been some funny accounting taking place due to a negative sales provision. Which could mean the company had previously over estimated their sales return and needed to lower or is using it to play with the earnings. Oddly enough, if the company didn't report the negative provision, they would have missed their earnings estimate which would have hurt their recent equity raise. Herb Greenberg expanded on this on CNBC ([url][/url])

The SEC is also currently investigating their accounting practices.

[b]Risks of Shorting Green Mountain[/b]

Green Mountain could continue to grow at large rates, competition from Kraft and P&G might never materialize. Green Mountain might also be bought out from a competitor, hoping to get the leg up in K-cups before the patent runs out. Also, 20% of the float is currently float which might cause a short squeeze.


Green Mountain has all the qualities of a great short. Major product is about to run off patent, possible funny accounting, insider selling and share dilution. All of that wrapped around a rather forward P/E of 41 and current P/E of 94. My recommendation for a short I believe is still valid. I believe this write up isn't comprehensive enough for someone to make that decision and further investigation is required.

I hope for a good discussion with the board members.

[i]Links for Further Investigation[/i]
1. Is Green Mountain Coffee Roasters Shuffling the Beans to Beat Earnings Expectations? via whitecollarfraud

2. The Short Case for Green Mountain Coffee Roasters via Viking Capital

3. Green Mountain Coffee: A Prime Short Candidate via Whopper Investments

4. Green Mountain Coffee Roasters: Short Opportunity Brewing via The Oxen Group

4. Green Mountain Coffee: More Shares and More Questions via Jason Merriam

wow...Simoleon Sense Resources

Decided to go through all the blogs on the Simole0n Sense site...dear god he has lots of links.  Lots of blogs out there I didn't know about, a few take aways.

  1. seemingly disproportional amount of value investors hail from Singapore. Loads

  2. lots of broken links, or blogs that have been abandoned. Nothing wrong on Simoleon, just goes to show how hard it is to keep up a good site. Very easy to start a blog and finish

  3. LOTS OF MARKET CALLING. Sweet mother of buddha's belly...even though almost everyone claimed to be a value investor, everyone is wondering about what Mr. Market is doing or will be he cheap? is he expensive? Is QE2 affecting returns? Is there a pull back? Gahh.... Not much on individual value.

just changed my the stocker from SNS to BH....

Finally got around to cleaning my RSS feeds today. It has been so long that Biglari Holdings, was still named SNS. Oh how the times have changed.

Hoping to update the site soon. Make it an actual blog that's worth while to read instead of a personal journal. I'll probably change the blog name as well.

Thursday, May 5, 2011

The Big Short & The Big Long

This is a basic and unrefined idea, but I think in general this will work quite nicely.

Long a basket of old tech stocks: HPQ, MSFT, GOOG, APPL, INTC, CSCO

Short a basket of new tech stocks: CRM, OPEN, LULU, TZOO, NFLX

Of course, trim the long basket where you see fit and trim the short basket where you see fit; but in aggregate I believe this would be a solid idea.

There have been some great write ups posted on the web for most (if not all) the long positions, and there have been some equally good write ups for short positions.

It would have been better to have taken this kind of position about two weeks ago, but this also means lots of the momentum going for the ridiculously price over tech stocks are probably over.

The Big Short & The Big Long

This is a basic and unrefined idea, but I think in general this will work quite nicely.

Long a basket of old tech stocks: HPQ, MSFT, GOOG, APPL, INTC, CSCO

Short a basket of new tech stocks: CRM, OPEN, LULU, TZOO, NFLX

Of course, trim the long basket where you see fit and trim the short basket where you see fit; but in aggregate I believe this would be a solid idea.

There have been some great write ups posted on the web for most (if not all) the long positions, and there have been some equally good write ups for short positions.

It would have been better to have taken this kind of position about two weeks ago, but this also means lots of the momentum going for the ridiculously price over tech stocks are probably over.

Tuesday, May 3, 2011

#2 Investment Ideas & Great Links

Great Links

1. "Decline of Manufacturing" is Global Phenomenon: And Yet the World Is Much Better Off Because of It (hat tip to dataroma)

2. Munger on CBC, discusses Sokol (hat tip to dataroma)

Munger does a great job describing the Sokol incident as a tragedy, in the greek sense.

Investment Ideasa

#1 (L) Loews

This company is owned by the Tisch family, a well known value family. It's currently trading at around cash + CNA holding, DO holding, Boardwalk Pipeline, then you get a collection of natural gas assets and hotels for free. There is a nice talk about the company on the corner of berk website

Presentation on Loews

Thoughts on tradional supermarkets and Winn Dixie

The death of Dixie

Winn Dixie went bankrupt around 2006 and has been in turn around mode ever since. The big problem for Winn Dixie is that the traditional supermarket model has been disrupted quite dramatically. For a long time grocery stores enjoyed competitive advantages of having scale in a community (more efficient to service 10 supermarkets in a city, than just 1 in each city) and being the first supermarket in the area (acquire better lots, higher traffic, closer to residential areas, people become accustomed to the supermarket and it's employees and therefore it becomes sticky.)

Yet, there was a large disruption within the traditional supermarkets: WalMart.  Once Walmart started to offer groceries it became a huge hit with consumers, in fact it's currently the largest grocery retailer. The massive scale of Walmart and efficient distribution system allows WalMart to offer grocery products cheaper than traditional grocery stores.

This caused supermarkets to change or die. The supermarkets that have changed and thrived, have been service oriented supermarkets. Supermarkets that go the extra mile to service their customers in order to oblige those customers to come back.  Generally these supermarkets pay their employees very well with stock options, high salary and great benefits. Some grocers have thrived by being the organic grocery or simple & small, but for old supermarkets, a drive in customer service was necessary. The supermarkets that decided to keep the old model of paying employees below average wages and keeping the stores less than fresh have been in a tail spin, which allowed Winn Dixie to end up in bankruptcy court in 2006.

Spirit of Dixie

Peter Lynch took over Wnn-Dixie and has be on a mission since to change the supermarket around. He closed down over half the stores, and consolidated the operation from over a thousand stores to under 500 stores. He then went about making Winn Dixie a more service oriented supermarket, investing a massive amount of money in remodels and increasing the customer service of the overall operation. Yet, even with all the hard work to turn around the store, he couldn' control the economy of Florida that went into a deep recession since 2007 due to a hard hit real estate sector.

People were pinching their pennies and were willing to drive to Walmart in order to save on their grocery bill. Also, Winn-Dixie with their incredible turn around in customer service and store quality has not been able to top the store quality of their closet competitor, Publix. So Winn Dixie is in a rut, they will never have prices as cheap as Walmart and they will never have the customer service of Publix (Publix pays their employees very well, and is actually an employee owned company, giving it a structural advantage in giving employees an incentive for great customer care.)

Cheapness of Dixie

For all it's warts and faults,  does Winn Dixie deserve to be priced so low? Currently Winn Dixie has an EV/Sales of 0.05, that's opposed to Whole Foods with 1.14, SuperValue 0.24 or Kroger of 0.27. Winn Dixie also has over 7B in annual sales, which means means if Winn Dixie could reach a reasonable profit margin of 0.01%, that's 70M in net income. Currently, Winn Dixie has a market cap of around 400M and an enterprise value of 330M. The company also has over 500M in NOL and is trading below half of book.

My guess is, all the negativity of Winn Dixie is already priced in and most people have been too negative on Winn Dixie's prospects.  If Winn Dixie feels any material increase in year over year, same store sales the we will see a jump in price.  

What to do in an expensive market?

During the historic 2000 bubble, Buffett had his money invested in REITS
I have less than 1% of my net worth outside Berkshire and when the Nasdaq hit its high, I had nearly all of it in REITs, which were selling at a discount to their liquidation values.

BRK Annual Meeting 2005 Tilson Notes, via

Which is interesting since if you would never put money in the stock market if you based your decision on over market valuations. Yet, there you had it, a whole industry of securities was dirt cheap in the height of the NASDAQ bubble.

So fast forward to today and if you were Shiller, you would once again say the stock market is over valued and stocks as part of your portfolio should be light. Yet, I think you would be making the same mistake again.  By bypassing today's market you'd also be bypassing some great values in Blue Chips, especially Old Tech companies like Microsoft, Intel, Johnson and Johnson and Cisco.

I am not saying anything new here to be honest. Lots of value investors have been saying Blue chips are cheap. Yet, I am just trying to come to terms with two thoughts. One, if the market is generally over valued it's time to be cautious and have a larger stock pile of cash, and two, bypassing great values because everything else is expensive is just as stupid as passing up the 10 cent bananas because the apples are selling for five dollars a piece.

No one likes buying in an expensive market, but maybe we just need to hold our nose. Heck, even Buffett thinks Microsoft is cheap.