The Motley Fool Discussion Boards
International Investing / China Connection
|Subject: Re: Chinese Transparency||Date: 6/15/2012 12:30 AM|
|Author: DCWD40||Number: 3420 of 3435|
The best investment I ever made in a Chinese company was one I purchased because a senior government official had a family member running this company. Thought the company had good products and protection from the government.
I have been burned twice by Chinese companies.
You don't need to own a Chinese company to be burned by one. Last year American Superconductor claims that its largest customer, Sinovel, had taken their technology without compensation or AMSC knowledge and installed it in Sinovel wind projects. The case is in Chinese court. Sinovel is the largest Chinese wind turbine manufacturer and #3 in the world. AMSC stock was $43.42 in January 2010. It has traded as low as $3.21 in the last 52 weeks.
My other disaster was also in 2011. Here is what Benzinga.com has to say about AgFeed (FEED):
Agfeed is a Chinese company that produces pork products. The company caters to the vast demand that Chinese consumer have for pork, as 63% of the meat eaten in China is pork. The US is also a big market, as many people consume bacon. Agfeed raises its pigs on a pair of breeder farms and generates most of its revenue from concentrate and complete hog feeds. Its pork is considered to be of the high end variety, as the company's founders are animal nutrition experts and the meat commands a premium in the market.
Agfeed has been the target of several class action lawsuits, as multiple firms have initiated investigations of the company. The suits claimed that the company's officers made misleading statements about the company's direction, particularly with regards to special charges taken over its animal nutrition business and bad debt payments. These allegations are what led to the investigation which uncovered improprieties over the company's assets. Complaints have also been made against the company's previous statements about record revenues, as well as large accounts receivables and low allowances for doubtful accounts.
I had followed FEED and Origin Agritech (SEED) for a long time before making an investment in both. SEED disappointed me in not meeting growth plans so I sold it for a minimal loss. But, when times looked bad, I purchased puts and made a nice profit there.
FEED purchased US hog producer M2P2 in late 2010 and its CEO (I think) joined the FEED board. I started watching closely because I thought a set of US eyes would ensure that poor bookkeeping would not be an issue. I was wrong. What M2P2 really did was bring a real US hog business under FEED control and allowed M2P2 best practices to be integrated into FEED's long-term plans. Without M2P2 I do not think FEED would be an ongoing business today.
I purchased FEED for $2.63 a share. It closed today at $.25 a share. I have an order to buy more shares at a price much lower than today's closing price.
FEED is now based in TN. It's books and operations are getting a detail review. For these reason, I am interested in expanding my small investment in order to reduce my breakeven point. FEED is in the processes of scaling up its western style hog facilities in China. The US operation produces 1.3 million hogs a year. The Chinese operation will grow to 1.2 million hogs annually by 2016.
I am an experienced trader and do lots of research before buying. I feel the rule of law is a problem in China. For this reason, I watch Baidu (which I owned and profited in last year) and China Mobile. Size matters. But, size will not protect you if something goes wrong. In a country with no social safety net, it is unlikely that an outsider is going to get much sympathy for their investments.
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