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No. of Recommendations: 2
I am really puzzled here.

GG team made MPEL into a best buy without any real metrics that favor such an assessment. This thing is yet to show a profit and is deeply in debt. Now that travel restrictions are threatening to be back and that the Chinese govt is taking steps to limit gambling, is it off the BBN list?

It is not about investing risk in China or unpredictable nature of Chinese govt. I remember how the British govt scuttled Party poker. Gambling is inherently injurious to the society. This field will always be under attack from regulations wherever it is. The second risk is that the idea of Casino cities is proliferating. In each such city, there are a lot of casinos that result in severe competition. One of the major points in the investment thesis for MPEL was relationships among various high officials and its impact on junkets etc. All of this puts this investments into an even higher risk bracket. We have already seen that stocks like MPEL get pummelled in a recession. Very high operating costs and very high capital investments make it even more risky. And GG team thinks this is a best buy since travel restrictions were the only risk? Maybe not but if one reads the newsletter this is the impression one gets. Instead of advising subscribers to trim their holdings to a risk adjusted size at the buoyant prices GG issues a buy-first call!

The second issue is related to CGA. I cannot believe that Tim says CGA is a buy below $12 and a hold at $13.5. How can investments whose share prices are totally based on the market whims be so tightly micromanaged. All that an advisor should say is that his valuation estimate of a particular stock at the moment is $X. Obvious the risk gets high, farther the price is from $X on the high side and it gets lower farther the price is on the low side. There should at least be a difference of 30% in price between "Buy" and "Hold". I come up with the 30% number based on the volatility of the chinese market. Maybe $12 is the upper range of Tim's assessment. If so, it should be communicated better. I think an extra column that lists the current valuation range makes much better sense. I have long asked for an extra column that has a risk meter in front of each stock. It is hard to keep searching for past posts, updates and issues to find out the valuation range and risk assessment. The scorecard should do all the job. I cannot see the rational of having the column on SP returns when returns vs SP column is already there. Have only one column please.

GG has been riding the coattails of a massive recovery over the last 12 months. I do not think the ride ahead would be this rosy. Risk assessment needs to get a lot better. I acknowledge that GG team has done much better this time than the past as I see a lot of stocks on the hold list. My criticism is to encourage GG team to keep up the good work and not loose their discipline during these giddy times.

Anurag

Anurag
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