Asiasons Capital Continues To Sink…

SinkingShipLast Friday, fund manager Asiasons Capital Limited (SGX: 5ET) was suspended from trading by the Singapore Stock Exchange after its shares plunged 61% to S$1.04.

Elsewhere, gold miner LionGold Corp Limited (SGX: A78) and sterilisation services provider Blumont Group Limited (SGX: A33) were also hit with trading suspensions after their shares collapsed 42% and 56% respectively.

The trading suspensions were lifted over the weekend, but there were restrictions imposed: short-selling and contra-trading will not be allowed.

Following the announcement, all three companies requested trading halts prior to market opening. At the time of writing, LionGold was the only one with a trading halt still in place.

As for Asiasons and Blumont, shares in the former have tanked by 88% to S$0.13 while the latter sank 84% to S$0.153.

Thing is, while a sharp decline is shocking, there isn’t much difference between a sudden drop and a protracted death spiral when a company’s shares have insufficient fundamentals to warrant support its price.

Both have the same outcome – investors will lose money whether it is slowly or in one fell swoop.

Blumont’s shares were priced stratospherically at 500 times trailing earnings and 60 times book value prior to its dramatic collapse. With Asiasons, at S$2.70 it was valued at 583 times its last 12 months’ earnings and 15 times its book value.

Those are very high valuations regardless of how you look at it.

Buying stocks on the cheap can do wonders for an investor. But, the reverse is generally true as well – expensive stocks can fall.

There are certainly other factors in play here regarding the share price collapses, chief among those being excessive fear. According to the Wall Street Journal, Asiasons even had to deny “malicious market rumours” that the Monetary Authority of Singapore had sent an investigative team to the company.

As private investors, we might never know what has happened at these three companies, especially if the authorities are not taking any action. But what we do know is that buying cheap stocks forms an important basis for any successful investment philosophy.

Asiasons might well be a perfectly legitimate business, but judging from its numbers, investors with an eye on valuations could have side-stepped a potential landmine.

Benjamin Graham once said that he did not need to know the weight of a fat man to tell that he is fat. Similarly, there are times when it will be obvious that a share price is over inflated. In cases like that, the simple solution is to just walk away.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.