Saying that commodity trading outfit Noble Group Limited (SGX: N21) has had a bad month would be an understatement. In February, an unknown blogger called Iceberg Research had released two reports on Noble (a third one is apparently on the way), criticizing the company’s accounting practices with valuing its contracts amongst other issues. Since the release of Iceberg Research’s first report on 15 February 2015, Noble has seen its shares fall by nearly 30% to yesterday’s close at S$0.85. (I’ve taken a look at Iceberg Research’s reports on Noble, so you can check out my thoughts here.) This sharp fall…
Saying that commodity trading outfit Noble Group Limited (SGX: N21) has had a bad month would be an understatement.
In February, an unknown blogger called Iceberg Research had released two reports on Noble (a third one is apparently on the way), criticizing the company’s accounting practices with valuing its contracts amongst other issues.
Since the release of Iceberg Research’s first report on 15 February 2015, Noble has seen its shares fall by nearly 30% to yesterday’s close at S$0.85. (I’ve taken a look at Iceberg Research’s reports on Noble, so you can check out my thoughts here.)
This sharp fall in Noble’s price has led to speculation in the market that the firm has attracted the attention of other companies that are interested in acquiring commodity traders.
Earlier today, local business newswire The Business Times reported that a few Japanese and Chinese firms might be looking into the possibility of buying Noble. The Business Times also mentioned in its report however, that Richard Elman, Noble’s largest shareholder and founder, “has been keen on [Noble] saying independent.”
Although a buyout of Noble remains as just speculation at the moment, there have indeed been an increase in interest in the firm from institutional investors (investing entities that control huge sums of money).
To that point, Eastspring Investments, an asset management company that’s part of Prudential Corporation Asia, a large regional insurer, had on Tuesday became a substantial shareholder in Noble. (An investor becomes a substantial shareholder in a company when its stake in said company crosses the 5% threshold).
Implications for investors
Given the impression that Noble has seemingly attracted the attention of other companies and big investors and that there’s a possibility of the firm being taken private, what are the implications for retail investors?
The key here, as it is with any other company, is to understand the business and to figure out what it’s worth.
But to do so, there are two important issues to confront.
The first deals with how Iceberg Research’s reports have caused a cloud of uncertainty to hang over Noble. As an investor, you either trust the financial numbers provided by Noble or you don’t.
But let’s assume that we do trust Noble’s numbers. This brings us to the second issue: For retail investors who do not have a lot of time or effort to really research the situation, you do have to wonder if’s really worth the effort to dig into Noble.
(For a flavour of the complexity that awaits, Noble has said it has roughly 12,000 contracts with various commodity producers and customers; it’d take a massive amount of work to figure out all their values and if they’re properly accounted for.)
Warren Buffett has been saying over the years that we do not need to know everything that’s out there in the stock market – the important thing is to be good at spots and stay around those spots. I agree with Buffett’s words.
If you’re not someone who has some serious chops in accounting and the analysis of financial statements, it might be better to just watch the drama from the side-lines.
We do not have to invest in a company we don’t quite fully understand just because there are rumours that it may be bought out. Some of the keys to being a successful investor is having discipline (in only investing in companies you understand) and knowing what you are good at and what you are not.
By simply betting on whether Noble might be taken over due to its recent share price drop is, to me, nothing more than a pure gamble. And the problem with gambling is that even if you win this time around, can you do it again?
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