TRE - Sino-forest put.

[oec2000]

Just because there are some very good investors on this site doesn't mean that some can't take the odd gamble now and again. Anyone who invests in the market is a gambeler to a certain extent, it is just a matter of degree. I know of no stock that is 100% assured to increase in value. Sometimes there is nothing wrong with taking the ocassional longshot.

 

 

I agree that investing is a form of gambling. What makes it different is that true investors invest only when the odds (i.e. the expectation) are in their favour.

 

People buy the lottery because they see only the high reward to loss ratio; if they focused on the expectation (which is negative), they would rationally not buy the lottery.

 

So far, the TRE discussion sounds more like that of a lottery (reward vs loss) rather than an investment (no computation of expectation) - which is why I ask whether we have moved to Mad Jim's corner.

 

Would a truly good investor take the odd gamble (in the lottery sense) now and again? It has been my experience whenever I have taken such gambles, that I promptly get reminded (in the wallet) that I am not such a good investor.

 

Meanwhile, can someone please give a plausible explanation for how TRE can consistently make 100+% unleveraged ROI (not annualised) purely by trading in a commodity without adding value? If there is an idiot selling them timber at 50+% discounts, I would like to do business with him too.

[oec2000]

"Is that how Buffett or Watsa would think about an investment?"

 

I'm no expert on either one but I know very few, if any, buisnessmen who at one time or another didn't make some high risk investments and I doubt Watsa and Buffett are exceptions.

 

I also think we all know very many more people who went broke who at one time or other made some very high risk investments. Watsa and Buffett may very well have made some very high risk investments - however, it is very likely that they will also tell you that they did not get rich from those high risk investments.

[alertmeipp]

Not at all surprising and I figured they did this but...

 

 

Muddy Waters 'Pre-Marketed' Report to Funds, Dundee Says (1)

2011-06-07 20:13:21.204 GMT

 

 

(Updates with analyst's comment in third paragraph.)

 

By Matt Walcoff

June 7 (Bloomberg) -- Muddy Waters Research, the firm founded by short seller Carson Block, "pre-marketed" its June

2 report on Sino-Forest Corp. to hedge funds for the past five weeks, said an analyst at Dundee Securities Ltd.

Shares of Sino-Forest have tumbled 78 percent in Toronto since June 1, the day before Muddy Waters said in its report the Hong Kong and Mississauga, Ontario-based forestry company misled investors about its land holdings and production. Block stands to make money from declines in Sino-Forest's shares.

"Muddy Waters pre-marketed this smoking-gun report on Sino-Forest to hedge funds over the last five weeks," Richard Kelertas, an analyst at Dundee in Montreal, said today in a conference call with investors and reporters.

Kelertas changed his recommendation on Sino-Forest to "under review" from "buy" on June 3 following the Muddy Waters report. He said the report was inaccurate and there's nothing fraudulent about Sino-Forest "to the best of our knowledge."

Dundee was among institutions that helped Sino-Forest sell shares in December 2009 and also in May 2009.

"These hedge funds got involved with Sino-Forest in a big way," he said. Kelertas declined to name the funds or say how he obtained the information.

"The short position almost doubled in two to three weeks," he said.

 

Shorted Stock

 

Short selling, or selling borrowed shares with the hope of profiting when they fall, more than doubled to a record 35 percent of Sino-Forest's outstanding stock as of June 3, up from

17 percent at the beginning of May and 13 percent at the end of 2010, according to Data Explorers, a New York-based research firm. Sino-Forest is the most-shorted stock in the Standard & Poor's TSX Composite Index, which has an average short interest of 4.8 percent.

Sino-Forest dropped $2.15, or 35 percent, to C$4.01 as of 4 p.m. on the Toronto Stock Exchange.

The shares will recover "much faster than people suspect," Kelertas said.

No one immediately responded to telephone and e-mail messages for Block seeking comment.

 

 

Looks like MW is just the face to the public. The real money is made by some one else.

[cwericb]

"I also think we all know very many more people who went broke who at one time or other made some very high risk investments."

 

It is interesting that you should bring this up. I never cease to be amazed at the number of successful buisnessmen I know who either went broke or nearly did so at some point early in their career. I also know a number of very bright people who were not very sucessful in business because they were too conservative and risk adverse.

 

 

[alertmeipp]

I also picked up some shares today in the low 4's$.  

 

 

the way I see this one is this.  

 

Worse case scenerio is TRE is a $0.  I offset the loss with some other cap gains and I only loose half what I put down.

 

If Sino is correct here, I will have a clear picture of this company and what they do...plus (over time) it will go back up to 26$+.  600% + upside.

 

:o :o And we're on a board named after two insurers!

 

You should read Fooled By Randomness by Nassim Taleb. You will learn the faultiness of this logic if you do.

By the way, for just $10,000, I'll sell you the right to win $100,000 next year. But it only has a 1% chance of winning

 

Would you do it?

 

As you tried to indicate, the odd is the key here. For example, if one figures the odd is 50%. Current price is a buy.

[alertmeipp]

"I also think we all know very many more people who went broke who at one time or other made some very high risk investments."

 

It is interesting that you should bring this up. I never cease to be amazed at the number of successful buisnessmen I know who either went broke or nearly did so at some point early in their career. I also know a number of very bright people who were not very sucessful in business because they were too conservative and risk adverse.

 

 

 

EP at $3, ATSG at 20 cents, FBK at 20 cents, FFH at $80, WFC at $8, BAC at 2 bucks. Buying those back then has real risk of going zero too. Not many times we can have "baggers" with little risk.

[OracleofCarolina]

It's hard to swallow that Sino has been public for 8 years

and could be a fraud the whole time..it is sure smelling like that

[cwericb]

alertmeipp - Exactly.  Also I find it a bit ironic that there so many people on this board who seem to be so risk adverse. Who is more involved in risk than insurance companies and investors. Some of those companies alertmeipp mentions didn't look so great a couple of years ago.

 

--------------------------------

 

"It's hard to swallow that Sino has been public for 8 years and could be a fraud the whole time..it is sure smelling like that"

 

If it is a fraud, it just goes to show that numbers can't always be trusted. I wonder how many of the people here who are so against high risk would have seen TRE differently a few years ago.

 

 

[Guest Hester]

You guys are missing the point. By a lot.

The point is not to be risk averse, or that you should never invest when there is a risk of a zero. Every stock technically has a risk of zero. You'll see that I said.

"I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds."

 

You guys are just assuming that this is an asymmetric bet because the downside is zero and the upside appears to be a five bagger.

 

What we're missing here is the odds. It's only an asymmetric bet if the odds are not skewed. The lottory has a million dollar to one dollar payout (or more). Does that mean you should invest? You must know the odds.

 

And you don't. You don't even have a vague idea of what the odds are. You may think you do but you don't.

 

You haven't went through the MW report and repudiated it. Not even close. You couldn't have done 1/10th of the research you need to on this complex situation in this amount of time, and yet we have a legion of buyers. You're just gambling, because you don't know what you're buying, although it may feel like investing.

 

This isn't some little company that you can just read the 10K and a couple of shareholder letters and be ready to buy. This is a very very complex situation where for the time being one cannot trust the reported financials, and has to reconcile them before you even begin to decide if it's a good company.

 

Buffett likes to say that if you can't figure out who the patsy is at the poker table, it's you. Think of who's on the other side of your trade. MW did 2 months of on the ground work, with 10 analysts and could (and almost did) write a book on their thesis for this company. It's not perfect, and it's looking like they may have gotten the lumber shipments part wrong, but it's still pretty damn good. That's who's on the other side of your trade, who do you think has the edge?

 

You buyers have 40 pages to refute. I suggest you get to work, or put it in the too hard pile. That's what I did (I'd take it out if I could get the borrow). Otherwise you might as well go to Vegas and have fun while you gamble.

[alertmeipp]

You guys are missing the point. By a lot.

The point is not to be risk averse, or that you should never invest when there is a risk of a zero. Every stock technically has a risk of zero. You'll see that I said.

"I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds."

 

You guys are just assuming that this is an asymmetric bet because the downside is zero and the upside appears to be a five bagger.

 

What we're missing here is the odds. It's only an asymmetric bet if the odds are not skewed. The lottory has a million dollar to one dollar payout (or more). Does that mean you should invest? You must know the odds.

 

And you don't. You don't even have a vague idea of what the odds are. You may think you do but you don't.

 

You haven't went through the MW report and repudiated it. Not even close. You couldn't have done 1/10th of the research you need to on this complex situation in this amount of time, and yet we have a legion of buyers. You're just gambling, because you don't know what you're buying, although it may feel like investing.

 

This isn't some little company that you can just read the 10K and a couple of shareholder letters and be ready to buy. This is a very very complex situation where for the time being one cannot trust the reported financials, and has to reconcile them before you even begin to decide if it's a good company.

 

Buffett likes to say that if you can't figure out who the patsy is at the poker table, it's you. Think of who's on the other side of your trade. MW did 2 months of on the ground work, with 10 analysts and could (and almost did) write a book on their thesis for this company. It's not perfect, and it's looking like they may have gotten the lumber shipments part wrong, but it's still pretty damn good. That's who's on the other side of your trade, who do you think has the edge?

 

You buyers have 40 pages to refute. I suggest you get to work, or put it in the too hard pile. That's what I did (I'd take it out if I could get the borrow). Otherwise you might as well go to Vegas and have fun while you gamble.

 

How many times I have to say this: there are two critical errors in MW's 40 page report and those are critical errors, they don't even get the business model. What research have you done to make you so convinced that you would go short?

 

The odd of an investment is an educated guess, most of us have a number/range in mind. The odd of lottery/casino is calculated value. You think WFC didn't have a odd of zero when the financial system were going to collapse?

[beerbaron]

You guys are missing the point. By a lot.

The point is not to be risk averse, or that you should never invest when there is a risk of a zero. Every stock technically has a risk of zero. You'll see that I said.

"I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds."

 

You guys are just assuming that this is an asymmetric bet because the downside is zero and the upside appears to be a five bagger.

 

What we're missing here is the odds. It's only an asymmetric bet if the odds are not skewed. The lottory has a million dollar to one dollar payout (or more). Does that mean you should invest? You must know the odds.

 

And you don't. You don't even have a vague idea of what the odds are. You may think you do but you don't.

 

You haven't went through the MW report and repudiated it. Not even close. You couldn't have done 1/10th of the research you need to on this complex situation in this amount of time, and yet we have a legion of buyers. You're just gambling, because you don't know what you're buying, although it may feel like investing.

 

This isn't some little company that you can just read the 10K and a couple of shareholder letters and be ready to buy. This is a very very complex situation where for the time being one cannot trust the reported financials, and has to reconcile them before you even begin to decide if it's a good company.

 

Buffett likes to say that if you can't figure out who the patsy is at the poker table, it's you. Think of who's on the other side of your trade. MW did 2 months of on the ground work, with 10 analysts and could (and almost did) write a book on their thesis for this company. It's not perfect, and it's looking like they may have gotten the lumber shipments part wrong, but it's still pretty damn good. That's who's on the other side of your trade, who do you think has the edge?

 

You buyers have 40 pages to refute. I suggest you get to work, or put it in the too hard pile. That's what I did (I'd take it out if I could get the borrow). Otherwise you might as well go to Vegas and have fun while you gamble.

 

Your 100% right Hester, when I red about the 2$ puts I got excited. Did some research and could not find any reasons for such high put price. So I did not sell any... because I could not establish an odd. It felt like I was the patsy.

 

The whole point of investing in higher then average risk is to have an idea of the odds. For example I bough some RIM last week but I knew dam well what were the issues with the company and the phone market. But I also tough the price was not fully accounting the possibility of a turnaround... PE expansion and earnings growth do wonders in turnarounds. Now all that is left for me to do is wait and keep focused for the risks to materialize or not... but at least I know the risks.

 

BeerBaron

[Guest Hester]

 

How many times I have to say this: there are two critical errors in MW's 40 page report and those are critical errors, they don't even get the business model. What research have you done to make you so convinced that you would go short?

 

The odd of an investment is an educated guess, most of us have a number/range in mind. The odd of lottery/casino is calculated value. You think WFC didn't have a odd of zero when the financial system were going to collapse?

 

I haven't done any research past reading the MW report. That's why I'm not short. I'd start doing research if I could get the borrow, so that way after my research was done I could either choose to go long or short based on my opinion. Right now my only option is long. I'm not even going to waste the time.

 

You're right that the odds are always an educated guess. But educated is the operative word there. Get it?

 

Two "critical errors" down many to go.

[Guest Hester]

Your 100% right Hester, when I red about the 2$ puts I got excited. Did some research and could not find any reasons for such high put price. So I did not sell any... because I could not establish an odd. It felt like I was the patsy.

 

The whole point of investing in higher then average risk is to have an idea of the odds. For example I bough some RIM last week but I knew dam well what were the issues with the company and the phone market. But I also tough the price was not fully accounting the possibility of a turnaround... PE expansion and earnings growth do wonders in turnarounds. Now all that is left for me to do is wait and keep focused for the risks to materialize or not... but at least I know the risks.

 

BeerBaron

 

Right, I am aware that many on this board made a small fortune in FFH LEAPS during the saga. They were higher risk, because of the fact that they're options and expire, but they were a good bet. Again, they were an educated, asymmetric, higher risk bet. But the people who made a killing in FFH LEAPS I'd imagine knew a great deal about FFH and Watsa and were able to make a bet based on this education. They were able to get a handle on the odds. From what I've seen, TRE buyers don't have this.

 

My opinion I guess.

[alertmeipp]

>> But educated is the operative word there. Get it?

 

Would you expand on this?

 

>>Two "critical errors" down many to go.

 

I read news before saying if one posts some false statements in message board in order to profit from it, one would get prosecuted. Does it apply to MW?

[alertmeipp]

Your 100% right Hester, when I red about the 2$ puts I got excited. Did some research and could not find any reasons for such high put price. So I did not sell any... because I could not establish an odd. It felt like I was the patsy.

 

The whole point of investing in higher then average risk is to have an idea of the odds. For example I bough some RIM last week but I knew dam well what were the issues with the company and the phone market. But I also tough the price was not fully accounting the possibility of a turnaround... PE expansion and earnings growth do wonders in turnarounds. Now all that is left for me to do is wait and keep focused for the risks to materialize or not... but at least I know the risks.

 

BeerBaron

 

Right, I am aware that many on this board made a small fortune in FFH LEAPS during the saga. They were higher risk, because of the fact that they're options and expire, but they were a good bet. Again, they were an educated, asymmetric, higher risk bet. But the people who made a killing in FFH LEAPS I'd imagine knew a great deal about FFH and Watsa and were able to make a bet based on this education. They were able to get a handle on the odds. From what I've seen, TRE buyers don't have this.

 

My opinion I guess.

 

Different people, different styles. Some can strike with limited info and can suffer great lost/risk, some can't. There is no right or wrong.

[Hoodlum]

Muddy waters is trying to use the SAIC to determine fraud at TRE.  Here is an interesting article from February that explains why this is not possible based on how businesses need to be structured in China.

 

http://weybenjamin.wordpress.com/2011/02/18/benjamin-wey-a-china-experts-views-on-saic-and-sec-filing-discrepancies-for-u-s-based-companies/

 

[alertmeipp]

You guys are missing the point. By a lot.

The point is not to be risk averse, or that you should never invest when there is a risk of a zero. Every stock technically has a risk of zero. You'll see that I said.

"I'm all for taking high risk asymmetric bets, but you can only do that when you do research and know the odds."

 

You guys are just assuming that this is an asymmetric bet because the downside is zero and the upside appears to be a five bagger.

 

What we're missing here is the odds. It's only an asymmetric bet if the odds are not skewed. The lottory has a million dollar to one dollar payout (or more). Does that mean you should invest? You must know the odds.

 

And you don't. You don't even have a vague idea of what the odds are. You may think you do but you don't.

 

You haven't went through the MW report and repudiated it. Not even close. You couldn't have done 1/10th of the research you need to on this complex situation in this amount of time, and yet we have a legion of buyers. You're just gambling, because you don't know what you're buying, although it may feel like investing.

 

This isn't some little company that you can just read the 10K and a couple of shareholder letters and be ready to buy. This is a very very complex situation where for the time being one cannot trust the reported financials, and has to reconcile them before you even begin to decide if it's a good company.

 

Buffett likes to say that if you can't figure out who the patsy is at the poker table, it's you. Think of who's on the other side of your trade. MW did 2 months of on the ground work, with 10 analysts and could (and almost did) write a book on their thesis for this company. It's not perfect, and it's looking like they may have gotten the lumber shipments part wrong, but it's still pretty damn good. That's who's on the other side of your trade, who do you think has the edge?

 

You buyers have 40 pages to refute. I suggest you get to work, or put it in the too hard pile. That's what I did (I'd take it out if I could get the borrow). Otherwise you might as well go to Vegas and have fun while you gamble.

 

Your 100% right Hester, when I red about the 2$ puts I got excited. Did some research and could not find any reasons for such high put price. So I did not sell any... because I could not establish an odd. It felt like I was the patsy.

 

The whole point of investing in higher then average risk is to have an idea of the odds. For example I bough some RIM last week but I knew dam well what were the issues with the company and the phone market. But I also tough the price was not fully accounting the possibility of a turnaround... PE expansion and earnings growth do wonders in turnarounds. Now all that is left for me to do is wait and keep focused for the risks to materialize or not... but at least I know the risks.

 

BeerBaron

 

You think you know the risks until you don't. Risk management is not dealing with what we know but what we don't know.

[alertmeipp]

Muddy waters is trying to use the SAIC to determine fraud at TRE.  Here is an interesting article from February that explains why this is not possible based on how businesses need to be structured in China.

 

http://weybenjamin.wordpress.com/2011/02/18/benjamin-wey-a-china-experts-views-on-saic-and-sec-filing-discrepancies-for-u-s-based-companies/

 

 

Dundee explains the same concept in their rebuttal to MW. If TRE were not a fraud, MW (or the real-entity behind it) is just way too smart to take on TRE while the RTO fear is on-going.

[beerbaron]

You think you know the risks until you don't. Risk management is not dealing with what we know but what we don't know.

 

You are totally right!

 

I am an Engineer in product development and risks are the things you don't know. This is what will kill you or your product. So what should you do if you don't know the risks?

 

Well for starters you will learn more about what you think could be the risks. You would take a few hours sitting in front of a piece of paper and write down everything that could go wrong. You'll likely miss some but you should get 80% if you are good and 90% if you are experienced.

 

Once you have your list you go each point one by one and you try to see how to protect from it either by test, material, theoretic analysis, etc...

 

After this process you might have some issues you did not think of, but you'll be a lot better then if you did not do anything to prevent all the other things.

 

I try to apply the same strategy to investing. I might have missed lots of risks by investing in RIM but I took great care to try to find as many as possible, find the problems early and solve... if possible.

 

I do agree that Sino is a very high reward I just can't put any range of number on the numerator (risk). If your capable of doing it then you'll statistically be doing very good return on the long run.

 

BeerBaron

[oddballstocks]

Have we moved suddenly from the corner of BRK and FFH to the corner of Cramer & Cramer? What happened to Buffett's Rules Nos. 1 and 2?

 

The only justification buyers seem to be giving here is that the upside is many multiples of the downside. This is fine if the bet is a 50:50 bet. But, is it?

 

I haven't done much work on TRE or read the actual MW report but these are some of the things I gleaned from this TRE presentation: http://www.sinoforest.com/pdf/presentations/SFC-IR-ppt-Q410.pdf.

 

1) Poyry Consulting (independent valuer of TRE's forest assets) has, after a recent "internal risk assessment" decided that their valuation reports to TRE may no longer be made avaliable in the public domain. Red flag?

 

2) Anyone wonder how a commodity company like TRE has a 15-year track record that looks better than MCD, FFH and BRK? Phenomenal growth rates with hardly a stumble? CAGRs of 23% diluted EPS, 36% revenue, 43% net income! Redder flag?

 

3) This company generates 50+% gross margins simply from buying and selling standing timber. What's interesting is that these margins are higher than the 30-40% margins they get from felling and selling logs. We're wasting time arguing about whether to invest in TRE or not. We should get into the timber trading business. Even redder flag?

 

4) They report gross margins of 35% overall, yet their EBITDA margins are almost 60%. Net margins are around 20%. My flag just turned brigtht crimson.

 

There may be prefectly good explanations for these things and I do not know the forestry business at all so I may just be revealing my ignorance but it seems to me this is not a 50:50 bet.

 

 

 

The post of the thread... Why not forget about MW and just discuss the numbers, from what oec2000 has here this company is blowing it out of the water.  Similar thing happened with CCME, looking at their statements one could conclude they had the worlds most profitable business model, but in fact it turned out to be a fake.

 

The question I keep asking is if all of those RTO Chinese companies are as amazing as their statements make them out to be why are they trying to raise capital?  Cash rich companies with high growth rates, high cash returns out looking for equity?  Why not bank financing, much cheaper, instead they go for the highest cost option, just seems fishy to me.

[given2invest]

Have we moved suddenly from the corner of BRK and FFH to the corner of Cramer & Cramer? What happened to Buffett's Rules Nos. 1 and 2?

 

The only justification buyers seem to be giving here is that the upside is many multiples of the downside. This is fine if the bet is a 50:50 bet. But, is it?

 

I haven't done much work on TRE or read the actual MW report but these are some of the things I gleaned from this TRE presentation: http://www.sinoforest.com/pdf/presentations/SFC-IR-ppt-Q410.pdf.

 

1) Poyry Consulting (independent valuer of TRE's forest assets) has, after a recent "internal risk assessment" decided that their valuation reports to TRE may no longer be made avaliable in the public domain. Red flag?

 

2) Anyone wonder how a commodity company like TRE has a 15-year track record that looks better than MCD, FFH and BRK? Phenomenal growth rates with hardly a stumble? CAGRs of 23% diluted EPS, 36% revenue, 43% net income! Redder flag?

 

3) This company generates 50+% gross margins simply from buying and selling standing timber. What's interesting is that these margins are higher than the 30-40% margins they get from felling and selling logs. We're wasting time arguing about whether to invest in TRE or not. We should get into the timber trading business. Even redder flag?

 

4) They report gross margins of 35% overall, yet their EBITDA margins are almost 60%. Net margins are around 20%. My flag just turned brigtht crimson.

 

There may be prefectly good explanations for these things and I do not know the forestry business at all so I may just be revealing my ignorance but it seems to me this is not a 50:50 bet.

 

 

 

The post of the thread... Why not forget about MW and just discuss the numbers, from what oec2000 has here this company is blowing it out of the water.  Similar thing happened with CCME, looking at their statements one could conclude they had the worlds most profitable business model, but in fact it turned out to be a fake.

 

The question I keep asking is if all of those RTO Chinese companies are as amazing as their statements make them out to be why are they trying to raise capital?  Cash rich companies with high growth rates, high cash returns out looking for equity?  Why not bank financing, much cheaper, instead they go for the highest cost option, just seems fishy to me.

 

Well, at least TRE has been spending the capital and has been negative FCF.  That's actually a positive the way I look at it.  CCME (and others) raised round after round at absurdly low valuations while generating copious amounts of FCF.  Most importantly, they had no capital needs!  They weren't spending money on any cap ex! 

 

Also TRE raised a lot of debt, too.  Frauds usually will not raise debt.  I also take aim at MW claim that it's a ponzi scheme.  A ponzi scheme raises new money to pay out old investors.  How did TRE do that?  They just kept raising new money to (apparently) steal more and more money, not to fund the fraud and pay out old investors/bondholders, right?

[alertmeipp]

Have we moved suddenly from the corner of BRK and FFH to the corner of Cramer & Cramer? What happened to Buffett's Rules Nos. 1 and 2?

 

The only justification buyers seem to be giving here is that the upside is many multiples of the downside. This is fine if the bet is a 50:50 bet. But, is it?

 

I haven't done much work on TRE or read the actual MW report but these are some of the things I gleaned from this TRE presentation: http://www.sinoforest.com/pdf/presentations/SFC-IR-ppt-Q410.pdf.

 

1) Poyry Consulting (independent valuer of TRE's forest assets) has, after a recent "internal risk assessment" decided that their valuation reports to TRE may no longer be made avaliable in the public domain. Red flag?

 

2) Anyone wonder how a commodity company like TRE has a 15-year track record that looks better than MCD, FFH and BRK? Phenomenal growth rates with hardly a stumble? CAGRs of 23% diluted EPS, 36% revenue, 43% net income! Redder flag?

 

3) This company generates 50+% gross margins simply from buying and selling standing timber. What's interesting is that these margins are higher than the 30-40% margins they get from felling and selling logs. We're wasting time arguing about whether to invest in TRE or not. We should get into the timber trading business. Even redder flag?

 

4) They report gross margins of 35% overall, yet their EBITDA margins are almost 60%. Net margins are around 20%. My flag just turned brigtht crimson.

 

There may be prefectly good explanations for these things and I do not know the forestry business at all so I may just be revealing my ignorance but it seems to me this is not a 50:50 bet.

 

 

 

The post of the thread... Why not forget about MW and just discuss the numbers, from what oec2000 has here this company is blowing it out of the water.  Similar thing happened with CCME, looking at their statements one could conclude they had the worlds most profitable business model, but in fact it turned out to be a fake.

 

The question I keep asking is if all of those RTO Chinese companies are as amazing as their statements make them out to be why are they trying to raise capital?  Cash rich companies with high growth rates, high cash returns out looking for equity?  Why not bank financing, much cheaper, instead they go for the highest cost option, just seems fishy to me.

 

Well, at least TRE has been spending the capital and has been negative FCF.   That's actually a positive the way I look at it.   CCME (and others) raised round after round at absurdly low valuations while generating copious amounts of FCF.   Most importantly, they had no capital needs!   They weren't spending money on any cap ex!   

 

Also TRE raised a lot of debt, too.   Frauds usually will not raise debt.   I also take aim at MW claim that it's a ponzi scheme.   A ponzi scheme raises new money to pay out old investors.   How did TRE do that?   They just kept raising new money to (apparently) steal more and more money, not to fund the fraud and pay out old investors/bondholders, right?

 

You know part of their capital structure is a 1.5billions from China Development Bank. I think chance are better that they are not fraud, but I just worry that it doesn't mean much at the end.

[claphands22]

Muddy waters is trying to use the SAIC to determine fraud at TRE.  Here is an interesting article from February that explains why this is not possible based on how businesses need to be structured in China.

 

http://weybenjamin.wordpress.com/2011/02/18/benjamin-wey-a-china-experts-views-on-saic-and-sec-filing-discrepancies-for-u-s-based-companies/

 

 

Please be aware that Benjamin Wey is not a objective player in this scene. He was discussed in the Barron's report "Beware of This Chinese Export"

 

One of the most controversial promoters of Chinese reverse takeovers, Benjamin Wey, continues to find work. Wey'shistory of suspension and censure by Nasdaq and state securities regulators has been amply reported, including a Barron's story ("AgFeed Trips on Its Way to the Trough," May 19, 2008). Since our piece describing Wey's work for the hog farmer AgFeed Industries (FEED), the company has missed production targets and its shares have slumped from 15 to below 2.50. The company could not respond to queries by presstime. In an interview last year with the English-language newspaper China Daily, officials of his New York Global Group investment bank claimed that 15% of the Chinese companies on Nasdaq were its clients. The firm has offices in Beijing and at 40 Wall Street in New York. On its Website (www.nyggroup.com), Wey's firm brags of alliances with four city governments and China's central bank. With hedge-fund operator Michael D. Witter—grandson of the brokerage founder Dean Witter—Wey last year announced plans to raise $300 million to invest in China companies. Neither Wey nor Witter responded to Barron's queries.

 

 

I am utterly fascinated with these Chinese RTO's.  The characters involved are interesting, the stories behind the companies are interesting, the SEC filings could be used for an forensic accounting class and there have been some very smart people who have been burned by Chinese RTO's.  

 

I highly suggest everyone to watch this story about Richard Heckmann being duped by a Chinese RTO. http://www.thestreet.com/story/10953579/1/dealmakers-long-trip-through-china-rto.html  I'd also suggest watching the series of "The Shanghai Numbers"

 

In terms of Muddy Waters.   I think they need to come clean about any mistakes they have made in the TRE report. It only makes any of their good points look less valid.  

 

 

[oec2000]

"I also think we all know very many more people who went broke who at one time or other made some very high risk investments."

 

It is interesting that you should bring this up. I never cease to be amazed at the number of successful buisnessmen I know who either went broke or nearly did so at some point early in their career. I also know a number of very bright people who were not very sucessful in business because they were too conservative and risk adverse.

 

 

 

EP at $3, ATSG at 20 cents, FBK at 20 cents, FFH at $80, WFC at $8, BAC at 2 bucks. Buying those back then has real risk of going zero too. Not many times we can have "baggers" with little risk.

 

I am all for looking for multibaggers and have posted on things like bank pfds, SCP and SII which have turned out to be multibaggers. I am not averse to taking calculated risks. Neither SCP or SII were at risk of bankruptcy when I bought and with the bank pfds, I recommended them only after the govt stress tests had been done and the banks had raised additional capital to shore up their stress tested balance sheets (and even then I took a basket approach to ensure that I would lose everything only if the entire banking system had gone under).

 

The point is that you can find baggers without taking "blind" risk (which is what one would be taking with TRE unless the questions I raised about their numbers can be explained to some degree). Bringing up hindsight examples of fortunes being made by risk takers does not prove anything. These are not random samples that validate your viewpoints; they are merely selective facts that suit your argument. Don't you think that if you took random samples of high risk investors and investments the proportion of failures would be much higher than successes?

 

Maybe you feel that the cautionary folk here are attacking you and sometimes enthusiastic posts can appear that way. However, I think most of them are simply offering alternative views for you to consider. The problem is that we don't see you offering much by way of analysis of TRE's business or financials to explain why you think it is a good calculated risk. (I'm not suggesting that you need to explain your decisions; just that it would be more beneficial to everyone if the discussions centred on TRE's fundamentals rather than on the evilness of short sellers or the benefits of risk-taking.)

 

You may feel that this is a 50:50 bet because it is one side's words against the other. However, you should consider the incentives that each side has. TRE mgmt has an incentive to lie because they can benefit from the lie. MW has much less incentive to lie - would you deliberately choose to short and attack a company that you sincerely believe to be sound and highly profitable? They have hundreds of companies to choose from - why choose a strong one that they have to manufacture lies on?

 

Reminds me of the argument that Bush knowingly lied about WMD in Iraq. If he really knew that there were no WMD, would he have lied knowing that they would eventually fail to find the evidence? If the lie had been deliberate, wouldn't he have taken the logical next step to plant some WMD and then "find" it later on?

 

 

 

 

[alertmeipp]

"I also think we all know very many more people who went broke who at one time or other made some very high risk investments."

 

It is interesting that you should bring this up. I never cease to be amazed at the number of successful buisnessmen I know who either went broke or nearly did so at some point early in their career. I also know a number of very bright people who were not very sucessful in business because they were too conservative and risk adverse.

 

 

 

EP at $3, ATSG at 20 cents, FBK at 20 cents, FFH at $80, WFC at $8, BAC at 2 bucks. Buying those back then has real risk of going zero too. Not many times we can have "baggers" with little risk.

 

I am all for looking for multibaggers and have posted on things like bank pfds, SCP and SII which have turned out to be multibaggers. I am not averse to taking calculated risks. Neither SCP or SII were at risk of bankruptcy when I bought and with the bank pfds, I recommended them only after the govt stress tests had been done and the banks had raised additional capital to shore up their stress tested balance sheets (and even then I took a basket approach to ensure that I would lose everything only if the entire banking system had gone under).

 

The point is that you can find baggers without taking "blind" risk (which is what one would be taking with TRE unless the questions I raised about their numbers can be explained to some degree). Bringing up hindsight examples of fortunes being made by risk takers does not prove anything. These are not random samples that validate your viewpoints; they are merely selective facts that suit your argument. Don't you think that if you took random samples of high risk investors and investments the proportion of failures would be much higher than successes?

 

Maybe you feel that the cautionary folk here are attacking you and sometimes enthusiastic posts can appear that way. However, I think most of them are simply offering alternative views for you to consider. The problem is that we don't see you offering much by way of analysis of TRE's business or financials to explain why you think it is a good calculated risk. (I'm not suggesting that you need to explain your decisions; just that it would be more beneficial to everyone if the discussions centred on TRE's fundamentals rather than on the evilness of short sellers or the benefits of risk-taking.)

 

You may feel that this is a 50:50 bet because it is one side's words against the other. However, you should consider the incentives that each side has. TRE mgmt has an incentive to lie because they can benefit from the lie. MW has much less incentive to lie - would you deliberately choose to short and attack a company that you sincerely believe to be sound and highly profitable? They have hundreds of companies to choose from - why choose a strong one that they have to manufacture lies on?

 

Reminds me of the argument that Bush knowingly lied about WMD in Iraq. If he really knew that there were no WMD, would he have lied knowing that they would eventually fail to find the evidence? If the lie had been deliberate, wouldn't he have taken the logical next step to plant some WMD and then "find" it later on?

 

 

 

 

 

Actually, my point is not even specific to TRE - all I was trying to point out is most  "baggers" has huge risk. I agree with your basket approach. But it's not like ppl are saying they are going 100% all into TRE. They could be considered as basket approach too. But in your case, your basket are having related stocks while in this case, it's TRE with some other maybe totally unrelated stocks.

 

I agree that management maybe lying for their own good as well.