A Lesson Learnt in Investing - Picking the Sick Eagle with the Sinking Ship

I figured this image would be much more appropriate than all the Queen Mary pictures of EHT

A Lesson Learnt in Investing – Picking the Sick Eagle with the Sinking Ship

As some of you might have seen some news about Eagle Hospitality Trust by The Edge (here) and Straits Times (here).

Perhaps, let's start off with some context.

Previously, some of you might have remembered about the Tax Risks for Manulife and Keppel KBS (now Keppel Pacific Oak) REITs.
I got lucky and bought into Keppel Pacific Oak then at a good valuation which then awarded me with a rather decent yield. That was 2018, October.

Fast forward, one year later, October 2019, Eagle Hospitality Trust was in the spotlight for various issues ranging from disclosure to questions about Queen Mary maintenance and stuff.

As the market valuations was rich with nothing on my watchlist to buy, I punted (hand itchy) assuming Queen Mary was zero and got an average price of 53 cents. I remember the target dividend yield was 13-15% then, which after the recovery there would be some nice capital gains and a solid yield.

Share prices continued to fall to about 44 cents (I avoided averaging down as I was not comfortable to increase my position), before recovering to the range of 50+ cents.

I decided to hold on and wait for recovery, or reallocate after I got my dividends.

To make things worse, the Chinese virus, now named CoVID-19, spread across various countries resulting in a huge impact to global supply chains, companies and now to even recession in Singapore here.

Share prices hammered to 14 cents and now suspended.

I guess I won't be getting any dividends, I wonder will I even get 10% of my money after the news above.

I was hoping to just ride it out and ignore it (I was also busy with work and my project frankly).

Perhaps I should have recognised the weak sponsor and the management leaving as a chance to cut losses.

In view of the current environment, I would think this is just the beginning as companies will continue to default and perhaps be bailed out, until the virus situation recovers with some assistance from the Central Banks.

Makes me wonder about my Keppel Pacific Oak REIT now, which is underwater too.

Fortunately, the loss is about 2-3 months of my salary, which is 5% of my portfolio.
Capping the size helped to reduce the impact to my portfolio.

Lessons Learnt

• Avoid REITs with weak sponsors, unknown ones should generally be avoided
• Sponsor balance sheets are very important too
• Buying a strong company at a slight undervaluation is better than a mediocre/poor company at cheap valuations
• Cheap can always be cheaper
• Whatever the valuation, the company must first and foremost survive to ride it out
• Crisis is always the stress test for all companies
• Portfolio sizing is very important, shit can always happen, we must always survive another day
• Avoid punting and stay disciplined during times when your cash positions builds up with no opportunities

Anyone else caught in this sinking ship too?

Share your thoughts!