Selling: When we don't know

When some events tell you that you do not know enough...

Touching on the idea of selling today.

  • Some sell because the share price had gone up.

  • Some sell because they have a stop loss in place

  • We sell when we realise we do not really know the risk at all…

Today, we had gotten out of our small position in Standard Chartered at a small profit and we have lady luck to thank for it.

We became customers of the bank when they launch their “higher rate” saving accounts. As the years go by, we on-boarded more of their services like broking and forex account. While the technology stack is not great, we see a gradual improvement in the services provided.

Technology helped Standard Chartered to cut their reliance on human labour. Everything went online and as customers we are actually happy to be free of un-need human interaction. Interesting services were offered and we lap it up happily as consumers.

As investors, we are getting interested. Being in the front row seat of seeing the change in the processes within the bank, we believe the story CEO Bill Winter is saying. The bank is changing and margin/ROE should tread up. Bill has been frank on how he “screwed” up when he just took on the CEO role and how he is morphing since taking charge. He seems like the CEO we would like to be in charge in running a bank whose cost had gone awry.

But we started to think twice when Standard Chartered’s lending division face some write-offs and then the fine from the US and India starts appearing. We had underestimated how unwieldy and diverse a international bank is. We realised that the geographical spread of Standard Chartered is too large to manage effectively from the central and too huge to analyse from the financial statement. As a relatively small bank, their international and commodity focus line of business are starting to look like a liability!

We are sure that the bank is changing its operation which should drive cost savings, but on the other hand we really don’t know what we don’t know about Standard Chartered.

  • Is there more cross border financial irregularities?

  • Or is there some commodity house that will bring lots of losses?

  • Or has some country division been really lax on their lending criteria to boost profit?

Despite the huge discount to book, the risk seems to unquantifiable.

When we could no longer quantify risk, we will never be able to bring ourselves to buy more shares if it fell further.

Since we are not going to buy more, it should be a sell NOW.

It took us a few months to reach that decision, and that is not an easy reflection to determine that we do not know the business well enough, it is an easy sell decision.

If you have any thoughts on our selling process, do hit the comment button below.

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