I have to thank Nick for highlighting this article to me.
We often first hand stereotype stocks based on the historical price movement. Take the example of this shipping stock Frontline (FRO). An observation of this stock from 2001 to 2011 will lead us to conclude that this stock is made for traders rather than investors because had you held on for 10 years you wouldn’t have made much.
But often a lot of things were not accounted for in a price chart
- The dividends. For an initial investment of 10 dollar per share, Frontline paid a total of 55 dollars of dividends. That’s almost a 2 bagger in itself.
- Spin-offs. In 2004 Frontline spin off their ships to a trust like company to let Frontline focus on the risks and rewards and the trust on operating the ships. Investors in Frontline get spin-off shares in this company Ship Finance. And Ship Finance pays a dividend as well. That’s not all, in 2007 Frontline spin off and gave its share holders shares in Golden Ocean, who pays a heft dividend as well.
If we account for all these miscellanous payouts the return on that would be something like this:
That is an astounding return for a stock that ended up back to square one.
I have to admit that when everything is laid out this way, it is much clearer how good this investment was then saying that we should take into consideration dividends and spin-offs.
It is stocks that have a lot of underlying value like Keppel, SIA and Sembcorp that we need to scrutinize.
Even small shipping stocks like Chuan Hup and CWT amply reward their share holders or deep value investors who spend effort searching for it.
Take a look at other articles on Warren Buffett, Charlie Munger and Value Investing here in our Investment Moats Value Investing Vault.
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