27 February 2020
David Webb's portfolio includes shares worth HK$801.7 million. Photo: HKEJ
David Webb's portfolio includes shares worth HK$801.7 million. Photo: HKEJ

David Webb: Is he the man with the Midas Touch?

When it comes to stock picking, David Webb, a.k.a. Long Hair in Hong Kong’s financial circle, always holds a special place in the hearts and minds of investors.

The corporate activist has a strong track record on the stock market, especially in his annual Christmas Picks, which usually trigger a strong rally in some thinly traded stocks because his legions of fans believe his recommendations are as good as a doctor’s prescription.

So when Webb, who has invested HK$800 million in at least 13 stocks (see chart), disclosed he owns 5 percent of Crocodile Garments, the share price went up as much as 17 percent to 52 HK cents on Wednesday morning.

For a bit of fun, Webb posted in his Facebook account a media interview in which he is seen wearing a colorful but old-fashioned shirt which may actually be a Crocodile.

Crocodile, owned by Lawrence Lam Kin-ming, son of Lai Sun Garments founder Lim Por-yen, was an undervalued stock with net asset value of HK$1.5 billion, mainly comprising office buildings in Kwun Tong and Central along with the unprofitable Crocodile retail brand. Five years ago, Lam attempted to buy out the company at 42 cents but failed to secure enough votes.

The question is, does Webb have the Midas touch? A close look at his publicly disclosed investment portfolio suggests that he may be sitting on a small profit, although the gains this year are negligible.

Yes, 10 out of 13 of his core portfolio members were above water, and that’s a splendid result, considering that almost all of his stocks were industrials with low price/earnings multiples because the renminbi surge and rising labor costs of the past years have severely dented their profits.

But Alco Holdings wiped out most of the gains of his smart picks. The consumer electronics maker reported an annual loss, and I estimate that may have cut half of the value of his nine-digit investment since he first bought in 2006.

The math whiz also sits on paper losses in Chun Hsong, a company owned by industrialist Chiang Chen, and another consumer electronics maker Allan International.

Webb’s long-term-value investment approach worked perfectly in the last century but apparently missed out on the internet and China’s restructuring plays.

He seemed to have a special interest in optical manufacturers as his best-performing stock this year was Arts Optical, whose shares jumped nearly 40 percent on a Shenzhen land sale. The other optical stocks — Yorkey and Sun Hing — had a dividend yield of over 8 percent.

Assuming I got the figures right about his portfolio performance, I can draw a safe conclusion: Don’t pick a restaurant based on a chef’s review because he can be a terrific writer but a terrible chef.

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EJ Insight writer