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Selling Asian Citrus.

Recent announcement was

to allow time for completion of additional audit procedures to verify certain payments made by a subsidiary of the Company to one of its major suppliers, for which goods have been delivered to and received by the Group. Depending on the outcome of such audit procedures, the audit opinion for the audited financial statements of the Company for the year ended 30 June 2015 may or may not be modified.

I bought Asian Citrus as it appeared really, really cheap.

Even now it has a market capitalisation of £108m but a NTAV of £548m/ It holds £170m of cash. Why I liked it was clear.

Problem was it is a Chinese Aim company – there have been many frauds. I didnt think ACHL was a fraud as it has a much longer trading history than many AIM stocks. I could see where assets and money were raised and it has paid dividends. It also lacks a controlling (40%+) shareholder – something I like when I invest.

The downside is that ACHL has the unluckiest oranges in all of China. Citrus Canker, typhoons, hailstones – all prevented ACHL from making any money since I invested in early 2013.

I am selling now as I simply no longer trust the accounts. The cash is held in a subsidiary – making me doubly concerned. With this being an AIM company and with the weak corporate governance it is not worth taking a chance. Lots of past frauds on the market have been exposed via a little problem with a subsidiary which has then grown. On the few occasions I have held something where this was an issue (ROK) I have always rapidly sold – usually I am glad I did.

In addition the market didn’t really react to the news. I believe this is one of the few instances where the market has under reacted. Doubt over accounts materially lowers the value of a company – so I think this should have fallen on the news. As it hasn’t fallen this creates an opportunity for me to get out and potentially to get back in again at little cost or for me to avoid a suspension / big loss when any potential fraud is exposed.

Such a heavy loss makes me reconsider my strategy. I have looked over past results and examined whether I should be holding AIM stocks at all. I have decided they have been a reasonably lucrative proposition – though I need to exercise additional caution.
Examples of my AIM investments are:
ACHL – 70% loss
TCF – 60% profit on investment – price return 200%
AMBR – 41% loss
BGBL – 83% loss
LCG – 42% loss
POL – 60% loss
TJI – 8% loss (still running)
TNCI – 28% profit
RHM – 16% loss (still running)

Overall on all invested AIM capital since 08 I have lost a little. Many of these positions were very small. Lots of these investments have been aiming to do very well -triple or quadruple but only one really has. The reason I have only lost a little is all down to position sizing, TNCI and TCF were double or triple the size of most other positions. POL is very small as was BGBL. I will keep going with the small caps but will try to aim where I have complete confidence and can put in decent size. Of course in some ways this increases risk – I was pretty confident in ACHL at one point… No easy answers. One move of say RHM or RJI to NAV makes AIM very lucrative indeed…

I am broadly playing defensive now – 66% invested and even that overstates my exposure. Circa a third of that is in positions which wont follow the market much. I will await good ideas I can put sensible size on.

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