Lesson from Sinopipe accounting issue
Sinopipe, an S-chip was flagged by auditors for accounting issues, the findings are out recently.
A new management has taken over the company and the board of directors is reconstituted.
I remember reading about this company a few years ago because a new investor in the company, the present CEO, was a former CFO of delisted company,Sinomem which i used to own. Sinomem, although considered to be S-chip was not as its CEO is a Singaporean citizen and acts ethically. I thought that the former CFO must have guts and insider knowledge(he is from China) to invest in a S-chip, even though S-chips were having a bad reputation then. But, even with his accounting knowledge, the S-chip quicksand still is inescapable.
This shows that even if you have insider knowledge,accounting skills and guts, you may not find the right company to invest in if the company does things behind your back. Thus,one way to avoid this kind of trap is to avoid dubious S-chips, unless you know the boss inside-out. No margin of safety used in intrinsic value calculation will save you from the trouble you may get into later.
As Buffett says:””I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.”
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