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18-08-2018, 09:28 PM
I have 3 categories for companies.
The first are those with very good businesses, which are more likely to grow earnings over the long term. They are your WB type of ideal business that has little competition, high returns, low capital requirement, etc. These companies are usually expensive all the time, except during situations of severe market panic. There isn't a lot of such companies around.
The second are those with average quality businesses, which are more likely to remain stable over the long term. They sell for a range of valuation. Sometimes, due to market events or not-critical-company-specific-events, you can get some of these average but long-lasting businesses for cheap prices. A good number of the companies can be found in this category.
The third are those with poor quality businesses, which are more likely to decline over the long term. They also sell for a range of valuation. The difference between the 2nd and the 3rd is that there is a higher probability of capital loss if you hold the 3rd type over the long term. There are quite a number of companies I place in this category, and HPHT is one of them, for reasons I have elaborated in my earlier posts.
Some may say that poor quality businesses can also be undervalued. And if it turns around, it can be a hugely rewarding investment. If China changes tack on allowing PRC ports to do international transshipment, or if someone else buys out HPHT, then its shareholders will be delighted. But few poor quality businesses actually turn around. Between average and cheap companies, and lousy and cheap companies, why not go for the former? And if there aren't any of the former available, and the market only offers lousy and cheap companies, it doesn't mean you have to buy them.
Wait for the right pitch before swinging.
My 2 cents worth.
The first are those with very good businesses, which are more likely to grow earnings over the long term. They are your WB type of ideal business that has little competition, high returns, low capital requirement, etc. These companies are usually expensive all the time, except during situations of severe market panic. There isn't a lot of such companies around.
The second are those with average quality businesses, which are more likely to remain stable over the long term. They sell for a range of valuation. Sometimes, due to market events or not-critical-company-specific-events, you can get some of these average but long-lasting businesses for cheap prices. A good number of the companies can be found in this category.
The third are those with poor quality businesses, which are more likely to decline over the long term. They also sell for a range of valuation. The difference between the 2nd and the 3rd is that there is a higher probability of capital loss if you hold the 3rd type over the long term. There are quite a number of companies I place in this category, and HPHT is one of them, for reasons I have elaborated in my earlier posts.
Some may say that poor quality businesses can also be undervalued. And if it turns around, it can be a hugely rewarding investment. If China changes tack on allowing PRC ports to do international transshipment, or if someone else buys out HPHT, then its shareholders will be delighted. But few poor quality businesses actually turn around. Between average and cheap companies, and lousy and cheap companies, why not go for the former? And if there aren't any of the former available, and the market only offers lousy and cheap companies, it doesn't mean you have to buy them.
Wait for the right pitch before swinging.
My 2 cents worth.