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Charlie Munger: All intelligent investing is value investing.
IMO the intelligent investors have "intelligence" aka information.
An investor may get "value trapped" if he doesn't understand the business. There are too many granular sectorial or even company-specific challenges that affect PB or PE.
Eg. 1: the cyclical price of raw materials. Good luck if one decides to buy, say, palm oil plantation companies based on PE alone. CPO price high means higher earnings, hence low P/E (x standard deviation from Y years average etc).
Eg. 2: Working capital requirement. Huge working capital could be a reason why a company reserve cash. Such monies are no different from PPE. Such companies may perpetually be selling at 0.7 P/B until there's a change in working capital. They will not fold and share money with OPMI. If GO the investors will not get 1x PB offer.
"Value trap" @ low PE/ PB is on the opposite site of cutting off good investment opportunity based on high PE or PB in "value" investing.
The alternative would be as Weijian mentioned get a diversified portfolio shortlisted with similar parameters.
If the shortlisted portfolio appears to contain companies from the same sector, probably best to figure out why before putting serious money in it.
Charlie Munger: All intelligent investing is value investing.
IMO the intelligent investors have "intelligence" aka information.
An investor may get "value trapped" if he doesn't understand the business. There are too many granular sectorial or even company-specific challenges that affect PB or PE.
Eg. 1: the cyclical price of raw materials. Good luck if one decides to buy, say, palm oil plantation companies based on PE alone. CPO price high means higher earnings, hence low P/E (x standard deviation from Y years average etc).
Eg. 2: Working capital requirement. Huge working capital could be a reason why a company reserve cash. Such monies are no different from PPE. Such companies may perpetually be selling at 0.7 P/B until there's a change in working capital. They will not fold and share money with OPMI. If GO the investors will not get 1x PB offer.
"Value trap" @ low PE/ PB is on the opposite site of cutting off good investment opportunity based on high PE or PB in "value" investing.
The alternative would be as Weijian mentioned get a diversified portfolio shortlisted with similar parameters.
If the shortlisted portfolio appears to contain companies from the same sector, probably best to figure out why before putting serious money in it.