Singapore stocks: Once bitten, twice shy

[ghchua]

P&L and balance sheet are linked. A business losing money on either cash or accounting earnings will reduce NAV. You might be referring to deep asset value where businesses may own a stake in non-core assets (e.g. investment properties, equities, etc). A wide NAV discount also need a catalyst to realize its discount gap. I think people generally underestimate the opportunity cost of "waiting" and "adding" when discount is wider. Of course, it's always good to be paid to wait (e.g. paid an attractive dividend yield).

Hi dzwm87,

What I am saying is that your margin of safety is wide enough to withstand those losses. As I have said earlier, I have already given a discount to inventory holding value in the balance sheet. Yes, those inventories can be sold at a loss, but my discount already handle that.

Maybe I am not clear about the process. Let me try again. To implement this strategy, what I am saying is not to take the company reported NAV at face value. Do a discount on inventories, receivables, goodwill etc and then compute your own RNAV. After that, see whether the share price is trading at a decent discount from your computed RNAV.

The opportunity cost, as I have mentioned earlier, can be resolved by holding a portfolio of these stocks. Also, have a time frame on holding one of these stocks. If value could not be unlocked after say, 3 years, switch to another stock with similar characteristics.

We can't control whether value could be unlocked in these stocks. But we can modify our process and make our chances higher.