We should stick to low-risk investments

[CityFarmer]

I think there is a general misunderstanding the definition of risk here.

While risk can mean several things, the focus on this was really on the fact that low volatility trumphs high volatility stocks because of the opportunity to reinvest in good rates and compound over long period of time.


[Edited by moderator. No soliciting allowed. You can put your link as signature, the same as others did]

I will add-on with a quote of Warren Buffett from his famous postscript to The Intelligent Investor:

"“The Washington Post Company in 1973 was selling for $80m in the market…now, if the stock had declined even further to a price that made the valuation $40m its beta would have been greater. And to people who think beta measures risk, the cheaper price would have made it look riskier. This is truly Alice in Wonderland.”

To Buffett the volatility was an opportunity, not a risk.

so in these Washington-Post-type situations, would you buy because it is cheap or must have a catalyst (to prevent value trap situation)?

If the definition of the catalyst is market timing. Base on basic principle of value investing, we shouldn't time the market, because it's not predictable.

If the definition of the catalyst is realization of its IV, because the current price is below its IV i.e. "cheap", thus we should buy.

[specuvestor]

The common perception of market timing is that it is a binary decision. Mr Market don't require that. A stock at 0.5X book is just as value as 0.6X Book. If you buy at 0.5X or 0.6X you are still a value investor but the difference for the purchase at 0.6 and 0.5 is 20%, so there is value in market timing. Better is the one that averages the purchase to significantly dilute the benefit of market timing.

Catalyst is not the same as market timing: catalyst is to figure out what has changed, so you need to know the past and what timeframe you are looking for the new event to unfold. Vlaue can remain value for a long time without catalysts.

I tell brokers that if they issue a report, and change the date to 5 years ago and it is still valid, then there is no catalyst.

[gautam]

The common perception of market timing is that it is a binary decision. Mr Market don't require that. A stock at 0.5X book is just as value as 0.6X Book. If you buy at 0.5X or 0.6X you are still a value investor but the difference for the purchase at 0.6 and 0.5 is 20%, so there is value in market timing. Better is the one that averages the purchase to significantly dilute the benefit of market timing.

Catalyst is not the same as market timing: catalyst is to figure out what has changed, so you need to know the past and what timeframe you are looking for the new event to unfold. Vlaue can remain value for a long time without catalysts.

I tell brokers that if they issue a report, and change the date to 5 years ago and it is still valid, then there is no catalyst.

> allow me to add on to this to the first para

true that buying cheaper appears better if all other things being the same. If one buys at 0.4x, 0.5x, or any fraction, whereby the numerator is less than the demominator, even if one feels that he has become a value investor due to his purchase, the much more important question he needs to ask himself is how this low PB can translate to risk/benefit to himself. Is the company earning money? If so, does this earning pass out as cash ie dividends to the shareholders. Just waiting to buy low PB companies alone to save on that 20% benefit (ie PB 0.6 c.f. PB 0.5) is not a prudent act per se, at least to me, in the long run. Whether the company is able to pay me money and increasingly so is a far more important consideration than that 20% difference.

> allow me to add on to the second and third para

I agree that catalyst is an attractive factor when considering whether to buy into a company. I also agree that in life, most of the time, it is not so straightforward. It might happen, or it might not. If it happens, the question is when. Thus there is so much uncertaintly. To me, I buy into a company if I think the chance of a catalyst happening is probable but timing unknown, if and only if, it pays an acceptable dividend to me for that waiting. So that in the meantime, I can still maintain my cash flow while waiting. I have the option to use that cash flow to purchase more shares so that in the event this positive awaiting happens, it would magnify my wealth even more. I don't want to be in a position having stuck a significant amount of my money in a company and having lost a potential cash flow path which i can use it to create elsewhere.



gautam

[opmi]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

[CityFarmer]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

I value less on asset, more on earning. If I invest on asset, there should have a reasonable certainty in unlocking its value within a schedule

So in short, I might not buy it.

[rogerwilco]

http://finance.fortune.cnn.com/2014/01/0...goes-cold/

Ray Dalio's 'All-Weather' fund goes cold
By Stephen Gandel, senior editor January 9, 2014: 2:50 PM ET
Bridgewater Associates has claimed that one of its key funds will do well in up and down markets. So how come it couldn't perform in 2013?

FORTUNE -- The hedge fund that claims it will never have an off year just had one in 2013.
Bridgewater Associates' All-Weather fund dropped 3.9% last year. This has come at a time when the sky for many investors has been quite clear. The stock market rose nearly 30% in 2013. It rained on the bond market. The Barclays Capital Aggregate Bond Index fell just over 2%. Still, All-Weather did worse.

Of course, all hedge funds essentially claim that they will make money no matter what. That's what the "hedge" in their title is supposed to indicate. But Bridgewater Associates with the All-Weather fund has been explicit about it.

Bridgewater, which is run by Ray Dalio, has pitched the fund aggressively to pension funds around the country. Dalio even made a video explaining why the fund will go up even if stocks or bonds go down. All-Weather has attracted $70 billion in assets. Bridgewater doesn't say how much of that is from pension funds, vs. other investors.

The fund, which launched in 1996, is based on a concept that Dalio pioneered called risk parity. Others have launched similar funds. Essentially, Dalio thinks most investors get diversity wrong. They put some of their money in stocks and some of their money in bonds, perhaps 60-40, and call it day.

Dalio says that's not how we should go about it. What investors really need to do, he argues, is diversify their risk. Bonds are traditionally much less risky than stocks. A 60-40, or even 50-50, split isn't going to do that. You need to hold a whole bunch of bonds, at least compared to how much money you put in stocks. In fact, the only way to get as much exposure to bonds, relative to stocks, as risk parity proscribes, is to borrow money against your portfolio and buy more bonds.
What results is basically a leveraged bond portfolio. So it's not really that big of a surprise that the All-Weather fund would tumble in a year when bonds did poorly. Yet, decades of falling interest rates and rising bond prices have made the fund look invincible. Even including 2013's poor returns, All-Weather is up 12.4% over the past five years.

With interest rates rising, and the expectation that they will continue to rise for a while, this appears to be the end of the run for All-Weather, along with the belief that the fund had the ability to perennially defy the market. At the New York Times' Dealbook conference in November, I asked Dalio whether he thought it was a good idea to continue to pitch All-Weather to pension funds at at time when interest rates are likely to continue to rise. In fact, Dalio predicted that himself.
In response to my question, though, Dalio said Bridgewater had back-tested All-Weather and found that it would have done fine in, say, the late 1970s, and other periods of rising interest rates. But here's the flaw. In the 1970s, interest rates were much higher than they are now. So any money a fund would have lost on falling bond prices would have been more than offset by high interest rates.

That's not going to happen now. Interest rates on 10-year U.S. Treasuries are around 3%. That's not nearly enough of a cushion for the damage a drop in prices will do to a bond portfolio, particularly a leveraged one.

It's the second year in a row that Dalio, who has had a stellar track record, has put up disappointing returns. In 2012, Bridgewater's flagship Pure Alpha fund was up just 0.8%. The fund did better in 2013, up 5.25%, but it delivered far lower returns compared to those who simply put money into the market.

The sunny days for the All-Weather fund, and Dalio in general, may be over.

[Temperament]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

I value less on asset, more on earning. If I invest on asset, there should have a reasonable certainty in unlocking its value within a schedule

So in short, I might not buy it.

Is earning (in future) more assurable then solid assets?
Thai Bev. swallowing F&N is more for it's assets (cash hoard included) or it's future earnings?

This remind me of a certain JIM Slater Walker who taught Singapore companies how to buy companies for their "hidden" assets. Though at that time, i was only a young man all sotong(blur) about investments. i know nuts but was interested in the news somehow.

[opmi]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

I value less on asset, more on earning. If I invest on asset, there should have a reasonable certainty in unlocking its value within a schedule

So in short, I might not buy it.

Is earning (in future) more assurable then solid assets?
Thai Bev. swallowing F&N is more for it's assets (cash hoard included) or it's future earnings?

This remind me of a certain JIM Slater Walker who taught Singapore companies how to buy companies for their "hidden" assets. Though at that time, i was only a young man all sotong(blur) about investments. i know nuts but was interested in the news somehow.

U really old. Slater walker also come out. OCBC was stir fried to $50 when slater walker came to play Sg market.

[HitandRun]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

In such a situation, I think there is insufficient information to make a decision. Typically, I would look at the P/E ratio / profit and assess whether company is re-investing the money profitably. At the same time, what are the plans / excuses given by the management for keeping all the cash? If the story of the company doesn't jive, the livelihood of fraud would be higher, e.g. Dukang, hold for several months, made 30% return but no credible reason (IMHO) provided by mgmt to hang on to cash pile => square my position.

[Temperament]

just to further discuss. Qn for all:
Would u buy net net small cap with $1.5 cash/blue chips at $0.40 with history of no dividend?
Assuming no kleptomaniac owners + no sleeping on the job IDs. Credible corp gov.

I value less on asset, more on earning. If I invest on asset, there should have a reasonable certainty in unlocking its value within a schedule

So in short, I might not buy it.

Is earning (in future) more assurable then solid assets?
Thai Bev. swallowing F&N is more for it's assets (cash hoard included) or it's future earnings?

This remind me of a certain JIM Slater Walker who taught Singapore companies how to buy companies for their "hidden" assets. Though at that time, i was only a young man all sotong(blur) about investments. i know nuts but was interested in the news somehow.

U really old. Slater walker also come out. OCBC was stir fried to $50 when slater walker came to play Sg market.

What do you think? Of course i am old already. Do you think i am a fake? Phoney? And do you know how this episode of Singapore Market ended? If you google it is not counted. It must be from your memory.
Ha! Ha!