10-09-2014, 05:37 PM
(This post was last modified: 10-09-2014, 05:38 PM by theasiareport.)
My bad. I think the word "rotten" gave the wrong impression. I meant companies which are sub-par i.e. not creating shareholder value, and not companies that are frauds.
The former being due to incompetence and the latter due to dishonest intent.
Based on a gut feel, I would agree that net-nets would perform after a careful study of financials. However, extensive back-tests and research has shown that on the contrary, simply buying all the net-nets in the market (without studying the financials) in fact leads to superior out-performance.
Interestingly enough, net-nets with negative earnings seem to outperform net-nets with positive earnings.
I don't exactly know why this is the case but just food for thought.
I guess what I was trying to get at was that some times under-performing companies can make great investments simply because there's so much room for improvement.
Its like going from an F to C+ and going from an A to A*.
The former being due to incompetence and the latter due to dishonest intent.
Based on a gut feel, I would agree that net-nets would perform after a careful study of financials. However, extensive back-tests and research has shown that on the contrary, simply buying all the net-nets in the market (without studying the financials) in fact leads to superior out-performance.
Interestingly enough, net-nets with negative earnings seem to outperform net-nets with positive earnings.
I don't exactly know why this is the case but just food for thought.
I guess what I was trying to get at was that some times under-performing companies can make great investments simply because there's so much room for improvement.
Its like going from an F to C+ and going from an A to A*.
http://theasiareport.com - Reflections From Finding Value In Asia