Value Investing: Philosophy, Process & Objective
22-08-2015, 11:18 PM
james grant tried a similar strategy in japan but shut it down after a decade because it didn't work. such a strategy requires not only reliable data, but strong corporate governance law, which sadly in lacking in singapore
25-08-2015, 01:26 PM
Sharemarket crisis: five things investors shouldn’t do
[b]Stocks have slumped worldwide this week, with Australia, US and European markets taking dives, and the Shanghai Composite Index losing more than 11 per cent. Oil prices also skidded, dropping more than 6 per cent.[/b] Traders feared that slowing growth in China, the devaluation of the Chinese currency and the overhang of too much debt could stifle global economic recovery. Here are five things you should know about how not to react. One: Don’t fixate on the news The more often you update yourself on the market’s fluctuations, the more volatile and risky it will appear to you — even though short, sharp declines of 5% to 25% are common. The U.S. stock market has, in the past few years, been extraordinarily placid by historical standards. Even the sudden drops of the past few days are well within the long-term norm. Fixating on fluctuations in the short term will make it harder for you to remain focused on your long-term investing goals. Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. Two: Don’t panic While stocks are certainly not cheap, they aren’t wildly overpriced, given today’s levels of interest rates and inflation. U.S. stocks are trading at 24.9 times the average of their long-term, inflation-adjusted earnings, according to data from Yale University economist Robert Shiller – down from 27 in February. Over the full sweep of bull and bear markets in the past 30 years, they’ve traded at an average of 23.8 times adjusted earnings. Three: Don’t be complacent.Share on Twitter You should use the latest turbulence as a pretext to ask yourself honestly whether you are prepared to withstand a much worse decline. Did you make it through the epic bear market of 2007-09 without selling all your stocks? Are you extremely well diversified, with plenty of cash, some bonds, and with large and small stocks from markets around the world? Then you can probably weather a further decline. But if you sold in earlier bear markets or you are heavily concentrated in a few stocks or sectors, you should consider raising some cash or diversifying more broadly to protect against the risk that you will take even more drastic action at the worst time. Four: Don’t get hung up on the talk of a “correction” A correction is typically defined as a decline in price of 10% on a widely followed index like the S&P 500 or Dow Jones Industrial Average. The term doesn’t have official status, however; until fairly recently, declines of 5% and even 15% or 20% were often called “corrections.” A market decline of 10% has no real significance in and of itself. What matters is the outlook for the future; that doesn’t depend on whether the market is down 10.2% rather than 9.8%. Five: Don’t think you--or anyone else--knows what will happen next. After a market drop, or at any other time, no one knows what the market will do next. The one thing you can be fairly sure of is that the louder and more forcefully a market pundit voices his certainty about what is going to happen next, the more likely it is that he will turn out to be wrong. Stocks could drop another 10% from here, or another 25% or 50%; they could stay flat; or they could go right back up again. Diversification and patience — and, above all, self-knowledge — are your best weapons against this irreducible uncertainty. WSJ 
25-08-2015, 02:04 PM
^^ MOS to Valuation. Absolute valuation better than relative valuation. Though most assets are relatively valued except cash.
"... but quitting while you're ahead is not the same as quitting." - Quote from the movie American Gangster
25-08-2015, 10:15 PM
Time to roll!!!
26-08-2015, 01:48 AM
Good article indeed. Use disposable income for value stock investing in a few years horizon. Can reduce one's psychology towards panic selling due to market fear.
28-08-2015, 01:41 PM
Been a roller coaster ride the past week.
From the looks of it. You guys must be quite happy the last couple of days picking up some bargain? Opportunities are plenty for those who missed it. Sound investment is akin to baseball as the saying goes. Don't be dragged into momentum. Cheers and TGIF, Hsq.Cap Twitter: @hsquare_capital https://hsquarecapblog.wordpress.com
31-08-2015, 08:36 PM
Got some bullets now. Preparing for the next wave of this roller coaster ride. Fasten your seat belts everybody. [emoji1]
Time to roll!!!
01-09-2015, 12:46 PM
Hi guys, just wanna follow up on the posting on LSV, 1994 research on value investing strategies.
We have received several queries as to the efficacy of the LSV, 1994 straegy in current markets. We remember also that on of our Value Budds suggested that this might not work in Singapore due to its poor corporate governance. Our response is that such strategy, while extensively demonstrated in the U.S., picks up large portion of small cap stocks. These small cap stocks are generally subjected to poorer corporate governance. In this regard, we do not view that corporate governance is a major factor as to why this cannot be applied to Singapore market. Conversely, poor corporate governance may present value opportunities -- Micro-Mechanics is one such example. Today, we came across a blog post that might answer the above queries. Read it here: http://tinyurl.com/nta69fl Cheers and TGIF, Hsq.Cap Twitter: @hsquare_capital https://hsquarecapblog.wordpress.com
16-10-2015, 10:56 PM
Spot the future losers and get rid of them now
[b]Many investors want to know if the market is going up or down. It doesn’t matter.[/b] What matters is that quality and value are present in the companies you buy. Buy extraordinary companies at rational prices and, over the long run, you cannot help but do well. Many investors also want to know who is going to win in this era of disruption. That’s also hard to tell. But it is almost boringly easy to find those companies that will lose. In a moment I’ll explain how to make money from those. It’s clear to me that investors are enamoured with Tesla. The electric car company is changing the world one car at a time and having just installed their supercharging stations in Goulburn and Wodonga along the Hume Highway, it’s easy to get excited about the potential. But BMW, which is also producing electric cars, sells 2 million cars a year, while Tesla only sells 50,000 cars a year. It makes no sense that Tesla’s market cap is almost half that of BMW. In this era of creative destruction, transition and disruption, finding the winners can be a challenge so it’s worth exploring strategies that can win even if you cannot easily isolate the winners. Suppose your neighbour had a brand new Toyota Camry and you knew that the local Toyota dealership was going to hold a Christmas sale on Camrys at 50 per cent off. If you borrowed the neighbour’s car and sold it at, say, $30,000 you’d put thirty grand in the bank. If you then went along to the car yard sale and bought a new Camry for $15,000, you could return a new car to your neighbour and keep $15,000 profit. When the “horseless carriage” first chugged past the blacksmith, it would have been impossible to know which start-up carmaker would survive and prosper. It would have been far easier to conclude that the Blacksmith was a “goner” no matter who won the race to automotive nirvana. By building a portfolio of extraordinary global businesses and simultaneously selling a portfolio of blacksmiths, not only can you add “alpha” (outperformance) to your portfolio but you can also reduce your net exposure to the vicissitudes of the market. For example, if you buy $100 worth of outstanding businesses and sell a $60 portfolio of “blacksmiths”, your net exposure is $40. If the market fell 10 per cent, you would expect to see your portfolio decline by only 4 per cent. If you cannot find a prime broker willing to allow you to build a short portfolio of blacksmiths, find a fund manager that can do it for you. In this age of low returns, investors must find reliable ways of generating returns beyond those available from miserly yields on stable low-growth companies. So who might be the blacksmiths of the world? ● McDonalds is struggling to find its mojo and franchisees are wanting out. Despite thousands more stores being added to the network over the last few years, revenue hasn’t risen a dollar. ● The coal company Teck Resources recently announced a long-term streaming agreement to forward sell silver production. The problem is that at the current rate of cash burn the money it earns from the deal will be gone in 12 months. At the same time the cash it raises only reduces it debt by 8 per cent. Meanwhile, coal is in oversupply, China demand is weakening and costs are in a deflationary spiral meaning supply will not be cut for some time. ● Over at Prada, the company has been using store growth to mask deterioration in per-store sales, which equates to a deterioration in margins as operating leverage works in reverse on a per-store basis. The company is also negatively exposed to the Beijing corruption crackdown. ● Finally, at Barnes & Noble, the US-based brick and mortar retailer of books, CDs, DVDs and vinyl LPs, the company is in what appears to be structural decline. Instead of looking to predict the direction of markets, find and buy companies with the brightest of prospects and sell a portfolio of blacksmiths. You will not only profit from disruption but you can reduce your overall exposure to uncertain markets as well. www.montinvest.com Roger Montgomery is founder and chief investment officer at the Montgomery Fund.
21-10-2015, 07:03 PM
NaN of [img=620x0]http://www.afr.com/content/dam/images/g/k/e/q/n/a/image.related.afrArticleLead.620x350.gkeitm.png/1445413307476.jpg[/img]Frustration about so-called short termism may be unfounded, according to new research. Jim Rice [Image: 1435901920075.png]
by Philip Baker Brokers and asset consultants often argue that if you want your investments to do well, you should sit back and take the long-term view. But despite that well-worn mantra, the biggest problem in investment markets is often short-term thinking and short-term behaviour. We all know the drill. For companies, it is about hitting those quarterly earnings targets, then it's all about buybacks and dividends. Forget research and development. Forget investment in business and equipment. For fund managers, it is about doing well in the quarterly performance tables. Like most hot topics, everyone in the investment business talks a lot about "short-termism" but no one publicly does much about it. The critics of short-termism, from companies to the sharemarket, say the whole system has lost touch with the ultimate savers and investors, handing over the real power to traders who reward companies, and ultimately their share price, for their short-term approach. Academics in the United States have now latched on to the problem, while politicians are also getting involved with the debate amid new signs of weakness in the world's largest economy that mean the Federal Reserve won't be able to hike rates this year as planned. Poor readings on consumer spending, inflation and jobs just has to be the result of all this short-term thinking, doesn't it? Indeed, Mark Roe, a professor at Harvard Law School, points out that it all would be bad for the US economy – if it were true. But he says it's not. According to him, if you look at the topic in a bit more detail, "the supposed negative consequences of investor short-termism appear not to be happening at all". TAKING THEIR TIME For sure, big-name fund managers do turn and churn their portfolios. But names like Fidelity Investments, Vanguard and other mutual funds have for decades kept to a strategy where they hold stocks for at least 12 to 15 months. As for the argument that those computer traders sitting in front of their screens all day, moving in and out of stocks in a nanosecond, make it nigh impossible for management to look at the long term, he says it's not supported by the facts. "In the US, neither research and development nor overall investment is declining. Indeed, many industries pursue long-term investments, notwithstanding their short-term stockholders." For example, drug companies take years to develop a new drug – it can't be done in just one quarter – while it's impossible for oil companies to open and shut oil fields inside three months. It takes years to build and develop new fields. "And remaining on the cutting edge of innovation demands that tech giants like Apple, Intel, Amazon and Google continue to play the long game. If these industries and companies can take a long-term view, what is stopping other firms from doing so?" he argues. As for the old chestnut that a chief executive officer's pay packet is linked to the share price, implying that any short-term trading has an impact on it, Roe says, "Boards can and sometimes do choose to tie managers' compensation to longer-range rather than current stock performance." As for the worry that all a buyback does is rip out cash that can be used for investment and research, Roe thinks it can, but points out the firms that do it are very established and no longer the best place for that money. "Indeed, the cash should leave old-line firms with weak futures and end up where it can be deployed more effectively, benefiting the economy as a whole," he said. In the past, whenever the issue of short-termism has come up, some experts have said it is all in the mind and just market chatter. They argued that short-termism is not feasible in the efficient market of modern portfolio theory. While most fund managers are taught about efficient markets that arbitrage away the effects of short-termism, many are still partly ruled by short-term thinking. If short-termism is only a myth based on anecdote, it is an extremely dangerous myth, since it is just possible governments might take action to rectify a perceived wrong and interfere with the market mechanism. |
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