Value Investing, a Trading Strategy?

[Jacmar]

wow, weijian, you are very direct while I was trying to be very subtle!! anyway spot on.

[soros]

I think value investing must be a strategy because you choose shares which are undervalued (buying when the share price fallen well below its NAV ).

When the share price has risen to above its NAV value, you would sell and put the proceeds into another undervalued share. You would not keep any share longer than say 3 years.

[Wildreamz]

@soros

I agree, Ben Graham bought based on fundamental metrics (eg NAV) and sells immediately when the price move to the right value (can be within days). 

Phil Fisher held Motorola from 1955 to 2004. 

Some may regards Ben Graham's strategy as investment since he doesn't speculate based on price movement. But he was never a long term investor in that sense.

[HitandRun]

Is it important to really describe or categorise one's strategy very clearly? 

I'm always more interested in the outcome... i.e. what is your return and can you do it consistently...

[Wildreamz]

Is it important to really describe or categorise one's strategy very clearly? 

I'm always more interested in the outcome... i.e. what is your return and can you do it consistently...

Well, I think there is substantial confusion as to what "Value Investing" is, especially among local opmi. People tend to confuse "buy-and-hold" "long-term view" with buying "cheap stocks", with few regards to the fundamental of underlying business outlook, saying it is "too hard for them". I think that is a very dangerous thinking, which is why I started this discussion.

Edit:
1. If you buy cheap stocks with poor fundamentals and long-term outlook, you are in fact "speculating" that the stock price will move to your "intrinsic value" within a set amount of time, where you need to sell immediately. There is a lot of risk with this strategy (what if the stock remain "undervalued" over extended period of time?) and requires careful analysis, diversification and discipline.

2. If you buy stocks that are not making profits today (say Amazon or Tesla) but is disruptive, growing revenues and marketshare quickly and may be worth much much more in the future, then it doesn't make sense if you sell because it's "profits" hasn't been growing. You are going to buy and hold as long as the story holds true. The risk here is if your assumption/analysis of the future is wrong and the story doesn't pan out. In most cases, the stock will have a long way to fall as they often trade with a lofty valuation.

[chialc88]

价值股
3. A stocks which is under-value and yet fundamentally strong

This one is my favourite (which I think a lots of our valuebuddies favourite too).

The stocks is extremely under-value aka with very good MOS.

Yet, fundamentally strong and generating $ Qtr by Qtr.

This is the best stocks to buy compare to (#1 and #2).

If you think that these stocks does not exist?

Don't says that I don't give stock tips.

Says that you watch this first time in valuebuddies.com:

[chialc88]

you saw Yeo Seng Chong using Willas-Array as a case study.

I'm very sure there are some value buddies interested in his investment methodology:


And for those valuebuddies keen in Japan, watch this tips:

[BlueKelah]

The biggest contributor of returns to my portfolio are growth stocks. The rest of the stocks that may be considered cheap according to traditional valuation metric (p/e, p/b, etc), don't usually pan out so well; unless there is a recovery of earnings. What really drives stock price after all -- from my personal observation -- is still growing earnings. Privatisations and analyst coverage of cheap stocks are infrequent. But of course, not all growth stocks pan out as you would expect them to as well. So I will still avoid paying more than 10x earnings in any case, since I do not have the foresight of WB or CM to predict the future like them. If my growth prediction turns out wrong, I shall be dearly punished by the market. Best if it is a growth stock paired with cheap valuations!

Yes. Regarding low P/B, there are many cheap stocks on SGX that would have instantly earn shareholders money if they liquidate their assets and return all the cash to shareholders (some small caps and S-Chips immediately comes to mind). But how often do we see that. Most of the time, small OPMIs that fallen for such value traps get our exit when there is an offer by an acquirer. And then sometimes we get low balled, and have to suck it up.

Actually value traps can be avoided pretty easily. I have mentioned quite a few of the things already and also commented on threads where co. which I think are traps.

The few things to watch out for are :

1) the div payout % relative to their earnings. If co. is OPMI friendly , you will see at least 40-50% or more payout from earnings. If the company does make more money during good times, div will increase accordingly to earnings and of course inevitable for share price to be pushed up a lot suddenly when it gets popular. This metric alone will help to totally screen out value traps.

This is a very important metric for me personally as usually when small caps are undervalued, there is something such as downcycle in the industry or some stupid investment decisions by mgt. that have cost the company. However if debt level is very low and lots of cash reserve, the turnaround is often very swift and significant.

2) How much management are paying themselves. For eg. co. like HongFok you can compare the yearly "admin cost" relative to revenue and earnings and compare to other peers. Usually a value trap or stingy management, this wil be high.

If you look at stocks performance picked by some experienced VB here like 5 years ago, u will see quite a few 2 or 3 baggers. And those that have not become 2 baggers, if they have a yield of >5% and follow the general market, the return is still beating the market

IMHO its much easier to pick out 5-10 value stocks with sufficient MOS and good dividend yield that are not value traps and invest with confidence, than to pick out 5-10 growth stocks of those goliath size that provide not much div and have big potential for downside. 

But at the moment, things are generally looking pretty toppy for even small caps on the SGX. Well except for some in OnG sector. Currently I am waiting to pounce on CSE Global lol...

[Wildreamz]

..

IMHO its much easier to pick out 5-10 value stocks with sufficient MOS and good dividend yield that are not value traps and invest with confidence, than to pick out 5-10 growth stocks of those goliath size that provide not much div and have big potential for downside. 

But at the moment, things are generally looking pretty toppy for even small caps on the SGX. Well except for some in OnG sector. Currently I am waiting to pounce on CSE Global lol...

For astute and prudent investors, margin of safety is definitely an important factor to consider when making the initial investment. But what determines the long term success of a company (and hence the investment) is often the quality of the business, and it may not be related with the price it is selling for. 

And quality companies don't always have to be "Goliath" in size. I just dropped the names Amazon and Tesla because they are well-known, run by well respected managers, have a unique business model, "high" valuation, have performed strongly over the past decade, and may take another decade or 2 to realize the full potential of their ambition. 

The same case can be made of Walmart, which always have traded at an elevated valuation during their high growth period in the 70s and 80s. http://studentofvalue.com/walmart-1968-2012/

[chialc88]