Thursday, April 27, 2017

Random thoughts: Stock selection and market timing - Part 2

This is a follow up to the previous post. It is here I will try to reconcile some tensions.

1) Market timing is possible. 

If u are waiting for value to emerge, you are timing the market. When value is low, u buy, and over-valued u sell.

2) But The over-valued get higher and the under-valued get lower. 

This type of market timing is impossible. U can't really exit near top or bottom. 

3) Value is not static 

Waren says buy great company at fair value. 20 + PE is a steal if a company can grow strongly over a few years 

In fact, if u can company prospect like Warren, I would say PE 30 is a good price, because just 2-3 years of good double digit growth, PE will be low. 

4) Market Valuation of company is not static

The actual same company with same fundemental and earnings prowess can be worth different PE if the same company can travel through time. Even if Market is not depressed or exuberance, the Norma range of PE of a company like venture can be like 13-16. (Plot the PE sensitive graph over years yourself LOL) . There is 20% difference. Are we think 20 % correction is MOS? 

Conclusion

The better your skills at company prospecting, the lesser you need to time the market. The less confident you are about your prospecting skills, the wiser perhaps to wait for the right wave.

It might seem like a no brainer, but ask those in the sidelines with Cash waiting for correction/ or bear, it is not a nice feeling seeing bloggers brag about the Multi-baggers and also Kanching$$$ kanching$$$

My track record tell me a am not a very good stock picker so should rely on dip more. But i do have companies with growth prospect in my radar than I am willing to jump in at a dip. LOL


3 comments:

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  2. About valuation of company,

    ST engineering was one of the stock that is always trading at high PE, even during crisis, it hardly grow below 16 PE. Can't value it normally like other stock.

    The highest price i paid for ST engineering was $3.60 about 2 years ago. It was a price too high thinking back. When, it went below $3, i was accumulating more and more.

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    Replies
    1. Yes. Solace, I dun think any ratio can be a perfect valuation tool. I have actually the same ST engineering experience. But I dun think to accumulate more and more. I buy see buy sell buy buy

      Just like MIT. I bought it at 1.2 PB. Everyone says I overpaid. But it's a good deal

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