I do not consider myself a value investor because I hold the term "value investor" in awe and believe I am not in the league of "value investors"
Before I start, I want to be very clear what I hope to achieve in this post. I want to explain my take to beginning value investor wannabes who are doubting or confused about the doctrine. I am not implying it is the only way, neither am I saying it is for everyone. If u are experienced investor, this post is not for you.
1) "Long term" and "buy and hold" does not work well?
For value investing, Warren style, they want growth to make a stock cheap. WArren buys big company with moat that can continue to grow in the longer term. So they believe time is part of the equation to returns, like the goose that laid the golden eggs.
Now, they have the discipline to ride out various market cycles and they buy with MOS, so usually it is during down cycle that you get good MOS. So if long term means Mutiple bull and bear cycles, wouldn't it be better to buy at bear, sell at bull and buy back at bear. Buy and hold is stupid and not optimising returns, isn't it?
Value investors do not believe in timing the market. I am not saying no one can, one should properly throw in the sink if he can predict the up and downs of market CONSISTENTLY. Anyway, although Hathway do not pay dividends, the companies they buy almost all pay dividends. So the concept of eggs harvesting apply. Also note the eggs either get bigger or more as compared to initial cost capital. Need not look far to Warren, just look at local Uncle CW. Yield on cost.
Do not look at the gap between the peak and the current price and think buy and hold is stupid.
2) Value investor don't sell?
That is FOS. They sell if they believe a moat is gone or if something is grossly overvalued. Do not mix up buy and hold with not selling. However, it is true that do not aim to sell at the peak, although if something is grossly overvalued, it will be at a peak, but if they sell if they think the moat is disappearing, they might well be selling at a loss too.
Conclusion:
If you ask me to explain my take on value investing and summarized in 2 simple sentences. They are:
1) buy cheap
2) keep your balls during bear
For detailed explanation, read chapter 8 and 20 of the intelligent investor.
Ok, I think ruffles enough feather from SMOL's camp. SMOL yuan Xiao is over, feel free! LOL
Then I considered value investor or luan luan buy investor?
ReplyDeleteHahaha.
Or just simply a loser?
Aiyo Yeh,
DeleteNo one is a loser la. Not even if they lose money.
We are all money grabbers :)
so SI do you use earning based valuation or net asset based valuation? The word value investing has more and more meaning than ever before. Bill Ackman mentioned something along the line, even the price is traded higher than its NAV based on his valuation it is still an under value company . Charile Munger made it worst "All intelligent investing is value investing".
ReplyDeleteHi WIHL,
DeleteIndeed, there are so many sects on Value investment liao. But I think the concept of MOS IS universal. I am not sure about the 2 models u mentioned, but I looked at earnings more than assets. Otherwise, I will never get ST engineering.
In earnings, I also look at FCF and do DCF for those I get. I invest mainly for yield so it makes sense for me to focus on earning instead of assets.
What about u??
Hi SI,
ReplyDeleteI wish I can use FCF to do valuation but the amount of variables and assumption required shun me away. Also the risk of making mistakes is higher for me. I focus on assets and ignore earning pretty much, I discount the assets based on certain assumption. Thus, stocks that have high cash portion to its total asset get my liking.
When the market price reached my adjusted NAV, I will sell off the shares.
Hi WIHL,
ReplyDeleteThis is interesting, so what are the assets turnarounds/ unlocking stories you got. If it's trade secret, you can tell me past buys? Maybe? More for local case studies
Actually, some business are relatively stable to make DCF possible. Rental income, charter income over the lease period are relatively stable for the years within the lease.
As for discount rate, just be conservative. At the end of day, the yield play a good part in my risk calculation
Hi SI
ReplyDeleteI agree with you on this.
A lot of people throw the word on value investing too much that. A real value investor is very hard to come by and he must hv a very wide margin of safety for that to happen. Not sure if there are many in todays bull market though.
Hi B,
DeleteIndeed, my problem is I am too impatient. I will buy at least as there is 10-20% MOS.
Actually, In today info connected world, it's tough to find 30% MOS In a normal market, even during corrections, such MOS might be hard to come by.
By from my short history of investment, the opportunity will come every 2-3 years and bug bear every 7-10 yeaes
Yeah, I know a few retail investors friends who has not done any position in the past 5 years.
ReplyDeleteI know it looks silly now that we look back with all those gains but I think they are proving that waiting is a position they'd rather take with their deep value investing concept. Really admire them.
Wow B,
DeleteI am impressed that they didn't even nibble during on break of euro crisis...
Munger in making, your friends
Sillyinvestor,
ReplyDelete1. Grasshoppers have no feathers. I don't see any difference between you post and mine??? LOL!
2. I never have grouses or poked at Value Investors; I only poked at "value investors" ;)
3. Well, you have ruled yourself out as a Value Investor. So what are you? Value Investing Acolyte?
4. Get ready. Here's my poke to you:
"For detailed explanation, read chapter 8 and 20 of the intelligent investor."
Eh... Might as well put this at the beginning of the post. Save time for those who prefer to do their own verifications from the source instead of relying on 3rd person summaries.
It reminds me of the joke we made of people who, when questioned why they have a certain view, will reply smugly: "是专家说的！“
Hmm..
ReplyDeleteSMOL,
It sure feeli different when I am reading your post. Ok, what am I. If money grabber does not satisfied u or that u consider cheating，then maybe a value investor wannanbe.
I did not act all that I know..
I am impatient. I do not have a warchest. I might increase cash holding from time to time, but seldom I have more than 30% cash. If we exclude the cash component of cash backs of endowment policies ( not a lot anyway)
I give my take, did I give the source, nothing is really original from head to toe,
Isn't it?
Btw... Next Monday free, come to sentosa k..
https://www.youtube.com/watch?v=GlyZmlQYuoY
ReplyDeletehttps://www.youtube.com/watch?v=Wxj7QVBs6pg
will this succeed and effect singapore economy?
http://en.wikipedia.org/wiki/Thai_Canal
DeleteI used to stock trading but I started value investing after attending some value investing seminar and workshop a year after financial crisis. it is fruitful.
ReplyDelete