Recently, as my portfolio bleeds day by day, I am reminded of, besides Graham's sayings, the observation that downward volatility exist in value investing.
In my opinion, value investing should minimize the risk of total capital losses in the long run. Unless unexpected and very adverse events occur. However, value investing may not imply low volatility in portfolio value in the short run.
A simple (unscientific) example can be found in Warren Buffett's famous speech "The Superinvestors of Graham-and-Doddsville" (Can be found in "The Intelligent Investor"). The speech contains performance records on several value investors which show large negative returns between 30-40% negative returns in 1973-4, in addition to the excellent overall compounded returns. This example indicates that large downward volatility exist in real-life value investing.
Hence, I do expect downward volatitlity to happen from time to time. But it is nevertheless painful for me to stick to sitting-in and trying not to sell during these downward volatitlity periods.
Sunday, November 25, 2007
Monday, November 19, 2007
Recent Trades
I have done quite a bit of trading over the past weeks due to the quarterly annoucement of results:
Pared down my position in Hongwei to raise cash to buy others.
Bought and sold Shanghai Turbo, to raise cash to buy others and also due to its disappointing 3Q results. Originally bought as a turnaround play, but its 3Q results shows that the turnaround is not that certain.
Bought Hengxin at a higher price than its current price. I am thinking that the market may be undervaluing the stock given its higher sales, its significant market share in co-axial cables and future expansion in capacity. However, Hengxin seems to lack pricing power and its lower than FY06 net profit margin seems to show weakness in cost-control. Nonetheless, my assumption is that the low price may have more than compensated for its weakness.
Bought Valuetronics. This is quite an undervalued stock going by its PER of less than 5.
All in all, stocks have been going for bargain prices recently. If the oncoming quarters prove to be no more than a slight slowdown, then probably my buys will make good money. If it is going to be a fierce global recession, then probably I will be in for some lessons and significant losses.
Pared down my position in Hongwei to raise cash to buy others.
Bought and sold Shanghai Turbo, to raise cash to buy others and also due to its disappointing 3Q results. Originally bought as a turnaround play, but its 3Q results shows that the turnaround is not that certain.
Bought Hengxin at a higher price than its current price. I am thinking that the market may be undervaluing the stock given its higher sales, its significant market share in co-axial cables and future expansion in capacity. However, Hengxin seems to lack pricing power and its lower than FY06 net profit margin seems to show weakness in cost-control. Nonetheless, my assumption is that the low price may have more than compensated for its weakness.
Bought Valuetronics. This is quite an undervalued stock going by its PER of less than 5.
All in all, stocks have been going for bargain prices recently. If the oncoming quarters prove to be no more than a slight slowdown, then probably my buys will make good money. If it is going to be a fierce global recession, then probably I will be in for some lessons and significant losses.
Sunday, November 11, 2007
Some thoughts on the market
I am penning my thoughts here, in case I would want to refer to them a months later. This would prevent me from recalling the wrong thoughts.
First, the market is getting more dual-tracked. While I guess that both the blue chips and the small stocks would dive in coming week (or weeks), I can see some value in the small stocks. So much so that I am currently fully invested in the market. I have tried to see whether I can sell any of my position, but somehow, I find my positions too inexpensive to be sold. Maybe I may sell if I can spot much better bargains in the coming weeks.
Second, I see that some of the high-flying China stocks may be in for a bad time due to poorer than expected results. Hopefully, this does not happen to the China stocks that I hold. Anyway, if it happens to the stocks that I hold, the damage may be contained, given that these tend to be low PE stocks. (Note: A low PE ratio alone may not imply positve expected returns.)
Third, I am guessing that the broader market, STI, is in for more volatile sessions due to the subprime negativity. Up to now, I am still wondering how the subprime can affect non-financial firms (ie China firms).
First, the market is getting more dual-tracked. While I guess that both the blue chips and the small stocks would dive in coming week (or weeks), I can see some value in the small stocks. So much so that I am currently fully invested in the market. I have tried to see whether I can sell any of my position, but somehow, I find my positions too inexpensive to be sold. Maybe I may sell if I can spot much better bargains in the coming weeks.
Second, I see that some of the high-flying China stocks may be in for a bad time due to poorer than expected results. Hopefully, this does not happen to the China stocks that I hold. Anyway, if it happens to the stocks that I hold, the damage may be contained, given that these tend to be low PE stocks. (Note: A low PE ratio alone may not imply positve expected returns.)
Third, I am guessing that the broader market, STI, is in for more volatile sessions due to the subprime negativity. Up to now, I am still wondering how the subprime can affect non-financial firms (ie China firms).
Book Review: Pop! : why bubbles are great for the economy
I have recently read the book Pop! : why bubbles are great for the economy, by Daniel Gross. The book can be borrowed from NLB (332.6 GRO). Overall, the book is short and interesting as it presents the positive aspect of bubbles, instead of the negative sides (ie the losses sufferred by investors etc).
Some learning points are:
1) Economic bubbles are good in the sense that they provide positive externalities to the other sectors/people. For example, bubbles can help to hasten the construction of the neccesary infrastructure for businesses and the general public. The US railroad building bubble has lead to lower cost and faster transport of goods and people in a shorter timeframe compared to the Eurporean countries where railroad building bubble does not exist.
2) For investors, during bubble period, avoid the acquisitors. Instead, aim for those who are supplying the raw materials. After the bubble period, aim for the acquisitors who are on the brink of bankruptcy and they are holding valuable assets. Also, aim for those business who get to enjoy the positive externalities.
3) In reading the book, I tend to get the idea that government somehow, indirectly or directly, is involved in the creation of the bubble. For example, the recent housing boom can be linked to partly to the low Fed rate (in 2002 onwards) and US pro-housing policies.
While the book gives me an impression of how bubble may be formed (ie a great revolutionary idea, prominent event) or can be recognized, I would think that the book, The Tipping Point, would provide a better understanding on how bubbles are created.
Some learning points are:
1) Economic bubbles are good in the sense that they provide positive externalities to the other sectors/people. For example, bubbles can help to hasten the construction of the neccesary infrastructure for businesses and the general public. The US railroad building bubble has lead to lower cost and faster transport of goods and people in a shorter timeframe compared to the Eurporean countries where railroad building bubble does not exist.
2) For investors, during bubble period, avoid the acquisitors. Instead, aim for those who are supplying the raw materials. After the bubble period, aim for the acquisitors who are on the brink of bankruptcy and they are holding valuable assets. Also, aim for those business who get to enjoy the positive externalities.
3) In reading the book, I tend to get the idea that government somehow, indirectly or directly, is involved in the creation of the bubble. For example, the recent housing boom can be linked to partly to the low Fed rate (in 2002 onwards) and US pro-housing policies.
While the book gives me an impression of how bubble may be formed (ie a great revolutionary idea, prominent event) or can be recognized, I would think that the book, The Tipping Point, would provide a better understanding on how bubbles are created.
Saturday, November 3, 2007
How lucky. I will not be the next WB.
The Interative Investor Blog (IIB) has discussed a controversial article by Mark Sellers.
Mark Sellers is a hedge fund manager (using value investing) and writer (he contributes for FT). Mr Seller has just released an article highlighting the seven traits for a successful value investors (ie investors like Warren Buffett, Bill Miller who can compound at 20-25% over their careers.)
Mr Seller penned that successful investors should have the seven traits. And interestingly, he defined these seven traits as either you have it by twelve years old or you don't have it.
Well, as I am a pre-dominantly left-brainer and an abysmal painter, I would have fail his six trait (having a good two-sided brain). And this implies that I would not be the next Warren Buffett or a successful value investor. How lucky.
Mark Sellers is a hedge fund manager (using value investing) and writer (he contributes for FT). Mr Seller has just released an article highlighting the seven traits for a successful value investors (ie investors like Warren Buffett, Bill Miller who can compound at 20-25% over their careers.)
Mr Seller penned that successful investors should have the seven traits. And interestingly, he defined these seven traits as either you have it by twelve years old or you don't have it.
Well, as I am a pre-dominantly left-brainer and an abysmal painter, I would have fail his six trait (having a good two-sided brain). And this implies that I would not be the next Warren Buffett or a successful value investor. How lucky.
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