Invest Like a Dealmaker is written by Christopher Mayer, an editor of two investment letter.
The book will be an interesting addition to a value investor library, as it briefly introduces an value investor to other probably more obscure search method.
The book started off by denoting two types of market, stockmarket and the private business market (or Wall Street vs Main Street). Following that, it introduces three concepts on how to think about private business values: that is (i) focus on whole companies, (ii) focus on cashflow and (iii) focus on asset values.
Then it borrows from Marty Whitman's Value Investing the four methods that companies can create value. They are earnings, free cash flow, resource conversion and access to capital markets.
The most interesting part comes next, whereby the author discuss on the eight possible search methods, ranging from Greenblatt's Magic Formula to Distress Investing.
Finally, the book starts to dwell on the philosophy/methods of other great investors such as Rahph Wanger, Bill Miller etc, as well as some academic studies and views of businessman. And also a chapter on when to sell stocks.
Except for the chapter on when to sell stocks, the great investors' philosophy/methods portion may or may not be to your liking, especially if you have already covered a lot of ground in value investing philosophy. Nonetheless, some ideas are quite interesting and may be worth re-reading.
On the whole, the book will be great for aspiring value investors.
Friday, May 16, 2008
Saturday, March 29, 2008
2008 Q1 Portfolio Update
As Q1 is almost done, I shall provide an update of my portfolio here. My portfolio currently contains:
| Sino-tech Fiber |
| China Precision Tech |
| Fujian ZY Plastics |
| Sihuan |
| China Hongcheng |
| Cacola |
| C&G |
| Karin |
| Valutronics |
Transactions made since last update:
Bought and Sold: Dutech
Bought: Sihuan, C&G and Cacalo
Partial Sold: Fujian ZY
Bought Dutech as the price is attractive at around 2007 historical 6.x PER. However, the position is not large, as I am waiting for futher price drops. Dutech was sold later to raise cash for other purchases.
Sold a minor portion of Fujian ZY to raise cash for other positions.
Have added more shares of Sihuan, C&G and Cacalo in the portfolio as the prices of these stocks fallen to attractive levels.
Year-to-date, my portfolio returns are negative at around -15%, more negative than STI (-12%).
Thursday, March 20, 2008
Book Review : Investing The Templeton Way
Investing The Templeton Way is authored by Templetion's grand-niece, Lauren and her husband, Scott.
The book would be a splendid addition to a value investor's library. The book elaborates on Templeton's principle of buying at maximum pessimism and his way of thinking in his recent exploits of the market (for example, shorting the Internet stocks in early 2000)
Some interesting points are:
1) The book contains two analogies to explain how buying at maximum pessimism. One is the lemonade example, and the other describes how Templeton's grandfather's bidding strategy for farmland. That is to bid only when there are no bidders for the farmland. In this manner, the purchased farmlands were bought at a very low price and hence, a profit was almost guaranteed when the farmlands were sold some years later.
2) The right question should be "When is the outlook most pessimistic?" and not "When will the outlook be good?"
3) Diversification will be helpful if one is using borrowed money. This was illustrated when Templeton uses borrowed funds to purchase every small caps below $X dollars, so as to profit enormously from his divergent views when compared to the prevalent market view.
4) Always use real data (and not press commentaries) in your decision making process. This is seen when the book describes how Templeton uses comparison of current P/B and P/E against the historical P/B and P/E to derive the conclusion that the market was very cheap in 1979-82.
5) Patience is a necessity. Investing in unwanted stocks requires patience as it may take a few years before the stocks take off.
6) Be flexible. Templeton recognizes that bonds are good buys at Mar 2000 and he bought zero-coupon bonds using borrow money (carry trade) at that time, which further amplifies his returns.
7) What you learn may be transitive. The book has described how Templeton identifies Japan as an investor's paradise before many other fund managers and how Templeton is able to use the same insights to spot Korea as the investor's paradise. Templeton invested in an unit trust holding only Korea equities during 1998 Asian Financial Crisis.
In short, if you are a value investor, you should read the book.
The book would be a splendid addition to a value investor's library. The book elaborates on Templeton's principle of buying at maximum pessimism and his way of thinking in his recent exploits of the market (for example, shorting the Internet stocks in early 2000)
Some interesting points are:
1) The book contains two analogies to explain how buying at maximum pessimism. One is the lemonade example, and the other describes how Templeton's grandfather's bidding strategy for farmland. That is to bid only when there are no bidders for the farmland. In this manner, the purchased farmlands were bought at a very low price and hence, a profit was almost guaranteed when the farmlands were sold some years later.
2) The right question should be "When is the outlook most pessimistic?" and not "When will the outlook be good?"
3) Diversification will be helpful if one is using borrowed money. This was illustrated when Templeton uses borrowed funds to purchase every small caps below $X dollars, so as to profit enormously from his divergent views when compared to the prevalent market view.
4) Always use real data (and not press commentaries) in your decision making process. This is seen when the book describes how Templeton uses comparison of current P/B and P/E against the historical P/B and P/E to derive the conclusion that the market was very cheap in 1979-82.
5) Patience is a necessity. Investing in unwanted stocks requires patience as it may take a few years before the stocks take off.
6) Be flexible. Templeton recognizes that bonds are good buys at Mar 2000 and he bought zero-coupon bonds using borrow money (carry trade) at that time, which further amplifies his returns.
7) What you learn may be transitive. The book has described how Templeton identifies Japan as an investor's paradise before many other fund managers and how Templeton is able to use the same insights to spot Korea as the investor's paradise. Templeton invested in an unit trust holding only Korea equities during 1998 Asian Financial Crisis.
In short, if you are a value investor, you should read the book.
Monday, March 17, 2008
Beating CPF's extra 1% and its regulations
If you do not know, from 1 April 2008, you will not be able to invest the first $20,000 in your Ordinary Account. (See here) This rule is because of the additional 1% government is offering us.
The extra 1% will only push up the net returns to 3.5%, probably half of what one can get in a 20 year MSCI world stock index (assuming it's 7%). It seems that the government is forcing the younger adults with long time horizon to miss out on higher returns in long term investing, rather than letting the young adults to choose themselves (in other words, having an opt-out option for the extra 1% in OA).
And not to mention that the 3.5% return is lower than the current CPI inflation rate.
As the April 2008 falls nearer, I have decided to utilize the bulk of my CPFOA to buy some stocks, especially in the current bargains galore season. The chosen stocks will be those with P/NTA less than 1 and property owning companies (to safeguard against inflation).
Currently, possible candidates so far are Orchard Parade, Singapore Land and Hotel Grand Central.
Hopefully (and likely), in five years time, the return from the above candidates would beat the 3.5% handily.
The extra 1% will only push up the net returns to 3.5%, probably half of what one can get in a 20 year MSCI world stock index (assuming it's 7%). It seems that the government is forcing the younger adults with long time horizon to miss out on higher returns in long term investing, rather than letting the young adults to choose themselves (in other words, having an opt-out option for the extra 1% in OA).
And not to mention that the 3.5% return is lower than the current CPI inflation rate.
As the April 2008 falls nearer, I have decided to utilize the bulk of my CPFOA to buy some stocks, especially in the current bargains galore season. The chosen stocks will be those with P/NTA less than 1 and property owning companies (to safeguard against inflation).
Currently, possible candidates so far are Orchard Parade, Singapore Land and Hotel Grand Central.
Hopefully (and likely), in five years time, the return from the above candidates would beat the 3.5% handily.
Sunday, February 24, 2008
2008 mid-Q1 Portfolio Update
As half of Q1 has passed, my portfolio now contain:
Transactions made since last update:
Bought and Sold: Man Wah, Sunshine
Sold: Hongwei, the Two HK stocks
Partial Sold: China Precision
Bought: Sino-Tech Fiber, Sihuan, China Hongcheng, C&G, Karin
Bought Man Wah and Sunshine initially due to the thinking that they may be undervalued. However, worries on US housing lead to sale of Man Wah. The sale of Sunshine is due worries over the huge US$120m loan taken with nothing concrete done.
Sold Hongwei and the two HK stocks primarily to raise cash for other positons. Same for the partial sale of China Precision.
Sino-Tech and Sihuan are bought partially due to the initial recommendations made on Kleer's blog (Extraordinary Profits). However, the main reason for buying Sino-Tech is the large drop in the prices for Sino-Tech, leading to mouth-watering valuations based on its 2007Q3 results. I did not buy as much Sino-Tech as I would in previous cases, since I do not want to be overly concentrated in textiles.
Sihuan was purchased largely based on it being possibly unaffected by US slowdown/recession. Also, on valuation grounds and growth prospective, it seems to be more attractive than other China Pharmaceutical S shares. However, it is bought at a higher PE than my usual purchases.
China Hongcheng, C&G and Karin are bought on valuation grounds.
As seen, my number of positions have increased since the last update. This is mainly for diversification purpose. Overall, Valutronics remained my largest holding.
YTD, my portfolio returns are negative at around -10%, slightly less negative than STI. In previous weeks, it was more negative than STI, implying that my portfolio has been quite volatile so far.
P.S. Please do not blindly imitate my portfolio. My portfolio may change overtime. And I certainly will not provide regular updates to my portfolio.
| Sino-tech Fiber |
| China Precision Tech |
| Fujian Plastics |
| Sihuan |
| China Hongcheng |
| Cacola |
| C&G |
| Karin |
| Valutronics |
Transactions made since last update:
Bought and Sold: Man Wah, Sunshine
Sold: Hongwei, the Two HK stocks
Partial Sold: China Precision
Bought: Sino-Tech Fiber, Sihuan, China Hongcheng, C&G, Karin
Bought Man Wah and Sunshine initially due to the thinking that they may be undervalued. However, worries on US housing lead to sale of Man Wah. The sale of Sunshine is due worries over the huge US$120m loan taken with nothing concrete done.
Sold Hongwei and the two HK stocks primarily to raise cash for other positons. Same for the partial sale of China Precision.
Sino-Tech and Sihuan are bought partially due to the initial recommendations made on Kleer's blog (Extraordinary Profits). However, the main reason for buying Sino-Tech is the large drop in the prices for Sino-Tech, leading to mouth-watering valuations based on its 2007Q3 results. I did not buy as much Sino-Tech as I would in previous cases, since I do not want to be overly concentrated in textiles.
Sihuan was purchased largely based on it being possibly unaffected by US slowdown/recession. Also, on valuation grounds and growth prospective, it seems to be more attractive than other China Pharmaceutical S shares. However, it is bought at a higher PE than my usual purchases.
China Hongcheng, C&G and Karin are bought on valuation grounds.
As seen, my number of positions have increased since the last update. This is mainly for diversification purpose. Overall, Valutronics remained my largest holding.
YTD, my portfolio returns are negative at around -10%, slightly less negative than STI. In previous weeks, it was more negative than STI, implying that my portfolio has been quite volatile so far.
P.S. Please do not blindly imitate my portfolio. My portfolio may change overtime. And I certainly will not provide regular updates to my portfolio.
Saturday, February 23, 2008
Book Review: Your Money & Your Brain
Your Money and Your Brain, by Jason Zweig, is one of the latest book on behavioural finance (or neuroeconomics).
Basically, what differentiates this book from other books is that it include brain scans of the author's brain as the author is subjected to various behavioural experiments. And, as each chapter concentrates on a certain behavioural weakness, each chapter also contains tips to combat the behavioural weakness.
Generally, I would think that the book is marvelous, especially since I like to read up on behavioural finance. NLB has the book (332.6019 ZWE).
Some learning points are:
1) We generally have two brains, one thinking brain and one feeling brain. Or in other words, one reflective brain and one reflexive brain. In investing, it is important to have the right mixture between thinking and feeling. Some tips to maintain the right balance are asking another question (looking from other angles), try to disprove (instead of proving), know when feelings will rule, count to ten before acting.
2) We may be greedy because we get satisfaction from anticipating rewards. Sometimes, the joy of anticipation of getting an item is even larger than the joy that comes from having the item. Some tips to overcome our greed are:
- there are no certain things and trees do not grow to the sky.
- One seldom strikes lottery twice.
- Control the frequency of cues. Or simply, avoid looking at stock prices.
- Think twice
3) We like predictions. Unfortunately, we are overconfident in our predictions. Or simply, our predictions suck. Some tips are:
- Control those that can be controlled such as your expectations, your risk, your expenses etc
- Stop predicting. Instead, try to restrict yourselves or your options. For example, one can restrict oneself to dollar-cost-averaging
- Ask for the proof
- Test repeatedly to see if your predictions are more accurate than you think. In other words, if you think you are a good stock picker, you can test it by starting a paper portfolio for a year. And then accept the result of the test.
- Take a break from the markets. And do not obsess over stock prices
4) We are overconfident in our abilities. To overcome this trait, some tips are:
- admit your ignorance. Know that you do not know.
- Have a "Too Hard" category (from Buffett).
- Be conservative in your valuation.
- Keep an investing diary
- Learn what works and what does not.
- Learn from mistakes.
- Be diversified
5) Our risk tolerance is not fixed. It is frame dependent. Seek to reframe your reference point by look outside yourself (look from other angles) and looking at past history.
6) Our fear sometimes may be irrational. That is, we fear the wrong things and our fears are susceptible to recency bias. To overcome the fears, try not thinking the fear by taking a walk or exercising. Or get away from the crowd by seeking an outside opinion.
7) We are susceptible to regrets. In other words, we sometimes choose an alternative, say A, so as to avoid regret over the outcome if we choose other alternatives. Some ways to reduce our regrets are
- Create rules and follow the rules.
- Aid yourself to act. A way is to place post-it notes to remind yourself to act according to your rules.
- Cut your losses, especially if something is wrong with the business.
- Have inertia work for you. Put yourself on auto-pilot plans.
- Examine your portfolio prices infrequently. You cannot regret over what you do not know.
I would recommend you to read the book for more details.
Basically, what differentiates this book from other books is that it include brain scans of the author's brain as the author is subjected to various behavioural experiments. And, as each chapter concentrates on a certain behavioural weakness, each chapter also contains tips to combat the behavioural weakness.
Generally, I would think that the book is marvelous, especially since I like to read up on behavioural finance. NLB has the book (332.6019 ZWE).
Some learning points are:
1) We generally have two brains, one thinking brain and one feeling brain. Or in other words, one reflective brain and one reflexive brain. In investing, it is important to have the right mixture between thinking and feeling. Some tips to maintain the right balance are asking another question (looking from other angles), try to disprove (instead of proving), know when feelings will rule, count to ten before acting.
2) We may be greedy because we get satisfaction from anticipating rewards. Sometimes, the joy of anticipation of getting an item is even larger than the joy that comes from having the item. Some tips to overcome our greed are:
- there are no certain things and trees do not grow to the sky.
- One seldom strikes lottery twice.
- Control the frequency of cues. Or simply, avoid looking at stock prices.
- Think twice
3) We like predictions. Unfortunately, we are overconfident in our predictions. Or simply, our predictions suck. Some tips are:
- Control those that can be controlled such as your expectations, your risk, your expenses etc
- Stop predicting. Instead, try to restrict yourselves or your options. For example, one can restrict oneself to dollar-cost-averaging
- Ask for the proof
- Test repeatedly to see if your predictions are more accurate than you think. In other words, if you think you are a good stock picker, you can test it by starting a paper portfolio for a year. And then accept the result of the test.
- Take a break from the markets. And do not obsess over stock prices
4) We are overconfident in our abilities. To overcome this trait, some tips are:
- admit your ignorance. Know that you do not know.
- Have a "Too Hard" category (from Buffett).
- Be conservative in your valuation.
- Keep an investing diary
- Learn what works and what does not.
- Learn from mistakes.
- Be diversified
5) Our risk tolerance is not fixed. It is frame dependent. Seek to reframe your reference point by look outside yourself (look from other angles) and looking at past history.
6) Our fear sometimes may be irrational. That is, we fear the wrong things and our fears are susceptible to recency bias. To overcome the fears, try not thinking the fear by taking a walk or exercising. Or get away from the crowd by seeking an outside opinion.
7) We are susceptible to regrets. In other words, we sometimes choose an alternative, say A, so as to avoid regret over the outcome if we choose other alternatives. Some ways to reduce our regrets are
- Create rules and follow the rules.
- Aid yourself to act. A way is to place post-it notes to remind yourself to act according to your rules.
- Cut your losses, especially if something is wrong with the business.
- Have inertia work for you. Put yourself on auto-pilot plans.
- Examine your portfolio prices infrequently. You cannot regret over what you do not know.
I would recommend you to read the book for more details.
Friday, February 22, 2008
Weekly Portfolio Volatility
In an earlier post, I have highlighted downward volatility exist, even in value investing.
Over the past two years from 2006-2007, I have tried to value my portfolio on a weekly basis based on unit value method.
Based on the 104 weeks (or datapoints) from 2006-2007, my portfolio returns has a standard deviation of 5.2%. More meaningfully, if I have 0% returns, my weekly returns will range from -10.4% to 10.4% in 99 out of 104 weeks.
Thankfully, my portfolio has more positive weeks than negative weeks (or slight negative skewed in statistical terms). Hence, I would suffer less frequent (though still considerable) stress or worries over negative returns and I would have more frequent joy over positive returns.
Going forward into 2008, due to the unfavorable environment, I expect that my portfolio will see probably more negative weeks and more volatile weekly returns.
Over the past two years from 2006-2007, I have tried to value my portfolio on a weekly basis based on unit value method.
Based on the 104 weeks (or datapoints) from 2006-2007, my portfolio returns has a standard deviation of 5.2%. More meaningfully, if I have 0% returns, my weekly returns will range from -10.4% to 10.4% in 99 out of 104 weeks.
Thankfully, my portfolio has more positive weeks than negative weeks (or slight negative skewed in statistical terms). Hence, I would suffer less frequent (though still considerable) stress or worries over negative returns and I would have more frequent joy over positive returns.
Going forward into 2008, due to the unfavorable environment, I expect that my portfolio will see probably more negative weeks and more volatile weekly returns.
Distribution of My Weekly Returns
Subscribe to:
Posts (Atom)