Value Investing on the ASX

But value investors don't rely on reading newspapers for their information?

But isn't the value argument that the price of the stock at any one time, may not be representative of the true value of the business itself? - due to market sentiment, over-reacting to short-term news, fear, greed etc...

GSJ

 

No point getting to heated about the whole thing, at the end of the day we are all doing what we think makes the most sense to us, it is good that this forum has a good dose of people who arent utter morons (like some other forums) who can coherently discuss a point. Whether someone is TA/FA/Random Walk/Fortune Teller it makes no real difference to me, as long as they are doing something to plan for the future!

If you honestly think that, then the worst thing you can do is utilise TA, dont invest using tools you dont believe in!

 

Yep, can't argue with that!

GSJ

 

No use getting too emotional over this subject - its not going to bring world poverty or international conflicts to an end.

As I've previously said, I've utilised both techniques; I just find FA and value investing more suited to my personality and risk profile. I've only just noticed that coopranos has started a thread about his trading - very interesting and I hope it goes well for him.

Steve

 

GSJ,

In the stock market we buy and sell share prices and NOT fundamentals !!
Fundamental analysis does not take into account the psychology of the market. People move the market not balance sheets.
It's a psychology of all the market players that dictates where the market goes.
Opposite to that might be that investors read fundamental reports and act on them.
People who produce fundamental reports are rarely objective.
Very often reports presented to shareholders by companies and stockbroking firms are generally a half truths and often contain lies.
If you in doubt, let me remind you : Enron, Bond Corporation, Adriadne, or Quintex.....

Very interesting history about Candlesticks you may find here.The History of Japanese Candlestick Analysis

But isn't the value argument that the price of the stock at any one time, may not be representative of the true value of the business itself? - due to market sentiment, over-reacting to short-term news, fear, greed etc...

I do not think that you ever find true value (whatever it means) of the business, so do not bother even correlate price of the stock with value of the business.
Personally I do not give a .... pink elephant what value of the business may be, unless I physically own whole business (W. Buffet style).
Do not confuse ownership of the business (W. Buffet style) and small "ownership" of the company if you own few shares.
Two different animals as far as I am concerned !!

There is nothing wrong to agree or not with some opinions.
After all you are fully entitled to have you own view. You even should have it !!.
One more....Do you know that Warren Buffet started as an insider Today he is not even investor but entrepreneur (IMHO).

 

Thanks for all the posts in this thread, it has been very informative and interesting, and am actually starting to see the TA point of view now, but will stick with the value/FA approach for myself.

GSJ

 

Of course FA does not take into account investor psychology - thats why its called fundamental analysis - looking at the financials.
However a value investor definitely considers market psychology, always on the lookout to buy into a good business at a great price offered by the market which is below the deemed intrinsic value.

Isn't the tech crash in teh U.S. a good example of how, in the long run, fundamentals win over "market psychology???

 

GSJ
Just an idea for you - you dont actually have to only use FA or TA exclusively, it is not a religion we are talking about. There is nothing saying you cant shortlist your potential investments using FA, then use some basic TA to help confirm your ideas, set your entry points, and set your stops (and dont let anyone fool you into thinking that you dont need stops in fundamental analysis and longer term investing - proper money & risk management are essential in any financial venture).

 

Isn't collapse of Enron, Bond Corporation, Adriadne, or Quintex, HIH, and many others....a good example that fundamentals don't work ??
So - what is a diffrence between fundamental investor and "value" investor?

Tech crash proved only one thing....Most of those who lost were "value" investors and some miserable traders.

After all what is a definition of "value" and how you can measure it ?

 

I would almost be willing to bet that the average drawdown of capital for both Technical & Fundamental analysts was about the same during this period.
I dont know why people seem to think that because someone uses technical analysis that all of a sudden the only thing they invest in is penny uranium stock and tech stocks - both types of analysis are looking at the same market, and over time inevitably buying the same shares.
Just because you buy WBC because you think it is sound fundamentally and I jump on board a long term trend doesnt mean the underlying investment is any different - it theoretically just means that you hang onto it forever (or until it is no longer a "fundamentally sound" investment), I only hang onto it until the trend tells me that the market is finished with it for the time being.

 

"(and dont let anyone fool you into thinking that you dont need stops in fundamental analysis and longer term investing - proper money & risk management are essential in any financial venture)"

Absolutely !!
Some Managed Funds employ TA guys. I wonder why...

 

Warren Buffett once said 'If you can't watch the price of your shares fall by 50% without getting in a panic, you shouldn't be in the market'. If you have done thorough research on a company and you know the business is sound, why on earth would you use stops?

As far as I'm concerned, when a business that you've bought into's share price drops, that's the time to buy more, not set up stop losses. A fall in the share price is a great opportunity to get higher exposure to a business. It certainly isn't the time to be selling your holdings.

When people see a product they want at a great price, they think it's a fantastic bargain. Yet when they see the price of the shares in a business they own fall, they panic and sell - even if it's a great business (and if it's not a great business, why did you buy the shares in the first place?). I don't understand that logic, but then most people in the market are speculators, not investors.

Mark

 

Hi Troppo - fundamental analysis is just that - analysis. Its the reading and understanding of a businesses financials. Value investing and fundamental analysis are not one and the same.
If you read thru the posts in this thread you will see how you measure the intrinsic business value. Its not rocket science.

To be honest, I don't care what analysis techniques people use. For me it only makes sense to buy into a business that you understand and where the market is throwing up prices that are below what you deem the intrinsic economic value to be. To do otherwise would be ludicrous in my mind.

As for the tech crash - value investors would not have been interested in those stocks unless for some reason the individuals got caught up in the moment and took a punt (meaning that they weren't value-investing) - which is exactly what it was - gambling on "the greater fool theory".

You've listed a couple of failed business at the start of your post, suggesting that these prove that value-investing doesn't work. I would suggest that a value investor would have been able to see the dodgy management involved in those companies and either not invested in them or divested their interests pretty quickly. In any case a list of a couple of failed business means nothing. You are always going to get some wrong... Are you saying on the flip-side that every trade made by an investor using TA has proved profitable?

 

Here's an interesting take on value investing...

Author: Richard Gluyas
Publisher: News Ltd
Publication: The Australian, Page 033 (Sat 16 Jun 2007)

 

Agreed. Most people using TA to me are doing just this, ie. speculating.

GSJ

 

Yes GSJ, but on the flip side of the coin there are a lot of FA type people that *think* they are investors and they are actually speculators too. Ask people that bought Telstra without doing a bit of research and have held for however long if they consider themselves investors or speculators.

You won't get too many telling you they are speculators, mate!

I like Peter Lynch's idea that if you are going to invest in a business, you should be able to give a concise, but detailed description of the business to someone who asks right off the top of your head.

But I think what we all need to remember here is that TA and FA are two very different ways of achieving the same result - financial freedom. Both have their advantages and diadvantages and neither is superior to the other (as long as whichever strategy you use allows you to achieve your goals).

Mark

 

Yes, yes I know. I must stop taking these cheap shots at TA 'investors' !

GSJ

 

Mark,

I am still wondering how people who put small fortune in Telstra shares at $8 long time ago (6&7 years ago) feel now?
I would imagine that at that time Telstra's fundamentals were very sound.
An assumption is that people have got enough skills to asses if business is good or bad.
A lot of people thought that way when they invested a lot of money in Enron or HIH etc.

It's some kind of misconception regarding "owning" the business....
W.B owns his businesses 100%, so he may totally ignore share price as long as his business pouring a lot of money directly into his pocket.
If you are a small shareholder the only way you can make money is to expect the price of your holdings (shares) to grow.
Do not forget that if you are down 50% you need to make 100% to just break even.
In case of Telstra it may take next 6 or more years to break even (say...you bought TLS at $8), so after 12 years you may break even - if you lucky.
Now it's up to you to decide if this is/was sound investment.

I read somewhere that in 1974 (from memory) a lot of people invested money in BHP. Guess what .... after 10 years they got their money back!
So - stop loss is important even for long term (whatever that means) investors. Some people may argue that selling shares with 50% loss makes no sense at all (that is another story). That is why correct stop at right place very often is a matter of staying in the game or be out.

 

jscott,

"You've listed a couple of failed business at the start of your post, suggesting that these prove that value-investing doesn't work. I would suggest that a value investor would have been able to see the dodgy management involved in those companies and either not invested in them or divested their interests pretty quickly. In any case a list of a couple of failed business means nothing. You are always going to get some wrong... Are you saying on the flip-side that every trade made by an investor using TA has proved profitable?"

If you think that value investors are able to see the dodgy management game - think again !!!
But if you think that way, Enron story (see another post) may tell otherwise.
Investing decisions based on "brilliant" reports and "good" numbers which very often have nothing to do with reality make no sense to me. Nobody said that every trade using TA is profitable. You are missing a point.


"As for the tech crash - value investors would not have been interested in those stocks unless for some reason the individuals got caught up in the moment and took a punt (meaning that they weren't value-investing) - which is exactly what it was - gambling on "the greater fool theory"."

You are not quite correct. But if this is your view - fine with me.
Do not forget that a lot of well known business people/investors made a lot of money playing with tech stocks at that time (one of them just got married at Fr. Riviera).
A lot of them KNEW when to exit the market. And that is the most important "know-how" in this game.
Personally I do not buy into intrinsic value or any other on this matter.
To me value as such is very subjective and does not fit in my equation at all.

 

Tropo,

Have you read (and attempted to absorb) any of the previous posts?

It is good to have healthy debate about differing opinions, however, one has to at least look at the alternative arguments.

How do you think the tech crash proved that value investors were the biggest losers? What is the evidence for this? I would have thought that this was a perfect example of why value investing was successful.

Don't take this discussion so miuch to heart; we're just thrashing around some ideas.

Steve