Value Investing on the ASX

No no no... Troppo - no where in any of these posts has anyone categorically stated that if you follow a value-investing approach you will definitely win!

What I am saying is that if you are a value investor you will research the manmagement team of a business you are interested in as well, not just the financial reports. Of course you're not always going to get it 100% right.
One thing that did look ugly about the Enron acounts when you look back was the massive directors options - however, as I wasn't personally looking at that stock at the time I can't really comment. But, I can say that there are many many many asx listed companies that I would never invest in because of the actions of their management. Its about weighing up all the information that you're presented with.

Back in the beginning of this thread Coopranos was saynig that essentially the little-guy has no chance against the big institutional investors - but - interestingly, it was the big institutional investors that got really burned with these failed companies...

With the tech boom... you can see that I never said people didn't make money. Just that they were speculating.

 

Oh yes...wasn't that the guy that helped lose hundreds of millions in a tech stock called One.Tel

Which is of course a good thing for value investors. To be able to purchase shares in a fundamentally sound company at good (read cheap) prices, it is necessary that the majority are following the emotional and irrational mindset you alluded to earlier in this thread. Without this, there would probably be no opportunities to get these companies 'on sale'.

I personally think it is very difficult to be a 'rigid' value investor. In my mind, it is a basic philosophy that I follow - I like to get value for whatever I buy (food, clothes, entertainment, shares etc) . What does 'value' mean to you in this context? However, like all humans, I am not 100% consistent in my application (no matter how hard I try). I make mistakes and sometimes 'bend the rules'; however, I usually find that I regret those decisions.

Tropo, I now ask you; what critieria do you apply for purchasing shares? I know you don't feel that a company you buy should necessarily be making a profit, with increasing revenues and controlled debt, so what do you look for?

Steve

 

I agree with you absolutely (but I would never have bought Telstra myself, too regulated, too complicated).

Not true - WB doesn't own 100% of the listed stocks in his portfolio. He doesn't buy shares, he buys portions of businesses. He assesses the listed businesses the same way he assesses the businesses that he buys outright.

Yes of course and no one has a 100% success rate. Robert Hagstrom in 'The Warren Buffett Way' stated that if WB hadn't picked a certain dozen businesses to invest in, his returns would have been no better than average. No one gets it right 100% of the time. Peter Lynch is famous for saying that you don't even need to get it right 50% of the time - what's most important is that the ones you do get right more than make up for the ones you don't.

I have always been more drawn to WB's style of investing because it's what appeals to my sense of how to do things. I'm not claiming it's better than any other style - the only thing that matters to me is 'By investing in this manner, will I reach my goals?' - that's the only thing I care about.

Mark

 

Now that sounds a little like the Navra fund which has been going extememly well (over 22% for the year as of today). Whilst they don't apply TA to their trading decisions they do have a shortlist of companies based on excellent fundamentals and make trades based on the irrational market movements.

Steve

 

I do not have any evidence, and I doubt if you have got any on this matter.
Hearing a lot of comments on National TV few years after dot.com boom (even now from time to time ), it's easy to draw conclusion that the mostly hit were traditional investors and/or so call "moms & dads", and as I said before traders as well.

I would say that we have got very healthy debate so far....Unless you think otherwise.
If you think that value investing was/is success, that's what really matter !!
But if do not mind I have got different view on this, which I hope is not going to upset you very much.
After all world would be a very boring place if everybody had the same opinions.

 

That's pretty much what I stated earlier in this thread when I said...

"In the end, everyone has to find an investment philosophy that suits their individual profile." and "To use that tired cliche: there are many ways to skin a cat."

I really would like to know what criteria you use for making your investment decisions - Gives me (and everyone else) a chance to possibly learn a few new ideas. Maybe start a new thread...In fact, that's a good idea for others as well.

Steve

 

If this is your system/approach you are comfortable with and if works for you that's fine. I guess that we misunderstood each other. Nobody said that FA or TA can win all the time.
But so far I did not meet 100% FA investor, who made money in the market. Fact - combination of FA (stock selection) and trading/investing using TA it's a different animal all together.
One of the finest TA traders (George Soros) is well known...For some strange reason some people call him a speculator ... There is nothing wrong with speculation as long as you know how to do it.
Yep....from time to time big guys are losing money in the quite spectacular way....I understood copranoos comment in the way that small investor has no chance against big institutional investors as far as fundamental research is concernd, and not that small fish can not trade successfully against them.

 

Steve,

"Oh yes...wasn't that the guy that helped lose hundreds of millions in a tech stock called One.Tel"

Yep....Same guy... I must say that One Tel (nice dog) was very enjoyable to trade...

".....I am not 100% consistent in my application (no matter how hard I try). I make mistakes and sometimes 'bend the rules'; however, I usually find that I regret those decisions".

Tell me about it...

'Tropo, I now ask you; what critieria do you apply for purchasing shares? I know you don't feel that a company you buy should necessarily be making a profit, with increasing revenues and controlled debt, so what do you look for?"

O.K...... Last time I traded Stock Market it was almost 4 years ago (now I trade different market). My approach at that time was very simple. My main "tool" was a chart. Nothing else.
Sure I used few simple TA tools and that's about it. At that time I used few programs which selected certain stocks if I was looking for trend, breaks, patterns etc....

 

Exactly why I think WB is massively overquoted as justification for any sort of share investment system. You cant compare apples (WB buying a substantial portion of the business, not to mention the fact that once you get to a certain level of fame you automatically have a golden touch, your success is basically a self-fulfilling prophecy) with oranges (average investor whose investment wouldnt even crack the 0.01% mark in the business).
In my opinion WB is by far the exception rather than the rule, although a fruitless point I seriously wonder if he would achieve anywhere near the success if he started today with vast amount of information available. By his own admission in a recent annual report to Berkshire shareholders, his concept of getting value in the marketplace is getting very tough to practice these days.

 

"I seriously wonder if he would achieve anywhere near the success if he started today with vast amount of information available"

That is precisly my point I made long time ago on this forum...

Seems to me that WB is some kind of "guru"... I wonder who is trying to glorify his image/achivement and make o lot of $$$$ using his name. Maybe ... "The Master" himself ??

 

I try and listen to everything he says as he's a smart cookie. I did see the quote that if he had a smaller account today he could return you 50% on it attributed to WB.

Quotes for BRK-A - Yahoo! Finance

Notice the multi year almost 50% drawdown in BRKA and almost 6 years to a new equity high! Good lumpy returns (especially compared to the S&P) but there's a healthy chunk of luck in there at some point as well I'm sure.

I can't really take a lot of out of WB's trading for my own consumption other than if you want to make very large sums of money you need to be a fund manager and not a retail guy.

 

What is your reasoning for this statement? Are you making the claim that a company's share price will automatically rise just because WB invests in it? Did you not read where I stated that it has been about 12 choices that WB has made over his career that 'made' him. If he didn't make those investments, his returns would have been no better than average. Claiming that WB succeeds just because he's WB is a bit silly.

Peter Lynch also reiterates this point in One Up On Wall Street, where he claims that small investors actually have an advantage over institutional investors because they are not shackled by the myriad rules and laws that fund managers must abide by.

Of course he's the exception to the rule! Considering that his method of valuing businesses hasn't changed in decades (he doesn't even use a computer), the amount of info. available today is a moot point. In my opinion, the amount of info. available is a hinderance to most people, rather than an advantage... with all that noise it's very easy to get distracted.

I prefer WB's method because:
1. it makes sense to me
2. there is no emotion involved
3. it's a method that anyone can use to succeed

I look at what WB has been able to achieve for himself and if I can match just .1% of his success, then I will be very successful myself. I don't know about you, but I reckon those odds are pretty good.

Mark

 

Warren Buffet is only one value investor (although amazingly successful!). Many of you have probably heard of another extremely successful Australian value investor - Kerr Neilson. Here's a couple of quotes from him, which again talk about the distinction between value and price paid for shares/slice of a company.

"Unlike art, shares need to be purchased with mercenary intent. Are you sure the company is worth more than its current price?"

"The underlying value of businesses changes slowly, yet share prices gyrate daily. This apparent contradiction results from the undue weighting of recent events."

"Charting may be helpful to observe patterns of accumulation and distribution, but you're not gaining any knowledge that isn't available to everyone else. There is no substitute for a thorough appraisal of a company's worth."

Once again, when another billionaire throws out a few pearls of wisdom...I like to listen.

Steve

Source of quotes: "Reflections on Investment" by Kerr Neilson. Bolds are my emphasis.

 

I found below article somewhere in the cyber space.

"The mutual fund industry requires customers that buy their funds and never sell them. So naturally, they disseminate a lot of editorial decrying any trading, market-timing or re-allocating that includes selling their mutual funds. This non-selling concept gets more ridiculous and hypocritical every year as scandals continue to trickle into the news regarding brokerage firm and mutual fund behavior. It turns out that the professionals running the mutual funds do a lot of trading, market-timing and re-allocating everyday, but somehow if you do this on your own, you’ll ruin your portfolio.

Since an unfortunate vestige of mutual fund sales material is: "you need to invest for the long-term." and "That it is OK if your investments are going down because these are long-term investments." These phrases and beliefs destroy portfolios and compounded returns.

To me, investing is simply day-trading in slow motion. In my view, when people don’t have an investing plan they use the excuse, "I’m investing for the long-term." But, I find that all the successful trading rules that apply to a professional currency trader with a leveraged $250 million position also apply to someone with $25 in a mutual fund. If the mutual fund owner calls it investing, he thinks he is immune from all the decision-making required of all ownership; ignoring the fact that every structure require maintenance.

Let’s take a closer look at maintenance; look at a home – everything but the dirt needs to be maintained. Time, weather, and events take their toll on the floors, appliances, roof, windows, landscaping, etc. The same rules apply to owning a rental home. And the same rules apply to owning a strip mall, or an airport or manufacturing plant. The same rules actually apply to every business; the building, the equipment, the employees, the vehicles, the marketing plan, the product design, and the websites. Now if investing or trading is a business (or you are trading or investing in businesses) what makes you think your portfolio doesn’t need to be maintained just like everything else? I am here to tell you that it does need to be maintained. In spite of long-term investing theories and cautions from your stockbroker or magazine headlines, most of the time you spend on investing would be considered maintenance.
How I define maintenance is continued review, evaluation, and action in alignment with your investing goals. Now the maintenance that they need is continual review. Is it meeting your expectations? Maintenance means information review: changes to your market view, interest rates, inflation, recession, the industry, a new federal law, an inter-country trade dispute, etc. Maintenance also means portfolio review. For example, , if a run up in real estate has unbalanced your portfolio, you may want to sell off weaker real estate holdings or, instead, sell off the strongest real estate holdings if the market prices are starting to fall back. Maintenance is also the mechanics of setting up alerts if a stock has fallen too far and you want to place a stop-loss order to get out, or an alert for a profit target that is about to be reached. Maintenance could simply be a monthly review to evaluate whether the stock is still above its 200-day moving average price.

Whatever the manner you want to address investment and portfolio maintenance, you need to start building your own trading rules, checklists for what to do before you enter a trade, and what could possibly trigger your exit of a position. Keep a journal to see how your rules are growing your account to notice which of them needs to be changed, eliminated, or updated. All of this is the maintenance required for the $25 mutual fund investment – so that it doesn’t become a $0.25 investment from neglect.

To the axiom: "A fool and his money are soon parted", I would add this corollary: "An amateur investor and his long-term investments are soon parted." Amateur investors that are not willing to perform the ongoing duties required to grow their investments rarely perform well. While a professional trader who carefully analyzes and executes his trading rules can count on the continued successful growth of their portfolio.
Don't put on "long-term blinders" to avoid doing the work to increase your investments."
By Francis Kier
Published: 1/12/2006

 

I don't follow the relevance of your post Troppo. Value investors are long-term investors, but they still maintain their portfolio's and monitor the progress of their shares (/companies invested in) and look for buying opportunities when share prices drop, or even sell their shares if the fundamentals of the company invested in have changed.

Investing in managed funds is another discussion all together and then comparing' active' managed funds to 'passive' index funds as well.

GSJ

 

Tropo, two questions.

1. Who is Francis Kier in the investing world?

2. Is he a billionaire?

 

Re1. I do not know...
Re2. Are you ??

 

A good philosophy in life is not to quote from unknown sources and from people who are not recognised as experts in their field.

No, I'm not a billionaire (yet ), however, I didn't quote myself as an expert in the investing field, although I have completed the Diploma in Financial Planning through the FPA and the Certificate in Financial Markets through the Securities Institute of Australia.

Cheers,

Steve

 

O.K. I am just curious....So please correct me if I am wrong.

Say...you bought XYZ at $20 (assuming that fundamentals are sound as far as you are concerned).
At $10 fundamentals XYZ may be still be O.K. so you may even buy more of XYZ (my guess only).
At $5 you may discover that fundamentals for some reason are not good anymore - so what you are doing ? Are you selling or waiting ??.

Am I correct assuming that you can hold on to XYZ (if fundamentals are still sound !!) even if share price of XYZ drops say 70%/80% or more, from the level you bought it?

 

"A good philosophy in life is not to quote from unknown sources and from people who are not recognised as experts in their field"

You may be correct. It depends who you call an expert. I would say that quoted article had some value.
Not all experts can provide a good advise like some so called financial advisers/experts who just sell products not advise.
As far as I am concerned, in investing/trading there are no experts and gurus. Only winners and losers exist.
You see, I hold only Master Degree in Eng. and in my profession like in any other there are also a lot of experts and..."experts".
Anyway.... Best of luck in your quest to become a billionaire one day.