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Tuesday, 27 May 2014

Value Investing is not about buying Cheap

First let's get it straight, I'm not a "value investor" - I not cerebral enough.

But if I would like to jump into a "buy the bounce off the bottom" trade, it would be very comforting to know my entry price is also where the value investors are lurking to buy. It's always good to have the wind behind my back.


Hence, it helps to know "how" value investors think. Come to think of it, I don't trade equities; I trade people (to be precise, it's sentiments).


Below is a link to a very good blog post and summary of Warren Buffet's sharing of his biggest early mistakes.

I would recommend 2 groups of people to read it.

1) Swing Traders who like to trade the bounce off key supports (sharpening the saw).

2) "Value investors" who think they know Warren Buffet (it's what you think you know that ain't so that hurts you the most).


Warren Buffett: These were my biggest early mistakes





56 comments:

  1. Hi SMOL,

    I strongly recommend "THe Snowball" which is a full biography of Warren Buffett's life. I felt it was an easy read and have read it twice already. A good peak at life in the 30s and 40s too!

    ReplyDelete
    Replies
    1. But even so, I wouldn't regard myself as a "Value" investor too. Maybe a wannabe. =p

      Delete
    2. 15HWW,

      Thanks for the recommendation.

      That's wise of you. During the early days of our journey, focus on the learning process; less on "titles".

      Once you find yourself naturally gravitating towards a particular school, you will have your field of specialisation ;)

      I often smile when those starting their journeys and yet to qualify as a "GP", already proclaim they are now "specialist" in a particular discipline....

      Be aware of the man of one book ;)

      Delete
  2. We don't buy over-valued stocks. Right?

    ReplyDelete
    Replies
    1. CW,

      Ouch! That's a good poke! Lucky I'm not a "value investor"; less painful ;)


      Not many "value investors" can be as honest as Warren Buffet:

      "Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year... I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."

      Even the legend makes mistake of a few billion dollars. When Temasek also lose billions during the GFC, I dare not say anything.

      Let those who have never sinned throw the first stone.


      Losses and mistakes are part and parcel of investing/trading.

      If everything is excused and boils down to "market being oversold", how will we improve if there's no admission of "I can do better next time"?

      Delete
  3. the only book i'll strongly recomment is "the manual".

    the manual of yourself (not someone else)!

    ReplyDelete
    Replies
    1. Our Manual is often made up of too many blank pages and not useful. Right?

      How can we write this Manual more effectively?

      Any ideas?

      Let brainstorm?

      Delete
    2. learn so much about warrent buffet for what? you are not him, you will never going to be him, why waste your time? unless for some entertaining.

      it is not irrespectful, its totally irrelavent.

      Delete
    3. brainstorm i like!!

      everything has its place/space, its a smaller system fix nicely into a bigger system if you behave nicely.

      how one behave is the operating system, the manual.

      we are all different as far as mental state is concern in respect on trading and investing (can apply to living as well), right down to the very fine details, we have to know whats good and whats not for us. everyone is different.....

      Delete
    4. unfortunately, the manual has to be inprint inside our brian, no other way. 3 easy step,

      do
      reflex
      remember.

      keep on repeating this process. on and on and on and on......

      Delete
    5. SMOL is very experienced facilitator who will help to summarize this self help Manual for sharing in the next blog post. LOL

      Delete
    6. i'm not saying everyone follow will succeed, especially in trading or investing, its purpose is to find that right place/space for you. if its fit nicely unto you, that itself is a success!

      Delete
    7. coconut and CW,

      I throw in my hat.

      There are 2 kinds of leaders (spiritual or otherwise):

      1) If you believe me follow me kind - They will give you their manual if you don't have one or if yours are only blank pages.

      2) Go taste mango yourself kind - How to describe the taste of mango? Go taste mango first and then we can discuss and share our experiences.

      Should I go read a manual or go bite into a mango? Hmm...

      It pretty much sums up our education, politics, corporate, and married life doesn't it?

      I've lived in sin before, I know what's nagging (do this, do that). LOL!

      Delete
    8. i forgot to mention one more step which is very important haha, you know, i'm writing as i'm thinking what to write haha.

      the 4th step is after reflex, you have to alter your do a little and the reason is becos of blank pages, we don't know, thats why we have to alter the do a bit and redo it again.

      never repeat exactly the same as you did before, always alter the do, if the results is a no no, than go back to the original do.

      repeat the process.


      Delete
    9. this 4th step to me is the most important step of all.

      we are not machine, we don't repeat exactly the same, but

      we are also blank, don't know whats lays ahead and what to do next.

      so we did both or in between the both. alter a little bit each and every time we do something, anything, including trading.

      if you do something completely different and don't know what you are doing and no experience and some confident back you up, you know what you are stepping into.

      Delete
    10. wah i can really write a lot on this, a perfact example of what trading had teach me in lives.

      how to change and adapt the ever changes in enviroment.

      in live, we think that we are always doing the same thing, doing the same job, having the same wife, wake up the same time, taking the same bus, bathing our same body.......and we expecting the same results. but in actual fact we never do the same thing at all, thats just a misconception we have in our brain.

      the key to learning (of ourself) is to change that misconception and knowing that we never and should not do that same thing over and over again.

      meaning we should tells ourself that we must always wants to change deliberately. should we discovered its a wrong moves, just step back one step and you will be at the right place.



      Delete
    11. Or!!!

      Anyone knows the contact for your wife?

      I tell her you want a change! LOL!

      Allo, that every man fantasize secretly. Don't spell it out lah! Don't get the rest of us into trouble!

      Delete
    12. wah lan! not the same wife does not mean you need to change la stupid!

      thats a perfact example of your misconception haha!

      Delete
  4. Same wife also have different seasons different feels, because she do different things and think differently, or it could be the stamps on your glasses that u have taken down and u see her in different lights, or the reverse, u wear your classes to see her.

    Everything changes, nothing changes. Every cycle is the same, yet different and uncontrollable, but like life cycles is so predictable.

    What comes after a boom? A bust la... Muhahaha

    ReplyDelete
  5. my mother in law, 70+ widow, had just sold her 5 room HDB for about 500k. due to age, she decided to move in to one of her son. since she is a housewife, she will be receiving the amount in cash.

    to safe guard her money, my wife is thinking of buying an annuity for her but i strongly suggest she put the money into REITs, just like my brother, and have dividend incomes for the rest of her life and also to preverse that "capital". base on 5%, she will have around 2k a month to live on, more than enough for her.

    although i think the prices are not so attractive now but i do think it is the best for her since she is to invest, who cares where the market is!

    anyone kind to comment and suggest?!

    ReplyDelete
    Replies
    1. 5% return?

      Not necessary all in REITs.

      You eng eng can go and help to construct a mix and match a portfolio of apples, oranges and pears to get 5% return. Right?

      Delete
    2. $500K account size can do wonder for 5% return

      Delete
    3. thats fast CW haha, thanks!

      i'm not "eng", very busy with my work but the reason i choose reits is becos its the easiest stock to analyst, more like buying a property and i'm no good at all in study stocks value. i also don't want to be responsible for any losses in value that may happen. kind of short cut in value investing haha.

      Delete
    4. Do try to understand REITs more before jumping in with all 500K.

      This is not that simple as it appears over the risks of rising interest rate (only way to go as can't go down anymore).

      5% return. $500K account size to do wonder. You need to get the "eng" to crack the "loose" head.



      LOL

      Delete
    5. 5% return is value investing?

      Anyone?

      Delete
    6. oh and most important, reits does have a policy that is the dividend payout is "guarantee" right? 90%? though the amount are not.

      anyway, with this low interest enviroment, most people have little choice to where to put their money. its a dangerous time to live in financially.

      Delete
    7. our main concern now for her is not making money, just an allowance to get her pass her time. 5% is like putting in FD in old days, now??!!

      yes we really need some one like you to make more than just 5%, i'm definately not one, i can't even invest myself haha.

      i'm not like others who think investing is easy, you and i know is damn difficult right, so what can we do?

      Delete
    8. if we let her handle her own money, with so many people around! 500k will not even last for 5 years!

      and she is pretty generous and kind old lady!

      Delete
    9. ok ok

      How about doing a Merlion portfolio?

      Half body in REITs and Half in apples, oranges, and pears.

      5% return. Doable too and balance diet for elderly.

      LOL

      Delete
    10. ay... can specify what's apples, oranges, and pears? (singtel, starhub and M1? haha) thats the big problem, too many fruits to choose from, don't know which one, either too ribe or too young or even already start rotton.

      riets i do know a bit, no problem on that.

      Delete
    11. is there any other vehicles that yield around 4 to 5%? beside property and corporate and govt bond and ah long excluded.

      Delete
  6. Reits has
    1) refiancing risk (bank do not want to roll over debts anymore)
    2) dilution risk (rights issus, you bo chap dun participate, can't even get money from selling rights)
    3) capital loss risk (price go down with yield, yield go down with higher interest costs)

    Go for preference shares and bonds.

    Stay clear of hyflux Preference shares although its interest is 6%. DUN TOUCH IT

    OCBC preference shares yield 5.1%. However, maturity is perpetuity. But capital loss is minimum, durig GFC, that fall 20% when blue chips fall 40-80%, some reits some existing. They will surely payout as a default will lead to many credit issues, and they can't pay dividends to shareholders before paying interest to bond holders.

    Retail bonds, CMA 3.8% interest mature in 2017, if dun redeem, it will be 4.2 or 4.8% in 2022. 2022, die die will redeem unless company collasping.

    ReplyDelete
    Replies
    1. wow sillyinvestor, thanks!

      the problem with high grade corporate and gov't bond are usually selling at a premium, with the interest rate now as it is, so the returns will not be at 5%, more like 2%.

      i'll stay away from debts instrument, its one of my trading vehicles haha.

      Delete
    2. and i agree with you on the risk of investing in reits.

      but compare to let her handle her own money, the human risk of losing that entire sum is much greater than that of reits, no? don't forget she is an old lady with no experience in handling money.

      Delete
  7. Always remember that dividend income investing is not inflation adjusted but for elderly folks not too much of exposure to inflation risks as investing horizon is so much shorter

    ReplyDelete
    Replies
    1. oh yes i agree, she just need some "pocket money", i have to look from her angle, got some pocket money and at the end, still have a little left for her children. where the stock prices will be does not really matter as long as they are still there haha.

      Delete
    2. Think not difficult to do Merlion Portfolio for 5% return. You got your trading brainpower to be equally good at not-so-value investing. LOL

      Delete
    3. even if this is a sound advise, still got to get their family to agree, thats a big hurder also. in this case, i play no decision making role.

      Delete
    4. can only brain wash them haha...

      Delete
    5. and actually there is no need to sell the flat in the first place, she can easily rent it out for an income and still can stay with her son, whats the different?!

      don't know whos stupid idea to sell the flat is it? or is there a conspiarcy haha....

      Delete
  8. coconut,

    1) Your mind already made up. Your cup is filled with REITs. Ask "advise" my foot!


    2) The words "income" and "capital preservation" pops up. That's your true motivation. It's a balance between these 2 requirements. 50/50 balanced or capital preservation more important over income?

    If you can empty your cup, there are lots of other vehicles other than REITs - like CW and sillyinvestor have pointed out.

    Some are better at CAPITAL PRESERVATION, some have better INCOME CERTAINTY over REITs' fluctuating dividend payout.

    But then, your mind already made up on REITs, so you won't do the research. You no time mah!

    Your own money I bet you will! It's the I won't do it myself, but for others I recommend you do this and that bullshit. Still dare say you care for your MIL...


    3) This is one good example of why there is no such thing as PASSIVE income. Unless of course you take this 500K, close your eyes and hantam bolah.

    To get 5% yield also must also burn some brain cells; unless losses don't matter. Now say it does not matter. Say say only. Not your money...

    Since you "know" REITs", you know how they performed during 2008/09, and during May 2012.

    If prices drop 20%, see whether you can look your MIL in the eyes... Your wife would be nagging: See? Told you annuity better!


    4) Have you spoken to your MIL on what she wants? Or are you directing and acting in your own fantasy movie? Your MIL never even asked for your "advice"...





    ReplyDelete
    Replies
    1. Was wondering how come no hamtan from SMOL?

      Now it comes.

      ha ha

      Delete
    2. wah lan! come so late and no give chance one ah!

      Delete
    3. i only know a little about property investing, what can i suggest? buy google and nextflex for my mother in law?!!

      Delete
    4. who is 74 years old!!!

      Delete
    5. Opps!

      Wrote too fast, it should be the May 2013 (not 2012) - the infamous Taper swoon for REITs and stocks in general. STI still haven't recovered to this May high after 12 months... But got chance. Lai lao, 100 points more for the STI!

      CW,

      I know coconut's pattern ;)

      For a guy, he can be quite kaypoh!

      LOL!

      Delete
    6. granma! your google share now 1,500! you had made a killing of your life!!

      Delete
    7. coconut,

      Your 74 years young MIL, did she seek your advice BEFORE selling her flat?

      (Don't hit the face!)

      Delete
    8. and talk about reits, a lot of my idea comes from AK!

      i actually don't like reits investing haha...

      Delete
    9. ofcos no la! i suggest becos my wife is concern.

      ok ok i'm kapo

      Delete
    10. Tadah!

      Here it comes!

      LOL!

      You are a trader; that what you are.

      You can't pretend to be all knowing in REITs just by inhaling the 2nd hand smoke from the oat meal guy... (Who is a good trader too. He is great at rebalancing and sector rotations, reducing the % share of REITs in his portfolio if you not aware)

      That will be 1 cup of coffee please.

      Think of the damage I saved you ;)

      The price for Family harmony? Priceless!

      Delete
    11. the oat meal guy! haha

      Delete
  9. Thanks SMOL.

    You know what is that for?

    ReplyDelete

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