Author: 8% Value Investhink

What is Value Investing?

Interestingly, the internet doesn’t have a good layman definition of value investing. Well, at least, not one that is easily understandable and can appeal to general people to adopt such an investment philosophy. So we are back to basics in this post (Again!), to introduce more people to value investing. Yes a tall order given that people are wondering whether they will keep their jobs and have money to buy food next week. Much less to buy stocks! Nevertheless, this blogger is undaunted. Here goes! In simple layman terms, Value investing simply means adopting an investment philosophy to buy...

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How long term should we be?

The investment horizon that is appropriate for our generation is probably 15-20 yrs, in my opinion. This is bcos we usually have some savings after the age of 30-35 for some real investing as we get married, buy house, have kids etc. And if you think about at what age should you enjoy the fruits of your investment, then it’s probably 15-20 yrs later. I mean retirement age may go up to 62 but shouldn’t we start thinking about enjoying life in our late 40s, early 50s? No point investing for 40 yrs and then get old and immobile...

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On market timing

This is one topic that always attracts a lot of debate and verbal lashes. Value investors are of the view that it is futile to time the market. Over long period of time, studies have shown that you cannot beat market return after factoring transaction costs. This does not mean one cannot have positive returns. It might be possible to generate positive returns but I have enough evidence to believe that it’s quite difficult. Traders, on the other hand, believe that market timing is part and parcel of “investing”. Well what value investors define as investing may be different...

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Stock vs Spouse

If you are really into value investing, you should, hopefully by now, understand that buying and owning stocks can be akin to marriage. It is not about buying today, selling tomorrow. Or instant gratification. Or short term happiness. It’s about long-term commitment, going through thick and thin together, sharing your lives. Here’s the list of comparisons. Enjoy! Stock and spouse 1. Both are meant to be enduring life-long affairs. 2. Both require a lot of due diligence before committing to achieve happiness. 3. If you have made a good choice, the relationship only gets better over time. 4. You...

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Wisdom from the Guru

The following is taken from the latest Berkshire Hathaway Chairman’s letter. In good years and bad, Charlie and I simply focus on four goals: (1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash (2) widening the “moats” around our operating businesses that give them durable competitive advantages (3) acquiring and developing new and varied streams of earnings (4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results. Undoubtedly good advice for retail value...

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More on margin of safety

A frequently asked question on value investing is this: how can you be so sure that the co’s intrinsic value is $100 (or any other no.)? For those not so sure what the hell is going on, read these first Value Investing Intrinsic Value Good Investment Well, the truth is, you are never sure, you can spend 20 days calculating the intrinsic value of the company and become so sure that the stock is undervalued. So you buy and the stock tank 20%. Shiok huh? Intrinsic value goes hand in hand with margin of safety. Bcos you can never...

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Getting Whipsawed!

Whipsaw is a wonderful description of a trade. Specifically you buy some stock, it goes down 20% and you sold out, intending to preserve whatever capital you have left. And the next thing you know, the stock goes but 100%! Shiok right! Actually the fear of getting whipsawed is so great that it causes a lot of investors to make silly mistakes. But if you think about it, even if you really get whipsawed, it’s not a big deal except for the psychological factor. Say you cut loss at 10% and the stock subsequently rallied, so you would have...

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Gambler’s Ruin

Here is a tip for this Chinese New Year gambling. The concept of Gambler’s Ruin was mentioned in a very insightful book called Fortune’s Formula which I thought deserve more scruntiny, both from gambling and investing point of view. The story goes as follows. Imagine you have some money and you decide to bet a fixed amount in a game where your probability of winning is 50%. Say you have $100, you want to bet $1 on “Big” and “Small” (and in this case, there is no “House Win” like double sixes. Bcos if there is “House Win”, your...

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Random Thoughts on Various Investment Topics

In this post I would like to share my thoughts on my stance on various matters in investing like whether EMH works or not, TA is bullshit or not etc. So let’s start! Value concepts: I subscribe to most value investing concepts like margin of safety, circle of competence, buy things on sale, value-for-money etc. Most of these are very common-sensical and I don’t think there is a need to argue with that. If you have no idea what are these, start reading this blog from the first post back in early 2006. EMH is bullshit: One thing that...

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Free Cash Flow and Dividend Stocks

As we enter the new year, this is the bonus post that hopefully can make us rich in time to come! Short Name Industry Subgroup Dividend Yield SINGAP SHIPPING Transport-Marine 10.53 SIA ENGINEERING Commercial Services 10.05 MOBILEONE LTD Cellular Telecom 9.864 SINGAP AIRPORT T Airport Develop/Maint 9.859 DEL MONTE PAC LT Food-Canned 9.586 SINGAP REINSURAN Reinsurance 9.154 SINGAP PRESS HGS Publishing-Newspapers 8.599 CEREBOS PACIFIC Food-Misc/Diversified 8.503 SINGAPORE POST Transport-Services 8.17 SINGAPORE FOOD Food-Misc/Diversified 7.684 SINGAPORE EXCH Finance-Other Services 7.49 HAW PAR CORP Diversified Operations 6.964 SINGAPURA FINANC Finance-Mtge Loan/Banker 6.667 UNITED O/S INSUR Property/Casualty Ins 6.55 HONG LEONG FINAN...

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Enterprise Value and Free Cash Flow I

Once upon a time, we talked about a radical ratio called EV/EBITDA which was invented and nearly won the Nobel Prize in Most Innovative Financial Ratio ever invented. Well someone topped that and invented EV/FCF which is Enterprise Value over Free Cash Flow. What’s so great about EV and its alphabetical soup of acronyms? Ok, let’s define the terms first. EV = Market cap + Net Interest bearing debt FCF = Cashflow from Operations – Capex For the uninitiated, pls follow the hyperlinks and read what is Market Cap, Cashflow from Operations etc. I will explain EV and FCF....

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Losers’ Game

This is the title of an essay and a book by one of the most prominent minds in finance. Just google it to read the original text. I will provide a brief summary here. In this world, there are two types of games being played. Winners’ games and Losers’ games. In winner’s games, the winner wins through his own actions. In loser’s games, the winner wins through his opponents actions. The usual example to illustrate this is tennis. There are actually two type of tennis being played in the world, as observed by some hotshot coach. Amateur tennis and...

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So when will the market bottom out?

The bottom will be somewhere in the next 12-24 mths. ie Dec 09 to Dec 10. What? 24 mths? So my portfolio has to suffer another dunno how many % downside? What kind of prediction is that!?? Well, let’s start with the disclaimer first, nobody ever predicted nothing. Bell said nobody needs phones, Ford said nobody needs cars, and the most famous one: Bill Gates said nobody needs computers. So that is just my contribution. It won’t be right. Maybe we have already seen the bottom. Who knows? Maybe we didnt avoid the Great Depression scenario. We just don’t...

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What could have happened?

A hypothetical pessimistic scenario painted by Jay on what could have happened. It’s like comparing the worst with the current situation now and one will feel that it’s actually not that bad after all. By: Jay The past few weeks actually went passed normally for most people NOT reading this blog. Common folks getting on with their daily lives, occasionally watching the news and see indices around the world fall 25% in one week, goes WOW and moved on. About 10,000 pple were disgusted bcos they got conned to buy some Lehman mini-bonds. But actually that’s quite far from...

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Value investing versus technical trading

By: Jay Some time back there have been some debate on other blogs about whether value investing works better, or technical trading works better or turtle style works better or whatever. It is very logical to think that technicians detest value investors and vice versa. Bcos their investment philosophy is completely different. One buys stocks that are mundane, cheap, stable earnings based on fundamental analysis. One buys based on short term newsflow, charts, momentum etc. It is very tempting to think that these different investors fight a lot. Like Cats versus Dogs, Chu vs Han kingdom, Man U vs...

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