Value Investing 01 (May 08 - Dec 08)

[iam802]

it is just a viagra shot....especially the banks.

[kennynah]

hey did someone /something supported the index stocks?

from what i see about 10 mins ago, losers outpaced gainers by 155 to 410, as seen in my watchlist... all are hong hong (red red), except for the STI stocks? hee...

also hor, e 3 banks listed above turned from as bad as -10% to now about +2%?
what a fantastic turnaround... no FA/TA/SA/whatever-A can predict this right? heee....

i come up with 1 more A now... AGA - Ah-Gong Analysis....
maybe it is ah-gong power to the rescue?

have fun,
fc

ATK power

[blid2def]

ATK overkill for this lah. Singapore, use orange one can liao.

[Blackjack]

Book values offer no support for stocks
Tech and property shares among the most-battered

(SINGAPORE) The plunge in investors' risk appetites has led to a massive sell-down in stocks and driven a number of counters below their book values.

And the worst-hit counters include those from the technology and property sectors.

For example, Venture Corporation, which once traded at a high of $14.80, lost more than two-thirds of its value to close at $4.42 on Friday, while its price-to-book value (P/B) plunged to a low of 0.67.

Another contract manufacturer Hi-P International last traded at a P/B of 0.64, while property developers such as Keppel Land and GuocoLand are now at price-book multiples of below one.

The P/B is a ratio of the current closing price to its latest quarter book value, a theoretical measure of what would be available to shareholders if the company goes bankrupt immediately.

'While it is a great idea to buy when valuations are looking increasingly bombed-out, unless you have the deep pocket and can wait very patiently, like Warren Buffett, you may prefer to wait until the dust has somewhat settled.'

- CIMB economist Song Seng Wun

Said UOB Kay Hian analyst Jonathan Koh: 'We have never seen stocks like Venture traded this low on both price-earnings and price-book ratios. And actually, we still find value in Venture and the dividend yield is pretty high too.

'But it seems like there is a big sell-down at firesale prices and some blue chips are not spared either.'

As for real estate plays, the main concern is that tighter credit and declining capital values in all sectors may force firms to write down their assets and make provisions for land acquired at high prices.

Said CIMB-GK economist Song Seng Wun: 'Although the improved credit market conditions now permit healthy companies and businesses to obtain their needed credit, investors are also shifting their attention to the real economy.

'These are nuts and bolts of the real world and there, the picture is becoming more negative by the day. Not only are you reading and hearing of more companies in trouble, but more countries are in trouble now - the latest being Argentina.'

According to Nouriel Roubini's Global EconoMonitor, Argentina's private pension assets are now in jeopardy due to the financial crisis, and the government may take over the management of US$28.7 billion of those funds that sharply declined in value.

The outlook for emerging markets is increasingly bleak, while the Singapore economy is now in a technical recession, with GDP growth here forecast to hit a low of 3 per cent this year.

Speaking to BT, Terence Wong of DMG & Partners said he is not surprised that stock prices have now been driven below book values. 'This is a typical trend in any recession. For example, the P/B for Straits Times Index averaged 0.74 during the Asian financial crisis, and only did slightly better at 1.1 when Sars hit Singapore. This time round, I believe STI could go below that even.'

On Friday, the STI fell 145.39 points to 1,600.28 - its lowest closing level since September 2003 - on fears of a global recession hurting corporate earnings, dealers said. The market was closed yesterday for the Deepavali holiday.

Indeed, a number of analysts believe that market conditions could get worse before they get better and urged investor caution for now.

Said Mr Song: 'While it is a great idea to buy when valuations are looking increasingly bombed-out, unless you have the deep pocket and can wait very patiently - like Mr Warren Buffett - you may prefer to wait until the dust has somewhat settled.'

Plus, the drop in inter-bank lending rates has not helped to allay investors' fears. For example, the VIX index - a measure of investor's risk aversion - hit a record high of 79.13 last Friday, in spite of the massive liquidity that has been pumped into the credit markets.

'Interestingly, crude oil peaked mid-July and has fallen some 55 per cent since. But over the same period the VIX has risen 155 per cent,' said Mr Song.

DMG, which is now reviewing its investment calls, recommends 'overweight' on high-yielding or defensive sectors such as transport and media.

Indeed, stocks such as SMRT Corp, ComfortDelGro and Singapore Press Holdings (SPH) appeared to have weathered the storm far better than their cyclical counterparts so far.

SMRT last traded at $1.63, while its P/B stood at 3.44. And media giant SPH closed at $3.31 on Friday, bringing its P/B to 2.5.

[kennynah]

...... That's what I've found out this year. It is more profitable for the value investor to buy on value, with a margin of safety and then sell when it hits your target price or to allocate capital to stocks that can give you better returns over the long run.

Hi Cheng,

i am always very curious whenever I chance on anyone who speaks about "value" and "margin of safety"... in this case above, could you teach me ....what is considered a "value" buy and how do you determine "margin of safety"?

on allocation of capital to stocks....how would you do so with such great certainty, so that you can get a "better return" in the long run?

i look forward to learning from you....many thanks.

[Cheng]

...... That's what I've found out this year. It is more profitable for the value investor to buy on value, with a margin of safety and then sell when it hits your target price or to allocate capital to stocks that can give you better returns over the long run.

Hi Cheng,

i am always very curious whenever I chance on anyone who speaks about "value" and "margin of safety"... in this case above, could you teach me ....what is considered a "value" buy and how do you determine "margin of safety"?

on allocation of capital to stocks....how would you do so with such great certainty, so that you can get a "better return" in the long run?

i look forward to learning from you....many thanks.

Hi Kenny,

Value is buying something that you think is a bargain.

Margin of Safety is to ensure that given the possible setbacks of the company the price will not drop too much below your purchase price. If the fair value of the business is 100, not very good to buy at 90, but should instead aim for 50-60 below.

From Ben Graham: "In the case of a common stock it should be represented either by the excess of calculated intrinsic value over the price paid, or else by excess of expected earnings and dividends for a period of years above a normal interest return."

There is very close relation with value and margin of safety. When there is safety there should be value and when there is value there should be safety.

It's just like growth and value altogether. If there is no growth, there would not be much value either.

On allocation of stocks with great certainty. There are always setbacks, but the more you understand the risks, probability of success should be higher. This is the most difficult part in value investing, or investing in general too. So 'if' im successful, i should get a better return. I hope.

Cheng

[kennynah]

hi cheng : thank you for the education....

Margin of Safety is to ensure that given the possible setbacks of the company the price will not drop too much below your purchase price. If the fair value of the business is 100, not very good to buy at 90, but should instead aim for 50-60 below.

in your example above, how would one know that the fair value of the business is 100? what method does one employ to determine such a "fair" value? knowing this is important, since the safety margin is derived from this.

again, i look forward to being enlightened...

thanks and best regards...

[winston]

In a Recession, Buy Revenues, Not Earnings
Steve Kichen, 11.10.08, 06:00 PM EST

The price-to-sales ratio tells you how many dollars of revenues you are buying for each dollar you pay for a stock.

The price-to-earnings ratio is the most popular metric for getting a quick read on how investors are valuing an individual stock or the overall market. The Standard & Poor's 500 index, for example, sells for 18 times latest 12-month earnings and at 11 and 10 times the consensus forecast for 2008 and 2009, respectively. The P/E ratio, however, has its limitations, especially in sharp economic downturns

For example, of the Standard & Poor's 500 companies, 60 have posted losses over the latest 12 months. According to consensus estimates tabulated by Thomson IBES, security analysts expect 27 S&P companies to deliver losses in their current fiscal year. Analysts tend to be optimistic, so the actual number of S&P companies reporting fiscal losses will likely be higher--possibly much higher. Keep in mind, that at the onset of a downturn, a low P/E can be a warning of an impending collapse in earnings, not a sign of a cheap stock. Once earnings slip into negative territory, the P/E becomes a non-meaningful, useless, statistic.

The price-to-sales ratio (stock price divided by sales per share, or PSR) does not suffer such limitations. Forbes columnist and investment manager Kenneth Fisher has been a long-time proponent of the PSR.

In short, the PSR tells you how many dollars of revenues you are buying for each dollar you pay for a stock. If a stock has a PSR of 0.5 it means you are buying two dollars of revenues for each dollar of stock price.

PSRs can also tell you a great deal about the earning power of company. Supermarkets, for example, only make a few pennies of net profit for each dollar of revenue. The median PSR for large supermarket chains is only 0.2. In contrast, a high-margined business such as software has a median PSR of 3.1

Revenues, too, are not immune from slippage during a business slump but they are usually more resilient than earnings. It does not matter, of course, how good a deal you get investing in corporate revenues if management is unable eventually to turn a corporate revenue stream into profits. The trick is to seek out companies selling for low PSRs relative to their long-term history and/or industry average, where management seems capable of improving margins or restoring a money-losing business to profitability.

[winston]

There's a Parrot on Bloomberg now that says that you should not hold for the next 3 years but the next 15 years..

[millionairemind]

There's a Parrot on Bloomberg now that says that you should not hold for the next 3 years but the next 15 years..

machiam funny... if it takes 15 yrs.. Y don't you just not buy now and come back later???