Value Investing 01 (May 08 - Dec 08)

[iam802]

You really good sinseh!

Even P/E can explain in so many ways.... with picture some more!

[kennynah]

i agree... a most articulate FA practitioner... good stuff lapap !!!

[la papillion]

Haha, pai seh pai seh, those who know do not say, those who say do not know... I just bluff eat bluff eat only

[millionairemind]

Strategies
Value and Momentum Investing, Together at Last
By MARK HULBERT
Published: September 13, 2008

FUNDAMENTAL stock analysis takes you only so far. The best time to buy an undervalued stock is not when it’s simply cheap, but after it has already outperformed the market for several months.

At least that’s the finding of a new study exploring the profitability of marrying two otherwise disparate investment approaches: value and momentum. The study began circulating this summer and was produced by AQR Capital Management, the investment management firm in Greenwich, Conn. Its authors are two finance professors, Tobias J. Moskowitz of the University of Chicago and Lasse H. Pedersen of New York University, both of whom also work with AQR, and Clifford S. Asness, managing principal at the firm. A version is at www.aqr.com.

Value-oriented financial advisers, of course, favor investments whose prices are lowest relative to their intrinsic worth. Momentum advisers, by contrast, favor those at or near the top of the performance rankings over the trailing 6 to 12 months. It would seem that few securities would be championed by both approaches at the same time.

But the researchers found that a strategy that simultaneously pursued value and momentum performed better over the long term than value or momentum alone. Consider three portfolios they built from domestic stocks: one pursued a pure momentum strategy, another focused only on value, and a third combined the two. The combination portfolio outperformed the momentum version by an average of 1.1 percentage points a year from February 1973 through February 2008, and beat the value version by an average of 6.4 points a year — all while incurring less risk.

Until now, value and momentum approaches have generally been analyzed separately, Professor Moskowitz said in an interview. And they have been studied primarily for domestic stocks. But the new study also included foreign markets and asset classes besides equities, and found that the combined value-momentum approach worked everywhere the researchers looked.

The study analyzed value and momentum strategies in stock markets of 17 developed countries in addition to the United States, the government bond markets of 10 countries and markets for 10 currencies and 27 commodities. The universal success of the combined value-momentum approach “greatly increases our statistical confidence that investors would do well to focus on both strategies together rather than separately,” Professor Moskowitz said.

TO see how the approach works, consider various countries’ stock markets. Followers of a pure value strategy, who often use the ratio of price to book value when assessing value, might now favor the Belgian market, according to the researchers. That’s because the average Belgian stock has a lower price-to-book ratio than stocks of most other developed countries. But, the researchers add, momentum strategists wouldn’t choose Belgium’s market, since its performance over the last year has been relatively poor. More attractive to investors who focus on both value and momentum would be stocks in Britain because the average stock there also has a low price-to-book ratio but has performed far better in the last year.

The researchers say these findings can also be useful in deciding which markets to avoid or even sell short. One obvious target at the moment might seem to be the Canadian stock market, because its stocks, on average, have relatively high price-to-book ratios. But the researchers say Canadian stocks have good momentum, so a better target might be the Chinese market, which has nearly as high a price-to-book ratio but worse momentum.

The researchers say these examples are chosen only for illustration, since many other factors can affect a market. Their approach is “a quantitative strategy that calls for numerous small bets rather than one or two big ones,” Professor Pedersen said in an interview.

The study makes clear that extreme value or momentum strategies incur unnecessary risk. A pure value investor is prone to buying undervalued securities that languish a long time before recovering, while a pure momentum investor may put money into overvalued securities just before their bubble bursts.

So Aristotle’s maxim applies even to value and momentum investing: Seek moderation in all things.

Mark Hulbert

[helios]

some notes on Brand Finance, as we speak ...


19-Sept - Asia Pacific - Brand valuation consultancy Brand Finance has updated its 500 most valuable Global Brands report, revealing that between January and September this year, the world’s top brands have shed US$67 billion in total value.

In March Brand Finance released the 2008 version of its 500 most valuable Global Brands study, but with recent news clouding the world’s financial markets, the updated version paints a very different picture.

The company, which evaluates the value of a brand based on historical growth trends and financial reports, said while a number of brands including Coca-Cola, Nokia and CITI Group had slumped, some like McDonald’s were steady.

The report shows that Coca-Cola lost its number position as the world’s most valuable brand to retail giant Wal-Mart.

Coke dropped 8% in value, largely due to pressure from healthier beverage companies, which have impacted on the overall value of the Coke brand.

Technology giants Microsoft and Google held the number 3rd and 5th most valuable brands on the league table with a brand value of $US39.3 billion and US$37.5 billion respectively.

Competition in the online advertising market is likely to continue and with the launch of Google Chrome, the competition is set to intensify in the coming year, the report stated.

In the Asia-Pacific market, the report shows brands are largely holding steady, maintaining a 15% stake in the Global 500 with an aggregate value of about US$366 billion, or 9.8% of the total brand value.

Japanese companies are still the most represented in the Global 500, with a total of 54 representatives out of the 88 Asian brands included.

Korea, China and Australia are the other primary countries represented by companies from Asia and.

Singapore Airlines, however, ranked 280 overall but in terms of Brand Rating, it is ranked among the top 23 overall and the top airline represented from Asia.

David Haigh, CEO of Brand Finance, said there was clear evidence the brands which invest in marketing are surviving the global financial crisis.

“There is clear evidence that basic, value for money brands are performing very strongly, particularly when they invest consistently in advertising and marketing,” he said.

“By contrast unnecessary or discretionary brands like Starbucks, Nike, Coca-Cola and L’Oreal are declining in value as consumers watch their finances more carefully.”

Source: Marketing-Interactive.com

[littlecupid]

Value Investors must be very happy today.... alot of bargains

[Musicwhiz]

Value Investors must be very happy today.... alot of bargains

Yes, a lot ! Wish I had more cash though......

[la papillion]

It shall soon pass

It's been a while since I blogged because I am too busy with work to do anything. There's so much happening in the world today that I had barely enough time to catch up on the major developments unfolding right now. There is no shred of doubt that we're all sitting right in the middle of this action and we all have the honour to bear witness to this historical event happening right before our eyes. When all these are over, and when necessary heads are rolled and the dust settled, we will all look back and say that hey, we've survived this "once-in-a-century" event!

Lehman brothers, who had been around for 158 years, declared bankrupt as the debts piled up and they could not find any white knight to save them. AIG, major insurance player in US, almost fell when they too needed a lifeline to save them from bankruptcy. It's a great irony to see that management of AIG, being involved in insurance whose role is to spread risk, did not practice what they preached. As the Queen song goes, 'Another bites the dust'.

Locally, we're not spared from the financial nuclear bomb that erupted over at US. Many policyholders of AIA, a subsidiary of AIG, had terminated their plans, fearing the worst had yet to come. Despite the calming pleas from AIA (they had taken the trouble to print a whole page in Straits Times newspaper about the situation of AIA), holders of their plans did not believe them. This is a classic case of the extreme pessimism and fear that spreads over the minds of people these days.

http://4.bp.blogspot.com/_3qF-4FCPF1I/S ... 203647.gif



I see with my very eyes that LEH dropped 99.1% to reach the status of a penny. What force could have crippled a company with such a long history? Yes, it is the same enemy that causes the fall of kingdom and the corruption of man - greed. This shall serve as a very good lesson for us all - that history does not extrapolate itself to the future. An old man who had not experienced death in his whole life might think that he will live forever, but when the sudden and unpredictable event with catastrophic consequences strike, all his future will become history.

I remembered clearly that long before subprime pervades the mass media, there are a series of fashionable themes, arranged chronologically:


1. China might becomes the next superpower, over-riding US

2. China overextended itself and fear of its economy overheating

3. Subprime problem began

4. Subprime contained in US only, does not affect the world. Major financial institution have negligible exposure

5. FED going to cut interest rate

6. Commodity and oil prices going to rocket upward on surging demands. Analyst said that oil will reach USD 200 per barrel.

7. Commodity and oil prices going to be depressed due to economic recession. Analyst said that oil will be depressed around USD 100 per barrel.

8. China milk causing fear in milk products


The above is based on sheer memory, so if I didn't get it correct, do forgive me. I've been only in the market for 2 years and I think I've seen enough to recognise that optimism and pessimism switches periodically like the oscillation of a pendulum. The market prices stocks at PE above 50 when everything is happening smoothly and the bull is deemed to last forever. When catastrophe strikes (did you notice catastrophe seldom strike alone? Bad news comes in triplets, as the chinese saying goes), PE of stock goes to sub-10 and it's all gloom and doom.

Such is the vicissitudes of the market and we can all take advantage of the excellent value that the market is throwing at us in fear. When all around is panicking and running away from the market, do your due diligence, research and strike hard! In time to come, this could very well be one of those period in which future generations will remember as the best time to invest! To invest in stocks is to believe in the ingenuity and optimism of the human race, in whatever odds that seemed impossible to overcome when it happens. I feel that we're sitting right at the crux of this historical moment, do you hesitate? Will you act?

Work out your own salvation with fear and trembling. Be brave and say to yourself, it shall soon pass.

[kennynah]

Such is the vicissitudes of the market and we can all take advantage of the excellent value that the market is throwing at us in fear. When all around is panicking and running away from the market, do your due diligence, research and strike hard!

lapap : nice write up... better than some ST columnist

so...let's give this article credit and seek further specifics on the underlined above... how would you specifically "take advantage of the excellent value that the market is throwing at us in fear" ? appreciate your thoughts...

[Musicwhiz]

Hi Kennynah,

Do an objective evaluation of a company and use your own realistic assumptions to forecast future earnings and cash flows. I think that's one of the better ways though of course there is no foolproof method as intrinsic value is more of an estimate than a sure thing.

Regards.