Tag Archives: value investing

There is no substitute for preparation.

“Give me 6 hours to chop down a tree and I will spend the first 4 hours sharpening the axe.” – Abraham Lincoln

7 Must Read Life Lessons from Abraham Lincoln

Of course, one should never buy a stock without making necessary preparations.

The first step would be to draw as much information about the company as possible. If not you will find yourself popping a truckload of sleeping pills.

A few basic questions that need to be answered before buying a stock

A stock-picker with scant regard for economic forecasts

And if you feel that a 3-7 (and above) year horizon isn’t your kind of thing and are looking for something shorter, here are  some wise words by Wong Kok Hoi from APS Asset Management – ” Act when you do not have complete information. This sounds rather counter intuitive but it is what most successful investors do. More often that not it will be too late to act when you have gotten all the information that you need to make a decision. I am not suggesting that you make decisions before doing your research. There is a world of difference between knowing just enough to make a decision and not knowing enough before making a decision”

Sounds kind of like poker.

Picking their way through

Had the privilege of having a quick chat with the fund managers from Lumiere Capital. That hour or so of coffee with them probably formed the inspiration behind my investment philosophy. Here’s an article featuring the both of them on Pulses magazine. A must read for all budding value investors.

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So, The greater fool theory

The world depends on fools.

Your friend gets punched in a club while drunk-touching girls. He is a fool. Others laugh.
Dude at Geylang thinks he owns the road. He is a fool. He gets rammed by a greater fool. And again, others laugh.
You sell your Dragonball card to your buddy back in primary school for 5 bucks. He (me) is a fool. You laugh your way to the bank.

We all derive some form of incentive from fools.

So, the greater fool theory, as described by good ol’ Investopedia:

When acting in accordance with the greater fool theory, an investor buys questionable securities without any regard to their quality, but with the hope of quickly selling them off to another investor (the greater fool), who might also be hoping to flip them quickly. Unfortunately, speculative bubbles always burst eventually, leading to a rapid depreciation in share price due to the selloff.

This is the reason why Japanese men hang themselves or jump from Mount Fuji.

Lesson 1 – Do not be a fool or you just might end up rotting somewhere in a forest.

So, how does the share price of a company rise other than being affected by the collective dumbness (supply and demand, sentiments) of all the other speculators?

There several  theories that try to explain why prices move the way they do. But just like every other theory that is based off the nature of human beings, none of them hold true unless there are a bunch of fixed assumptions. Even at IPO stage, prices can shoot sky high or sink to the depths of hell because valuations are also subjective.

There are, however, certain fundamentals that value investors like to look at, which will affect market sentiments and eventually share price – things like profits, future growth potential, cash flow, debt and a bunch formulas like EPS or P/E Ratio. Basically indicators of an already-good-but-could-be-way-way-way-way-better company because, like it or not, a a sweet juicy orange will always cost more if it becomes a bigger sweet  juicy orange. The whole point is to buy a piece of that orange and wait for it to grow bigger so that the other fools will start to take more notice of it.

Perhaps this is the reason why the markets are becoming more and more volatile.

Anyway, I will look more in depth into things and post them as I learn.

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