The Tao of Value-Investing
May 30, 2012
In presentations or just plain conversations, when people ask what value-investing is all about, we say it’s about seeking high growth, resilient stocks and using margin of safety and the art of compounding. But really, value-investing is not just about making your money work for you. It’s also a way of life. The following are the virtues derived in this investment methodology… for a life of fulfillment and happiness.
Pursuit and Appreciation of Quality
Sorry we can’t encapsulate this phrase into just one word (because of our lay diction). This is also the first virtue because it is the spark that sets forth everything about this… a worthwhile pursuit. Value-investing is a quest of rounding up high-quality stocks on an important mission. Like in The Fellowship of the Ring, you group Frodo, Sam, Merry, Pippin, Legolas, Gandalf, Boromir, and Aragorn on a worthy cause (desperate actually in this story). Quality is the light value investors pursue. They also end up as individuals who appreciate quality such as the mechanical movement in a watch, a car’s ABS or even a teflon frying pan.
Ah yes, save your arrows. Save your money. Save your assets. Because by saving all your assets, you can use 70% of them in investing in value-stocks. Then, your assets will multiply. There’s lots of jokes about value-investors. One says, “How do you know when someone is a value-investor?” He still bends and picks up a PHP1 coin and happily puts it in his pocket. People mistake us for being cheap and being a cheapskate. This is a big misnomer. Quality is the light we pursue and learn. We round up what we can to pursue this.
By being frugal, value-investors end up living simple lives or a lifestyle that supports their basic means. This lessens complexity leading one to a more peaceful life.
Pursuing quality requires diligence, analysis and using the tools of value-investing. From the spark, diligence is the main practice or fire of value-investing. Hundreds of stocks but ten to fifteen are chosen, and these combinations change from one time period to another. The right combination in a particular time will lead to high-growth and resiliency in the future. Diligence is an everyday practice.
Waiting like a sniper to fire a shot,
Waiting like a camouflaged frog to capture prey,
This is part of the life of a value-investor. Why buy when the market’s expensive? We don’t trade around. We know we have limited assets or bullets to invest or fire. The timing must be right. The price must be low or lower. “Patience!” said Obi Wan to Luke. If Luke followed, we wouldn’t have lost his hand.
This is the hardest. Not only is it hard being patient, diligent and waiting for the right timing, but being seen as crazy and sometimes mocked makes this investment methodology, which is also a way of life, harder. We’ve seen “the face” lots of times. It is the face people express after hearing our stock picks. Traders bounce around celebrating their gains asking why our stocks haven’t moved an inch. Fortunately, our clients do not question our credibility because in reality and eventually in time, our recommendations fly higher. The weird stocks to the herd that we recommended in 2011 AMC, EEI, CHI, RFM, VLL, UBP, AC flew. When we started in 2009, it was ATS, AP, AEV, SM and URC. They weren’t popular that time, and we got “the face”, but they flew. Everyday we’re like Jor-El, one of the head scientists of Krypton. The red sun will explode he says. We have to prepare for our civilization to exist somewhere else, but citizens just laughed at him. He built a rocket that can just fit his baby Kal-El to reach planet Earth. The red sun did explode and Krypton too, but Kal-El, now Superman, flies. Fortitude is courage, strength and staying power despite the hard circumstances and conditions.
It’s long-term buy and hold in quality stocks acquired at low prices. Cash dividends are re-invested. Stocks in the portfolio are only sold when the company does a 360 in progress, but the money is re-invested in another quality stock acquired at low prices. It is about a ten-year view. Will I, TA and FPH be bigger in that time despite all that is happening globally?? It’s all about the fat and flowing long- term gains, not the chump change in trading (if ever there is a gain). It’s going the distance like what Rocky and the 2004 Detroit Pistons did. They weren’t popular, but they had talent and fortitude. They won the titles.
I guess this not only explains but over-dramatizes value-investing. Writing about this also occurs sometimes while being patient in acquiring value-stocks especially when prices are still high. PSEi at 5,000, no way, but PSEi at 4,600 or lower, then we’re talking and buying.
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