People Love Risk
November 27, 2012
We’ve been advocating and promoting value-investing-based research since 2009. We like to make a confession. 99% do not like this investment methodology or even fundamental research at all. When we started, we thought this business would be a breeze, but it wasn’t and still isn’t. People love risk. That’s the truth. They love the fast buck, the big bucks, the thrill, the danger, the speculation, the gossip… even if it burns a big hole right in the middle of their pockets, bank accounts and assets and even if they go to jail.
Aman Futures Group scammed people of PHP12 bn in a pyramid scheme down south. The high returns lured people to even sell their houses to “invest” in Aman. Five Aman officials surrendered to the NBI just this morning. This is a publicized scam in the papers nowadays. In Padre Garcia and Rosario Batangas south of Metro Manila, a similar but unpublicized scam took place. Some people even “invested” their life-savings to a group’s high return plan. There’s even an incentive to bring in new “investors” to the plan. The crooks behind this went scot-free leaving the “investors” dumbfounded with a crater in their pockets and asset base.
The past trading days have been a blast for traders with news of BPI buying PNB. Even the share prices of other banks EW, RCB and CHIB went up. Every day there has to be rumor to fuel trades and commissions even if people lose some and win some. What does this net out after a day, month or year? People don’t really talk about it openly. The net effect is a crater again from the dazzling mushroom cloud explosion of risk.
We’re amazed at how fast people take risk for big fast gains. I was just sitting beside a “finance manager” some months back as he sweet-talked a couple of middle-aged ladies into “investing” in his group’s high-return plan in Padre Garcia Batangas. They immediately went home and “invested” PHP30,000 each into the plan just like that. My in-laws likewise “invested” in that group. They think value-investing and the stock market is risky.
We regularly put 70% of our cash into value-stocks. The recent mini-portfolios we made gave us a 7.08% return from back August 14, 2012. The first five stocks from August 14, 2012 yielded 16.78% already with AGI leading the five. The next four stocks bought last October 4-5 yielded 0.01% with FLI and RCB compensating for ANI’s crater. ‘serves me right for jumping into a semi-researched stock. It wasn’t that ANI was a bad company. Its price was just not right or ripe yet. Thank goodness for Margin of Safety as FLI and RCB filled up the crater of my foolish mistake. If the ANI investment went to COAT/CEB as originally planned, the return would be 11%. There wouldn’t have been a filled-up crater. There would have been a hill, a nice hill with a mango tree on top just like with the first five. Our value-investing continues in November with a couple of powercos and a foodco. This will go on and on.
Value-investing is not as exciting and thrilling as trading in the stock market or “investing” in Aman, but it forms mountains in time. That’s the truth.
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