Author: kcchongnz | Publish date: Sun, 19 Jun 2016, 04:43 PM
I read about an article in i3investor “so you also want to become value investor? (6)” as below.
http://klse.i3investor.com/blogs/stockman/98587.jsp
As usual, this author always criticizes value investing and ridicules those who are embarking on it. He has written 6 parts, including the one above.
However, always simply shoot here and there in generality, and nothing is specific. These are the things he keeps on muttering about.
“I bring it up because I read so often sifus and bloggers in i3 place way too much attention to net cash position. They call it margin of safety.
Way too much attention to net cash positions and accounting ratios and not enough attention to the actual business.
20 accounting formula, 5 valuation methods will not help you to make to make money. Valuations are too sensitive to the assumptions used. Its like the tail wagging the dog., the ends justifying the means.”
My questions are:
Does he understand what value investing is?
Does he know what “Margin of safety” is?
What these “20 accounting formula, 5 valuation methods´ is he is talking about so much?
Does a value investor always use the “20 accounting formula, 5 valuation methods” before investing?
Does he know anything about what valuation is?
I saw the first comment in the thread below from the author himself:
Posted by stockmanmy > Jun 18, 2016 03:47 PM | Report Abuse
KC Chong...you asked what is gut feeling and what besides your trusted formulas?
Here is the answer above.
Huh, this article is targeting me? “That is the answer”? What answer?
Nevertheless, it gives me an opportunity to present you what value investing is, and does it work. Sorry, this is a repetition of what I have written before, done to explain and show you evidences on the following.
What is value investing?
“Twice and thrice over, as they say, good is it to repeat and review what is good" Plato
Charlie Munger, who has influenced Buffet in purchase of Coca Cola and other seemingly high price acquisitions mentioned it out clearly.
“All intelligent investing is value investing - acquiring more than you are paying for. You must value the business in order to value the stock.”
“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”
So, value investing is intelligent investing. Value investing is about looking for a mispriced gamble, getting more than you are paying for. You must know about the business and hence the value the business.
What did Buffett say about value investing?
In his 1992 letter to Berkshire Hathaway shareholders, Warren Buffett wrote…
“We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labelled speculation (which is neither illegal, immoral nor – in our view – financially fattening).”
Don’t you think having an estimate of the value of a stock from some kind of valuation is important so that you can justify the amount paid? Or it is better just basing on your “gut feeling”?
Buffett never mentioned about your this “gut feeling”, nor any other super investor, I mean real super investors in the world. Or you think you are better than all these super investors because you have this “gut feeling”?
Does value investing work?
As a firm believer in fundamental value investing (FA), let me try my best to convince you again here, using some vigorous academic research studies.
Before dismissing academic research as pure theory or useless information, please note that unlike most stories telling and sweeping statements, all yours included, academic studies are the product of months or years of work; they carry out econometric analysis of large sets of data and provide empirical evidence, rather than basing on a few observations to make an inference. It gives answers; not just yes or no, but also why and how and has to be proven with precise weighing of evidence. The essence of the scientific method is to come up with a hypothesis, test it, and then make sure it can be repeated — and not skewed by external factors.
Tweedy, Browne Company LLC (TBC), a well-established investment advisory group in the US managed approximately $21.4 billion for individuals, institutions, partnerships, off-shore funds and four mutual funds as of September 30, 2014, had published a little booklet on “What Has Worked In Investing”, latest edition 2009. It is a collection of about 50 studies of investment approaches used in the US and the world, including Malaysia, for many decades. Each of the studies evaluates the results of following a particular value-oriented strategy in a particular market over a particular period.
The studies evaluate cheapness relative to current assets, to book value, to profits, to cash flow, and to dividends. They also look at other indicators sometimes related to cheapness, such as insider buying and market capitalization.
The studies revealed that when stocks in any exchange are lumped into groups of the lowest vs. highest of the three multiples, P/B, P/E, or P/CF, the groups of lowest multiples consistently outperform the groups of higher multiples, usually in a linear pattern (that is, the lowest outperform the preceding higher group). The degree of consistency is astounding.
A couple of them looked at the performance over 1, 3, and 5 year periods. surprisingly the lower multiple groups outperform about 70% of the time over a 1-year period, expectedly about 85-90% of the time over a 3-year period, and astoundingly 100% of the time over a 5-year period. Over the long term, the lowest multiple groups outperform the highest multiple groups by about 4-6% annually for any of the three multiples of P/B, P/E, or P/CF.
For those who are sceptical of what is the big deal of the excess return of 4%-6% a year for value stocks over the broad market, $100k invested with a CAR of 15% would have grown by 1637% to $1.64m, 2.43 times more compared to $673k for CAR of 10% for the same investment outlay in 20-years’ period.
The conclusion of the above studies is buying cheap in any form, be it be low P/B, P/E or P/CF (and also P/D) give better return than the broad markets, and in contrary to theory of investment, the better return doesn’t come with the price of higher risk as value stocks decline less than others in a bear market.
Some of the studies also show that combining small market cap value stocks with one of the low P/B, P/E, or P/CF leads to the best performing class of stocks. One of the very famous study by Eugene Fama, the Three Factor Model, is shown in this link below:
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/39934.jsp
This lends additional credence that small-cap, value-based stocks are the best way to go in investing.
A couple of studies surprise the momentum investors with the conclusions that stocks that have underperformed over the previous 5-years period tend to outperform over the succeeding year-long period, by a whopping 18%. For value investors who believe in the power of mean reversion in the capital market, that is no surprise.
These studies have consistently providing empirical evidence that Benjamin Graham’s principles of fundamental value investing, first described in 1934 in his book, Security Analysis, continue to serve investors well and have provided the best returns over long periods of time.
Few mentioned about cash in the balance sheet as mentioned by you. And they do not use “20 accounting formula, 5 valuation methods´ as harping by you all the time.
Allow me to show you some fantastic extra-ordinary return of real life established records in investing basing on this value investing.
The super returns of super value investors
I showed the track records of each of nine disciples of the Master of Fundamental Value Investing, Benjamin Graham, who had generated annual compounded returns (CAR) of between 18% and 29% over track records lasting between 13 to 28 years as shown in the link below, out-performing the broad market by wide margins. All of them using fundamental value investing basing mainly on financial reports, and none using other methods of investing.
http://klse.i3investor.com/blogs/kcchongnz/92412.jsp
Take for example of the investing experience of Walter Schloss who just invested in low price-to-book stocks and just by referring to the balance sheets, yes, historical figures, had made a CAR of 21.3% over a 28 years investing period. $100k invested in a 28 years’ period becomes $22.3m, or a gain of 2220%!
More recently more investors such as Joel Greenblatt, who just uses two accounting ratios (not your 20) of ROIC and Earnings Yield, Seth Klarmen, Howard Marks, Mohnish Pabrai, Peter Lynch and many other fundamental value investing fund managers have all generated high return of over 20% CAR over an extended period of time of 20 years or more, purely using value investing.
http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
Many of the investment strategies used are quantitative investing basing on the financial statements.
Still not convinced? I do not expect to convince you, Mr. Stockmanmy as what Seth Klarmen said,
“in value investing, either you get it, or you don’t.”
What about the statement below by this guru stockmanmy?
“Put all the time in looking for Companies with great earnings growth, ballistic earnings growth. Hints and indications can be obtained from price movements, industry analysis, company expansions, capital expenditures.”
Great points, but please elaborate and show us some evidences, I mean vigorous research and evidences, and better still, your records of success in investing, and not just sweeping generality.
Looking forward to your sharing.
As usual, for those who believe value investing can build long-term wealth, which I have been showing you all this while that it can, including my own experience, and are keen to learn about value investing, please contact me at
ckc14invest@gmail.com
The next course will commence soon.
KC
http://klse.i3investor.com/blogs/stockman/98587.jsp
As usual, this author always criticizes value investing and ridicules those who are embarking on it. He has written 6 parts, including the one above.
However, always simply shoot here and there in generality, and nothing is specific. These are the things he keeps on muttering about.
“I bring it up because I read so often sifus and bloggers in i3 place way too much attention to net cash position. They call it margin of safety.
Way too much attention to net cash positions and accounting ratios and not enough attention to the actual business.
20 accounting formula, 5 valuation methods will not help you to make to make money. Valuations are too sensitive to the assumptions used. Its like the tail wagging the dog., the ends justifying the means.”
My questions are:
Does he understand what value investing is?
Does he know what “Margin of safety” is?
What these “20 accounting formula, 5 valuation methods´ is he is talking about so much?
Does a value investor always use the “20 accounting formula, 5 valuation methods” before investing?
Does he know anything about what valuation is?
I saw the first comment in the thread below from the author himself:
Posted by stockmanmy > Jun 18, 2016 03:47 PM | Report Abuse
KC Chong...you asked what is gut feeling and what besides your trusted formulas?
Here is the answer above.
Huh, this article is targeting me? “That is the answer”? What answer?
Nevertheless, it gives me an opportunity to present you what value investing is, and does it work. Sorry, this is a repetition of what I have written before, done to explain and show you evidences on the following.
- What is value investing?
- Is value investing simply buying cheap stock, less than 10 sen stock?
- Is value investing about just looking at how much cash the company has as what the author above understands?
- Is value investing ignoring what the business of a company is about?
- Does value investing not worked?
- Can you just use a fuzzy example of Parkson and conclude that value investing doesn’t work?
What is value investing?
“Twice and thrice over, as they say, good is it to repeat and review what is good" Plato
Charlie Munger, who has influenced Buffet in purchase of Coca Cola and other seemingly high price acquisitions mentioned it out clearly.
“All intelligent investing is value investing - acquiring more than you are paying for. You must value the business in order to value the stock.”
“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”
So, value investing is intelligent investing. Value investing is about looking for a mispriced gamble, getting more than you are paying for. You must know about the business and hence the value the business.
What did Buffett say about value investing?
In his 1992 letter to Berkshire Hathaway shareholders, Warren Buffett wrote…
“We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labelled speculation (which is neither illegal, immoral nor – in our view – financially fattening).”
Don’t you think having an estimate of the value of a stock from some kind of valuation is important so that you can justify the amount paid? Or it is better just basing on your “gut feeling”?
Buffett never mentioned about your this “gut feeling”, nor any other super investor, I mean real super investors in the world. Or you think you are better than all these super investors because you have this “gut feeling”?
Does value investing work?
As a firm believer in fundamental value investing (FA), let me try my best to convince you again here, using some vigorous academic research studies.
Before dismissing academic research as pure theory or useless information, please note that unlike most stories telling and sweeping statements, all yours included, academic studies are the product of months or years of work; they carry out econometric analysis of large sets of data and provide empirical evidence, rather than basing on a few observations to make an inference. It gives answers; not just yes or no, but also why and how and has to be proven with precise weighing of evidence. The essence of the scientific method is to come up with a hypothesis, test it, and then make sure it can be repeated — and not skewed by external factors.
Tweedy, Browne Company LLC (TBC), a well-established investment advisory group in the US managed approximately $21.4 billion for individuals, institutions, partnerships, off-shore funds and four mutual funds as of September 30, 2014, had published a little booklet on “What Has Worked In Investing”, latest edition 2009. It is a collection of about 50 studies of investment approaches used in the US and the world, including Malaysia, for many decades. Each of the studies evaluates the results of following a particular value-oriented strategy in a particular market over a particular period.
The studies evaluate cheapness relative to current assets, to book value, to profits, to cash flow, and to dividends. They also look at other indicators sometimes related to cheapness, such as insider buying and market capitalization.
The studies revealed that when stocks in any exchange are lumped into groups of the lowest vs. highest of the three multiples, P/B, P/E, or P/CF, the groups of lowest multiples consistently outperform the groups of higher multiples, usually in a linear pattern (that is, the lowest outperform the preceding higher group). The degree of consistency is astounding.
A couple of them looked at the performance over 1, 3, and 5 year periods. surprisingly the lower multiple groups outperform about 70% of the time over a 1-year period, expectedly about 85-90% of the time over a 3-year period, and astoundingly 100% of the time over a 5-year period. Over the long term, the lowest multiple groups outperform the highest multiple groups by about 4-6% annually for any of the three multiples of P/B, P/E, or P/CF.
For those who are sceptical of what is the big deal of the excess return of 4%-6% a year for value stocks over the broad market, $100k invested with a CAR of 15% would have grown by 1637% to $1.64m, 2.43 times more compared to $673k for CAR of 10% for the same investment outlay in 20-years’ period.
The conclusion of the above studies is buying cheap in any form, be it be low P/B, P/E or P/CF (and also P/D) give better return than the broad markets, and in contrary to theory of investment, the better return doesn’t come with the price of higher risk as value stocks decline less than others in a bear market.
Some of the studies also show that combining small market cap value stocks with one of the low P/B, P/E, or P/CF leads to the best performing class of stocks. One of the very famous study by Eugene Fama, the Three Factor Model, is shown in this link below:
http://klse.i3investor.com/blogs/stock_pick_challenge_2013_2h/39934.jsp
This lends additional credence that small-cap, value-based stocks are the best way to go in investing.
A couple of studies surprise the momentum investors with the conclusions that stocks that have underperformed over the previous 5-years period tend to outperform over the succeeding year-long period, by a whopping 18%. For value investors who believe in the power of mean reversion in the capital market, that is no surprise.
These studies have consistently providing empirical evidence that Benjamin Graham’s principles of fundamental value investing, first described in 1934 in his book, Security Analysis, continue to serve investors well and have provided the best returns over long periods of time.
Few mentioned about cash in the balance sheet as mentioned by you. And they do not use “20 accounting formula, 5 valuation methods´ as harping by you all the time.
Allow me to show you some fantastic extra-ordinary return of real life established records in investing basing on this value investing.
The super returns of super value investors
I showed the track records of each of nine disciples of the Master of Fundamental Value Investing, Benjamin Graham, who had generated annual compounded returns (CAR) of between 18% and 29% over track records lasting between 13 to 28 years as shown in the link below, out-performing the broad market by wide margins. All of them using fundamental value investing basing mainly on financial reports, and none using other methods of investing.
http://klse.i3investor.com/blogs/kcchongnz/92412.jsp
Take for example of the investing experience of Walter Schloss who just invested in low price-to-book stocks and just by referring to the balance sheets, yes, historical figures, had made a CAR of 21.3% over a 28 years investing period. $100k invested in a 28 years’ period becomes $22.3m, or a gain of 2220%!
More recently more investors such as Joel Greenblatt, who just uses two accounting ratios (not your 20) of ROIC and Earnings Yield, Seth Klarmen, Howard Marks, Mohnish Pabrai, Peter Lynch and many other fundamental value investing fund managers have all generated high return of over 20% CAR over an extended period of time of 20 years or more, purely using value investing.
http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
Many of the investment strategies used are quantitative investing basing on the financial statements.
Still not convinced? I do not expect to convince you, Mr. Stockmanmy as what Seth Klarmen said,
“in value investing, either you get it, or you don’t.”
What about the statement below by this guru stockmanmy?
“Put all the time in looking for Companies with great earnings growth, ballistic earnings growth. Hints and indications can be obtained from price movements, industry analysis, company expansions, capital expenditures.”
Great points, but please elaborate and show us some evidences, I mean vigorous research and evidences, and better still, your records of success in investing, and not just sweeping generality.
Looking forward to your sharing.
As usual, for those who believe value investing can build long-term wealth, which I have been showing you all this while that it can, including my own experience, and are keen to learn about value investing, please contact me at
ckc14invest@gmail.com
The next course will commence soon.
KC
没有评论:
发表评论