Invert Investment
"The Most Important Thing" by Billionaire Howard Marks - part 2
InvertInvestment
Publish date: Sat, 08 Sep 2018, 10:24 AM
This is the continuation of my previous post "The Most Important Thing" by Billionaire Howard Marks (Highly recommended).
To recap the previous post briefly:
1. The world is full of randomness, you can't tell from an outcome whether a decision was good or bad.
2. It's futile to predict the macro economy, we're much better off spending time researching mispriced stocks.
3. Investing is more of a Loser’s Game, what we should be going after is long-lasting, steady and slightly-above-average returns over a long period of time, and that will beat most of the investors. Basically, he errs on the defensive side due to randomness.
Let's rock,
4. Value Approach In Investing
No surprises, Howard believes in value investing. Many people have this misconception that they have to buy good assets and shares of good companies to make money in investing. This is very wrong. The secret to success in investing is buying things for less than they're worth.
If you buy the shares of a high quality company, but you overpay for it, you're in big trouble. In the book's example, for someone who invested in the nifty-fifty in 1968 and held them for 5 years, he/she would've lost 80-90% of his/her money. Nifty-fifty were companies such as Texas Instruments, Hewlett Packard, Xerox, IBM, Kodak, Polaroid, AIG and Procter & Gamble. They were once believed to be the fastest-growing and nothing-could-go-wrong companies in US. Hence, they were traded at 80-90 PE, people have overpaid for them and they suffered huge losses.
In contrast, if you buy the shares of low quality company, but you pay less than it's worth, chances are you're going to make money.
Quick quiz: I see a lot of people bashing KYY and Jaks lately, but what if ... it sells shockingly at RM0.45 on the next trading day? what should you do?
Answer: YOU SHOULD BUY (I don't own Jaks)! The crux is that if you buy an asset for less than it's worth, the surprises are likely to be on the upside.
5. Drawback of Momentum Investing
I'll keep this part short because I think Howard already sums it up very well in the paragraph below:
The way I see it, day traders considered themselves successful if they bought a stock at $10 and sold at $11, bought it back the next week at $24 and sold at $25, and bought it a week later at $39 and sold at $40. If you can’t see the flaw in this— that the trader made $3 in a stock that appreciated by $30— you probably shouldn’t read the rest of this book.
- Howard Marks
I believe in this world, there certainly exist a small portion of exceptionally smart people who can make money consistently through momentum investing. But let's face it, most of us are not one of them and worse yet we are working in the day and simply don't have the time to stare at the screen and do short-term trading. Therefore, for majority of us, buying below value and waiting for the convergence of price and intrinsic value is the best chance we have.
Quick quiz: Why do you think your remisiers have to keep posting buy/sell calls in the WhatsApp/Telegram group backed with their so-called technical analysis? Are they your friends or foes?
Answer: They just want you, who know absolute nothing about the stocks, to trade as frequently as possible so that they can earn more brokerage fees. Think further, If it's a sure bargain, why would they tell you?
6. BEING ATTENTIVE TO CYCLES
According to Howard, there're two concepts we can hold to confidently:
• Rule number one: most things will prove to be cyclical.
• Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.
As Howard often says, trees don't grow to the sky and extreme market behaviour will eventually reverse. What goes up will come down and what goes down will come back up. The current bull market has lasted for more than 10 years. Today the Shiller PE Ratio* stands at around 33 and historically there's only been once it was higher than this, i.e. the 2000 Internet Bubble when it peaked 44. The bull market is due for a correction, but it's not tomorrow, next month or next year, that we can never know because as cliche as it may sound, overpriced isn't synonymous as "going down tomorrow". What we do know and have to accept is that risk is higher and prospective returns are lowers now than that of 10 years ago.
* Shiller PE Ratio: a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings, adjusted for inflation
In view of this I think there're few things we can do:
1. Increase cash holdings.
2. Invest cautiously, only invest in bargains. That being said, you should be worrying more about losing money than missing opportunity.
3. Special situation investments like acquisitions, disposals, etc. (They're super tasty)
I hope you enjoy this post. Do comment below what do you think, I personally think being attentive to cycles is super profound and especially applicable now. Feel free to like my Facebook page to see more articles like this coming out weekly. Have a good weekend!
http://fb.me/invertinvestment
8 Sep 2018
- InvertInvestment
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Discussions
3 people like this. Showing 13 of 13 comments
I like no. 2
2. It's futile to predict the macro economy, we're much better off spending time researching mispriced stocks.
MISPRICED STOCKS are my favourites!!!
2018-09-08 11:06
Glad you like it.
Yes, Mispriced stocks are everyone's favourites except for TA traders who buy high and sell higher :)
Posted by calvintaneng > Sep 8, 2018 11:05 AM | Report Abuse
THUMBS UP!!!
BEST POST OF THE MONTH!!!!
Posted by calvintaneng > Sep 8, 2018 11:06 AM | Report Abuse
I like no. 2
2. It's futile to predict the macro economy, we're much better off spending time researching mispriced stocks.
MISPRICED STOCKS are my favourites!!!
2018-09-08 11:32
Yes. I dont know much people in i3 but i guess i can name one who constantly ask people to buy when the price is high and the stupid TA UP formed, and to sell when the stock is mouth watering cheap. Guess who?..... Bingo. The now hit hit buttock running dog from i3. Whoever against his TA he will call running dog. Yet, now, who run.. ? No refund for the rm 1000 for those who suffers disastrous losses by using his abcde rubbish TA formula? Haha 拍拍屁股走人，还走得这么理直气壮， 明明是不懂怎么投资,乱买乱亏，结果怪罪i3的投资人逼走他。。 投资世界里什么人都有。希望一些新投资者可以借此镜而从此避开这类金融骗子。 he always say karma will hit hard, maybe he is referring to himself..
2018-09-08 13:46
According to Howard, there're two concepts we can hold to confidently:
• Rule number one: most things will prove to be cyclical.
• Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.
EXAMPLE IS JAKS & LONG STEEL STOCKS
THESE CYCLICALS SHOULD ONLY BE BOUGHT AT BOTTOM WHEN:
1) BUSINESS IS BAD
2) NOBODY WANTS THEM
3) BEST BUY FOR JAKS WAS 40 SEN. BEST BUY FOR LIONIND WAS 30 SEN. BUY WHEN NOBODY WANT THEM
4) BUT HOW TO BUY WHEN PRICES WERE DOWN & OUT?
ONLY CONTRARIAN PEOPLE WITH ANTI - HUMAN FEELING WILL DARE TO BUY
5) THEN PRICES GONE UP AND THE BIG CROWD CHEERS THEM UPWARD?
MANY MANY START TO CHASE.
THEY SAY< "SAFETY IN NUMBERS"
YES SAFETY IN DYING TOGETHER LIKE LEMMINGS
SEE
https://www.youtube.com/watch?v=AOOs8MaR1YM
2018-09-08 14:37
As Howard often says, trees don't grow to the sky and extreme market behaviour will eventually reverse. What goes up will come down and what goes down will come back up. The current bull market has lasted for more than 10 years. Today the Shiller PE Ratio* stands at around 33 and historically there's only been once it was higher than this, i.e. the 2000 Internet Bubble when it peaked 44. The bull market is due for a correction, but it's not tomorrow, next month or next year, that we can never know because as cliche as it may sound, overpriced isn't synonymous as "going down tomorrow". What we do know and have to accept is that risk is higher and prospective returns are lowers now than that of 10 years ago.
* Shiller PE Ratio: a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings, adjusted for inflation
In view of this I think there're few things we can do:
1. Increase cash holdings.
2. Invest cautiously, only invest in bargains. That being said, you should be worrying more about losing money than missing opportunity.
3. Special situation investments like acquisitions, disposals, etc. (They're super tasty)
HOWARD VERY SMART
HE SAID
In view of this I think there're few things we can do:
1. Increase cash holdings.
2. Invest cautiously, only invest in bargains. That being said, you should be worrying more about losing money than missing opportunity.
3. Special situation investments like acquisitions, disposals, etc. (They're super tasty)
IN DEFLATION KEEP MORE CASH AS CASH IS KING IN CRASHING MARKETS
BUT IF GOT BARGAINS? THEN JUST BUY SOME!!
AND SPECIAL INVESTMENT OPPORTUNITIES THAT POP UP
2018-09-08 14:46
Posted by okdoke > Sep 9, 2018 10:46 PM | Report Abuse
Hi Calvin, Any opinion on Gadang at RM0.69? bargain price at 69 sen? thanks
Okdoke,
Gadang should be ok as TRX is still ongoing & not cancelled
Longer term i think must watch what PH Govt is up to
Now it will be
Citizen-centric. Last time was Government-centric
So look out for stocks that will benefit from New PH Govt
Examples are:
1) New Golden Triangle of Langkwi/Kedah/Penang
2) Proton City of Tg Malim
3) Sabah banning log export will benefit plywood
4) Govt still need Petronas Oil Revenue. So watch for Pengerang RAPID
5) Latest is Govt banning conversion of forest reserve lands to Oil Palms. Those Companies that already own Oil Palm lands will now be in focus slowly.
Just watch as more new policies will come
2018-09-09 22:56
any opinion on TDM? they received land ( small premium for the land) from Trengganu state and with PH policy to ban forest reserve lands to Oil Palms, expect no more forest land to TDM and TDM will not increase their land bank.
2018-09-09 23:16
it's ok. TDM is ok on these factors:
1. Price already fallen to all time low.
2. Supported by 2 industries. a) Oil palm. b) Health care which is recession proof.
3. I think this one not affected like FGV when dishonest hands have siphoned out monies.
4. Almost free lands from Tganu Govt is bonus.
Above all Insiders are quite honest. Last time they requested for extra pay. If they wanted to steal they could have manipulated the accounts.
So i think at this low price TDM can buy.
2018-09-09 23:37
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
calvintaneng
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2018-09-08 11:05