Stock Review
How to become a value investor?
This video talks about how one can become a value investor. I am indebted to KC Chong, who allows me to use his materials in preparing this video.
https://www.youtube.com/watch?v=yqjjrGHzd7o
Do share with us any stocks you know which meet the 5 metrics, by commenting below. If you enjoy watching, please subscribe to the channel, like it and share it!
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Discussions
1 person likes this. Showing 23 of 23 comments
Although Warren Buffett had stronger percentage returns in phase I, I would say he created way more wealth in dollar terms, during phase II. The first phase made Warren Buffett a millionaire but the Buffett Prime stage is what put Buffett on the map. This is the phase when Warren Buffett bought large, dominant, companies like Washington Post, American Express, and Geico.
Warren Buffett used to be 100% Benjamin Graham during phase I, whereas he started being influenced by Philip Fisher and Charlie Munger during the 1970's (and early 60's to some degree). Fisher and Munger instilled growth investing into Warren Buffett. Whereas Graham had a singular focus on the strength of the balance sheet and quantitative factors, Fisher/Munger taught Warren Buffett to look at earnings power and qualitative elements. Warren Buffett started to realize, and put into practice, the notion that earnings power and qualitative factors (such as brands or intellectual property) gel to form a powerful moat. The notion of a moat may have been used in earlier times but it really became powerful when you focus on earnings power and hard-to-measure qualitative elements.
Buffett also started buying companies, not way-below intrinsic value, but close to intrinsic value. Instead of buying weak companies that are significantly undervalued, he started buying great companies at fair or slightly-below-fair-value prices. If you were able to get a great company for a fairly reasonable, albeit not extremely cheap, price, it also meant that you could hold on to them for a long period of time. Great companies have long lifespans and high return on equity so it didn't make sense to sell these golden geese just because they hit intrinsic value.
2019-07-25 23:13
engineers think every thing is in the numbers....Professionals know what can be counted may not count as much as what is not counted............
so , are u an engineer?
2019-07-26 00:19
Hahahaha,
qqq3, at least engineers are honest people involve in honorable profession that every design/building/structure bear their signature were built to serve its purpose with no margin for error but inbuilt safety margin.
Accountant can be very manipulating hence Bursa are full of accounting frauds and some of external auditor either dance to CEO tune or actually partner in crime with CEO to cook the book. In i3 the most infamous accountant is the fake accountant qqq3 for he had cook many books and caught with his pant down.
Just look around you, aren’t all these things around you are designed/built by engineers?
2019-07-26 07:02
Just my thinking on the 5 metrics (used by Fong Siling).
Value investing is about finding 'value'. Value means mispricing (between price and what a business is worth). Which means finding investment in an 'inefficient' market. If the market is always efficient, then there won't be any 'value'.
But here is the problem with those 5 metrics: it is an efficient tool (used to find inefficiency in the market). Anyone armed with screening tool/software can easily find stocks that meet those quantitative metrics. So if you're doing what everyone is doing, how are you going to find value in places everyone is looking at? You can't.
Quantitative screening is efficient and save time, hence the popularity. Imagine trying to buy a house. You normally determine your budget (how much to pay), then the location, then so on down the list of priorities i.e facilities. But everyone else is using the same kind of criteria to buy a house, which means you're competing with everyone else in a conventional way. How are you going to find value and outperform the market if you are doing the same thing as everyone else? Consensus is another word for conventional. And consensus only earns you average market return.
So now instead of using an 'efficient' tool i.e metric screener to find inefficient. You need something 'inefficient'. How about starting from company name A to Z? Now no one is doing that. Takes too much time. But that's where outperformance come from. That's where you'll find potential value. How about screening business by durability, by capital allocation skill? Companies that promote failure? Companies building moat? Now there's no way to quantify those things. Not many ppl will do it. It is hard. But that's where value comes from by doing what others won't do. This is value investing.
2019-07-26 10:02
ss...............every young engineer starts off his stock market adventure as qiqin here............with the help of teachers like kc , another engineer........until, one day they graduate to be like ricky..............
2019-07-26 10:22
ss...........accountants sleep , eat drink creative accounting and accounting policies and implications...............
2019-07-26 10:25
the trick and the near impossible task is to turn a young engineer into a Philips investor .............stay with quality and stay with the same stock for 10 years..........that is rare .
2019-07-26 10:34
Truth be told, Softbank investors and even the new reformed Warren Bufett breaks every single rule above when they invest....
So, rules, like Laws of a country are made for others, not for the 1%...........
2019-07-26 10:43
talking about Buffett everyday won't turn you into a good investor or a rich man
3iii High-profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions. However, the future distributions and the appropriate discount rate can only be assumptions. (Graham never recommended using future numbers, only past ones). For the last 25 years, Warren Buffett has taken the value investing concept even further with a focus on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Note that "Value investing" is a term that Graham himself never used. The term was coined later for Graham's ideas and has resulted in significant misinterpretation of his principles, the foremost being that Graham simply recommended cheap stocks.
25/07/2019 11:12 PM
2019-07-26 14:14
I like the Cold Eye 5 metrics in evaluating a stock . I believe that using these 5 metrics to screen the stock to purchase will help you from making serious mistakes in investing . The past records must be at least 5 years . IF the stock has 10 years data then much better . With information readily available nowadays , you dont expect to buy such good stocks with " cheap " prices . As long as you can purchase such stocks which pass the 5 criteria with " reasonable prices , I believe getting an annual 15 % return is possible . As what Charlie Munger said , it is better to buy good stocks with reasonable prices than to buy a mediocre stock with cheap prices .
2019-07-27 08:10
Why not find out what companies Warren Buffet own that is also listed in Bursa M'sia than talk the person only.
2019-07-27 10:55
Washington Post, Amex, Geico if apply in Bursa M'sia what company is it?
. This is the phase when Warren Buffett bought large, dominant, companies like Washington Post, American Express, and Geico.
2019-07-27 10:57
So if everyone uses that 5 metrics, everyone will make 15%?
5 metrics is good to reduce mistakes. But that depends on context. It is like saying DCF valuation can reduce mistakes. But ppl that get killed using DCF is just as many. How many times ppl screen using 5 metrics end up getting trapped? Too many.
2019-07-27 12:03
Metrics is like formula, it is only as good as knowing when not to use it.
2019-07-27 12:03
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Post removed.Why?
2019-07-25 23:12