Investing For Value

Fundamentals 06-1: There are two aspects in managing any stock portfolio - construction and maintenance.  This post focuses on the construction of a stock portfolio while maintenance issues will be covered in a separate article. Generally, when portfolio construction is mentioned, it is with reference to asset allocation.  For example: “Asset allocation is a broad strategy that determines the mix of assets to hold in a portfolio...Security selection is the process of identifying individual securities within a certain asset class...” Investopedia The Oxford dictionary has defined a portfolio as a range of investments held by a person or organization.   What is a stock portfolio then?  A stock portfolio is a collection of stocks that an investor has selected. This then raises the following questions when it comes to constructing the stock portfolio: How do you select the stocks? How many stocks should you have? How much to invest in each stock? How do you establish the position? Thi

Case 08-2:  I drafted my Seeking Alpha article  Steel Dynamics: Wait for the coming price decline  in Dec 2020 based on the information in Part 1 and 2 of this case study. The valuation was based on the 2020 data set from Damodaran that was updated on 8 Jan 2021.  However, to ensure consistency between this case study and the Seeking Alpha article, I have maintained the 2020 valuation data for this case study. Steel Dynamics Inc (SDI or the Group) is a Nasdaq listed Group in the iron and steel industry that is trading at USD 36.87 per share (as of 31 Dec 2020) ie Price to Book value of 1.8. The US steel industry had an average Price to Book value of 1.4 (Source: Damodaran Jan 2020). Is SDI expensive? As a value investor, there are two key scenarios: The stock price is currently below the historical high or that it is cheap relative to the historical multiple.  The question then is whether this is a value trap or a bargain.   The stock currently looks expensive as its current multi

Tips.  This post was first titled "How to cut down your investing time, look here".  It was then changed to "Are these outstanding Bursa stock tips - what to buy?".  The current title is because I now include US stocks in my case studies. Secondly, it is to clarify that the blog is not about investment advice but rather teaching you how to invest. This post is a quick guide to all the investing concepts and case studies in the blog. If you were enrolled in an educational institution to learn about investing, these would be your quick revisions notes.   Revision date:  10 Jan 2021 What to invest in? What to buy? We are all looking for investing tips. It is a short-cut to getting ideas of what to invest in without having to do much work. The reality is that those asking for stock tips are assuming that it would enable them to make money. For this to be true, you have to understand the basis of the tips What was considered in arriving at the recommendation? How was the

Case 08-1:  This is my first case study of a US-listed company.  It is intended to demonstrate that the approach is also applicable to companies listed in other parts of the world.  Is there such a thing as a reverse value trap? A value trap is a stock that appears cheap relative to historical prices but is really overpriced. It is a value trap because the business is facing some insurmountable issue. What is a reverse value trap then?   It is a stock that appears expensive relative to historical price or historical multiples.  But the fundamentals show that the business is actually flourishing. While appearing expensive it is really a bargain. Nasdaq listed Steel Dynamics Inc (SDI or the Group) is an iron and steel Group with a market price of USD 36.87 per share (as of 31 Dec 2020). It is trading at a Price to Book value of 1.8 compared to the US steel industry average Price to Book value of 1.4 (Source: Damodaran Jan 2020). In the Malaysian context, any “brick and mortar” busin

Case Notes 06:  When is the best time to buy your house in order to get the best capital gain? This article looked at the historical evidence in Malaysia and found that if you had bought a house a year after an economic downturn, you will get the best capital gain. For those who are planning to buy properties in Malaysia 2021, “… industry experts predict that it’s going to be a buyers’ market for the next few years so don’t pass up this advantage to get a better deal…”  iproperty.com For many buying a live-in property, one of the considerations is whether the property will achieve a good capital gain in the future. There are of course many factors that affect the capital gain, from location to the economic conditions.  But I would argue that historically in Malaysia, the year the property was bought makes a significant difference to the capital gain.  To illustrate this, I analyzed the capital gain over several 20 years periods for several house types in 4 regions in Malaysia. The