Investing For Value

Case Notes 07: Real estate is often seen as an alternative investment for many retail investors. But if you want to invest in real estate, you then have to view its risk as another financial risk. This post provides one way to undertake such an analysis. Like any investment, there are risks when investing in real estate.  While there are several ways to look at real estate risks, this article looks at risks from a financial investment perspective.  “Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.” Investopedia Thus, real estate investment risk is the likelihood that what you make from both capital gain and rent is less than your original investment.  We can then adopt the risk management framework to identify and mitigate negative returns when investing in real estate. I hope that the article can provide a frame

Value Investing Case Study 09-2:  This post focus on whether there is a buying opportunity for New Toyo.  It considers not only valuation but also the risks.  New Toyo International Holdings Ltd (New Toyo or the Group) is currently trading at SGD 0.175 (as of 29 Jan 2021) per share compared to its book value of RM 0.35 per share (as of 30 Jun 2020) ie about a 50 % discount.  This discount can be viewed as either a value trap or a bargain. How can you tell which is the correct view? A value trap is one where while the stock appears cheap, there is a reason for it. This could be due to an insurmountable decline in the business. Or there is a potential impairment that could wipe out a significant portion of the book value. Is New Toyo facing such a situation?  I don’t think so. Join me in this part of the 2-parter series as I argued why New Toyo is not a value trap. Part 1 was published on 7 Feb 2021 while Part 2 is presented here. If New Toyo is not a value trap, it must mean that

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:  14 Feb 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

Value Investing Case Study 09-1:  This is a case study of a group with 2 listed entities whose operations are intertwined. Although the holding company is listed on SGX, this case study should be of interest to Malaysians as the subsidiary is listed on Bursa Malaysia. New Toyo International Holdings Ltd (New Toyo or the Group) is a specialty materials packaging group listed on the Singapore Stock Exchange (SGX). It is currently trading at SGD 0.175 (as of 29 Jan 2021) per share compared to its book value of RM 0.35 per share (as of 30 Jun 2020) ie about a 50 % discount.  Why is there such a discount? Is this a value trap or a bargain?  A value trap is one side of the value investing coin. The other side is that it is a steal, a bargain. The Group has SGD 0.08 cash per share (as of 30 Jun 2020). At the same time, the value of the other assets is after accounting for impairments. Is the market expecting further impairment? Join me in this 2-parts post as I lay out my case on why the mark

Fundamentals 06-2: There are two aspects in managing any stock portfolio - construction and maintenance.  This post focuses on the maintenance of a stock portfolio while the construction issues are covered in " Baby steps in constructing a stock portfolio ."  Imagine that you have purchased a group of stocks making up your initial stock portfolio. You have constructed your stock portfolio. Since you consider yourself as a long-term value investor, do you hold onto the stocks forever? There are also a host of other questions that come to mind as you manage the stock portfolio: How do you grow wealth with the stock portfolio? What do you do with the dividends you receive? How do you assess the portfolio performance when you put in more funds? Constructing the stock portfolio is the first step. You now have to address these and other questions as a part of the management process.  I will share my views on maintaining the stock portfolio. This is from a bottom-up, stock-picking,

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 are covered in " Baby steps in maintaining a stock portfolio ". 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

Value Investing Case Study 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 expensiv

Value Investing Case Study 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 “b