Somewhere in the middle of 2020-21 when FANG (Facebook, Amazon, Netflix, and Google) stocks were enjoying popularity, a good deal of investors (even in the "value" oriented camp) preach about the virtues of buying "good" companies at reasonable prices. We call them GARP for short.
The exact stocks in question isn't crucial, but the kind of stocks is.
The idea of buying GARP companies is that you do not have to buy them at dirt cheap prices. This bear elaboration: cheap usually refers to its price to earnings multiple, or its current price point in a historic 5-10 year chart.
The idea is that the price is not crucial for GARP because the value of these companies compounded at a good rate, which means the value would eventually catch up with the purchase price even if the purchase price was not at modest levels.
Henceforth, the key question GARP investor have is whether there is a "runway" (is the company reaching market saturation?) or has it neared the TAM, or Total Addressable Market? Would its moat (and thereafter, their usually high ROE numbers) be breached by competition?
If we were to invert our thoughts a little on these companies, surely a few other conditions would make purchasing such companies a lot easier on the stomach.
For instance, if the target company in mind is not a well known titan in the industry, there would usually be the following (advantageous) features:
a) The stock would not be well followed, and therefore not "efficient." It has the added possibility of increased institutional ownership, which can boost share prices.
b) It is simply easier for a small company to grow than a large one. Apple would have to invent another amazing product to boost its already large revenue.
c) It would help that these companies are not in highly popular, competitive industries.
I believe that the fortunes of well known ideas, especially those as large as FAANG and Tesla's, are fraught with friction. I have only one-and-a-half idea in my portfolio that are invested with the expectancy of moderate growth: FuShouYuan and a spin-off called RXO.
The rest of my portfolio consist largely of stocks that are "cheap by assets." I describe the title of this post as "Sisyphean," as the act of buying and selling such stocks is not too dissimilar from what Sisyphus was condemned to: roll a bounder up the hill, only to have it roll down when it nears the peak, and to repeat this act endlessly.
My approach is Sisyphean because when you buy a stock that is cheap by asset, something happens to the company and cause the stock price to go up. You would then sell it to buy another one that is cheap. This continues endlessly.
Have this investing approach been rewarding?
For my case, it had been arguably mixed.
1) Innotek: 70%
2) Wheelock Properties: ~40%
3) Xinghua Port: about 57%
4) TTJ: 32%
5) CrossHarbour: 36%
That is absolute returns, which is deceptive. What about annualised figures? With the exception of CrossHarbour, and Wheelock Properties (for which were realized in a matter of weeks/months, both were >1000% annualised which makes no sense other than luck), the figures for the rest are:
1) Innotek: 57.3%
2) Xinghua Port: 94%
3) TTJ: 10.96%
What about the ones which have not been realized? OKP, which is a significant position, is still at a moderate loss (-10%). So is YZJ Finance (-7%) and Central China Management and Central China Real Estate (arguably not a "cheap by asset" position; -27.5% and -0.5% respectively), Nanyang Holdings (-21%), Clifford Modern Living (+2%), and Frasers Hospitality Trust (-15%). These figures include dividends.
During a discussion with colleagues about investing (I was merely urging them to adopt a dollar cost averaging plan with world index funds), one of my smart (but ignorant in investing matters) friend remarked that your job is your best investment.
This is arguably right and wrong: it is wrong because you have to be physically-abled in order for this "investment" to work.
However, I drew parallels with that fault and my investment style: I have to be "around," or make very active investing decisions, to ensure that it will be profitable. Let's assume that I were to fall into a coma of 5 years, these stocks could enjoy a revival, but I wouldn't be able to sell! ; and by the time I am conscious, these stocks could possibly return into bargain territory again. I witness such fate in my short 6 years of investing.
One of the things I envy about Buffett is his Coca-Cola and American Express holdings. Both had, as compounders, grew rewardingly in share prices, and providing meaningful dividends that beats the average returns of an index. What can be better than that?!
Investing in cheap stocks has its rewards and it is emotionally draining. It is not the easiest, but the most simple form of technique. And unless there is a huge market downturn (which could cause these compounder stocks to fall dramatically cheap in price), there is no foreseeable changes to my portfolio going forward.
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