Thoughts on Capital Allocation

THIS ARTICLE WAS WRITTEN BY TEE LENG AND FIRST PUBLISHED ON VALUEEDGE

Having talked about taking on a diversified versus concentrated portfolio, this interview with Joel Greenblatt shared some great insights that we believe is useful regarding capital allocation –Cheapness vs Quality.

My largest positions are not the ones I think I’m going to make the most money from. My largest positions are the ones I don’t think I’m going to lose money in.

— Joel Greenblatt

The quote essentially drives home the key idea about value investing. It is never about the upside potential but rather limiting the downside risk. There is nothing wrong buying companies that are more complex or may seem like a seven foot hurdle, but the key would be keeping these positions small. The “bread and butter” portion of our investments should be allocated to companies that we see limited downside and if we every so happen to see that one company where all the stars are aligned, we allocate a larger portion of our capital to it.

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Founded by three investment professionals, we are bound by our belief in the concept of value investing. We want to share with you the idea of value investing and how it can be applied here in Asia. It has definitely changed our lives over the past decade. We hope it would help you in your journey of becoming financially free as well. Vision To become a key reference website for value investors interested in the Asian Stock Markets. Mission To spread the concept of value investing across Asia.

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