Dato Cheah on the Recent Market Rally in China (London VIC) & More…

“We choose not to lose money on purpose.”

-Rex Tillerson (CEO) when asked by a shareholder why Exxon is not investing in renewables.

Notes From London Value Investor Conference 2015: Woodford, Ruffer, Brandes & More (LINK)

I was unfortunately unable to attends this years conference. Market Folly has done a write-up of the event. I was looking forward to hearing the presentation by Dato Cheah (Value Partners), and here’s an interesting comment by him:

An equity culture has not developed properly in China yet with the total number of stockbroker accounts only on par with Brazil. Chinese people are under-invested with only 6% of their wealth in the market. There is a general feeling of mistrust of stock markets because people have had their ‘fingers burnt.’

The recent dramatic rally in China stocks has further to go. The Hang Seng China trades on a forward PE of 9.8, 1.3x PB. There is an opportunity to invest in the ‘H’ shares as they trade at a 30% discount to the ‘A’ shares. It might be better to invest in larger companies as small-caps have already had a good run.”

He warned that ethical standards were low on the mainland. Investors have to do lots of due diligence but the market is inefficient so there are opportunities.


I looked at a bunch of state owned enterprises (SOEs) somewhere around September 2014, but passed as I had difficutly getting comfortable with their leverage ratios. I eventually invested in some Hong Kong companies (more on that in the future).

Now I know how people living in the dot-com era felt. I still feel a tinge of regret that I passed on it. Can’t win them all.


Don’t Fret About Tobin’s Q (Link)

While I keep my eye on valuation metrics, I’ve always had some skepticism on their use as a timing metric. As the article highlights, using the Q ratio, you would have missed the 2009 rally.

The same problem applies to the Shiller P/E ratio which has gained wide-spread popularity in the recent years. Thomas Braun talks about it here:

Don’t Try to Time the Market with the Shiller P/E

I’ve always felt the thing with timing metrics is the propensity for investors to move the goal post. Take a look at the old posts back from 2009 – 2010. If the market P/E falls to 13.4x (as it did in 2009), the human tendency is to anchor to the lowest ever point and wait for the market to drop more.

The problem in my view is that investors tend to over focus on the forest and miss out the trees. If valuations of the overall stock market are already compelling, and you find an individual business that is trading far below its intrinsic value, why wait?

I can almost hear someone retort that prices can always go lower… which is true. But the reverse is also true. I don’t have any ability to predict the short term price movements (or long term price trends for that matter). Those are things well beyond my control. I rather just focus on what I know best… Understanding and valuing a business and paying a huge discount for it.


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