THIS ARTICLE WAS WRITTEN BY TAY JUN HAO AND FIRST PUBLISHED ON THE ASIA REPORT

 

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During hard times, mediocre businesses go under, good businesses survive and great businesses thrive. Investing is as much as focusing on the risk as the reward. History is littered with stories of hubris, and once great businesses which succumbed from a wayward bet or undue leverage.

Seventy Years ago, Benjamin Graham wrote Security Analysis, paving the way for subsequent generations of value investors to follow. The appeal is intuitive to those who understand it. The simple idea that shares are not just mere pieces of paper (or electronic blips on a screen), but fractional ownerships in a business is key.

Investing in common stocks is thus really about investing in businesses. Fundamental analysis is at the heart of a successful strategy. More importantly, it levels the playing field significantly, providing for a vast array of information such as:

  1. Insider (i.e. Management and Significant Shareholders) Ownership, and Buys/Sells
  2. Audited Financial Statements
  3. Track Record In Implementing and Executing

Many deals that investors partake in often involve a one way street, where the investor lacks any leverage whatsoever in the deal, taking terms as they come, or worst, being unaware of what the actual terms are.

The public markets certainly aren’t perfect, but invite a significantly higher level of scrutiny by regulators. They allow for the careful study of the fundamentals that are much harder to find in private deals.

The greatest advantage of the capital markets is that they are for the most part, driven by emotions in the short run. Greed and fear and the emotions, whipsawing the markets from one end of the pendulum to the other. Despite the differences in regional markets, they all possess the same fundamental similarity in that they are driven by people who are rationally irrational.

A careful study of stock market history reveals that there history as a strong tendency to rhyme. Much of what is “new” is really the old parading in disguise. When asked what people would learn from the whole financial crisis, Jeremy [Grantham] said, “In the short term a lot, in the medium term a little, in the long term, nothing at all. That would be historical precedent.”

Investing in common stocks thus provides a favorable prospect. Investors are presented with a vast array of investment opportunities around the world. More importantly, they are able to be selective in their investments, waiting patiently for the right pitch to come along. They are able to exploit the dependable bouts of depression that often descend upon the markets, investing when prices are depressed, and waiting for opportune moments that arise when sentiments improve.

 

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All views and opinions articulated in the article were expressed in Jun Hao’s personal capacity and do not in any way represent those of his employer and other related entities. Jun Hao does not own any shares in the companies mentioned above.

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