2 ways to operate in the stock market

Dear Fellow Investor,

100 billion USD of stock value was erased on 9 June Friday afternoon in the NASDAQ. The bulk of the losses were in the FANG stocks: Facebook, Amazon, Netflix and Google.  The catalyst of the drop was a warning by Goldman Sachs that valuations of tech stocks and in particular the FANG stocks were in an air pocket. PEs were averaging 60.  That means you get only 1 dollar of earnings for every 60 dollars of price.   Average dividend yields for FANG are less than 1 %.

Daily Facebook Chart . Note the ultra high volume price bar and wide price spread on Friday which is an indication of smart money selling.

Contrast this with Tambun Indah a Penang property company listed on the KLSE  which trades with a PE of 5.62 and a dividend yield of 6 %.  Tambun is also been consolidating at a low level for 2 years and there is evidence of smart money accumulation. 

Tambun Indah has a gearing of only 2.6 % with a net margin of 22.5 % and a solid set of financials .  Tambun Indah builds affordable houses  in the dynamic Pearl City development near the Penang 2nd bridge. 

If you believe in the demand for affordable property and the growth of Penang you can buy this share and sleep at night. If you hold FANG stocks be prepared for a volatile and uncertain ride.  We hold Tambun Indah in our managed accounts.

There are 2 ways to operate in the stock market.  One is to focus on value while the other is to  buy momentum/ growth.

If you buy momentum you assume that there will be a buyer to take your shares at a higher price.   The risks are higher for momentum because at some point there will be no more buyers and professionals will hammer you .   

FANG stocks havmiche surged this year and are showered with praise from the business press and market analysts who advise investors that FANG stocks should be a large part of every investors portfolio. They say that growth is what matters. I differ from this: I think margin of safety and buying value as Warren Buffet would say will preserve and grow your assets over time.  Remember Aesop's fable: The tortoise and the hare. Who won the race ?

Invest well  and grow your wealth,

Bill

The momentum hare and the value tortoise .