Value Investing will prevent you from investing in a bubble

Dear Fellow Investors,

"If you like fairy tales, go watch a movie" is the headline in Tong's value investing portfolio in the 24 July Edge.  

Value Investing will prevent you from investing in a bubble

He details how logistics companies in Malaysia are trading at nose bleed valuations. For example Pos Malaysia is trading at 48 times earnings while GDX is at 103 PE.

Logistics companies have a low barrier to entry. Getting a parcel delivery license is easy and profit is made by increasing volume of delivery. Malaysia has only  about 30 million residents and how can local delivery companies compete with international delivery giants such as UPS, Fed Ex who trade at valuations of 15 to 19 PE ?

Yesterday, I attended the Phillip Investment Conference at Berjaya Times Square. I would like to thank all our clients for your support who attended and I hope you benefited.   It was a massive crowd with over 2000 hungry investors looking for expert guidance. 

As we are invested in Singapore via our PGWA accounts, I was particularly interested in the presentation by Lai Chang Wai Sing, CIO of Nikko Asia Ltd.   He detailed the case that Singapore property is beginning to recover in numerous charts. Transaction volume is up in the last quarter after being down for 3 years . This is  is evidence of pent up demand.  The residential market is improving as well as landed and non landed property.  Office rents have stabilized in prime Singapore locations. Recovery in property is supporting the rise in the stock market. 

Mr Lai likes companies that are in the technology space and especially companies that are adapting to disruptive technology like SATs which he and us  hold for our managed accounts. SATs have been automating their production lines that prepare food for airlines that service Changi airport. This means they are able to reduce their head count. Exports are also improving  which is also positive for selected logistics companies and airlines. SATs indirectly benefits. 

The presentation by Josephine Lip of Schroeder International on the China Stock market was useful.   She detailed financial metrics that showed PMI over 50, rise of credit growth, rise of commodities and a  pickup of infrastructure spending,

She showed that China leads the world in e-commerce and 26 % of their equity fund is in the e commerce space.  30 % of Shoppers in China now buy their TVs, washing machines, refrigerators, toasters etc on line .  With 5 clicks on your computer you can open an on line trading account without even visiting the stock broker.  

She likes insurance companies such as AIA and China LIfe but is under weighting banks due to over valuations.  China citizens just like Malaysians are under insured so there is room for growth.   

Ang Kok Heng, CIO of Phillip Capital Mgt spoke about probability and how it is the basis for successful investing. He showed that there is no certainty in the investing world but it is possible to put the odds in our favor.  

In the panel discussion which closed the event, we were able to raise questions to the speakers all of whom are  investment professionals and manage 100s of millions of dollars  in investment products.

I asked about Warren Buffet and why he is shifting from growth to value stocks which have been pumped up on hyped up investment stories. I also asked about Alan Tong of the Edge who in his last weeks column detailed the 25 outperforming Malaysian stocks making new highs in the last year and how 21 out of the 25 have questionable fundamentals such as high debt, declining revenues/ cash flows etc.   

My views were dismissed by the entire panel except Mr Phua/ Mr Ang . 

One  said Warren Buffet is 85 years old and out of touch. Another dismissed Mr Tong as a tip giver.  Mr Tong's published Edge portfolio has earned consistent  returns This is his personal portfolio- real time and real money.  I wonder  how many fund managers in town have beaten him or Warren Buffet?    

This goes to show that value investing for most high profile fund managers is out of fashion and that is our edge. We go to spaces that are not crowded, companies that are off the radar screen and unloved. This is the moat as Warren Buffet describes,  the obscurity moat.

Invest well and grow your wealth,

Bill  

Sea turtle rescued from a fishing net