Zen- Vesting: The Road to Graham-and-Doddsville (5)

 

"A great traveler was complaining that he was never better off for his travels. "That is very true," said Socrates, "because you travelled with yourself." Now, had he not better have made himself another man than to transport himself to another place?"

There are many proprieties of vice when it comes to stock market investing. One of such are exaggerated expectations and uncertain hopes when venturing into the business of stock market investing. Because the investor with elevated expectations is perpetually anxious and in suspense. And when he has taken great pains in investing to no purpose, he starts to regret his undertaking. He becomes afraid to go on, because he is unable neither to master his expectations nor obey them. He lives, and likely will die, restless and irresolute.

Elevated expectations are the reason that puts most investors upon rambling voyages when it comes to investing. The buy and hold strategy please those investors today, and trading tomorrow. The splendors of growth investing attract them at one time, and the prudence of “Value Investing” another. And all this while they are carrying the plague about themselves.

Those investors have to learn that it must be the change of mind, not of the stock he is investing or strategy he is pursuing, which will remove his inquietude. That his voice goes along with him, whatever stock he is holding or strategy following.

The successful “Value Investor” must keep on its course, independently of market volatility and the opinions of fellow investors. Only then will he get to the journey's end of satisfactory long- term results. The investor that cannot live happily with one strategy will live happily with no strategy.

The frequent changing of strategies and heavy trading in stock shows instability of mind and overconfidence. Those investors interact with Mr. Market just like children run up and down after strange sights. They do so for novelty and not for profit. And they will return from their venture neither better nor sounder.

Quite the opposite! The agitation only hurts them and their clients. They learn to call ticker symbols, name companies and executives, and to tell stories about them. But would their time not have been better spent in studying the simple framework of “Value Investing” outlined by Graham and Dodd, and then the virtues needed to pursue such a strategy, i.e. knowing oneself?



Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Zen- Vesting: The Road to Graham-and-Doddsville (3)

The framework of Graham and Dodd is simple but not easy. More importantly, is the framework, like any other, worthless to those investors who do not know themselves. It is also worthless to those who do not have an independent opinion about a stock in question. Is the stock a cigar- but investment? Is it a compounder? Or is it something in between?

To come up with a satisfactory conclusion the "Value Investor" must scrutinize potential investments one by one. He must examine them not on the ground of what they are called by fellow investors, but what they truly are.

It makes no sense to set a high esteem upon wide moat, great management etc., if the investor does not first know what old-fashioned "Value Investing" really is about. Because this investor will never learn about the nuances of Value Investing". The nuances of a stock fulfilling one or more parameters of value, or a stock having a great many of them. They will never grasp how those stocks differ.

The framework to "Value Investing" outlined by Graham and Dodd is of great importance, even for “scuttlebutt” investors. And a few useful and simple rules at hand do more toward succeeding in "Value Investing" than whole volumes of complex ones.

The salutary precepts of "Value Investing", and getting to know oneself, should be the "Value Investor's" daily meditation. Because they are the foundations by which he ought to square his analysis and actions in stock market investing.

 

 

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Zen- Vesting: The Road to Graham-and-Doddsville (2)

"In character, in manner, in style, in all things, the supreme excellence is simplicity." (Henry Wadsworth Longfellow)

The knowledge taught by the old guards to “Value Investing” was mainly a certain quantitative framework toward stock selection. What to look for in financial statements and what to dismiss. It is a simple framework. And it is my belief that most “Value Investors” are much better off in that simplicity.

For some time, a great many of so called "Value Investors" starting to talk about that there is more to “Value Investing” than just the numbers. And many fellow investors have concluded that more must be learned and done. So, the crowd grew less careful about who they are as an investor and their circle of competence.

The simplicity of “Value Investing”, and its plain and open virtue outlined by the old masters, is nowadays often dismissed. And “Value Investing” turned into a dark and complex science. The new masters of “Value Investing” tell their disciples to think about moats and to discount the distant, unknown cash- flow into the present by using dubious discount rates. They are preaching that it is worth paying up for wonderful business. Or even worse, to dismiss the price being paid for a business at all and concentrate solely on the quality of the business.

There is no doubt that the argument: “It takes more than just the numbers to identify a great company” is justified as far as it goes. But such arguments are wicked. Because often they are taken too far. They are wicked because they lead fellow investors to focus their attention on the company way too much, and dismiss the cheery price paid too easily.

Furthermore, do these "Value Investors" forget to tell their fellow investors that if wickedness was simple, simple remedies also were sufficient to guard against it. But as complexity has taken root and spread through the value investing community, the need to make use of stronger remedies increased too.

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

Zen- Vesting: The Road to Graham-and-Doddsville (1)

 “Have not the investors and security analysts eaten of the tree of knowledge of good and evil prospects? And by so doing, have they not permanently expelled themselves from that Eden where reasonable companies, cheaply priced, could be plucked off the bushes?" (Author Unknown)”

Nowadays, the majority of self- proclaimed "value investors" explicitly recommend picking stocks by picking great companies. They are not disciples of Benjamin Graham, whose concept to stock market investing they regard as outdated in a post-industrial era. But rather of Philip Fisher, who advocated a system to stock market investing called "scuttlebutt". The "scuttlebutt" approach involves talking to company managers, employees, customers, suppliers, and knowledgeable people in the industry to identify able managers of companies with extraordinary profitability and growth prospects. 

Or they are followers of Peter Lynch’s approach. Lynch, for example, used to purchase a company's stock based on the CEO’s impressive grasp of retailing facts and figures. This is Peter' s so called Principle Nr.14, which says if you liked the store, chances are you would love the stock.

In short, most "value investors" nowadays are obsessed with finding the next great moat company that will turn out to be a multi bagger. The price being paid for such a company is, at best, only of secondary importance.

Especially the “scuttlebutt” approach is extremely time consuming. Time, I argue, that would be better spent by firstly, studying the simple rules and the framework to investing outlined by Graham and Dodd. Then, to look inside oneself, trying to figure out what kind of investor one really is.

Knowing the basic rules to stock market investing, and more importantly knowing oneself, is not only a precondition for long- term success in value investing. It is also an eminent mark of wisdom.

"Value Investing" is a big tent, often squatted by value pretenders. Investors that keep a thrifty table and lavish out upon their building. The ones that are stingy at home but dissipative abroad. Such diversity of character is vicious because the effect is a dissatisfied and uneasy mind. One that is assaulted by terrible monsters one day and tempted by sirens the other when dealing with Mr. Market.

The wise "Value Investor", on the other hand, lives by rules, is self-aware, knows what he is looking for and acts according to that knowledge when dealing with Mr. Market. Investors who live and act according to that knowledge will walk through their investments instead of being carried by them like a straw in the river.

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984

TOB Kawasumi Laboratories: The Beast That Never Really Turned into a Beauty

Introduction

With all likelihood, this is the final post on Kawasumi Laboratories, a longtime holding of mine that was mentioned on my blog two times in the past.

Friday the 31st of July Sumitomo Bakelite announced its intention to takeover Kawasumi Laboratories at a price of 1'700 Yen. An offer which would result in a performance of 318% (incl. dividends before tax) over a period of almost exactly 8 years. And my first Japanese stock where I made the serious money basically within three days.

I have not tendered my shares to Sumitome Bakelite or sold them on the market yet. Before doing so it is time to contemplate. Writing to myself a brief presentation of my initial investment case, a recap of my rather long and wearisome journey in this “deep value” sphere of stock market investment and finally, an in depth analysis of the takeover offer, reasoning if it is attractive or not and if there is any chance of a significantly bettered offer.

Benjamin Graham the Shareholder Activist

"The choice of a common stock is a single act; its ownership is a continuing process. Certainly there is just as much reason to exercise care and judgement in being as becoming a shareholder." (Security Analysis; p.508)

Fingerübung - Co-Cos (JP:3599)

And here we go. Another japanese net-net stock.

Co-Cos hasn't got an english internetpage. I have to rely on data from Businessweek and  MSN Money. 2012 numbers out on its internetpage (japanese).