Posted by: donmihaihai | March 18, 2020

Oh the Market

Lets start by quoting BH 2009 shareholder letter

We entered 2008 with $44.3 billion of cash-equivalents, and we have since retained 0perating earnings of $17 billion. Nevertheless, at yearend 2009, our cash was down to $30.6 billion (with $8 billion earmarked for the BNSF acquisition). We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.

Finally the market is exciting. Wasn’t so for a long time and decent companies were selling at decent or if not at premium. I don’t need meaningless reassurance and yes I am buying. For individual company, I am buying not because the share price dropped but because the price make sense. Now I am not buying Micro Mech despite the drop from over $2 to about $1.5 because the valuation just don’t excite me. I like the businesses but valuation play a big portion of my decision.

So STI is down by close to 30% from the peak. First of all, I think STI is fairly valued or if not slightly undervalued at 3.5K. 3 local banks make up 35% of STI and top 5 reaches 50%. I am not good with these banks, but their ROEs are decent, about 11% to 13%. Buying them at say 1.3X BV will produce close to 10% yield on constant valuation. Not bad actually. Buying at current level of 0.8 to 0.9X BV will produce close to 15% yield on constant valuation. 15% is real good but still I am not good with bank and the closest I have is owning some Haw Par shares. Sadly, Haw Par like Micro Mech is not that cheap.

There are cheaper stocks around with some selling at yields of 20% of more. This is exciting.

I do invest my CPF OA in funds, now I don’t know which funds are good. So I follows the nerds, always buy on dips. Only dare to buy when market drop around 15% and this 15% must not from bubbliest top. For this, price is everything. The more it drop, the more I buy and never know when the recovery will be. Buying right is everything.

My crystal ball on market direction is lousy and my focus is always the same, focus on yield on individual stock and price for markets. Which mean I get excited with higher and higher yield and I am good at ignoring whether I am 20% or 50% underwater. As for the funds, just keep catching the falling knife.

A prolonged multi years bear market will certainty get my excitement to the next level.


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