On the difficulty of "proving" that a stock is a value stock. (longish post)
This thread has been in existence for more than two years. I'd guess there are perhaps 5 to 15 active posters here, supplemented with a bunch of occasionals. Among the active posters, there seem to be a couple, maybe more, of professional value investors, perhaps one current or ex-fund manager, a number of serious and determined "amateur" value players, and a range of investing experience from maybe 3 to 50 years. Some of the occasional posters seem to be very, very knowledgeable in certain fields - accounting, oil & gas, REITs, electronic contract manufacturers, and so on. (Of course, this is my general understanding based on what people have said here over the two years -- there's no survey -- but I think I'm pretty much in the ball park.)
Now given this background, and given that this generally, and by the stated M. Burry purpose of the thread, is a Ben Graham value investing thread, one would think -- or more precisely, in 1996 and 1997 when this thread was new, I would have bet, that since Ben Graham provided several methods for evaluating and classifying value stocks for his two categories of investor (defensive vs. enterprising), that it would be straightforward to identify and agree on stocks to purchase which fall in such classifications. Maybe not so easy to find such stocks, but once they were mentioned on such a thread as this, and if they fell into some Ben Graham classification or perhaps the classification of even a more current value player's ala Dreman, Davis Brothers, etc.... that there would be a resulting general agreement that such a stock was a value stock.
But, surprising to me, what I found is that, of the hundreds of stocks mentioned here, including those by the active posters as well as the occasional "industry specialist", not only is there no general agreement, there is rarely any stock mentioned that more than two other people will agree is a value stock. I just cannot believe, with the expertise that some people have here, that the suggestions are bogus value stocks. And it's not in the dearth of information included in the post. (Because I believe too many people here are checking further - either cursorily or in detail - on every stock that is posted here.)
Rather, my conclusion is that it is nearly impossible to "prove" a stock is a value stock, because we all have a different perception of what a "value" stock is (in spite of what Ben Graham or Dreman or O'Shaugnessy or anybody else says). And secondly, and maybe more importantly, because we all have different risk tolerances and different portfolio management strategies, "proving" the value (the margin of safety) in a value stock is different for each person. Thus, for a person very concerned about losing money, who might only hold 5 stocks at one time - that person must, I assume, utterly convince himself/herself that any stock must unalterably or unconditionally be a value stock. Perhaps also for someone who invests "pig at trough"- which is what I refer to someone who will kick out a stock already owned in order to make room for a new purchase. (So value investing becomes a relative and portfolio-dependent thing for this person.)
Anyway, I've come to believe that anyone who is here looking for 'proof' that a stock is a value stock just from the information people post on that stock, that person is not going to get the proof or should not expect the proof, in the post. Certainly not in any initial post.
One thing that has been helpful, IMO of course, and as I have posted on last year, is the absolute number of people who will discuss then buy (or buy then discuss) a particular stock after it is initially mentioned on this thread. I went back and looked at all the posts where 2, 3, or 4 people admitted to buying the posted-on company. I found that when the original poster led to 2 other people buying the stock that was mentioned, that investment worked out profitably (e.g. JOE) And when 3 other people bought the stock, that worked out very well. There were very few of these though (I don't have my paperwork with me-- I seem to think there were maybe about 4 such companies each with 4 people buying). For example, a couple of picks by Mike Burry or Jim Clarke --- WHX, Saucony (when it was a net-net) generated much discussion -- there were at least 4 people who posted to buying these companies at that time-- and ultimately (and fairly quickly IMO), these two investments were profitable.
Currently there is a discussion going on about HLX. IMO, a stock with many good points a value investor might find attractive. Discussed by two people who IMO are pretty thorough, knowledgeable, serious, smart value investors (that'd be IMO-- sorry if I've misclassified or attributed to them qualities they don't actually have -g--- I only know them from some of their posts): but my point would be here we have a very good opportunity to perhaps purchase an ongoing, profitable business where the stock is out of favor-- although it's been more out of favor before. Not to say that HLX is or is not a good investment, only that it is a typical kind of post that may identify a value stock. And that, with all the people reading this thread and thinking about HLX, I'll guess that not more than two other people will see value for them in what the original poster is identifying and consequently, soon buy the stock. But if two people actually do, and post about it, then there's an empirical reason for others to very seriously also REconsider HLX.
All just my opinion. Paul Senior |
