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Strategies & Market Trends : Value Investing

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To: Graham Osborn who wrote (56525)	1/3/2016 6:05:06 PM
From: Shane M	of 78911

Graham, I was thinking about your post, and initially was going to post to try to encourage you to consider companies with less the 3X upside, but I couldn't really put together an argument other than it seems really hard to find situations that are mis-priced by that much - but I realize that stems from how I look for companies, and you're probably investigating in completely different spaces. I'm super-happy if I can find 50%. On the point of always underestimating downside. I do the same thing. I often think the risk/reward ratio looks good, but like you point out, the downside is often far bigger than I anticipate. This seems especially true in stocks that show up in value screens. There are "kicks in the gut" a-plenty out there hiding in the bushes. (Curiously, I think the upside is often larger than I anticipate as once prices get moving they keep moving higher for longer than I anticipate.) So I guess I think what you're seeing with underestimating the downside is a crucial insight about process. I do think some value search processes can lead to companies on the verge of unexpected difficulties.

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