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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (20336)	12/25/2004 11:40:44 PM
From: Steve168	Read Replies (1) \| Respond to of 78576

EKS, thanks for your great insights. Real estate could be one of the biggest "undervalued" asset on books since they are recorded at cost on balance sheet. If you find any stocks that are undervalued on this basis, I would probably buy some. As you pointed out, this approach has risk too. K-mart went into bankruptcy with a lot of undervalued real estate. We could have believed in its value and lost all money as common stock shareholders. It took a big guy like Warren Buffett or the new K-mart CEO to realize that value. However they may prefer to let bankruptcy wipe out old common stock shareholders before jump in. It is sad but why would they give those people a free ride. Those are the smartest capitalists aim to maximize their own profit. Diversification is a key to avoid disaster. Same as when I buy those below-cash no-debt tech stocks. They all have problems and risks, but if you have a diversified portfolio, you would likely beat the market 8-9 years out of 10 years, except the crazy years of 1998 and 1999.

To: E_K_S who wrote (20336)	1/1/2005 12:22:30 PM
From: Steve168	Read Replies (2) \| Respond to of 78576

Eric and Paul, thanks for the great article - "THE EVOLUTION OF THE IDEA OF “VALUE INVESTING”: FROM BENJAMIN GRAHAM TO WARREN BUFFETT" (http://www.econ.duke.edu/Journals/DJE/dje2000/bierig.PDF) It was indeed a great read. It said the first $200-300M Warren Buffett made was based on Ben Graham's original below-net-current-asset approach. He then expanded "value" to include intangibles such as American Express name brand when it was invovled in the salad oil scandal. I personally think that departure was mainly due to his fund size - once he passed $500M, he can no longer buy those most-deeply-undervalued stocks because he can not deploy enough capital in those micro or small cap stocks to justify the research cost, he had to buy bigger firms. The other factor added to his success was his name, after he got famous, he can quietly buy a 5% position, then release the news that he had it, there are always enough people willing to buy just because Buffett just bought it, a self propelling process. For small not-so-famous investor like us (at least me), I think my best bet is still the Ben Graham style - not exactly 66% below net-current-asset, but the bottom layer of below (or near) net-current-asset stocks, the lower the better, plus a diversified basket to reduce risk. My past experience definitely gave me great confidence in that approach, my portfolio #1 based on that approach with no margin, no options, returned over 200% in 2003, and 20.5% in 2004. In March of 2004 I happened to launch another portfolio (call it #2), since I can not find deeply undervalued stocks, I wander off the road and used market timing, it lost about 5% in 2004. Now I had faithfully gone back to value investing with both portfolios, and the deeply undervalued positions (CIEN@2.4, TFS@1.92, PRCS@1.8, INFO@1.55, IBPI@3.85, total 13 stocks) made me very happy and confident. Use Whitney Tilson's word - I am "trembling with greed". This group of 13 stocks was up about 6% in December, and I believe it may beat the indices by a wider margin in Jan 2005. Once we discovered those stocks, sharing with fellow value investors is a helpful approach. Many people may not like it, but some may. I am not sure if anyone took another look at TFS after I mentioned it here a month ago at $1.87, and other people received my emails regarding it took notice. But the 25% jump on nearly 4M shares in last week definitely say some people (probably never know me) found TFS undervalued and willing to buy it. Wish all value investors a highly profitable 2005!