In this post I talk about net nets. These thoughts also apply to stocks trading below net cash (market share < cash - all liabilities), below net current assets (market share < current assets - all liabilities) or below book value.
My philosophy is to buy only (marginally) profitable net-nets. Money losing net-nets usually continue to lose it until they have no more. There are some exceptions to the rule but not many.
Couple other rules:
- Avoid perennial net-nets. Usually if they haven't found a way out in 2-3 years, they never will.
- Definitely avoid biotech net-nets unless you know how to invest in biotech, which is completely other set of rules compared to regular investing. (Chinese medical companies don't count here, since they are usually distributors + nutrition companies, so they don't operate in USA biotech model).
- Avoid obsolete or near-obsolete technology net nets. If they could not figure out how not to become obsolete, they won't figure it out now. (There are some exceptions: KONG and HRAY did very well, but then they are Chinese companies with opportunities appearing even if tech is rather obsolete).
- Avoid distributor, 1-2%-margin net nets. 1% net margin IS the reason why they are net nets and they won't change.
Of course, with all these rules, you may guess how many net-nets I can find to buy. Right. Zero.
Sunday, August 23, 2009
Sunday, June 21, 2009
Mutual fund investing for active investors?
Active investors who pick stocks for themselves face a challenge when also investing in mutual funds.
On one hand, if you buy mutual fund that invests in the same vein as you do, then either you are acknowledging that the manager is better than you - and you should not invest yourself, or they are worse than you are - and you should not buy the fund.
On the other hand, if you buy a fund that invests very differently from you, then either you don't trust your own investing method and his method is better - so you should not invest yourself, or he is worse than you are - and you should not buy the fund.
I have invested in funds such as IIF, TDF, IGE, TAVFX and others. Looking at the stocks they hold... I would have probably bought very few of them.
One positive way to look at holding mutual funds is to consider areas where you want to invest. If you you don't have an expertise in one of these areas, then it may be worthwhile to buy a fund in that field and assume that its manager is an expert. This was my reason in investing in IIF and TDF. Another reason is when the mutual fund can buy securities or bonds not easily available for retail investor. It is becoming easier and easier to buy even international stocks directly, but some funds still have access to markets and securities not easily reachable by individuals.
On one hand, if you buy mutual fund that invests in the same vein as you do, then either you are acknowledging that the manager is better than you - and you should not invest yourself, or they are worse than you are - and you should not buy the fund.
On the other hand, if you buy a fund that invests very differently from you, then either you don't trust your own investing method and his method is better - so you should not invest yourself, or he is worse than you are - and you should not buy the fund.
I have invested in funds such as IIF, TDF, IGE, TAVFX and others. Looking at the stocks they hold... I would have probably bought very few of them.
One positive way to look at holding mutual funds is to consider areas where you want to invest. If you you don't have an expertise in one of these areas, then it may be worthwhile to buy a fund in that field and assume that its manager is an expert. This was my reason in investing in IIF and TDF. Another reason is when the mutual fund can buy securities or bonds not easily available for retail investor. It is becoming easier and easier to buy even international stocks directly, but some funds still have access to markets and securities not easily reachable by individuals.
Sunday, May 31, 2009
JNJ - the current gold standard for large cap stocks
JNJ is my current gold-standard stock/company. Why buy something else when you can get ~9% earnings/EV, consistent 25-30% ROE, 17-20% net margin, almost no net debt, great brand, great moat, great management, some growth, high expected return on multiple metrics? Any alternative investment needs to beat at least some of the qualities above to be considered at all.
For divvie players, it even has 3.6% yield. ;)
JNJ does not offer multibagger potential. However, it offers potential 20% return per year. It is part of my "safe" large cap holdings that also include PEP, KO, UL, WYE, NKE, MSFT, CSCO, and BRK. None of them offer multibagger potential coming off current levels.
JNJ has not offered high return in last ten years. However, ten years ago JNJ sales per share were 1/2 current, FCF and earnings per share were 1/3 current:
http://www.gurufocus.com/financials.php?symbol=jnj
So it is at least 50% cheaper than it was 10 years ago.
For divvie players, it even has 3.6% yield. ;)
JNJ does not offer multibagger potential. However, it offers potential 20% return per year. It is part of my "safe" large cap holdings that also include PEP, KO, UL, WYE, NKE, MSFT, CSCO, and BRK. None of them offer multibagger potential coming off current levels.
JNJ has not offered high return in last ten years. However, ten years ago JNJ sales per share were 1/2 current, FCF and earnings per share were 1/3 current:
http://www.gurufocus.com/financials.php?symbol=jnj
So it is at least 50% cheaper than it was 10 years ago.
When Buffett approach is preferable to Graham
I recently read through "The Cashflow Quadrant" of the "Rich Dad, Poor Dad" series. The book itself is not great, but it has a reminder of why Buffett approach to investing is preferable to Graham. Quote: "Are you a true business owner? ... Can you leave your business for a year or more and return to find it more profitable and running better than when you left it?".
This is what distinguishes Graham investing that is in the S quadrant (self employed, trading your time for money) to Buffett investing that is in B/I quadrants (business owner/investor, trading someone else's time for money). With Graham investing you have to follow the market. Not as much as traders do, but still you cannot leave for year or two and expect that things will work out. With Buffett investing, like he says, even if market is closed for 5 years, it does not matter. The businesses owned will grow and prosper to better results through this time.
This is what distinguishes Graham investing that is in the S quadrant (self employed, trading your time for money) to Buffett investing that is in B/I quadrants (business owner/investor, trading someone else's time for money). With Graham investing you have to follow the market. Not as much as traders do, but still you cannot leave for year or two and expect that things will work out. With Buffett investing, like he says, even if market is closed for 5 years, it does not matter. The businesses owned will grow and prosper to better results through this time.
Subscribe to:
Posts (Atom)
