Wolf Money(book recommendation)
The book ‘The Case For Long-Term Value Investing’ by Jim Cullen on surface looks like a boring book with alot of boring data and statistics for a hard read. To my surprise the author with his illustrations of graphs and charts made it a much lighter book to read. As a value investing practitioner myself or at least trying to be one, this book help to sharpen my thoughts on things to look out for when hunting for value stocks. Two sets of data stands out. Portfolio return on stocks with low p/e and high dividend yield beats high p/e and low yielding stocks by a wide margin over a period of 5 years and beyond. I have long suspected value investing is the alchemist formula to investment success. The book has vindicated my suspicion value investing works! Hours spent reading annual reports didn’t turnout to be a futile exercise.
The author gave some very compelling examples by picking stocks with the cheapest 20% by valuation and top 20% by dividend yield. Stocks average a return of 6%-30% annually over the course of 20 years from 1971-1991 even for a challenging twin decades for the market. Stagflation, high interest rate environment and oil crisis in the 70s, the deepest recession in 40 years and the biggest single day crash in 80s and the first gulf war in early 90s hasn’t stop low p/e and high dividend yield value investor from making good gains.
One of the worst cardinal sin as a value investor is to time the market. The author gave an example of two very knowledgeable clients under his management in 1985 having two very different set of return due purely to market timing. Client A stayed fully invested for 20 years and Clients B switching into cash 5 times over the course of 20 years due to risk aversion in response to various negative events like 9/11. The result is shocking. Client A had a return of more than 1500% and Client B had a return of 520%. Client A is the clear winner here with 3x more return, sometime doing less is actually doing more in the stock market. Food for thought.
The author coined the idea of a three point fix which he learned from his days in the Navy. If the ship is fogged while trying to enter the harbour, the chance for success is good if there is a bearing like a lighthouse. If the Captain get a second fix like a flashing buoy that dramatically increased the chances of a successful entry. If the Captain can get the third fix that would virtually guaranteed success. First fix in stock market term is low p/e, the second fix is a strong story and finally the third fix the stock is oversold relative to the market and momentum for the stock is starting to turn up.
I personally like the book as it was written by a practitioner of value investing. I would encourage people who are exploring value investing as an anchor for their investment to read the book. The book goes onto Lone Wolf recommendation list for it simple to understand concept and charts. Happy reading!
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All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.
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