Good advice
tokyogai
7/21/2011 8:41:20 AM
This is really good advice and points out key things to look for in value investing. Long term it really works ( not 100 years ) and it beats trying to time the market. My only caution is to make sure that you have discipline and not be swayed by a short term blip that could cause angst.
Tony,
In this last bull market off the low in 2009, small-cap has greatly outperformed large cap and growth has outperformed value. Do you think that's going to change? It seems that value stocks have been largely left behind, especially large-cap value.
--Scott
Re: Good advice
TonyKau
7/22/2011 12:35:30 PM
Scott--
Whenever I've looked at performance long term, I've seen all types of asset and equity classes fall in and out of favor. It's almost cyclical. Today's losers are tomorrow's winners. Growth wins for a few years, then value takes over for a season.
Same goes for Small Cap vs. Large Cap. Found a nice article/chart explaining some of what we're seeing and how Large Cap looks like a good opportunity right now. http://seekingalpha.com/article/246348-small-cap-vs-large-cap-is-bigger-better
Re: Good advice
Phoenix
7/21/2011 11:58:21 AM
Yes I really like the way you have provided very useful information. Panic selling as you say would help you buy good stocks at a good rate. This is an instance where you have to keep your nerve and do a good analysis before actually committing to it.
I really like your advice about waiting for a winning stock to take a one time hit before buying. I have had this thought in the pass, and offten find that I have been a tad too gun shy and missed my opportunity to buy in at the lower price. I have caught a few decient ones but feel that i missed out on the majority by beeing too sheepish.
Re: Gun Shy
Phoenix
7/21/2011 9:25:55 PM
I guess being a bit risk averse may have cost you some good buys. But looking at the erratic market changes taking place now on a daily basis who can actually blame us? But I guess this advice would make us think twice about our risk tolerance and make new boundaries. What do you think?
I think you are correct, Tony brings up a lot of good points, and I know that i can afford to take more risk then i do, its just getting myself to actualy do it. Sometimes by the time i think it all through and decided its a good time to buy, I might have missed the opportunity. It is deffinatly something i need to work on, but baby steps seem to be the rate I am moving at.
TelecomFreq,
I made the same mistake. It could be a common issue for some of us from tech root. Hehehe... I probably need to work on it as well.
The toughest part is the psychology
Value Hiker
7/22/2011 1:03:17 PM
Tony:
The method you explained sounds easy, but in real world it is hard to do. The toughest part is that sometime it is hard to know the once glory firm who was in a short term trouble can really recover from a failure. Even for the same company at different stages, it is hard to say.
Take example of Nokia, it is a legendary firm in mobile industry, then between 2003-2005, Nokia was beaten down by Motorola's RAZR phone. It looked to me was a short term event, and Nokia did come back nicely between 2006-2007.
Starting from 2007, Apple jumped in smartphone market with its iPhone, from there, Nokia fell over the cliff, it lost more than 80% of its market cap, still struggling even today.
In rear mirror, it is easy to say the RAZR impact is short term, while iPhone impact is long term. But how can you tell the difference at the time when the event showed up.
For me, it is very hard to tell.
Re: The toughest part is the psychology
TonyKau
7/22/2011 1:26:30 PM
I agree, VH, it is a tough discipline. Apple has proved time and time again to be a dynamic market-changer. It's difficult if not impossible to compete with them successfully. I suppose the difference in your example is that the Motorola Razr was a phone with a different shape, or, at best, a "better" phone. The iPhone is hardly a phone, but a computer/entertainment device with the added functionality of making/receiving calls.
If Nokia had an answer to this game-changer, it would have faired much better, but, obviously in hind sight, we see it didn't. The most important part in my mind, is that Nokia's stock even kept pace with Apple's through 2007 (iPhone was introduced Jan. 2007). Nokia investors had an entire year to watch it play out before they would have sufferred any relative losses.
How do you sort the buys from the sells?
Re: The toughest part is the psychology
Value Hiker
7/22/2011 2:25:34 PM
The weird part of Nokia's example is that during RAZR crisis, Nokia management team did not response to the consumer's craziness for super thin flip-flop phone. They insisted on selling their candy bar phones. Somehow, Nokia got away with the decision.
In 2007, facing the competition from Apple and RIMM, Nokia did try to change its business model, it gave away the Symbian OS, acquired naviteq, and opened the Ovi store. All the changes made no difference.
Of course, if Nokia adopted the Google Android in 2008-2009, it had the best chance to counter attack Apple. But the time was wasted.
My feeling is that in investment, it is hard to say which strategy always works. At best some strategies have better probability to win than others
I'd say a mixture of growth and value stocks is important to have. Consumer electronics investment has become an arena where it's impossible to keep up. Especially where information architecture can be deployed so rapidly, investing with the facts on your side can be futile to attempt.
In my opinion this industry is where growth, first-mover players are to be tapped. In Apple's case, the innovation in large part was a management fusion of talent in engineering and marketing divisions of the computer maker. That the product development leadership resided in the CEO himself is a major reason Jobs' health is a perplexing variable in the investment community.
Can companies with value stocks be found among the phone makers? Firms that approach the business with a commodity model in mind may have good value prospects if their operations management is skilled and energetic--again, hard to discern as an outsider.
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