Thursday, June 28, 2007

General thoughts of market

True value investors see the stock market as a giant yard sale, at times there’s a fire garage sales going on, at times, the market is so fully or overly priced with the exception of one or two available at a humble discount. Prior to late last year, there were occasionally a few penny stocks on SGX that happen to be overlooked treasures. By today, even the last one that is extremely undervalued (based on the Graham method of valuation) a month back is gone – that was Lion Asia Pac, about a month back it was available at 17 cents and cash alone was covering its share price, yes, you heard that right. But such dusty diamonds are hardly, if even available today, are a lot harder to find now. It seems to be a generally fully-priced, or even overly, world out there. Perhaps this is because of the world is awash with cash. This is partly because of the low return rates otherwise provided by the banks. With the market as buoyant as it is right now, it turns out to be on the surface a no-brainer that putting money in the stock market would beat the return otherwise held in the bank. But with too much cash chasing too few assets, all stocks, good or bad, are pushed to a yet higher level without consideration for the risk involved.

With stock market prices going up, and yet even more cash available, the additional liquidity brings additional buyers, and some of the excess flows to other investment type of assets like properties, arts, and even ships and aeroplanes.

But fortunately, the world is connected and since the stock market is a giant yard, it covers the whole world of public companies. In the U.S., there are specifically a few large-cap, high quality companies that a value investor can gain an edge – like McDonald, Wal-Mart, P&G, Johnson & Johnson.

In addition, of all the big companies in the whole world, the most misunderstood and probably mispriced one is likely to be Berkshire Hathaway. Because of its large, complex, multi-businesses of which many has no synergy, offers no earnings guidance, has little Wall Street following, and once a year, you get to come to Omaha and get in line with everyone else to gain the same advantage by listening to the business progress, it seems hard to thus put a value to its business especially with no “professional” help from Wall Street.

Although many Wall Street analysts find it tough to put a value to its stock, the Berkshire’s annual report apparently makes that task simple and transparent enough. Each group of her business and some individually, are given with the essential information to put a decent valuation to each individual group of business.

If the world has run out of any undervalued stock, and even if Berkshire is fully-priced, or slightly over-priced, I would trust it into Berkshire as it is the safest stock that is sure to appreciate as time goes by with its quality stable of equities and businesses.

3 comments:

fishman said...

Hi berkshire!

notice you've been posting for awhile. Being busy? Looking forward to reading your next post!

Berkshire said...

Hi Fishman,

Thank you for dropping by. I was away on a trip. However, I'll try to post an article that examines the personality and basic character for some successful superinvestors over the weekend if I can.

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