Your 2 cents are worth it\'s weight in gold going by the thorough analysis you do in your blog.
sgmusicwhiz.blogspot.com/
I agree with the concerns you outlined about issues with S-Chips. Balance Sheet strength for provides backstop for further erosion in price (although it did not work very well in recent weeks) or a floor. On your approach using Porter 5 forces model it is an excellent idea. I would add to that using Al Ries and Jack Trout positioning and focus strategies to identify companies that will continue to thrive even in a downturn. Ultimately, the barometer will be the financials of doing it right. In other words, if the company (brand) is managed well and position correctly they will do well and it will show up in the financials. Sometime this takes time but Mr Market is a very impatient person and will look not beyond 6 months. Once all the due diligence is made then you would probably arrive at a long term intrinsic \"value\" and you would then compare it against the current price to determine whether you do have sufficient margin of safety or that Mr Market is selling you the company at a real bargain. Right now of course almost every company seems like a bargain no matter what valuation metrics you employ. Even analyst who use to employ a PE of 18 times or PEG ration of 1.5 as a long term target has revised that to 3 times PE!!! Just a PE expansion will have companies (good or bad) trade at 5 baggers from current valuation. On the opposite spectrum, a raging bull market you have analyst justifying PE\'s above 50 times citing tremendous growth potential....(actually I\'m guilty of that too right now as I am buying a company in the Nasdaq with 50 times PE but that is another story) Well with all said and done, all we have is ourselves and fellow forummers to bounce our ideas, thoughts, etc. On a final note; Your blog site is excellent and your analysis very thorough; much more than I do.
Thsnks Gary Teh for visiting my blog and also your comments. MY experience with value investing is only about 2 plus years old and I admit I have much to learn from others such as yourself on valuations, markets, metrics and fundamentals. May I enquire what is Al Ries and Jack Trout positioning ? I have not come across that before during my readings or during my studies - it sounds interesting because you say it can be used in combination with Porter\'s 5-Forces analysis. I agree it\'s about managing a company right, definitely, but this downturn is unique in the sense that it is a banking and credit crisis so access to liquidity has been either cut off or severely curtailed. Even seemingly healthy companies have been starved of cash inflows due to problems with re-financing and this has made one wonder who the survivors will be after this entire crisis is over. Of course, one would argue that companies with strong net cash and fortified Balance Sheets should be able to tide through better than others with high gearing and frequent need for refinancing. I had the mistake of purchasing some companies with high gearing too, and have to learn that high borrowings are a risky proposition whether in good times or bad. If growth does not pan out as planned, the interest on borrowings can act as the final nail in the coffin. During the boom years, many companies borrowed heavily (China companies included) with promises of increased production capacity amid increased demand. Unfortunately, demand slump severely and many S-Chips have had to shut down their factories or postpone their plans, thus visibility has been greatly reduced for these companies. These companies had probably not been prudent enough to anticipate a prolonged slowdown and had the mistaken notion (as did the rest of the world) that China\'s growth engine would continue to function as per normal. To be exact, I do not compute an exact intrinsic value for the companies I invest in; precisely because businesses are so imprecise and dynamic that one cannot put a $-value to a company at any one point in time ! The way I analyze is that I take all factors into account (including PER, PB ratio and NAV if need be) and evaluate a company based on whether I would like to own the business for the long-term and whether I think the business model is viable for the medium-term; of course more recently I have learnt to scrutinize cash flows more intently and put priority on this. Dividends are the lifeblood of an investor and will sustain him through a severe bear market. Valuations such as PER (as I found out) are extremely subjective and they cannot be used in isolation - in fact this is tied very closely to the economic situation and so-called \"visiblity\" of business earnings. This is why so many analysts are not shy (are they ever !) in downgrading companies to 2-3X PER and even using Price-To-Book Value to justify their target prices. I\'ve always said that analysts act like Freddy Kreuger on Wall Street (not Elm Street) in \"hacking\" and \"slashing\" target prices. It\'s almost funny if it weren\'t so shocking..... Hope to engage you and others on such pertinent issues as time goes by. I have not scrutinized many of the Chinese companies\' Balance Sheets and Cash Flow Statements so I can\'t really comment on any good or bad ones.
Hi Musicwhiz, Al Ries and Jack Trout - do a search on google and you \'ll come up with their articles and comments on what makes a successful business. I have personally spoken to Al Ries and from a business perspective they are one of the revered business gurus in the branding world. Their first book - positioning is about how companies are able to own a word in the consumer\'s mind and that is probably the most powerful weapon in business. For example: Fedex = courier; Fast food = Mc Donalds; Nike; sports shoes; Coke; default drink and so on..many examples and I do not want to steal the thunder from their books. It\'s about owning a category in the mind and that my friend is the magic in marketing and it is what drives successful businesses. It applies to all businesses in the supply chain not only consumer but you get the message. The other book is Focus by Al Ries which goes on to explain why successful companies are the ones that are focus on their core strength and does not wane from the path and would finally own a category which is essentially the business moat. Of course there are other moats eg: monopoly or patent protection (means nothing in china) or cutting edge technology but the the book aims at highly competitive market and identify companies that seem to thrive even with a basic commodity product. Another word used is differentiation which many companies try to adopt but they simply fail becoz they don\'t even understand the word or meaning behind the word being different. Most are product focused which is not really sustainable in the long run. Differentiation starts in the mind of the consumer not the products and that basic rule is totally ignore by companies trying to win over market share. With positioning comes pricing power, outsize profits and market share even in the most mundane industry. It is not however the answer to all the ills of the corporation but it starts there. I apologize to those who reads this as if it was Greek but this is my interest and sales and marketing have been my playgound for my entire career although I graduated as an accountant and economist and also what I have been doing for 15 years in my career. As for most analyst out there most if not all does not have industry background and they are all number crunchers from the start and definitely no sales or marketing experience nor business experience. However said so I value their reports and detail financial analysis. Actually I would love to be an analyst (with a real difference) but I guess that it\'s a tad too late for me...maybe next life..
Do yourself a favour. Don\'t ever be an analyst in Singapore. There are a lot of young punks out there who called themselves an analyst. They are fresh out from school, with some basic knowledge in accounting and economic know-how and they started telling CEOs how to run their businesses. I laughed my head out during a lunch that I had with a CEO and several analysts. The CEO was clearly bullshitting about how good his company was in managing the crude oil hedge and the currency hedge. And the analysts were just sucking up all the nonsense dished out by him. Any analyst worth his salt would straightaway whack the CEO with his supposedly onshore and offshore hedging strategy. Many analysts don\'t understand that if you can understand the industry and the business model, the numbers will sort themselves out. They are so out of their depth in the industry knowledge, how a real company is run and the complexity of financial derivaties. A simple example would be the pharmaceutical industry in China. I read analysts\' reports about how Company A got 10 patents and how they will start commercial production within blah blah years and they will sell to blah blah hospitals within 1 year. If you visit China, you will know that to penerate a hospital, you got to \'say hello\' to the Hospital Principal first, then got to \'say hello\' to the depart heads and so on... All these \'hellos\' cost money. Unless you got your own sales people running on the ground for you, you can forget about selling in hospitals. That\'s why pharmaceutcal companies without their own sales people will find it so tough to grow. Simple knowledge, yet our analysts blur like sotong.
Hi Tony, As I said next life...so I have already done myself a favor... So we have analyst of whom we don\'t trust, brokers who care less unless you trade heavily, company management that spits out more b***s*** than an average drunk at the bar, the SIAS/SGX who will act only after the fact, my my are we all investors a totally ignored group... But then again it makes all this interesting, doesn\'t it. After all there won\'t be a market without us. By the way Tony are you in the medical or healthcare related industry??
