Value Investing Summit (VIS) was a two day-exclusive conference which delved into the hidden beauty and intricacies of value investing, how it worked, and how it can work for you. Despite travelling all the way from the west to attend VIS which was held at the Expo, the wisdom shared by the distinguished speakers was immeasurably more valuable. Here are the 4 key nuggets I picked up over the course of the 2 days that will be etched at the back of my mind for the rest of my value investing journey:
- Omission Error
This error was brought up by Koon Boon Kee, chief investment officer of 8i Investment Holdings. In value investing, certain times we come across certain good companies with extremely strong moats, a good business model and astute management. The only problem – Valuation is not right, being priced too high from its intrinsic value. This was the case for one of the biggest misses by 8i Holdings, where they missed out on the lion’s share of returns by giving Lion Corp (TSE:4912) a miss back in May 2015. It has more than doubled since within a short span of 1.5 years.
The key lesson he wanted to share could not have been put more nicely by the Oracle of Omaha himself: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” As such, opportunities only come to those who are willing to take action, even if the timing might not appear to be the best. (i.e priced a bit too high)
- Finding the hidden champions
What makes a great company?
- Extremely successful yet low profile
- Top 3 global or domestic market leadership
- Innovative champions in sophisticated, hard to imitate niche products and valuable critical niches that are largely invisible to the average consumer yet indispensable to our daily live
- Resilient in their core business like market share and know-hows VS diversifying to other businesses like property or investments
Why is it good for us as investors?
- De-correlated returns
- Lower volatility compared to market
- Overlooked and underappreciated – (cheap value opportunities)
- Scalable business model with long runway for compounding.
Case studies of such champions shared by Khoon Boon himself would be Paiho Group (TPE: 9938), a Taiwanese manufacturer which supplies touch fasteners, shoelaces, Velcro, to major shoe retailers like Nike and Adidas. These hidden champions are not well publicized but has had enormous growth over the years due to the sustainable and growing B2B (Business-to-business) partnerships with their customers, who happened to the major players with massive and recurring orders.
- Determine the critical driving factors within each business
Mr. Muhammed from Dark Horse Capital, shared with the audience the huge importance in finding out what are the true drivers of a particular business that really matters. Often a time, a business has several business segments with multiple “key drivers” that analyst and investors dwell on. However, he feels that most of it is just noise. The important thing finding what actually drives mispricing, which usually boils down to 2-3, or sometimes even just one main driver that really impacts the business’s profitability.
As such, he urged us investors to always strive to be the top 5% of people with knowledge on the company so that we can have a clearer picture on how the company will perform in the upcoming reporting quarters. Being an expert in a few stocks rather than an amateur at many will allow you to enjoy and appreciate the volatility when the market misprices because you have done good homework before hand and know what a company is worth to you, rather than what the market is saying.
- Avoiding the lemons at all costs
Said by non-other than the legendary Sid Choraria himself, VP of the APS Asset Management hedge fund who has won several stock picking competitions on websites such as Seekingalpha and Sumzero. He firmly believes that the key to sustainable and successful investing is in avoiding the lemons. 1 bad loss can equate to 4 wins. So essentially, the point he was driving at the whole time was for us to be willing to swallow up the financial reports, to know exactly where and how the company generates revenues, and uncover the red flags, if any, that that might hinder the company’s growth going forward.
He proceeded on to touch on how 90% of the analyst in hedge funds that have gotten lazy and become extremely dependent on sell-side research and investors meetings for information, lacking the discipline to really run through the financial reports and make a picture of how the company is really doing, rather than what they proclaim to be doing. With that in mind, each of us has a fighting chance to become great value investors as long as we are willing to put in the hard work to find our hidden gems in the stock markets.
Here’s a bonus video of Lauren Templeton who is the Keynote speaker for VIS2017.
The write Hongyu is an investor whose journey with money started when he was on a lookout for a strategy that brings sustainable returns.