Monday, August 31, 2009

Where is the Value?

A friend had commented recently to me that STI had moved up too fast during this short period of time and therefore, he decided to get out of the market as blue chips are now fully valued. According to him, he does not wish to consider mid/small cap stocks as they are risky.

I did try to change his way of thinking but he decided not to heed my advice.

The above is just one extreme. The other extreme is a group of punters who buy/sell small/mid cap stocks everyday for price movements.

I do not wish to be in any of the above two groups of extreme investors.

Of course, I agreed with my friend that STI is not undervalued anymore. The easy money had already been made. But that doesn't mean that one should not buy any more stocks. The value is now in the mid/small cap segment of the market, and that is where I had been adding recently.

As a value investor, your scope of knowledge in the market should not be restricted to only big cap stocks. You should have a wide range of companies under your radar, which also include many small/mid cap names. Companies in the small/mid cap segment are not necessary risky stocks, it really depends on your margin of safety when you purchased it and also using the diversification strategy to reduce single company risk at any one time.

Make no mistake. The value is now in the small/mid cap segment of the market. Pick the correct stocks and you should be rewarded if you are patient enough for Mr Market to re-rate them. Meanwhile, you will be rewarded with dividend from your holdings.



Blogger Everlearning said...

Hi ghchua,
I have been following the share price of Global Yellow Pages and currently the share price has dipped to 0.165 per share.

Does it mean that my share price value has depreciated? The rights subscription did not add any value to this stock, even it's price was discounted at the point of placement.

"Where is the Value?" Every investor has his/her perception of the stock he/she holds. From my point of view when the company continues to give dividends and functions positively then that is value. The share price can fluctuate and I remain vested.

12:44 AM  
Blogger David said...

Hi ghchua, I totally agree to your statements but however as a minor investor, I lack capital to invest regularly. This limit my capabilities to have a strict discipline to accomodate small/mid cap but to focus more on stability as well as quantity. Of course, it is also my wish to be able to invest just like you with a very wide diversity.

2:50 AM  
Blogger David said...

To Everlearning: I do not think that we should be concern about dipping prices if one is to invest in the long term.I suppose share price value should be evaluated by its book value in order we can determine its true value of a company.Since most stock prices are very corelated to company performances, we should expect prices to flunctuate especially when the market is very volatile. I believe ghchua's goal is to continue investing despite its market condition.

2:59 AM  
Blogger ghchua said...

Hi David and Everlearning,

Thanks for your views.

I think capital wise, as long as you invest regularly every month, a few hundred dollars is still ok. Plus, if you had built up your stock portfolio throughout the years, the dividend received from your holdings can also be re-invested every month back into your portfolio.

You see, the point about regular investing is to achieve time diversification. Also, one can slowly invest in different stocks every month, as some might be undervalued and some might not. The key is to re-invest into undervalued stocks every month so that your portfolio consists of undervalued stocks when you first purchased them. You have a margin of safety to play around and you should not be afraid even if the market turns against you.

I think you have been monitoring share price too closely. If you are positive on the outlook of the company, then you should hold onto your stock. After all, short term market movements are unpredictable.

Also, if you had participated in the rights issue, you will also receive some Global Yellow Pages warrants. Warrants do have value also, so it is not that the rights issue doesn't add any value.

3:32 AM  
Blogger Everlearning said...

Hi David and ghchua,
Thanks for sharing your views on stock investment with me.

Being a small-time investor and only in the market for about a year, there is much to learn when many issues evolve a stock invested.

Capital preservation is paramount in all my investments. Maybe, I am short-sighted about this particular stock because it oftens was my biggest loss in the overall portfolio.

Even warrants have value but dividends are not given out to warrant holders, am I right? I wonder what effect on the share holdings now that I am entitled to 4 warrants?

7:40 PM  
Blogger ghchua said...

Hi Everlearning,

The dilution of warrants only kicks on when warrant holders exercise their warrants and convert them to shares. Otherwise, there is no dilution effect.

Yes, warrant holders are not entitled to the dividend declared, but the warrant price might factor in the dividends that had been declared by the mother shares.

9:04 PM  

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A self-directed investor, looking to invest for retirement needs and bypass all those expensive financial planners/insurance agents. Investing is fun, profitable or most important of all, knowledge gained is useful for the rest of your life!

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