Interview with Matthew Seah (Part 2): Value Investing.

I prefer to have a more direct control over my money rather than letting a third party invest for me which usually results in subpar to market returns after fees are paid anyway.

So, although I invest in ETFs, I only invest in passive ETFs like S&P500 ETF and STI ETF where the returns are very similar to returns of the S&P500 and STI, respectively.

My investment approach when it comes to stocks is to pay attention to 3 Rs:

Right model
Right management
Right value

Investing in businesses which have all the 3 Rs has been very rewarding for me.

If you have guessed that I am a value investor, you are right.

Value Investing has been proven to be the best investing method, as can be seen with the phenomenal growth of Berkshire Hathaway, Warren Buffett's company.

Many people buy stocks after hearing good news about the stocks. They are just buying something which is selling at a higher price in the hope of selling it later at an even higher price, which doesn't make sense to me.




Value Investing is like shopping for stocks on sale. It would be more logical to buy stocks when they are at a discount and not when they have become pricier. This is about buying something at a price lower than its intrinsic value.

Another thing which is important to remember is to invest in companies which have some kind of competitive advantage over their peers. These companies tend to have a larger market share, and are more profitable in the long run. Therefore, they are likely to continue growing in years to come.

For someone who is new to investing, I would suggest being more cautious. What do I mean?

I tested some strategies through paper trading prior to real investing. When I started paper trading, I was more emotional and often closed my trades too early. Now, I hold on to my investments for a much longer period which has proven to be more profitable than short term trading.

Being stronger financially now also means that I am able to weather larger drawdowns to my investment portfolio without feeling too emotional. 

I will end by sharing this quotation:

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now." Warren Buffett

Related posts:
1. Warren Buffett: The greatest money maker.
2. Getting started in investing and trading.
3. Interview with Matthew Seah (Part 1): Financial Freedom.

Vard Holdings: Initiating coverage.

I have always liked the sound of the phrase "initiating coverage". It reminds me of some movies I watched before where a person in a war room would be standing ready to press a red color button while announcing "initiating launch sequence now". Quite exciting.

Well, talking about Vard Holdings might not create the same kind of excitement for some readers especially for those who have bought the stock at much higher prices. For sure, there is no paucity of BUY calls from analysts on Vard Holdings.

I remember replying to a reader a couple of months ago that we could see a rebound because of a positive divergence but with the downtrend intact, share price could go lower.

In yesterday's session, Vard Holdings' share price hit a new 12 months low of 83c. So, is share price at the start of a recovery today? This is a question I do not have the answer to. However, technically, there is no reversal signal. So, if share price should trend lower, it would not surprise me.

If it should trend lower, a critical support would be at 79c, the low formed in October 2011. Remember, this is what I see in the chart and it does not mean that it will happen.

Of course, there is always a possibility of a sharp rebound in which case, we could see a gap covering at 96c or a test of gap resistance at 99.5c.

Fundamentally, it is quite easy to see why there are so many BUY calls.

Doing a quick valuation exercise, at 83c a share, Vard Holdings does not seem expensive. In fact, it seems quite cheap now. I went through the numbers and its 1Q FY13 EPS works out to be 3.37c. Annualising this and using a PER of 7x will give us a value of 94.5c while a PER of 8x will give us a value of $1.08.  Why 7x or 8x? Well, that is the kind of PERs we are looking at with smaller yards like ASL Marine and Marco Polo Marine. 

So, at 83c, Vard Holdings is actually trading at an even lower valuation compared to smaller yards? Yes, that would seem to be the case from a price earnings perspective.

If we believe that the demand for OSVs is on the rise, then, Vard Holdings should be a logical beneficiary. However, we should bear in mind that although the stock might seem like a compelling buy, share price could weaken further. So, unless we are mentally prepared for such a possibility, it might be better to wait for clearer signs of a reversal.

After all, Vard Holdings did issue a profit warning due to higher than expected cost overruns at its Niteroi yard as well as higher than expected start-up costs at its new yard, Promar, which was what sent its share price diving.

Related post:
Marco Polo Marine: 1H FY2013.

Note:

Vard Holdings Limited ("VARD") will release its financial results for the second quarter and half year ended 30 June 2013 after market closes on Thursday 11 July 2013.