It seems for most of this year, many investors have waited for a stock market correction in order to be able to buy the dip. But unfortunately no correction has appeared and the global markets are in turbo charge mode hitting record high after record high. As an investor still in the asset accumulation phase of his life cycle record stock price levels are not good for me. I am in need of a correction in order to buy ownership stakes in a great companies at a cheaper price. Nonetheless, as I cannot tell when the next correction will appear, I continue to drip money into the markets by way of my monthly stock purchase programme.
October has seen opportunities arise in the consumer staples and healthcare industries. Many stocks in these categories have sold off as investors wan to put there money into more offensive sectors such as consumer discretionary and technology. As a conservative investor, this is good news to me as staples and healthcare are exactly the type of stocks I want to be buying. With this in mind, here are the stocks I bought in October:
- Imperial Brands – Bought 16 Shares at £31.30 each.
- Shire – Bought 5 Shares at £37.40 each
- Hikma – Bought 15 Shares at £11.65 each
All the above are just top-ups on existing positions.
Many regular readers will note that I have been persistently buying shares in Imperial Brands and Shire over the past few month. To me, these shares offer tremendous value on an absolute level and they become even more attractive when you look at other alternative investments which are highly priced at present. The third share I bought this past month is Hikma and I believe that this company’s shares are also valued at attractive levels considering the projected growth ahead of it.
So what is this value I persistently talk about in my writing? Here is an easy to understand example of finding value in an asset. Say I wanted to buy a 2 bed apartment in central London.
- If the price was £100,000 it would be a steal. It would offer great value.
- If on the same hand the same two bed apartment was £50 million, trust me, that would be way overvalued and buying it would be destructive to your wealth.
In each case presented above, the apartment, the quality of the apartment hasn’t changed. It’s the price that determines whether something’s a good investment. So you can’t invest without price.
When it comes to buying shares in businesses, I try and only buy them when they offer great value i.e. when I believe the shares are trading at less than their intrinsic vale.
As Ben Graham perfectly surmises “Figure out what something’s worth. Buy it at a big discount. Leave a large margin of safety between those two.”
Value investing seems to be left for the dead today. Investors are not paying attention to business fundamentals anymore and are simply investing based on momentum. History seems to be repeating itself as value investing had been left for dead just prior to the dot com bubble. The following is famed hedge fund investor Julian Robertson’s final letter to investors of the Tiger fund which was written on March 30 2000. Have a read of it, it seems just as applicable today as 17-years ago.
“In May of 1980, Thorpe McKenzie and I started the Tiger funds with total capital of $8.8 million. Eighteen years later, the $8.8 million had grown to $21 billion, an increase of over 259,000 percent . Our compound rate of return to partners during this period after all fees was 31.7 percent . No one had a better record.
Since August of 1998, the Tiger funds have stumbled badly and Tiger investors have voted strongly with their pocketbooks, understandably so. During that period, Tiger investors withdrew some $7.7 billion of funds. The result of the demise of value investing and investor withdrawals has been financial erosion, stressful to us all. And there is no real indication that a quick end is in sight.
And what do I mean by, “there is no quick end in sight?” What is “end” the end of? “End” is the end of the bear market in value stocks. It is the recognition that equities with cash-on-cash returns of 15 to 25 percent , regardless of their short-term market performance, are great investments. “End” in this case means a beginning by investors overall to put aside momentum and potential short-term gain in highly speculative stocks to take the more assured, yet still historically high returns available in out-of-favor equities.
There is a lot of talk now about the New Economy (meaning Internet, technology and telecom). Certainly the Internet is changing the world and the advances from biotechnology will be equally amazing. Technology and telecommunications bring us opportunities none of us have dreamed of.
“Avoid the Old Economy and invest in the New and forget about price,” proclaim the pundits. And in truth, that has been the way to invest over the last eighteen months.
As you have heard me say on many occasions, the key to Tiger’s success over the years has been a steady commitment to buying the best stocks and shorting the worst. In a rational environment, this strategy functions well. But in an irrational market, where earnings and price considerations take a back seat to mouse clicks and momentum, such logic, as we have learned, does not count for much.
The current technology, Internet and telecom craze, fueled by the performance desires of investors, money managers and even financial buyers, is unwittingly creating a Ponzi pyramid destined for collapse. The tragedy is, however, that the only way to generate short-term performance in the current environment is to buy these stocks. That makes the process self-perpetuating until the pyramid eventually collapses under its own excess.
I have great faith though that, “this, too, will pass.” We have seen manic periods like this before and I remain confident that despite the current disfavor in which it is held, value investing remains the best course. There is just too much reward in certain mundane, Old Economy stocks to ignore. This is not the first time that value stocks have taken a licking. Many of the great value investors produced terrible returns from 1970 to 1975 and from 1980 to 1981 but then they came back in spades.
The difficulty is predicting when this change will occur and in this regard I have no advantage. What I do know is that there is no point in subjecting our investors to risk in a market which I frankly do not understand. Consequently, after thorough consideration, I have decided to return all capital to our investors, effectively bringing down the curtain on the Tiger funds. We have already largely liquefied the portfolio and plan to return assets as outlined in the attached plan.
No one wishes more than I that I had taken this course earlier. Regardless, it has been an enjoyable and rewarding 20 years. The triumphs have by no means been totally diminished by the recent setbacks. Since inception, an investment in Tiger has grown 85-fold net of fees; more than three time the average of the S&P 500 and five-and-a-half times that of the Morgan Stanley Capital International World Index. The best part by far has been the opportunity to work closely with a unique cadre of co-workers and investors.
For every minute of it, the good times and the bad, the victories and the defeats, I speak for myself and a multitude of Tiger’s past and present who thank you from the bottom of our hearts. “