In boxing, switching stances during a fight is a high risk high reward move; it could throw off your opponent, or it could leave you vulnerable. Just like my style of investing, recently I’ve felt like I’ve switch from searching for “cream of the crop” and resilient value stocks to a more deep value one.
I’m not implying that these 2 are the only styles of value investing, but these 2 philosophies are similar yet different all together. The cream of the crop investor looks for market leaders with moat and is satisfied with consistent growth and high probability of success like Okamoto Industries and Vicom Ltd. Whereas the deep value investor seeks unloved stocks like Scorpio Tankers and Pacific Century with a high upside but it comes with a lower probability of success.
Of course, ideally the cream of the crop investor would look for the most undervalued opportunity but it is harder to do so at this age where information is at everybody’s fingertips. A “pure” cream of the crop investor would have a portfolio of quality companies where the “pure” deep value investor would have a basket of high potential return plays.
I find myself a hybrid of the two, while investing in quality makes common value investing sense, sometimes searching for deep value is pure excitement. Furthermore, “training” both stances would make your game more complete and effective.
My kind of deep value investing is a little different. Aside from comparing the price of a stock for what its worth according to the few common ratios, P/E, P/B etc, I would take advantage of the long term view of how the underlying business would play out in view of some potential catalyst. For example, I was looking at the beaten down spot market price of uranium recently and found that it has some potential to return to a more rational level in a few years time if the ducks are all lined up in a row.
Keeping your opponents guessing your moves and be on the defensive while you wait for the moment when you deliver the knockout blow, be it from a left hook or a right punch. I felt like in the current situation we are in, the uncertainty of the global economy and the unrest throughout the world, it would be wise to stay nimble on your feet while you wait patiently for the golden opportunity.
PS. Sorry for not writing more, as the number of projects I manage increases, it gets harder to squeeze out the time to write. Hopefully things will get better in the coming weeks.