This is the editorial of our monthly Quant Value Investment Newsletter published on 2024-04-02. Sign up here to get it in your inbox the first Tuesday of every month.
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This month you can read my best ideas on how to manage the firehose of investment information we all try to drink from daily.
But first the portfolio updates.
Portfolio Changes
Europe – Buy Two
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a growing German specialty chemicals supplier trading at Price to Earnings ratio of 10.8, Price to Free Cash Flow of 7.2, EV to EBIT of 7.7, EV to Free Cash Flow of 8.1, Price to Book of 2.3 with a dividend yield of 2.9%.
The second is a dirt-cheap, fast-growing UK manufacturer of chains, gears and couplings trading at Price to Earnings ratio of 4.9, Price to Free Cash Flow of 4.0, EV to EBIT of 4.5, EV to Free Cash Flow of 6.2, and Price to Book of 1.5. No dividend as the company is repaying debt from an acquisition.
North America – Buy Two – Sell One
Two new recommendations this month as the index is above its 200-day simple moving average.
The first is a nearly unbelievably cheap US listed owner and operator of dry cargo and tanker vessels trading at Price to Earnings ratio of 3.0, Price to Free Cash Flow of 2.3, EV to EBIT of 5.9, EV to Free Cash Flow of 5.1, Price to Book of 0.5 with a dividend yield of 0.5%.
The second is a small, undervalued US fabless semiconductor company (listed in Japan) trading at Price to Earnings ratio of 9.1, Price to Free Cash Flow of 7.5, EV to EBIT of 5.4, EV to Free Cash Flow of 4.5, Price to Book of 2.2 and it pays a 5.7% dividend.
Sell One
Sell BlueLinx Holdings Inc. at a profit of +91.6% as it no longer meets the portfolio’s selection criteria.
Asia – Buy Two – Hold Two
Two recommendations this month as the index is above its 200-day simple moving average.
The first is a growing, debt-free (cash equals 46% of market value) Japanese construction company trading at Price to Earnings ratio of 9.7, Price to Free Cash Flow of 12.2, EV to EBIT of 3.8, EV to Free Cash Flow of 6.6, Price to Book of 1.1 with a dividend yield of 2.2%.
The second is a growing Japanese pump manufacturing company. It is currently trading at Price to Earnings ratio of 7.5, Price to Free Cash Flow of 12.9, EV to EBIT of 4.7, EV to Free Cash Flow of 10.0, Price to Book of 0.9 with a 2.2% dividend yield.
Hold Two
Continue to hold Shaver Shop Group Limited +15.5% (recommended April 2022) and Food Empire Holdings Limited +37.6% (recommended April 2023) as they still meet the portfolio’s selection criteria.
Crash Portfolio – Nothing to do
No new Crash Portfolio ideas as most markets have recovered.
To date the 15 Crash Portfolio ideas, recommended between August 2022 and May 2023, are up an average of 33.1%!
How to Navigate the Sea of Investment Information
Finding the most relevant unbiased investment information can seem daunting, with a sea of information and opinions we navigate daily.
To help you make informed and confident decisions, here are some practical tips I follow, and may help you:
Take a Breath with Breaking News
Rapid news updates can be overwhelming and not always accurate. It's wise to wait for in-depth reports that have all the facts straight.
Think of it as giving the news time to 'bake' properly so you can enjoy the full, rich flavour of well-researched information.
Go Straight to the Source
When looking for information, try to get it from the primary source, like the company’s investor relations website, Reuters, or the Associated Press. It's like hearing a story directly from a friend rather than second or third hand. You'll get a clearer and more accurate picture.
Also do this if you read about an investment strategy. Research papers are sometimes hard to read but you get much better information even if you even just read the abstract on the first page.
Reading is Better Than Watching
Reading lets you control how you absorb information, and if you are like me, you can skim read.
It also allows you to take your time, go back over details, and really think about what you're learning.
Explore Various Perspectives
While it's good to have trusted mainstream sources, exploring a variety of viewpoints can enrich your understanding.
Just remember to double-check facts.
It's like sampling different cuisines; you'll discover new favourites, see different points of view, and broaden your palate.
Be Mindful of Bias
News can lean a certain way, influencing how you see things. Look for sources that stay neutral and provide balanced views, ensuring you're getting the full story without bias.
This also means be careful of news platforms that support your biases, politically or favouring only a certain investment strategy.
Understand the Role of Money
Recognize that financial motives influence the news you see. You see this a lot with sensationalist or click-bait titles on free news portals paid mainly through advertising on the website. Always think of who and how the bills are paid of the source you are reading.
Look Beyond the Hype
News outlets often amplify stories to attract attention.
Ask yourself if the story is as big as it's portrayed. Doing this lets you focus on what truly matters.
Stay Sharp to Propaganda
Be aware of information that tries to sway opinion with biased or misleading content. Developing a keen eye for this can help you maintain a clear perspective.
Mentioning the other side of the argument helps. If this is missing, you are most likely on a biased news source.
Know About Censorship
Some information may be hidden or altered due to political or financial reasons. Keeping this in mind helps you stay alert to what might be missing.
This goes back to checking original sources of information, mentioned above.
Trust Experience Over Name
Choose your information sources based on their track record of reliability, not just their brand name. Consistent accuracy is a better indicator of trustworthiness.
Expand Your Horizons
As you know enhancing your understanding of the world can make you a better investor. The more you know, the better equipped you are to navigate the complexities of investing.
For example I also started reading a bit of the English versions of good Japanese (The Japan Times) or Hong Kong (South China Morning Post) newspapers to get a more balanced view of the world.
I hope these ideas help you. Remember, it's not about being perfect but about becoming more informed about your reading.
Reading recommendations
Are you feeling hesitant about investing with the market at all-time highs?
In the article "Record Highs…But We’re Still Excited," GMO’s Asset Allocation Team says it might be a golden opportunity.
The article offers an intriguing perspective that I think could really benefit you.
They argue that despite the high indexes, there's a wealth of undervalued assets and attractive valuation spreads across asset classes right now.
Key takeaway for you:
Despite strong gains in equity markets last year and year-to-date as well as indexes sitting at all-time highs, we are extremely excited about the investing landscape from an asset allocation perspective. An abundance of cheap assets underpins this enthusiasm from an absolute return standpoint, while appealing valuation spreads within asset classes present us with the best relative asset allocation opportunity we’ve seen in 35 years.
In the article Can Japan Continue Its Strong Run? Jeff Atherton gives the reasons for his positive perspective on the Japanese market.
If you've hesitated to dive into Japanese companies recommended so far this article might just change your mind.
Here's what you should know:
Jeff gives three compelling reasons to be optimistic about Japanese equities:
- Japan's effective approach to combating deflation,
- Significant strides in corporate governance, and
- Its appealing valuation against the US market.
These positive changes suggest an attractive investment landscape.
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