Valuation Methods
- When market is booming : People use optimistic evaluation method.
- When market is crashing : People use conservative evaluation methods.
This was said by Benjamin Graham, (a pioneer in aspects of Security Analysis since the 1930s) that still stands true today.
Accepting and understanding this mere short points can help investors a great deal. In other words, great deals are always to be found sooner or later. People change their methods of calculating the value of businesses according to market sentiments but the true business value is tied to its business.
For example;
A farmland acquisition scenario
Whilst looking for a farmland, you will most likely meet individuals proclaiming the great returns the land has to offer. And then will be some people saying the exact opposite. In the end of the day, if you spend some effort and probably money, you will be able to assess the returns you may garner over a reasonable amount of time.
If one were to bet on 2 individuals wherein one individual buys a land as a long term investment and the other individual buys a land merely to sell it at a higher price; over a longer time horizon; 5 years and above, an investment should yield better than a trade.
Putting that aside, Malaysia’s economy seems to be chugging along. Food & Beverage related businesses seem to have been able to weather the numerous negative business developments in the past year. Property sector appears to have slowed down however still maintaining high number of property transactions. Interestingly as previously recommended (purchase of agricultural property as a good capital investment), agricultural property has had good capital appreciations especially in specific strategic locations.
An interesting article with statistics on property transactions in Malaysia (2014-2015);
Note: Property investment typically is dependent on what the next owner is willing to pay unless the asset has its own business prospects and can be valued as a business. However, that is a crude way of looking at the property market. There are numerous other factors that drive the demand and supply of this type of asset.
U.S. stocks, on the other hand, are doing relatively well since the beginning of 2016; the Dow Jones going from the dip to 16,000 back to around 18,000.
In conclusion, it is suggested that less attention is spent on forecast and more on finding a company that has potential for many more years to come.
Until next time, happy value investing.
[DISCLOSURE: The writer has recently been involved in the acquisition of farmland.]
[DISCLAIMER: Everything stated in this blog is purely the opinion of the writer and any decision taken should be based on sound judgement with risks fully born by the decision maker. The writer shall bear no responsibility for any losses due to adherence of advices blogged by the writer or any commenters. Informational discrepancies are possible and will be corrected if any.]
First published on 31/05/2016.
First published on 31/05/2016.
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