Hi Mr. Engineer!
Yes, frankly I do miss the detailed FA postings on individual companies which used to be found on another value investing forum (but which has since gone down); I learnt a lot from the "gurus" and experts there on FA, but there's always room for more growth, learning and improvement!
For assessment of companies, absolute price should not be the main factor; rather it is valuations which should come to mind to help an investor decide if a company was "cheap" or "expensive". A careful study of its business model and operating history cum performance can tell if the business has stable characteristics or wildly fluctuation fortunes, and gives an insight into the competitive moat and barriers to entry. Of course, like you said, the absolute share price is a major hindrance if one has limited funds, as one may only buy a small stake and will be unable to inject in significant funds for it to make a difference to your portfolio. That said, I do advocate having sufficient cash to purchase blue chips because they generally have a higher absolute dollar-value share price.
I feel that using a Company's "peak market price" during good times is not always a very reliable indication of how it will perform in future (in terms of share price, not business fundamentals mind you). First off, remember that companies like SIAEC pay dividends, and quite a lot of it too (it was 18c for FY 2010 and 20c for FY 2009, making it a total of 38c alone in 2 years!); therefore the share price should account for the payment of dividends. To give a very simplistic example - if SIAEC was trading at $3.00 BEFORE the payment of dividends; technically it should then trade at $2.62 ex-dividend ($3 minus 38c over 2 years). The fact that SIAEC continues to generate good profits and FCF means that the share price (based on valuations alone) may still continue to hover around $3.00, hence an investor actually "gains" through dividends even if recognizes no capital gains on his investment. To carry the example to its extreme, let's say SIAEC pays out $3.00 worth of dividends over X years, yet the share price is still $3.00, does it then mean that SIAEC is not trading near "peak price"? There is no way to objectively assess "peak price" if one takes all the dividends into account, I feel.
Secondly, peak market price may be either a function of market sentiment, or it may be a direct indication of the fundmental merits and strengths of a good business. The job of the investor, of course, is to find out which prevails at any point in time. If we were to look back (using hindsight, of course) at 2007 when almost all companies on SGX were trading at high valuations and all-time high market prices due to the bull run and associated (overly) exuberant optimism, then it will become blatantly obvious that SIAEC was trading at a high market price due to sentiment, rather than fundamentals. But the problem here is that hindsight bias is always at play when we look back at market price (through charts), and it will be impossible to understand the interplay of sentiment and fundamentals determining a market price into the future. My point being that price may be an indicator of either sentiment or fundamentals, or even both or a combination; and an investor has to studiously study the business to determine if said valuations are justifiable at any point in time, so that he has margin of safety and can preserve his capital.
Thirdly, there are also businesses which continue to grow and generate decent and healthy profits and FCF in spite of recessions and downturns. Notice that for SIAEC’s case, though profits of course had dipped with the recession back in 2008-2009, they continued to generate healthy FCF and most importantly, also went on to form more joint ventures with partners (a growth strategy in place since their listing in FY 2001). These new joint ventures are testament to SIAEC’s reputation and their long-term vision of growing the business through such strategic alliances. A business which is growing and expanding (albeit slowly) would eventually, in time, become more valuable and translate into a higher share price, ceteris paribus. It is thus important to keep a keen eye on the business which you intend to invest in, as eventually share prices will move along with the fortunes of a business. To me, SIAEC is a high probability event of being able to not lose my capital and also earn a decent return on my investment; to me the market is only irrational if it values SIAEC way above the 10-year average metrics of PER and P/B.
On your point about purchasing at “more decent timesâ€, I will point you to what cif5000 said in an earlier posting on this thread. He said we must decide the best way to deploy our (limited) capital at any point in time, after assessing the prospects of all investments which come our way. During the market lows in March 2009, I had my eye on other companies which I had researched; thus I did not manage to buy companies like MTQ, Kingsmen or even SIAEC more cheaply as they were not “on my radarâ€. Remember that in investing, I am essentially a “one-man show†or doing all the intensive research myself, and there is no one out there who will point me towards a good investment (because there is no free lunch in this world). Therefore at any one point in time, I focus my efforts on identifying one good company to invest in due to limited time and personal resources.
Finally, I would like to add that investing is not about comparing who has the better return, and I am never interested in whether I “beat the market†or not. As an aspiring value investor, I realize that absolute profits matter more to me than to constantly compare if I am doing better than either someone else, or the market indices. Of course, some may argue hey why not just buy an ETF and sit back and relax? But investing is a intellectual challenge for me and I relish it! The point is yes if I could turn back the clock I would have bought the companies I own now at much lower prices – then again it’s silly to assume they will ever see such market prices again in the near future. Since valuations are decent and not excessive, I have channelled my capital into these companies instead of holding on to cash, which will be eroded severely by inflation amid a low deposit rate environment.
Oh, and sorry for the long post!
