Is Value Investing passé?

[Patrick]

See:

http://www.businessweek.com/investor/content/aug2008/pi2008081_172039.htm?campaign_id=rss_null

Observations, Opinions and Discussion appreciated!
Patrick

[petekoch]

This question is hauled out every several years. Like most things, Value Investing goes in and out of favor on a cyclical basis. If Business Week is asking the question, it just might be a good time to give value a hard look.

I always remember Newsweek's Death of Equities cover....

[joshuat]

Miller isn't a value investor in my book. He buys high PE tech stocks, for example. Of course, the article is "balanced" by offering a contrasting opinion about Miller. But that is like me writing an article about whether Warren Buffett is a belongs in the hall of fame, and then making the article balanced by pointing out he is not a sports figure. Meanwhile, the word's great value investors are doing fine. Buffett is back to #1, others are scooping up these value stocks at bargain basement prices, etc.

Oh no, everything is on sale!!! :)

For those wavering, recall Buffett's comments about the 70's. "I feel like a sex starved man in a harem" "a kid in a candy store", etc. Serious disruptions don't come along often, and this is when the value buyer makes life changing investments. Or hey, you can make the 3 day trades based on green arrows and crow about your 1 week returns that seem to have taken over this forum. Your choice.

I've said this before on this forum. In 20-30 years, this is going to be seen as a golden period for value investors. Ain't nobody going to be talking about Phil Town by then.

[Jenkmister]

Agreed that Value Investing, or buying a $1 or 50 cents is great when one has the opportunity. Seems Phil based a lot of his 3 arrows on this and the arrows are for timing once you have a solid company identified and valued.

FYI - speaking of the bigger picture, longer term paradigm; I made a trip to China a few months ago. My boss just returned from a week long trip to factories around China last week. Our impressions are very similar - China is going to be such a force that once they get quality control issues resolved , all other countries will have a VERY difficult time competing. Seems Japan went through a similar learning curve in the 1960-1970 when everything exported was very poor quality. Then Japan figured things out to basically took over the import car market - Toyota is now the leader worldwide in automotive sales?

Anyone doing international Value investing and care to share thoughts on China and/or Chinese companies? China has a huge surplus balance of trade, is buying oil - gas properties/companies worldwide, is now marketing rigs and all sorts of equipment to all parts of the world. So am going to focus on trying to find Chinese companies with growing sales, growing earnings, and VALUE as believe in 20 years they will continue to dominate.

Jenkmister

[Gunnski]

I have concerns re: lack of regulations regarding things llike the enviroment in China. I am not a tree hugger or anything like that. I have never been to China, I have heard stories from people who have been.

My "aha, hummm" moment was recently watching the updates on the Olypmics. Those people are chewing that air, not breathing it. What will be the long term effects on health care? Living & business conditions? What's going on with their water?

Will they retro fit those un-regulated factories, to become more enviroment friendly.

My concern(s) is that with their huge population, consumption (consumer products/staples), more vehicles and vehicle owners/buyers on the roads, (oil consumption) and what they are doing to their enviroment, there will be repercusions.

Common sense what dicate they cannot continue in this manner long term.

I have done some reading re: their financials. The banks may be is serious trouble for their lending practice (sounds familiar).

I just wonder if something will need to change, in their industrial revolution, hard in a Communist Country, for China to remain a progessive market of interest? Is it a ticking time bomb, card house? We'll need to wait & see.

The second industrial revolution

Shanghai has been the template for many of the developments
The biggest mass migration in the history of the world is under way in China, and it is creating what some are calling the second industrial revolution.
A massive building boom unparalleled anywhere is taking place - last year, half of the concrete used in construction around the world was poured into China's cities.

And the demand for these new apartments, office blocks and skyscrapers is coming from China's rural masses - people intent on heading to the cities along the eastern coastline of the country.

"In the next 25 years, 345 million people are going to move from the rural areas into the city areas, which is the biggest mass migration of people ever, anywhere," Guy Hollis, of international real estate agents Jones Lang LaSalle, told BBC World Service's Global Business programme.

"That's really what's driving the building boom. So when we focus on shopping centres and office buildings, it's actually residential that's the big driver, because they're urbanising.

"This happened during the industrial revolution in the last century in Europe, but we tended to do it over a 150 year period. Here we're trying to do it in 15-20 years."

'Release of repression'

One example of the extreme speed of this change is the new port at Qingdao, on China's north-east coast.

Four years ago it did not even exist. Now it is one of the biggest container ports in the world.

How China's cities are changing in the second industrial revolution

In pictures

Every day ships unload vast quantities of raw materials such as iron ore and oil - materials that are going directly into the building boom - and fill up with exports from the country's ever-expanding manufacturing industry.

Meanwhile the capital city, Beijing, is changing before people's eyes, with each new building battling the next for attention.

The city, awaiting the 2008 Olympic Games, is undergoing an orgy of construction.

On just one building site, Jianwei Soho, no less than 18 towers are being built.

"Under the 50 years of Communist ruling, there had been very little construction - so you had this incredibly repressed energy. When you open the lid, it comes out," said Zhang Xin, the co-director of the Soho City project - a town that will eventually house 50,000 people.

"That's why we're seeing cranes everywhere. It's quite different to when you see cities, even new cities like Hong Kong and Singapore, where there has been a consistent pace of development.

"Here it really is the release of a repression."

Mr Hollis emphasised that the pace of construction work in China has little precedent.

But he stressed that it was not just in China's famous cities that work was under way.

"There's more development going on in China than anyone's ever seen anywhere else in the world," he said.

"When we come to China, we look at Beijing and we look at Shanghai - lots of people from the outside do that - but what's actually happening in the hinterland is even more interesting.

"There's probably more development in Suzhou, which is two hours to the west of Shanghai, than there is in Shanghai at the moment. But we aren't necessarily aware of that, because not everybody visits those places."

Olympic boom

China has 22 "second cities", with populations of over 2 million. They are mostly located in the coastal belt or within 200-300 miles of it.

The Olympics have been the catalyst for Beijing's regeneration
In each of these cities are major developments, funded by both the government and foreign direct investment.

In Beijing, meanwhile, the Olympic Games - awarded to the city in 2008 amidst controversy over China's human rights record - has become the main focal point of redevelopment, although the decision to regenerate was taken before the Games were confirmed.

"All the development is targeted to modernise the city and basically have it ready for 2008," Mr Hollis added.

"The massive construction there is not just about the Olympics - which is of course a big part of it - but it's also about modernising the city and bringing it up to be a proper capital city."

The huge rise in demand for new buildings, fuelling the construction work, has been in part due to some changes in policy from the country's government.

Although China remains a Communist country, the pragmatic approach of its new leadership has led to, for example, a recently-declared policy allowing people to purchase a 70-year lease on their land.

Bank warnings

This has meant that people no longer have to worry about ownership of their property in their own lifetime.

"I would interpret that as transition - from the planned socialist economy to a market economy," Professor Wen Hai, of Peking University, told Global Business.


The new Chinese government is considered more pragmatic in its approach to capitalism
"I believe soon we will touch the issue, becoming permanent ownership instead of a limited time."

But there are warnings that the boom may not last as long as some are hoping.

Indeed, the pace of development is so fast that the country's government has now warned that it should be slowed.

China's Premier Wen Jiabao has warned that Beijing is readying "forceful" steps to cool the huge surge in investment.

In particular, there are fears that local banks are lending out too much money, and may be plunged into crisis if the apartments they are funding are not filled straight away.

As a result, China's Central reserve ratio - the country does not use interest rates - has been increased from 7 to 7.5%.

"I think there's concern in the banking sector - and certain in the central banking authorities - with regard to the amount of money being lent to the property sector," said Barry Livett, an EU adviser on China's banking system.

"There is concern that there is a speculative boom in property going on, with too much property coming online that cannot be let."

Dirty air and the Beijing Olympics
Published: July 30 2008 19:09 | Last updated: July 30 2008 19:09

The arrival of dense smog in both Beijing and Hong Kong in recent days has delivered a salutary fright to the organisers of the Olympics less than two weeks before the opening of the games on August 8.

Officials in both cities have tried every trick in their propaganda arsenals to play down the significance of the air pollution. They have blamed unfavourable weather conditions, which simply means there has not been enough wind to blow the pollution somewhere else. And, in the case of Beijing, they have pointed out that the pollution would have been even worse had they not taken special measures to protect the Olympics.

EDITOR’S CHOICE
Video: Long arm of party quashes new volunteer spirit - Aug-04FT series: China Beyond the Games - Aug-04Editorial Comment: A highly political Olympic games - Aug-03Comment: China needs proof of case for democracy - Aug-03In depth: Beijing Olympics - Apr-07Athletes gear up for smog - Jul-31These assertions are true, but provide no comfort. Indeed, the dreadful quality of Beijing’s air even after construction work has been halted, factories closed and vehicle traffic restricted demonstrates the severity of the environmental crisis afflicting modern China. Bad air threatens not only the short-term performance of Olympic athletes (who will in any case have left by the end of August), but also the long-term health of the entire Chinese urban population, not to mention the health of the planet’s atmosphere.

China promised a “Green Olympics” and has done much to try to achieve that goal, as acknowledged in a report released this week by Greenpeace, the environmental group. But Chinese leaders have also failed to recognise the extreme seriousness of the country’s air pollution and have favoured the appearance of progress over the difficult actions required to make progress real.

Hong Kong, a wealthy and autonomous city state whose tycoons have invested heavily in the polluting industries of neighbouring Guangdong, has done virtually nothing in the past five years to reverse the steady deterioration of south China’s air quality. On Monday, the city was shrouded in a brown miasma and suffered the worst pollution levels on record as it prepared to host the equestrian events of the Olympics.

Prompted by the approach of the games, Beijing has done more, including the investment of billions of dollars in new metro lines. Unfortunately, nervous party officials have also fiddled with air pollution measuring systems to produce illusory improvements in air quality, and have recently refused to provide essential data even to scientists contracted to advise the authorities on how to improve the air for the Olympics. They have accused foreign photographers of trying to make China look bad and resorted to the old Hong Kong lie that the smoke and dust in the air is “haze” not pollution.

The recent smoggy conditions show the folly of this mixture of secrecy and spin, because the thousands of visitors to Beijing and Hong Kong can see and breathe the air for themselves, and draw their own conclusions. Athletes and officials will understandably hope for more of the breezes that blew the smog away on Wednesday, but they have been duly reminded that while wind may temporarily disguise the crisis, it is not a permanent solution to one of China’s most pressing environmental challenges.

[npg]

All intelligent investing is value investing. No sane investor is going into a contract with the expectation of paying more for a security than it is going to be worth in the future.

Making distinctions of that sort smells of ignorance.

Ask Charlie Munger, he'll tell you.

[Straddle]

Depends on what you call passé. I don't think it's an investment style that most modern investment corporations follow, because it's too long term based, and therefore probably less popular for them.

[tombrown1]

Originally Posted by joshuat

Or hey, you can make the 3 day trades based on green arrows and crow about your 1 week returns that seem to have taken over this forum. Your choice.

I've said this before on this forum. In 20-30 years, this is going to be seen as a golden period for value investors. Ain't nobody going to be talking about Phil Town by then.

There's room for everybody. There is no shortage of value discussion on this forum.

I've said this before on this forum: There are a lot of ways to make money in the market - lots of TA and value people have made many millions over the years. Can we just agree to disagree and do away with the sniping?

[Gunnski]

A smart investor should just try and understand they compliment one another. It is not us against them. It should be a blend.

T.A. is the best way to manage Risk/Reward. Putting a stop on all of your investments at say 2%, 5%, 7% or whatever is crazy. Can you say "whipsaw"? The charts will show you where to maximize your investment. It will minimize your loses. Placing a correct stop is key. Then a trailing stop loss. This will not be in a company's finacial statement! Believe me in this mkt. you'll sleep much better at night!

Remember all that counts is PRICE! That is all that cashes in this casino.

Isn't this about not losing money? You are going to lose money in a trade! I do not care how good you think you are. It happens.

Take the tit out of you mouth, wipe your face off, (sitting around waiting for an MOS, that is probably not correct), have an open mind & start looking at both fundamentals & techinicals. This is big boy/girl school. That way you'll win.

[npg]

The point is that there are no value investors per se. There never have been. Read your Buffett.