It has been a long tme since my last post Trading value for exceptional Value (Group) which in fact did turn out better than expected, as the company was bought out at a substantial premium. While it was sad to see this fine company leave the stock exchange, it did provide fresh capital with which I was able to buy some more very undervalued South African small cap shares, which have done well.
So in general, it has been a good period for Dividend Tycoon HQ. I should also mention, for the long time readers, that my Choppies (fast growing Botswana grocery retailer) saga has come to an end. The company was reinstated on the stock exchange. Initially I sold some and kept some, but of late have completely sold out. This was my biggest investing error to date, but at the end of the day I manged to get about 80% of my capital back, a deal which 18 months ago I would have jumped at. Never nice to lose money, but I count this as a victory.
Basically all my funds are in 5 stocks, all with strong balance sheets, all with P/E ratios under 5 when taking the net excess cash they have into consideration.
This leaves me with mixed feelings. On the one hand I have a portfolio that is insanely cheap, and I think it could easily double in value should things turnaround with the economy, or even if they do not as most are increasing earnings despite the economy. On the other hand it is like watching paint dry, growth in the South African economy is muted, and it is difficult to see a catalyst to re-rate these shares. Combined with that is that shares in other countries have been flying. Look at the Dow Jones and Nasdaq, look at the big tech names. I feel like I am being left behind. Maybe I am, seriously. My stocks will never grow like these companies.
However, what do I do at this juncture? Do I capitulate, admit I was wrong, and sell these cheap shares, and load up on Amazon, Netflix and Tesla? I feel this would be a mistake. At these times I always try to think of Howard Marks, and his assertion that a great business is not a good investment if priced too high, and a poor business can be a great investment as long as it is priced correctly. My stocks are good businesses, I personally think a few of them are great, but I definitely believe all are priced way too cheaply.
Rotation from growth to value
I have read quite a few articles saying that asset managers/investors are rotating from growth to value again. So for example selling Tesla for a retailer on a 10 P/E, or even a SA small cap on a 3 P?E, although I do not think they have thought of that yet. The point of this article is that they can only do this if we allow them to buy our cheap shares, and we buy their expensive shares to give them the funds to do so.
NOT bailing out the rich!
Investors in the right Nasdaq shares for example have made a fortune in the last few years, they have gotten rich out of these shares. This is not something to be jealous about, because they were correct in their assessment of where things were headed, and in the potential of some of these shares. Some of these shares though are very expensive on almost all metrics now, some would say they are in a bubble. I am not entirely sure. So, all I can control, is what I do now. One thing I will not do is bail out the rich, by buying these shares off them, and to add insult to injury, then go and sell them my insanely cheap small cap South African shares.
PS: I know that I as an individual am totally inconsequential in any of this, it is the collective principle I am writing about, what investors as a group may or may not do. My advice: Do NOT bail out the rich. But also read my disclaimer and make your own decisions, it might prevent you from becoming or staying poor..