Sunday, June 22, 2014

Attended my first investment seminar on Value Investing.

Yesterday, I was invited to attend BigFatPurse's Value Investing Mastery Course along with 15WW. It was a great course. 

I would like to encourage readers to give this course a try for the following reasons :

a) It's a great way to learn about investing for beginners.

When I first started out, I really did not know what I was doing with my money. I made myself go through about 3 years of intense study to get a Masters in Applied Finance and pass 3 levels of the CFA. My logic then was that I was'nt allowed to drive without a license, why invest without the requisite knowledge ? 

The tuition was very expensive and I burnt a large part of my youth to learn about money.  

For beginners, you can pick up the basics of value investing in just one day. Alvin of BigFatPurse took great pains to customize a local flavor of the Benjamin Graham style of value investing which can be taught to an investing newbie without nothing but a calculator.

b) The course has substance.

BigFatPurse's magic lies in their ability to make a complicated concepts simple enough for anyone. Attendees are not taught basics and then left to flounder in the markets. They are given a fairly substantial walk-through of a company's accounts so after that course they can go through a financial report and make a judgement call on whether a company is worth a buy. 

A much more difficult variant was shared in Benjamin Graham's Security Analysis which many CFA candidates struggle to understand even today.

c) BigFatPurse even had a 3 year stock simulation game.

The highlight of the class was the investment game where we employed concepts learnt to make bets on anonymous stocks in the stock market. The market returns in this exercise was taken at a specific point of time in the local markets. 

It is this segment which makes the entire day worthwhile and demonstrates the honesty and integrity of Alvin's team. Following the investment rules will not necessary bring in the best returns, a lot of stocks go up for no reason other than luck. Team which followed the methodology did not necessary win the investment game. 

Myself and 15WW, both with substantial personal portfolios, drastically under-performed the class, many full of beginners.  It was humbling experience. 

d) The course complements Dividend investing methodology

A lot of investors like myself are stuck in the dividend yields framework. This class employs classic value investing, buying dollars for pennies. Many of these stocks would not qualify as dividend yield stocks, so having this technique under your belt will allow you to diversify your portfolio. 

e) Value investment course providers are the good guys in the investing world

Throughout the course, I did not experience any nonsense which inflates investment returns to get everyone excited about investing. Alvin only started selling his membership program only after everybody learnt all the basics and completed the investment game, he did not show off his wealth and emphasized that training was provided so that he could earn more capital to build on his portfolio. 

There are some parts of the course which I felt could be improved. One aspect is that dividends would need to be accounted for even during the simulation exercise. Dividends are an important part of an investment process and dividend stocks which are also deep value stocks do exist in the market. If dividends were reported every year, it will change the behavior of course participants.

The other aspect of the course which merit a spirited debate online is that it gives a special emphasis on the value of property over other assets like plant equipment. The question is whether property would be consider a productive asset if property prices become bearish over the long term in the future. Plant equipment sometimes are directly responsible for the generation of free-cash flow so I'm not so certain that the technique should consider it an "inferior" asset to property.  

Anyway, I think that overall, a beginner should attend this class. 

If you are one of those folks who asked me to help manage your money, why not attend this course and seriously consider their membership tier ( which would be quite useful if your portfolio size exceeds $250,000 ). There is some personalized coaching that will help you help yourselves.  

This is a hallmark of a good course provider, I expect anyone who gains insight on value investing would probably want to keep it a secret. BigFatPurse is taking a big gamble on the Singapore consumer that it will be more profitable to share this knowledge. I wish them luck !

( Disclaimer : BigFatPurse invited me to attend the class for free. In return, I gave them two of my books. BigFatPurse was also very kind to share with me their in-house customized database which was created manually using data direct from financial reports - this is hundreds of man-hours of effort ! My motivation right now is to employ this data-set and do some of my magic in R and share them with Alvin. Over the next few weeks I will also proxy their methodology and back-test the results on this blog. )




4 comments:

Alvin said...

I was very hounoured to know that you have not attended any seminar on value investing, and yet, you gave your seminar virginity to us!

Really appreciate your kind review of the course too!

If I may, some of your readers may wonder what course you are talking about, I am shamelessly including this link for them to find out more: http://www.bigfatpurse.com/vimc/

Alvin said...

It is indeed debatable about the property value. We do consider the valuation date and apply a discount to property value as a margin of safety when appropriate.

Regardless, there is no perfect strategy. All have its pros and cons. :)

hyom hyom said...

I did not attend Alvin's course but have the privilege of reading through Alvin's course materials. Hope both of you do not mind me joining in the discussion.

Given that Alvin's course focuses on a technique known as net-net(buying stocks below two-thirds of net current assets) to students of Graham, the stocks which meet this criteria are usually very cheap stocks based on the discount to book value. The reason why they are so cheap is usually due to recent poor profit growth or even losses. If not, it is highly unlikely that the stock will be battered down to net-net levels. Fortunately for these stocks, the downside is protected by a rich asset base accumulated when times were better.

The question is what kind of assets will be more relevant for these asset plays? Plant and equipment or property? As Christopher has mentioned, plant and equipment are directly responsible for generation of free cash-flow. However, if the company is facing a period of slow growth or losses, much of the plant and equipment may be idling and suffering from a low utilization rate. Besides, the value of plant and equipment can only be reaped in the hands of people armed with specialised knowledge to operate them. In the event of liquidation, it is hard to find such buyers. If it is a fire-sale and the seller needs to find such a buyer quick, plant and equipment is going to be sold at ridiculously low price. On the other hand, real estate is useful to everyone and the price is unlikely to go down as much compared to plant and equipment. Therefore, if an investor wants to count on downside protection, property is superior to plant and equipment. Another advantage to property is that it is easy to value and hard to defraud. This reduces the risk of an investor getting his valuation wrong.

Plant and equipment is more relevant to companies on a growth path. But for such companies, the investor should be analyzing them as growth stocks. They are unlikely to be a candidate that falls under Alvin's net-net screen.

Christopher Ng Wai Chung said...

Hyom hyom,

You are most welcome to post here.

Thanks for straightening out my doubts. I agree with your take on assets.

Regards