Commentary, please?

Guys, Gals,

After keeping silent for a few days, some must be guessing whether I have gone more bullish or bearish. I have spent considerable time on my blog decoding the market sentiments. I am not going to misquote Buffett here. Buffett said two things they should teach in business school

(i) how to value a business

(ii) how to think about the securities and markets

The first part is easy. With a little practise and be willing to pick up a few books, we should be able to master it.

The second part is difficult, it's all about emotions. The ability to understand human behavior. There is no book available to teach you about this. It's about self confidence to think independently.

In real life, it's difficult to find perfect companies operating in a perfectly wonderful business environment. Somehow, they will have a few weaknesses, company specific or overall poor macro-level. I can share a few of them when I can find some time over the weekend.

As a prelude, my personal opinion is all about margin of safety. It's about how much discount Mr. Market gives me for each company he is willing to sell it to me. From there, I can decide whether I like the risk and the reward. Consider these three offers:

CoA - flat earning, low gearing, selling for 4X earning, 3X Cash Flow, DY 7%. Overall market is selling for 9X PE, 2.3X BV. Price has fallen by 60% from peak.

CoB - Growing business(23% CAGR for the last 10 years), moderately geared, selling for 23X earning, 7X Cash Flow, no dividend. Overall market is selling for 19X PE, 3X BV. Stock price has broke out from a new 5-year high.

CoC - Growing business(9% CAGR for the last 5 years), cash rich, debt free, selling for 15X PE, 7X Cash Flow, 5% DY. Overall market is selling for 16X PE, 2.3X BV. Stock price has been stucked in a narrow range of +/- 10% for the past 4 years.


How would you allocate your capital?