Where is the Value ?

Today, I received a phone call from a good friend, who commented on my blogs. I am grateful he did. Proved that he is reading my blog. (Thanks, man) He said that I have misled my readers. Reason? He knew that I have bought some covered warrants of Hong Kong stocks and these shouldn't even in my porfolio as it contradicted with what I have kept emphasizing in my blog that I am a follower of value investing. In other words, he thinks that Chinese stocks and their CWs shall be considered as sort of "devils" and highly speculative stocks, and shouldn't be owned by any value investor...

He did have a point. I believe many people would have thought the same. However, before you move your mouse pointer to the "X" at the top right corner, and decided not to come back for good while calling me a "cheater" for not walking my talk, please allow me to explain my reasons:

Firstly, let me share with you some write ups on Value investing, which I have directly copied from the Wikipedia:
"Value investing is an investment paradigm that derives from the ideas on investment and speculation laid forth by Ben Graham & David Dodd in their 1934 text "Security Analysis". Although value investing has taken many forms since its inception, it generally involves buying securities whose shares appear underpriced by some form(s) of fundamental analysis. As examples, such securities may be stock in public companies that trade at discounts to book value or tangible book value, have high dividend yields, have low price-to-earning multiples or have low price-to-book ratios.
Notable proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value investing concept even further as his thinking has evolved to where for the last 25 years or so his focus has been on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price, this concept is important as you are actually buying into a business."

In plain English, Value Investing is buying an asset cheaper than what it's worth.

Back to defending myself, and the future of my blog:
1) There certainly are no strict rules that limit what companies, industries or countries that we can choose from. Although, there might be some ethical preferences, like some people will not invest in companies that involved in the so called "sinful" businesses like gambling, cigarettes, alcohol, prostitutions (yes, there is one listed company in Australia that is in this business) and etc; or others who prefer not to invest in companies that are against the human rights issues, or those who are involved in genocide related issues and etc. I have nothing against these principles, afterall the technology today have allowed us the exciting opportunity to invest in tens of thousands of companies world-wide, why are we afraid of running out of choices? Why are we limiting our options?
One example that I like to use: if one see good future in the automobile industry, and decided to invest in it. Is Proton the only choice? Hell no!! You can easily invest in Mercedes, BMW, Toyota, Porsche (in fact, the share price of Porsche has been doing quite well in the past few months) or whatever brand name you can think of. I must clarify, I didn't say that Proton is not worth invest in, I am merely saying that there are many more other choices. Point is, invest in whichever that give you the best value. Period.

2) So, thinking down the same road, does investing in Chinese companies considered to be speculative in nature? In my humble opinion, not all of them. There are still many businesses that are considered to be undervalued. Allow me to give another example: a folk favorite, Public Bank (again, I have to clearify that I have nothing against this bank).

Public Bank has long been considered to be one of the bluest chips in our own soil. Anyone who invest in Public Bank will be considered as a super conservative value investor without doubt. Why? People will give reasons like: it is well managed la, consistent dividend la, nice track record la, share price keep going up la and things like that. So, these all make whoever that invest in Public Bank a value investor? How if it is selling at RM20 today? still value investing? or how if there is someone who tips you that Public Bank will go to RM20 in one week, and without doing further studies, you jump in and buy it at RM11 now still considered value investing?
See, my point is, it's not what stock you buy that make you an value investor, it's the reasons behind. If you buy it because its undervalued or you see the potential in its future growth, then yes, it makes you a value investor. As Warren Buffett put it, "the highest risk is not knowing what you are doing". And to show my appreciation of having you reading until this part: if you see good potential in banks or financial industries, I would like to tell you that there are other undervalued stocks in the China and Hong Kong market that are selling at cheaper valuations compared to Public Bank. If you like strong and steady, HSBC Holding is a good choice. If you like growth potential, take a good look at ICBC and BOC. They are still reasonably priced and in terms of valuation, are still considered to be cheaper than Public Bank, in some ways. And in other criterias like track records, management and dividend policy, they did as well, if not better... hmm.. I might try to share some of my more detailed analysis later.

Oh well, hope I have said enough to convince you that I do have my own reasonings for what I am doing and I did not do it based on mere speculation. (have I?)