Bernanke baseball analogy applies to value investing too

Ben Bernanke just wrote an opinion article on Wall Street Journal on how a baseball team performed wonders despite of injuries under a far-sighted coach. He exhorted Washington D.C. to learn from this team winning ways.

He wrote:”The point is that Davey fully appreciates the importance of making decisions based on factual evidence and rigorous analysis. He strikes the right balance between relying on the tangible (data) and the intangible (confidence and motivation) and shows the rare ability of being able to make the right trade-off between winning the day’s game and motivating a player who will help the team win in the long run.

These trade-offs don’t always pay off, but many times they do, and the high success rate is a reflection of Davey’s ability and judgment”

Value investing requires the courage to select stocks that looks like duds but which have the potential to turn around and perform better than before. Data analysis using the ratios like PE, PB, ROE, debt to equity etc may unearth the undervalued stock but it is not fool-proof, only by looking at the fundamentals of the business and the quality of the management and perhaps doing some scuttlebutting (as espoused by Philip Fisher), will the chances of striking the multi-bagger be higher.

Of course, the right judgement can’t do without patience to wait for the stock to perform.

Dispelling the fear of falling property prices

This is a well-argued ST forum letter to dispel the fear of falling property prices. Actually, the ones who will be hurt by falling property prices are those who leverage too much on their property holdings, they will be forced to sell at big losses, but no tears will be shed for them.

“Home owners should not be concerned about the possible plunge in the value of their homes should property prices fall drastically

Most of them do not intend to sell their homes. These are homes they live in. The values are just on paper.

For those who intend to sell their homes and buy another one, the value of their intended purchase would also have fallen. The impact will be limited.

The only owners adversely affected will be those who intend to sell their house but are not buying a replacement home in Singapore.

These would be mainly citizens who intend to emigrate, or permanent residents who intend to return to their own countries. These people comprise the minority.

Why should we place the interests of this minority who do not intend to make Singapore their home above the interests of the majority, who do, especially our next generation of home owners who are staying put in Singapore?”