PaulRen's blog

Stock investors like to talk about so called “value traps”. So called “Wall flowers” and others which just never flourish stock price wise.  Fair enough.  But the opposite is true as well -rarely explained!  Call them inefficiently priced value choices.  Where brokers and institutions alike only consider large cap stocks, ignoring the rest... a practice going for decades. Its because: these have the handicap requiring high share trading liquidity. Yet high net worth investors don’t have this same prerequisite and so have a true -long in making- pricing inefficacy, advantage! In Thailand this makes “toute la divergence” -as overall such pay double the SET averaged in dividend yields, often around 5% and have higher long term growth rates along with less volatility/correlation to Western markets.

Most institutional funds are just too big (i.e. on asset under mgt.) in size to take advantage of many emerging counties' investor jewels.  Fact is, many of SE Asia successful companies' are medium or smaller in mkt. cap. size.  So then, de facto, not qualify on daily shares traded' liquidity requirements by such bloated institutional funds.  Result is: such institutional funds chase the same "crowded trades" around the few large(st) cap. stocks, which then do meet their mega liquidity requirements...so then ignoring the "diamonds in the rough" which are "less filling while taste great". Investor wise.

Quantitative assessment from afar, in their often high office towers, on stocks will not work in all markets.  In Thailand for example, its much more important to have a qualitative assessment/view/understanding.  As there are many "wall flowers" here and other type of listed stocks which look good "on paper", but which long on-location experts would never invest in.   Sometimes, some stocks look cheap for a good reason. Exactly the reason a rational investor may want to avoid them.  Qualitative vs. Quantitative can make all the difference.