Value investing in Thailand. Memory Lane.
Here is an article published here 15 years ago. Nothing has changed since and the long record proved it was right to focus on value investing on the SET as I describe below in 1999.
From: Paul A.
Renaud, www.thaistocks.com
Thoughts on beating the
volatile Thai SET index.
Did you ever read Peter Lynch's
book "One Up on Wall Street"? He is one of the most successful and best
known mutual fund managers in the US.
His thesis is that individual investors can (and many do) consistently
beat the professionals in stock markets because they do not face the same heavy
restrictions as regulated portfolio managers.
Just to name one example, almost all portfolio managers are restricted
to investing only in stocks that have a defined minimum market capitalization
or liquidity. This is measured by looking at the average daily trading volumes
and market capitalization is the current stock price multiplied by total shares
outstanding.
Mr. Lynch would argue that it is
this very reason that in Thailand real and unusual opportunities are available
to individual stock investors. Not that
these shares are not excellent opportunities for funds - it is just that they
surely do not meet the rigid requirements of an institutional fund investment
committee. And this "institutional
dilemma" is especially and acutely so present in emerging markets like Thailand.
I have written about this for
over 2 years at my web page thaistocks.com. But what I did not know previously
is that the strongest voice in the fund industry Peter Lynch, says so
himself. Without a doubt, in emerging
markets there are often far better values to be found in companies with smaller
or medium sized market capitalization and lower liquidity. For sure, there's a lot more keen competition
buying large cap., very liquid shares.
The difficulty of course is that there is allot less information on
secondary shares in Thailand. However
this is changing as more and more individual
clients demand from their Thai brokers to know more about these
companies and as I myself research further and so publish more and more
articles on such companies. The web technology is helping as well as through
digital cameras and web sites like ours we can bring instant research reports
with actual pictures to Thai investors around the globe.
Too many articles world-wide have
been written on the advantages in owning funds as opposed to buying shares
directly. And while for some this is an
appropriate passive investment strategy, in this column I will keep showing
real and superior advantages to individual share ownership. I will explain how to implement this by directly owning a
diversified portfolio of undervalued Thai shares. Consider learning about some of these real
"diamonds in the rough", as I have been known to call them. This is a relevant topic as with the Baht
once again weakening on currency markets you want to own some good export
companies. To my knowledge none of the big cap. stocks in Thailand are pure
exporters. I hope to show many real
examples as we have been tracking dozens of them for some time.
Another professional, Richard
Thaler, a University of Chicago economist, has a little to say about this as
well. Here Professor Thaler compares
this as applied to real business situations. In a chapter in his book
appropriately called "Winner's Curse". He quotes several studies by psychologists
and also a paper written by some individuals working for ARCO, the giant Oil
Company regarding Gulf of Mexico lease sales.
"When you have a lot of
people bidding for an asset, the person who's going to buy it, is going to be
the most optimistic about that asset. And so he's or she likely to
overpay. Obviously, when you have
virtually no competition, as is the case with a few small-cap Asian stocks, you
can buy more cheaply and at times get mind-boggling bargains. I would add that there is not much competition
at all in buying the most undervalued stocks in Thailand!
The smaller and mid sized shares
on the SET is one area in which an individual investor can find a powerful edge
as well as diversity - a place where small investors have a distinct advantage over large institutions! Many, many studies have shown that OVER TIME
value stocks outperform growth stocks and many studies have shown that excess
liquidity often drives "themes" to excessive, even ridiculous
valuations that will eventually come back or crash back down.
Value investing is
the investment discipline of considering only stocks which appear under-priced
as
compared to others, regardless of how they're current
stock graph looks or their trading liquidity.
Liquidity on any stock can
and most often does suddenly soar when its value is discovered. A good example is Thai Union Frozen TUF (129),
this company was trading around 22-28 in the first part of 1997. TUF was a very illiquid stock when I strongly viewed this company for investment back in 1997. ***
Since this article appeared in 1999 TUF has increased well over 20 times in price
and now trades relatively well while many local brokers recommend this
company. There are many other such
"diamonds in the rough", and we remain determined and highly focused on
finding them, as I regularly do.
Paul A. Renaud.
