There’s an important aspect about being a successful investor that I think everyone should know, and that is, loneliness is going to be a common feeling if you’re investing well.
Why? That’s because investing well often means buying bargains. And how do we find them? There are many different ways to go about doing so, but the following are traits often carried by stocks which turn out to be bargains:
- It is trading at a discount to book value (in other words, the stock would have a low price-to-book ratio)
- It is trading at a low price-to-earnings (P/E) ratio
- It is near its 52-week low price
- It carries an above average dividend yield
So here’s the thing. If this is where you search for bargains, then you have to realize that a company would be currently priced as such because the majority of investors are not interested in it.
Only with low investor interest can companies be trading at a low valuation multiple or have a high dividend yield. And more often than not, these companies are facing many challenging issues in their businesses, which is why investors were shunning them in the first place.
To jump in and buy what is commonly shunned – that is where loneliness can kick in.
As deep value investors, we have to be able to accept the risks which comes with owning unloved companies; we’d also have to be able to be comfortable in our own skin even when the investing public is constantly pointing out the negatives of such companies. If we are unable to handle the disapproval and isolation, then it will be extremely hard for us to carry out this strategy successfully.
Currently, the following trio of Tan Chong International Ltd (SGX: T15), Far East Hospitality Trust (SGX: Q5T), and China Merchants Holdings (Pacific) Ltd (SGX: C22) have the afore-mentioned characteristics of traits found in potential bargains.
Source: S&P Capital IQ
The trio of shares may have valuations that look attractive, but it’s worth bearing in mind that the criteria are not meant to pick investments, but rather, are used only to help narrow the field for further study. So, these shares would definitely still need deeper scrutiny.
Howard Marks, co-founder of the hedge fund Oaktree Capital, once said this about investing, “The best opportunities are usually found among things most others won’t do.” Investors who are determined to improve their skill have to be prepared to be comfortable at being mocked at, dismissed, or even hated for their investment convictions.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in the companies mentioned above