Investorial

Hindsight is always 20 / 20. I’m a huge advocate for learning from the past but would like to remind readers that it is not beneficial holding onto past mistakes. Learn from your experience and look forward to the future to become a better investor!

Investorial readers will be familiar with my slant towards value & contrarian investing principles. But I wasn’t always that way. I started out doing what most people just getting into the stock market would do — a speculative trader. My first true value & contrarian decision was a good one. Looking back on it, it could have been a great one. Here’s the story!

Back in the summer of 2003, a very intelligent friend pointed out to me about USG (Yahoo!, Google). [ Caution: There's nothing wrong with listening to a friend's information as it is a valid way to add companies to your watchlist. But YOU should be the one doing the fact-checking and analysis prior to making a decision. ]

USG was facing heavy pressure from asbestos litigation and the market’s irrational exuberence severely undervalued the stock. Contrarian investors would have saw all the signs of an unloved company that had a good buffer to its intrinsic value. In other words, if the company was stripped apart and sold off with everything leftover distributed back to the investor, you’d still be earning positive returns.

I wasn’t terribly good at analyzing the statistics but USG had tons of cash (more than $12 a share at the time), held the leadership moat in its industry, and was postive cash flow quarter-after-quarter. I started watching the stock around $6 and saw it plummet to a low of $3.43 amist the many press releases regarding the asbestos litigation. Not believing that there were any merit to the under-valuation, I bought in around $4.50. I was rewarded when letting it go around $21 — a decent 5-bagger. My exit criteria was for it to reach my determined fair book value. There were still many controversies surrounding the abestos litigation and I decided not to assume the risk of holding the stock longer.

As of the market close on May 19th 2006, USG closed at $90.46. Making USG a 20-bagger that got away from me! It is never wrong to take profit but I’ve learnt to trust that a good company is worth keeping and holding in your portfolio as long as it remains a good company with excellent management team and fundamentals. I started focusing on being an investor rather than a trader.

Now you know why I lean towards making valuation analysis a crucial part of the decision making, looking to buy a dollar for 50 cents, and why I’d rather hear from cynics and contrarians alike to add companies to my watchlist.

Do you have a 5, 10, 20, 30 bagger story to share with us?

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