Download Waiting can be a winning strategy

hedge funds and unit trusts –
known in the United States as mutual funds.
simply don’t trust the markets.”
Research
[email protected]
S T I L L U S T R AT I O N : A D A M L E E
like fixed deposits and a little bit
of equities. My hubby and I started to do more active investing.
our “rah-rah” thing again.
[email protected]
WEALTH PRESERVATION
Preserving value is a key tenet of a good investment strategy. In the first of a three-part series,
Justin Harper looks at why patience can be crucial to keeping and growing investment value.
Waiting can be a winning strategy
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Patience is a virtue, and one of the
best ways that its benefits can be
seen is in investment strategies.
Well-known investment gurus
throughout history have shown
that a waiting game can lead to
huge profits.
Mr Warren Buffett, one of the
world’s most successful investors,
credits taking a long-term view as
one of the secrets behind his success.
Of course, one must have a reason for waiting, and not wait just
for the sake of it.
Mr Buffett is a long-term value
investor. He spots companies
whose share prices do not reflect
their true value, as they might be
unloved by mainstream investors
or they could have suffered a crisis
and been oversold.
He buys and holds on to these
stocks until they recover or come
back into fashion, and then makes
a tidy profit. In some cases, this
could take less than 12 months; in
others, it could take years.
The concept of value investing
originates in British-born professor
Benjamin Graham’s book, The Intelligent Investor, first published in
1949.
His work has had a major influence on Mr Buffett and many other
fund managers across the globe
who adopt value investing styles.
Prof Graham’s philosophy is
based on the fact that equity markets are often volatile and have a
rather short-term orientation.
This can lead to inefficiencies
which, for the intelligent investor,
open up opportunities to invest in
companies trading at levels far lower than the real value of their businesses (their intrinsic value).
PHOTOS: AFP, WONG KWAI CHOW
Fund manager Amundi has held on to its holding in Osaka-based cycling equipment maker Shimano since 1994, because
it sees the company as a strong value play. Mr Vormoor (right) , its investment specialists head, says Amundi knows how
to be patient even if it means bucking the trend and investing in unpopular or overlooked stocks.
For Amundi, one of the world’s
largest fund managers, this value-oriented approach forms one of
our investment pillars.
Amundi is supported by banking giants Credit Agricole and Societe Generale, and manages more
than US$70 billion (S$87 billion) in
assets globally on behalf of Asian investors.
Mr Jan Vormoor, head of investment specialists at Amundi, says:
“Betting is great but, when you bet,
you have to accept that you can
lose.
“Rather than trying to bet, you
can be a long-term investor who is
patient and thinks more long-term.
“We think people today try to
tell you that you need to buy this
or that as it’s going to go up tomorrow.
“But who knows what’s really going to happen tomorrow?”
Amundi, he says, picks good
companies that are undervalued by
the market for various reasons such
as an economic downturn or that
are simply overlooked by investors.
Prof Graham coined the phrase
“margin of safety” to explain the
gap between a stock’s intrinsic val-
ue and the discounted share price,
and this is a fundamental factor for
Amundi when it comes to stock
picking.
While a margin of safety does
not guarantee a successful investment, it does provide room for error in an analyst’s judgment and offers a cushion against errors in calculation.
Mr Vormoor adds: “In a world
where you cannot predict the future, and we ourselves accept that
we are not intelligent enough to
know what’s going to happen tomorrow, the only way to invest is
through a margin of safety.”
One stock that illustrates Amundi’s value-investing strategy is Shimano. Based in Osaka, the company makes bicycle gear.
Amundi has held the stock since
1994, within its Amundi First Eagle
International Fund. In 2009/10, it
represented almost 25 per cent of
the fund’s portfolio in Japan, at a
time when most investors were
bearish about the Japanese economy.
Even though the holding was
viewed as being bullish over Japan,
it was a value play by Amundi.
Mr Vormoor explains: “Although you are buying a Japanese
company when you buy Shimano,
it makes 95 per cent of its revenues
outside Japan.
“It has a global market share of
75 per cent. But because Japanese
equity markets had done nothing
for years, everyone underweighted
Japan.
“This is why we found a lot of
companies in Japan that were really cheap but for the wrong reasons.”
Shimano also took a pounding
after the Fukushima nuclear disaster in March 2011, which saw the
Tokyo stock market crash.
The stock price dropped by almost 25 per cent, even though Osaka is hundreds of kilometres away
from Fukushima and most of the
company’s revenue is earned outside the country.
“How can you explain this?’’
asks Mr Vormoor.
“It is because most people don’t
know what they own when they invest in equities. We had already invested for 17 years in this company
and we knew it well, so we just
topped up our holding.”
Since that low point, Shimano
has rallied by 300 per cent.
However, it takes a brave investor to keep a cash stockpile and
then invest in a distressed environment in order to gain a profit when
– and if – the stock recovers.
That is why value investing
doesn’t suit all types of investors.
Some like to put all their spare cash
in the stock market.
Another example of Amundi’s
long-term view and strategy of waiting it out until profits materialise
can be seen in its investment in the
Shaw Brothers group.
Amundi bought into the company in 1986, viewing it as cheaply
priced because it was a holding
company that many investors did
not understand.
Amundi also believed that its
founder, Sir Run Run Shaw, would
soon name a successor, who would
probably split the company into different units so its true value could
be realised.
In the end, he named a successor only two decades later, at which
point the stock price rose sharply.
“We are very patient people and
we are prepared to stand apart from
the crowd as a contrarian investor.
We made annualised returns of 17
per cent on that stock,” says Mr Vormoor.
To find out
more, visit
ais.amundi.com/sg
Source: The Sunday Times © Singapore Press Holdings Limited. Reproduced with permission.