Forum Archive Index - July 2000

["Steve Moxham" <steve@ezysurf.co.nz>]

It is always a perplexing question.

I think it depends on the type of companies you're buying and what purpose you're buying them for. You've got to work out what you're in the market for and what you want out of it.

Are you going for quick capital gains, are you buying undervalued stocks for revaluation by the mkt, do you want to buy penny stocks, speculative stocks, blue chips, high income stocks, and are you wanting to hold for the short term or the long term? etc etc.

I have forgone significant profits by holding out for a target price only to end up exiting the stock for what I paid for it. Take for example my foray into APF... 

Target return: 100%

Highest point: +50%

Exited: 0%

Opportunity cost: $9000.  

Lesson learned. =) 

 

I don't think the NZSE is well suited to trading because it is relatively thin in terms of companies and liquidity. But the opportunity still exists. I had some short term success with it myself. However if investing it offers many good oportunities to pick up shares at a significant discount to their intrinsic value. 

 

It's the nature of the beast that the market works in cycles and in retrospect it's easy to say that it would have been better to buy and sell at this point rather than hold over the whole period. But if you pick a good company you don't have to worry so much about the cycles of the stock because in the long run your holding should increase in value. 

One such company that springs to mind is Baycorp Holdings. Being in the high margin information business it received the accolade of being the greatest shareholder wealth creator in the Asia Pacific region. However now that RMG is on the scene growth may slow.

I also see the Warehouse as another in this category. It has a very solid brand and continues its growth and diversification into other areas. Frucor may also become a mkt darling if they can stay at the edge of consumer tastes and continue charging premium prices.

 

Buffett's strategy of buying solid brands and high margin businesses is a winner. I also like Kenneth Fisher's approach of buying low Price/Sales ratio stocks. The best time to buy a strong brand/high margin business is when it suffers a temporary glitch or hiccup in earnings. The Warehouse may not have had huge margins but it had a strong brand and good growth prospects. Back in 95/96 they had growing pains and suffered from some trouble with their Tui inventory system. The price dropped back to under its listing price of $2.50. An excellent buying opportunity!

 

Timing becomes important if you are trading, ultra important if day trading, but not so important if you're investing for the long term. However it is nice to buy a good company at a good price if you plan to hold it over the long term, and that's where the strategy above comes into its own.