Sniffing out opportunities in the US Market

With the recent low in the STI Index in late Sept and early Oct, and the more recent uptick, I just felt that stocks are still expensive. Of course compared to the crash of 2007-2009, this is just a small blip. I reckon this is the waiting part (in my investing journey). I have used up some portion of my war-chest in Aug and Sept 2015 recently. So trying my best to build up more.

“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that.” Charlie Munger

These past few days I have been going to different websites on US Stocks. Just reading and surfing. These include:

Value Investors Club (click here)
Corner of Berkshire & Fairfax Message Board (click here)
Graham And Doddsville (click here)
Sum Zero Basic (click here)

Being the vulture that I am, I am intrigued with the numerous stocks that have been ‘shot’ down:

Valeant Pharmaceuticals International Inc. – it share has plunged due to a report by Citron Research that accused Valeant of creating fraudulent invoices through a network of pharmacies it controls. (read here) Subsequently Bill Ackman has continued to believe in this company and bought another 2 million shares. (click here)

2. Wal-Mart – Wal-Mart Stores Inc recently warned that higher wages as well as spending on e-commerce and lower prices would cut earnings per share as much as 12 percent next fiscal year, sparking the steepest one-day decline in the company’s shares in 25 years. (read here and here)

3. Caesarstone Sdot-Yam Ltd – the share prices of this company has plunge dramatically since early August 2015 (read here). The drop in the share price could be attributed to a 54 page research report that was issued in August 2015 by investment firm Spruce Point Capital Management -a short seller (read here).

In general, I let these opportunities pass, due to numerous reasons. I felt that perhaps some of these companies have high debt levels, weak moats, or are beyond my circle of competence etc.

“The most important thing in investing is what Williams said was the most important thing in hitting — waiting for the right pitch. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out. You can wait for the pitch you want.” Warren Buffett

Of course there are other interesting news:

Weight Watchers International’s stock more than doubled on Oct. 19 — the day Oprah Winfrey bought into the leading provider of weight-loss services, to $14 a share. Oprah had agreed to purchase a 10% stake in Weight Watchers International and had signed a collaboration deal to promote the diet company and its services. And the stock has continued to shoot up, rising to more than $19 before closing on Oct. 22, at $15.43. (read here and here)

Singled out a few companies which I will read more about.

These are supposedly companies which are thought to be the next Berkshire Hathaway –

Fairfax Financial Holdings Limited
Leucadia National Corporation
Markel Corporation

The recent Memo by Howard Marks of Oaktree Capital Management is a good read. Click here. To quote a portion of the memo (see below):

What are examples of actions that require self-confidence?

Buying something at $50 and continuing to hold it – or maybe even buying more – when the price falls to $25 and “the market” is telling you you’re wrong.

After you’ve bought something at $50 (thinking it’s worth $200), refusing to “prudently take some chips off the table” when it gets to $100.

Going against conventional wisdom and daring to “catch a falling knife” when a company defaults and the price of its debt plummets.

Buying much more of something you like than it represents in the index you’re measured against, or entirely excluding an index component you dislike.

In each of these cases, the first-level thinker does that which is conventional and easy – and which doesn’t require much self-confidence. The second-level thinker views things differently and, as a consequence, is willing to take actions like those described above. But they’re unlikely to be done in the absence of conviction. The great investors I know are confident second-level thinkers and entirely comfortable diverging from the herd.

It’s great for investors to have self-confidence, and it’s great that it permits them to behave boldly, but only when that self-confidence is warranted. This final qualification means that investors must engage in brutally candid self-assessment. Hubris or over-confidence is far more dangerous than a shortage of confidence and a resultant unwillingness to act boldly. That must be what Mark Twain had in mind when he said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” And it also has to be what Novak Djokovic meant when he said, “It’s a fine line.”

Yes at the beginning of my post, there are 3 ‘opportunities’. But only for those investors with self-confidence, and who have done all the studying and self assessment.