Wednesday, February 21, 2018

Shenq and Hong, Value Investing in Asia

I can’t begin to guess how many feet of library shelves it would take to house all the books that have been written on value investing. The best answer is probably “too many.” So do we need yet another one? Yes. Value Investing in Asia by Stanley Lim Peir Shenq and Cheong Mun Hong (Wiley, 2018) takes the value investor into uncharted waters, waters rife with dangers but with the potential for solid profit.

The authors offer general, somewhat eclectic, guidelines to screen for companies that may be worth investing in. More important, however, as they stress, is knowing what not to invest in. They highlight both financial and non-financial red flags. Among the financial red flags are abnormally high margins, trade receivables growing faster than revenue, inventory growing faster than revenue, consistent excessive fair value gains, companies in a dilutive mood, leverage, and seemingly unnecessary borrowings. Among the non-financial red flags are massive reshuffling of the company’s officers, infamous directors and shareholders, when things vanish into thin air (e.g., a fire destroys a company’s books and financial records or a truck carrying five years of financial documents is stolen—the truck is later recovered but not the documents), and “innovative” business deals.

Five case studies illustrate the way the authors invest, each with a unique “hook”: value through assets, current earning power, growth through cyclicality, special situation, and high growth (Tencent).

The book concludes with five interviews with Asian fund managers. There’s also some online bonus content.

Investors who are thinking about buying individual Asian stocks would do well to read this book, not so much as a value investing primer but as an Asian investing primer.

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