My Odd Encounter With Value Investing

Have you met this guy?

Not because Tito Warren can do it, you could too.

The Young Warren Buffett
Warren Buffett before he was cool!

A young Warren Buffett has said many times that he likes the company that:

+ Are simple business he understands.
+ Have predictable and proven earnings.
+ Have an economic moat.
+ Can be bought at a reasonable price.

We usually portray Warren Buffett as a Buy-Hold-and-forget Investment guru so we can justify to ourselves to do exactly that. Buy-Hold-Forget. Tataas din yan eventually, right? You wish! For me, that is plain laziness.

The truth is, Warren Buffett spends hours studying different companies from top to bottom. He takes time to reads any market-related literature every single day; Devising and sharpening his killer’s instinct in the market continually. He’s far from being a passive investor. And Value investing I believe is not Buy (well-known company)-Hold-Forget!

Value Investing

I am not really into value investing. I think this kind of market strategy does not fit my personality well. It requires a deep pocket and a very long time horizon for one to realize that her or his picks were right or wrong.

Recently I had this odd encounter with value investing. I don’t know if it is really part of value investing or not but one thing I’m sure about, it talks about value. For the first time in my trading life, I really look into it and use this analysis on one of my trades.

Let’s dissect this newfound analysis here.

The company was Holcim PH or $HLCM, a cement company and probably its product was used to build the walls of King’s Landing (GoT fan here) because it falls easily against dragon fire (It’s actually fire with nukes).

Recently, there was news that Holcim PH is selling their Asia operation.

$SMC or San Miguel Corp confirm to acquire Holcim PH for $2.15 Billion. $2.15 Billion that’s a lot of money men! Let’s convert that to peso and that’s a whooping P112.66 Billion.

This means San Miguel valued Holcim PH for a P112.66 Billion. The interesting part is, currently as of May 14, 2019, $HLCM market capitalization is only at Php 98.7 Billion; trading at around 15 pesos per share.

Price Action vs Value

The logic here is this. San Miguel Corp wants to buy Holcim PH at P112.66 Billion. Holcim PH market capitalization as of this writing is only around P98.7 Billion. Why buy it at P112.66 Billion when the company worth is only P98.7 Billion? I don’t get it.

For the Holcim to be valued at P112.66 Billion it must be trading at around 17 pesos per share. Maybe San Miguel believes 17 pesos per share is the real value of this company. Abangan!

As for me, it is good to know that there’s still around 13% upside base on its value. $HLCM may continue to go higher and break above 17 pesos level or the trend may reverse, and it will fall like a house of cards.

In the end, price actions will always be my final arbiter in executing trades.

I just found it fascinating that San Miguel Corp is willing to pay an extra Php 13.96 Billion which in fact it already owned another big and profitable cement company. Why not use that Php 13.96 Billion for research and expansion?

Ps. The analysis above was presented to me by a broker friend. I got hyped so damay damay na to!

Update! May 15, 2019

Sold all my position in $HLCM as the market turned sour this week. Locked in profits.

port 1
port 2

Leave a Reply

Your email address will not be published. Required fields are marked *