When buying a company as an investor you take a risk. As a value investor, we try to mitigate these risks by understanding the underlying value of a company. If a company were to liquidate, their value in liquidation would be determined by their net tangible assets or their net asset value. By understanding the net tangible asset value, we can determine what our margin of safety is. If a company’s market capitalization is lower, then it’s net asset value it is trading at a discount. If a company’s net tangible assets are double the market capitalization of the company that means for every dollar of equity you buy you get $1.5 in assets. That represents a 50% return on capital. Therefore, Mazdarepresents an attractive investment at its current price. I will liquidate my position in this company after its market capitalization reaches its net asset value. At a 50% discount on tangible assets, I would be hard pressed to find a more attractive use of my capital.
It’s really easy to read and understand the theory behind the market and various phenomena with regards to equities. But you know what’s really difficult? Actually investing. I’m sure this is well known, but there is a big disconnect between your own capital and reading about others. I wrote a blog post in 2018 about […]
As I was reading the Little Book of Behavioral Investing by James Montier (which I highly recommend) I came across a passage that described my investment in Nova Lifestyle perfectly. Warren Buffett has described Ben Graham’s (his mentor) investment style as cigar-butt investing – that is, buying really cheap stocks almost regardless of the underlying […]
The S&P 500 keeps going up and the Dow is about to hit 30,000. Equity prices have been on a tear. Last year the S&P was up 22% but profits remained steady. Why is this? I believe that the low interest environment created by the European Central Bank (ECB), Federal Reserve (Fed), and Bank of […]