Year: 2016

Changyou.com (CYOU) – A value buy with potential near term earning catalyst

taovalue China, Investing, Technology , , , , , , , , , ,

So here is how I came across this name. As I mentioned in my old post “A Part Time Investor’s Investment Process”, I didn’t have a systematic way of sourcing idea, thus usually leaving the portfolio under-invested. More recently, I started playing around with some quantitative funds’ strategy selection criteria, and found LSV’s fit my style pretty well. It goes by two parts: 1) identify value opportunities, by looking at some traditional ratios including EPS, current P/B, current P/CF and current P/S, if any of the ratios is lower than industry median, keep them for step 2; and 2) eliminate “value traps” by examining the recent momentum (e.g. Relative Price Strength over past 26 weeks >=0 & Relative Price Strength over past 13 week is larger than that of past 26 weeks. What is does is basically to look for cheap stocks in a turnaround story, the idea being if the market recently recognize a name, it usually is not a value trap. For further information about LSV, you could visit http://lsvasset.com/research/ for further research done by them.

CYOU came out from these filters and happened to be a Chinese ADR, which I thought I may be able to gain some informational edge by researching in its local language. First, still need to give credits to following posts provided me some directions. By the way, their timings are much better as the stock price already went up 40% from the price level they posted their ideas. However, without the recent price surge, it possibly won’t go through the step 2 of momentum checking, meaning I wouldn’t be able to see it until the name started to rebound anyway.

https://www.valueinvestorsclub.com/idea/CHANGYOU.COM_LTD/137906

http://seekingalpha.com/article/3962034-changyou-extremely-undervalued-possible-privatization-candidate

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Book Notes – So You Want to Start a Hedge Fund

taovalue Book Notes, Investing , , , , , , , , , , , ,

I know it sounds like a cheesy book name, but like Joel Greenbaltt‘s classic “You Can Be a Stock Market Genius“, this is another great book with cheesy name. The author Ted Seides is one of David Swensen‘s proteges, having worked on both asset owner and money manager sides. Therefore, this book offers unique perspectives (from both capital allocator and money manager angles) on how to build a great money managing business. Lastly, although the book name may be alluding to step by step how-to guidance on starting a hedge, it doesn’t have anything like that. Rather it is fully loaded with real cases, about how start up funds succeeded or failed,  which are invaluable lessons for anyone considering starting their own money managing businesses.

soyouwanttostartahedgefund

I think I probably read this book too early as it could serve these readers with more experiences and are closer to the point of setting up their own funds. Nonetheless, following are the lessons I found most valuable to me. They either significantly changed my existing views or offered brand new insights to me. Continue reading →

Indirect Hard Lessons – Gurus’ Recent Mistakes

taovalue Indirect Hard Lesson, Investing, Uncategorized , , , , , , , , , , , ,

As an old saying says, “you best teacher is your last mistake.” However what’s challenging for value investors is that it’s very difficult to realize you’ve made a mistake to start with. As you are always going against herds, you’ve already made “mistakes” in others’ eyes, meaning you are left alone to make the judgement. Plus, you have to re-convince yourself about your verdicts when the name keeps going down after your purchases, or if the names move higher you just cannot stop feeling good about yourself, either way it’s really hard to maintain an objective view on your own past decisions.

Market recently has seen some big failures on names backed by some legendary value investors. Although may not be able to learn the lesson as deeply as the investor themselves do, I found these are great case studies nonetheless.

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How to live a playful life – Notes from The Education of a Value Investor by Guy Spier

taovalue Book Notes, Philosophy , , , ,

[Update on 4/13/2016: Thanks Mr. Spier for your reply and kind compliment on Twitter]

GuySpier_Reply_20160413

Spoiler alert: This is not a book review, instead this is more of notes for the most meaningful things (for myself) from Guy Spier’s book The Education of a Value Investor, thus it may contain details about the events described in the book.

I just finished reading this great book, following are a few sporadic things that made me thinking the most.

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Thoughts on Nexpoint Residential (NXRT)

taovalue Investing, REITs , , ,

Disclosure: I established a long position in NXRT on 4/4/2016.

First of all, I want to thank following posts drew my attention to this name. It caught my eye first that Michael Burry held it as his biggest position.

Michael Burry’s SEC 13F filing

Clark Street Value post about NXRT

Value Investors Club post about NXRT

 

After I made my trade, I wanted to write something about it, however I noticed there are this Gurufocus article on 4/4/2016 and this Seeking Alpha article published on 4/5/2016 already did most of the job and shared some of my views. Thus, I will be brief on the upside as you will be able to get them from articles listed above, and will try to dig more into the downside.

Short pitch: NXRT is one of the few REITs using “value add” strategy on class B properties. The management is very determined to execute on this strategy and thinks the market didn’t get them (small cap, spun off a year ago, only 2 analysts from some boutique sell sides covering them). In my view, this firm is actually a flipper partnership under a REITs cover (to avoid corporate level tax), and their flipping strategy seems to be very lucrative (if it works out).

Following I will touch some of the red flags that people dislike the most (and I disliked initially):

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A Part Time Investor’s Investment Process

taovalue Investing , ,

For the past few years, I have been doing value investing practice on an ad hoc basis. I read news & investment message board, follow the ones I deem interesting, do some my own researches & make decisions on building positions. So far, overall I have more hits than misses and my personal investment fund’s performance has been in line with S&P 500, even though I usually keep 30-50% cash at hand due to lack of opportunities (except for 2013 during which year the index ran up 30% and the cash drag bit me badly). Clearly, the cash drag was my problem. I also know that it is mainly because of the ineffectiveness of sourcing potential opportunities, given that my spare time resources are limited. To solve this issue, I have to have a formal investment process.

Based on my current knowledge, a typical value investing process would look like this:

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