We had the pleasure of following up with selected instructors at Asian Investing Summit 2017. We posed a number of questions to them about various aspects of investing in Asia. The following is a compilation of their insights.
The following transcript has been edited for space and clarity.
Question: How do you uncover value in your local market?
Rajeev Agrawal (India): Things that have worked for me include: screens, adjacencies: other companies in a similar space, other prominent investors and special situations.
Sid Choraria (Singapore): We like to generate original ideas, companies that are off the radar with potential to grow, but the underlying principle is value. At APS, we believe margin of safety comes not just from price you pay but from knowing your companies intimately well, understanding how companies make their earnings or cash flow.
Ideas can come from a variety of places. For example: unpopular industries/stocks, new/maturing industries as well as competitor-specific leads. Investment theory in MBA schools treats all alphas the same, but as practitioners, we have found that alphas produced by different companies behave differently and must have different holding periods. This distinction is important because it determines how you research companies, including when you should sell them.
At APS, we classify alphas into four buckets. Structural alphas are produced by companies with structural themes, where the companies have high barriers to entry. These alphas can be durable and hence we resist selling them early. Dynamic alphas are unstable, they are strong when the cycle is good and should be sold when there are headwinds. Economic alpha stocks are deep value stocks, growth rates may be average but they sell at a fraction of their intrinsic value measured against assets on the balance sheet. When they report a strong year of profits we are careful not to be fooled into believing that they have morphed into structural alpha stocks. Finally, opportunistic alpha stocks are those driven by a special situation event.
Akhil Dhawan (India): We have been following companies and industries for a while and prefer to fish from our “coverage universe” of companies we know. However, we do also attend conferences, read research, and screen for ideas occasionally.
Peter Kennan (Hong Kong): We scan Bloomberg for big share price falls of companies with attractive assets/businesses.
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