Reading too much Motley Fool is bad for your health. The mining services sector ruckus at the moment is a vivid illustration of why value investing is simple but not easy.
An investor's job is simply to find mispricings, not necessarily good businesses or bad businesses, headwinds or tailwinds, etc. Mispricing means the price does not reflect the value of the security when both risks AND returns are probability adjusted. With mining services now, investors are overweighing BOTH the probability and the impact of risks whilst underweighing or disregarding BOTH the probability and the impact of returns.
Apart from things that could go to zero, anything else with no danger of insolvency is a buy at a certain price and a sell at a certain price. Uncle Warren is merely simplifying things for the investors by recommending buying into wonderful businesses run by capable management at a fair price, because this is where it is simplest. It is not an exclusionary mantra.
Going further on the Motley Fool article, the BBG example versus TTN is, with due respect, pure BS. BBG was in very real danger of going under. The mining servicers have had close to one year to deleverage and derisk, which many of the smarter ones (and even the dumb ones) were already doing well before the last set of results were published. I have my own views on TTN which is too long to go into in this NWH thread.
Memories are short in the market. It was merely not two or three years ago when retail was the whipping boy of the bourse, with JBH priced at $8. The problem with all investors is psychological and this is reflected in pricing.
A simple thought experiment may illustrate this further. For investors to lose money on NWH at current prices requires ALL of these factors to occur at the SAME time: significant revenue slide, significant margin crunch, balance sheet deterioration, no recovery for at least 5 years or more.
On the other hand, for investors to make money on NWH requires only ONE of these factors to play out: revenue maintained, revenue increase, margins maintained, margins increase, recovery within 3 years or less, release of value from balance sheet.
How do you like the odds?
NWH Price at posting:
84.5¢ Sentiment: Buy Disclosure: Held
(20min delay)