run starts now?, page-29

Hi Klog

On the words "TGA was probably overvalued at $2.60", notice that I snuck in the qualifier “probably”. Of the 515,500 TGA's I held when the SP was circa $2.60, I only sold 15,500, which suggests that my fair-value SP was about there. The way I guesstimate fair-value is to assume a long-term DPS scenario, and I discount the cash flow taking into consideration the franking credits, my marginal tax rate and what I now pay on a $200K mortgage, which gives me two fair-values, one for TGA in my personal portfolio on which I pay tax, the other for my pension-paying non-taxed SMSF portfolio. The taxed setting suggests fair-value-to-me at under $2.60, and the non-taxed a bit higher. Given how subjective this guesstimating process is, I am loath to exaggerate my guesstimates preciseness, which is why I do not refer to the result as an “intrinsic value”, and I often personalise the terminology to “fair-value-to-me”, to suggest that other investors should have different values.

On 2096914's words “Now if you rank all the 2200+ companies on the stock market in terms of whether it is on sale I don't think TGA would even be in the cheapest 10. By no means is TGA a bad investment but time is very very important so as a value investor shouldn't one be focusing on the cheapest because over time it will give the highest return?”, I have no gripe with the truth of those words. Their usefulness is another matter.

In the world of unknowns wherein we all live, no investor would have the knowledge to know what stocks out of the 2,200+ would qualify to be the best value in an objective sense – that is, other savy investors (not all) would substantially (not completely) concur with that list, and so investors have to settle for a satisficing investment approach (see PS for elucidation of the word "satisficing"). I would be happy to limit my focus on the next ten cheapest stocks if an all-knowing being were kind enough to give me their ASX codes. I am certain that there are better-value stocks than TGA, but I simply do not know what stocks they are. If a fallible mortal were to suggest better stocks for investment than TGA, I would look at them with great interest, because there could be a gem there that would warrant me selling some TGA and diversifying my portfolio.

I like TGA because, as Klog wrote, for most of its history, it has been undervalued by Mr Market. If it were an even better stock than it is, but overvalued, then I would not be interested in it.

PS Satisficing is a decision-making strategy or cognitive heuristic that entails searching through the available alternatives until an acceptability threshold is met. This is contrasted with optimal decision making, an approach that specifically attempts to find the best alternative available. See http://en.wikipedia.org/wiki/Satisficing.

PPS When some days ago I wrote. “I have reason to think reality would be worse than the Thomson Consensus Estimates, which are . . .”, the words should have been “I have NO reason to think . . .”. Most readers would have picked up the gist of what I intended from the rest of the blurb.