takeover / partner, page-34

You make money on the stock market not by trading, but buy buying and holding businesses that are selling well below their intrinsic value as calculated by discounting the estimated future cash flows of a business to present value, and then buying well below that intrinsic value to allow for a margin of safety. The caculation need not be precise or accurate, so long as you buy well below the estimated intrinsic value, say at least 30% discount you can't really go wrong. Don't take my word for it - this is Buffet's approach.

In Humm's case, my calculation of intrinsic business value was much much higher than the stockprice this week. Hence my decision to buy in more Humm shares following the annual report.

I'm a realist, I know that it can take some time for the market to price a business accordingly and I am willing to wait. And I will NOT sell my shares unless they are fairly valued. Why would I sell $1.00 for $0.50???

It just happened to be the case that the market did not take long to rerate Humm. I suspect the re-rating will continue as even at these prices, I am of the opinion that the business is well undervalued. As I mentioned before, Humm is trading well below even it's book value. I agree that some stocks do this from time to time, but those are stocks that are bludgening cash, and no future prospects for growth. This could not be more from being the oposite with Humm. It's a no brainer, really!!

Each to their own dotaking, you may have a trading strategy that works for you, but for me I do not sell a stock if it is undervalued - period. Im happy to wait years for a re-rate to occur. I've learnt that you make money by staying in the market, so long as the fundamentals of the business are strong - they are for Humm. One thing that I can say is that those who wold over long term kill returns for those who trade the swings. Pip traders make 1-5% per trade, but they miss out on the holy grail of 10-30 baggers, and all they had to do was hold a quality business!

It only takes being a non holder for a few days of the biggest rises to miss out on most the gains a stock has to offer - as clearly evident with Humm with the likes of yourself predicting a mass sell off. How more wrong could you have been? You called a sell at $0.92 cents, and here we are 14% higher at $1.05 only a couple of days later.