Personally, I believe that value investing strategy can be categorised as Positive value investing and Negative value investing. Both of them are the complement of each one. Thus, to optimise the potential profit and diminish the risk of each investment, we need to use them flexibly.
Positive (or Optimistic) Value Investing
People who implement positive value investing is optimistic about the future of a particular business. They project the future value with some assumptions. If the assumptions are fulfilled, we are going to maximise the profits.
However, we should only apply positive value investing on good historical records instead of trustfulness and the ability of the CEO of the business. Thus, if you find a undervalued company with good historical records, you should buy and hold until the last minutes of bull market.
Negative (or Pessimistic) Value Investing
Unlike positive value investing, investors who apply negative value investing are trying to find a reason to SELL it based on valuation approach. This investing strategy is useful to maximise the safety of margin of an investor. However, the drawback is the investors will never maximise the potential profit of a particular investing opportunity.
Nevertheless, this value investing strategy is quite useful if you want to invest a "black horse". The only reason I will buy a "black horse" is I cannot find a strong evident to reject it. As you can see, this strategy is actually derived from Scientific hypothesis test. That is, the only reason I will invest XYZ company is I cannot find any evidence that shows XYZ company is not worthy for investing based on valuation. In short, this strategy can help us get rid of too optimistic traps.
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Written by: Xaivier Chia
(P/S: The above sharing is solely based on personal insight. Please do not take it seriously. However, your valuable feedback are very welcome.)
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