Growing up and new ideology part 2

Graham writing came during the Great Depression, this probably led him to have an extremely conservative investment philosophy. His main goal is to not lose money. He figured doing so with companies that have assets valued more than market value. That strategy applied with the Margin of Safety concept would prove to be the building blocks for one of the most popular investing strategy around. If the worst case scenario occurs, the company liquidates and the investor can recuperate the money invested.

This leads me to NED, which by having more current assets than market value was a buy to me. I am speculating that the lawsuit against it will be successfully defended. I am a bit worried about some other aspects of NED:

- Being a foreign company, I am worried about potential misleading (see fradulent) accounting.

- It could be a fake company for all I know, a ponzi scheme, that is a possibility. Though, I did ask people from China if they have ever heard of the company, and if they do in fact sell DLD (Digital learning devices). To which, I was assured that they do in fact exist.

Not being an accountant by trade, I don't know how one would falsify numbers, so I ordered a book on this topic. I hope to learn a thing or two and disect NED's 10-K with this knowledge.

The other company I invested in, Google, is a well known company. I always told myself that I would never invest in a tech company, because the valuations are always very high. But google was selling for a relatively good price (270) and I thought that its future prospect was bright. Following Fisher's preachings, I looked at the possibility of growth coming from Google. They have been growing rapidly since their IPO, and I see no reason why they couldn't continue on this path. They have yet to monetize Youtube, Android. They have a search monopoly, online advertising monopoly as well. I came to realization that I couldn't spend 1 day without seeing a google ad. That plus the fact that they can still grow outside the US, leaves me optimistic about its future. I expect them to grow at a 20% for the next 10 years, followed by a subdued 5% growth for the following 10 years. It is ambitious, I know, but I simply cannot see how a competitor can just overturn google. Switching search engine is not as easy as switching social network (myspace to facebook), especially when google is widely regarded as being the best search engine around.

Growing up, new ideology

My attention diverted from the stock market since my last post on February 16, 2006. Partly because I was concentrated in finishing my bachelor degree in software engineering, which took most of my time. I was also committed in improving myself as a software engineer, a profession that I do like a lot.

I got a job at a large software company shortly after graduation in May 2007, once I got settled in and got comfortable with the daily grind (work is not that exciting), my attention turned back to the financial market; it was pretty much at the right time, it was December 2007. Things has changed quite a bit since my last post, there are so many more blog and websites about the financial markets. I started reading posts about how a recession was looming, how the dollar would collapse, how the real estate market was a bubble. I thought that things were quite expensive at that time, so I decided to keep accumulation money to potential invest it whenever the time was right.

The warnings of a financial meltdown first came to fruition during March with the meltdown of Bear Stearns. Then in the fall, it would seem that every day the Federal reserve would announce plans to save financial companies left and right, after it let Lehman Brothers go bankrupt. Once such an important counter-party went belly-up, the credit market tightened up, and Libor skyrocketed. At the same time, the Dow-Jones went from a high of 14k to around 8k.

Warren Buffett, the person I look up to, made an announcement. He would start buying US stocks, because they were cheap. I am a bit weary of buying US stocks, because as I was about to invest the forex went from 1cad=1usd to 1cad= 0.8 usd. I am of believe that the strenghtening dollar is a facade that will eventually disappear, the fed is printing too much money. As soon as confidence comes back and people starts lending and spending, CAD/USD will be at parity. There was some good opportunities out there for ADR (American Deposit Receipt), one of them, brought up by a colleague at work was for a company that has more cash then market value, basically "Free Money", the potential downside is that they are getting sued for not warning IPO investors that Gross Margin has the risk of being low if the price of their material goes up. I read the lawsuit, and my gut tells me that it will not stand. 

I am still a moderate follower of Graham, where I believe in value investing. But I went on a trip recently, and brought the Philip Fisher's Common stock and uncommon profits, which makes a good point to invest into companies that have a dominant competitive advantage and that invest into R&D looking to new source of profits. He convinced me that although value investing does work, you can only make at most 100% return. Whereas, investing in growing company that using R&D properly, you can 10-bag your returns!

So I currently hold two positions in my US account:

Google - My Fisher stock

Noah Education Holdings - My Graham stock.

I will go on about the reason I picked both of them in my next post. Hopefully it will be soon...