(30-06-2022, 12:04 AM)dreamybear Wrote: I am pretty sure these have been expounded in this forum already - certain issues for such undervalued stocks include stock may continue trading consistently at a discount to NAV for a long time, mgmt rewarding themselves with high compensation, etc. A retail investor's capital may be stuck a long time before receiving any significant rewards(and which may or may not happen). This is excluding the considerable effort to monitor the company / industry / competitors day in day out till that windfall comes.
Hi dreamybear,
I think you have misunderstood the basic tenant of buying undervalued stocks trading at a discount to NAV - i.e. You are essentially buying the company's assets. Business performance is secondary.
Which means, you do not actually need to monitor the company / industry / competitors closely. What you need to make sure is those assets in the company are hard assets (i.e. cash or property). If they are receivables or inventories, give a discount on its holding value. I would also give a zero value on goodwill as well.
After that, sit back, relax and wait for the share price to move towards its NAV. The business can continue to lose money, but as long as the NAV is stable or drops a bit and the discount is still there, keep on holding or add a bit if the discount is wider.
To minimize capital being stuck for a long time in a stock, you can buy a diversified portfolio of stocks. Or, have a time frame like switching to another undervalued stock when it did not reach its NAV after, say 3 years.