DBS (Development Bank of Singapore)

[weijian]

I for one, would be looking for a quality asset trading at 1-1.3x BV, and be cautiously optimistic that its quality will allow its BV to keep compounding faster or even the possibility of having the Market to re-rate its BV multiple upwards, compared to let's say, a cheaper lower quality asset that perpetually trades at 0.7x BV and then have a real risk to be re-rated to 0.5x BV.

Why wouldn't a 0.7x BV company be re-rated upwards instead? Why wouldn't a 1-1.3x BV company be re-rated downwards instead? In a crisis, all will be re-rated downwards. It is just market perception of future earnings potential of a company you have invested in. Generally, there is not much money to be made if you agree with market valuation and definitely much to lose if you overpaid for a company, even if it is a good one.

Hi ghchua,

Of course 0.7x BV can re-rate upwards and a 1.3x BV company can be re-rated downwards. I think we are nuancing over odds here.

When a company is perpetually at 0.7x BV, the reason/s for the discount has a higher chance to maintain/increase the discount) than a new reason reducing it.

When a company is perpetually at 1.3x BV, the reason/s for the premium valuation has a higher chance to maintain/increase the premium than a new reason reducing it.