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Hi weijian,
This case study highlighted the risk of buying a stock at above book value. Though cash flow, balance sheet and order book looks healthy coupled with decent dividends, the fact is that the market had priced in too much future earnings. When it disappointed, one can suffer huge capital losses due to adjustment of market expectations. Even at current price after correction, it is still trading at above book value.
Personally, I do not like order book based businesses, unless they are trading at below book value. I prefer to, as you have said - buy/sell (perpetually) undervalued assets.
You have said at another topic here - burning our brains on profit taking fair/overvalued assets is a much more "good problem to have". Now you have to "burn" your brains again on whether to buy overvalued assets at a lower order book level or cut losses if you are still holding it.
This case study highlighted the risk of buying a stock at above book value. Though cash flow, balance sheet and order book looks healthy coupled with decent dividends, the fact is that the market had priced in too much future earnings. When it disappointed, one can suffer huge capital losses due to adjustment of market expectations. Even at current price after correction, it is still trading at above book value.
Personally, I do not like order book based businesses, unless they are trading at below book value. I prefer to, as you have said - buy/sell (perpetually) undervalued assets.
You have said at another topic here - burning our brains on profit taking fair/overvalued assets is a much more "good problem to have". Now you have to "burn" your brains again on whether to buy overvalued assets at a lower order book level or cut losses if you are still holding it.