Value Investor?

[Temperament]

Is a high beta stock means it's has high volatility in price from it's mean? So is it true a low beta stock is safer then a high beta stock?

[Temperament]

For me especially now no more "HC",
Spared cash means all my necessities of living have been taken care off for at least 1 to 2 years before i plunge the "extra" cash into the market. 2 - 3 years will be best when i am fully invested in the market. What sorrows to endure if i have to forced to sell because i run out of cash for daily living and unforseen "expenses".
The best and most ideal (my dream) is to be able to generate cash from my total portfolio, money more than enough to cover my yearly expenses. The lower my expenses per annum the easier for me to achieve my dream. Then i can really say i am "F.F."
In short, if i can really take out the time factor in investing, i am more than comfortable and sleep well at night. Anyway i have to. Remember no more "HC" for me!

[specuvestor]

The fundamental reasoning between volatility and book value as proxies are not even close

I am willing to hear more on the argument. Would you like to elaborate?

Where should I start the rant?

http://www.valueinvestingworld.com/2010/...cient.html
I think Buffett has said more about CAPM than i ever could explain properly but off the top of my head here goes my 2cts worth:

Volatility is a statistical number based on CHANGE of price. It doesn't matter if stock is $10 or $1. Blumont is just as risky when it was 10ct vs when it was $1 as long as their price change say 20% is the same. It is also based on the assumption that price incorporates all information of the perfect market, hence the change in price is the unexplained error term and hence unknown risk.

Market practitioners know the market is not perfect nor rational all the time. in fact a high volatility stock with upward bias may not even look risky at all (hence the adjusted Sortino Ratio), and value investors like Buffett thinks lower prices are even lower risk.

Book value on the other hand is a disciplined approached to book-keeping, even segregating historical transactions from revaluation (guesstimate) gains. If you have done options before you would know that most of the time the projected volatility priced in the option almost never match the post-ante realised volatility. History is not really a good gauge. And then again which volatility should we use? 5,20,30,90,180 days volatility? they all give you vastly different numbers. But in general we know that a profit making company tends to trade above book and loss making will be below book. No Greeks needed. you could actually dissect the book to see where is the value. How do you dissect volatility to find out where is the risk attributed?

I could go on but its 2am To simplify risk into a singular number is a heuristically comfortable way of looking at a complex matter. We always say risk is actually not knowing what you are doing/ getting into. And to "know" it takes loads of hard work than just a 5min excel generated root mean square of historical numbers.

[CityFarmer]

First of all, highly appreciated for the reply, especially so at 2am. Thank you.

It will take me more time to digest it. At the mean time, I would like to highlight Mr. Buffett's alternate view on the topic, posted here

http://www.valuebuddies.com/thread-6143-...#pid104802

Where should I start the rant?

http://www.valueinvestingworld.com/2010/...cient.html
I think Buffett has said more about CAPM than i ever could explain properly but off the top of my head here goes my 2cts worth:

Volatility is a statistical number based on CHANGE of price. It doesn't matter if stock is $10 or $1. Blumont is just as risky when it was 10ct vs when it was $1 as long as their price change say 20% is the same. It is also based on the assumption that price incorporates all information of the perfect market, hence the change in price is the unexplained error term and hence unknown risk.

Market practitioners know the market is not perfect nor rational all the time. in fact a high volatility stock with upward bias may not even look risky at all (hence the adjusted Sortino Ratio), and value investors like Buffett thinks lower prices are even lower risk.

Book value on the other hand is a disciplined approached to book-keeping, even segregating historical transactions from revaluation (guesstimate) gains. If you have done options before you would know that most of the time the projected volatility priced in the option almost never match the post-ante realised volatility. History is not really a good gauge. And then again which volatility should we use? 5,20,30,90,180 days volatility? they all give you vastly different numbers. But in general we know that a profit making company tends to trade above book and loss making will be below book. No Greeks needed. you could actually dissect the book to see where is the value. How do you dissect volatility to find out where is the risk attributed?

I could go on but its 2am To simplify risk into a singular number is a heuristically comfortable way of looking at a complex matter. We always say risk is actually not knowing what you are doing/ getting into. And to "know" it takes loads of hard work than just a 5min excel generated root mean square of historical numbers.

[specuvestor]

^^ In case you misread, only the first para on farm is from Buffett

i think price volatility should never be consider as risk. It's considered as risk only when you are restricted by the time factor or time horizon. Another words you should aim not to be forced to sell due to time. Basically a risk of my money is real lost with only a slim chance to recoup some or worse case of all recoup none; No matter what happens after i buy. Like some S-Chips i had to sell as fast as i could before it is suspended.

Yes, I agree with Mr. Buffett's view on volatility. It isn't risk, but it is probably the closest proxy of risk. It is still a useful measure of risk in analysis, as stated by Mr. Buffett below. It will be used in my "amateur" research.

----------------
It's nice, it's mathematical, and wrong. Volatility (i.e. standard deviation) is not risk. Those who have written about risk don't know how to measure risk. Past volatility does not measure risk. When farm prices crashed, [farm price] volatility went up, but a farm priced at $600 per acre that was formerly $2,000 per acre isn't riskier because it's more volatile. - Warren Buffett
...

Why We Still Use Standard Deviation
If you've read this far, you might wonder: if I really believe this, then why do I talk about standard deviation as a measure of risk in my free book as well as my free course? I do it for 2 reasons.

First, in general (but not always), risky stocks come with high standard deviations. If you look at J C Penney, for example, its stock price moves up and down quite violently (i.e. has high standard deviations). That's because as J C Penny oscillates between making profit and losing money, the opinion on the company shifts often.

Second, while I believe short term price fluctuations don't matter, I recognize that most people have trouble thinking the same way. Most people do feel anxious when stock prices take a temporary hit, which often causes them to make bad decisions. For example, during the depth of the financial crisis, many people sold their stocks out of fear, though they should have been buying stocks instead.

I don't want to ignore the emotional reality of people, which is why I try to optimize the portfolios in such way that the portfolios don't move up and down very much. That's why I will continue to pay attention to standard deviation, even though quite frankly, I don't care about it much for my own portfolio.
http://www.moneygeek.ca/weblog/2014/08/2...ines-risk/

[CityFarmer]

In the quest of a good risk measurement methodology, the following "Risk is Not The Same as Volatility" by Michael Keppler, is the best read, IMO

http://www.kepplerfunds.com/load/publica...03_eng.pdf

I like the following simple, yet to the point paragraphs. The proposed measurement sound very logical to me, a retail investor. It might be an usable methodology for me.

"If you ask investors what risk they assume when buying stocks, they likely will
respond, “Losing money.” Modern portfolio theorists do not, however, define risk as
a likelihood of loss, but as volatility"

and

"An accurate measure of risk must factor in the probability of loss and its potential
magnitude. The expectation of loss – measured over a long period – meets this
requirement. The expectation of loss is calculated by multiplying the probability of a
loss by the average period loss"

[Temperament]

No wonder a veteran investor of 30 to 40 years wrote a financial book and declared The 3 best things to have or must have (in the first place) are "Longevity, Deep pockets, and Lady Luck (or GOD Blessings if you are believer).
Who can argue with him? Not me lol!

[Musicwhiz]

The aim of the value investor (or if people out there think the term "value investor" is too cliched, then the "conservative investor") is to ensure that he preserves his capital and seeks a margin of safety for his investments.

In light of two recent developments, namely the oil price plunge and the sudden appreciation of the CHF, it is easy to illustrate how one could lose a substantial amount of money if one was either not careful (e.g. buying highly leveraged O&G companies which were not generating a cent of FCF) or speculating recklessly on leverage (when trading currency pairs such as CHF:EUR).

The moral of the story is - ensure you do not lose a substantial chunk of your investment capital, even as you try to navigate through the treacherous waters of the stock market in search for verdant land. Be careful though, using the same analogy, the call of the Sirens can sometimes be deafening and lead sailors to certain doom. We must be steadfast and resolute in our quest for safety of principal and an adequate return, as defined by Benjamin Graham.

[specuvestor]

More on volatility:
http://www.bloombergview.com/articles/20...iss-francs

20X SD only makes sense to a statistician However the fundamental risk and logic of the trade is much easier to understand.

[brattzz]

"Second, while I believe short term price fluctuations don't matter, I recognize that most people have trouble thinking the same way. Most people do feel anxious when stock prices take a temporary hit, which often causes them to make bad decisions. For example, during the depth of the financial crisis, many people sold their stocks out of fear, though they should have been buying stocks instead.

I don't want to ignore the emotional reality of people, which is why I try to optimize the portfolios in such way that the portfolios don't move up and down very much. That's why I will continue to pay attention to standard deviation, even though quite frankly, I don't care about it much for my own portfolio."

absolute guru sia!