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Newsletter - February 9th, 2024

Dear Reader,


Attached is our latest list of stocks passing value screens (low P/E, low EV/EBITDA, etc.), which don’t meet our investment criteria - and our reasoning.


This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.


For reports of stocks that pass our quantitative and qualitative standards:

 


 

Templeton: Adam Smith Interview


Notes on Adam Smith's short and packed interview with Sir John Templeton:




0:15 Away from the crowd


It's easier to be "odd" when you're far away from financial centers.



1:00 Contrarian Motto


"To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest reward."


If you fear for the future of a business, avoid the stock; but even a business with seemingly lousy prospects can be a good investment at a low enough price - especially on a group basis (similar to insurance underwriting).



1:45 Valuation example


"The low point for share prices is when most investors are expecting bad news, not when the bad news is out."


Templeton bought Royal Dutch Petroleum when everyone was expecting oil prices to go down. It was trading at 4x earnings, 3x cash flows, half of liquidation value, and paying good dividends.


These are the kind of stocks we look for - they can decline in price even from these valuation levels, but the investor need only concern himself with permanent impairment of business values, not temporary quotation losses.



2:45 Templeton's average holding period


Six years



3:00 Lowest price/value worldwide


Templeton invested 50% of his fund in Japanese stocks at 2-3x earnings. He reduced this allocation to <3% as valuations increased to 25-41x earnings.


He took a bottom-up approach to finding stocks, but investment opportunities tend to arrive in clumps - by industry, country, etc. Unfortunately, ideas don't come in regular intervals.



6:45 "Do you pray for stocks to go up?"


"That would be ridiculous."


"Instead, we pray for wisdom."


 

For our market-beating stock reports:

 

Wish you an excellent week ahead.

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