How do you know whatever you are buying into is really cheap

They say that when you find a cheap stock, the odds that you are wrong about it is 90%.

The scariest form of being cheap is that when your preliminary analysis of the company shows that everything looks fine and rosy. This should be treated with massive amounts of skepticism as I doubt the undervaluation is caused by not being looked by anyone recently. I really do not think the theory of undervaluation because of no analyst coverage is true anymore when the financial industry has ballooned to this state, especially in Hong Kong. It can happen but the odds are not in my favour. There is usually something lurking in your blindspot. I tend to like companies that are beaten down because of obvious negative factors that I think are only temporary.

What I am doing now is actually really, really hard in a bull market. Everything with the slightest good quality will not be cheap unless specific events to that industry or company cause the temporary depressed share prices. In the absence of negative news, nothing will be cheap in a bull market. This is something I worry about in the future. When you can’t find anything worthy to buy, what am I supposed to do? Buy bonds? Buy real estate? I think in Hong Kong, buying real estate is somewhat equivalent to how they teach us to buy bonds in the US, but somehow they are also not equivalent. When nothing is that cheap, standards have to be lowered, and risks will go up.

I guess the smart money will always go to places where there are less people. To achieve maximum safety and return, one must get on the train before it even starts.


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