In Search of Fair Value

One can get carried away when there are quite a few undervalued stocks after the recent market pullback. I certainly am not the only one who can see tremendous value in chinese stocks after it has been steadily declining since 2008. When it comes to stock picking, pick the winners or wonderful companies at fair value. Stay away from laggards at all cost. 
It is the perfect time to reflect on a wise saying:

It's Far Better to Buy a Wonderful Company at a Fair Price than a Fair Company at a Wonderful Price - Warren Buffett

Recently bought a piece of ChinaLife insurance, which is undervalued by the way. It is THE biggest life insurance companies in the world and i see great potential for it to grow in the near future as lower middle class people in China begin to be able to afford insurance policies. Another reason for investing in insurance is because of the nature of its business, which i like. Its the best kind of business after casino business because people will continue to pay you monthly until he/she reaches their retirement age of their policy lapses. Can i call it legalised "protection money"? However negative my viewpoint may be of this kind of business, i still acknowledge that the business model behind insurance companies has huge potential to make returns even during a market downturn. Therefore you many notice that insurance companies even if affected by market swings, are usually the first companies to bounce back. Anyway i am taking a long term view of China Life insurance and anything below HKD19/share is a fair value for a wonderful company. Below is the chart. I must say it is not the best technical analysis but i see strong support around HKD18, it keeps bouncing off around that price.

I should also give you example of a company i am staying away from. Petrobrasil (PBR) which recently broke through its lowest price of $13.50. I just dont know where the bottom is anymore because it is an great price for a company that is just not doing well. And if you look at the chart below from 2002, it seems the bottom was actually around US$3/share.

In terms of companies listed in SGX, HPH trust is still cheap because i see shipping business picking up rest of the year. And as talks between China and US to improve trade relations continue, trading volume will go up for the rest of this year. Take positions early and get out as soon as everyone else starts getting greedy. Because people are still fearful now, which tells me to do exactly the opposite. Also the VIX (volatility index) is going down, which if you already know indicates that we might see market uptrend soon.(below 15 is good, below 10 even better)

Petrobasiliero (PBR)

I must admit temptations are hard to resist. Sometimes you have to stop yourself from making silly mistakes. PBR has been on my radar for the past 3 years and there has been times when i almost executed an order to buy it at $40 then at $30. At the back of my mind, someone keeps telling me to speculate on beaten down stocks. But luckily i have my brother who is far better at technical analysis than me, who keeps pointing out the obvious flaws...And you know what, i appreciate 2nd opinion on these things. Looking a the shorter time frame from 2008, i realise that PBR is a $60 - $70 stock trading at such a discount. It is the official, government owned oil company in Brazil, heavily invested in Ethanol production and supply. It enjoys an economic advantage (moat) over other players in the South American region with large number of assets on and offshore.

 BUT the real question is:

Why has it not performed as well as ExxonMobil, Shell or Chevron? What is wrong with it? 
My best guess is: POOR MANAGEMENT or in this case too much Micro Management and Interference from corrupted government officials.

Lets look at long term trend (technically speaking):

Even the long term support is no longer valid. Technically there is just nothing positive, except that previously the bottom in 2009 was around $14 region and just this year crossed the bearish trend down from 2008 peak. I wonder if NOW this stock has actually started to trend upwards. 

Fundamentally its rubbish, Technically is somewhat unpredictable at this point. Buying PBR would not be investment, it would be a gamble, which i must stop myself from doing.

But in all seriousness, the lesson to be learnt here is that; Dont speculate, research on the background of the company, look at their financial data, if they are losing money for some unknown reason, stay out of it. If the company doesnt make money, shareholders get NOTHING too. Technical analysis is great for making decisions clearer, always rely on technicals before executing any order.