China Growth Stocks

[ratobranco]

Glad you liked it...

Some interesting takeaways that I found helpful:

1) When you start the process of evaluating an investment, focus on the risks first, then on the rewards. Make sure that the investment affords an adequate safety margin on the downside, then focus on what it offers on the upside.

When you take the process in the opposite order, i.e., when you evalute the upside first, and the downside second, you are more likely to get lost in the frenzied idea of how much money the investment is supposedly going to make, and forget about the risks that you may be taking on to get that potential upside.

2) Develop a strike zone for valuation (baseball analogy), and don't swing at pitches thare are outside of that zone--even if you think they may result in a hit. Translation: don't make half-ass investments. Stick to strong conviction plays, and if you can't find any, then keep your cash on the sidelines for a better opportunity.

3) Try to avoid becoming a "Defender of the Idea" with your investments. That would be a situation where you take a position, either by investing actual money, or by getting into a discussion with someone, and as a result of having taken that position, you become personally attached to it, such that when you get exposed to contrarian opinions from shorts or critics, you immediately look for the reason why you are right and they are wrong, rather than keeping an open mind and just trying to find out what the actual truth is--so that you can make the smartest investment.

I've been reading Whitney Tilson's articles on Seeking Alpha and listening to his various clips on CNBC. He's really good.

Case in point: He's been shorting Palm (PALM) like a mad man. It has gone from 16 to 4, and will probably end up at 0. He also bought General Growth Properties (GGP) just before and during its bankruptcy. That trade has now turned into a sixteen bagger.

Check out this article in December of 2009:

http://seekingalpha.com/article/178502-general-growth-properties-rebutting-the-bears

"We don’t normally let the stock of a company in bankruptcy grow to be one of our largest positions, but have done so with GGP based on our belief that the company is very likely in the near future to either exit bankruptcy or be acquired – in either case, the stock should be north of $20. That said, GGP is no fortress like Berkshire Hathaway (also one of our largest positions), so such a large position makes us nervous and we’d welcome a rationale to trim it. We also always look for disconfirming evidence in all our investments, so we reviewed Hovde’s presentation with great interest. Alas, we found it unconvincing and full of valuation inconsistencies – but are grateful for the drop in the stock, which we’ve been using to aggressively add to our position this morning."

The stock closed Friday at 16.75.