Jae Jun is the author of a very successful value investing blog, Old School Value. One of my favorite ways of finding investment opportunities is to read other people’s blogs and learn about opportunities that others have already discovered and that’s why I decided to interview Jae. The following interview was conducted on January 30, 2010. Enjoy.
Your blog is called Old School Value blog. How did you choose this name?
The name is a combination of “Old School” and “Value Investing” meaning that I stick to the good ol’ method of Graham, Fisher, Buffett and other value greats by rolling up my sleeves and doing the hard work to analyze the business.
It’s a motto to stick to the old school basics.
What type of investor would benefit most from reading your blog?
The blog will help anyone wanting to learn how to value a company. I started the blog to document my reasoning and thought process, which is why I also write in detail and try to provide insight rather than straight out copies of annual reports.
Seasoned and advanced investors may not find the fundamental analysis as helpful as the beginner/intermediates, but I try to cater to the advanced audience by offering plenty of stock ideas and screen results and finding huge inefficiencies in the market.
How did you get started in investing?
My first investment, I lost over $3,000 which was a substantial amount compared to my net worth at the time. I had bought variable life insurance that did nothing but take fees and I was continually losing money, so I forfeited the insurance plan and took the loss.
That first painful experience worked wonders because from that day on, I just kept reading and studying. Soon, I realized, Wall Street wasn’t all that it was made out to be. The little guys could do what Wall Street does, but even better. So after a while, I took the plunge and started investing with real money.
What led you to choose the value style of investing instead of growth, momentum, or others?
I’m frugal and cheap by nature. Even when buying groceries, I was raised to always compare the price and weight and make the purchase based on value. Essentially, I grew up practicing value investing.
But when I first got started, I didn’t know anything and I would spend time reading articles from Trading Markets that explained how buying stocks on Tuesday was a successful strategy.
Then one day I found F Wall Street and the minute I read that first article, it was an “aha” moment.
Was there a particular investor or investors that inspired you the most?
I say this all the time, but Joe Ponzio of F Wall Street is the one that got me started. His clear cut, simple to understand brilliance in teaching was what I needed the most. So a lot of my thought process is based off his.
Some are surprised that I don’t mention Buffett, Graham or other investment gurus, but the truth is, I got more out of Joe than any of them.
I would have never guessed that Joe had such a great influence on you. I read Joe’s blog and book, and I think he is one of the best educators on the subject of value investing.
It seems like you invest differently depending on the term of your holdings. Can you elaborate more on that?
I don’t specifically seek to allocate a certain amount to a particular asset class or holding term. While I do break down my investments into holding lengths, long term (> 5years), mid term (2-3 years), short term (up to 2 years), it’s more important to identify when you have to sell. By entering a position knowing your timeframe and what you’ve got to work with, it helps with how active you need to be in a position.
Do you emphasize quantitative, qualitative methods or both when analyzing companies?
Definitely both. The easy part is the quantitative. You just plug in some numbers, get some results but that should only be the first and easiest step. Knowing whether you should continue with the research, determining the outlook of the company, and then calculating how much you should pay is the difficult part.
You use more than one method of valuing companies. How would you describe your valuation techniques?
Investing requires you to be fluid. As Bruce Lee said, “be like water.” You need to be able to adapt to a situation rather than force a square block to fit into a triangle hole.
Every company is a dynamic living entity which requires you to think about the approach and how it could easily change. A once high flying growth company could become a distressed opportunity, or a value play could become a turnaround and then become a growth story.
In the beginning, I fell into the trap of trying to apply a DCF to every single company and that only resulted in mediocre results and many value traps. Although I focus on valuation, I now place far greater importance on getting a feel and sense of the business.
Does the size of the company matter to you?
Not at all. If I started my own business, the market cap would be micro with no trading volume but that doesn’t mean my business would be speculative or risky. I could have very stable cash flows and a strong balance sheet to support a valid business, it’s just that no one knows about it.
However, I try to stay away from zero volume stocks. Only because, if you make a mistake, it’s extremely hard to sell.
What advice would you give to beginning to intermediate investors?
Take what I say with a grain of salt, especially coming from a guy who has never studied finance in any orthodox manner. I’ll just mention a few:
- Study your own behavior and understand your range of emotions
- Create a checklist which every investment has to pass
- Seek critique to your rationale instead of hiding in embarrassment
- Common sense is the antidote to feeling exuberant highs and world ending lows.
For the beginner, I recommended reading the following books in the exact order below.
- Any good book on Warren Buffett
- Why Are We So Clueless about the Stock Market?
- F Wall Street
- The Five Rules for Successful Stock Investing
- Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports
You also authored your own e-book. What is it about and what kind of investors would benefit from reading it?
Well it’s not an ebook. I sometimes write a series of articles on my blog about a subject which I compiled together in an easy to read PDF format. I have two posted at the moment. One is where I valued and discussed each of Warren Buffett’s stock holdings and the second is one where I explain how to interpret financial statements rather than reading it at face value.
How can readers follow your progress?
Anyone can read what I’m thinking and doing at my blog or interact directly on the forum.
If you also meant progress as in my portfolio performance, I write a monthly review on the blog as well.
Would you share a recent investment and why you chose it?
A recent investment is Gravity (GRVY), an online multiplayer gaming company selling for less than its liquidation value. The market is pricing the company as if it was bound to go bankrupt which is absurd because the company has about 70% of its assets in cash, is operating profitably and is increasing revenues in each of its operating segments.
At the current price, every new game that is to be released is absolutely free and since the stock is priced to fail, the only direction the stock can go is up.