Investors who practice value investing are typically attracted to shares with low valuations.
But a survey of Chinese counters would show that buying into low PE stocks might end up with their valuations falling even lower.
By contrast, expensive stocks, like US tech shares, show a much better performance over the past few years.
Just because a stock has low PE is not a good enough reason for an investor to snap it up. The essence of value investing is buying good quality stocks during market weakness.
Good quality companies take many forms: some may report strong earnings, others generate huge cash flows, while others have a robust business model.
On the other hand, companies that are being offered on the cheap but without solid fundamentals and promising prospects should be avoided.
The full article appeared in the Hong Kong Economic Journal on Nov 5
Translation by Julie Zhu
[Chinese version 中文版]
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