Warren Buffett has once said: “If I was running $1 million today, or $10 million for that matter, I’d be fully invested…. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” Does his 50% return confidence come from company with wide moats, special situation or cigar-butts? Personally, I think it would be cigar-butt and no-risk strategy. Charlie Munger also mentioned that he made $80 million in several years by investing in a cigar-butt company. Those facts have encouraged me to begin my journal to find cigar-butt companies around the world. However, we could not find any newsletter or sources, which can feature good companies selling at a very cheap, cigar-butt price consistently. That is why we started Global Hidden Gems Portfolio in January 2019. www.ghginvest.com.
In the Global Hidden Gems Portfolio (GHGInvest), there are three main strategies which can cater to DIY investors:
- Global High Dividend Yield Portfolio: Global Stocks which have been paying uninterrupted dividends for the past 10 years, with a reasonable payout ratio and have been growing dividends for the past 5 years)
- Global High Growth Portfolio (Peter Lynch Style): Global Stocks which have been growing EPS more than 15%, with consistent EPS growth for more than 3 years, reasonable leverage, and trading at less than 1x PEG ratio.
- Global Net-Net Portfolio: Global Stocks which are trading less than its net working capital, which is categorized as net-nets under Benjamin Graham strategy.
In addition, every month, we feature one or two stocks which are clearly undervalued under cigar-butt strategy. Profitable companies which are trading less than their net cash. As simple as that. Rationally, a company which is trading less than its cash, even net-nets, often produced huge losses, which eats into their cash balances over time. However, we dig deeper to find the extreme irrationality in the market. How can a business which earns $1 in profit every year, has $10 in the cash balance, employ no debts, but sells in the market for only $5? But that is the typical characteristics we are looking for. Some of them are even paying good dividend yields as well.
Within one year, with 13 issues, GHGInvest has been lucky to find up to 15 situations which are all making good money, which makes our subscribers quite happy. If we put in $1,000 in each of our picks, we will end up with nearly $22,170. Please bear in mind though, investing in cigar-butt involves three risks: the risks of investing in global markets (can be certain accounting frauds which we could not identify), illiquidity risks (which we tried to minimize), and the currency exchange risks (which we can hedge by forward/futures currency contracts)
Here is detail return of each pick (the details of the picks are only available to our subscribers).
Indeed, the cigar-butt investing still works well. Although it requires extremely hard and long-hour work, the results can be quite rewarding when we can find those opportunities.
Happy and Successful Investing!
GHGInvest