Kent Demien from the United States was the winner of the last Swarmsurge Investment Competition with a performance of 9.64% in three months. Here is an interview with him about investing and his approach:
How did you get interested in investing?
Even as a child, I was always an avid saver with an eye out for a bargain. For example, during the baseball card craze in the US in the mid-1990's, my classmates were collecting cards that were minted in the millions. I correctly figured out that even though I'd have to pay more for old cards, the limited supply would mean that they'd be worth more in the future. My collection contains cards that were printed from 1887 to 1939.
In graduate school, I decided that I wanted to pursue my love for investments as a career and took as many investment-related courses that I could. I am currently in the Investment Management Certificate Program at the University of Wisconsin Milwaukee (UWM) where I am actively managing an endowment as a member of the alternative investments and value teams.
What is your usual investment time horizon?
Forever. My portfolio has very low turnover. I would not recommend this for an institutional investor, but for investors with relatively limited investable funds, the frictional costs of trading (transaction fees and taxes) do not make up for the benefit of tactically managing a portfolio.
In the portfolio that I manage at UWM, I tend to stick to the models that I build for each security. If the model tells me that it is time to trim a winner, I suggest to the team that we sell it. The most painful decision is when to sell losers. Since our fund is tax free, there is no tax loss to harvest by selling a loser. However, if the stock is falling in value, we review our original thesis and determine if selling is the right thing to do.
What is your investment methodology?
I like stocks that are trading at deep discounts to their value. I tend to buy dividend payers though some of my best bets have been non dividend paying stocks. I try to look for stocks with strong balance sheets. To avoid value traps, I study company drivers to determine if other investors will soon see (in terms of earnings growth) the same value that I see in the stock. I enjoy creating financial models and probably have a quantitative slant to my analysis of equities.
Which markets do you prefer: stocks, bonds or foreign exchange?
I spend most of my time analyzing equities, specifically financial stocks. With yields rising since the summer, bonds have been a relatively dangerous place to be. However, the spread between corporate emerging and domestic bonds remains attractive relative to sovereign bonds and as a result our portfolio has allocated a sizable share to corporate bonds.
Do you have any suggestions or tips for other investors?
I am currently looking at a Chinese residential development company called Xinyuan Real Estate Co. (ticker: XIN) and will probably be adding it to my portfolio in the next few weeks. While investors need to be careful with Chinese stocks after several accounting scandals, I think that XIN represents adequate safety with tremendous upside. All of the company's valuation metrics are outstanding. The growth in sales the company has achieved over the past two years has been over 30%. This growth is occurring because each year, millions of Chinese move from rural areas into the cities. The company has paid a dividend each of the past two years and is currently sporting about a 3% dividend yield. Finally, there is some evidence of local governments in China relaxing their restrictions on home purchases.
There are plenty of risks associated with the stock. The Chinese home market is regarded by many as over-heating though I think that is mitigated somewhat by relatively high down payments (20-30%) required by Chinese banks. The Chinese government could easily clamp down on price appreciation through various regulations and restrictions.
With conservative assumptions, I have a $9 target price on the stock. As of the close today (11/13) XIN is trading at $6.35.