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Black Swans, Ugly Ducklings, Golden Geese
Home Finance Trading / Investing
By: Sean Seah Email Article
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Black Swans, Ugly Ducklings, Golden Geese

Hi Friends,

Cayden has shared regarding Black Swan and Value Investing in the last post. (Click Here to Read).


Allow me to share my perspective especially with regard to the application portion.

Most seasoned investors know that crisis is the time where most profits are made because wealth is not loss during that time, it merely changed hands. This is the case for stocks, real estate or almost any asset classes where you have mastery in.

Let’s go back to one of the "Black Swan" period just less than a decade ago, The Global Financial Crisis of 2007- 2008.

Screen Shot 2014-04-16 at 8.56.55 AM

This is the period of time many stocks look "terrible". If I may, they look like ugly ducklings which nobody wants. Bear in mind that there are stocks that have lousy fundamentals which we will avoid because for lousy companies, almost any price may be too high a price. When I talk about Ugly Ducklings, these are stocks that will eventually turn into beautiful swans or even better… Golden Geese. And when is it the best time to get these stocks? Exactly, during Black Swan events when they look like Ugly Ducklings.


Some examples of Ugly Ducklings

1. CarMax Inc (KMX)

Screen Shot 2014-04-16 at 9.06.58 AM

When this stock started falling in 2007 and look ugly, guess what did Investors do? Lets see some records:

a. Ruane Cunniff bought KMX at an average price of $23.5, clocking about 85% increase now.

b. Warren Buffett bought KMX at an average price of $23.5 as well, clocking 85% increase.

c. George Soros bought KMX at various times at an average of about $20, clocking 108%.

d. Ron Baron bought KMX at average price of $20+ clocking around 80% to 100%.

c. Chuck Akre bought at an average price of $20, clocking around 100%.

2. Monster Beverage (MNST)

Screen Shot 2014-04-16 at 9.26.16 AM

Now, who bought this ugly duckling in the Black Swan Crisis?

a. Ron Baron bought at an average of $13.50 clocking 373% now.

b. Jean Marie Eveillard bought at an average of $16.35% clocking 291%

c. Joel Greenblatt bought at an average of $9.35 clocking more than 500%.

d. Wallace Weitz bought at an average of $16+ clocking about 200%

What is the lesson here? It goes back to one of Warren Buffett’s famous quote, "Be Greedy others are Fearful and Be Fearful when Others are Greedy."

But in order to be able to do that, we need to have mastery over our investments. Again, if you have invested in times of crisis, you would have bought many ugly looking ducklings that would have become golden goose darlings.


Of course, Value Investing is one of the methods out there that can help us profit in the stock market and in my opinion, I like it the best because of how passive it can be. Let me also share that it is really practical for a person like me who values time freedom and not having to monitor and predict the next black swan (which cannot be predicted anyway- see definition of black swan Here).

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