We could apply discounted asset strategy to buy good business at undervalue price. One simple method is to buy strong property stocks with low Price-to-Book ratio (share price divided by net asset value). Hongkong Land (H78.SI) is a property stock listed in Singapore with commercial properties in Hong Kong, Singapore and China. Currently Price-to-Book ratio is exactly 0.5, at its historical low (see chart below), owing to falling share price and consistent growing net asset value. If an investor owns Hongkong Land at current share price (about US$6), it is as good as owning a portion of Hongkong Land properties at 50% discount. This is a combination of value investing (buying at discount) and growth investing (company with growing business, share price went up 8 times over the past 15 years).
However, a trader or investor needs to apply optimism strategies to know the investment clock, when to buy and sell Hongkong Land. Due to cooling measures of property in Hong Kong and Singapore with slowdown in economy, the market sentiment has corrected Hongkong Land to 26% Optimism. It means the stock has 26% downside and 74% upside from long term perspective, Reward to Risk Ratio (RRR) nearly 3 to 1. Optimism is a probability calculator, we could know the chances for trading or investing in short term, mid term and long term.
Currently Hongkong Land is under both Level 2 crisis (bearish Singapore property market) and Level 3 crisis (Hong Kong Hang Seng Index at low optimism), suitable for medium term trading but technical analysis should be applied before entry. For long term investing, this stock may be considered during Level 4 crisis (global financial crisis) one day when optimism of world stock indices are low.
