Quantitative versus Qualitative Approach in Stock Market Investing

Quantitative comes first. What's the point anyhow in

exhaustively delving into the qualitative aspect of the

company only to learn it's not even fundamentally earning

money consistently as a business?

Quantitative always comes first. Why? Because I don't want to waste my time going through the qualitatives of a company only to learn eventually, when I'm doing the quantitative part already, that its math doesn't add up, i.e. it's not a profitable business at all, not making any money consistently. What's the point, right?

First and foremost, why one is investing in the first place is to garner rates of return, and as a rational investor, it's only right to be conscious and aim for this. Only when do the numbers add up that one should start delving into the qualitatives of the company. Don't get me wrong. Looking at the qualitative side is important. I would say it's an important factor in mitigating risk. Because, personally, for me, while financial institutions would equate risk to volatility in order to quantify/measure it, i.e. the more volatile an investment is, the riskier it is--I am still a firm believer that volatility doesn't define risk (although I would agree that put into the more appropriate context, volatility indeed can be a risk factor).

Astonishing Role of Capitalism in Passive Wealth Building

Capitalism has astonishingly imposed and facilitated our preferred, ideal setup—Chemrez’s management doing its job of running the company, taking care of the technical burden for us, while we, being investors, duly reaping the economic rewards, expecting and passively enjoying fundamentally-grounded returns for as long as we would like.

This is Part 7 of a Series. Go to Part 6: Acquisition Moves and Exploitation of Market Misalignments

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Rare are situations where you have excellent firms posting double-digit returns for a good run of years yet are selling inexpensively; we paid attention, decided, and took action. Relative to equity value, we have effectively become part-owners of Chemrez for free, being able to strike a great discount around 14%. As such, we have the luxury of watching our fortune in book value terms, taking comfort in each increase as an enhancement of wealth, conservatively subscribing to the idea that our rate of return approximates the underlying company’s return on equity regardless of the market’s schizophrenic mood. Capitalism has astonishingly imposed and facilitated our preferred, ideal setup—Chemrez’s management doing its job of running the company, taking care of the technical burden for us, while we, being investors, duly reaping the economic rewards, expecting and passively enjoying fundamentally-grounded returns for as long as we would like.

Acquisition Moves and Exploitation of Market Misalignments

One of the chief reasons which have prompted our purchase of Chemrez shares was due to a market anomaly which I often exploit—particularly, companies selling below their equity or book value. 

This is Part 6 of a Series. Go to Part 5: Reporting Hedge Fund Performance

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.


Our first move has been the acquisition of some shares in a corporation called Chemrez Technologies, Inc. (ticker symbol: COAT), a business which has positioned for growth by branching out from powder-coating operations to the lucrative business of biodiesel, oleochemicals, resins, and other specialty chemicals. We are generally confident on how well this business shall achieve considering the economic potential and long-term sustainability of biodiesel.

Reporting Hedge Fund Performance

Great investment operations endure the test of time, spanning decades of consistently compounding money. Along these lines, we strongly maintain and attempt to be the same and consistently reach double digits growth on an annual-basis. 

This is Part 5 of a Series. Go to Part 4: Accounting as the Language of Business

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Noting performance, our aggregate partners’ equity increased 2.82% from its inception on November 22, 2010—the date of approval of our proposed Articles of Partnership and registration with the Securities and Exchange Commission (SEC)—up to 2010’s yearend. This translates to an effective annual rate of return of 26.42% (computed as 2.82% multiplied by 365/39 days).

Accounting as the Language of Business

We, as passive investors should be shrewd businessmen, having the technical operations of the business delegated but still mindful and prudently watchful of the state of our assets. 

This is Part 4 of a Series. Go to Part 3: Conservative Expectation on Rate of Return

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

I’m sure none of us are strangers to the basic dynamics of how a business works financially. Generally, we are faced to lay out some cash, depending on the industry, to allot for initial working capital (e.g. inventory, revolving fund, etc.) or to spend on capital expenditures (e.g. fixtures, equipments, etc.) hoping the venture would payback these outlays later on; transactions are inevitable when conducting the affairs of a business.

Conservative Expectation on Rate of Return

We shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

This is Part 3 of a Series. Go to Part 2: Business Perspective Attitude and Owner Mentality

Note: The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Consequently, we shall have a more conservative expectation on our rate of return, limiting it and not being excessively optimistic in our prospect than what our underlying held companies, in their operational and financial capacities as real businesses, can realistically achieve.

Business Perspective Attitude and Owner Mentality

Stocks, by their very nature, are long-term; evaluating them, as true businessmen do, takes into consideration the years it commonly takes to recoup initial outlay, conservatively vouching on the cash-generating economics of the venture.

This is Part 2 of a Series. Go to Part 1: A Filipino Hedge Fund

Note: The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

With this business-perspective attitude and owner mentality towards our partnership’s investments—treating them as real businesses with operating realities and not merely paper assets whose value wiggles daily—we naturally take the position of being long-term investors, buying firms and holding them indefinitely. It is only intuitive that we follow this long-term approach if we really want to take advantage of their true compounding power.