The rowboat syndrome trap that could cost you thousands

ASX shares keep falling, but instead of worrying, The Motley Fool is optimistically focusing on a plethora of investing opportunities, including one well-managed company still available at a good discount.

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ASX shares keep falling, but instead of worrying, The Motley Fool is optimistically focusing on a plethora of investing opportunities, including one well-managed company still available at a good discount.

Is that a relative sense of calm we can feel in the local sharemarket?


After sharp falls in U.S. markets on Monday, the S&P/ASX 200 index declined just 30 points on Tuesday.

"Markets have been fairly resilient despite a plethora of bad news on the macro-economic front", said Manoj Wanzare in the Australian Financial Review.

Perhaps investors are finally waking up to the fact that whatever happens in Europe, the world is not going to end?

The press love to focus on the negatives. "Driver with three young passengers safely arrives at work on time" just doesn't sell many newspapers.

The same goes for the sharemarket. Europe, renewed concerns about U.S. debt, the possibility of a double-dip recession, the carbon tax, and even the mining tax…

Worry, worry, worry…

But why?

"Worrying is like a rocking chair, it gives you something to do, but it gets you nowhere." – Glenn Turner

Three reasons to be happy amidst all the doom and gloom
Here at The Motley Fool, we like to focus on the positives.


– Falling local interest rates. The Age reports JPMorgan is now forecasting a rate cut in December, February and March, taking the cash rate to 3.75 per cent.

– The falling Aussie dollar, a positive for companies like CSL Limited (ASX: CSL) and Incitec Pivot Limited (ASX: IPL), amongst others.

– Cheap share prices and attractive dividend yields, including the big four banks – Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC). In the Australian Financial Review, Simon Twiss of Arnhem Investment Management said "People are having a fresh look at the banks given their sizeable fully franked dividends."

Meanwhile, whilst the pessimists and optimists grapple, life goes on.

Investing goes on too, although judging by the low volume of trades on the ASX, not too many people are talking advantage of the cheaper prices on offer.

We can't understand it. In all walks of life, we love to buy things when they are cheap…except shares.

Charlie Aitken of Bell Potter can't understand it either…

"…fear has become somewhat irrational. We have the greatest value and sustainable dividend yields in Australian equities in the last 30 years, yet the vast bulk of professional and private investors are trying to protect downside AFTER a 20 per cent correction…

…this year's dramatic increase in equity volatility has been the key trigger for the "over 50's" to switch from equities to fixed interest, creating a bubble of monstrous proportions in fixed interest, and generational low valuations in equities."

The rowboat syndrome
Human nature being what it is, we look backwards at what has recently happened in the share market and presume that state of affairs will go on well into the future.

Motley Fool co-founder David Gardner says too many people are investing through the rear-view mirror. Jack Bogle, founder of The Vanguard Group, calls it the rowboat syndrome…

"You are always looking back where you know where you've been but have no idea where you are going."

David, and his brother Tom Gardner, explain more in an enjoyable, educational and fascinating video introducing our forthcoming subscription newsletter Motley Fool Share Advisor.

We'll send you the video in a special edition of Take Stock, coming soon. We may be biased, but we think it's not to be missed.

Unloved and ignored…just the way we like our share recommendations…
Regular Take Stock readers will know our Investment Analyst Dean Morel spends his time searching for cheap, unloved, and often ignored ASX companies.

Dean is a tireless researcher, a master capital allocator, and has one of the keenest eyes for valuation we have ever encountered.

But Dean is much more than just a value investor.

Value investing is in vogue. Everyone wants to be a value investor, but few actually succeed. After all, there is only one Warren Buffett.

Why do they fail? It's because they focus purely on value, and forget many other aspects required to be a superior stock picker.


– Competitive advantage;

– Quality of management;

– The attractiveness of the industry; and

– A clear catalyst for share price appreciation.

…just to name a few.

For example, you won't find Dean recommending shares in classic value traps like Harvey Norman (ASX: HVN), Myer Holdings (ASX: MYR) and OneSteel Limited (ASX: OST) – all companies he has previously warned (here and here) Motley Fool readers away from.

Value situations like those can persist for months, even years. And more often than not, as the underlying business deteriorates, the shares just keep on getting cheaper, and cheaper, and cheaper…

Why take the risk, especially when there are hundreds of growing companies quoted on the ASX with far greater future prospects?

Warren Buffett is responsible for many great quotes, but one of his best is…

"You don't have to swing at everything–you can wait for your pitch."

Harvey Norman is being left behind by the internet. Myer is stuck in no-man's land, neither a discount retailer like Woolworths Limited (ASX: WOW) owned Big W or Wesfarmers Limited (ASX: WES) owned K-Mart, nor an upmarket retailer like David Jones Limited (ASX: DJS).

As for OneSteel, they are a business in terminal decline, trying to compete with China, but failing miserably. We don't envy management, and have sympathy for their employees, but it really is only a matter of time before they close the Whyalla Steelworks.

One stock firmly on Dean's radar …
Over to Dean…

Now is a good time to trade up to better quality companies.

Speaking of which, Thorn Group Limited (ASX: TGA) reported excellent half year results on Tuesday.

The market was impressed by the revenue and profit growth and rewarded shareholders with a 7.5 cents or 4.6 per cent gain in a falling market.

The real long term reward for shareholders will be in the resumption of a steadily rising dividend stream. This half's 13 per cent increase in the dividend is a great start.

Revenues grew at 20% while profit did even better, leaping 30%. The operating leverage in Thorn's business model continues to propel earnings growth faster than revenue growth.

Thorn's ability to perform well under challenging market conditions demonstrates the strength of its long-term recurring revenue streams.

I reiterate what I said back in October when I put Thorn on our radar.

"Thorn is a well-managed company [still] available at a good discount. It deserves a place on our radar. At the very least Thorn should be compared to your existing holdings."

Thanks Dean.

Remember, keep an eye out for a special edition of Take Stock, featuring a video from The Motley Fool co-founders David & Tom Gardner.

If you are looking for a stock you can bet on now, readers need look no further than The Motley Fool's Top Stock For 2012Click here now to request this special report, while it's still free and available.

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