[Apartment] "Naver at This Timing?" Why Core Asset Investment Matters (Park Seik Part 3)

Q. How to Make Successful Investments

Shin Ji-eun: In parts 1 and 2, you explained the difference between trading and investing and shared various stock investment tips. If you could summarize one thing that “must be done” and one thing that “must never be done” for successful investing, what would they be?

Park Se-ik: I think you should first consider “What principles do I hold in investing?” When people ask me, “What is Chesley Investment Advisory’s investment philosophy?” or “What is Park Se-ik’s investment philosophy and style?” I often compare it to athletes like baseball or soccer players. You need to know whether you are like player Lee Dae-ho, Kim Joo-chan, or Kim Ha-seong, who is currently active in San Diego. But we always dream of being Otani. My investment goal might be Otani, but since it’s difficult to reach Otani’s level, it’s better to clearly establish where your aptitude lies and what investment philosophy and principles you hold.

Speaking about myself, I do not bet on declines. The first reason I don’t bet on declines is that quality stocks generally trend upward. So it’s hard to profit by betting on a drop. The second reason is that when something falls, it means something has worsened. Whether the company’s fundamentals deteriorate or the macro market worsens, everyone enters a painful phase, and profiting from that pain is what it means.

Shin Ji-eun: That’s right.

Park Se-ik: So that mindset isn’t very healthy. The way to succeed in stock investing and in life is to cultivate the habit of seeing others’ strengths, not their weaknesses. Look around you?people who always talk about others’ faults are rarely living successful lives. To be good at stock investing, you need to develop the habit of seeing strengths, and with that habit, you generally should avoid betting on declines.

Shin Ji-eun: So, no betting on declines.

Park Se-ik: Also, it’s really bad for your mental health. What’s the most frustrating thing in stock investing? Selling and then seeing the price go up. It’s painful to hold a losing stock, but it’s even more upsetting to sell and then watch it rise.

That really hurts emotionally.

Shin Ji-eun: It really wounds your heart...

Park Se-ik: Now imagine short betting?betting on a decline?and then the price goes up. The pain would be enormous, right? I always say you should invest while imagining a happy future. Imagine buying a small house through stock investing and achieving financial freedom in your 60s or 70s to do what you want. But the process itself of betting on declines is very unhealthy. So I never bet on declines.

Recently, as we discussed in part 1, with secondary batteries and other sectors, when you invest in stocks for a long time, you sometimes feel they are too expensive now. But Peter Lynch also said that many times he thought the peak was when the stock doubled, sold at that point, and then it went 5 or 10 times higher. The stock market can make expensive stocks even more expensive, so understanding that means you should never carelessly bet on declines.

Secondly, I wrote in my first book that the stock market is the graveyard of the arrogant. Many very smart people around me have become wrecked by the stock market. When you wonder why someone who graduated from the best universities couldn’t make money, it’s because they closed their ears. Many highly educated people in our industry don’t listen to others, only talk about themselves, and get angry when someone criticizes their stocks. Those people have not succeeded in our industry. From my junior days, I’ve seen that the stock market is the graveyard of the arrogant. When I say stocks will rise, I watch YouTube videos of people saying they will fall. I always watch videos that contradict me and maintain an “open mind that I could be wrong.”

Thirdly, due to the volatility characteristics of the Korean stock market?and not just Korea?last year, in the US stock market, Nvidia, Tesla, and all the so-called FAANG stocks except Apple dropped nearly 70%.

FAANG

An acronym for the five major US big-tech stocks: Facebook, Apple, Amazon, Netflix, and Google

If you made money with volatile assets like stocks or cryptocurrencies, you need to move that money into less volatile assets. But if you don’t and think, “I made 70% this year, so I’ll make 70% next year and the year after,” you end up losing it all. So you should move the money earned from stocks into less volatile assets. As my financial mentor said 20 years ago, “Stocks are like fire; if you don’t bury them in the ground, they disappear.” It’s good to develop the habit of following that advice.

Lastly, one more thing: the difference between those who become rich and those who go broke is that they sell their core assets and move to speculative stocks. In our terminology, core assets are called “core assets,” and the surrounding assets are called “satellite assets.” How to trade with core and satellite assets? Brookfield Asset Management, which operates the world’s largest real estate fund and owns IFC, says the same thing. When the economy is good, you can make money with satellite real estate, but when the economy slows and you can’t make money for 2-3 years, you don’t sell core assets?you sell satellite real estate to buy more core assets. Think about real estate: if you move from downtown to the outskirts, like selling an expensive house in Gangnam, Seoul, and moving to the outskirts, they say you can’t come back.

Shin Ji-eun: Yes, I’ve heard that a lot too.

Park Se-ik: The same applies to stocks. People keep selling core assets to buy peripheral stocks, and by going backward like that, they fail. My nephew showed me his account two months ago. He bought some stocks three years ago with pocket money from his grandfather, investing 1.5 million won or 1 million won in several stocks. EcoPro went up 2,300%, about 23 times. So 1.5 million won became about 38 million won. I told him to sell and buy Naver. If you tell people to buy Naver these days, they’d say, “Why Naver at this timing?” I explained to my nephew that he did very well holding a stock in a high-growth industry for three and a half years.

Shin Ji-eun: Exactly.

Park Se-ik: Very well. Then instead of moving to something like superconductors, I explained what core assets are in the stock market. If you look at the time we spend most in 24 hours, aren’t we looking at Naver the most?

Shin Ji-eun: That’s right, constantly searching and entering calendar events.

Park Se-ik: Regarding e-commerce, I asked one of our employees if they use it. They said they can’t get out of Naver Pay because of accumulated points there. They have to keep using it. There was concern that with Naver moving to ChatGPT AI, people might stop using it, which caused the stock to drop to 150,000 won. But after Naver announced HyperCloverX, I saw CEO Choi Soo-yeon confidently say in February, “Our generative AI has 6,400 times more Korean data than ChatGPT.” That made me think, “Ah, that makes sense.” So just like people search on Google and then come back to Naver to search, Naver will continue to dominate the domestic market. But we have to check the earnings. Even if they say that, there could be an earnings shock. But they posted record quarterly earnings in Q2. So it seems like a core asset. The characteristic of core assets is that they generate relatively stable cash flow whether the economy is very good or very bad, which we call blue-chip stocks. So you should move your money into blue-chip companies. That’s the concept you can apply to stock investing.

One last thing: why did I tell my nephew to sell EcoPro? One of my principles is that if the PBR (price-to-book ratio) exceeds 10 times, I don’t invest. When PBR goes above 10 times, often it reaches 14 or 16 times and then falls. When it breaks 10 times, I watch closely, but if it reaches 13 or 14 times, I sell. For example, at the end of 2020, Kakao’s BPS (book value per share) was about 14,000 won, but in 2021 it went up to 170,000 won. That means the PBR exceeded 10 times, so you have to be cautious. I told my nephew, “I have this principle, so I’ve never suffered from holding growth stocks bought at too high a price.” PBR means paying a 10 times premium over net asset value. I hope you set a principle not to buy when it’s too expensive. No betting on declines, first of all.

Shin Ji-eun: And wait. Maintain your core. Be cautious when buying stocks with PBR over 10 times. That’s how we can summarize it.