Zenway Investing: Joining Value and Growth at the Hips

As we heal our wounds in 2008, we are doing some deep "reverse thinking" about value investing.

One intelligent investor pin-pointed what's on the back of our mind: Are we over-thinking a simple process? Maybe. Maybe not.

We are trying to reconcile timeless ancient wisdom with value investing principles. Zenway = Zen wisdom + Warren's way. As we think philosophically and strategically, there are some Zen riddles we have to solve:

Most of the 40c bargains are cheap for the right reasons. They eventually may go to zero. Lots of value investing picks by even the superinvestors got killed. Had we listened to the arguments from the growth camp, simple procedures could have prevented the disasters. But those procedures are often ridiculed by value analysts as too simplistic and yielding to the madness of crowds.

Yet even Warren Buffett lost some serious money standing right against the selling crowds. So sometimes, yielding to the market forces and quickly get out of the way like a spinning Tai Chi Master may not be a bad move. But you would be criticized by ardent value investors as yielding to market "madness" and not sticking to your "principles".

Nothing under the Universe is simply black or white. So is value investing and growth investing. We have to be flexible. We also have to have a few simple principles smartly devised.

We, at Zenway, would like to pioneer the work to combine value investing and growth investing in a systematic and structured way. We want to provide pioneering research and education in that area. (We do offer systematic trainings and research workshops online. More than a research newsletter, we give people a fish, teach people how to fish, and then we fish together as a team.)

We ask: "Are there simple procedures that can help value investors to prevent disasters?" Our answer is yes. And the answer lies outside the school of value investing. So we want to learn from masters in other fields of endeavor with some humility. We says our system works, but it also has problems.

As fishers of bargains, what do we do when an unprecedented storm comes? Do we still say: "Hey, this is an undisputed bargain based on my calculations"?

Reviewing our internal Zenway system which is value investing and growth investing joined at the hips, we are finding value investing more and more like Tai Chi.

For every move we make, there are always legitimate arguments both for it and against it, just like the yin and yang in everything, the forward and backward in Tai Chi.

A true master must revert, always revert, turning and flipping between the yin and the yang, always seeking the best moment to pounce.

So we think and over-think. Then at the right moment, we explode with surprising force to defeat our opponents on Wall Street and reap our profits.

A cat that catches rats is a good cat, no matter it's black or white. A system that makes money in good times and bad is a good system whether it's value or growth.