The Too Hard Pile: 5 Stocks That May Be Worth a Look
One person’s trash is another’s treasure! The Best Stocks to Buy If You're Willing to Do the Work
We’ve had the opportunity to analyze thousands of stocks over the years. Some of these stocks have been easy to understand and invest in, while others have been more challenging. For our idea sourcing process we automatically scrub out foreign entities as an example of “too hard” labeling and only grant exceptions to a small few to analyze further for portfolio consideration.
Warren Buffett and Charlie Munger have a three-bucket approach to investing: "in," "out," and "too hard." The "too hard" pile is a collection of investments that they do not understand well enough or that they believe are too risky.
Here are some quotes from Buffett and Munger about the "too hard" pile:
"If something is too hard we move on to something else. What could be simpler than that?" - Charlie Munger
"We have three baskets: in, out, and too tough. We have to have a special insight, or we'll put it in the 'too tough' basket." - Charlie Munger
"There is no degree of difficulty premium in investing. If you can't understand something, don't invest in it." - Warren Buffett
"The 'too hard' pile is a very important concept. It's easy to get excited about a new investment, but it's important to be realistic about your own abilities. If you don't understand something, don't invest in it." - Charlie Munger
The "too hard" pile is a valuable tool for investors. It helps to focus your attention on investments that you understand and that you believe have a good chance of success. By avoiding investments that are too hard, you can improve your chances of making money in the long run.
Here are some reasons why an investment might be considered "too hard":
The business is complex and difficult to understand.
The industry is volatile or unpredictable.
The investment is illiquid or difficult to sell.
The investment requires specialized knowledge or expertise.
If you find yourself considering an investment that you think might be "too hard," it's important to do your research and ask yourself the following questions:
Do I understand the business well enough?
Am I comfortable with the level of risk involved?
Can I easily sell the investment if I need to?
Do I have the specialized knowledge or expertise required to invest?
If you can't answer these questions with confidence, it's probably best to put the investment in the "too hard" pile and move on.
With our own proprietary deep value screen we found these top 5 stocks that fell into the 1st quintile which immediately went into the "too hard" pile by us. These are stocks that we don't understand well enough or believe are too risky. However, we’re also going to share some of the reasons why other investors might find these stocks to be worth a closer look.
The Stocks
The top 5 stocks from our too difficult pile we’re highlighting today are:
JOYY Inc. (NASDAQ:YY 0.00%↑) a social media company in China. The company operates YY Live, a live streaming platform, and Bigo Live, a global live streaming platform. JOYY also owns the popular karaoke app, Smule.
Yiren Digital Ltd. (NASDAQ:YRD 0.00%↑) an online consumer finance marketplace that connects borrowers and investors in the People's Republic of China. The company operates through Wealth, Credit, and Other segments. It offers loan facilitation services; and post-origination services, such as cash processing, collection, and SMS services.
Renren Inc. RENN 0.00%↑ now Moatable Inc. (NASDAQ:MOAT 0.00%↑) a software as a service business in the United States and internationally that develops Chime, a real estate sales acceleration and client lifecycle management platform that combines IDX websites, lead generation, marketing automation, advanced lead management, and AI to capture and convert leads into new business; and Trucker Path, an online transportation management platform to trip planning companion for truck drivers.
LightInTheBox Holding Co., Ltd. (NASDAQ:LITB 0.00%↑) a online retailer of apparel and accessories. The company operates LightInTheBox, an online retailer of apparel and accessories, and Tophatter, an online marketplace for live-streamed shopping.
Aytu Biopharma, Inc. (NASDAQ:AYTU 0.00%↑) a developer of novel treatments for infectious diseases. The company's lead product is Teixobactin, a new antibiotic that is being developed to treat multidrug-resistant infections.
Despite finding these companies as “too hard” after dispensing such a shallow analysis others may find these worthwhile. These stocks are all owned by some very smart investors. For example, RENN 0.00%↑ nka MTBL 0.00%↑ was described by Chris DeMuth Jr. as a top idea once(I am uncertain if he maintains this as a top idea.) Nantahala Capital Management owns ~7% stake in Aytu Biopharma Inc. Nantahala is a well-respected investment firm with a long track record of success. Lest you forget, this is NOT a reason to buy into the idea of AYTU 0.00%↑ DO YOUR OWN DUE DILIGENCE.
Why They're Too Hard
There are a few reasons why we consider these stocks to be "too hard." First, they're all from foreign countries. This means more research to understand the businesses and the industries they operate in.
Second, these stocks are all in industries that are volatile or unpredictable. For example, JOYY Inc. is a Chinese video streaming company, and Yiren Digital Ltd. an online consumer finance marketplace that connects borrowers and investors. These industries are subject to a lot of government regulation, and they can be very sensitive to changes in the economic environment.
Third, these stocks are all illiquid or difficult to sell. This means that it can be difficult to buy or sell them quickly, which can increase the risk of losing money.
Why They Might Be Worthwhile
Despite the challenges, there are a few reasons why other investors might find these stocks to be worthwhile.
First, all of these stocks are trading at significant discounts to their intrinsic value. This means that there's a good chance that these stocks could generate significant returns if they were to recover to their fair values.
Second, all of these stocks have strong underlying businesses. JOYY is a leading social media company in China, Yiren Digital an online consumer finance marketplace that connects borrowers and investors, Renren is a leading software as a service business for the real estate industry, LightInTheBox is a leading online retailer of apparel and accessories, and Aytu Biopharma is a leading developer of novel treatments for infectious diseases.
Of course, there are also some risks associated with these stocks. These stocks are all relatively illiquid, which means that it can be difficult to buy or sell them quickly. Additionally, these stocks are all exposed to the risks of the Chinese market, which can be volatile.
However, we believe that the potential rewards outweigh the risks for these stocks. If you're willing to do your research and understand the risks involved, I believe that these stocks could be worth a small allocation in your portfolio.
Conclusion
The five stocks that have been discussed in this article are all considered to be "too hard" by us. However, we also recognize that there are some investors who might find these stocks to be worthwhile.
If you're considering investing in any of these stocks, it's important to do your own research and understand the risks involved. However, if you're willing to take on some risk, there could be some potential for big rewards.
As Charlie Munger once said, "There is no degree of difficulty premium in investing. If you can't understand something, don't invest in it."
But if you do understand something, and you're willing to take on some risk, there could be some big rewards waiting for you.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investing involves risk, and you should always consult with a financial advisor before making any investment decisions.
Aytu has been on a crazy downtrend since 2020. Proven insider trades, faulty businessmodels, broken promises and a CEO with a really bad reputation. It's always at an all time low.