Aveo Group (ASX:AOG)

Aveo group is a stock that i currently own. It was my first purchase and i made a slight mistake being so trigger happy and buying the stock disregarding solid fundamental analysis. I went in for various reasons, namely, the thematic issue of the aging population and the fact that it's trading at a discount to net tangible assets. However, i didn't place enough importance in its ROE which is very low, and in fact sub economic, risk-adjusted and relative to term deposits. I broke my own rules. But, i sit here and ask myself "Am i extremely confident that this company is going to be earning substantially more money in 10 years that it is at this moment?" and I'm confident to say yes. It has, however had ROE's in excess of 25% but at its current rate it's too low. On these notes, i won't be selling this one, just yet. This is mainly due to the 2 reasons why I've bought the stock in the first place. If they are able to generate a return on equity in excess of 15% I'd be much more comfortable owning this stock than i am now. The reason why i emphasize the ROE to the extent that i do is because i believe the true value of a business is how much it can generate on the funds invested. As I've mentioned in the past, i like companies that have stood the test of time and been able to generate increasing profits. Given that the future is uncertain and that nothing is this game is certain what i try to do is look for situations in which the odds are mostly in my favour and that the risk of permanent capital loss is minimal. Buying into a start-up tech company with no track record is not something I'd consider. Some other factors of which i put priority on is stuff like company management (which i judge by how effective they are at generating returns on funds invested), is the business trading at a discount, and the list goes on. One thing that i find interesting is that of debt. I don't like companies with debt. At university i've been taught that debt can increase ROE and magnify returns. This is true. But, debt is not something i like regardless. As Seth Klarman says "if you look at most of the corporate blowouts its because they've been over leveraged". And as i said before, my number one goal is capital preservation, thus, debt is not something i like because even though it might magnify my returns, my number one goal is avoiding permanent loss.

I'm deviating away from the topic that i started with a bit, but i believe that being able to turn the stock market off and just focus on the business itself is crucial. Looking at the company right now and asking yourself  "is this business undervalued at the current price?". If the answer is yes, and you've got a sufficient margin of safety, the choice is almost obvious what the succeeding  action should be (all of this is after rigorous fundamental/qualitative analysis is done). This is not always easy, as Buffett says if you've got a decent IQ, the game becomes more of one towards controlling your emotions. I believe value investing is usually contrarian in nature, I find myself looking at stocks that have lost 50% in price, not up by 50%. I think this is where value tends to show up. Buying against the crowd isn't easy. When everyone is selling and you see your stock falling, can you stand by yourself and claim you're right? This is something that isn't taught at school.