Showing posts with label comparative quantitative analysis. Show all posts
Showing posts with label comparative quantitative analysis. Show all posts

Friday 17 August 2018

Limitations on using the past data approach. The past does not predict the future.


There are two general categories of limitations on using the past data approach:

1.  The past doesn't predict the future.

No matter how much math you apply to how much data, you're still looking backward.

Trying to say what's going to happen based on what has happened is a dangerous game, particularly with anything involving as many non-quantifiable variables as investing.

The best thing you can do with the models is to gain a better understanding of what happened in the past, but you can't be sure it will happen again in much the same way; in fact, you can be pretty sure it won't happen the same way again.

2.  There are too many moving parts.

External, internal and personal factors all come into play, and no model can take everything into account.  

A stock may have played predictably in the past (and a company's earnings may have played predictably, too, thus the stock price predictability), but what happens when something changes?

What happens when customers suddenly decide they don't like a product anymore or, for that matter, when investors decide they don't like a stock (or gold or corn or a bond or real estate) anymore, or as much as they did?

You can't predict all the factors that influence the future.  Nobody can.  Again, if you could, who would take the other side of the trade?

Thursday 16 August 2018

In investing, it is more important to be able to measure and conceptually understand what is going on than doing a lot of complex quantitative analysis..

Investing is not, and never will be, a formula.

There are no equations to determine the best investments.

There are theoretical approximations but we cannot depend on them 100%.

For a host of reasons, they don't tell all, and they don't always work.

The point is to be able to measure and conceptually understand what's going on.

You are probably better off knowing what questions to ask and making big-picture look-out-the-window risk/reward decisions than getting bogged down trying to calculate the risk of the investment yourself.

You can look at the numbers, particularly comparative numbers, to get an idea whether an investment more or less accomplishes your objectives.

You can also look at a chart to get a quick view or vision of the volatility without knowing the precise numbers within.

At the end of the day, quantitative measures are important mostly for comparison.




Summary

Some of your best investment calls will occur by simply looking out the window.

What is important is to grasp the concept and then with a few measures to help assess risk/reward and especially to compare it.

Informed common sense

Remember the past doesn't predict the future.

There are also too many variables you cannot quantify, like human behaviour and economic sentiment.

Some of the investing models are pretty cool but they are far from perfect; and they may sidetrack you from making the right decisions.

INFORMED COMMON SENSE will help you more in making the right decisions.

Saturday 29 April 2017

Elements that should be Considered in a Company Analysis

A thorough company analysis should:

  • Provide an overview of the company.
  • Explain relevant industry characteristics.
  • Analyze the demand for the company's products and services.
  • Analyze the supply of products and services including an analysis of costs.
  • Explain the company's pricing environment.
  • Present and interpret relevant financial ratios, including comparisons over time and comparisons with competitors.

Sunday 11 April 2010

Choosing the Right Share through Fundamental Analysis and Comparative Quantitative Analysis of the Figures


We have chosen SingTel, Starhub and MobileOne as companies for comparison.

COMPARING THE FIGURES

Let us apply the concepts.

Table 1 shows the ROE, ROA, PE, NAV and dividend yield of the 3 companies. 
  • In comparison, StarHub has the highest ROE as it is highly leveraged with debt whereas MobileOne has the highest ROA. 
  • In terms of PE and dividend yield, MobileOne offers an attractive PE of 10.1x and StarHub gives out the highest yield. 
  • As service provider companies, all 3 telcos offer a NAV lower than their traded share price due to their low asset investment.



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OUR PREFERRED CHOICE

Based on the findings, we would choose MobileOne as our preferred choice of investment. 

Mobile One
  • MobileOne also has the lowest PE while giving out a healthy 5.5% dividend yield. 
  • The low PE indicates that MobileOne’s share price can still rise higher to between 14-15x PE to catch up with its peers. 
StarHub
  • StarHub may have the highest ROE but it depends too much on debt to fund its operations. 
  • Even though StarHub offers a higher dividend yield, its PE shows downside risk as the share may slide to match its competitors.
SingTel
  • SingTel’s dividend yield, ROE and ROA are the lowest among the 3 companies but it has the highest share capital and NAV. 
  • High volume of transactions involving large number of shares are required for SingTel’s share price to appreciate. 
  • SingTel is a good choice to invest in times of uncertainty due to its huge share capital and strong business foundation but its share price is the highest among the 3 telcos and could be an expensive choice to invest.


MobileOne, being the smallest player in the market, still has a lot to offer and would benefit the most from the Next Generation National Broadband project (NGN) as it would be provided with the necessary infrastructure to compete with the other big boys in the network industry once the project is completed. The high-barrier industry prevent others from jumping into the bandwagon and the expertise of MobileOne in the local market would encourage foreign partners to tie up with it.


CHOOSING THE RIGHT SHARE

Choosing a share to invest requires a lot of research on the background of the company and its potential to expand further. 
  • Always compare companies from the same industry and in a similar business as you can never compare apples with oranges. 
  • If you are looking for a share for long-term investment, always look for one with a stable dividend payout that adheres to your requirement. 
  • Both fundamental and quantitative analysis are basic means to fully understand the potential of a company. 
  • Remember to use the various forms of fundamental analysis before choosing your next rewarding share.

Read:

Understanding Fundamental Analysis (Part 4)


Understanding Fundamental Analysis