myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Thursday, 14 November 2024
Monday, 4 November 2024
Have an obsession for cash flow conversion. What is the free cash flow of the company?
Charlie Munger: If you take a business that is a GOOD business but not a fabulous (GREAT) business, they tend to fall into TWO categories:
One is the business where the whole reported profit just sits there in surplus cash at the end of the year and you can take it out of the business and the business will do just as well without it, as it would if it stayed in the business
The second business is one that reports the 12% (return) on capital but there's never any cash. (This) reminds me of the used construction equipment business of my old friend John Anderson and he used to say in my business every year you make a profit and there it is, sitting in the yard. There are awful of businesses like that where just to keep going (and) to stay in place, there is never any cash. Now that business doesn't enable headquarters to drag out a lot of cash and invest it elsewhere. We hate that kind of a business. Don't you think that is a fair statement?
Warren Buffett: Yeah, that is a fair statement.
https://www.facebook.com/reel/507646045755285
Summary:
2 types of Good Businesses:
One that generates a lot of free cash flows; you can take this cash out of the business and the business will just do as well without it.
One that generates little or no free cash flows, as it requires a lot of working capital or capex to maintain and sustain its business.
Monday, 28 October 2024
Valuation cheat sheet. What are some of your favourite metrics?
Tuesday, 22 October 2024
Markets are Competitive
Passive Management
Holding a highly diversified portfolio
No attempt to find undervalued securities
No attempt to time the market.
Active Management
Finding mispriced securities
Timing the market
The biggest mistake that investors make
The biggest mistake that investors make is not sticking with the plan when the market goes down.
What you do when the market goes down is more important than what you do as it is rising. WHY?
Because the worse days are followed by the best days.
Manage your emotions
When it is our own money, we think it is math, but it is actually not. Just because we learn about money in math class doesn't mean it is math to us. It is actually very EMOTIONAL.
One of the things that we need to do is manage the emotion, because we do feel the pain of a loss more than the euphoria of a gain.
Manage the emotion and just keep plodding along, paddling along in the markets for a long time.
Catherine Keating
Global Head of BNY Wealth
Bloomberg Interview
Thursday, 17 October 2024
Emotional Intelligence
Conflict between our thinking and our feelings makes things complicated.
Instincts, feelings and personal values take over and become a major part of our actions and behaviour.
Gut instincts or intuition rely a great deal on emotion and feelings.
Both feelings and instincts are major influences on our behaviour in the real world.
How can you benefit from improving your emotional intelligence?
Doing so, will also make life easier for those who have to interact with you.
Emotional intelligence is a valuable set of ideas you can use everyday and everywhere: in the workplace and in the home; as a parent, teacher or manager.
It is about being aware of feelings in yourself and in others, understanding them and managing their impact.
It is about being in control, interpreting body language, coping with negativity, working with others and building psychological well-being.
Emotional Intelligence
Emotional Intelligence is an assortment of mental abilities and skills that can help you to successfully manage both yourself and the demands of working with others.
Developing your own emotional intelligence enables you to:
- Know yourself reasonably well
- Control your own emotions
- Show empathy with the feelings of others
- Use social skills in an effective as well as simply pleasant way.
- Mindfulness: being aware - understanding yourself and others
- Being in control of your own thoughts, emotions and needs
- Being positive and self motivated particularly in the face of setbacks
- Using empathy: being able to put yourself in others' shoes
- Communicating effectively to build productive and positive relationships
- Using emotional reasoning: being able to use emotions to enhance rather than restrict your thinking.
- It is estimated that 15% of people will have a bout of severe depression at some point in their lives.
- 2% of teenagers are diagnosed with emotional disorders before the age of 18.
- Emotional disorders in old age is also a major and increasing problem.
Thursday, 26 September 2024
The Next Global Crash is Inevitable - Top Economist Professor Linda Yueh (An excellent video)
Tuesday, 10 September 2024
Selling is often a harder decision than buying
Selling is often a harder decision than buying
Investing is fun. For every rule, there is always an exception.
The main reasons for selling a stock are:
1. When the fundamental has deteriorated permanently, (Sell urgently)
2. When it is overpriced, whereby the upside gain will be unlikely or very small and the downside loss will be big or certain.
We shall examine reason No. 2 through the property market. The property market is also cyclical. There were periods of booms and dooms.
If you have a good piece of property that is always 100% tenanted and which gives you good consistent return (let's say 2x or 3x risk free FD rates), would you not hold this property forever? The answer is probably yes.
Then, when would you sell this property?
Note that the valuation of property, as with stocks, is both objective and subjective.
Would you sell when someone offered to buy at 500% above your perceived market price?
Probably yes, as this is obviously overpriced. You could cash out and probably easily re-employ the money to earn better returns in another property (or properties) or other assets.
Would you sell when someone offered to buy at 50% above your perceived market price?
Maybe yes or maybe no. You can offer your many reasons.
However, all these will be based on the perceived future returns you can hope to get from this property in the future. This is both objective based on past returns obtained and subjective and speculative on future returns.
However, unlike reason No.1 when you would need to sell urgently to another buyer to prevent sustaining a permanent loss, you need not sell just because someone offered to buy the property at high price. (However, there are also those who "flip properties" for their earnings; they will sell quickly for a quick profit.) You will not suffer a loss but only a diminished return at worse. You can take your time to work out the mathematics.
You maybe surprised that you may still achieve a return higher at a time in the near future by rejecting the present immediate gain based on the present high price offered.
Also, you would need to price in the lost opportunity cost when the property is sold at this price, even though it is 50% above the perceived normal market price. Could you buy a similar quality property with the same sustainable increasing income or return by offering the same price?
Similarly, the same line of thinking can be applied to your selling of shares.
When should you sell your shares?
Yes, definitely when the fundamentals have deteriorated permanently. The business has suffered for various reasons and going forward, the earnings will be permanently impaired and deteriorating.
Yes, when the price is very very overpriced. However, you need not sell your shares in good quality companies that you bought at fair or bargain price. As long as the fundamentals are strong and the business is adding value, selling now at a higher price may mean losing the return that you could have obtained in the future years from owning this stock and the opportunity cost of reinvesting the cash into another stock of similar quality and returns.
Once again, the importance of sound reasoning and doing the mathematics in making a decision whether to sell or not.
Is it not true, that the really big fortunes from common stocks have been garnered by those
- who made a substantial commitment in the early years of a company in whose future they had great confidence and
- who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?
The answer is "Yes."
http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html
Additional notes:
Other reasons for selling a stock (or property) are:
- To raise cash to reinvest into another asset with better return.
- A certain stock (or property sector) may be over-represented in your portfolio due to recent rapid price rises and you need to reduce its weightage to reduce your risk of over-exposure in this single stock (or property sector).
Footnote:
This is a true story.