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.

Friday, 3 April 2009

Key habits of successful investors

Key habits of successful investors
Published: 2009/03/04

Four key habits an investor might want to adopt are:

Preserve capital and minimise risk taking;
do homework before investing;
have an investment philosophy and system; and,
be patient.

IT IS a fact that the local market condition is very hard to predict since it is affected by both global and local factors. As an investor, it may not be possible to predict what is going to happen next, but there are certainly ways to learn from people who have succeeded in riding the waves of good and bad times throughout the years.

In the book "The Winning Investment Habits of Warren Buffett & George Soros", Mark Tier listed out 23 winning habits based on the habits of these two of the world's richest and most successful investors. Summarised below, are four main key habits that you might want to adopt as the fundamentals to successful investing.

Successful investor habit 1: Preserve your capital and minimise risk taking

All successful investors preserve their capital as a foundation and they do this through risk minimisation. Most investors have the perception that in order to make profits in the market, there is a need to take high risks and it is right to say that risk and return come hand in hand.

However, in order to ensure a long-term success, you should not just simply take any risks, but only calculated risks. This requires you to analyse the situation thoroughly as to be confident that the chances of having a good result on your side is high.

With that in mind, you would only end up investing in what Warren Buffett calls "high probability events", where the risk of loss is at the lowest and you are almost certain to make money. Always remember Warren Buffett's 'Investing Rules: "Rule No. 1: Never Lose Money! Rule No. 2: Never Forget Rule No. 1"

Successful investor habit 2: Do your homework before you invest

There are nearly one thousand companies listed in our stock market. Which one should you invest in? Having Habit No.1 as the foundation, you will know that the safest companies to invest in should be companies or industries that you are most familiar with, as you can only make good judgments if you have in-depth knowledge and understanding.

This means that you will have to do your own homework and research through all available sources, such as company annual reports, industry reports or public announcements, in order to obtain the facts on the industry, the company of your interest and its competitors.

This is necessary to ensure that you can draw good conclusions on the company's performance and future prospects. Therefore, time and hard work are the two essential elements in turning yourself into an informed and knowledgeable investor. In practicing this, you will also need to be selective and focused on certain industries in which you the have most interest and experience.

Successful investor habit 3: Have your own investment philosophy and system

What is an investment philosophy? An investment philosophy is a set of beliefs that you use as the foundation in developing your personal investment system for buying and selling investments. This will make sure you are fully aware of the reasons behind every investment decision you make. As a beginner in the investing world, you could probably start by following the investment philosophies and systems of some of the great investors that come closest to your heart.

However, along the way, you should tailor your investment system to suit your personality, goals and unique circumstances so that you can practice this entire system without stress and worries.

If you have the discipline to practice the right system religiously, you will not be easily influenced by the voices or rumours in the market and will not be tempted to simply follow the crowd. Hence, the chances of your making the wrong decisions will be minimised.

Successful investor habit 4: Be patient!

There is a Spanish proverb that says "The secret of patience is doing something else in the meantime". If you somehow managed to inculcate the above 3 habits, you will know exactly what you are looking for and as such, will be well equipped with the patience to wait for the right moment to buy or sell your stocks. Both Buffett and Soros stressed the fact that the secret of their success is having the patience to wait. Use your free time to explore and strategise other new opportunities as there are so many companies listed in the market. Always remember that identifying the right candidates does require time and patience.

On a last note, try to adopt the above habits now! Remember, good strategies will only be successful when executed with the right mindset!

This article was written by Securities Industry Development Corporation (SIDC) to educate investors on smart investing. The information provided in this article is for educational purposes only and should not be used as a substitute for legal or other professional advice.

SIDC, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission, Malaysia. It was established in 1994 and incorporated in 2007.

http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC5/Article/index_html

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Friday, 3 April 2009

Key habits of successful investors

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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