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 1 May 2009

Swine flu: how will shares react?

Swine flu: how will shares react?
As fears grew over the economic impact of a flu pandemic, shares initially tumbled, with travel and airline companies bearing the brunt of the losses.

By Emma Simon
Last Updated: 4:13PM BST 30 Apr 2009

Fears that the swine flu outbreak could cause further stock market shocks around the globe have proved largely unfounded, although certain shares and funds have fallen in value on the back of this latest health concern.

As fears grew over the economic impact of a flu pandemic, shares initially tumbled on Monday, with travel and airline companies bearing the brunt of the losses.

But later in the week stock markets stabilised, although there was little positive news for those companies operating in the travel and tourism sectors. By Wednesday, British Airways, which was the hardest hit in a general sell-off of airline stocks in London, fell 7.7pc.

Others shares badly affected included Carnival, the Caribbean cruise operator, which saw its share price fall by almost 7pc at one point and Thomas Cook and InterContinental, both of whom saw share prices dive by more than 4pc midweek.

But while investors were nervous about the effect that swine flu could have on these travel firms, many were buying up pharmaceutical companies on the expectation that Government's would be forced to stockpile expensive viral treatments and flu vaccinations.

Two of the biggest beneficiaries were GlaxoSmithKline, which makes flu vaccine Relenz, and Roche which manufactures the drug Tamiflu – which has been proven to be an effective treatment against both avian and the new swine flu.

Market experts said that despite the economic turmoil, stock market were not overreacting to this latest scare. (Why?)

Anthony Grech, market strategist at IG Index, said: "After weathering the likes of SARS and bird flu in recent years, there seems to be an element of wait-and-see among traders."

During the Asian bird flu outbreaks in 2005 and 2006, airline, hotel groups, insurers and oil companies stocks fell heavily, while shares in drug, health care and cleaning product businesses soared.

"I think there will be a little bit of a lift for pharmaceuticals, but this may not follow through unless the situation gets out of hand," said Paul Kavanagh of stockbroker Killik & Co. "Governments will be looking at vaccines, but it's come at a bad time for the world economy and could be very expensive."

For investors that hold Isas, unit trusts and other investment funds, this latest market turbulence may be fraying already taut nerves. But financial advisers have pointed out that the volatility this week should be put into perspective.

Adrian Lowcock, the senior investment adviser at Bestinvest said: "Stock market has a nervous day on Tuesday following the spread of swine flue, but have bounced back as concerns ease. Unless this develops into something much more prevalent we don't expect to see any further impact. The volatile is insignificant when compared to recent events."

He points out that the road to recovery will be bumpy - but this latest jolt does not seem to have derailed the slight market improvements seen over the past month.

The focus on swine flu, may be focusing people's attention on pharmaceutical companies and biotech and healthcare funds. The former invest solely in companies involved in developing new drug treatments and therapies.

The latter have a broader remit, also investing in other health care related companies, such as the large pharmaceutical giants, and companies such as Smith & Nephew that manufacture medical equipment - be it surgical instruments or face masks.

Over the past 12 months, these funds have delivered reasonable returns for investors: Framlington's biotech fund is up 20pc, while Franklin Templeton's biotech fund is up 21pc.

The health care funds have produced more modest returns (Schroders Medical Discovery is up 3.5pc, while Framlington's Health care is up just 0.6pc) but given the wider market falls, anyone invested in one of these funds is no doubt delighted with positive returns.

However, Mark Dampier, of Hargreaves Lansdown says: "Up until a year ago the performance of these funds has been awful." He adds that investors should remember that these are high risk funds, where returns can be volatile. Many are largely invested in US-listed companies, so currency movements can affect returns.

http://www.telegraph.co.uk/finance/personalfinance/investing/5246672/Swine-flu-how-will-shares-react.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 1 May 2009

Swine flu: how will shares react?

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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

Political and Economic News

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