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 10 April 2009

Why not start a Trust Fund for your child?

From Times Online
February 20, 2008

The beginner's guide to Child Trust Funds

James Charles

Child Trust Funds (CTFs) were introduced by the Government in 2005 to encourage parents to save for their children's future About three million children now have funds.

Children gain access to the pot of cash in a CTF only when they turn 18, but nobody else, including parents, can access the money before that point. The interest earned by savings in a CTF are tax-free.

Who is eligible?

Any child born after September 1, 2002, who qualifies for child benefit, is eligible for a CTF. Children born after the introduction of CTFs in April 2005 are enrolled automatically. The Government sends parents a £250 voucher to open a fund and they can invest this in either a savings account or one that invests in stocks and shares (see below for information on the types of funds available).

How to save

Background
The beginner's guide to Child Trust Funds
National Savings & Investments explained
How to budget
Background
The beginner's guide to current accounts
How to reclaim bank charges
Bonds explained
Related Links
Those who save make best use of child funds
Labour caves in over charges for child trust funds

Families on income support are given a total of £500.

When children reach the age of seven they are sent a further £250 or £500 by the Government.
The Government will open a stakeholder Child Trust Fund automatically if a child's parents fail to do so within 12 months of the voucher being issued.

Parents of children born between September 2002 and April 2005 should apply for their children retrospectively. For more information, or if you have not received the voucher, call the Child Trust Fund helpline on 0845 3021470 or textphone on 0845 3667870.

Who can contribute?

Parents and relatives are encouraged to make regular contributions to the trust fund, although they can do so whenever they choose.

The maximum that can be paid into an account is £100 a month, or £1,200 a year. Government contributions do not count towards this limit.

The average amount that parents deposit each month is £23, according to figures from Revenue & Customs. Other research, by Nationwide Building Society, found that 60 per cent of CTF accounts received no additional contributions at all.

What are the benefits?

The idea is that the nest egg should grow in value over time. When children have access to the cash at the age of 18, they can then use it to pay for university, a deposit on a house or anything else they choose.

You can find out how big a fund will be when a child reaches the age of 18 by using a Child Trust Fund calculator.

The three options

There is a huge range of different CTFs available, particularly if you go online. It seems that everyone from Asda to Legal & General offer CTFs of some description. Indeed, there are many funds catering for niche markets, such as ethical or shariah compliant funds.

There are three main types of fund.

Savings accounts:

A savings account is the most secure option and mirrors the deposit accounts available on the high street, though the rates are usually a little better. There are also no tax liabilities.

Stakeholders:

Most experts recommend opting for a stakeholder equity fund, as these take advantage of stock market growth and are likely to produce a greater return than cash-only acccounts over the longer term. Your cash is invested in the stock market but is managed by your fund provider. Parents have a limited choice of the types of funds in which the money is invested.

The Government has made sure that the level of risk is small. When a child reaches the age of 13 the money will be moved to safer, cash-based accounts.

The Government has also capped the annual management charge on stakeholder CTFs at 1.5 per cent.

Stocks and shares:

The final option is a purely stock market-based option. This is the riskiest form of investment and allows for the greatest degree of investment freedom. Parents should remember that the management fees on these investments are not capped in the same way as stakeholder CTFs.

Over the long term it is likely that the return on stock market investments will be greater than cash investments, but parents should be aware that the value of the CTF can go down as well as up, although this is unlikely.

Five news stories
Labour caves in over charges for child trust funds
The 3Rs: reading, writing and interest rates
One in four parents ignore CTF
Teenagers urge curbs on spending CTF money
Parents spoilt for choice
Five features
Child funds grow up
The best places for your child trust funds
Make your child a millionaire
Parents’ alternatives to a child trust fund
Gifts that are not just for Christmas
Five websites
Child Trust Fund
HM Revenue and Customs
Direct.gov.uk - Parents Guide
Money Extra
Stakeholder Saving

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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 10 April 2009

Why not start a Trust Fund for your child?

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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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