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.

Sunday 17 May 2009

The Importance of Financial Education

3 Types of Education

Academic

Professional

Financial

Financial education is crucial and is seldom emphasized.

To be successful today, we need all 3.

Read:
Robert Kiyosaki
Rich Dad Website
Click the video http://www.richdad.com/

Rich Dad transformation
Knowledge - the new money. Its all about financial education. ESBI.
3 Types of Education
Academic, Professional, and Financial. Our school system does not teach us much about money. The lack of financial education is the reason for the big gap between the rich and the poor. You are responsible for your own financial education. 4 green houses = 1 red hotel = Monopoly game.
The CASHFLOW Quadrant
4 types of people in the world of business or money. E=Employee, S=Small business, Self Employed, B= Big Business or Enterpreneur, I= Investor. "Go to school and get a job." = Employee. "Doctor, specialist, small business person" = Small business or Self employed. You can get rich in all 4 quadrants. Rich Dad aims to teach you to move from the E and S to B and I.
Savers are Losers
More important to be an investor. E.g. invest in oil, gold, rental real estate and learn to be an enterpreneur or an investor.
Assets and Liabilities.
An asset has positive cashflow (Income > Expenses). Liability has negative cashflow and takes money from your pocket. A house can both be an asset or liability depending on the cashflow it generates. Therefore a house may not be an asset. A car is a liability. Don't call a liability an asset. Acquire asset, not liability.
Good Debt vs. Bad Debt
Debt is a 4 letter word. "Get out of debt." Good debt makes you rich and bad debt makes you poor. Mortgage = engage until death. To be rich, improve your financial IQ, engage good debt. Good debt used to acquire assets that generate positive cashflows. Bad debt used to acquire liability with negative cashflows.
Live Above Your Means
Live below your means, your spirit dies, especially if you are poor. Most people has a job and can only work so hard. Our goal is to increase Asset to increase Income or cashflow. The way to get rich is to buy asset first and liability later. Invest in an asset and the money from that investment pays off your liability. After completing this payment, one still has a positive cashflow generating asset.
3 Types of Income
Earned, Portfolio and Passive. Earned income = job. Portfolio income = Capital Gain. Passive income comes in on a regular basis, from interests, dividends, real estates and businesses. Taxes are your highest expense and is highest in earned incomes. Those in the E or I segment have earned income. Portfolio and passive income are taxed less. Work hard for Portfolio and Passive Income. Learn to be a B or I.
Investing Isn't Risky
What is risky is lack of financial intelligence or education (still your best asset). For sophisticated investors (whether fundamental or technical), risk is reduced through using insurance (put, stop, etc.) to counter the risk of volatility. Taking advice from those with no investing knowledge is risky.
Life's 4 Quarters
10 years quarters from age 25 years to 65 years. 1st Quarter = age 25 to 35 years. 2nd Quarter = age 36 to 45 years. Age 45 - half time. 3rd Quarter = age 46 to 55 years. 4th Quarter = age 56 to 65 years. At 65 - Overtime. After that - Out -of- time. Aim to retire in the 2nd Quarter!!!!! At which age will you win the game of money? Some are lucky, they were born rich. Work hard, save money, invest in mutual funds and 401-K may not be enough to retire early. You will have to work hard all your life. Why not retire young and enjoy life? Why retire old and continue to work overtime and out-of-time?
The CASHFLOW Game
2 tracks - the rat race and the fast track. Most people are stuck in the rat race. Get out of the rat race and get onto the fast track. Get the money to work for you. There are 4 levels of investing played in the game: small deals, big deals, fast track and sophisticated investing (or Cash Flow 202). You have to be a rich person to invest in the fast track. To invest in the fast track, one has to be rich and financially educated. The other part of this CASHFLOW Game is a financial statement. A financial statement is very important aspect of your education. Your banker never ask you for your report card, but your financial statement. This game puts investing and accounting together. Have fun, learn from mistakes through the game. Teach other people. The more you teach, the more you learn. Make mistakes, take risk, have fun and get rich. The "poor dad" is poor because he is terrified of making mistakes.
The Cone of Learning
Could the CASHFLOW Game enhance the knowledge of finance and business? Passive learning (reading, lecture) vs Active learning (doing the real thing, just do it, play games). Best way to learn is to do the real thing. 2nd best way is to stimulate the real experience. CASHFLOW Games 101 and 202 fulfill the active learning role. Beware, most financial advisors are sales people. Play the game over and over again before going into the real thing.

IT'S TIME TO GET OUT OF THE RAT RACE
http://www.richdad.com/store/ProductDetail.aspx?id=1
http://cashflow.vo.llnwd.net/o16/cashflow3.swf
CashFlow 101 the E-Game: Intorduction 1
http://www.youtube.com/watch?v=4ug483UeEXs&feature=related
Cashflow Game 101
http://www.youtube.com/watch?v=uqZayPhdUJc&feature=related
Cashflow 202, Introduction
http://www.youtube.com/watch?v=-zGqzbfEvug&feature=related
Robert Kiyosaki : Cashflow Game 202, Overview!
http://www.youtube.com/watch?v=BUbODHeQd1g&feature=related
Cashflow Board Game - Rich Dad Poor Dad Game
http://www.youtube.com/watch?v=X4WcGWhjUS0&feature=related
Cashflow 101 take 1
http://www.youtube.com/watch?v=KresjGfPIW8&feature=related
Cashflow 101 take 2
http://www.youtube.com/watch?v=MHxOSr_jqqg&feature=related
Cashflow 202 take 1
http://www.youtube.com/watch?v=ZnrWo3LDi9E&feature=related
Cashflow 202 take 2
http://www.youtube.com/watch?v=RCFyxC7dQQM&feature=related
Robert Kiyosaki in Israel October 2007
http://www.youtube.com/watch?v=SMLjNjXojmc&feature=related

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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)

Sunday 17 May 2009

The Importance of Financial Education

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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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