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.

Saturday, 13 March 2010

1 Year Later: Where Are The Value Stocks?

By: Zacks Investment Research Friday, March 12, 2010 3:29 PM

For value investors, this week's one-year anniversary of the "bottom" of the stock market is truly the best of times and the worst of times.
A year ago, stocks were cheap. It was a value investor's dream as P/E ratios fell well below the historic norm. Almost all stocks were suddenly value stocks as panic gripped the Street.
And now, this market appears to be the value investor's worst nightmare.
The mega-rally literally lifted all stocks, which has been great for investor portfolios. When it comes to value investing though, the rally changed the landscape dramatically as even stocks that would normally lag the market surged sharply higher.
But there is hope for the value investor. Value investing isn't dead. Undervalued stocks are still out there. It's just a matter of digging deeper than usual to find them.
Look Beyond the P/E Ratio
Most value investors know to look at the price-to-earnings ratio (or P/E) to find stocks that are undervalued. To find true value: the lower the P/E, the more undervalued the stock.
Many value investors use a P/E under 20. This method to search for value stocks is a great starting point in normal markets, but stocks are more expensive now.
So while you should start with the P/E ratio, don't end there. You're going to need some more tools in your arsenal to find the true value stocks.
3 Tools to Dig Deeper for Value Stocks
1) Use Price-to-Sales
Many value investors neglect the sales component, but sales cannot be easily manipulated. There are no "charges" or "exclusions" or other accounting hocus pocus with sales. They usually are what they are; and they're easy to compare quarter over quarter and year over year. The healthier the sales growth of an organization, the healthier its potential for profit growth. The lower the Price to Sales ratio (P/S), the better. So look for stocks with a P/S ratio of less than 1.
2) Growth is still your friend
Growth? For value investors? Yes, value investors can use the PEG ratio to find growth stocks trading at reasonable prices. As you probably already know, the PEG ratio is simply the price-to-earnings ratio (P/E) divided by earnings growth. The lower the PEG ratio, the more undervalued the stock is. So look for stocks with PEG ratios under 1.
3) Look at the Industry Rank
This is a little known factor that, when used with value metrics, can give you powerful results. Zacks ranks industries according to improving earnings prospects, so value investors can look at the Industry Rank lists to get an idea of which industries have rising earnings estimates. The Zacks Industry Rank is the average of the Zacks Rank for all companies in the industry.
Just like with the Zacks Rank, the lower it is the better. So a Zacks Industry Rank of 1.00 is better than one of 4.35.

Value Is King in Bull and Bear Markets
Numerous studies of various bull and bear markets around the world come to one conclusion: it may not be glamorous, but value investing outperforms growth investing over the long term.
Is it any surprise that one of the greatest investors of all time, Warren Buffett, is a value investor?
Now is the time to stay the course. Rally or no rally, value is still king.
Digging for Value Every Day
I know how frustrating it is to try and find value stocks as the markets continue to climb. I seek out value stocks every trading day with the Zacks Value Trader trading service, and some days there just isn't much to get excited about. But all it takes is finding a hidden gem here or there for a value investor to really profit.
Just a few days ago, for instance, I added a big international oil company to the Value Traderportfolio. It has great "digging deep" value fundamentals, such as a price-to-sales ratio of just 1.08 and a forward P/E of 11. It also has a Zacks Industry Rank of 2.20, placing it 20th out of 264.
The Value Trader dug deep to find great stocks during last year's rally. The portfolio returned 47.5% last year, which is nearly double the S&P 500 over the same time period, proving that value hasn't gone away, you just have to know where to look.
I invite you to see what stocks are in the portfolio and learn the secrets behind the Value Trader's success. You'll want to look into this right away because the remaining spots in the service are quickly being snapped up. There's a special savings that ends at 11:59 pm Saturday, March 13.
About Zacks Value Trader
Best,
Tracey Ryniec

http://www.istockanalyst.com/article/viewarticle/articleid/3943707

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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)

Saturday, 13 March 2010

1 Year Later: Where Are The Value Stocks?

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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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