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.

Wednesday, 21 July 2010

How this investor continues to maintain a portfolio of highly under-priced companies

Old School Value Stock Portfolio Performance: Highlight On General Growth Properties Inc,

Dec. 03, 2009

In November, the Old School Value portfolio ended up 18.6% compared to the market 5.4%. The absolute return since inception is now 40.87% compared to -1.26% for the market.

YTD, I am finally above 200% but I’m more keen on continuing to maintain a portfolio of highly under-priced companies.

Portfolio Movers

Big movers in November were DISK and PDII which moved about 25% in the wrong direction. DISK really is a dog, and I want to just sell it but it’s so small that the commission makes up about 5%. Although it’s probably one of my worst ideas, at least my asset allocation was correct and I haven’t lost much.

PDII on the other hand has been going down without much news and since I like the business model and still believe it is very cheap, I’ll continue to keep it. My margin of safety applied to the buy price is what makes this position still +20%.

The big gainers this month were GGWPQ and SALM.

Distressed opportunities, i.e. bankruptcies, turnarounds, unfairly beaten stocks, are one of the most profitable investments one can make provided you buy when there is panic. GGWPQ has now overtaken my VVTV stake as the highest gainer at 1239% while VVTV is running second on 958%. SALM isn’t too shabby at330%.

General Growth Properties, Inc (GGWPQ)

News spread that Simon Property Group hired a financial advisory firm to look into buying GGWPQ properties and more news that the debt restructuring looks to close early and on possibility good terms gave the price a good bounce not far below $7.

ValueVision Media, Inc. (VVTV)

There hasn’t been huge news on VVTV yet but their latest quarterly report showed that they are increasing the conversion rate of visitors into customers. As a person that runs a retail operation, the ultimate goal is conversion. You could get huge amounts of traffic but if it amounts to no sales, it’s useless. With the Black Friday Thanksgiving sale here in the U.S. and the now popular “Cyber Monday” VVTV increased traffic, conversions and customers.

One of the golden rules of retail being, it is much easier to sell to an existing customer than a new one, if the shopping experience was pleasant, I wouldn’t be surprised to see VVTV’s online presence continue to grow.

Their new credit facility is another good sign as it provides cash.

Salem Communications Corp (SALM)

I place SALM along with all of my radio stocks in the distressed pile because they were under immense pressure in 2008 with the lack of credit available to refinance their debt but things sure have changed.

Knowing that these companies were throwing off big chunks of FCF, they were able to pay down debt aggressively from their organically generated cash from operations and keep up with their payments.

SALM has gone ahead and done better as the company was able to successfully tender their “old notes” which were due 2010. The new notes are due 2016 which positions them to focus on the business and provides room to breathe. They also received a credit upgrade which will only help with future borrowings.

These distressed/turnaround/cheap stocks remind me of David Dremen’s rule no.12

Rule 12: (A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.

(B) Positive surprises result in major appreciation for out-of-favor stocks, while having minimal impact on favorites.

(C) Negative surprises result in major drops in the price of favorites, while having virtually no impact on out-of-favor stocks.

(D) The effect of an earnings surprise continues for an extended pe riod of time.

Portfolio Trades

More selling than buying in November.

1. Bought more INSM

After reviewing the quarterly report and financial statements for the 3rd quarter, things look to be going pretty good at the company. They’ve been paying back debt and cash burn isn’t a worry at this point.

I’ll just have to continue waiting to see what their strategic plan is. I wish they would just decide what they plan to do and stop paying their financial advisors.

2. Sold KTII @ $101.39 for a 87% gain

My latest review of the company as I went through the 2009 best small companies list showed that the latest figures indicate KTII is worth around $125. My mistake for not reviewing my investment. I watching to see if it goes back down to the $80 range where I can hopefully pick a new entry point. Intrinsic value just seems to steadily increase.

Although growth is planned to come from acquisitions, they haven’t made any moves for a while so I believe that they are always concentrating on the business and looking for the best possible decision without wasting our shareholder’s equity.

3. Sold a little over half of my position in SALM @ $3.95 for roughly 220% gain.

Sold it as I believed it was very close to my intrinsic value but volume was very thin so I wasted about $40 on commission because I didn’t know orders were considered new again even if you use the “until canceled” option.

4. Bought BOLT

Missed my original entry point by a couple of cents but just increased the order a few percentage points and locked in my new position.

Solid company with strong fundamentals and history. A niche player that reminded me of KTII. It’s currently in an industry wide down cycle and unduly punished to a great entry for value investing.

I originally mentioned the idea in the value stock picks section of the value investing forum.

5. Cash slightly reduced to 21%

Disclosure

I hold all stocks mentioned except sold positions.

Jae Jun
Old School Value.

http://www.gurufocus.com/news.php?id=77922

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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)

Wednesday, 21 July 2010

How this investor continues to maintain a portfolio of highly under-priced companies

Portfolio Movers

General Growth Properties, Inc (GGWPQ)

ValueVision Media, Inc. (VVTV)

Salem Communications Corp (SALM)

Portfolio Trades

Disclosure

No comments:

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

Interesting Blogs