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.

Monday, 1 October 2012

All Eyes on Tesco's Results

By G. A. Chester |

September 28, 2012

CAPS Rating0/5 Stars

$332.98 $0.98 (0.30%)

+ Watch TSCO.L

Britain's No. 1 supermarket with a market share of over 30% -- streets ahead of rivals J Sainsbury, Wm Morrison, andWal-Mart-owned Asda -- issued its first profit warning in 20 years following poor Christmas trading.LONDON -- All eyes will be on Tesco (LSE:TSCO.L ) when it announces its interim results on Wednesday this coming week.

Moreover, Tesco acknowledged its home market performance in 2011-2012 reflected deeper-rooted problems. The group had been over-greedy in its U.K. business -- "running the stores too hot," as chief executive Philip Clarke put it -- to squeeze out cash to fund international expansion.

Tesco's results on Wednesday will give us an idea of how Clarke's plans to get U.K. operations back on track are progressing. News on two or three other areas of the company's activities will also be keenly scrutinized by shareholders.

GroupLet's begin with Tesco's overall performance. How will the group have performed in the first half compared with last year's first half? And is it on track to meet analysts' consensus forecasts for this year's key full-year numbers? Here's your cut-out-and-fill-in table!

	H1 2011/12	FY 2011/12	H1 2012/13	Forecast FY 2012/13	Forecast FY growth
Revenue* (billion pounds)	32.2	65.2	?	67.2	3.1%
Trading profit (billion pounds)	1.8	3.8	?	3.6	(3.0%)
Trading margin	5.5%	5.8%	?	5.4%
Underlying profit before tax (billion pounds)	1.9	3.9	?	3.8	(4.0%)
Underlying earnings per share (diluted; in pence)	18.3	37.4	?	35.1	(6.3%)
Dividend per share (pence)	4.63	Final: 10.13 Total: 14.76	?	14.83	0.5%

*Excluding VAT, including petrol.

In a June trading update, the company said: "At this early stage of the year, we are performing in line with market expectations for the Group." In spite of that, analysts' views on full-year EPS vary widely from the consensus, ranging from a low of 29.9 pence to a high of 37.3 pence.

On trading profit, look out for how this number measures up against the forecast of one of Tesco's three house brokers for a first-half fall of 9% to just over 1.6 billion pounds.

Personally, I think the number to keep a particular eye on will be the level of the interim dividend, which could be the truest barometer of management's confidence in getting the U.K. business back on track this year. An interim above 4.8 pence would be very encouraging, a modest sub-inflationary increase would be in line with market expectations, and a flat dividend would suggest management could be cautious on how things are progressing. A dividend cut would be a real shocker.

U.K. operationsThe key U.K. operational number to watch out for -- an indicator of how management action to turn around the core home supermarket business is going -- is U.K. like-for-like sales (excluding VAT and petrol).

The table below shows the trajectory across the past five quarters.

	Q1 2011/12	H1 2011/12	Q3 2011/12	Q4 2011/12	Q1 2012/13
Growth	(0.1%)	(0.9%)	(0.9%)	(1.6%)	(1.5%)

Another quarter of -1.5% or, heaven forbid, a slide back to negative growth of worse than -1.5% would be hugely shocking. In fact, any negative growth worse than, say, -0.5% would be a disappointment. One of Tesco's house brokers is forecasting a flat U.K. performance for Q2, while another is actually forecasting positive like-for-likes of a modest 0.1%.

International operationsTesco's nascent "Fresh & Easy" U.S. business is currently a small part of the group's international operations -- and a detractor from profits, being loss-making -- but it will perhaps be the part of global operations shareholders are most keen to hear news on. Earlier this year, the company put back the breakeven date of Fresh & Easy from the current financial year to 2013-2014.

As recently as last week, Tesco's chief executive insisted he would continue to persist with Fresh & Easy, having previously said there would be a significant reduction in losses during the current year.

In the first half of last year, Fresh & Easy made a trading loss of 73 million pounds on revenue of 300 million pounds. One of the house brokers has penciled in a loss of 70 million pounds for this year's first half. A lack of progress or even a serious deterioration of prospects might not actually hurt Tesco's share price as a number of major shareholders have been calling for the company to pull out of the U.S.

Results checkoutTesco is probably one of the most popular shares with small U.K. investors. It's also a favorite of legendary U.S. billionaire investor Warren Buffett. In fact, Buffett bought a trolley-load of Tesco shares earlier this year.

You can find out the price the Sage of Omaha was willing to pay for his shares by downloading an exclusive Motley Fool report: "The One U.K. Share Warren Buffett Loves." You can have this free report dispatched to your inbox immediately, simply by clicking here.

"10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the free report today -- it may transform your wealth.

Further investment opportunities:

http://www.fool.com/investing/international/2012/09/28/all-eyes-on-tescos-results.aspx

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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)

Monday, 1 October 2012

All Eyes on Tesco's Results

By G. A. Chester |

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

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