LPI

STOCK LPI
C0DE  8621 

Price $ 11.5
Curr. PE (ttm-Eps) 18.51
Curr. DY 3.67%

Rec. qRev 216952 q-q % chg 15% y-y% chq 5%
Rec. qPbt 47445 q-q % chg 32% y-y% chq 11%
Rec. qEps 16.85 q-q % chg 40% y-y% chq 13%
ttm-Eps 62.13 q-q % chg 3% y-y% chq 11%

Using VERY CONSERVATIVE ESTIMATES:
EPS GR 4%
Avg.H PE 17.00
Avg. L PE 13.00

Current price is at Middle 1/3 of valuation zone.

RISK: Upside 37% Downside 63%
One Year Appreciation Potential 2%  Avg. yield 5%
Avg. Total Annual Potential Return over next 5 years 7%

CPE/SPE 1.23
P/NTA 2.31
SPE 15
Rational Pr 9.32


(CPE = Current PE, SPE = Signature PE)

The concept of Rational Value of a Portfolio (Ellis Traub)

Re: Toolkit 5 and rational Value
Financial Literacy for Youth
Thu, 30 Dec 2004 18:34:18 -0800 (PST)

Diane:

At 08:57 PM 12/30/2004, you wrote:

The Portfolio Report Card Overview section of Toolkit 5 has a new concept,
called rational value. I'm trying to understand how the the number is
calculated.

----

You should be able to arrive at it by dividing the current price of
each stock by its relative value and multiplying that result by the
number of shares.

The concept behind this value is that each company has a fairly
constant PE (we like to call it the "signature PE") at which it has
sold. This is its historical average and represents a price (expressed
as a multiple of earnings) that has proven to be reasonable. The PE
is a rate investors are willing to pay for a dollar's worth of earnings
(much like the price or rate for a pound of coffee or gallon of gas).

When the PE is above that signature PE, it's selling at a higher rate
than "normal" and, conversely, when it sells below that value, it's
selling at a lower than "normal" rate.

The "Rational Price" (current price divided by the Relative Value)
is the price at which the stock would be selling were it to have
a Relative Value of 100%. In other words, it's the "normal" price
for the stock based on history. The "Rational Value" is the value
of your holdings if people were to be paying that "rational" price
for the stock.

The value is in setting a realistic value on your portfolio so that
you can see if, in the present market, your portfolio and its
holdings are above or below what it "should" be if people were
paying that rational price. It's supposed to keep you feet on the
ground in a bubble and your head in the clouds in a bust.

Ellis Traub





Terminology:


Signature PE =  The fairly constant PE at which the stock has sold.


Relative (PE) Value = Current PE / Signature PE


Rational Price of Stock 
= Price at which the Stock would be selling were it to have a Relative Value of 100%
= Current Price of Stock / Relative Value


Rational Value of a Stock in a Portfolio 
= Rational Price of Stock X Number of Shares
= [(Current Price of Stock / Relative Value) X Number of Shares]


Rational Value of a Portfolio 
= Sum of the Rational Values of Each Stock in the Portfolio
= Rational Value of Stock A + Rational Value of Stock B + Rational Value of Stock C + ......


http://www.mail-archive.com/i-club-list@lists.better-investing.org/msg04788.html


Relative Values and Rational Prices of Selected Stocks in KLSE.

https://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdEdTREYtNTVQYnZtS1hfMDlSQjc3elE&output=html

Five reasons why my way works

http://www.financialiteracy.us/wordpress/2010/10/05/five-reasons-why-my-way-works/

My mission, when I started this blog, was to persuade my readers that “investing,” is not what the securities industry has spent gazillions convincing everyone it is: betting on the stock market, which is risky and unpredictable. Rather, “investing” is a simple means of earning money with your money. It can make you wealthy and is virtually risk-free. 


Here are five reasons why “our” way works, and “their” way doesn’t.

1. “We” seek to be part-owners of companies that have a proven track record of making money for their owners. “They” buy stocks because their stories sound good.
2. “We” judge the quality of the companies we invest in by examining their fundamentals—their “lifeblood” and “vital signs.” “They” use technical analysis to decide when to buy and sell—a popular attempt to predict the unpredictable, with no record of consistent success.
3. “We” know, from history, what multiple of profits would be reasonable to pay for shares of such companies. “They” ignore such fundamentals and can only guess at reasonable purchase price.
4. “We” rely upon an increase in the actual value of our holdings over time to justify selling at a profit. “They” must rely on luck or someone else’s ignorance to profit from the transaction.
5. “We” value our portfolios according to their potential—their rational value—because we own shares in companies whose operations continue profitably, regardless of the fluctuations of the stock market. “They” value shares according to their “market value”—whatever they’re selling for at the moment—because “they” don’t have a means of setting an absolute value for those shares.

The only thing “they” have going for them is excitement. There’s nothing like the rush that comes with risk! Especially when you bet your life’s savings on something as uncertain as the stock market.

Asset Allocation: Is it Necessary or Effective?

October 29th, 2009

 Asset allocation is a device used by investors and financial planners to populate a portfolio with an appropriate mix of investment vehicles selected from a smorgasbord of stocks, bonds, and occasionally other investments, each deemed to carry with it a uniquely predictable degree of risk.

Its goal is to optimize the return on the portfolio while taking into account  that investor’s tolerance for risk. And,  risk aversion is analyzed using such factors as the point the client has reached in her life cycle, her current and future responsibilities, her earning capacity—as well as the nuances of his or her character and personality.

The assumption is that there is an inverse relationship between  risk and return; and, the more aggressive the portfolio—one invested primarily in common stocks—the more risky it is.

Few amateur investors have the experience or know-how to apply asset allocation without the help of a professional. And, considering the view that most amateurs have of “investing,” the expense of such a professional might easily be justified. But….

I agree with Peter Lynch’s view that one should invest as if she were going to live forever. In my view, the most aggressive portfolio should be expected to generate no higher a return than the potential growth rate of a basket of well managed companies’ earnings—between 10% and 15% a year. And that there’s simply no need to dilute the return of a portfolio with any investment vehicles that would return less than that. I believe that’s all the “asset allocation” anyone needs!

The secret is to recognize that there is virtually no risk when you select those companies for their ability to grow their earnings consistently and adequately; and when you understand that the oscillations of the stock market—and the prices of the shares of the companies you own—have nothing whatever to do with the operation of those companies and the generation of profits for their owners. And, as an owner, you’re in it for those profits

http://www.financialiteracy.us/wordpress/2009/10/29/asset-allocation-is-it-necessary-or-effective/

The foundation of long-term investing is the notion that the company's earnings drives the price of a share of its stock.

The foundation of long-term investing is the notion that the company's earnings drives the price of a share of its stock. The higher the earnings, the higher the price.





Comparing the above 2 charts, I will be excited with the bottom one.  The pattern here is that of 3 lines going up "almost parallel" to each other (monotonous "tramlines").  This company's earnings have been growing consistently over many years.  It was therefore not surprising that its share price has risen in tandem.   In addition, it has given dividends consistently over the years.  This dividend too has grown in tandem with the earnings.  However, since the share price has also risen, the DY over the years hovered probably around the same range.

Click here to see more companies with "monotonous tramlines" charts.

For long term investors, the total shareholder returns are from dividend and capital appreciation.  Look at this post here:

Selected Stock Performance Review
http://spreadsheets.google.com/pub?key=0AuRRzs61sKqRdGZuWktpR2dvQUhhSmpkNElXY0NvWmc&output=html

Most of the total shareholder returns will be from capital appreciation of the stock prices.  I will concentrate on ensuring that I invest in a company's earnings.  The dividend is at best a "surrogate" indicator of this company's good earnings.

Related readings:

The story of Ellis Traub:  Investing for Beginners

You don't have to be a genius to make money in the market

NAVIGATE INTERVIEW

With four sons about to enter college, Ellis Traub lost everything.  Today, he's a widely respected author, spokesman for the NAIC, and CEO of Investware.  Learn how you can avoid the same mistakes he did - and save your pocketbook a lot of trouble.
 

• Part 1:A Walk: Ellis' Story
• Part 2:You Can Do It
• Part 3: Buy from a Sucker
• Part 4: Reader Questions