### Attractive Buying Opportunities arise through a Variety of Causes

Attractive buying opportunities for the enterprising investor arise through a variety of causes.

The standard or recurrent reasons are
(a) a low level of the general market and
(b) the carrying to an extreme of popular disfavor toward individual issues.

Sometimes, but much more rarely, we have the failure of the market to respond to an important improvement in the company's affairs and in the value of its stock.

Frequently, we find a discrepancy between price and value which arises from the public's failure to realise the true situation of a company - this in turn being due to some complicated aspects of accounting or corporate relationships.


It is the function of competent security analysis to unravel such complexities and to bring the true facts and values to light.


Benjamin Graham
Intelligent Investor


Summary:
Attractive buying opportunities (discrepancy between price and value) due to various causes:
1.  low level of the general market
2.  extreme of popular disfavour towards individual stocks
3.  failure of market to respond to improvement in the company
4.  failure to realise hidden value in the company due to some complicated aspects of accounting or corporate relationships

“Investing is simple but not easy.”

Investors should follow the Munster family to profit from the credit crisis

By Ian Cowie Your Money Last updated: December 1st, 2011

Investors should be like the Munster family. Just as the latter only went to the beach when it was raining, the former can take perverse pleasure in more bad news about the economy – such as the official announcement that Britain has entered a second credit crisis.

Why? Because stock markets are in business to discount the future; not act as a means of recording the present or the past.

Obviously, the credit crunch is very bad news for thousands of people who will lose their jobs and homes before the economic cycle turns up again – as it will, unless this really is the end of the world. But, much less obviously, the current crisis also presents opportunities for people who remain in work and do not need to spend everything they earn.

If that sounds somewhat hypothetical, then bear in mind what has happened since I made similar points in an article that appeared in last Saturday’s newspaper under the headline: ‘Why not buy before share prices rise?’

That piece was written on Thursday last week as the FTSE 100 index closed at 5127. As I write this, it’s trading at 5541 or 414 points higher.That’s an increase of just over 8pc in one week.

You may very well say that paper gains are neither her nor there and, as a long-term investor, I would agree. But they are better than starting with a loss – and 8pc is more than most deposit accounts will pay in two years at current interest rates.

Here’s what that article said: “After the FTSE 100 index of Britain’s biggest shares suffered its longest losing streak in nearly nine years, it might be profitable to remember that the best time to invest is when you least feel like doing so.

That is the counter-intuitive message of the graph on this page, which shows how most investors do the exact opposite. They chase shares and equity-based funds when stock markets are expensive and shun them when they are cheap.

They buy with both hands at the top of the cycle and then sell out at the bottom. Needless to say, that is also the exact opposite of the way to make a profit; which is to buy low and sell high.

It ain’t rocket science but it isn’t easy to put into practice either. Humans are herd animals and it is difficult to buy when everyone else seems to be selling, even if you suspect that predictions of the end of the world will prove exaggerated, as they always have done in the past.

Or, as the multi-billionaire Warren Buffett puts it: “Investing is simple but not easy.” Tom Stevenson, a director of Fidelity Investments – and late of this parish – blames the media: “People seem to react to the overall market mood, particularly as expressed in the media. When the market is moving higher, the headlines are positive and this results in positive net sales.

And vice versa. During the 1999-2000 technology bubble, retail investors were sucked into the market in vast numbers when share price rises went exponential in the final throes of the mania.”

Many of today’s worldly-wise media bears were raging bulls back then. Now some of the shrewdest stock pickers in the world say the pessimists of today are as wrong as they were a decade or more ago when they were optimistic about the outlook. More specifically, Mr Buffett has become one of the biggest shareholders in IBM after a lifetime of avoiding technology shares.

At the risk of moving from the sublime to the ridiculous, this came as particularly good news to your humble correspondent because I had picked up some technology shares for my self invested personal pension (Sipp) in August. Back then, the FTSE 100 had fallen by 15pc in a fortnight and it seemed like a good opportunity to buy into an investment trust I had been following for more than a year.

So I bought some Polar Capital Technology shares at 301p and – even though the FTSE has fallen by more than 7pc in the last month – Polar Technology was trading around 325p this week. Of course, I have no idea where these shares or the FTSE will be next week or next year – but I have no intention of cashing in my Sipp next week or next year.”

Now, as then, that remains true. But, as mentioned earlier, it is better to start with a gain than a loss. Polar Capital Technology is currently trading at 329p, which is good news for my pension in a week of bad news for most people’s retirement plans.

Many may consider it in the worst possible taste to say such things and to refuse to join in the chorus of doom and gloom. But I think it’s more interesting to take an opposing view; even on something as serious as the credit crisis. And, as the facts above demonstrate, it can be more profitable too.

http://blogs.telegraph.co.uk/finance/ianmcowie/100013550/investors-should-follow-the-munster-family-to-profit-from-the-credit-crisis/

This Is What a Real Growth Opportunity Looks Like

This Is What a Real Growth Opportunity Looks Like
By Tim Hanson
January 15, 2010

If you wanted to add some growth to your portfolio, you might consider the Vanguard Growth Equity fund. After all, it's an "aggressive" fund that seeks "long-term capital appreciation." And yes, its top holdings do seem like they'd be good ways to get growth:

Stock
Weight Within Fund

Baxter International
3.2%

Cisco Systems (Nasdaq: CSCO)
3.1%

PepsiCo (NYSE: PEP)
2.6%

Walgreen
2.6%

Berkshire Hathaway
2.5%

Progressive
2.4%

Google (Nasdaq: GOOG)
2.4%

Johnson & Johnson (NYSE: JNJ)
2.3%

Oracle (Nasdaq: ORCL)
2.3%

Apple (Nasdaq: AAPL)
2.1%



Data from Vanguard.
(My Comment:  Only good quality stocks)

But now let's take a look at just how much growth analysts actually expect from these companies:

Stock
Analyst 5-Year Growth Estimate

Baxter International
11.5%

Cisco Systems
11.25%

PepsiCo
10.75%

Walgreen
14.22%

Berkshire Hathaway
5%

Progressive
6.53%

Google
21.34%

Johnson & Johnson
7.54%

Oracle
12.19%

Apple
18.16%

Average
11.85%


Data from Yahoo! Finance.

Now, we all know that securities analysts are notoriously off in their projections, but let's assume that when we average together dozens of forecasts for these high-profile stocks, we at least end up in the ballpark. Assuming that, is 11.85% really the magnitude of growth you'd like to get out of your aggressive growth stocks?

If you're happy with 11.85%, then you can stop reading and stick with your high-profile "growth" stocks. But if you're looking for more, I recommend you read on.

Still with me?
The recipe for truly high growth has a handful of necessary ingredients. They are:

• A small company
• A wide market opportunity
• Meaningful macroeconomic tailwinds.

Think, for example, of Amazon.com (Nasdaq: AMZN) when it launched in 1995. It was a tiny company, one of the first e-tailers, and it had the rising tide of the Internet -- merely the greatest development of the past 25 years -- helping it along. Now ask yourself: Do any of the companies or industry opportunities in the table above fit that profile at all?

Let me introduce you to one that does
Now consider something like the pharmaceutical industry in India. Today, on average, Indians spend $10 per person per year on drugs. Americans, on the other spend, more than $750! That means the Indian pharmaceutical market needs to grow some 7,400% in order to be as big as the U.S. market is today.

This won't happen next year, or even over the next 10 years. Furthermore, because of discrepancies in purchasing power, the Indian pharmaceutical market may never reach the size the U.S. market is today. But let's assume it takes 25 years for the Indian market to reach half the size of the U.S. market. That would mean industry tailwinds of 15.6% annual growth ... for 25 years!

As for who benefits, think about a company like Dr. Reddy's Laboratories (NYSE: RDY). Although this Indian company is earning most of its revenue today in Europe and the United States selling low-cost generics, it's positioned extremely well to benefit from sales in the Indian market as it grows. It's a domestic company, so it knows the market well, and it specializes in marketing the low-cost drugs that are likely to sell best in India.

This, in other words, is what a real growth opportunity looks like. Dr. Reddy's is a small company with a wide market opportunity that stands to benefit from meaningful macroeconomic tailwinds.

Looking for more?
At Motley Fool Global Gains, we believe that real growth opportunities are available over and over again in the world's emerging markets, simply because these markets are creating so many meaningful economic tailwinds these days.

http://www.fool.com/investing/international/2010/01/15/this-is-what-a-real-growth-opportunity-looks-like.aspx

Opportunities in a crisis: Lessons from the past

In any crisis, there are also opportunities.  Here is an article of lessons from the past.



UK buy-out market starting to reflect increasing market uncertainties
16 Oct 2001.
Source: AltAssets.

Conditions in the UK buy-out market are beginning to reflect the increasing uncertainty in financial markets since the global economic downturn was given extra impetus by last month's terrorist attacks on the US, according to the latest research from Royal Bank Private Equity and Unquote UK Watch.


Both the number and the value of deals in the £10m-plus buy-out market dipped significantly in September. Deal value fell to £21.3bn in the twelve months to the end of September, compared with a nine-year high of £23.5bn in late summer. The number of deals fell from a high of 155 in May and June to 132 in September.

Price/earnings ratios also showed a declining trend and are now at levels not seen since 1996. They are currently at just below 11, compared with more than 12 or 13 for most of the past five years.

Mark Nicholls, managing director of Royal Bank Private Equity, said: ‘The decline in the number of deals and downward trend in p/e ratios revealed by the UK Watch statistics confirms the trend we have seen in the market over the last six months when growing uncertainties had already made their mark on the valuations that private equity players are putting on target companies.'

He said the situation appeared to have deteriorated since the middle of September but insisted business had not ground to a halt and there was still some activity.

‘In spite of an unpredictable economic situation, deals are still being looked at and investments made; there will continue to be companies seeking to dispose of non-core businesses and investors who see growth opportunities in them,' Nicholls said.

Copyright © 2001 AltAssets

http://www.altassets.net/private-equity-news/by-region/europe/article/nz332.html

Opportunities in Calamities

Bad-news situations come in 5 basic flavors:

• Stock market correction or panic
• Industry recession
• Individual business calamity
• Structural changes
• War

The perfect buying situations is created when a stock market correction or panic is coupled with an industry recession or an individual business calamity or structural changes or a war.

Think Availability of Opportunities

Think Availability of Opportunities; Not Diversification or Acting Contrary to the Market


Portfolio Diversification

There can be no hard and fast rules about diversifying. However, a portfolio should contain a certain amount of cash and interest-bearing securities. These should be weighted towards

• higher yielding secure preference shares that have no downside price risk on conversion and
• property trusts or REITS that have low profit and price volatility.

These cash and interest-bearing securities will expand and contract depending on the availability of opportunities in equities.

Towards the end of a bull market, when selling presents more opportunities than buying, the cash and interest-bearing securities will be quite high. In the tail-end of a bear market, when opportunities are more plentiful, the cash and interest-bearing securities might be close to zero.

The amount of cash and interest-bearing securities you carry will depend on several factors, not the least important of which is your comfort level with the price volatility of equities.

Think of the Availability of Opportunities

Conventional wisdom tells us a portfolio should be spread over a diversified range of industries on the premise that a downturn in one sector of the economy will only affect a portion of your portfolio. A contrarian would argue that you should only buy into an industry that is suffering a downturn because prices will be cheap.

However, think not in terms of diversification or acting contrary to the market, but of the availability of opportunities.

Remember Mae West’s words: “Too much of a good thing can be wonderful”. Mae, however, was a woman of experience with the ability to know a good thing. Lacking that same experience, or the necessary time to acquire it, it’s easier to recognize and avoid what is not a good thing.

This approach will not guarantee that every selection will be wonderful. It may even eliminate a few stocks that may have turned out to be wonderful, but in eliminating most of what is likely to be a lot less than wonderful, it should deliver above-average results.