Maybulk (20.7.2017) is still bleeding and struggling.

Maybulk
19.8.2017

INCOME STATEMENT
Thousands
Year …. T4Q
Revenues …. 236,966
PBT …. (504,183)
PAT …. (505,005)
EPS (RM) …. -0.50
No of shr (m) …. 1,000.0

PBT Marg …. -212.77%
NP Marg …. -213.11%


Maybulk
19.8.2017

INCOME STATEMENT
Thousands
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Revenues …. 225,505 …. 241,501 …. 255,724 …. 246,744 …. 262,266
GrProf …. 165,723 …. 160,942 …. 171,686 …. 161,978 …. 157,395
EBIT …. 155,408 …. 46,107 …. 156,468 …. (27,758) …. (18,564)
Int Exp …. 16,104 …. 12,773 …. 5,396 …. 1233 …. 1,944
PBT …. (167,071) …. (1,011,077) …. (18,735) …. (3,494) …. 21,244
PAT …. (491,306) …. (1,177,153) …. 12,153 …. 44,532 …. 66,049
EPS (Dil) …. -0.49 …. -1.18 …. 0.01 …. 0.04 …. 0.07
No of shr (Dil) …. 1,000,000.000 …. 1,000,000.000 …. 1,000,000.000 …. 1,000,000.000 …. 1,000,000.000



GP Marg …. 73.49% …. 66.64% …. 67.14% …. 65.65% …. 60.01%
PBT Marg …. -74.09% …. -418.66% …. -7.33% …. -1.42% …. 8.10%
NP Marg …. -217.87% …. -487.43% …. 4.75% …. 18.05% …. 25.18%
EBIT/Int …. 9.65 …. 3.61 …. 29.00 …. -22.51 …. -9.55



BALANCE SHEET
Millions USD
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
CA …. 202 …. 285 …. 215 …. 304 …. 347
NCA …. 1,377 …. 1,813 …. 2,291 …. 1,722 …. 1,560
TA …. 1,579 …. 2,098 …. 2,506 …. 2,026 …. 1,907

CL …. 206 …. 339 …. 110 …. 80 …. 104
NCL …. 643 …. 528 …. 380 …. 32 …. 33
TL …. 849 …. 867 …. 490 …. 112 …. 137
Eq …. 730 …. 1,231 …. 2,016 …. 1,914 …. 1,770
TL+Eq …. 1,579 …. 2,098 …. 2,506 …. 2,026 …. 1,907



Cash …. 70 …. 141 …. 155 …. 254 …. 282
ST Debt …. 105 …. 225 …. 68 …. 45 …. 73
LT Debt …. 439 …. 383 …. 347 …. 32 …. 34
Total Debt …. 544 …. 608 …. 415 …. 77 …. 107

Inventories …. 12 …. 8 …. 8 …. 10 …. 10
AR …. 39 …. 36 …. 46 …. 40 …. 43
AP …. 3 …. 3 …. 1 …. - …. -

CA-CL …. (4) …. (54) …. 105 …. 224 …. 243

TD/Eq …. 74.5% …. 49.4% …. 20.6% …. 4.0% …. 6.0%
TD/TA …. 34.5% …. 29.0% …. 16.6% …. 3.8% …. 5.6%
TL/TA …. 53.8% …. 41.3% …. 19.6% …. 5.5% …. 7.2%

CR …. 0.98 …. 0.84 …. 1.95 …. 3.80 …. 3.34
QR …. 0.92 …. 0.82 …. 1.88 …. 3.68 …. 3.24



CE …. 1,443 …. 1,900 …. 2,551 …. 2,200 …. 2,085

Average of 2 years
CE (Avg) …. 1,672 …. 2,226 …. 2,376 …. 2,143 ….
TA (Avg) …. 1,839 …. 2,302 …. 2,266 …. 1,967 ….
Eq (Avg) …. 981 …. 1,624 …. 1,965 …. 1,842 ….






CASH FLOW STATEMENT
Thousands
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Net Inc …. (496,298) …. (1,196,248) …. 18,333 …. 45,506 …. 66,451
D&A …. 29,000 …. 46,327 …. 30,540 …. 27,801 …. 28,032
FFO …. (30,022) …. (29,573) …. (3,459) …. 9,992 …. 17,337
CWC …. 11,966 …. 18,767 …. (10,846) …. 20,557 …. (19,003)
NetOCF …. (18,056) …. (10,806) …. (14,305) …. 30,549 …. (1,666)

Capex …. (83,298) …. (139,255) …. (240,317) …. (24,760) …. (714)

FCF …. (101,354) …. (150,061) …. (254,594) …. 7,693 …. (2,380)
Dividends …. 0.00…. (10,000) …. (30,000) …. (30,000) …. (30,000)
RE …. (496,298) …. (1,206,248) …. (11,667) …. 15,506 …. 36,451


NetOCF/Net Inc …. 3.6% …. 0.9% …. -78.0% …. 67.1% …. -2.5%
FCF/Net Inc …. 20.4% …. 12.5% …. -1388.7% …. 16.9% …. -3.6%
Capex/Net Inc …. -16.8% …. -11.6% …. 1310.8% …. 54.4% …. 1.1%
Capex/NetOCF …. -461.3% …. -1288.7% …. -1680.0% …. 81.1% …. -42.9%
Capex/D&A …. 287.2% …. 300.6% …. 786.9% …. 89.1% …. 2.5%
DPO ratio …. 0.0% …. -0.8% …. 163.6% …. 65.9% …. 45.1%



VALUATION
Year …. 2016 …. 2015 …. 2014 …. 2013 …. 2012
Share Price RM …. 0.71 …. 0.81 …. 1.21 …. 1.77 …. 1.33
Market cap (m) …. 705 …. 805 …. 1,210 …. 1,770 …. 1,330

ROCE …. 9.3% …. 2.1% …. 6.6% …. -1.3% ….
ROA …. -26.7% …. -51.1% …. 0.5% …. 2.3% ….
ROE …. -50.1% …. -72.5% …. 0.6% …. 2.4% ….

FCF/Revenues …. -44.9% …. -62.1% …. -99.6% …. 3.1% …. -0.9%

FCF/Mkt Cap …. -14.4% …. -18.6% …. -21.0% …. 0.4% …. -0.2%
DY …. 0.0% …. 1.2% …. 2.5% …. 1.7% …. 2.3%

Mkt. cap/Equity (P/B) …. 0.97 …. 0.65 …. 0.60 …. 0.92 …. 0.75
Mkt. cap/Net Inc (PE) …. -1.43 …. -0.68 …. 99.56 …. 39.75 …. 20.14



Today's Price RM …. 0.80
Shares (m) …. 1,000.000
Market cap (m) today …. 800

Mkt. cap/Equity (P/B) …. 1.10
Mkt. cap/Net Inc (PE) …. -1.58



MAYBULK Quarter Report History

No.	Financial	Revenue	PBT (RM,000)	Net Profit	EPS (Cent)	Dividend	NTA
	Quarter	(RM,000)		(RM,000)		(Cent)	(RM)
1	31-Mar-17	64,961	-32,589	-33,206	-3.32	0	0.671
4	31-Dec-16	64,156	-400,185	-396,086	-39.61	0	0.709
3	30-Sep-16	52,498	-31,260	-30,807	-3.08	0	1.019
2	30-Jun-16	55,351	-40,149	-40,331	-4.03	0	1.037
1	31-Mar-16	53,500	-24,704	-24,082	-2.41	0	1.1
4	31-Dec-15	64,746	-1,137,497	-1,119,085	-111.91	0	1.18
3	30-Sep-15	66,872	-14,329	-14,194	-1.42	0	2.296
2	30-Jun-15	58,138	-21,303	-21,125	-2.11	0	2.009

Comments:

When its business fundamentals deteriorated soon after the Global Financial Crisis, those who sold off quickly would have got out of an investment that was soon to crash rather quickly.

A red flag then was ALL the directors selling their equities in the company.

In its early years, this company was doing extremely well.  Its super sized profits were augmented by gains from asset sales of its bulk carriers and investors were rewarded with good dividends.

Bulk carriage is a cyclical business that is also capital intensive.   It is facing huge competition today due to excess capacity built up over the good period.

Selling an investment is often more difficult than buying.  When the company's fundamentals deteriorated, those were good reasons to cash out and sit with cash on the sideline or redeploy cash into another investment.

When to Sell?

When to Sell?

Selling “Myths”
• MYTH – Once a stock has doubled our investment it is time to sell.
• MYTH – Wait until a stock is back to even before selling.
• MYTH – Sell if the stock price falls 10% (or some other %) below the
purchase price.
• MYTH – Only sell when your Stock Selection Guide (SSG) says “Sell.”
• MYTH – If a company is meeting our growth expectations, then do
not sell.
• MYTH – Don’t sell a stock until you have found a good replacement.
• MYTH – Sell everything when we are going into a bear market.
• MYTH – Don’t sell because it’s a “good company.”

Valid Reasons to Sell
• When something is truly wrong with the
business and it won’t likely be fixed within a
year
• When the stock price has risen so much that
future gains are unlikely.
• When you find a better stock. Frequently this is
a back‐door way of exiting a weak holding.

How can you become a better seller?
•Write it down – have written rules for selling just like you do
when buying
•For an investment club – rotate stock assignments so one person
isn’t identified with “her” or “his” stock
•Remember, stocks are a means to an end. The goal is to grow
your wealth. You aren’t being disloyal to a stock if you sell it.


http://www.betterinvesting.org/NR/rdonlyres/12386A1B-284F-4E75-B02C-D9396B363B26/0/StockUpFeb2015Slides4pp.pdf

Trading and portfolio management from a value investing point of view.

Portfolio Management

Portfolio management is described as an on-going process that is never complete. 

While certain businesses may be fairly stable, its prices will fluctuate over time, and so the investor must constantly monitor the situation. 

Value investors are not into buying certain industries or business ideas without regard to price, and so price changes are a fundamental factor that drive portfolio decisions.

The portfolios need to be somewhat liquid. 

Investors are advised not to purchase their entire positions at one go, but rather to leave room to buy in at cheaper prices should the stock go down. 

A good test for an investor is to consider whether he would indeed buy more of the stock were it to drop; if he is not, he is probably speculating and should not be buying in the first place!

The Decision of When to Sell 

Determining when to buy a stock is usually a much easier decision for a value investor, since the stock at that time is trading below what the investor considers an adequate margin of safety. 

But when the stock is trading within the range of values the investor believes it to be worth, what is the investor to do? 

We can argue against selling after percentage gain thresholds or price targets have been reached.   

Instead, the investor should compare the investment to available alternative investments:

• It would be foolish to sell if there were no better investments and the stock was still undervalued, but 
• it would be foolish not to sell if there are better bargains around!

Read also:

• 
  
• Your investments using Mutual Funds or Money Managers
• Trading and portfolio management from a value investing point of view
• Value Investor's Opportunities in Distressed Securities
• Value Investing Opportunities in the Banking Sector
• Look at FUNDAMENTALS and POTENTIAL CATALYSTS when making investment decisions
• Where to look for Investment Opportunities
• Business value cannot be precisely determined. Make use of ranges of values
• Central elements to a Value Investing Philosophy
• The Philosophy of Value Investing and Why It Works
• Philosophy of value investing. Need to have clear strategies too
• How Wall Streets can create investment fads? The Junk Bond Market of mid-1980s
• Understanding these changes in the investment world allows investors to earn superior returns
• What's good for Wall Street is not necessarily good for investors
• Speculators, Investors and Market Fluctuations

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.

WHEN TO SELL by Buffett

When To Sell Quotes

Warren Buffett’s advice on when to sell is fairly straightforward. Sell when the business you are invested is performing poorly (and will likely continue to do so).

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

As an individual investor, you can’t fix a declining business. Your energy is best spent cutting losses and moving on.

“The most important thing to do if you find yourself in a hole is to stop digging.”

Buffett sells infrequently. He is a long-term investor that would rather hold forever than sell as long as a business maintains its competitive advantage. Even Buffett gets it wrong sometimes. When you make a mistake, learn from it and cut your losses.

Selling businesses in decline is a form of risk management. 

http://www.suredividend.com/warren-buffett-quotes/#when to sell

Better Investing

A.  Analyse Growth

Step 1: Historical Sales

Historical sales growth is the first of four indicators BetterInvesting uses to identify well managed growth companies.

It is desirable to invest in companies whose sales growth is strong and consistent and generally growing faster than the overall economy and inflation combined. *

Is the company's historical sales growth rate acceptable for a company its size?
Check growth rate % - have sales grown faster than the competition and the economy?
Check growth rate trend - have sales figures changed direction recently? If sales are up or down do you know why? Are the forces that caused growth in the past the same ones that will create growth in the future?
Does the company deserve further study?

Compare your candidate company to:
Others in the same industry
Peer group average
Industry average

* Review background economic and inflation data
Gross Domestic Product Data
Inflation Data


Step 2: Historical Earnings Per Share

Historical earnings per share (EPS) growth is the second indicator BetterInvesting uses to identify well managed growth companies.

It is desirable to invest in companies whose EPS growth rate is strong and consistent and generally growing faster than the overall economy and inflation combined.

Is the company's historical EPS growth rate acceptable for a company its size?
Check growth rate % - have earnings grown faster than the competition and the economy?
Have EPS figures changed direction recently? If so, do you know why?
Does the company deserve further study?

Compare your candidate company to:
Others in the same industry
Peer group average
Industry average


Step 3: Historical Stock Price Review

You've reviewed the company's historical sales and earnings growth. Both should be growing
1. Faster than the economy and inflation combined
2. Faster than competitors
3. Consistently

If these conditions have been met then check that EPS is growing in line with sales.
1. Check that the graph lines of sales and EPS are mostly straight and moving together in parallel toward the upper right-hand portion of the graph.
2. Compare the growth rates of both sales and EPS using the rates given in the data grid.

Next, determine whether the company's stock price has tracked the growth rates of Sales and EPS. A company's stock price will typically follow the earnings growth rate -- price follows earnings. Looking at the graph you can see the relationship of stock price to EPS.

Steady growth in stock price is an indicator of management's ability to grow sales and EPS and that the market has confidence in the company.

It is desirable to invest in companies whose share price increases as its sales and earnings increase. Price bars show how much movement up and down there is in the stock price each year. Skilled management can control the variables in the company so that the high and low prices travel smoothly upward. More up and down movement means more risk.

Check
Are earnings growing in line with sales?
Has the company's stock price moved in line with EPS?
Does this company deserve further study?


B.  Evaluate Management

Step 1:  % Pre-Tax Profit on Sales

% Pre-tax Profit on Sales is the third indicator BetterInvesting uses to identify well managed growth companies. A good percent pre-tax profit margin shows a company is well managed.

It is desirable to invest in companies whose percent pre-tax profit is increasing or at least staying the same. Examining the most recent five year average helps us determine this.

Is the 5 year average percentage of pre-tax profit on sales increasing or at least staying the same?
Is the percentage of profit consistent over time?
Does this company deserve further study?

Compare your candidate company to

Others in the same industry
Peer group average
Industry average

Step 2:  % Earned on Equity

% Earned on Equity (ROE) is the fourth indicator BetterInvesting uses to identify well managed growth companies. It tells how effectively company management is using the shareholders' money to make a profit.

It is desirable to invest in companies whose ROE percentage is increasing or at least staying the same. An exception is when a company is paying off debt, which is covered in the next section.

Is the percentage of ROE increasing or at least staying the same?
Is the percentage of ROE consistent over time?
Does this company deserve further study?

Compare your candidate company to
Others in the same industry
Peer group average
Industry average


Step 3:  Total Debt

One indicator of management skill is how debt is employed.

Most companies borrow money to help them reach their goals. Companies go into debt to buy equipment, real estate, and many other things. Some industries use debt more than others. Borrowing some money can be very good because it helps the company do things it could not afford to do on an all cash basis. Borrowing too much money can be very bad because it increases risk in two ways:

1. Debt increases the risk to common shareholders because the company must pay the claims from debt and preferred stockholders before common shareholders receive anything.

2. High levels of debt are risky for a company because it has to pay its debt obligations whether it's doing well or not. If the company runs short of money during a recession, the debt obligations could force the company to go out of business.

Check:

Is the total debt increasing or decreasing?
Review the company web site and official reports to understand the reasons for significant changes in total debt.

Look at Total Debt and % Debt to Capital together to understand how the company is managing debt.

Step 4:  % Debt to Capital

One indicator of management skill is how debt is employed. Look at Total Debt and % Debt to Capital together to understand how the company is managing debt.

The percent of total debt to capital helps you understand whether company management is using debt conservatively or liberally. The ratio enables you to make valuable comparisons between the company you are studying, peer companies and the industry.

Some industries such as banks, financial institutions, and utilities typically operate using higher levels of debt. Some successful companies in other industries have proven that they can carry high debt over many years. Younger companies often have relatively higher levels of debt, but because they are young they don't have a track record that shows they can manage it well over many years. This adds considerable risk as an investment.

Check:

Is percent of Debt to Capital increasing or decreasing markedly?
Review the company web site and official documents to understand the reasons for changes in debt levels (company expansion, acquisitions, divestiture, etc.)
Is the company on a "spending spree" financed by debt?
Is the company borrowing enough to help it stay competitive?

Compare to:
Historical trends
Peer Group
Industry averages


C.  Forecast Sales Earnings

Step 1:  Forecast Sales

If the company you are studying has not met any of the BetterInvesting standards you have studied so far, you should discard the company and begin the study of another.

If all preceding indicators have met the BetterInvesting standards then you have more than likely identified a quality growth company. You now need to consider its potential as an investment for your portfolio.

You must predict how well your investment candidate will perform in the future by estimating sales and earnings.

First, forecast the rate at which you believe sales will continue to grow in the future.

Forecast company sales by considering:

1. Historical results -- consistent strong growth
2. Competition
3. Changes in consumer or market preferences
4. Changes in products or services offered

Is your forecast moderate, meaning it does not rely on extreme conditions or situations?
Is your forecast sustainable, meaning it does not rely on events or circumstances that are not likely to occur regularly?
How does it compare to other companies you may have studied?


Step 2:  Forecast Earnings

Forecast the rate you believe earnings will grow in the future. Your forecasted earnings growth rate will establish an estimate of how much money the company will be earning per share five years from now. This EPS forecast will help you establish an estimated high price the EPS would support.



D.  Assess Risk and Reward

Step 1:  Forecast High Price

How high is the price of the stock likely to go in the next five years?

The answer comes by multiplying the highest likely earnings per share by the average high price earnings ratio.

1. The default high EPS forecast is determined by your entries in the preceding screen.

2. The average high PE forecast is determined by reviewing historical data and current PE primarily, and competitive information as well.

Changing the numbers in the boxes changes the forecast.


Step 2:  Forecast Low Price

How low is the price of the stock likely to go in the next five years?

The answer comes by multiplying the lowest likely earnings per share by the likely average low price earnings ratio.

The default values displayed are based on historical averages.

You need to decide whether or not they reflect the company in the next five years and adjust if necessary.

Step 3:  Assess Stock Price

Now that you have estimated the high and low prices for the next five years, find the current price and determine where it falls within the high-low range.

The range between the high and low prices is divided into three zones: sell, hold and buy.

1. If the current price is in the top range, the stock is in the sell range.

2. If the current price is in the middle range, the stock is in the hold range.

3. If the current price is in the lower range, the stock is in the buying range.

Step 4:  Determine Potential Gain vs. Loss

Even though well considered, forecasts are not certain.

By comparing the current price to

1. Your forecast high price and
2. Your forecast low price

you determine your potential gain and potential loss.

It is desirable to invest in companies offering a potential gain at least three times the potential loss.


E.  Determine 5 Year Potential

Determine 5 Year Potential

Compounded Return is the projected annual price appreciation plus the projected average annual yield.

The Price Appreciation is the increase in the price of the stock, assuming you sold the stock at its projected high price.

The Yield is the projected average annual return on the price, paid as a dividend. Yield is calculated by dividing the dividend by the purchase price of the stock.

If the company performs as well as you expect, and you sell the stock at the forecast high price, this will be your financial return.





Better Investing - Core SSG
http://www.betterinvesting.org/public/default.htm

http://www.betterinvesting.org/NR/rdonlyres/CB93E207-7341-4225-B609-8197173DFBB9/0/P1JudgmentandtheSSG4pp.pdf

http://www.betterinvesting.org/Public/SingleTabs/Webinars/archives.htm


Stock Research Form

4.0 CONCLUDING DIALOGUE (STOCK SELECTION REPORT)

To complete, make selections from choices presented in each statement below.

1.       The company is (well-established) (new) and operates (internationally) (nationally) (regionally).

2.       The product line or service is (diversified) (limited) and sold to (consumers) (manufacturers) (other companies) (government(s)).

3.       Business cycles affect sales and earnings (minimally) (moderately) (severely).

4.       Interest rates for T-bills are historically (low) (average) (high) and seem to be (trending upward) (steady) (trending downward).

5.       Current inflation rates are (low) (average) (high) and seem to be (trending upward) (steady) (trending downward).

6.       In its industry the company is the (largest player) (in the top tier) (an average or smaller size company).

7.       The company has a (continuous dividend record for ________ years) (an inconsistent dividend record) (no dividend record).

8.       The business cycle seems to be (trending upward) (steady) (trending downward).

9.       The current stage of the business cycle tends to (help) (not effect) (hurt) the profits of the company which suggests (no concern) (caution) (optimism) for the company under review.

4.1 YOUR PROJECTIONS ON THE SSG (SUMMARY)
	Projection	Rationale
Sales Growth Rate (%)
EPS Growth Rate (%)
High P/E
Low P/E
Low Price
% Payout
4.2 YOUR FINAL RECOMMENDATION (BUY, SELL, HOLD)

When to Sell?

Selling “Myths”
• MYTH – Once a stock has doubled our investment it is time to sell.
• MYTH – Wait until a stock is back to even before selling.
• MYTH – Sell if the stock price falls 10% (or some other %) below the
purchase price.
• MYTH – Only sell when your SSG says “Sell.”
• MYTH – If a company is meeting our growth expectations, then do
not sell.
• MYTH – Don’t sell a stock until you have found a good replacement.
• MYTH – Sell everything when we are going into a bear market.
• MYTH – Don’t sell because it’s a “good company.”

Valid Reasons to Sell
• When something is truly wrong with the
business and it won’t likely be fixed within a
year
• When the stock price has risen so much that
future gains are unlikely.
• When you find a better stock. Frequently this is
a back‐door way of exiting a weak holding.

How can you become a better seller?
•Write it down – have written rules for selling just like you do
when buying
•For an investment club – rotate stock assignments so one person
isn’t identified with “her” or “his” stock
•Remember, stocks are a means to an end. The goal is to grow
your wealth. You aren’t being disloyal to a stock if you sell it.

http://www.betterinvesting.org/NR/rdonlyres/12386A1B-284F-4E75-B02C-D9396B363B26/0/StockUpFeb2015Slides4pp.pdf

When to Buy? When to Sell? Learning from Philip Fisher describing a fund's investment into American Cyanamid share.

When to Buy?

Philip Fisher wrote:

"Immediately prior to the 1954 congressional elections, certain investment funds took advantage of this type of situation.  For several years before this time, American Cyanamid shares had sold in the market at a considerably lower price-earnings ratio than most of the other major chemical companies.  I believe this was because the general feeling in the financial community was that, while the Lederle division represented one of the world's most outstanding pharmaceutical organizations, the relatively larger industrial and agricultural chemical activities constituted a hodge-podge of expensive and inefficient plants flung together in the typical "stock market" merger period of the  booming 1920's.  These properties were generally considered anything but a desirable investment."

"Largely unnoticed was the fact that a new management was steadily but without fanfare cutting production costs, eliminating dead wood, and streamlining the organization.  What was noticed was that this company was'making a huge bet' - making a major capital expenditure, for a company its size, in a giant new organic chemical plant at Fortier, Louisiana.  So much complex engineering was designed into this plant that it should have surprised no one when the plant lagged many months behind schedule in reaching the break-even point.  As the problems at Fortier continued, however, the situation added to the generally unfavourable light in which American Cyanamid shares were then being regarded.  At this stage, in the believe a buying point was at hand, the funds to which I have already referred acquired their holdings at an average price of 45 3/4.  This would be 22 7/8 on the present shares as a result of a 2 for 1 stock split which occurred in 1957."

"What has happened since?  Sufficient time has elapsed for the company to begin getting the benefits of some of the management activities that were creating abnormal costs in 1954.  Fortier is now profitable.  Earnings have increased from $1.48 per (present) common share in 1954 to $2.10 per share in 1956 and promise to be slightly higher in 1957, a year in which most chemical (though not pharmaceutical) profits have run behind those of the year before.  At least as important, 'Wall Street; has come to realize that American Cyanamid's industrial and agricultural chemical activities are worthy of institutional investment.  As a result, the price-earnings ratio of these shares has changed noticeably.  A 37 percent increase in earnings that has taken place in somewhat under 3 years has produced a gain in market value of approximately 85 percent."



Since writing these words, the financial community's steady upgrading of the status of American Cyanamid appears to have continued.  With earnings for 1959 promising to top the previous all-time peak of $2.42 in 1957, the market price of these shares has steadily advance.  It now is about 60, representing a gain of about 70 percent in earning power and 163 percent in market value in the five years since the shares referred to were acquired.


In 1954 Cyanamid stock was purchased by "certain funds" referred to by Philip Fisher in his original edition.  These funds are no longer retaining the shares, which were sold in the spring of 1959 at an average price of about 49.  This was of course significantly below the current market (60) but still represented a profit of about 110 percent.



When to Sell?

The size of the profit had nothing whatsoever to do with the decision to sell.

There were two motives behind the decision.

1.  One was that the long-range outlook for another company appeared even better.  While not enough time has yet passed to give conclusive proof one way or the other, so far comparative market quotations for both stocks appear to have warranted this move.

2.  There was a second motive behind this switch of investments which hindsight may prove to be less credible.  This was concern that in relation to the most outstanding of competitive companies, American Cyanamid's chemical (in contrast to its pharmaceutical) business was not making as much progress in broadening profit margins and establishing profitable new lines as had been hoped.  Concern over these factors was accentuated by uncertainty over the possible costs of the company's attempt to establish itself in the acrylic fiber business in the highly competitive textile industry.  This reasoning may prove to be correct and still could turn out to have been the wrong investment decision, because of bright prospects in the Lederle, or pharmaceutical division.  These prospects have become more apparent since the shares were sold.  The possibilities for a further sharp jump in Lederle earning power in the medium-term future center around (1) a new and quite promising antibiotic, and (2) in time a sizable market for an oral "live" polio vaccine, a field in which this company has been a leader.  These developments make it problematic and a matter that only the future will decide as to whether this decision to dispose of Cyanamid shares may not have been an investment mistake.  





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Additional Notes:

http://myinvestingnotes.blogspot.my/2010/09/common-stocks-and-uncommon-profits-by.html

WHEN TO BUY

Contrary to Buffett, Fisher is looking for companies that "will have spectacular growth in their per-share earnings." (Buffett is primarily concerned with consistent and handsome returns on equity.) Buffett and Fisher do agree on the worthlessness of macroeconomic forecasting. Fisher writes, "The conventional method of timing when to buy stocks is, I believe, just as silly as it appears on the surface to be sensible. This method is to marshal a vast mass of economic data…I believe that the economics which deal with the forecasting business trends may be considered to be about as far along as was the science of chemistry during the days of alchemy in the Middle Ages." Fisher prefers to buy into outstanding companies when their earnings are temporarily depressed, and so consequently is the share price, because of a new product or process launch. "In contrast to guessing which way general business or the stock market may go, he should be able to judge with only a small probability of error what the company into which he wants to buy is going to do in relation to business in general."

Stock monitoring and when to sell
• Use a three-year rule for judging results if a stock is
underperforming but no fundamental changes have
occurred.
• Hold stock until there is a fundamental change in its
nature or it has grown to a point where it will no longer
be growing faster than the overall economy.
• Don’t sell for short-term reasons.
• Sell mistakes quickly, once they are recognized.
• Don’t overdiversify—10 or 12 larger companies is
sufficient, investing in a variety of industries with different
characteristics.

When to sell? Sell when there is something else better to buy.

When should you sell?

Answer: Sell when there is something else better to buy.

Something else better for future returns.

Something else better for safety.

Something else better for timeliness or fit with today's go-forward worldview; a megatrend.



What is that something else? 

It can be:

- another stock
- an index fund
- a house
- or any kind of investment

It can also be cash. 

Sell that stock when .... when what? When cash is a better investment. Or when you need the money, which is another way of saying that cash is a better investment - at least it is safer for the time being.



Best possible deployment of your capital

If you think of a buy decision as a best possible deployment of capital because there is no better way to invest your money, you will also come out ahead.

It really is not hard, especially if you have done your homework.

And it is also made easier if you avoid rash overcommitments; that is, you avoid buying all at once in case you have made a mistake or in case better prices come later down the road.



Buy and hold quality companies for the long haul, and you will likely be handsomely rewarded for that patience.

Invest regularly.

The question to ask yourself: Can I get more for my money somewhere else?

Recognise your mistakes

If you have a good person running the business and the business is not making money, you need to recognise the business is not a good one.  Take action to get out of this business, you are in the wrong business..


When prices fall

I love it when the prices of the things I buy go down.  This applies to stocks too.

Many people think the stock knows more than they do.  So when the stock goes down in price, they think the stock is telling them something.  They take the price as if it is a referendum on themselves versus the stock.

The truth is the stock doesn't know what you pay to own it.  The stock doesn't even know if you own it. You are nothing to the stock.  Yet, the stock is everything to you.  You remembered paying $10.13 for the stock.

The only question to ask yourself:  Can I get more for my money somewhere else?

The case of the market declines and unsuccessful stock investments.

There is a vital difference here between temporary and permanent influences.

A price decline is of no real importance to the bona fide investor unless it is either very substantial - say, more than a third from cost - or unless it reflects a known deterioration of consequence in the company's position.


In a well defined bear market many sound common stocks sell temporarily at extraordinarily low prices.

• It is possible that the investor may then have a paper loss of fully 50 per cent on some of his holdings, without any convincing indication that the underlying values have been permanently affected.

A significant price decline is of importance to the investor.

• He would have been well advised to scrutinize the picture with some care, to see whether he had made any miscalculations.
• But if the results of his study were reassuring - as they should have been - he was entitled then to disregard the market decline as a temporary vagary of finance, unless he had the funds and the courage to take advantage of it by buying more on the bargain basis offered.

The Anxiety of Selling. Value Investors select stocks that are least likely ever to trigger the criteria for selling.

1.  A vexing question facing investors during market sell-offs is whether to join the pack.

2.  For value investors, the answer is no, but the more pertinent question is when to sell.

3.  Value investors set selling criteria at the time of purchase.

4.  Their attitude in buying is to select stocks that are least likely ever to trigger the criteria for selling.

5.  But businesses change, and when they deteriorate, their shares should be sold, just as the owner of a business sometimes must decide to close down.

6.  When selecting stocks, value investors specify what deterioration means for purposes of selling.

7.  The logic is simple:  The same factors used to select and avoid stocks are used to decide which stocks to sell and when. #

8.  Value investors avoid selling when bad news is temporary.

9.  Single quarter profit margin slippage should provoke questions, but not sales orders.

10.  If investigation shows deeper problems, then the condition might be permanent and selling indicated.

11.  Permanent deterioration requires more evidence.

12.  When in doubt concerning whether the deterioration is temporary or permanent, value investing might include a hedging strategy.

13.  This would call for selling some but less than all shares held.

14.  Value investors never sell solely due to falling prices.

15.  They require some evidence related to the declining intrinsic value of the business to warrant a revision in the hold-or-sell calculus.

16.  Stock price fluctuations are far too ficle to influence such an important decision.

17.  In the case of a preset policy to sell when price reaches a certain high level, many value investors follow the same mixed strategy adhered to when unsure whether a development is permanent or temporary:  selling some, but not all.


# Sales are indicated when the key factors supporting an original buy are gone.  Here is a summary of such factors:

Internal:

• dubious management behaviour,
• vague disclosure or complex accounting,
• aggressively increased merger activity,
• dizzying executive compensation packages.

External:

• intensifying new competition,
• disruptive technological onslaughts,
• deregulation,
• declining inventory and receivables turns.

Economic:

• shrunken profit margins,
• declining returns on equity, assets, and investments,
• earnings erosion,
• debt increased aggressively in relation to equity,
• deterioration in current and quick ratios.

Deterioration on those key fundamentals may lead you to sell, but do you also sell on valuation?

Kinnel: On the sell-side, deterioration on those key fundamentals may lead you to sell, but do you also sell on valuation?

Akre: So, in response to your first observation, deterioration to any one of those three will certainly cause us to re-evaluate it. It won't automatically cause us to sell, but it will certainly cause us to re-evaluate it. Our notion is that if we don't get those three legs right where there develop differently in the future than they have in the past, theoretically our loss is the time value of money that it hasn't always been the case. But the deterioration of one of those legs or more than one of those legs diminishes the value of that compounding and, indeed, is likely to cause us to change our view. That's number one.

Number two, the issue of selling on valuation is way more difficult for us. And what we've said is that from a matter of life experience, if I have a stock that's at $40 and I think it's way too richly valued and I sell it with a goal of buying it back at $25, my life experience is it trades to $25.01 or trades through $25 and back up and it trades 200 shares there.   The next time I look at it, it's $300, and I've missed the opportunity. It's my way of saying that the really good ones are too hard to find.  

If I have one of these great compounders, I'm likely to continue to own it through thick and thin knowing that periodically, it's likely to be undervalued and periodically likely to be overvalued. The things that cause us to sell when one or more of the legs of the stool deteriorates. Occasionally, on a valuation basis, maybe we'll take some money off the table.

Lastly, if we're trying to continue to maintain a very focused portfolio, if we run across things that we think are simply better choices, then we maymake changes based on that. 

Warren Buffett and PetroChina - Great lessons for investors on how he selects, buys and sells a stock

What is Portfolio Management anyway?

When to Sell: A Workshop with Ellis Traub

Session 1

What is Portfolio Management anyway?

Around the end of last year, a few of us were asked to contribute a list of five stocks we thought would be good investments and to comment on the reasons we thought they would be. I did so but, unfortunately, I got so wrapped up in other things that I forgot all about them. So I’m in the embarrassing position of having to lead this discussion off with the admonition, “Do as I say and not as I do!”

In any event, the best I can hope for is a) you’ll accept this as an example of why you should pay attention to what’s ahead, and b) I’ll be able to demonstrate in the months ahead how you can greet such a challenge and turn things around. That disclaimer out of the way, let’s get at it.

Although most of the fun of investing surrounds the acquisition of your stocks, the fact is that buying them is only a half of what investing’s all about. The other half—for a variety of reasons we’ll discuss in a moment—is considered by most of us as being pretty much of a drag! Yet, there’s as much or more potential benefit is to be derived from managing your portfolio as from buying the right stocks in the first place.

What I intend to do in the next few days is to address all the reasons why we don’t do it very well—if we do it at all—and to expose those reasons for what they are: insufficient excuses. In the next five lessons, I hope to make it clear that we no longer have a leg to stand on for not doing what we need to do; and, with any luck at all, I might even persuade you it can be fully as much fun as the stuff we do to select our companies for investment.

You know, just the term, “Portfolio Management,” is pretentious …almost intimidating. It suggests that we have to put in hours of dedicated and tedious work, and it suggests that it’s much more complicated than it really is. So let’s set the record straight here by first understanding what Portfolio Management really is; and start that process by explaining what it’s not.

Portfolio Management is definitely not Portfolio Tracking. If you think that regularly looking at our portfolios to see how the prices are doing, and whether or not they’re making money, is managing our portfolios, fuggedaboudit! Portfolio tracking, at best, is merely checking to see how good or poor a job of managing our portfolios we’re doing. It has nothing to do with the actual task of managing our holdings. In fact, as you’ll see down the road in this workshop, portfolio tracking can be one of the more insidious things that can work against sound portfolio management.

No, Portfolio Management is a pro-active activity that requires a certain amount of discipline and dedication. Its purpose is simply to catch our losers before they damage our portfolios’ performances, and to maintain our average estimated return at as close to 15 percent as possible so we can meet our objective or doubling our money every five years.

When an issue seems complicated, what’s the easiest way to cut it down to size? It’s to break it down into its smallest parts. In this case, that’s easy! Once we own a stock or stocks, there are only two things we can possibly do with them: either hold onto them or sell them.

Since we already hold them, we are left with only one decision to make; and that is simply when to sell them. So Portfolio Management is nothing more than making that determination: when to sell them. That’s all there is to it!

More than “when,” why we would sell them is the important issue. As long-term investors, the most important thing that distinguishes us from “the herd”—those who trade or try to make money in the market in the short term—is the definition of “long-term.” We buy stocks not to hold until they reach a target price, not for a month, not even for five years. We buy them to hold forever! …unless—and here is where I can go another step further in making it simpler for you—unless one of three, and only three, conditions come to pass:

1. We want or need the money,
2. The Quality deteriorates (Defensive strategy: SSG Sections 1 & 
3. The potential Return deteriorates (Offensive strategy: SSG Sections 3 – 5)

Indeed, these are the only three conditions that would warrant your selling a stock.

So, “When to sell” (Portfolio Management) means watching our holdings to see whether any of them meet conditions 2 or 3 in hopes that we can hold onto them until such time as we reach condition 1.

During the next five days, we’re going to discuss 1) all the excuses we have heard for not doing the job; 2) why you can no longer use them for excuses; 3) the basics of defensive portfolio management, 4) the basics of offensive portfolio management, and 5) the tools we have at our disposal to make the task even simpler.

http://www.stockcentral.com/tabid/143/forumid/289/postid/3523/view/topic/Default.aspx