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.

Friday 12 October 2012

Parkson (27.8.2012)

Date announced 27-Aug-2012
Quarter 30/6/2012
Qtr 4 FYE 30/6/2012
STOCK Parkson
C0DE 5657

Price $ 4.7
Curr. ttm-PE 13.60
Curr. DY 3.40%

Dividends		% chg
Curr. FY0	16.00	6.7%
Prev FY1	15.00	150.0%
Prev FY2	6.00
Curr. DY	3.40%


Risk vs Returns
Upside	1.54	61%
Downside	1.00	39%

Returns
One Yr Apprec Pot.		7%
Avg Yield		5%
Avg Tot. Ann Return		12%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		4.70
EPS GR %		7%
Avg H. PE		13.0
Avg. L. PE		10.0
Rec. Severe Low Pr		3.66

Current PE		13.60
Signature PE		11.50
RV		118%
Rational Price		3.97


Dividends
Present Dividend		16.00
Avg % DPO		46%

Present Div Yield		3.40%
Present High Yield		4.37%

EPS G. RATE		7%
Present Market Pr.		4.70

Stock Performance Chart for Parkson Holdings Berhad

http://biz.thestar.com.my/marketwatch/charts/chartlist.asp?charttype=17&days=365&submit1=submit&stock_code=5657%2CPARKSON&p1=4.72&p2=4.71&p3=4.78&p4=4.71&p5=4.75&p6=0.03&p7=0.64&p8=14054&p9=17.44&comurl=

DIGI.com Berhad (23.7.2012)

Date announced 23/07/2012
Quarter 30/06/2012
Qtr 2
FYE 31/12/2012
STOCK DIGI
C0DE 6947

Price $ 5.46
Curr. ttm-PE 31.89
Curr. DY 3.21%

Dividends		% chg
Curr. FY0	17.50	5.4%
Prev FY1	16.60	-16.6%
Prev FY2	19.90
Curr. DY	3.21%


Risk vs Returns
Upside	-0.13	-15%
Downside	1.00	115%

Returns
One Yr Apprec Pot.		-1%
Avg Yield		5%
Avg Tot. Ann Return		4%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		5.46
EPS GR %		9%
Avg H. PE		20.0
Avg. L. PE		18.0
Rec. Severe Low Pr		3.02

Current PE		31.89
Signature PE		19.00
RV		168%
Rational Price		3.25


Dividends
Present Dividend		17.50
Avg % DPO		108%

Present Div Yield		3.21%
Present High Yield		5.79%

EPS G. RATE		9%
Present Market Pr.		5.46

Stock Performance Chart for DIGI.com Berhad

Guinness Anchor Berhad (Malaysia) (28.8.2012)

Date announced 28-Aug-2012
Quarter 30/06/2012
Qtr 4
FYE 30/06/2012
STOCK GUINNESS
C0DE 3255

Price $ 15.64
Curr. PE (ttm-Eps) 22.78
Curr. DY 7.99%

Dividends		% chg
Curr. FY0	125.00	131.5%
Prev FY1	54.00	20.0%
Prev FY2	45.00
Curr. DY	7.99%


Risk vs Returns
Upside	-0.02	-2%
Downside	1.00	102%

Returns
One Yr Apprec Pot.		0%
Avg Yield		6%
Avg Tot. Ann Return		6%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		15.64
EPS GR %		10%
Avg H. PE		14.0
Avg. L. PE		11.0
Rec. Severe Low Pr		8.00

Current PE		22.78
Signature PE		12.50
RV		182%
Rational Price		8.58


Dividends
Present Dividend		125.00
Avg % DPO		90%

Present Div Yield		7.99%
Present High Yield		15.63%

EPS G. RATE		10%
Present Market Pr.		15.64

Stock Performance Chart for Guinness Anchor Berhad

Date	Qtr No	ttm-eps	High Pr	Low Pr	High PE	Low PE
28-Aug-12	4	68.66	15.98	15.82	23.27	23.04
23-May-12	3	66.76	10.74	10.64	16.09	15.94
23-Feb-12	2	65.91	9.55	9.49	14.49	14.40
2-Nov-12	1	65.52	8.84	8.00	13.49	12.21
8-Apr-11	4	60.05	8.16	7.69	13.59	12.81
5-May-11	3	62.23	7.22	6.83	11.60	10.98
28-Jan-11	2	61.40	7.00	6.68	11.40	10.88
3-Nov-10	1	54.50	7.15	6.74	13.12	12.37
4-Aug-10	4	50.54	6.25	6.05	12.37	11.97
5-May-10	3	47.80	5.75	5.50	12.03	11.51
9-Feb-10	2	43.21	5.20	5.10	12.03	11.80
26-Nov-09	1	40.19	5.35	4.46	13.31	11.10
29-Aug-09	4	47.00	5.35	5.10	11.38	10.85
15-May-09	3	44.38	5.75	5.45	12.96	12.28
27-Feb-09	2	45.64	5.90	5.30	12.93	11.61
26-Nov-08	1	43.06	6.10	5.75	14.17	13.35
29-Aug-08	4	41.67	6.45	5.85	15.48	14.04
23-May-08	3	40.90	6.60	6.00	16.14	14.67
22-Feb-08	2	40.08	6.60	6.00	16.47	14.97
29-Nov-07	1	39.26	6.30	5.75	16.05	14.65
28-Aug-07	4	37.26	5.55	5.35	14.90	14.36
4-May-07	3	45.16	5.85	5.40	12.95	11.96
26-Feb-07	2	40.86	5.80	5.35	14.19	13.09
7-Nov-06	1	42.68	5.95	5.50	13.94	12.89
22-Aug-06	4	42.44	5.95	5.55	14.02	13.08
26-May-06	3	38.23	5.75	5.20	15.04	13.60
21-Feb-06	2	38.49	5.90	5.35	15.33	13.90

LPI Capital Berhad (9.10.2012)

Date announced 9-Oct-2012
Quarter 30/9/2012
Qtr 3
FYE 31/12/2012
STOCK LPI
C0DE 8621

Price $ 13.52
Curr. PE (ttm-Eps) 18.75
Curr. DY 5.55%

Dividends		% chg
Curr. FY0	75.00	7.1%
Prev FY1	70.00	118.5%
Prev FY2	32.03
Curr. DY	5.55%


Risk vs Returns
Upside	2.27	69%
Downside	1.00	31%

Returns
One Yr Apprec Pot.		6%
Avg Yield		9%
Avg Tot. Ann Return		15%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		13.52
EPS GR %		10%
Avg H. PE		15.0
Avg. L. PE		12.0
Rec. Severe Low Pr		11.80

Current PE		18.75
Signature PE		13.50
RV		139%
Rational Price		9.73


Dividends
Present Dividend		75.00
Avg % DPO		107%

Present Div Yield		5.55%
Present High Yield		6.36%

EPS G. RATE		10%
Present Market Pr.		13.52

Stock Performance Chart for LPI Capital Berhad

You are not compelled to sell just because of short-term appreciation. Fisher taught either the investment you hold is a better investment than cash or it is not.

Sometimes the market will quickly confirm Buffett's judgement that a company is a good investment. When that happens, he is not compelled to sell just because of short-term appreciation.

He considers the Wall Street maxim "you never go broke taking a profit" to be foolish advice.

Fisher taught him that either the investment you hold is a better investment than cash or it is not.

Buffett says that he is "quite content to hold any security indefinitely, so long as

the prospective return on equity capital (ROE) of the underlying business is satisfactory,
management is competent and honest, and
the market does not overvalue the business.

If the stock market does significantly overvalue a business, he will sell.

In addition, Buffett will sell a fairly valued or undervalued security if he needs the proceeds to purchase something else - either

a business that is even more undervalued or
one of equal value that he understands better.

Beyond this investment strategy, however, Buffett confessed in 1987 that there are three common-stock positions that he will not sell, regardless of how seriously the stock market may overvalue their shares: The Washing Post Company, GEICO Corporation, and Capital Cities/ABC. In 1990, he added The Coca-Cola Company to this list of permanent common-stock holdings.

This 'till-death-do-us-part attitude places these four investments on the same commitment level as Berkshire's controlled businesses. Permanent status is not something Buffett hands out indiscriminately. And it should be noted that a company is not automatically "permanent" on the day Buffett buys it. Berkshire Hathaway has owned shares of The Washington Post Company for 20 years and GEICO for 18 years. Buffett first purchased Capital Cities in 1977. Even Coca-Cola, first purchased in 1988, was not elevated to permanent status until 1990.

As long as businesses are increasing shareholder value at a satisfactory rate, a long term investor would prefer that the stock market delay its recognition.

It is Warren Buffett's practice to let companies inform him by their operating results, not by their short-term stock quotes, whether Berkshire's investments are successful.

He is convinced that although the stock market, in the short run, may ignore a business's financial results, it will, over time, confirm a company's success or failure at providing increased shareholder value.

Buffett remembers Ben Graham telling him that "in the short run, the market is a voting machine but inn the long run it is a weighting machine."

He is willing to be patient. In fact, as long as Berkshire's businesses are increasing shareholder value at a satisfactory rate, he would prefer that the stock market delay its recognition, thereby allowing him the opportunity to purchase more shares at bargain prices.

Thursday 11 October 2012

Petronas Gas (15.8.2012)

Date announced 15-Aug-12
FYE 31/12/2012
Qtr Others
Quarter 30/6/2012
STOCK PETGAS
C0DE 6033

Price $ 19.24
Curr. PE (ttm-Eps) 25.61
Curr. DY 2.60%

Dividends		% chg
Curr. FY0	50.00	0.0%
Prev FY1	50.00	0.0%
Prev FY2	50.00
Curr. DY	2.60%


Risk vs Returns
Upside	0.23	19%
Downside	1.00	81%

Returns
One Yr Apprec Pot.		2%
Avg Yield		4%
Avg Tot. Ann Return		6%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		19.24
EPS GR %		7%
Avg H. PE		20.0
Avg. L. PE		15.0
Rec. Severe Low Pr		11.24

Current PE		25.61
Signature PE		17.50
RV		146%
Rational Price		13.15


Dividends
Present Dividend		50.00
Avg % DPO		69%

Present Div Yield		2.60%
Present High Yield		4.45%

EPS G. RATE		7%
Present Market Pr.		19.24

Stock Performance Chart for Petronas Gas Berhad

Petronas Dagangan (16.08.2012)

Date announced 16-Aug-12
FYE 31/12/2012
Qtr 2
Quarter 30/6/2012
STOCK PETDAG
C0DE 5681

Price $ 22.8
Curr. PE (ttm-Eps) 26.21
Curr. DY 3.51%

Dividends		% chg
Curr. FY0	80.00	-11.1%
Prev FY1	90.00	5.9%
Prev FY2	85.00
Curr. DY	3.51%


Risk vs Returns
Upside	0.18	16%
Downside	1.00	84%

Returns
One Yr Apprec Pot.		1%
Avg Yield		5%
Avg Tot. Ann Return		6%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		22.80
EPS GR %		9%
Avg H. PE		18.0
Avg. L. PE		15.0
Rec. Severe Low Pr		15.80

Current PE		26.21
Signature PE		16.50
RV		159%
Rational Price		14.36


Dividends
Present Dividend		80.00
Avg % DPO		90%

Present Div Yield		3.51%
Present High Yield		5.06%

EPS G. RATE		9%
Present Market Pr.		22.80

Stock Performance Chart for Petronas Dagangan Berhad

Topglove (11.10.2012)

Dividends		% chg
Curr. FY0	16.00	45.5%
Prev FY1	11.00	-31.3%
Prev FY2	16.00
Curr. DY	3.05%


Risk vs Returns
Upside	1.64	62%
Downside	1.00	38%

Returns
One Yr Apprec Pot.		7%
Avg Yield		4%
Avg Tot. Ann Return		12%
(for next 5 years)

INPUT VARIABLES
Today's Share Pr $		5.25
EPS GR %		8%
Avg H. PE		15.0
Avg. L. PE		12.0
Rec. Severe Low Pr		4.06

Current PE		16.06
Signature PE		13.50
RV		119%
Rational Price		4.41


Dividends
Present Dividend		16.00
Avg % DPO		49%

Present Div Yield		3.05%
Present High Yield		3.94%

EPS G. RATE		8%
Present Market Pr.		5.25

ZONING
Present Market Price of		5.25	is in the	Middle 1/3	Range

Mid-Price	=	5.63
Upper 1/3	=	6.16	to	7.20	(Sell)
Middle 1/3	=	5.11	to	6.16	(Maybe)
Lower 1/3	=	4.06	to	5.11	(Buy)

Rec. qRev	607229	q-q % chg	1%	y-y% chq	12%
Rec qPbt	67121	q-q % chg	5%	y-y% chq	92%
Rec. qEps	10.27	q-q % chg	18%	y-y% chq	143%
ttm-Eps	32.69	q-q % chg	23%	y-y% chq	79%

Stock Performance Chart for Top Glove Corporation Berhad

Disclaimer: These data are for my own use. It is not a recommendation. Please do your own due diligence.

"Mr. Buffett, what types of companies will you purchase in the future?"

Buffett is often asked what types of companies he will purchase in the future.

First, he says, he will avoid commodity businesses and managers in which he has little confidence.

What he will purchase is the type of company that he understands, one that possesses good economics and is run by trustworthy managers.

"A good business is not always a good purchase," Buffett says, "although it is a good place to look for one."

For Buffett, the activities of a common-stock holder and a businessperson are intimately connected. Both should look at ownership of a business in the same way. "I am a better investor because I am a businessman," confesses Buffett, "and a better businessman because I am an investor."

The NINE most important words ever written about investing.

"Investing is most intelligent when it is most businesslike."

The most distinguishing trait of Buffett's investment philosophy is the clear understanding that, by owning shares of stock, he owns businesses, not pieces of paper.

The idea of buying stock without understanding the company's operating functions - including a company's products and services, labour relations, raw material expenses, plant and equipment, capital reinvestment requirements, inventories, receivables, and working capital needs - is unconscionable, says Buffett.

A person who holds stocks has the choice to become the owner of a business or the bearer of tradable securities. Owners of common stocks who perceive that they merely own a piece of paper are far removed from the company's financial statements. These owners behave as if the market's ever-changing price is a more accurate reflection of their stock's value than the businesses' balance sheet and income statement. They draw or discard stocks like playing cards.

Buffett: BUY OUTSTANDING BUSINESS at a significant discount to its intrinsic value.

If we make mistakes, Buffett confesses, it is either because of

(1) the price we paid,
(2) the management we joined, or,
(3) the future economics of the business.

Miscalculations in the third instance are, Buffett notes, the most common.

It is Buffett's intention not only to identify businesses that earn above-average returns, but to purchase these businesses at prices far below their indicated value. The margin of safety also provides opportunities for extraordinary stock returns.

If Buffett correctly identifies a company possessing above-average economic returns, the value of the shares of stock over the long term will steadily march upwards as the share price mimics the returns of the business.

If a company consistently earns 15% on equity, its share appreciation will advance more each year than the share price of a company that earns 10% on equity.

Additionally, if Buffett, by using the margin of safety, is able to buy this outstanding business at a significant discount to its intrinsic value, Berkshire will earn an extra bonus when the market corrects the price of the business.

"The market, like the Lord, helps those who help themselves." Buffett says, "But unlike the Lord, the market does not forgive those who know not what they do."

Are you truly operating on the principle of obtaining value for your investments? Carry out the discounted-flows-of-cash calculation.

All the shorthand methods - high or low price-earnings ratios, price-to-book ratios, and dividend yields, in any number of combination, Buffett says, in determining whether "an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value for his investments...............Irrespective of whether a business grows or doesn't, displays volatility or smoothness in earnings, or carries a high price or low in relation to its current earnings and book value, the investment shown by the discounted-flows-of-cash calculation to be the cheapest is the one that the investor should purchase."

Growth is simply a calculation used to determine value.

Value is the discounted present value of an investment's future cash flow; growth is simply a calculation used to determine value.

People who consistently purchase companies that exhibit low price-to-earnings, low price-to-book, and high dividend yields are customarily called "value investors." People who claim to have identified value by selecting companies with above-average growth in earnings are called "growth investors." Typically, growth companies possess high price-to-earnings ratios and low dividend yields. These financial traits are exact opposite of what value investors look for in a company.

Investors who seek to purchase value often must choose between the "value" and "growth" approach to selecting stocks.

Buffett admits that years ago he participated inn this intellectual tug-of-war*. Today he thinks the debate between these two schools of thought is nonsense.

"Growth and value investing are joined at the hip", says Buffett.

*Comment: It is interesting to know that Buffett too had been through these intellectual debates and then formed his own conclusions.

Growth can either ADD or DETRACT from an investment's value/

Growth in sales, earnings, and assets can either add or detract from an investment's value.

Growth can add to the value when the return on invested capital is above average, thereby assuring that when a dollar is being invested in the company, at least a dollar of market value is being created.

However, growth for a business earning low returns on capital can be detrimental to shareholders. For example, the airline business has been a story of incredible growth, but its inability to earn decent returns on capital have left most owners of these companies in a poor position.

Wednesday 10 October 2012

Property/Casualty Insurance Accounting

Property/Casualty Insurance Accounting

Income Statement of Property/Casualty Insurance Company

Premium revenue is also known as earned premium. This premium revenue is used to fund:

Claim payments (loss expense).
Sales commissions for insurance agents (commission expenses)
Operating expenses (OPEX)

Claim expenses, for example, typically consume 75% of an insurer’s net revenues.

(1) + (2) + (3) / Premium revenue = Combined ratio

Combined ratio is an insurance company’s key underwriting profit measure.

A combined ratio under 100 indicates an underwriting profit.

For example: A combined ratio of 95 means that the insurer paid out 95% of its premium revenue for losses. The 5% remaining is the underwriting profit.

A combined ratio exceeding 100 indicates an underwriting loss.

For example: An insurer with a combined ratio of 105 paid out 105% of its premium revenue to cover losses, meaning that it had an underwriting loss equal to 5% of revenues.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer’s competitive position is unusually weak. Insurers unable to earn even the occasional underwriting profit will produce the industry’s poorest returns and may be tempted to accept large investment risks to boost profitability.

Investment income of Insurance companies

Insurers also make money from investment income. They are often reported as a ratio of premium.

Adding the investment ratio to the combined ratio yields the operating profit ratio. In many instances, investment income is a key profit determinant because it offsets underwriting losses.

Combined ratio + Investment ratio = Operating Profit ratio

Balance Sheet of Property/Casualty Insurance Company

In addition to float, most insurers invest a large portion of their own retained earnings as well. The investment account reveals the size of an insurer’s investments relative to its asset base and details the asset allocation employed.

Investment account = Float deployed + Retained Earnings deployed.

Look at the asset allocation of this investment account. Look for insurers with no more than 30% invested in equities (unless the company is run by Warren Buffett).

Unearned Premiums of Property/Casualty Insurance Company

Unearned premiums represent premiums received but not yet considered revenue.

This oddity reflects an accounting convention. When an insurer receives a premium, it is deemed to earn it gradually across the year. After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed. After six months, an annual auto policy would be 50% earned, and half the premium would be considered revenue. Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.

The best property/casualty insurer is one that is able to consistently earn underwriting profits on a large, growing customer base. In effect, this insurer would be getting paid to profit from investing other people’s money and could retain this float indefinitely (as long as it grows). Unfortunately, for investors, these situations rarely occur.

Insurance Companies of Malaysia
Click here: https://docs.google.com/open?id=0B-RRzs61sKqRWmp5ZEFEREw4VWM

Tuesday 9 October 2012

The One-Dollar Premise of Warren Buffett

There is a quick test that can be used to judge not only the economic attractiveness of a business but how well management has accomplished its goal of creating shareholder value: If Buffett has selected a company with favourable long-term economic prospects, run by able and shareholder-oriented managers, the proof will be reflected in the increased market value of the company.

In Buffett's quick test, the increase should, at the very least, match the amount of retained earnings, dollar for dollar.
If the value goes up greater than the retained earnings, so much the better.

All in all, Buffett explains, "Within this gigantic auction arena, it is our job to select a business with economic characteristics allowing each dollar of retained earnings to be translated eventually into at least a dollar of market value.

Friday 5 October 2012

The Sultan of Brunei's Supercar Collection: $300,000,000 and Counting

Click here:
http://www.carbuzz.com/news/2012/5/19/The-Sultan-of-Brunei-s-Supercar-Collection-300-000-000-and-Counting-7708867/

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?