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 23 July 2010

Volatility Play Investing

A method of trading stocks that myself and my team have developed. It involves buying and selling the same stocks, again and again, as they undergo repetitive fluctuation in price.

http://www.pennystocks.org/glossary-of-terms-used.php

Short-Selling

Short selling is the strategy of selling the shares first, then having the commitment to buy them back at a later date.

http://www.pennystocks.org/glossary-of-terms-used.php

Sell Urgently when the Fundamentals Deteriorated

Averaging Down

Buying more shares of a stock you already own, and getting the new shares at a lower price because the stock has been dropping.

Averaging Down is not advisable in this situation.

Remember:
Transmile, Nam Fatt, Kenmark, Carotec

Bull Market

Defenders of the Efficient Market Hypothesis

Portfolio Summary Template

Graphic of banks’ shrinking market caps

Oil Price (Inflation-Adjusted)

Japanese Debt to GDP

http://www.ritholtz.com/blog/

Country GDP as US States

Fascinating stuff: Carl Størmer points us to this amazing map of the United States. Each state's economic output is analogized to another country's GDP.

click for larger chart:

Notable omissions: U.K., Japan, Germany, China,
Russia
, Italy.

I cannot vouch for the precision of this, but by eyeball, it looks about right.

http://bigpicture.typepad.com/comments/2007/01/countries_gdp_a.html

Global Oil Consumption

Managing Sales Team

http://www.smartcompany.com.au/sell-like-a-woman/20091102-measuring-and-managing-the-right-things-in-sales.html

Financial Crisis - The Big Picture

Bailouts to Banks

When making decisions, managers should focus on increasing the long term value of the firm

http://aswathdamodaran.blogspot.com/2009/07/behavioral-corporate-finance-1.html

Why investors lose money in the Stock Market

Alternatively, the herd mentality

Insights into Irrational Minds and Markets

http://www.centaur.co.za/investment_methodology/index.html

Good and Poor Risk-Reward Ratios and their relationships to Expected Return

When the Risk-Reward Ratio is Good:
The Probability of Loss is Lower
The Expected Return is Higher

When the Risk-Reward Ratio is Poor:
The Probability of Loss is Higher
The Expected Return is Lower

http://www.centaur.co.za/investment_methodology/index.html

Yahoo Finance is the most visited finance site in the US

US Household Net Worth

Intrinsic Value Excel Spreadsheet Template

http://www.valuestockmoves.com/spreadsheetinfo.php

What is Value Investing? (Graphic)

Thinking in terms of Probabilities of Loss and Expected Returns

http://valuehuntr.com/2009/06/26/our-alternative-to-capm/

Analysing the Quarterly Earnings

Nice way of depicting total shareholder returns

Profit required to Make up for Loss

Key Concepts behind the Analysis of Value Investing

http://pcaanalysis.com/about.html

Apple's Growth Explosion

http://www.fool.com/investing/general/2010/03/19/how-does-apple-become-a-300-billion-company.aspx

Margin of Safety Principle: Historical Stock Price Vs Intrinsic Value Per Share

http://www.oldschoolvalue.com/investment-tools/investment-spreadsheet-how-to-use-tutorial/

http://www.hendersonassociates.co.nz/investment-philosophy-xidc11189.html

*Intrinsic value can be defined as the future cash flow a company will generate, discounted back into today's dollars.

Investment Philosophy

Our investment philosophy is based on the notion that if you want to become successful in a discipline, start off by studying those that have already succeeded in it.

When seeking some of the greats in the investing industry to learn from, you can't go past the likes of Warren Buffett, Benjamin Graham and Phil Fisher. Buffett is the Chairman of Berkshire Hathaway and has devoted his life to investing. He is the second richest person in America, behind Bill Gates, and has made over US$35 billon in the stock market over a fifty year period. When it comes to investing people will tend to listen to their friends at the pub, neighbour, stock broker, or a newspaper columnist who has maybe never made money in the stock market, etc, but for some strange reason they dont tend to listen to those that have successful track records.

After studying these investors you learn of a philosophy containing such terms as 'Intrinsic value'*, 'Mr Market', 'Value investing', 'Look-through earnings' etc.

Based on this philosophy we construct our portfolio from a New Zealand investors perspective. We run a database on the top investors from around the world and use this to pick the top ten investment managers for our equity portfolio.

Invariably the factor that distinguishes the managers we use is their focus on purchasing shares that are priced at a sufficient discount to the companys Intrinsic value*. This then provides what Benjamin Graham termed a 'Margin of safety'. Ben wrote in The Intelligent Investor - "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety."

Preliminary Look at Thong Guan

Thong Guan company website
http://www.thongguan.com/main.htm

The nice growth in revenue of this company from 1995 was not transformed into a similar smooth uptrending growth in earnings. Earnings had been volatile and challenging. Dividends at a glance had not grown over the years.

However, its share price has been beaten down severely since 2005.

Stock Performance Chart for Thong Guan Industries Berhad

Stock Performance Chart for Thong Guan Industries Berhad

The last exciting news on Thong Guan in its website was its venture with ExxonMobil:

By Keith Boi
Posted 26 September 2008 10:04 am GMT
Malaysian film converter Thong Guan has launched a thin gauge stretch packaging film
based on a formulation that includes the Enable metallocene polyethylene (mPE)
technology introduced by ExxonMobil Chemical earlier this year.
To be commercially marketed by Thong Guan, the MaxStretch film is said to use about
40% less material without compromising on film performance and quality, while
addressing sustainability concerns.

Its share price shot up yesterday. Why? Unless you have the facts, it is speculative to own this stock.

Malaysia was well on track to become the fourth deepwater oil and gas hub in the world.

DPM: Malaysia can be come global deepwater oil, gas hub

By Roy Goh

Published: 2010/07/23

MALAYSIA can become a key deep-water oil and gas (O&G) hub in the world, but this window of opportunity is not perpetual, says Deputy Prime Minister Tan Sri Muhyiddin Yassin.

The answer lies in its capacity and capability, he said, stressing that it is paramount for the country to leverage and build on existing O&G assets.

"If done right, Malaysia can become one of the world's key deep-water O&G hubs after Houston, Rio de Janeiro and Aberdeen," he said.

Muhyiddin was speaking to reporters after witnessing a memorandum of understanding signing ceremony between Asian Supply Base Sdn Bhd and Labuan Shipyard and Engineering Sdn Bhd in Labuan yesterday.

Technip Group president and chief executive officer Bernard Di Tullio at the 15th Asia Oil and Gas Conference last month said Malaysia was well on track to become the fourth deepwater oil and gas hub in the world.

Apart from Technip, Di Tullio said other key players in deepwater Malaysia include Malaysian Marine Heavy Engineering, Sapura and Aker Kvaerner.

"Sabah has shown a strong potential in the O&G business," Muhyiddin said, adding that recent deep-water field discoveries there are now being developed and expected to begin production between 2011 and 2015.

"These sizeable ultra deepwater blocks offshore, coupled with the Kebabangan cluster gas fields, the completion of the Sabah Oil and Gas Terminal and the Sabah-Sarawak (Kimanis-Bintulu) gas pipeline project would position Labuan and Sabah as one of the leading O&G hubs in the region.

"Clearly the era of 'easy oil' is over and the exploration and production of O&G will move increasingly into deeper waters, presenting us new challenges as well as opportunities," Muhyiddin said.

However, besides location, a regional hub demands one-stop centres with fully integratedport facilities, warehouses, workshops, ship maintainance and fabrication yards, Muhyiddin said, adding that this is where the partnership between Asian Supply Base and Labuan Shipyard is timely.

Read more: DPM: Malaysia can be come global deepwater oil, gas hub http://www.btimes.com.my/Current_News/BTIMES/articles/dpm22/Article/index_html#ixzz0uSS6JOqU

This news is positive for this company below. Its CEO expressed optimism and has hinted on these developments in his annual report.

Stock Performance Chart for Coastal Contracts Bhd

Stock Performance Chart for Coastal Contracts Bhd

Thursday 22 July 2010

Very Easy: To Buy, To Sell or To Hold - Just Throw the Dice

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?