Wednesday, 3 March 2010
Tuesday, 2 March 2010
WHAT DOES YOUR CHECK-LIST LOOK LIKE?
When evaluating a company, there are so many factors that are beyond our control. We however, through empirical research, do know what INCREASES THE PROBABILITY of us making profitable investment decisions.
What is important is that we FOCUS ON WHAT WE CAN CONTROL in our research and analysis.
As part of my evaluation process, I work through the following check-list:
http://spreadsheets.google.com/pub?key=tQ4K68Jn0moIVrTpDHehdaQ&output=html
Click here too:
Latexx Check List
http://spreadsheets.google.com/pub?key=tdrGHzTw9MgpL_CCG3vGhlg&output=html
What is important is that we FOCUS ON WHAT WE CAN CONTROL in our research and analysis.
As part of my evaluation process, I work through the following check-list:
http://spreadsheets.google.com/pub?key=tQ4K68Jn0moIVrTpDHehdaQ&output=html
Click here too:
Latexx Check List
http://spreadsheets.google.com/pub?key=tdrGHzTw9MgpL_CCG3vGhlg&output=html
How Has Your Investment Process Developed?
How Has Your Investment Process Developed?
By Tim Du Toit
I do not know about you, but as time goes by I appreciate the works of remarkable people, in any field, more and more.
It allows me to start any subject not as a complete beginner, but as someone with a good or even great fundamental knowledge of any subject by reading a few books.
A major part, practical experience, is still missing, but just imagine what we would have to go through if we did not have access to the knowledge at all.
Anything we would start would be from absolutely nothing.
A good example of learning from others would be the development of my investment process.
Here is a short summary of the main developments:
- I started out with a basic correspondence course on the stock market in 198
- I lost money I pooled with my father using technical analysis
- I listened to brokers and lost more money chasing the hottest stocks while trading a lot
- I discovered a book Winning on the JSE by the mathematician Karl Posel that gave me a framework for finding, evaluating, buying and selling undervalued investments.
- From there I went on to read Warren Buffett, Benjamin Graham, David Dreman and many more.
Over time my investment process has moved from the use of a few basic financial ratios to check-lists.
Until recently my favourite valuation metrics were:
- Price to earnings ratio ("PE") the lower the better
- Price to book ration ("PB") also the lower the better and
- Debt to equity where I prefer companies with less than 35%
The book suggests the use of two ratios,
- one to identify good companies that earn high returns on assets and
- a second ratio to identify cheap or undervalued companies.
Since reading the book these two ratios have become the main valuation metrics I use.
To identify good companies
Ratio 1
= EBIT / (Working Capital + net fixed assets + short term debt)
The higher this ratio the better. Higher means the company earns a high return on its total assets, fixed assets as well as working capital.
Where:
EBIT = Earnings before interest and taxes
Working capital = Current assets - current liabilities
Net fixed assets = Total fixed assets - depreciation (Excludes goodwill and other intangible assets)
To Identify undervalued companies
Ratio 2
= EBIT / Enterprise Value
As with the first ratio a higher value here is also better. Higher means you are paying less for the company in relation to the profit it generates.
Enterprise value is calculated as follows
= market capitalisation (number of shares * current share price) + debt - cash
Enterprise value thus expresses the value of the company to you as a private buyer of the whole company.
Firstly you pay for the market capitalisation plus the debt, which you have to repay, minus any available cash you can use to reduce the company's debt or pay out to yourself to lower the purchase price.
The added advantage of using Enterprise Value is that it already incorporates the debt and cash the company has on its balance sheet. So you do not separately have to evaluate the amount of debt the company carries.
What are your favourite valuation metrics? Let me know in a short note on the contact page on my website.
Tim du Toit is the editor and founder of Eurosharelab. He has more than 20 year of institutional and personal investing experience in emerging and developed markets. Tim is based in Hamburg, Germany. More of his articles can be found at http://www.eurosharelab.com. Article Source: http://EzineArticles.com/?expert=Tim_Du_Toit |
A Comparison of Buy and Hold With Stock Market Timing Strategies
A Comparison of Buy and Hold With Stock Market Timing Strategies
By Tom Kearney
Stock market timing strategies can be long or short term. The strategies are different for single stocks than they are for mutual funds, of course. With single stocks you base your strategy on your knowledge of an individual company. What are the fundamentals of the company; earnings, sales, assets, technology and management. The context of the over all market for the service or product that the company produces is also relevant to knowing when to buy and when to sell.
It is simple to see the point of stock market timing strategies. As Warren Buffet will tell you over and over again, all you need to do is buy low and sell high. The tough part, of course knowing when. It is not possible to always be right, but it is possible to be right enough often enough to stay in the game.
Many experts advise a buy and hold strategy. This philosophy is based on the historical fact that markets rise in value over time, despite recessionary blips. But even in a buy and hold scheme, one must be able to recognize when a stock is in a long term retreat. Technology changes as does the competitive landscape. One need only think of the web companies that collapsed when the tech bubble burst to see that buy and hold is a risky undertaking during a bubble.
Setting limits is a commonly used tactic when it comes to stock market timing strategies. Buying stocks when they are at their highest level is only a good timing strategy when the company is a penny stock that has made some sort of fundamental breakthrough.
Mining stocks are the clearest example of this. If a mining stock hits the mother-load, buying it early, even it has risen to its highest ever, is feasible as you have actual metal in the ground to secure your investment.
On the other hand, getting in at the peak of a bubble without a good reason for doing so beyond the fact that the stock is moving up is a recipe for disaster. For this reason, we can establish a firm Rule Number 1 for stock market timing strategies: do not buy on the bubble; only buy on the basis of a new ingredient in a company basics (earnings, sales, management, assets, etc).
As far as funds go, it is market fundamentals that one must pay attention to. Again, the technology sector gives us prime examples. When the technology bubble started to deflate in February of 2000, the deflation continued well into 2001. Getting out of tech-based mutual funds in the spring of 2000 saved many investors from ruin. Those who bought and held even after it became clear many of the tech companies would not survive paid dearly.
Stock market timing strategies versus buy and hold is a debate that will continue far as long as there are stock markets. The market moves on emotion, but it earns on fundamentals. Day traders make their living on stock market timing strategies. For the average investor, however, buy and hold, but staying informed and being willing to move when fundamentals warrant, are the order of the day.
Taking advantage of stocks is easy when you learn the details of market timing! Get all the information you need today to include market timing strategies in your trading strategy and see significant returns fast! Article Source: http://EzineArticles.com/?expert=Tom_Kearney |
Stock Market Investing Will Be Made Simpler, By Making Use Of These Guidelines
There is certainly a state of flux in the present day stock markets but that is no reason why you should not learn more about stock market investing. The good news is that there are many useful tips available that will help you understand how to invest your money profitably in the best stocks.
At the very outset, it must be emphasized that success in stock market investing only comes to those who plan their activities before investing their money. In fact, it is also safe and wise to distribute your investments and in addition you will need to also make regular investments plus you should invest with a long term plan in mind.
The sooner you start making investments the better it will be for you as then you can reap benefits that will come your way through compounding. In fact, you should consider time to be the magical key that will unlock the secrets to turning cents into dollars. However, be sure that you also learn to avoid investing in derivatives and also in futures.
The third most important tip is that it does not pay to try leveraging as this is very difficult and in many instances, is even impossible because you cannot accurately predict how stock market trends in the near term will pan out. Instead of this, it makes sense to not buy into a market and the right course of action is to invest only in good stocks.
Now, when it comes to picking individual stocks you need to choose stocks that are a mirror of the much broader indexes and at the same time you need to ensure that you do not purchase single or even handful of stock exposures. It is always safer to spread your risk across different market segments so that even if a particular stock fails, you will have other stocks that can help cover the losses.
Also, before you actually go out and buy stocks, you must determine how well a particular company has been performing and if the performance is up to the mark, then you can go ahead and purchase the stock of that company. You should not allow yourself to be swayed by stock prices that often give an incorrect impression and which seldom give accurate pointers as to the health and profitability of a company.
In addition, when some of your stocks turn out to be duds, you must not hesitate in selling them off as soon as is possible. If you have erred in buying stocks, then you should admit this and get rid of the duds and in this way cut your losses.
When buying stocks, you need to also ensure that you buy into value and not into momentum. Also, be sure that you base your buying of stock decisions according to what your head says, and not what your heart is telling you.
It also means that when your brain tells you to buy a stock, you should buy the stock and not make the mistake of purchasing stocks based on emotions. Buying into large company stocks is always prudent as the chances of earning profits in the long run are higher as compared to other stocks.
This means that it always pays to pick big stocks and at the same time avoid investing in penny stocks because when you are going to invest in small and middle sized stocks, it would require strong expertise to evaluate their profitability, which is not something that every ordinary investor can do.
Check out more about stock market investing and how you can make money. With ETF trading steps you may be able to bring in a nice profit. Head online and find out more now.
Buy the Unloved, 2010 Style
It pays to go against the grain.
If chasing hot performers hasn't gotten you very far, consider doing the opposite.Categories with the greatest inflows tend to underperform and those with the greatest outflows tend to outperform. Net flows tend to be driven by past returns, so, in effect, they are telling you what areas have gotten relatively overpriced and underpriced. If the market and fund investors were perfectly efficient and logical, flows and prices would only adjust so that everything had a similar potential risk/reward profile.
However, markets and fund investors generally overdo things in both directions, as the markets of the past two years illustrate vividly.
http://news.morningstar.com/articlenet/article.aspx?id=327599
Where will the KLCI be heading?
Market Watch
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Dividends Are Dumb
Dividends Are Dumb
February 26, 201Question everything.It's a good motto if you ever find yourself in a government-conspiracy movie. And it'll also serve you well any time money's involved.The folks who question seemingly self-evident principles can make an absolute killing.- Ask the Super Bowl bettors who took the so-called suckers' bet of the Giants over an 18-0 Patriots team.
- Ask hedge fund manager John Paulson, who made more than $10 million a day in 2007 ($3.7 billion total) because he figured out housing prices could actually fall.
- Or ask some guy named Craig who questioned the virtual monopoly that newspapers had on classifieds (yes, that's a craigslist reference).
So when I heard the argument recently that dividends are actually a bad thing, I was willing to listen.In fact, it's a more compelling argument than you may think.These dividends are just dumb
Why do we invest money in a company? Ultimately, it's because we think that company can grow our money by using that money to invest in its growth.When a company turns around and gives us that money right back (creating a taxable event in the process), it defeats the purpose. If we want out, we can simply sell our shares. And do so on our own timetables.Hence, anti-dividend people maintain that even the modest dividends that companies likeHalliburton (NYSE: HAL), General Electric (NYSE: GE), and Microsoft (Nasdaq: MSFT)pay out are just plain dumb.But hear them out. The case against dividends gets stronger given the reason folks buy dividend stocks in the first place.Frequently, investors who buy shares of companies that pay large dividends are seeking safety and stability. Why? Because a company that commits to a regular dividend payment is signaling exactly that -- safety and stability.So it's ironic that a dividend can act like debt -- an obligation that makes the bad times worse. Although paying dividends is optional (while missing debt payments leads to bankruptcy), a company that chooses to cut its dividend signals weakness, often leading to a further weakening of its stock price. That's a double whammy no investor wants to face.Yet I still heart dividends
So why am I still bullish on dividend payers?I'll leave aside the empirical evidence that dividend payers have handily outperformed non-payers historically. Instead, let's look at a company's life cycle.Early in a company's history, it feeds on cash like a baby sucks down formula. Investors don't care, though, because the company needs that capital to fuel its growth. Soon enough, that company either fails or becomes bigger and stronger.At some point, it starts producing more cash than it's consuming. It can then build a war chest to ensure its survival through good times and bad.But then what? If there aren't any compelling internal opportunities, a company has four choices: - Sit on the cash.
- Buy back shares.
- Make acquisitions.
- Pay dividends.
When you look at all four options carefully, dividends make a heck of a lot of sense.Dividends stand alone
Sitting on cash is safe, but it’s a drag on a company's return on capital -- especially when interest rates are hugging 0%. Apple's (Nasdaq: AAPL) chosen this path, hoarding more than $20 billion. But few companies have the amazing innovation-driven growth that can hide this drag.Buying back shares is almost like a dividend with no tax consequences. In fact, if a company can buy back its stock at low points, it can really juice returns to current shareholders. Unfortunately, most managements don't do a good job of timing. Even Goldman Sachs(NYSE: GS), the reputed master of the markets, made massive repurchases of its stock throughout the heady bubble years only to have to sell new stock to raise cash when its stock price was hammered. Classic "buy high, sell low" behavior.Acquisitions are the scariest of all. You see, management is often judged on its ability to grow the business, specifically earnings per share. That's why they’ll buy back shares at inopportune times. And that's why they'll pursue ill-advised acquisitions and poorly conceived internal projects with such gusto. This growth at an unreasonable price helps management but hurts shareholders. Which leads to the reason I love dividends. The issuance of a regular dividend instills management discipline by removing some capital from consideration. You can't waste what you can't touch.Meanwhile, as shareholders, we get a nice income stream ... the classic stock play that yields like a bond.With 10-year Treasury bonds currently yielding just 3.6%, dividend stocks are that much more attractive. Because of this, let me share three dividend plays that the dividend hounds at ourMotley Fool Income Investor newsletter have identified and recommended.
Company Description Dividend Yield America's largest payroll processor for small and medium-sized businesses 4.1% Maker of Clorox bleach, Glad trash bags, Kingsford charcoal, and Pine-Sol 3.3% Philippine Long Distance Telephone The Philippines' leading fixed and mobile telecom provider 4.9%
One of the companies above is a "buy first" recommendation -- and only six companies get that nod from the Income Investor analysts.
February 26, 201
Why do we invest money in a company? Ultimately, it's because we think that company can grow our money by using that money to invest in its growth.
So why am I still bullish on dividend payers?
Sitting on cash is safe, but it’s a drag on a company's return on capital -- especially when interest rates are hugging 0%. Apple's (Nasdaq: AAPL) chosen this path, hoarding more than $20 billion. But few companies have the amazing innovation-driven growth that can hide this drag.
Company
Description
Dividend Yield
America's largest payroll processor for small and medium-sized businesses
4.1%
Maker of Clorox bleach, Glad trash bags, Kingsford charcoal, and Pine-Sol
3.3%
Philippine Long Distance Telephone
The Philippines' leading fixed and mobile telecom provider
4.9%
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