How Long Is A Piece of Value?

How long do you wait for a value share to out? There's no easy answer.

You hear the term "value trap" used about a share offering ostensible value but which never seems to rise in order to realise what the investor perceives as its undervalue. I don't much like this expression because it suggests that the share will never out, and I'd guess it is probably used by disillusioned investors who have held for some time and are fed up with waiting.

I think most, if not all, value players -- certainly including myself -- have experienced this disillusionment. I'm not referring to a situation where the fundies have deteriorated so the value has actually been outed, though on the downside. That would be a clear sell to a value investor, even if a loss was the outcome.

I'm talking about a situation that continues to offer value in the investor's view, yet other investors, the market if you like, continue to disagree and stubbornly refuse to price up the share. It may have net cash, be on a low P/E, a high yield, trade below tangible book and any combination of these and other classic value criteria. And yet this goes on for years and you are scoring little or no profit or maybe losing.

To dump or not to dump?

To dump or not to dump? That is the question. Okay, if it has a decent yield, at least you are compensated to some extent for holding over a long period, which is one reason why I like a good yield in my particular version of the value game, the other being that yield is also a value indicator. But we're not here for the income, this is a capital gains approach and therefore thought should be given to what to do with a long-held play that just hasn't done the business despite all the indicators suggesting that it ought to have.

The basic faith of the value player is that, sooner or later, value must out -- it just must because it is seen as an anomaly that will be arbed out by the market eventually. But I don't see any way to estimate when "eventually" will occur. In an extreme case, it may not be even within the investor's practical investing lifetime -- especially if, like me now, they were grave dodgers when they first bought the share.

I have read at least one value writer who advocates selling a play that hasn't performed within a given period. I forget the exact details but let's say it's five years. If, after that time, it hasn't done it for you, then even if it continues to offer value, his view was that you should sell because it has become a value trap.

Better out than in?

But consider this. After those five years, a new value player arrives on the scene and discovers your share which, remember, still has attractive fundies. Because she is new to the share, she has no reason to share your disillusionment and on the contrary will be enthused by it.

So who is right? The weary old value player who has seen no action over five years and is seriously on the verge of dumping it, or the new value player who spies a potentially lucrative opportunity? If we assume they both have similar skills at spotting plays using the same criteria, they can't both be right.

The answer has to be that the new investor's opinion is the right one and that in consequence the existing holder should stay in. Tomorrow might be the day it outs. Or it might go another five years of nowhere, that's the risk both the existing and the new player takes.

This then begs the question whether the fact that a value share has done nothing for many years increases or decreases its attractions, or is irrelevant. Several arguments could be made either way. For example, the fact of not having outed for a long time could mean that it is now nearer doing so. But it could also mean  that not enough investors care about it, so that it may go on for a further lengthy period out in the cold. The best answer in my view is that it's irrelevant.

The bottom line for me is that there is not really such a thing as a value trap, they are probably just value shares that haven't yet outed and we cannot know when that may occur. I accept that it is certainly exceedingly frustrating to hold a play for years and to see it doing nothing despite continuing good fundies. I've been there myself many times.

This creates a great temptation to dump it, but to counter that, imagine you are a new value investor coming at it without the knowledge of its past price action. You'd buy, so why sell?

And that's why I have always said that enormous patience is required for the strategy.

http://www.fool.co.uk/news/investing/2012/01/05/how-long-is-a-piece-of-value.aspx?source=ufwflwlnk0000001

The Lowdown On Penny Stocks

Successful companies aren't born, they're made - and they have to work their way from humble beginnings and through the ranks just like everyone else. Unfortunately, some investors believe that finding the next "big thing" means scouring through penny stocks in the hope of finding the next Microsoft (Nasdaq:MSFT) or Wal-Mart (NYSE:WMT). Unfortunately, this strategy will prove to be unsuccessful in most cases. Read on to find out why pinning your hopes on penny stocks could leave you penniless.

Penny Stocks 101
The terms "penny stocks" and "micro cap stocks" can be used interchangeably. Technically, micro cap stocks are classified as such based on their market capitalizations, while penny stocks are looked at in terms of their price. Definitions vary, but in general a stock with a market capitalization between $50 and $300 million is a micro cap. (Less than $50 million is a nano-cap.) According to the Securities & Exchange Commission (SEC) any stock under $5 is a penny stock. Again, definitions can vary, some set the cut-off point at $3, while others consider only those stocks trading at less than $1 to be a penny stock. Finally, we consider any stock that is trading on the pink sheets or over-the-counter bulletin board (OTCBB) to be a penny stock.

The main thing you have to know about penny/micro stocks is that they are much riskier than regular stocks. (For background reading on penny stocks, see Wham Bam Micro-Cap Scam and How To Evaluate A Micro-Cap Company.)

A Fortune for a Penny?
What makes penny stocks risky? Four major factors make these securities riskier than blue chip stocks.

Lack of Information Available to the Public
The key to any successful investment strategy is acquiring enough tangible information to make informed decisions. For micro cap stocks, information is much more difficult to find. Companies listed on the pink sheets are not required to file with the Securities and Exchange Commission (SEC) and are thus not as publicly scrutinized or regulated as the stocks represented on the New York Stock Exchange and the Nasdaq; furthermore, much of the information available about micro cap stocks is typically not from credible sources. (For more insight, see Pretty In Pink Sheets.)

No Minimum Standards
Stocks on the OTCBB and pink sheets do not have to fulfill minimum standard requirements to remain on the exchange. Sometimes, this is why the stock is on one of these exchanges. Once a company can no longer maintain its position on one of the major exchanges, the company moves to one of these smaller exchanges. While the OTCBB does require companies to file timely documents with the SEC, the pink sheets have no such requirement. Minimum standards act as a safety cushion for some investors and as a benchmark for some companies. (To learn more, read The Dirt On Delisting.)

Lack of History
Many of the companies considered to be micro cap stocks are either newly formed or approaching bankruptcy. These companies will generally have poor track records or none at all. As you can imagine, this lack of historical information makes it difficult to determine a stock's potential.

Liquidity
When stocks don't have much liquidity, two problems arise: first, there is the possibility that you won't be able to sell the stock. If there is a low level of liquidity, it may be hard to find a buyer for a particular stock, and you may be required to lower your price until it is considered attractive to another buyer. Second, low liquidity levels provide opportunities for some traders to manipulate stock prices, which is done in many different ways - the easiest is to buy large amounts of stock, hype it up and then sell it after other investors find it attractive (also known as pump and dump). (To learn about the importance of asset liquidity, read Diving In To Financial Liquidity.)

Penny-Baited Traps
Penny stocks have been a thorn in the side of the SEC for some time because lack of available information and poor liquidity make micro cap stocks an easy target for fraudsters. There are many different ways in which scams are used to separate investors from their money. The most common include:

Biased Recommendations
Some micro cap companies pay individuals to recommend the company stock in different media, such as newsletters, financial television and radio shows. You may receive spam email trying to persuade you to purchase particular stock. All emails, postings and recommendations of that kind should be taken with a grain of salt. Look to see if the issuers of the recommendations are being paid for their services as this is a giveaway of a bad investment. Also make sure that any press releases aren't given falsely by people looking to influence the price of a stock. (For more on this, read Spotting Sharks Among Penny Stocks.)

Offshore Brokers
Under regulation S, the SEC permits companies selling stock outside the U.S. to foreign investors to be exempt from registering stock. These companies will typically sell the stock at a discount to offshore brokers who, in turn, sell them back to U.S. investors for a substantial profit. By cold calling a list of potential investors (investors with enough money to buy a particular stock) and providing attractive information, these dishonest brokers will use high-pressure "boiler room" sales tactics to persuade investors to purchase stock. (For more insight, check out What is a boiler room operation?)

The Penny Stock Fallacy
Two common fallacies pertaining to penny stocks are that many of today's stocks were once penny stocks and that there is a positive correlation between the number of stocks a person owns and his or her returns.

Investors who have fallen into the trap of the first fallacy believe Wal-Mart, Microsoft and many other large companies were once penny stocks that have appreciated to high dollar values. Many investors make this mistake because they are looking at the "adjusted stock price", which takes into account all stock splits. By taking a look at both Microsoft and Wal-Mart, you can see that the respective prices on their first days of trading were $21 and $16.50, even though the prices adjusted for splits was about 8 cents and 1 cent, respectively. Rather than starting at a low market price, these companies actually started pretty high, continually rising until they needed to be split.

The second reason that many investors may be attracted to penny stocks is the notion that there is more room for appreciation and more opportunity to own more stock. If a stock is at 10 cents and rises by five cents, you will have made a 50% return. This, together with the with the fact that a $1,000 investment can buy 10,000 shares, convinces investors that micro cap stock are a rapid, surefire way to increase profits. Unfortunately, people tend to see only the upside of penny stocks, while forgetting about the downside. A 10 cent stock can just as easily go down by 5 cents and lose half its value. Most often, these stocks do not succeed, and there is a high probability that you will lose your entire investment.

Conclusion
Sure, some companies on the OTCBB and pink sheets might be good quality, and many OTCBB companies are working extremely hard to make their way up to the more reputable Nasdaq and NYSE. However, the flip-side is that there are many good opportunities in stocks that aren't trading for pennies. Penny stocks aren't a lost cause, but they are very high-risk investments that aren't suitable for all investors. If you can't resist the lure of micro caps, make sure you do extensive research and understand what you are getting into.


Read more: http://www.investopedia.com/articles/03/050803.asp?partner=basics010612#ixzz1iiW4t65s
Posted: Feb 19, 2009
by Investopedia Staff

Equity Market Review 2011: Only 3 Countries Survived The Drop!

January 5, 2012
2011 has been an extremely turbulent ride for investors as global markets; equity, fixed income and commodities, endured what can only be described at the very least as a volatile year.

Author : iFAST Research Team


2011 has been an extremely turbulent ride for investors as global markets; equity, fixed income and commodities, endured what can only be described at the very least as a volatile year.

1H 2011 got off to a good start for investors as most equity markets extended 2010’s spectacular year-end rally. However, the markets encountered severe turbulence as natural disasters afflicted Australia (floods and a hurricane) and Japan (earthquake and resulting tsunami) while the Middle East and North Africa (MENA) region witnessed mass uprisings and the dethroning of several hardmen such as Hosni Mubarak while commodities suffered a flash crash, led by silver which fell -28.4% in a week in early May, following the raising of margins by the Chicago Mercantile Exchange. In the emerging markets, many of the central banks tightened monetary policy by raising interest rates, hiking bank reserve requirement ratios, allowing their currency to appreciate against the developed nation's currencies (chiefly the USD and the EUR) as they kept a keen eye on inflation. Of interest in 1H 2011, was the withdrawal of monies from the emerging markets which measured USD 8.9 billion on a year-to-date basis as of 22 June 2011.

2H 2011 provided investors with no respite and even ratcheted up the ante on global investors. The European sovereign debt crisis decided to reignite itself as the crisis spread from Greece to the more crucial nations of Spain and Italy, with even France nearly finding itself in the crosshairs of global markets. Fixed income markets went frenetic and equity markets started to bleed, with wild intraday swings of as much as 8%, resulting in investors pulling their money out of capital markets in an attempt to protect their capital.

Across the Atlantic, America was not able to sit back and watch the serial drama unfolding in Europe. The downgrade of the US sovereign rating in August by Standard & Poor’s by a single notch saw the world’s largest debtor lose its AAA-rating, spooking markets and heightening risk aversion. The political bickering and eleventh-hour passage of the raise of the deficit ceiling had contributed its fair share to market volatility prior to the downgrade although the end result was never in doubt. Despite the downgrade in the rating of the US, US treasuries have been the best performing bond sector in spite of the words of many doomsayers.

As summer came and went, so did the heat investors were facing the tricky months of July – August. 4Q 2011 has, thankfully, brought some respite for investors. US economic data has started to provide positive surprises and lent markets some much needed optimism, as their European counterparts were busying themselves buying time with various measures to afford fiscal integration which would not happen overnight.

With the global cooperation by several major international central banks to provide unlimited USD liquidity to the financial system, particularly targeted at Europe, the credit crunch in Europe has been given a dosage of medicine to alleviate the symptoms of its illness. On a more significant note, the European central bank’s rate cut to bring the refinancing rate back to 1% (as it was at the beginning of 2011), and more specifically; the introduction of unlimited 3 year loan program has been a success in terms of banks taking approximately EUR 490 billion in loans. The funding program should aid the finances of banks; ease the credit crunch and liquidity crisis in the financial sector.

As we close the chapter on 2011 and turn the page to 2012, let us take a closer look at the key factors that have provided the support or pressure that has attributed to the performances of the top three (Indonesia, US and Malaysia) and bottom two (Brazil and India) performing markets.

Table 1: Market Performance (In RM Terms) Market Index 2011 Returns Indonesia JCI 4.2% US S&P 500 3.5% Malaysia KLCI 0.8% Thailand SET -2.5% World MSCI World -6.3% Japan Nikkei 225 -9.7% Korea KOSPI -10.2% Europe Stoxx 600 -11.0% Australia S&P / ASX 200 -11.3% Singapore FTSE STI -15.0% Asia Ex-Japan MSCI Asia Ex-Japan -16.3% China HSML 100 -16.4% Hong Kong HSI -17.1% Emerging Markets MSCI Emerging Markets -17.6% Russia RTSI$ -19.7% Taiwan TWSE -21.5% Brazil Bovespa -24.7% India BSE SENSEX -34.4% Source: Bloomberg, iFAST compilations (As of end December 2011) TOP PERFORMING MARKETS Indonesia (+4.2% In RM terms)

Indonesia’s Jakarta Composite Index (JCI) index was left relatively unscathed in 2011, rising marginally by 4.2% (in RM terms) despite global equity markets suffering major setbacks in varying degrees. The JCI managed to reach its highest point of 4,193 in early August, a rise of 13.2% since the start of 2011 right before the deterioration of the global economic outlook and unresolved European sovereign debt crisis roiled the market. On 21 September alone, the Indonesian market dramatically dropped by 8.9%, the largest single day drop in 2011. Subsequently, JCI rebounded quickly and moved steadily in upward trend to close at 3,815 points to mark the end of 2011.

On the economic front, Indonesia has been seen as a resilient economy where domestic consumption contributes approximately 62% of the economic output. According to Bank Indonesia, Indonesia is expected to achieve 6.5% GDP growth in 2011 and 6.3% in 2012 on a year-on-year basis. Inflationary pressures have eased to 3.8% in December, the lowest since April 2010 while the reference interest rate was kept at record low of 6%. We believe Bank Indonesia has sufficient room to accommodate economic growth given high rates of inflation is no longer an imminent threat.

The decision of Fitch Ratings to upgrade Indonesia sovereign ratings from BB+ (non-investment grade) to BBB- (investment grade) was attributed to the improved economic performance, better fiscal position and strengthened economic fundamentals of the nation. Both the Indonesia GDP deficit and gross government debt to GDP are expected to remain low at levels of -0.6% and 25.2% respectively in 2011 as compared to -0.6% and 27.3% in 2010. Based on our estimates, JCI is trading at a forward PE of 13.7X and 12X for 2012 and 2013 respectively. However, due to limited upside potential by end 2013 as compared to other markets, we maintain Our “Neutral” rating of 2.5 stars for Indonesia.

US (+3.5% In RM Terms)
The US market (as represented by the S&P 500) managed to end 2011 at almost the same level as it started the year – 1257.60 on 30 December 2011, compared with 1257.64 on 31 December 2010. Nevertheless, this was enough to make the US equity market the second-best performing equity market under our coverage with the market delivering a 3.5% return in RM terms, even as global equity markets were roiled by Eurozone debt crisis concerns. The US economy started the year on a relatively bright note, with growth expectations for 2011 rising to as high as 3.2% in February 2011. However, a potent combination of soaring energy and commodity prices crimped consumer spending, the largest segment of the US economy. Following just a 0.4% growth rate (on a quarter-on-quarter annualised basis) in 1Q 11, commodity prices eased, and growth recovered to 1.3% and 1.8% (annualised quarter-on-quarter) in 2Q 11 and 3Q 11, with the economy now forecasted to post 1.8% full-year growth in 2011.

High unemployment and a weak housing market have continually been cited as issues weighing on the economy, but there has been much more cause for optimism as data improves on both fronts. Initial jobless claims have declined to non-recessionary levels, while payrolls data indicates that jobs have continued to be created, despite ongoing global economic uncertainty. Conditions also appear ripe for a housing market rebound, given that affordability is extremely high while current depressed new housing activity is (in our estimates) insufficient to cope with normalised demand due to population growth. With commodity prices having eased off their 2011 highs, we think the US economy may surprise on the upside in 2012, which has positive implications for corporate earnings and the stock market.

As of 30 December 2011, US earnings are expected to post 15.8% growth from 2010, a figure which appears easily achievable given that only 4Q 11 earnings have yet to be reported. With the market unchanged since the end of 2010, the strong growth in earnings has correspondingly made the US equity market cheaper, driving valuations down from 14.7X at the end of 2010 to 12.7X as of 30 December 2011. Consensus expectations are for further growth of 13.7% and 10.4% in 2012 and 2013, which will drive down valuations further. We expect the US equity market to re-rate to a significantly higher multiple of earnings which will provide considerable upside, and retain a 4.0 star “very attractive” rating on the US equity market.

Malaysia (+0.8% In RM Terms)
The Malaysia equity market gained 0.8% (in RM terms) in 2011, sending Malaysia to rank third on our top performing market list once more from 2010. The rise in the FBM KLCI was mainly supported by the telecommunication and oil & gas sectors, while the banking sector was the laggard of the year with most of the banking stocks in FBM KLCI reported a double-digit loss in 2011.

Our outlook for 2012 suggests that Malaysia economic growth will slow down but remain resilient, despite weaker external economic conditions that could dampen the exports demand. Domestic factors such as private consumption and private investment are expected to be the main drivers for the Malaysia economic growth. We estimate the Malaysia economy to grow by 4.0% - 4.5% in 2012.

Going forward, monetary policy is expected to switch from tightening to easing in view of lower inflationary pressure in 2012 as inflation is likely to have peaked in 2011. This provides ample headroom for policy easing to sustain economic growth. In our view, if the economic conditions deteriorate further, Bank Negara Malaysia is likely to cut the Overnight Policy Rate by 25 – 50 basis points in 2012.

The resiliency of the Malaysia equity market during the recent market crash and its moderate earnings growth prospects (to grow at 8.3% and 13.0% in 2012 and 2013) make it looks less undervalued and less attractive when compared with North Asian countries such as China, Hong Kong, Taiwan and South Korea. As indicated by the valuations, the 2012 and 2013 estimated PE for FBM KLCI stood at 15.1X and 13.4X respectively (as at 30 December 2011), which are just marginally lower than its historical fair PE of 16X. We estimate its upside potential by end-2013 to be around 19.5%, which could be decent returns for investors although it is not as exciting as those in North Asia. Overall, we maintain a 3.0 stars “Attractive” rating for Malaysia equity market.

BOTTOM PERFORMING MARKETS
India (-34.4% In RM Terms)
The Indian equity market (Sensex Index) was down by 34.4% in RM terms and by 24.6% in local currency (INR) for 2011. This poor performance has witnessed the market take the worst performing spot amongst the markets under our coverage as the country has underperformed against all major emerging equity markets and most of the developed economies as well. The underperformance by the Indian equity market is mainly due to macroeconomic factors such as a stubborn high inflation and it’s after effects and the crisis in developed economies specifically European countries.

The economy which was growing over 8% year-on-year (it was also the second fastest growing economy in the world) felt the heat of 13 continuous rate hikes since March 2010, an anti-inflationary stance by the central bank, has negatively impacted corporate profitability and has also severely slowed down corporate investment due to the high borrowing costs in 2011. The economy is expected to close the financial year with a growth rate of close to 7% as compared to the optimistic 9% projected by the government at the beginning of the year.

The growing concern over the debt crisis in European economies and a soft patch in the US has prompted foreign investors to exit the riskier markets such as the emerging markets. Foreign institutional investors have sold USD 357.5 million worth of equities in 2011 as opposed to a whopping USD 29.4 billion investment inflow in 2010. The fiscal deficit of India has also grown significantly following the 2008 economic crisis due to the stimulus package offered by government to revive the economy. The high fiscal deficit, high inflation and sell off by foreign institutional investors have put immense pressure on India’s national currency (Indian Rupee, INR) which has depreciated by almost 18% against the USD in 2011, leading the INR to be the worst performing currency amongst the emerging economies currencies. The depreciation of the INR against all major currencies has aggravated the underperformance of Indian equity market.

As per our in-house estimate, the Indian equity market is currently valued at a PE of 13.3X and 11.5X for 2011-12 and 2012-13 (as of 31 December 2011), with potential upside of 49%. Hence, we maintain a “Very Attractive” rating of 4.0 stars for the Indian market. With the prospect of inflation further softening following significant easing in the last 2 months, room for the central bank to look for growth by easing monetary policy is now available. Investors can consider entering into the Indian equity market with a long term perspective.

Brazil (-24.7% In RM Terms)
The Brazilian equity market, represented by the Bovespa index fell 24.7% in RM terms (18.1% in local currency terms) in 2011. Brazil has seen its stock market suffer on the back of a challenging external global environment due primarily to growth concerns in the US and the continuing sovereign debt crisis in continental Europe. With risk aversion plaguing global markets, investors have been quick to pull money out of the emerging markets, which are funnily enough deemed to be “riskier” than their counterparts in the developed markets from whom many of the current problems stem from, as they sought refuge in assets such as US Treasuries and Dollar denominated assets. The massive outflow of capital from Brazil has seen its currency depreciate by 17.75% against the USD by end 2011, a stark difference from a 7.3% appreciation against the USD in the first 7 months of the year. This massive outflow has in part caused the Bovespa index to at one point fall by as much as 30% on a year-to-date basis before staging a mini-comeback which saw the index rally 17.6% from its lows.

The Central bank’s reversal of a series of rate hikes earlier in the year has seen it cut its benchmark Selic rate by 1.5% since August 2011 as it seeks to prioritise growth over price control despite inflation above its stated target of 4.5% (plus/minus 2%). The government has begun to roll-back some of the inflation targeting measures introduced earlier in the year as it attempts to keep the nation’s economy from stalling. Latin America’s largest economy has seen its industrial production contract for almost the entire 2H 2011 (except for the month of July) as a result of the on-going problems and worries in the developed countries. Despite the contraction in industrial production, Brazil’s domestic consumption story remains compelling with retail sales, unemployment as well as wage growth pointing to continued resilience in domestic consumption.

With 59% of the Bovespa index comprising of companies related to the energy, industrial and material sectors, the index has suffered as the prices of most commodities fell in 2011 as industrial output across the world softened, particularly in the latter half of the year. Going into 2012, the Bovespa currently trades at a PE ratio of 9.0X and 7.8X (as of 31 December 2011) for 2012 and 2013 respectively, representing a discount of 47% from our fair value estimate of 11.5X earnings. We maintain our 4.5 Star “Very Attractive” rating on the Brazilian equity market as the domestic consumption factor as well as commodity producer status of Brazil remain the key drivers of a positive long-term investment opportunity.

A NEW YEAR GIVES RENEWED HOPE
In 2011, our picks for favourite regional market (Global Emerging Markets) and favourite single country (Taiwan) failed to shine due to bouts of risk aversion as a result of the roller-coaster developments in the developed markets.

The best performing single-country market, Indonesia, has again gazumped our best intentions and outperformed despite it being our least favourite market. Our favourite single-country market, Taiwan, has failed to shine as its export dependent economy has been affected by both poor sentiment as well as a treacherous global environment. Meanwhile, our favourite regional market, Global Emerging Markets (GEMS) suffered as international investors pulled money from these fast growing economies as they feared the repercussions of the West’s problems.

As we enter into 2012, we continue to favour equities over bonds due to the immense value to be found in most equity markets as well as the low yields currently on offer by fixed income.Our Key Investment Themes and 2012 Outlook identifies both the areas of opportunities as well as the potential risks we believe investors can expect to encounter in the coming year. Here’s wish one and all a profitable investment year with less stress in 2012!


*Investors Who Wish To Find Out More On Investment Opportunities Should Attend Our Unit Trust Investment Fair:

What & Where To Invest 2012, 14 Jan 2012, KL Convention Centre RELATED ARTICLES Key Investment Theme and 2012 Outlook

http://www.fundsupermart.com.my/main/research/viewHTML.tpl?articleNo=1919

Long Term Growth and Value Stock Picks

A lot of people would love to know what is inside Warren Buffett’s portfolio because he is noted for his long term stock picks and his value stocks.  Obviously, a lot of his investment strategy comes from Benjamin Graham, the father of value stock investing but how does one judge value?  Sure, you can look through a company’s annual reports and their financial statements but there has got to be something to be said for how a company is run.  For this information, you need to ask the right questions to the right people and that is to management, competitors, suppliers and customers.  Buffett learned this from another famed investor named Philip Fisher.  Whereas Graham was noted for finding value stocks from fundamental analysis, Fisher was noted for finding growth stocks and hence his title for the father of growth stock investing.  Buffett has admitted that his stock pick strategy is 85% Graham and 15% Fisher.

So perhaps the notion that Warren Buffett is only a value investor is a bit misleading.  Sure, there is nothing wrong with finding undervalued cheap stocks but Buffett usually doesn’t sell once his holdings have rebounded to fair value.  In fact, Buffett has stated numerous times that his favourite holding period is forever.  This is because his stock picks have growth potential as well.  To put it in Buffett’s terms, he wouldn’t care if the stock market closed for the next five years because he’s not concerned about the macroeconomics.  He’s concerned with the company itself in that if it is a good business, the stock will eventually follow.  That being said, “time is the friend of a wonderful company and the enemy of the mediocre”.

For beginning investors (and perhaps “sophisticated investors” as well) time and patience is perhaps the downfall of most.   It is great that technology has allowed investors to take control of their finances and invest for themselves with stock trading programs and stock filters.  However, while these can be very helpful tools and help drastically cut down research time, one has to ultimately apply the teachings of value and growth investing and add a human element.  If the stock market could be distilled into a perfect mathematical formula or if the market was truly efficient, then people like Warren Buffett would not be able to make so many winning stock picks in his career.  That being said, it only takes a few top stock picks to make one rich and investors don’t need to make so many trades with buy and sell commissions that eat away at the returns.

So if you want to be rich like Warren Buffett, you now know the formula to his success: invest in value stocks with long term growth potential.

http://warrenbuffettstockpicks.com/long-term-growth-value-stock-picks/

Long Term Stock Picks For Long Term Gain

It is quite unfortunate that there are no formal personal finance classes when we are younger because money is an essential part of life.  Learning how to handle your finances and how to invest for yourself are very important life skills.  If people learned these things at an early age, then they would have had a great start on having a stock portfolio with long term stock picks.

It might be hard to believe that young adults would be capable of picking winning stocks but if you know basic math and can read, that’s all you really need.  Sometimes, people get ahead of themselves and overthink.  They are persuaded by the latest news and hype.  Perhaps the best way to pick stocks is through the eyes of an amateur and what go with what they can understand. After all, the stock market is the trading ground for everybody – investing beginners and so called experts.

Understanding a company’s business is fundamental in picking the best stocks.  So often, people hear about a hot stock tip and trust the investment advice of others rather than doing their own homework.  If you don’t understand what a company does, it becomes very hard in judging the intrinsic value of a company.  You want to know the true value of a company so you know when to buy in and when is a good time to sell.  If you don’t know at least that much, then it would be very hard for you to make money in the stock market.  In fact, it becomes more likely that you would lose money.

The investment strategy of buying stocks at fair value or below came from Benjamin Graham and was further reinforced by Warren Buffett and the margin of safety investing method.  By buying companies trading below its intrinsic value, it leaves room for error – or a margin of safety.  And since Warren Buffett’s stock pick advice is to hold stocks for the long term, an investor with a cheap blue chip stock pick has the luxury of waiting it out until the price goes up again.

Most newbies looking for investing advice often wonder why they don’t just buy penny stocks and wait it out for the long haul if it is a simple matter of a waiting game.  However, penny stocks are meant to be fast money in the stock market but it also carries a lot of risks as well.  When the market is turbulent, the first thing that people will sell is their penny stocks (they will keep their blue chip stocks for as long as possible).  If you are one of the traders trying to unload thousands of shares, good luck in finding a buyer.  You just might be left in holding the bag.  You can make lots of money day trading penny stocks but you can lose a lot of money too because of the sheer volume you would need to buy and sell to make it profitable on the smallest of fluctuations in stock price.

Another reason that penny stocks are not meant for the long term is that it is very hard to do fundamental analysis on new companies as that is generally what happens when start-ups want to generate money.  With no track record, you cannot do proper stock analysis and that is why penny stocks are meant for trading and not investing.

And just like day trading penny stocks, there are other methods of making lots of money in the stock market quickly such as shorting stocks, buying and selling options and playing with currency arbitrage.  Obviously, these ways of making money in the stock market work or else people won’t be doing them.  As mentioned however, fast and easy money is obviously not without risks.  And people often get far too ahead of themselves and create these complicated investment strategies when simple methods work best.  Have you ever seen a monkey making stock picks?  Sometimes, they beat the so called stock pick professionals so imagine what a young person can do with a little bit of knowledge and stock analysis.

If you truly want to learn how to invest in stocks, the person you should learn from is Warren Buffett.   As mentioned, he thinks ahead in the future with his long term stock picks.  There are a few reasons for his.  He doesn’t get flustered and forced into selling when the stock market falls.  In fact, recession stock picks are great when everyone is selling and you are buying because people are in a panic.  This is a great way to buy undervalued stocks.  That being said, is it a stock you’d be happy to hold in your portfolio for the long term?   Buffett says that you should only buy something if you’re happy to hold if the stock market were to close for 10 years.  Given this criteria, how many people’s stock picks would be filtered out?  There are other criteria for Warren Buffett stock picks such as: does the company have a branding advantage over its competitors?  In the case of one of Buffett’s most famous stock pick Coca Cola, “Coke” is synonymous with soft drinks.  Pepsi and other brands cannot compete with it as a brand without throwing huge money into it.  Coke is way ahead of the game in terms of being in the consciousness of its consumers worldwide.  This is what Buffett calls his business moat and it is far reaching across the globe.    This is how a huge behemoth of a soft drink company can still grow worldwide when you think it’s already plateaued.  Buffett’s portfolio picked it up as a value growth stock in the late 1980s and it has done very well for him since then.

For this reason, this is why amateur investors can do quite well managing a do it yourself stock portfolio with their own stock picks.   You don’t have to be on the lookout for the latest break out stocks.  Truly, a portfolio composed of blue chip stock picks purchased when they are undervalued will make you rich once they rebound.  It does take research to find these gems and patience but Warren Buffett has made a career of doing something just as simple instead of worrying about the noise of the market.  If the greatest investor in the world imparts such wisdom to us, who are we to argue with Buffett’s stock picks?

http://warrenbuffettstockpicks.com/long-term-stock-picks-for-long-term-gain/

Growth and Value Stocks for the Long Term Portfolio

Here at the Warren Buffett Stock Picks site, it might be surprising to note that we do not actively list Buffett’s stock portfolio. Those can be found all around the Internet. Sure, we might single out a particular Buffett stock and analyse what qualities the company has to attract the attention of the world’s best investor. However, the bottom line is that it is better to learn how to identify future stock winners for your long term investments portfolio than to put it in someone else’s hands.

Speaking of investing for yourself, as sad as it is to admit, there is only one Warren Buffett and he isn’t getting any younger. Buffett’s successor has not been named and Buffett himself has always admitted that Berkshire Hathaway has gotten so big that it’s hard maintain the 45 years averaging 20% returns per year. As Buffett explained one time: “It’s much bigger than it used to be, and with the law of large numbers it takes a bigger investment to move the needle”. How will Berkshire Hathaway perform without the mastermind at the helm and with Berkshire becoming such a behemoth?

With the stock split of Berkshire baby stocks to more affordable levels to the average investor, is the stock still a good buy? Some would say that Berkshire is becoming more of a defensive play with its investment in railroads and utilities which can hardly be qualified as growth stock picks. However, let’s look at the number one rule of invest: never lose your money. This rule is reinforced by the second rule which is to never forget the first rule.

Buffett’s investment strategy has definitely changed throughout the years. This is normal as one gets older and wiser but the stock advice never changes. That is, to invest in good companies for the long term.

• At first, Buffett was buying cheap stocks of undervalued companies. He learned value investing from Benjamin Graham. 
• Then he started investing in growth companies based on what he learned from Philip Fisher. For this, sometimes you have to pay good companies what they are worth. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. 
• And now the latest trend for Buffett is to buy stable blue chip stocks whose reach will be still felt for years to come even after Buffett is long gone but the legacy of stock portfolio will remain.

Think about that for a minute when the norm nowadays is to make quick money with day trading. Compare this with Buffett’s portfolio and how he made his billions by looking into the future.

http://warrenbuffettstockpicks.com/growth-value-long-term-stock-picks/

Long Term Stock Picks For Investing Beginners

If there is one thing that the recent recession has taught us, it is that everyone should be responsible for their personal finances and investments. Despite the fact that you are paying professionals for their stock pick advice and their inside track on hot stock picks, how many of them really have your best interest at heart or actually know what they are doing? How many Ponzi scheme stories do we have to hear on the news about people being robbed of their life savings? For some retirees, this is a devastating blow. For others, there is still time to make it back with long term stock picks on the horizon.

After suffering a financial set back, it might be hard for some investors to rebuild their fortune but the same investment advice can be applied to those who are beginning investors. Before you begin to invest, you need to have your personal finances in order. This means you need to have your emergency funds in place so you won’t feel obligated to sell your best stock picks because you need the money. It is generally regarded that you should put away enough money in your savings account for six months to a year if something goes wrong and you are out of a job. As an investment tip, it is recommended that you only invest with money you won’t need for a period of five to ten years. Even though you can make fast money in the stock market, you can also easily lose money too. The way to reduce these risks is if you think for the future with long-term stock picks. You want to invest in growth stocks that are trading cheaply for their future potential as opposed to hot penny stocks that are more erratic and risky.

To be honest, any stock picking advice can be reduced to one golden rule: buy low and sell high. However, it is important to note that it doesn’t cover the time line. You can make money on the stock market within a few minutes or you can make money over a period of years. Perhaps this is why famed billionaire investor Warren Buffett has his number one rule of investing as well: never lose money. His second rule of investing is never forget rule number one. Warren Buffett’s investment advice might sound glib but surprisingly, so many people do lose money in the markets. This is because while they might have a few winning stock picks, the vast majority of them were losers. So they understand the concept of buying low and selling high but they don’t do it consistently to make money in the stock market. And perhaps this is due to their time horizon.

If there is one person you should take investment advice from, it is Warren Buffett. He has an incredible financial mind and yet he can distill concepts to teach investing for beginners. So while you can make money from day trading, foreign exchange arbitrage, shorting stocks, buying and selling options and warrants, Warren Buffett does it the old fashion way with long term stock picks. Buffett’s investment strategy simply reduces the risk by buying good companies at a fair price. Again, this might seem like a very simplistic stock tip but it is amazing that so many people cannot understand the concept.

According to Buffett, price is what you pay, but the value is what you get. For example, a company’s share price might be the lowest that it has been in a year but is it worth it to begin with? There have been lots of stock market bubbles in the past with certain sectors being overvalued only to come crashing down again. When looking for best stocks to invest, it is important to look past the hype and realize a company’s intrinsic value. You should also invest in something you understand as well. If you don’t understand a business, how can you do your stock analysis? You need to do your stock pick research by going through a company’s annual reports and financial statements. This is called fundamental analysis. If you can identify top stock picks that are trading below their intrinsic value, you can keep them in your portfolio for the long term. And if you can find cheap stocks that are mispriced you will have the luxury of time for the long term horizon which gives you a margin of safety. Therefore, let this be another stock pick advice: when a company is overhyped, its stock price is probably overvalued. When a company’s stock is trading below its intrinsic value and the pundits are tell the public to sell, that is when you should go against the grain and buy. Again, the point of making money investing is to buy low and sell high. Therefore, even though a lot of people are scared to invest in the stock market because of the economic crisis, this is the best time to invest in recession stock picks.

If you follow Warren Buffett’s stock picks advice of applying a margin of safety when buying a few good companies and waiting patiently for the price to go up again, you will make money in the stock markets. The Warren Buffett strategy is also called focus investing. You put your focus on finding a few winning long-term stock picks. For some people, this might seem risky as it goes against the popular thinking of diversification. However, the point of diversification is because you want to reduce risks but what are the risks if you do your due diligence? This is very important advice for beginning investors to adhere to as well. It is easy to make money on a few hot stocks but it is hard to make money consistently in the stock market so always do your research.

As a final word of advice for stock market beginners, if you don’t have time to learn how to invest in the stock market, the next best thing is to invest in index funds instead of managing a stock portfolio yourself. An index fund is a low cost mutual fund that tracks a particular stock market index by buying the same companies that make up the index. Since markets rise over the years, this takes care of your long term investments. Of course, you will only do as well as the market and you won’t have the fun of watching break out stocks but the truth is most mutual funds are closet index funds anyway. If you look at the mutual fund stocks, most funds will be a duplicate of some index so why pay the extra management costs that eat away at your return? And for those high profile money managers, do you really trust them with your money after all that’s happened in the news with the financial scandals? While there are undoubtedly honest money managers out there, how do you separate the good ones from the bad? The bottom line is that no one will have your best interest at heart and care about your long term investments more than you. You might as well learn about investing for yourself.

http://warrenbuffettstockpicks.com/long-term-stock-picks-for-investing-beginners/

Warren Buffett Winning Stock Picks

As a self made billionaire, famed investor Warren Buffett has had his share of stock pick winners.  His investment holding company Berkshire Hathaway has made many millionaires and if you had bought Berkshire in the sixties, you could have been one too a few times over.  However, not many of us could have had the foresight and that’s why many Buffett fans continually track his portfolio movements.  One can gain insight on what Buffett is thinking and how he discerns winning stock picks from losers.

Buffett’s best stock picks are ones in which he picks up shares of a well managed company which is undervalued.  That might be easier said than done but despite any efficient market theory, as Buffett himself said, if the markets were always efficient, he’d be a bum on the street holding a tin cup.  And in spite of Buffett’s continued modest living arrangements, he’s far from a bum on the street.  So what are Buffet’s stock tips on the way to riches?

As he had preached in the past, the first rule of investing is never to lose money.  This is followed closely by rule number 2 which reinforces the first rule not to lose money.  Judging by the war chest of cash that Berkshire Hathaway holds (40 billion), you can tell that the Oracle of Omaha is careful with what goes in his portfolio.  The moral of this story is that despite excess cash don’t feel that you have to invest in it right away.  Look for the proper investment opportunity.

Another tip for picking winning stocks is to understand the business in which you are investing.  Buffett preaches a concentration in holdings.  While this might be against standard investing methods of diversification, it actually lessens the risk if it motivates the investor to dig deeply into the business he/she wants to invest.

As a final bit of stock advice, Buffett picks stocks for the long term.  Again, using some of his folksy common sense, he sums it up by saying “We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely”.

Due to the ease of use of stock trading programs, amateur stock traders are increasing and trying their hand in day trading.  However, due to the in and out trading, it is eating up their principal in fees if they don’t make a profit.

Overall, you can see that Buffet’s investment advice is geared towards long term stock picks: he buys good companies in which he understands and ones in which are undervalued.  Buffet waits long term until they are in favour again by the stock market.

These are the guiding factors of Buffet’s best stock picks which are easy to understand but it takes a disciplined person to follow.

http://warrenbuffettstockpicks.com/warren-buffett-winning-stock-picks/

Growth Stock Picks

Everyone wants to make money in the stock market by buying companies on the cheap but have great growth potential.   But how can you tell the best growth stock picks from the losers?

A lot of people who invest in the stock market will buy a stock because they know the name or saw an ad on television. This is a good way to lose all your money in a fast amount of time. Buying winning stock picks requires a great deal of knowledge and homework. There are some basics you should look for. These include a low P/E ratio, good operating margins, a lot of cash on hand, a small amount or no debt, and possibly insider buying. The lack of insider buying is not a bad thing; it’s just a big positive when you see it taking place on a large scale. Don’t be fooled by small purchases. This means nothing. If anything, they’re trying to portray something that is not taking place. Also, when you see insider selling, if it’s automated, it’s okay. It’s when you see selling by the masses all within a short period of time that you should be worried. But let’s focus on cash vs. debt. These two stats alone can make you bundles of money. The only requirement is that you’re patient and willing to wait for your long term stock picks to reach their target price or even blowing expectations.

Why would you want to buy stock in a company that has a lot of cash and very little or no debt? You might think the answer is obvious, but it’s not. Actually, in the short term, these are often bad purchases. This might sound confusing, but there’s a logical reason. When a company has a lot of cash and little to no debt, they don’t have as much room for improvement. Wall Street likes growth and recovery stories. If everything is going well, there is no room for recovery. And growth must be caught very early. Therefore, there is nothing to get excited about. A company that is paying off debt at a rapid pace is a better buy than one that has no debt. However, if you buy stock in a young company with a lot of cash and little to no debt and you’re willing to wait, you could wake up one morning with an enormous gain. These companies are the most attractive for larger companies to scoop up. If they get bought, you will usually make between 15% and 50% in one day.

Here are three easy steps to finding the best stocks with potential for being bought. 

• One, find out how long they have been in business. If it’s less than five years, they have a better chance of being bought. 
• Two, look at their cash and debt. Make sure there is a lot more cash than debt. No debt at all is ideal. 
• Three, buy and wait. It’s that simple.

http://warrenbuffettstockpicks.com/

Warren Buffett - An Outstanding Allocator of Capital

Warren Buffett

Warren Buffett was born in 1930 in Omaha, Nebraska. 

He took his first degree at the University of Nebraska and then completed a Master's degree in economics at Columbia Business School in 1951. He was supervised and mentored at Columbia by stock-investing guru Benjamin Graham, author ofSecurity Analysis. 

Buffett received the only mark of A+ Benjamin Graham ever awarded in his security analysis class. From this it's clear that Buffett had an extraordinary ability in stock analysis from the very beginning of his career. 

Making Money

Warren Buffett grew obsessed with numbers and money from an unusually early age. It wasn't an obsession founded upon the lifestyle or the wordly goods money could buy. It was a collecters' obsession. Some boys in the 1930s and 1940s collected stamps. Some collected bird's eggs. Warren Buffett collected money. 

He started at the age of five, selling gum and lemonade in the street and he later set up a business, renting pinball machines to local barbers. By his mid-teens, he had made enough money from these earlier efforts and paper rounds to buy land - which he rented to farmers. 

Making More Money 

Investing In Stocks

Warren Buffett bought his first shares at the age of eleven - his father was a stockbroker - and stock trading gave the young Buffett a natural outlet for his twin obsessions with numbers and money. 

After completing his master's degree, Buffett worked as a salesman in his father's brokerage. Between 1954 and 1956 Buffett worked for his old mentor, Benjamin Graham, then returned to Omaha, ready to begin his own investing business. 

Making Even More Money 

Investing Other People's Money In Stocks

Warren Buffett's progress towards almost unimaginable wealth accelerated in 1957 when he pursuaded friends and family to invest $105,000 in his limited partnership. Then he began the process he is famous for, the process of annually compounding the money he manages extraordinary rapidly. 




http://www.warren-buffett.net/