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.
Saturday 14 April 2012
Trend Trading Tips for Swing Trading and Day Traders
Trend trading using higher highs and higher lows can be devastating to your account. Here's a more accurate way to trend trade whether you are a day trader or you are swing trading.
Guest Lecture by David Swensen: Investment Management (Yale lecture)
Uploaded by YaleCourses on Nov 19, 2008
Financial Markets (ECON 252)
David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
00:00 - Chapter 1. Introduction: Changing Institutional Portfolio Management
03:59 - Chapter 2. Asset Allocation: The Power of Diversification
16:44 - Chapter 3. Balancing the Equity Bias into Sensible Diversification
20:48 - Chapter 4. The Emotional Pitfalls of Market Timing
32:58 - Chapter 5. Survivorship and Backfill Biases in Security Selection
43:17 - Chapter 6. Finding Value Investing Opportunities as an Active Manager
49:02 - Chapter 7. Yale's Portfolio and Results
54:48 - Chapter 8. Questions on New Investments, Remaining Bullish, and Time Horizons
Complete course materials are available at the Open Yale Courses website:http://open.yale.edu/courses
This course was recorded in Spring 2008.
David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
00:00 - Chapter 1. Introduction: Changing Institutional Portfolio Management
03:59 - Chapter 2. Asset Allocation: The Power of Diversification
16:44 - Chapter 3. Balancing the Equity Bias into Sensible Diversification
20:48 - Chapter 4. The Emotional Pitfalls of Market Timing
32:58 - Chapter 5. Survivorship and Backfill Biases in Security Selection
43:17 - Chapter 6. Finding Value Investing Opportunities as an Active Manager
49:02 - Chapter 7. Yale's Portfolio and Results
54:48 - Chapter 8. Questions on New Investments, Remaining Bullish, and Time Horizons
Complete course materials are available at the Open Yale Courses website:http://open.yale.edu/courses
This course was recorded in Spring 2008.
Friday 13 April 2012
George Soros Lecture Series: Financial Markets
Uploaded by opensocietyinstitute on Oct 11, 2010
The Lecture Series
Open Society Institute chairman and founder George Soros shares his latest thinking on economics and politics in a five-part lecture series recorded at Central European University, October 26-30, 2009. The lectures are the culmination of a lifetime of practical and philosophical reflection.
Soros discusses his general theory of reflexivity and its application to financial markets, providing insights into the recent financial crisis. The third and fourth lectures examine the concept of open society, which has guided Soros's global philanthropy, as well as the potential for conflict between capitalism and open society. The closing lecture focuses on the way ahead, examining the increasingly important economic and political role that China will play in the future.
Learn More and watch the Lecture Series:http://www.soros.org/resources/multimedia/sorosceu_20091112
Open Society Institute chairman and founder George Soros shares his latest thinking on economics and politics in a five-part lecture series recorded at Central European University, October 26-30, 2009. The lectures are the culmination of a lifetime of practical and philosophical reflection.
Soros discusses his general theory of reflexivity and its application to financial markets, providing insights into the recent financial crisis. The third and fourth lectures examine the concept of open society, which has guided Soros's global philanthropy, as well as the potential for conflict between capitalism and open society. The closing lecture focuses on the way ahead, examining the increasingly important economic and political role that China will play in the future.
Learn More and watch the Lecture Series:http://www.soros.org/resources/multimedia/sorosceu_20091112
Behavioral Finance: The Role of Psychology
Uploaded by YaleCourses on Nov 19, 2008
Financial Markets (ECON 252)
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky's Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
00:00 - Chapter 1. What Is Behavioral Finance?
09:01 - Chapter 2. Market Volatility: Random, or Socially Influenced? A Present Value Analysis
19:58 - Chapter 3. Overconfidence: Its Ubiquity and Impact on Financial Markets
38:29 - Chapter 4. The Kahneman and Tversky Prospect Theory or, How People Make Choices
58:50 - Chapter 5. The Regret Theory and Fashion as a Measure of the Market
Complete course materials are available at the Open Yale Courses website:http://open.yale.edu/courses
This course was recorded in Spring 2008.
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky's Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
00:00 - Chapter 1. What Is Behavioral Finance?
09:01 - Chapter 2. Market Volatility: Random, or Socially Influenced? A Present Value Analysis
19:58 - Chapter 3. Overconfidence: Its Ubiquity and Impact on Financial Markets
38:29 - Chapter 4. The Kahneman and Tversky Prospect Theory or, How People Make Choices
58:50 - Chapter 5. The Regret Theory and Fashion as a Measure of the Market
Complete course materials are available at the Open Yale Courses website:http://open.yale.edu/courses
This course was recorded in Spring 2008.
Warren Buffett - What is Franchise Value?
For the latest Warren Buffett, go to http://WarrenBuffettNews.com -
There is much less difference between buying a whole company and buying shares of a company. One difference is that you can change the managers much easier. But if you have to change the managers, then it probably isn't a business that you want to be in anyway. Another advantage to owning 100% is that you can decide how to allocate the excess capital. You can't do that if you only own 5%. At Berkshire, the game is to try to figure out where to put capital.
Most managers like to grow. They prefer to grow intelligently, but if they can't do that they will try other methods. In the banking industry, they measure themselves by size of their balance sheets, not by profits. Banks don't necessarily have economies of scale beyond a certain point. It is much better to have a large competitive advantage in a smaller market. There isn't much advantage to shareholders for the banks that they own to expand.
Gillette makes about 2/3 of its money outside of the United States. Companies that can do well in international markets are great. Depending on the different countries they are in, there are many factors that can be better or worse because of tax rates or public opinion. A good business can be found anywhere, but it is easier in the United States if you understand the economy and the business landscape a bit better.
Franchise value is what a brand has if a customer will leave a store if they don't carry the brand. They would rather walk across the street and pay a nickle more than to buy another brand. That is franchise value, and it is very valuable. It is wholly in the customer's mind. If you've got the right product in that way, you may be paying for taste or something else. The second thing to think about is how durable that franchise value is.
Martin J. Pring's Trading Rules - Webinar
Rule 1: When in Doubt Stay Out
Rule 2: Never Invest or Trade Based on Hope
Rule 3: Act on Your Own Judgment or Else Absolutely and Entirely on the Judgment of Others
Rule 4: Buy Low (into weakness), Sell High (into strength)
Rule 5: Don't Overtrade
Rule 6: After a Successful and Profitable Trading Campaign, Take a Trading Vacation
Rule 7: Take a Periodic Mental Inventory to Check How You Are Doing
Rule 8: Constantly Analyze Your Mistakes
Rule 9: Don't Jump the Gun
Rule 10: Don';t Try to Call Every Market Turn
Rule 11: Never Enter into a Position Without First Establishing a Reward to Risk
Rule 12: Cut Losses Short, Let Profits Run
Rule 13: Place Numerous Bets on Low Risk Ideas
Rule 14: Look Down (at the risk potential) not Up (before your reward potential)
Rule 15: Never Trade or Invest More Than you Can Reasonably Afford
Rule 16: Don't Fight the Trend
Rule 17: Whenever Possible Trade Liquid Markets
Rule 18: Never Meet a Margin Call
Rule 19: If You are Going to Place Stop, Put it in a Logical, Not Convenient Place
Reward-to-Risk Ratio -The Basics
This video will outline the concept of Reward-to-Risk.
Teach you the 3 components you must have to calculate your RR.
Trading "Math" (Win% + RR) I hit you with the numbers! How the relationship between your RR and how often you win affects your trading.
Slide after slide of examples and figures that is going to blow your mind if you were unaware of the power of this concept.
Thursday 12 April 2012
How to Control Your Emotions When Trading
Learn why I think trading psychology is worth 95% to the overall success of your trading. Find out if you fall in the average trader category and why you make poor trading decision that is holding you back.
Discover how to overcome these pitfalls and improve your trading skills.
Are Traders PREPROGRAMMED TO FAIL?
Are traders preprogrammed to fail? What is it about trading that causes 90% of intelligent, rational people to fall to the wayside each year? Is there a common thread among us as human beings that derails our best efforts and intentions? In this video series, Senior Trader Todd Brown explores the psychological inner workings of traders and shines a spotlight on the obstacles between unsuccessful traders and their profit goals.
Trading Lessons - Five Fundamental Truths
Five Fundamental Truths
1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.
10 Golden Trading Rules
1. Have a Game Plan
2. Follow the Game Plan
3. Always trade with Stop Loss to protect your capital
4. Diversify to reduce your risk
5. Filter your trade to capture the Big Moves
6. Trade with the Trend
7. Not to listen to the news (many are planted by traders to affect the market). Listen only to the market.
8. Don't listen to your broker (they have interest in putting money into their own pocket)
9. Money Management
10. Must be Discipline (with your game plan, your stop and your profit taking).
Global Financial Crisis and World Collapse Explained
Global Financial Crisis explained in 96 seconds.
World Collapse Explained in 3 Minutes
World Collapse Explained in 3 Minutes
When Should I Buy Stock? And how much should I buy?
Have your own personal goals.
Have a good investment philosophy and strategy.
You don't need to know everything to get started.
Seek a mentor.
Most mistakes happen early on when decisions are made on emotion and
when investment principles are not followed.
Not all mistakes will result in financial ruin.
Don't procrastinate!
You learn better while doing.
The Best Portfolio Balance
The Best Portfolio Balance
April 11, 2012
Read more: http://www.investopedia.com/financial-edge/0412/The-Best-Portfolio-Balance.aspx#ixzz1rmK2PKWi
April 11, 2012
There isn't one. Wasn't that easy?
In the same manner, there isn't one diet that fits everyone. Depending on your body fat makeup and what you're trying to accomplish (increasing endurance, building muscle, losing weight), the proportions of protein, fat and carbohydrates you should consume can vary widely.
SEE: Introduction To Investment Diversification
Balancing Act
Thus it goes for balancing your portfolio. A former client of mine once stated that her overriding investment objective was to "maximize my return, while minimizing my risk." The holy grail of investing. She could have said "I want to make good investments" and it would have been just as helpful. As long as humans continue to vary in age, income, net worth, desire to build wealth, propensity to spend, aversion to risk, number of children, hometown with its concomitant cost of living and a million other variables, there'll never be a blanket optimal portfolio balance for everyone.
That being said, there are trends and generalities germane to people in particular life situations; many investors don't balance in anything approaching the right mix. Seniors who invest like 20-somethings ought to, and parents who invest like singles should, are everywhere, and they're cheating themselves out of untold returns every year.
In the same manner, there isn't one diet that fits everyone. Depending on your body fat makeup and what you're trying to accomplish (increasing endurance, building muscle, losing weight), the proportions of protein, fat and carbohydrates you should consume can vary widely.
SEE: Introduction To Investment Diversification
Balancing Act
Thus it goes for balancing your portfolio. A former client of mine once stated that her overriding investment objective was to "maximize my return, while minimizing my risk." The holy grail of investing. She could have said "I want to make good investments" and it would have been just as helpful. As long as humans continue to vary in age, income, net worth, desire to build wealth, propensity to spend, aversion to risk, number of children, hometown with its concomitant cost of living and a million other variables, there'll never be a blanket optimal portfolio balance for everyone.
That being said, there are trends and generalities germane to people in particular life situations; many investors don't balance in anything approaching the right mix. Seniors who invest like 20-somethings ought to, and parents who invest like singles should, are everywhere, and they're cheating themselves out of untold returns every year.
Fortune Favors the Bold
If you recently graduated college – and was able to do so without incurring significant debt – congratulations. The prudence that got you this far should propel you even further. (If you did incur debt, then depending on the interest rate you're being charged, your priority should be to pay it off as quickly as possible, regardless of any short-term pain.) But if you're ever going to invest aggressively, this is the time to do it. Yes, inclusive index funds are the ultimate safe stock investment, and attractive to someone who fears losing everything. (The S&P 500's minimal returns over the last 13 years is a testament to its "safety.") Still, why not incorporate a little more unpredictability into your investments, in the hopes of building your portfolio faster?
So you put it all in OfficeMax stock last January, and lost three-quarters of it by the end of the year. So what? How much were you planning on amassing at this age anyway, and what better time to dust yourself off and start again than now? It's hard to overemphasize how important is to have time on your side. As a general rule of life, you're going to make mistakes, and serendipity is going to smile on you once in a while. Better to get the mistakes out of the way early if need be, and give yourself a potential cushion. "Fortune favors the bold" isn't just an empty saying, it's got legitimate meaning.
If you recently graduated college – and was able to do so without incurring significant debt – congratulations. The prudence that got you this far should propel you even further. (If you did incur debt, then depending on the interest rate you're being charged, your priority should be to pay it off as quickly as possible, regardless of any short-term pain.) But if you're ever going to invest aggressively, this is the time to do it. Yes, inclusive index funds are the ultimate safe stock investment, and attractive to someone who fears losing everything. (The S&P 500's minimal returns over the last 13 years is a testament to its "safety.") Still, why not incorporate a little more unpredictability into your investments, in the hopes of building your portfolio faster?
So you put it all in OfficeMax stock last January, and lost three-quarters of it by the end of the year. So what? How much were you planning on amassing at this age anyway, and what better time to dust yourself off and start again than now? It's hard to overemphasize how important is to have time on your side. As a general rule of life, you're going to make mistakes, and serendipity is going to smile on you once in a while. Better to get the mistakes out of the way early if need be, and give yourself a potential cushion. "Fortune favors the bold" isn't just an empty saying, it's got legitimate meaning.
Retirement Years
Fortune doesn't favor the reckless, however. If you're past retirement age and think that going long on mining penny stocks on the TSX Venture Exchange will make you wealthy beyond measure, well, hopefully at least one of your children has a comfortable couch for you to sleep on.Start with the three traditional classes of securities – in decreasing order of risk (and of potential return), that's stocks, bonds and cash. (If you're thinking about investing in esoteric like credit default swaps and rainbow options, you're welcome to sit in on the advanced class.) The traditional rule of thumb, and it's an overly simple and outdated one, is that your age in years should equal the percentage of your portfolio invested in bonds and cash combined. (Which is why George Beverly Shea has -3% of his portfolio in stocks.)
It's unlikely that there is someone on the planet who celebrates his birthday every year by going to his investment advisor and saying, "Please move 1% of my portfolio from stocks to bonds and cash." Besides, life expectancy has increased since that axiom first got popular, and now the received wisdom is to add 15 to your age before allocating the appropriate portion of your portfolio to stocks and bonds.
That the rule has changed over the years should give you an idea of its value. The logic goes that the more life you have ahead of you, the more of your money should be held in stocks (with their greater potential for growth than bonds and cash have.) What this neglects to mention is that the more wealth you have, irrespective of age, the more conservative you can afford to be. The inevitable corollary might be less obvious, and more dissonant to cautious ears, but it goes like this: the less wealth you have, the more aggressive you need to be.
The Bottom Line
Investing isn't a hard science like chemistry, where the same experiment under the same conditions leads to the same result every time. Investing's most exciting chapters are still being written, and the one that states that there are exactly three possible portfolio components needs to be put through the shredder. Real estate is neither stock, bond nor cash equivalent, and the same goes for precious metals. The former can increase your wealth rapidly with sufficient leverage, and the latter can maintain your wealth regardless of whether inflation or deflation besets the underlying currency that you conduct transactions in. As for the best portfolio balance, it's the one that fits the criteria you determine, but only when you assess your unique situation and regard your capacity for risk and reward with the utmost frankness.
Read more: http://www.investopedia.com/financial-edge/0412/The-Best-Portfolio-Balance.aspx#ixzz1rmK2PKWi
Wednesday 11 April 2012
There are Two Types of Debts: Good Debt and Bad Debt (Real Estate Investing)
Invest for cash flows and not for capital appreciation.
Financial Planning Introduction
Review regularly.
Adjust financial goals.
Be prepared to act when situations change.
When is the best time to plant a tree? 20 years ago.
So, when is the 2nd best time to plant a tree? As soon as you can!
How should I choose a stock brokerage?
Rule - Know what you don't need
Full service brokers
Offer help and advice over the phone or in person
Charge higher fee per trade
Advice is, at best, an educated opinion.
Becomes an expensive luxury that reduce investment returns.
Discount online brokers
Self directed stock research services
Fast, easy trade executions
Convenient, cost-effective solution
Focus on low cost brokers with a clean, clear interface.
Full service brokers
Offer help and advice over the phone or in person
Charge higher fee per trade
Advice is, at best, an educated opinion.
Becomes an expensive luxury that reduce investment returns.
Discount online brokers
Self directed stock research services
Fast, easy trade executions
Convenient, cost-effective solution
Focus on low cost brokers with a clean, clear interface.
What's the difference between a great company and a great stock?
The price paid for a company is just as important as the quality of the company.
Rule of Thumb:
PE above 11: Market expects positive growth
PE at 11: Market expects zero growth
PE below 11: Market expects negative growth
Rule of Thumb:
PE above 11: Market expects positive growth
PE at 11: Market expects zero growth
PE below 11: Market expects negative growth
Small Business Valuation
Basic Truths about business valuations:
1. Purpose of business valuation is to determine a PRICE RANGE, not a specific number.
2. The earnings of your company should be the basis of the valuation. The buyer buys your company for one reason only, that is, for its earnings.
3. For small businesses, using the multiples of earnings is the common method of valuation.
The earning use in small business valuations is OWNER'S BENEFIT. It is suggested that past 3 years Owner's Benefit be used.
Owner's Benefit
= Annual Pretax Profit
+ Owner's salary + Owner's perks/benefits
+ interest + depreciation.
(Contrast with: EBITDA = Earnings before interest, taxes, depreciation and amortization)
When you are selling your small business, you can hope for a higher multiple of earnings when:
1. Your business is in a growing trend.
2. You are able to provide your own finance to the buyer to purchase your business.
A Buffett Disciple Shares His Secrets (Morningstar)
Low risk, high uncertainty situations.
Wall Street punishes uncertainties. The rewards can be very high for such low risk situations.
In a bull market, be prepared for the bear.
"It is not difficult to outperform the benchmark in a rising market. For the investor, it is more important to be with a portfolio that is defensive enough not to drop too much in a down market."
Value Investing - The Bottom Line
"You need to worry about where the company and the stock will be in three to five years. If you can buy something today with little chance of permanent impairment and a high likelihood that you'll double your money over the next five years, you should go ahead and do it."
- Seth Klarman
Start Early
- Seth Klarman
Start Early
Valuing a company using adjusted P/E
Average long-term P/E = 15
Company average long term P/E = 13 ( =$530m / $41m)
Market cap = $530 m
ttm Earnings = $41 m
$161 m in cash (no debt) or $4.75 per share
Cash-adjusted P/E is 9.[ = ($530m - $161m) / $41m]
Earnings yield ( 1/PE) of 11% is too cheap.
If company has a lot of debt, you wouldn't bother about the cash-adjusted P/E.
Company average long term P/E = 13 ( =$530m / $41m)
Market cap = $530 m
ttm Earnings = $41 m
$161 m in cash (no debt) or $4.75 per share
Cash-adjusted P/E is 9.[ = ($530m - $161m) / $41m]
Earnings yield ( 1/PE) of 11% is too cheap.
If company has a lot of debt, you wouldn't bother about the cash-adjusted P/E.
Simple DCF
Valuation
At the end of the day, every company is worth whatever the current value of all its future cash flows are discounted backward to today's terms.
It is a hint, not an answer. Based on a lot of assumptions, using conservative figures.
1st 10 years Cash flow. using OWNERS EARNINGS (FCF).
Cash flow beyond the 10th year (Terminal value): Assumes growth at 3% per year.
Add all the above discounted cashflows to get the present value..
Only the FCFs are hard data, all others are assumptions.
Time 14.13
http://www.youtube.com/watch?v=zA8udp8uRnw&feature=relmfu
At the end of the day, every company is worth whatever the current value of all its future cash flows are discounted backward to today's terms.
It is a hint, not an answer. Based on a lot of assumptions, using conservative figures.
1st 10 years Cash flow. using OWNERS EARNINGS (FCF).
Cash flow beyond the 10th year (Terminal value): Assumes growth at 3% per year.
Add all the above discounted cashflows to get the present value..
Only the FCFs are hard data, all others are assumptions.
Time 14.13
http://www.youtube.com/watch?v=zA8udp8uRnw&feature=relmfu
Key Points about Risks
Risk unequivocally exist in investing in any stock ...
... but important to distinguish between volatility in stock price and business risk ...
... and my point is that none are large or imminent enough to explain why shares are so cheap.
... but important to distinguish between volatility in stock price and business risk ...
... and my point is that none are large or imminent enough to explain why shares are so cheap.
Worthy of a look?
Not sexy, high growth or hot stock.
Warning: May not be in your "circle of competence."
Look at things that are temporary out of favour.
You wish to buy when the prices are falling or close to the bottom.
You should have a tough time trying to buy something that is NOT near its 52 weeks low.
Worthy of a look?
Moat?
Cheap?
Margin of safety?
Inside my circle!
Outcome:
No list
Watch list
Yes list
A large percentage of companies are too difficult to analyse, they are outside your circle of competence.
Concentrated Ideas
"Wide diversification is only required when investors do not understand what they are doing."
- Warren Buffett
Note: Focus concentration of about 10% in each stock. Anything stock that is less than 5% may not be worth your effort.
- Warren Buffett
Note: Focus concentration of about 10% in each stock. Anything stock that is less than 5% may not be worth your effort.
Margin of Safety
"Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY."
- Ben Graham
- Ben Graham
Mr. Market
Stock prices are quotes from an emotionally unstable business partner.
Use or ignore them as you see fit.
Use or ignore them as you see fit.
Valuing a Business
"The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price."
- Warren Buffett
- Warren Buffett
Moats
Low cost producer
Switching costs
Economies of scale
Intangibles
Regulatory
IP (Intellectual Property)
Network effects
Note: Most companies do not have moat. They can only survive and compete through being more efficient.
Switching costs
Economies of scale
Intangibles
Regulatory
IP (Intellectual Property)
Network effects
Note: Most companies do not have moat. They can only survive and compete through being more efficient.
Circle of Competence
If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter.
Warren Buffett
Warren Buffett
Value Investing
Cale Smith, portfolio manager at Islamorada Investment Management, gives a talk on value investing at the New Jersey Institute of Technology in 2010.http://www.islainvest.com for more.
Tuesday 10 April 2012
Sunday 8 April 2012
How To Improve Your Value Investing Returns
Do you really have the courage of your own convictions?
http://www.fool.co.uk/news/investing/2012/04/04/how-to-improve-your-value-investing-returns.aspx?source=ufwflwlnk0000001
If you're a value investor, how concentrated is your portfolio? And how concentrated do you think it should be?
This is a tough call. The more concentrated, the riskier, but the better your potential returns, of course.
It all depends how and where you're finding that value and how conspicuous it is. If you found during last year's slump, for example, that you lost a huge percentage of your wealth on paper, then you may be too concentrated. The receding tide took almost all boats with it. Then again, if you had the courage of your value convictions and had done all the research you possibly could, perhaps this was an averaging down opportunity?
As Warren Buffett has said: "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." And as his partner Charlie Munger says, proper allocation of capital is an investor's number one job.
Decide what is right for you
So it's important to get share allocation right in the first place -- and at a level that is right for you.
I've looked before at whether there's a correct number of stocks to own, which also spawned a useful debate; each to his own here. No-one else can really make this decision for you. But if you're too diversified, you're unlikely to beat the market.
Warren Buffett's value investing mentor, Ben Graham, wrote of a portfolio strategy with a mixture of shares and bonds with a maximum of 75% shares and 25% bonds when share prices are low and demonstrating good value -- and vice-versa (25% shares, 75% bonds) when share prices are high.
Often, investors not sufficiently diversified and overly confident in the good times suffer scary losses in the bad and are unable to take advantage of buying opportunities due to insufficient funds.
The problem is made worse by the inherent psychological tendency many investors are shown to have of being too quick to take small profits and to run with the herd. Whereas, with true value stocks (profitable companies with solid assets and cash, priced well below price to tangible book value) you certainly don't want to be a forced seller. Instead, the opposite is true; you want to be able to take advantage of generalised market sentiment taking the price illogically lower.
Of course, it may well be that there has been news that shifts a company's intrinsic value, which then needs to be reassessed. If the margin of safety is no longer sufficient, then it may have to be sold at a loss; not all value shares come good, and this is a vital consideration.
Improving your value returns
I was interested to read a paper on value investing by Schroder from last November (a PDF). It makes for fascinating reading and demonstrates what value investors already know to be true.
Here are a few brief insights:
- What you pay, not the growth you get, is the biggest driver of whether you make money.
- Focus on exploiting what we CAN know (valuation) and not what we CAN'T (the macro).
- Focus on areas that offer compelling value -- the greatest driver of long-term returns.
- Being different is usually uncomfortable but often profitable.
- Understanding balance sheet risk and income growth is as important as a high yield.
Interestingly, as an aside, the paper also looks at contrarian sectors offering best value from last September, with Homebuilders, Insurance and Banks seeming to offer the best opportunities.
Andrew Tobias advised (as paraphrased by Peter Lynch): "Don't put all your eggs in one basket. It may have a hole in it." Instead, Lynch urges private investors not to rely on a fixed number of stocks, but to investigate how good they are on a case-by-case basis. He goes on to advise us: "In small portfolios, I'd be comfortable owning between three and ten stocks." Of course, he was more interested in earnings growth than out and out value.
The bottom line for me is that a value portfolio should be concentrated into a few well-researched shares, but not at the cost of too much risk, as I like to sleep at night.
http://www.fool.co.uk/news/investing/2012/04/04/how-to-improve-your-value-investing-returns.aspx?source=ufwflwlnk0000001
Saturday 7 April 2012
Carlsberg versus Dutch Lady (A Comparative Study)
7.4.2012 | 3.4.2012 | ||
Carlsberg | Dutch Lady | ||
Income Statement | |||
31/12/2011 | 31/12/2011 | ||
RM (m) | RM (m) | ||
Revenue | 1,489.36 | 810.65 | |
COGS | 505.53 | ||
Gross Profit | 304.47 | ||
Operating Profit | 216.036 | 139.372 | |
Financing costs | -4.385 | -0.919 | |
PBT | 220.374 | 141.553 | |
PAT | 167.38 | 108.082 | |
EPS (basic) sen | 54.35 | 168.88 | |
EPS (diluted) sen | |||
Balance Sheet | |||
NCA | 591.354 | 74.048 | |
CA | 369.504 | 324.465 | |
Total Assets | 960.858 | 398.513 | |
Total Equity | 631.049 | 259.154 | |
NCL | 76.033 | 4.051 | |
CL | 253.776 | 135.308 | |
Total Liabilities | 329.809 | 139.359 | |
Total Eq + Liab | 960.858 | 398.513 | |
Net assets per share | 2.060 | 4.05 | |
Cash & Eq | 72.196 | 193.143 | |
LT Borrowings | 0 | 0 | |
ST Borrowings | 22.251 | 0 | |
Net Cash | 49.945 | 193.143 | |
Inventories | 62.538 | 93.448 | |
Trade receivables | 231.108 | 36.713 | |
Trade payables | 214.185 | 121.831 | |
Quick Ratio | 1.21 | 1.71 | |
Current Ratio | 1.46 | 2.40 | |
Cash flow statement | |||
PBT | 220.374 | 141.553 | |
OPBCWC | 253.167 | ||
Cash from Operations | 197.728 | 188.290 | |
Net CFO | 154.537 | 161.940 | |
CFI | -21.577 | -7.135 | |
CFF | -162.735 | -47.319 | |
Capex | -27.701 | -10.882 | |
FCF | 126.836 | 151.058 | |
Dividends paid | -127.268 | -46.400 | |
DPS (sen) | 41.63 | 72.5 | |
No of ord shares (m) | |||
basic | 305.748 | 64 | |
diluted | |||
Financial Ratios | |||
Gross Profit Margin | 0.00% | 37.56% | |
Net Profit Margin | 11.24% | 13.33% | |
Asset Turnover | 1.55 | 2.03 | |
Financial Leverage | 1.52 | 1.54 | |
ROA | 17.42% | 27.12% | |
ROC | 28.80% | 163.73% | |
ROE | 26.52% | 41.71% | |
Valuation | 7.4.2012 | 3.4.2012 | |
Price | 10.74 | 36 | |
Market cap (m) | 3283.73 | 2304.00 | |
P/E | 19.62 | 21.32 | |
P/BV | 5.20 | 8.89 | |
P/FCF | 25.89 | 15.25 | |
P/Div | 25.80 | 49.66 | |
DPO ratio | 0.76 | 0.43 | |
EY | 5.10% | 4.69% | |
FCF/P | 3.86% | 6.56% | |
DY | 3.88% | 2.01% | |
DIO (Days) | #DIV/0! | 67 | |
DSO (Days) | 57 | 17 | |
DPO (Days) | #DIV/0! | 88 | |
CCC (Days) | #DIV/0! | -4 | |
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