myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Wednesday 11 April 2012

Valuing a Business

"The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price."

- 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.

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

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.

Introduction to Value Investing

How to Pick Your Investment Style

The Best of Value Investing

How to Value a Company in 3 Easy Steps

Valuing Stocks and Bonds

Financial Statements Explained

Consolidated Financial Statements

How to Choose Dividend Stocks - Morningstar

Tuesday 10 April 2012

Dividend Investing - creating a non-stop Passive Income!

He is 18 years old!

Sunday 8 April 2012

How To Improve Your Value Investing Returns

Do you really have the courage of your own convictions?

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

Financial Intelligence by Adam Khoo

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

Winners Take Calculated Risks! The Power of Leverage. By Adam Khoo

Accounting Lectures (Video)

PIE historical financial data

Financial Intelligence is one of the most important skills to acquire - Robert Kiyosaki

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?