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.

Saturday 17 August 2013

Effects of a stock market bubble on the markets and on the broader economy.

Effects of a bubble on the markets are obvious.

1. On the way up, investors become too confident about their anticipated returns.

2. Money floods in - part of the definition of a bubble - and prices rise to even more unrealistic levels.

3. At some point, air starts to come out of the bubble.

4. Share prices drop and some investors, including pension plans and other institutional holders, lose a lot of money.

5. Many equity investors feel burned and move out of the stock market for good, and it takes years for new ones to take their place.

6. The consequence of a bubble for markets, then, is to reward winners and punish losers with a savage intensity.

The influence of a bubble market on the broader economy maybe even more long lasting and more perverse. Here are some of the more important consequences of the technology bubble of 2000 in the U.S.:

1. Excessive investment in telecommunications and related industries, thanks to the funds available from stock offerings and borrowings that the bubble market made possible.

2. Expansion to the point of collapse, or near-collapse, by companies that were profitable but used the high price of their shares to make foolish acquisitions or increase capacity beyond what a sensible view of the future would have allowed.

3. Incompetent, dishonest, and fraudulent behaviour by corporate executives, boards of directors, auditors, investment bankers, security analysts, and other market participants.

Conclusion:

Competitive market economies have always been subject to business cycles.

Like all cycles, they are painful on the way down.

A wider acceptance of the principles of value investing may ease some of that pain the next time the mania sets in.

Value Investing approach outperformed the market as a whole and Value Investors who stayed the course were rewarded, as least, on a relative basis.

Value investors emphasize on

1. Real Assets
2. Current Earnings

They treat prospects for profitable growth with skepticism.

Do not confuse productivity with profitability. Productivity is not the same as profitability.

[The Internet can be both the friend of productivity and the scourge of profitability. Airline travelers, for instance, can search more easily for lower fares, more convenient routes, and more generous rewards. Intensified competition almost always lowers prices.]

It is profits that ultimately determine stock prices.

Only firm with unique abilities, companies that enjoy a competitive advantage will reap extraordinary profits.

Friday 16 August 2013

Chuck Carlson - Stock Market and Investment Opportunities

Published on 29 Apr 2013

The power of process will be essential for unemotional investing in this age of turbulence. Investors will learn about profit opportunities in 2013 and the power of dividends.

Investment banking

Dr Kathy Walsh from the School of Banking and Finance at the Australian School of Business has produced a video that introduces undergraduate students to the world of investment banking.

Why to Invest in stock market?

Not doing anything differently: Buffet (2009)

16 Nov 2009
Warren Buffet, chairman and CEO, Berkshire Hathaway, has faith in his long standing value investing philosophy

Warren Buffett on Economics: Trading Stocks, Imports, Exports, Debt and U.S. Dollars

Warren Buffett: An Amazing Interview on Economic Recovery, Finance, Stocks (2012)

@39.00 "I read almost every book in the library on investment in Omaha by the age of 11."

Warren Buffett - Speculation Vs Investment

Understanding Risk and Return tradeoff

The Six Important Financial Parameters

Warren Buffett - Wiki Article

Systemic Value Investing

The speaker summarizes the principles of Peter Lynch, Warren Buffett and Benjamin Graham.
@25 min: Long term investing - holding on to your strategies for the long term.

Warren Buffett (1962) talks about a brief stock market drop

Mr. Buffett the Teacher: Warren Buffett (2009)

@6.40 The 2 most important topics to learn:
1. How to value an asset and
2. Understanding the Market Fluctuations

Introduction to the Right Way to invest in Stocks - Value Investing

Why invest in stocks on your own

Warren Buffett and his Principles

Introducing Benjamin Graham and his Principles

Thursday 15 August 2013

How to Stay Out of Debt: Warren Buffett - Financial Future of American Youth (1999)

@2.30 Focus on your own earning potential. How to realise your full potential? Education to unlock this potential. Next is developing the right habits (integrity, smart and energetic).
@7.38: A piece of financial advice. Avoid credit cards. Save. Save. Save. Be ahead of the game.
@23.50 Advice for youth on how to ensure their financial future. Develop your full potential. Most people go through life in a "sleep walk". Always be ahead of the game. Save. Save. Save. Don't be behind the game. Have net resources and not having debt. Don't get behind by buying a lot of things that you have to pay interest on.
@27.00 Buffett's advice on students' education debts. High price education versus lesser price education. You need to be prodded in the right direction, but most education is SELF TAUGHT.
@38.30: How does Warren Buffett decide how to invest his time and money in?
@47.50 Warren Buffett's advise those who are interested in stocks and how they can get involved in this..
(His previous 8 years involvement with stock led him to reading Intelligent Investor when this book was written.)

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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?