Central to Benjamin Graham's teaching is the ability to calculate Intrinsic Value.

Investment Policy (Based on Benjamin Graham)
http://myinvestingnotes.blogspot.com/2008/08/investment-policies-based-on-benjamin.html

Central to Benjamin Graham's teaching is the ability to calculate Intrinsic Value.

His value investing approach: Buy at a discount to intrinsic value. Your gain comes from market realising the true intrinsic value given time.

Philip Fisher's growth investing approach: Buy at fair value, i.e. buy at intrinsic value. With earnings growth, you will realise a higher price for the shares.

In buying at a discount to intrinsic value, the value is in the bargain price, and the favourable upside reward / downside risk ratio.

In buying a growth stock at fair price, the value is in the earning power of the company. This creates the value in the stock although you are acquiring this at a fair price. Of course, if you can acquire it at a bargain price, the better.

Warren Buffett uses both strategies and cleverly grouped Philip Fisher's growth investing approach as value investing too, calling value investing and growth investing as sides of the same coin. He is pragmatic.

In either approaches, overpaying for a stock will be detrimental to your financial health.

Why do you Sell and When?

Taking profit

Profit should be realised from sales of stocks in the following situations:
(I) when the stock is obviously overpriced, or
(II) when the sale of the stock frees the capital to be reinvested into another stock with potentially better return.

Not taking profit in the above situations can harm your portfolio and compromise its returns. In other circumstances, let the winners run.

Underperforming stocks should also be sold early. Hanging onto underperforming stocks is costly too. There is the opportunity cost that the capital can be better employed for higher return. Also, hanging onto these lack-lustre stocks reduces the overall return of your portfolio.


Reducing serious loss

When the fundamentals of a stock have deteriorated, sell to protect your portfolio. This decision should be make quickly based on the facts and situations, in order to keep your losses small.

If stock markets or stocks crash, WHO will benefit the most?

Those who bought during bubbles become paupers during crashes.

Those who bought during crashes become millionaires when the market reverses.

Wealth is destroyed by bubbles and created from crashes.

Your potential returns are a function of price you paid for the stocks offered by the market.

Those who will be investing for a long time will like the stock market when it is on CHEAP SALE.

Those who need to cash out significantly for various reasons during crashes will be the losers.

Ways on Pricing a Business

Posted: Feb 14, 2011

When done properly, purchasing or selling a business can be a rewarding and fulfilling decision. There are different ways for you to do these two tasks but they both share a common issue - determining the right business selling price. It usually takes experience and skills to properly price a business.

Pricing a business for sale

When you decide to buy or sell a business, coming up with the price is one of the first tasks that you will encounter and is also among the hardest phases in the process. The truth is that there is no best way to price a business. In most cases, the final selling price depends on the seller's determination to sell and the buyer's willingness to buy the business. However, there are standard methods used in pricing a business for sale.

The market-based valuation is the first method used in pricing a business. Compared to other methods, this is probably the simplest one. Basically, the business selling price must have the same price with similar businesses that have been sold within the industry around the same area. This approach, however, does not consider the unique features of a certain company. In a manner of saying, it is a "quick and dirty" way of pricing a business for sale.

The next method in determining the business selling price called asset-based valuation. This method bases its calculations on the liquidation and book values of a particular company. This method determines the sale price of a business based on the bare minimum value, as the other important aspects, such as the customer base and brand name, are completely unaccounted for.

The last and most extensive type of business pricing method is called the earnings-based valuation. Considering the account historical, present, and future revenues and cash flows, this type of valuation calculates the business selling price most accurately, especially when used with the second valuation method.

The business selling price

Even if the three methods mentioned above give accurate results, the actual business selling price can still fluctuate depending on a number of factors that can be easily quantified. When the price you set is too high, it can discourage prospective buyers and may stain the business' reputation if it stays in market for a long period of time. On the other hand, you may also lose a large amount of money if you put a business on sale for a very low amount.

The intangible value of businesses is the main reason why a business selling price fluctuates. For example, an entrepreneur sells a reputed online company with a few 'hard assets'. If he disregards the value of those intangible assets, the price would significantly decrease and it would be a disastrous mistake on his end. Note that in a lot of cases, the value of intangible assets can cover up to 95 percent of the final selling price.

Other than the challenging assessment of intangible assets, another important factor in making business decisions is not letting your emotions get in the way. You may think that buying a reputed bakery franchise is a smart financial move, but are you sure you are ready to begin operations at 3 in the morning?

The same warning goes to sellers who are pricing a business for sale. It is normal to feel emotionally attached to a company that you once owned, but be professional enough not to show any emotion when discussing a business selling price. Remember that you should avoid over or under valuation of your company. Knowing the different ways of how to determine business sale prices, do you now agree that it is not such a difficult task after all?



http://www.articlesbase.com/entrepreneurship-articles/ways-on-pricing-a-business-4225431.html#ixzz1E2MatFpg

What Is Intangible Asset Valuation?

Intangible asset valuation is the method by which accountants determine the effect of an intangible asset on the company’s balance sheet. Unlike other accounting procedures, determining the transactional value of an intangible asset is an arduous process. Intangible assets include both intellectual property, such as grants, logos or trademarks, as well goodwill from buying another company. Intangible asset valuation requires both legal and financial analysis.
http://www.wisegeek.com/what-is-intangible-asset-valuation.htm

Investing mantra: Consequences dominate Probabilities

"Investing isn't just about probabilities. It's about consequences, and you've got to be prepared for them." - John Bogle 

Higher inflation rates are playing havoc in real estate sector in India

Higher inflation rates are playing havoc in yet another sector. This time it is real estate. To contain the ever rising inflation, the RBI (India) has been hiking interest rates. And it plans to continue doing so in the near future as well. This has led to higher cost of borrowing funds, which in turn has led to a slack in the demand for homes. Net result being that prices for homes in major cities are expected to drop by as much as 30%. 

This is definitely exciting news for those who are seeking to buy a home. But the point is that when the funds are so expensive, how will these people fund the purchase? This would just lead to demand dwindling. So is this the end of the real estate bubble at least for the major cities? Looks like it. 


Equitymaster Agora Research Private Limited
103, Regent Chambers,
Above Status Restaurant,
Nariman Point, Mumbai - 400 021. India.

Weaker trade surpluses is what the Chinese government is aiming at.

China's selfish currency policies have attracted criticisms from all counters. But the dragon nation seems to have done well for itself by managing to contain its currency appreciation. Lower inflation and higher imports in an attempt to reduce the economy's dependence on exports have worked in this direction. China's imports rose 51% YoY in January 2011. To put things in perspective, this brought down the country's trade surplus from US$ 13 bn in December to US$ 6.5 bn in January 2011. This data may be colored with seasonal impact due to the New Year festivities. However, weaker trade surpluses is what the government is aiming at. Notwithstanding the fact that it is coming at the expense of other economies. The G-20 nations have expressed displeasure over China's trade and currency policies in the past. But given its apex position in global trade, it seems that China will have its way longer than expected. 

Chart of the day: Flows to emerging market equity funds

In terms of fund flows, 2011 does not seem to be turning out well for emerging markets. In fact, today's chart of the day shows that funds have been withdrawn from emerging markets in 2011 so far as compared to 2009 and 2010. In those years, investors rushed to emerging market shores to capitalise on the strong growth opportunities there as the developed world languished in recession. Now with inflation rearing its ugly head and food prices soaring, concerns have begun to emerge from these fast growing markets too. 




* Up to Feb 8
Data Source: The Economist

A crisis as big as the subprime one is brewing in Asia

In 2009 and 2010, Asia was the apple of the investor's eye as countries in the region recovered strongly from the global financial crisis to post healthy growth rates. But loose monetary policies in the West and high inflation have posed its own set of problems for the Asian economies. The biggest problem that Asia has been witnessing in recent times is the surge in food prices. And this issue could end up being more chronic rather than cyclical in the years to come. For starters, weather patterns have become unpredictable which in turn has hampered agricultural production of late. Then there is the issue of population. Asia alone, for example, will have another 140 million mouths to feed over the next four years. That is in addition to the almost 3 billion people in the fast-growing region currently. This means that demand will remain high in the future and supply may not always catch up.

The other big fallout of soaring food prices for the Asian region is likely to be a significant rise in debt. So far, it was believed that bloated debt was a problem that only Europe and the US were facing on account of the global crisis. But Asia is also likely to join this bandwagon. Take India for instance. It still has one of the highest proportion of poor in the world. This obviously means that most will not be able to afford food at such high rates. As a result, the Indian government would most certainly increase subsidies sharply and cut import taxes, which would put an additional strain on its finances.

Indeed, the crisis in Egypt was a product of the inability of the Egyptian government to tackle the problem of high inflation. And though extreme, noted economist Nouriel Roubini believes that persistently high food prices and inflation could raise the risk of more governments getting toppled. Certainly, Asian governments including India will have to give serious thought to some long term reforms if such shocks are to be avoided in the future.

Do you think that rising food prices will lead to a bigger crisis in Asia in the future?


Equitymaster Agora Research Private Limited
103, Regent Chambers,
Above Status Restaurant,
Nariman Point, Mumbai - 400 021. India.

Beware of Inflation

Beware of inflation.

The longer you leave your money in fixed deposit, the higher the risk of inflation eating away the purchasing power of your money.

Money market investments are safest when the money is needed in the short-term.

The very same safe investments become high risk the longer they stay invested.


Stocks are on the opposite track. They are high risk investments in the short-term, but are lower risk investments in the long term:

Fixed deposit 
1yr = Low risk 
10 yrs = High risk

Stocks 
1 yr = High risk 
10 yrs = Low risk


http://myinvestingnotes.blogspot.com/2008/10/risks-of-investments.html