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 30 May 2015

Financial Statement Analysis of an Established Business

The stock selection process involves a large component of expectations.

The investor is usually a student of the intrinsic value and relative value, and he incorporates projections routinely into stock evaluations.

In order to form a reasonable basis for predicting corporate performance, however, the investor must understand historical financial results.

The business review enables the practitioner to attach product innovations, competitive struggles, and other qualitative items to changes in sales and earnings.

As the numerical complement to the business review, the financial analysis provides a statistical summary of the company's past by boiling it down to the common denominator of all profit-seeking enterprises - dollars and cents.

Model Research Report

Introduction
Macroeconomic Review
Relevant Stock Market Prospects
Review of the Company and Its Business
Financial Analysis
Financial Projections
Application of Valuation Methodologies
Recommendation.

Notes:

To a large extent, financial statement analysis is a lost art. Few business schools stress the topic, and MBA students who major in finance, graduate with only a rudimentary knowledge of accounting, the nuts and bolts of financial statement analysis.

Wall Street and the institutional community deemphasize a careful study of prior financial results. Research departments are so preoccupied with predicting future earnings that they don't take time to scrutinize past accounting data. Furthermore extensive analysis is an expensive proposition.

With most institutions owning hundred of stocks and turning over their portfolios two to three times annually, placing a lot of effort in studying the financial statements of a single holding is not worthwhile.

Step-by-step approach to financial statement analysis

Begins with organizing the raw information
Calculating ratios and interpreting them.
Integrate this with the industry-specific performance ratios to make conclusions about a firm's earnings power moving forward.
The historical analysis sets the stage for projections, an important component of business valuation.

Insist on value when you buy (Buy when EXTREMELY undervalued and Sell when EXTREMELY overvalued; with good resons)

A stock has three prices. It has:

a market price,
a book value and
an intrinsic value.

The market price is easy to understand. It is the last traded price at the end of a trading day.

The book value is simply the net tangible asset (NTA) as shown in its balance sheet.

The intrinsic value is the most difficult to calculate. I do not know of any formula for this. At most, it is only an estimation.

You have to factor in many metrics such as barrier of entry, calibre of management, earnings potentials (present and future) growth prospects, patents, etc.

So, what should we do?

For me, I make it simply. I look at the track record relative to its earnings, earnings growth and dividend yields. The higher these are, the higher the value.

Buying a stock at high earnings per share (PE) is risky. Unless the forward PE is expected be much lower, avoid stocks trading with high PE. (A PE of over 16 is too high for me.)

To value a stock, here are some metrics or key ratios to consider:

EPS( earnings per share);
D/Y (dividend yield);
NTA (net tangible assets);
PEG (price to earnings growth);
NPM (net profit margin);
ROE (return on equity);
D/E (debt to equity ratio)
C/R (current ratio);
PCF (price to cash flow).

One other thing to carefully consider is the core business of the company. Here, you need to think about barrier of entry, patents and competition.

When is the best time to sell a stock

Close to 100% of all stocks will at one time or another be selling at extremely high valuation that they should be sold.

At other times, they will be selling at overly undervalued prices that they should be bought.

We want to sell a stock when it is very much overvalued.

Understanding the value of a stock is crucial in this respect, and with the help of technical analysis, you have the advantage of the competitive edge.

Control your emotion

Taking action for action sake is a weakness that many people fail to control. Some people need to move in and out of the market often enough to overcome boredom.

They forget that transaction costs eat into their earnings.

Buy and sell with good reasons and not simply with intuition and the need for action.

Following the guidelines mention above will go a long way to help you to invest intelligently

Thursday 28 May 2015

CFA Level I 2014 - Reading 56, Part 1: Introduction, Credit Risk & Capital Structure

https://www.youtube.com/watch?v=H5z2TPjZN5Q&list=PLJnX_Qm2u8ejcXIF1ystPaIOibAT9E8Cg

CFA Level I 2013 - Intensive Review Seminar - Financial Reporting and Analysis

https://www.youtube.com/watch?v=ZXolfaMmLwY

Lecture 22 Finacial Statement analysis
Lecture 24 Financial Reporting Standards 0.41.00
Lecture 25
Lecture 26 Understanding Balance Sheet 1.57.00
Lecture 27
Lecture 28 Financial Analysis Techniques (Ratios) 2.49.00
Lecture 29
Lecture 30 Long Lived Assets PPE & Intangibles 3.59.00
Lecture 31 Income Tax 4.46.00
Lecture 32 Non-current (Long term) Liabilities 5.53.30
Lecture 33 Red flags and accounting warning signs 6.52.00
Lecture 34 Accounting Shenanigans of the Cash Flow Statement 6.58.30
Lecture 35 Financial Statement Analysis: Applications 7.02.00

How to Value a Stock in Order to Buy Long or Sell Short?

How to Value Stocks

The Intelligent Investor Benjamin Graham Audiobook

https://www.youtube.com/watch?v=SOZL99qriLE

Wednesday 27 May 2015

The Next Financial Crisis In 2015 China Property Bubble Tipping Point

Global Financial Crisis: Documentary on Why the World Faces Financial Meltdown

Published on Oct 5, 2014

http://www.learncurrencytradingonline... This documentary shows why we face a global financial crisis and looks at past financial meltdowns such as 2008 and before to show we face a global financial meltdown again in the future, The documentary is one of the best at looking at the causes of stock market crashes and explaining why another is probably inevitable - what are the solutions? Well there are easy solutions but Governments and central banks are ignoring them and leading the global economy into crisis - a frightening look at what could happen in the near future in the global economy. Debt is to high, banks are run in a reckless fashion all encouraged by the central banks and governments.

Goldman Sachs CNBC Documentary: Trading Techniques of an Investment Bank

The Last Days Of Lehman - Margin Call Full Movie & Film

The Science of Getting Rich - George Soros The Alchemy of Finance

https://www.youtube.com/watch?v=hJ-zUzR994s

History of George Soros

The Science of Getting Rich - Common Stocks And Uncommon Profits Philip Fisher (Audiobook Full)

https://www.youtube.com/watch?v=ZYgELDTE61Q

The Science of Getting Rich - Secrets of Great Investors Peter Lynch

Peter Lynch's 25 Golden Rules of Investment

Peter Lynch on Fidelity Investments

Making Money in the Stock Market: Peter Lynch on Investing in the U.S. Economy (1994)

How Peter Lynch earned 29% a year for 13 years.

Warren Buffett the Teacher

Buffett - The making of an American Capitalist (Roger Lowenstein)***

https://www.youtube.com/watch?v=7nXDyOfmj34

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?