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.

Monday 11 April 2016

The Intelligent Investor Book Review in 30 Minutes

The Intelligent Investor, by Benjamin Graham, is probably the most important and influential value investing book ever written. Warren Buffet described it as “by far the best book ever written on investing”.

I have provided a summary and book review of The Intelligent Investor, Revised Edition, Updated with New Commentary by Jason Zweig (affiliate link). If you could only buy one investment book in your lifetime, this would probably be the one. By purchasing through the above link, this site will receive a small commission without costing you anything extra.

It had been 8 years since I last read The Intelligent Investor. I have enjoyed my personal “refresher course” in value investing.

Objective of The Intelligent Investor Book

Benjamin Graham’s objective was to provide an investment policy book for the ordinary investor. He succeeded in putting seemingly hard concepts into terms that could be understood and, more importantly, implemented by the average investor.

The typical investor has a tendency to “follow the market” and learns poor investment habits trying to beat the market. Instead, Graham gives us an alternative based on fundamental valuation.

The goal is to learn how to avoid the pitfalls of allowing our emotions to control our investment decisions. Rather, Graham provides the foundation for making businesslike decisions based on fundamental investing principles .

The Intelligent Investor puts special emphasis on teaching:

1. Risk management through asset allocation and diversification.

2. Maximizing probabilities through valuations analysis and margin of safety.

3. A disciplined approach that will prevent consequential errors to a portfolio.

The Intelligent Investor Book Review Lay Out:

(There is a link at the end of each part so you can read all 8 parts in succession, in less than 30 minutes!)

Investment, Speculation, Inflation, and Market History (Chapters 1, 2, & 3)

The Defensive Investor (Chapters 4, 5, & 14)

The Enterprising Investor (Chapters 6, 7, & 15)

Mr. Market & Fluctuations (Chapter 8)

Investment Funds & Advisors (Chapters 9 & 10)

Investment Selection (Chapters 11, 12, & 13)

Comparisons & Thoughts on Value (Chapters 16, 17, 18, & 19)

Margin of Safety (Chapter 20)

I think you will be excited as we explore the knowledge and wisdom Benjamin Graham left with us. If you have the time, feel free to purchase the book and leave your personal insights and thoughts in the comment section as you progress!

http://arborinvestmentplanner.com/the-intelligent-investor-book-review-in-30-minutes/

A beverage company

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Bottom Chart: Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

KLK 11.4.2016 (Plantation Company)

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Bottom Chart: Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

Kossan 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Bottom Chart: Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

Arbitrage is the simultaneous purchase and sale of securities or foreign exchange in two different markets; a process of identifying market inefficiencies.

In 1954, a temporary shortage of cocoa in US caused its price to increase from 5 cents to 60 cents per pound, a whopping 12 times.

As a result, Rockwood & Co., a brooklyn based chocolate products company, found itself in a sweet spot. They were sitting on 13 million pounds of excess inventory of cocoa which instantaneously became a huge asset because of cocoa price increase.

So selling the inventory to make a handsome profit was a no-brainer except that there was just one catch to it. Rockwood & Co. followed LIFO (last in first out) inventory valuation which would have created a 50% tax liability on profits from sale of inventory.

Buffett in his early 20s

So to avoid this tax, they came up with an ingenious way to exploit the temporary opportunity. They extended a share buyback offer which allowed the shareholder to tender a share in exchange for 80 pounds of cocoa. This maneuver, according to 1954 tax code, was perfectly legal and didn’t invite heavy tax liability.

This caught the attention of a 24 year old investment analyst who was working in New York for Graham Newman Corp. It was obvious to him that one could buy Rockwood shares for $34, sell them back to the company for 80 pounds of cocoa beans (worth $36), and then sell the cocoa beans making an instant profit of $2. Considering the transaction could be done in less than a week, it worked out to a sky-high annualized return.

“For several weeks I busily bought share, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts.”, recounts Warren Buffett, the protagonist in the story above, “The profits were good and my only expense was subway tickets.”

What Buffett did is called an Arbitrage. It’s a process of identifying market inefficiencies. The classic idea is that of buying an item in one place and selling it in another. In the very early days the word applied only to the simultaneous purchase and sale of securities or foreign exchange in two different markets.

Mohnish Pabrai, in his wonderful book The Dhandho Investor, explains –

Arbitrage is classically defined as an attempt to profit by exploiting price differences in identical or similar financial instruments. For example, if gold is trading in London at $550 per ounce and in New york at $560 per ounce, assuming low frictional costs, an arbitrageur can buy gold in London and immediately sell it in New York, pocketing the difference.

QL 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Bottom Chart: Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

Scientex 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Bottom Chart: Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

Thursday 7 April 2016

It is better to buy a wonderful company at fair price than a fair company at wonderful price.

Warren Buffett's 4 Tenets:

1. Know the business you wish to own (Circle of Competence Tenet)
2. Business must have economic moat (Durable Competitive Advantage Tenet)
3. Management must be hardworking, intelligent and above all, honest (Integrity Tenet)
4. Buy at fair price (Quantitative Margin of Safety Tenet)

Qualitative Margin of Safety Tenets = 1 + 2 + 3

Qualitative Margin of Safety first, then Quantitative Margin of Safety.

Over the last 12 years, the prices of these stocks have shown the following gains:

Screen 1: 200% (3 bagger)
Screen 2: 200% (3 bagger)
Screen 3: 100% (2 bagger)
Screen 4: 900% (10 bagger)
Screen 5: 100% (2 bagger)
Screen 6: 200% (3 bagger)
Screen 7: 900% (10 bagger)
Screen 8: 200% (3 bagger)
Screen 9: 900% (10 bagger)
Screen 10: 500% (6 bagger)

It is better to buy a wonderful company at fair price than to buy a fair company at wonderful price.

When do you sell a wonderful company? Almost never.

Reference: My Investing Philosophy

A Wonderful Company to Invest for the Long Term (Screen 10)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

STU

This company is LPI.

A Wonderful Company to Invest for the Long Term (Screen 9)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

QRS

This company is DLady.

A Wonderful Company to Invest for the Long Term (Screen 8)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

OPQ

This company is Petgas.

The Growth has slowed in this company (Screen 7)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

MNO

This company is Padini.

A Wonderful Company to Invest for the Long Term (Screen 6)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

KLM

This company is GAB (aka Heineken Malaysia).

A Wonderful Company to Invest for the Long Term (Screen 5)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years

EPS = Brown line
High Price = Blue line
Low Price = Purple line

IJK

This company is F&N.

A Wonderful Company to Invest for the Long Term (Screen 4)

Chart of Revenue, PBT and EPS.over 13 years

Revenue = Red line
PBT = Green line
EPS = Blue line

Chart of EPS, High Price and Low Price over the last 13 years
EPS = Brown line
High Price = Blue line
Low Price = Purple line

GHI

This company is Topglove.

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?

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

Monday 11 April 2016

The Intelligent Investor Book Review in 30 Minutes

Objective of The Intelligent Investor Book

The Intelligent Investor Book Review Lay Out:

A beverage company

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

KLK 11.4.2016 (Plantation Company)

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Kossan 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Arbitrage is the simultaneous purchase and sale of securities or foreign exchange in two different markets; a process of identifying market inefficiencies.

QL 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Scientex 11.4.2016

Top Chart: Chart of Revenue, PBT and EPS.over 13 years

Thursday 7 April 2016

It is better to buy a wonderful company at fair price than a fair company at wonderful price.

A Wonderful Company to Invest for the Long Term (Screen 10)

Chart of Revenue, PBT and EPS.over 13 years

A Wonderful Company to Invest for the Long Term (Screen 9)

Chart of Revenue, PBT and EPS.over 13 years

A Wonderful Company to Invest for the Long Term (Screen 8)

Chart of Revenue, PBT and EPS.over 13 years

The Growth has slowed in this company (Screen 7)

A Wonderful Company to Invest for the Long Term (Screen 6)

A Wonderful Company to Invest for the Long Term (Screen 5)

A Wonderful Company to Invest for the Long Term (Screen 4)

All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

Political and Economic News

Interesting Blogs