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Most still sitting at the fence, at the back of their mind...
TO BYE OR NOT TO BUY...
mindset has changed drastically over the mere two to three months.
Yes, agree generally, but i believe crise to crise the length is getting longer and this crises may last another 1 year..u guess STI how low???...i wild guess...1600.
Juzztrade ( Date: 01-Oct-2008 21:10) Posted:
| It is probably a good start to accumulate now and increase the portfolio on the way down. Accumulate gradually because one would not want to miss any rebound. It is almost bottom now and there is possibility of a short recovery and of course the market remains very volatile. |
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It is probably a good start to accumulate now and increase the portfolio on the way down. Accumulate gradually because one would not want to miss any rebound. It is almost bottom now and there is possibility of a short recovery and of course the market remains very volatile.
I agree. Its cheap! But STI will still linger around this index till the entire economy stablised. So depending on yr risk and holdings tolerance now
Good timing now .... market so cheap !
Hi guys,
I am a beginner starting out and want to be a value investor....
Created a small blog to start learning while I invest. Please do visit and give feedback. THanks...
http://the-intelligent-investors.blogspot.com/
Further to Brandonharrist's post quoted below...
cutting loss is as essential as doing the "elak" or dodging in a Boxing game or Bersilat when playing with the stock market (yes, we are but playing with it).
Without good "elak" skills, there're bound to be many unnecessary blows received in the course of the game.
In a stock downtrend, to hold longer with the hope that it will rise back tomorrow (and there are endless tomorrows) is not a good practice, unless you are a true blue long-term investor (or desire to be one!).
http://www.earningspower.com
Conventional wisdom says a company has "earnings power" if net income is going up.
Conventional wisdom is sometimes wrong.
Why?
Because the published income statement has four structural limitations. The generally accepted accounting principles (GAAP) ledger 1) omits investment in fixed capital, 2) omits investment in working capital, 3) expenses intangibles like R&D and advertising, and 4) treats stockholders' equity as a source of cost-free financing. As a result, just because a company is profitable in the traditional sense of the word does not mean it has authentic earnings power.
How can you protect yourself?
Consider using the Earnings Power Chart, which employs two alternate income statements: a "defensive" to make sure the business can self-fund, and an "enterprising" to test whether it is creating value. The two are not the same, and strength in both is required for a company to qualify as a blue chip.
Benjamin Graham inspired the Earnings Power Chart. The chief aim of the defensive investor, Graham writes in The Intelligent Investor (Harper & Row, 1973), is to "avoid serious mistakes or losses," while the primary objective of the enterprising investor is to own a security "that is both sound and more attractive than average."
If you think the defensive investor is risk-adverse like a commercial banker, and the enterprising investor is more forward thinking like a venture capitalist, then you understand the differences between Graham's two personality types.
To illustrate the benefits of this dual approach, let's look at Enron Corporation.
Net income rose in 9 of 10 years ending 2000, which suggests the energy trader had earnings power. But in 2001 management said earlier profits were overstated, and it would also take a $1 billion charge to cover off-balance sheet losses. By year-end, Enron was in bankruptcy court. The stock, which reached $85 in mid-1999, was worthless.
We use a 3-step process to analyze Enron's earnings quality.
Step one is to build a defensive and enterprising income statement. In 2000, Enron was profitable according to GAAP, but it also suffered defensive losses, as we see below. The defensive income statement expenses investment in fixed and working capital, thereby fixing limitations #'s 1 and 2 of the GAAP income statement. Enron also had enterprising losses. The enterprising income statement capitalizes intangibles and expenses the imputed cost of stockholders' equity, thus fixing limitations #'s 3 and 4 of the GAAP income statement. We place the GAAP income statement between our two alternate versions to emphasize that it is too "enterprising" for the defensive investor, and too "defensive" for the enterprising investor.
Companies that generate defensive and enterprising profits are able to self-fund and create value. In 2000, Enron fell short on both counts despite chalking up record earnings.
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Step two is to graphically depict defensive, GAAP and enterprising profits (losses). Enron had defensive and enterprising losses going back to at least 1996, as the chart below reveals.
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Step three is to plot the intersection of defensive and enterprising profits (losses) in the Earnings Power Chart. The best box is the upper-right; the worst box is the lower-left. During the late-1990s, Enron was situated in the lower-left box. Enron did not possess earnings power the way Benjamin Graham might have thought about earnings power.
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UnitedHealth Group also had robust earnings growth (GAAP) growth over several years. But unlike Enron, UnitedHealth generated defensive and enterprising profits, as we see below.
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What's more, UnitedHealth is moving in an upper-right direction to forge an Earnings Power Staircase, so-named because of the distinctive "staircase-like" pattern created by the intersection of defensive and enterprising profits. When a company forges an Earnings Power Staircase, this is your hallmark of conservative growth. Not only is the company getting bigger, it is also getting better.
Shares of UnitedHealth are up 563% for the five years ending 2004, versus a 17% loss for the benchmark S&P 500. To view examples of other companies that have forged Earnings Power Staircases, click here.
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After getting wiped out early in his investing career, Benjamin Graham famously demanded a "margin of safety" to guard against further losses. Suspicious of income statements, Graham's idea of a protective cushion was to pay less than two-thirds of a firm's net tangible assets.
If you are looking for a conservative growth stock, do not expect the company to sell at a fraction of hard book value, as Graham sought. Growing businesses are rarely cheap. So use the Earnings Power Chart to make sure the company behind the stock is profitable in the broadest possible sense. This two-dimensional framework is your margin of safety. As the master carpenter tells his apprentice, "Measure twice, cut once."
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I think importantly, we have to put value-investing in perspective, to minimise misconceptions of its principles. Buy-and-hold is a method of value investing. However, key note is, value investors do not simply select a stock at random, purchase it, and then hope and pray for the stock price to appreciate. Instead, a deliberate careful quantitative and qualitative analysis, and strict valuation criteria determines stock selection. This is the knowing what to buy portion for value-investing.
Of course, mistakes could still arise, which although are factored in the valuation criteria through the incorporation of a margin of safety, there could come a situation where there is a need to sell to cut losses, and move on. In a typical value-investors investment philosophy, there is a knowing when to sell portion, part of which includes an erosion of financials of the company which will adversely affect the fundamental long-term valuation of the stock significantly, to the point that the current market price does not justify the proposition of continued holding of the stock, hence the action of selling to cut losses will result.
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Whatever
you are investor, trader, scalper, warren buffett, george soros ... as
long as you have vested interest in the market, you have one universal
fundamental aim, that is to MAKE MONEY! There are two sides to the same
coin: make profits or cut losses. A lot of buy-and-hold is just an
INVESTING STYLE but if this type of investor lives, sleeps and invest
with the univeral aim in minnharrd (make money), then stop-loss still
applies. No one can argue that if I can get out of a losing position
with 20% loss, its definitely better than taking the hit of a 50% or
more loss. Buy-and -hold is one thing but merely wishing and praying
the price can go back up is a very risky proposition. More two cents
worth. Stop-loss is critical regardless what your investment style is.
It preserves your capital to fight another day.
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This is an excellent post by Brandoharrist (
where are you, my dear buddy?) before he 'disappeared'... worth repeating here...
seems quite accurate as i input the calculator for comfortdelgro, close to the current price
a gd one, always a firm beliver of value investing...
gd post...
I agree to a huge extent that emotions usually influence our decisions, and hence, could translate to greed, and the desire to steal quick gains. So for value investors, for in fact for all investors for that matter, we should really have our own investment philosophy that we hold true to ourselves. This philosophy will shape your strategy, your portfolio, your analysis and decisions. I'm a FA investor. I've used my philosophy to keep me disciplined in my perspective, so that I dont let my emotions take over my own mind. I'm not sure whether it will work for TA, but I've found it immensely useful to myself. I believe many others will find it extremely useful too....
Centaur you are right.....human greed. $ can overcome human sense.
Think most of us knows what is value investing but when it comes to real life application... That seems extremely difficult man...
Agree. It's one of those fantastic value-investing principles by mentor graham and mentor buffet that is published widely. A must-know for all value investors. TA can ignore.
A very good and high quality post...
It would be nice for members to print this out and buy a transparent card holder for it
Art of value investing
A high-priced stock could be a bargain while a penny stock might not, says HERMAN PHUA, as he discusses the meaning of value
Published April 2, 2007
VALUE is a subjective and complex concept. There may be things that have great value to some of us but mean little or nothing at all to others.
Recently, I came across a website called Value Quotes (www.valuequotes.net). It has a long list of quotes of some of the greatest thinkers of all times on the meaning of value, in both material and philosophical terms.
While some of the quotes there were quite abstract, most dictionaries usually take the materialistic meaning and define value simply as the monetary or material worth of something, or that value is a fair price or return for something exchanged.
Yet, even the best brains among us often cannot agree on the value of the same thing. Nowhere is this more visible than in the stock market, where intelligent people make decisions every day about which stocks to buy or sell. This article will focus on the philosophy of value investing.
Essentially, the value investor searches for companies he believes to be undervalued. He is the quintessential bargain-hunter who will scour the market in his search for good deals.
Before we go further, I would like to clear some possible misconceptions. Value investors are not the bargain-hunters often cited in media reports, who appear mysteriously on some days to trigger sudden rebounds in the market.
That is usually the work of short-term traders looking for quick profits. True value investors are buy-and-hold investors focused on long-term gains. Value investing is also not about buying cheap or bombed-out stocks.
It is about finding stocks that, for some reason or the other, are incorrectly priced by the market against their 'fair' or intrinsic values. By this measure, a high-priced stock could be a bargain while a penny stock might not.
The realm of value investing has to be credited mainly to the work of Benjamin Graham, a successful professional investor and influential academic widely regarded as the father of value investing.
GRAHAM'S TECHNIQUES
Together with David Dodd in 1934, Mr Graham published Security Analysis, still in print and considered as the bible for serious investors. Drawing from his personal experience of the devastation caused by the Great Crash of 1929, Mr Graham developed quantitative techniques that expounded the importance of diligent number crunching in the investment decision process. Basically, he developed a rigorous screening methodology.
In fact, it was Mr Graham who popularised the use of many of the financial tools we are familiar with today - price-earnings (PE) ratio, debt-to-equity ratio and book value. While Mr Graham may not be an immediately recognisable name, he is held in the highest esteem by someone who is.
Warren Buffett, a student of Mr Graham and widely regarded as one of the world's greatest investors, attributes much of his success to his mentor. Besides sophisticated screening tools, Mr Graham developed an investment philosophy that has withstood the test of time.
First and foremost, he believed investors have to approach stock investments as though they are seeking to buy or become a partner in the business. Mr Graham published his second book, The Intelligent Investor, in 1949.
POWERFUL CONCEPT
According to Mr Buffett, there are two other essential things all investors will gain from reading it - the concepts of 'Mr Market' and 'Margin of Safety'. The concept behind Mr Market is a simple but powerful idea. It is a story Mr Graham often related to describe how an investor should view market fluctuations.
Think of Mr Market as one of your partners in a business. He is an eccentric person ruled by his emotions, which can swing from amazing optimism to overpowering depression. Each day, Mr Market will turn up and offer to buy your share or sell you his share in the business at a price that corresponds to his mood, even though there has not been any fundamental change in the business.
On some days, Mr Market feels exhilarated over the prospects of the business and is willing to offer you a very high buy-sell price. On other days, he sees only doom ahead for the business and offers a sharply lower buy-sell price. But temperamental as he is, Mr Market does not seem to mind if you decide not to accept his offer and will be back again the next day with another buy-sell price for you.
The point of Mr Graham's story is that the stock market is there for investors to take advantage of. As investing behaviour is heavily influenced by the emotions of greed and fear, there will be times when you will be presented with opportunities to buy or sell stocks at particularly attractive levels.
Of course, the danger is that you unknowingly fall under the influence of Mr Market and find yourself swayed by the emotions of the herd. While there is the possibility that the herd may be right, Mr Graham's point is that to be successful, an investor has to remain rational and make independent decisions about the value of his investments.
Herein lies the problem as most investors - even professionals - usually will have differing values that they place on the same stock. This largely depends on their methods for calculating intrinsic value.
Acknowledging the possibility that his computations may be flawed, or that an external event could occur to affect the stock valuation, Mr Graham introduced the concept of Margin of Safety. This means making sure you have some room for error in your estimate of a stock's intrinsic value by buying at a sufficiently big discount.
Mr Graham believed that a true margin of safety is one that can be demonstrated by figures, persuasive reasoning and reference to actual experience.
In the next article, we will continue our discussion of value investing and look at some of the screening methods commonly used by value investors.
The writer is the managing consultant of Octant Consulting, which specialises in providing investor relations advisory services to companies listed on the Singapore Exchange. This article first appeared in the December 2006 issue of the SGX monthly financial magazine, Pulses (pulses.sgx.com).
