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Value Investing Principles

You are right... :)

In the postings you read, there's actually much revelation to be gained from.

Other than stock recommendations, which most people desire to get, other posts are also highly beneficial to the 'career' of investors and traders.

 

Hi Musicwhiz5,

Sometimes there is no real secret formula for investment success and just plain hardwork. I just read as much as I can.So all the useful posts in sharejunction, I try to read.  I don't treat analyst's report as "gospel truth" but neither do I totally disregard them. Analysts themselves are not sure sometimes and are divided in their views.I read all that I can and finally I make my own judgement:) 

 

But actually, whether a stock is a bargain or not should be tied in with the concept of trend. If a trend is not over, it will continue.

 

This is quite normal... :)

They want to see whether the current price of the stock is 'cheap' or 'expensive'.

If the price is near the lows, then it is a good bargain... this is why we have terms like "bargain-hunting"... :)

 

I meant some like to ask what was the highest and lowest price of the share.....

 

Hi Musicwhiz5,

Whenever I recommend a stock to my friends, the first thing some ask is,"What was the highest and lowest?". :(. 

 

In a bear market, people will tend to ignore fundamentals, since the fundamentals are not good enough to make their stocks rise.

So value investing suits those who buy and lock up their shares for the long term, say many years.

 

Hi all,

 

I agree with Victorian on his points. Value investing is truly about looking at the value of the company and its investment merits, and whether this will translate into higher earnings and higher margins in time. Short-term price patterns are irrelevant as the market can throw us a different price every day base on sentiment, but if we are not sellers then why bother about the price ? I believe it is the business we should focus on, and I always tell my friends that. Friends love to ask me what the price of my shares are, I always rebut by asking them back: ?why don?t you ask me how?s the business doing instead ??.

 

 

With regards to the posting made by l_tan888, my point is that one should follow the business and the company?s industry rather than watching the day by day price. By right, as a value investor, at most you take a look at weekly closing prices or once per fortnight. However, I still advocate checking SGX announcements daily, as well as keeping up with business news from ST, BT, Reuters, Dow Jones and Forbes. Furthermore, one should keep up with news pertaining to the industry or business climate of one?s vested company (e.g. I keep up with news on the oil and gas sector as I hold 2 companies in this sector).

 

 

As for how to review and select good companies, below is a brief list:-

 

 

1. Earnings growth of at least 20-25% year-on-year. Quarterly growth may be misleading as some companies? businesses are cyclical. There should also be EPS growth of about 20-25%. Top line increase is seldom as important as bottom line increases, though for some queer reason many companies like to trumpet their top line growth !

 

2. Margin improvement over the period, which shows efforts by management to reduce costs. If margin decreased, read the MD&A to find out why. If Management failed to comment on it at all, then something might be wrong (see point 3).

 

3. Quality of management ? this would represent the strategic vision, integrity, honest, transparency and overall competency and capability of Management to grow the business and enhance shareholder?s value. This is a qualitative aspect of value investing which involves reading the annual report?s CEO statement, operations review, press release information, attending the AGM/EGM and even calling the company if need be.

 

4. Balance sheet analysis ? Make sure the company does not have too much liability (gearing) and compute the cash conversion cycle of the company. This should decrease as much as possible and the receivables turnover ratio should not be greater than the payables turnover ratio. Stock turnover is also a good sign of slowing sales and stockpiling of obsolete inventory. Also, check for large discrepancies in line items which may indicate that a major transaction had occurred. If possible, find out WHY.

 

5. Cash Flow Statement ? Operating Cash flows should be positive as far as possible, or it would signal a serious deficiency in the company to raise enough cash for normal operations. Look out also for constant financing through bank loans or equity fund raising; some companies are forever doing a cash call or rights issue to generate cash which they burn off as soon as they get it !

 

6. Annual Report ? Look out for strange notes to the accounts (examples include large capital commitments, contingent liabilities such as lawsuits and ?Events After Balance Sheet Date?). These can help to explain certain aspects of the company which may make it a good or bad investment.

 

7. Industry Conditions ? Study the industry the company is in to see if it is a market leader, follower or laggard. This will help estimate the P/E range it should trade at. Leaders usually trade at a higher multiple than laggards within the same industry. Look out too for trends in the industry and whether conditions are volatile. Examples are the clampdown in the China pharmaceutical industry which impacted C&O Pharma, Asiapharm, Reyoung and other China pharma companies. Another example is the capital appreciation tax levied on property in China which affected companies like Yanlord Group.

 

If anyone else has anything else to contribute, please feel free to do so. In my next posting, I will elaborate on my personal investment mistakes, what I learnt from it and how I will strive not to repeat the error.

 

A company CFO actually invited me out for dinner once to explain more about the company:)

 

This thread seems to have a lively discussion.

For those wanting to find out more about the thoughts of Warren Buffet, perhaps his annual letters to shareholders will offer you an oasis on his investing philosophy.   He has just released his FY2006 letter yesterday.  Website of his letters since 1977:  http://www.berkshirehathaway.com/letters/letters.html



Cheers....

 

One undiscovered SERIOUSLY UNDERVALUED GEM in obscurity in the hand of one BIG ELEPHANT (billionaire)...will follow the old recovering story like AFP and GOLDEN AGRI (5 cents to more than 1 dollar recovering story last time)...The value investor "pa si no run" buffet star share  - INFORMATICS...seriously undervalued one...only for people with holding power...not for contra :)...keep INFORMATICS for the next 1-2 years...forseee will recover to $1 within 1-3 years time

 

dfusion: i agree with your style. FA first and then apply TA to decide when to go in

However due to Hulumas influence, one can also put some monies (if got spare) on potential turn around stocks. Such stocks are harder to play as usually their financials bad. They are usually trading below 10 cents and if you got faith in it to turn around, it can surge forward many times. Yong Nam is the classic story of a few cents stock that rise till today reaching 30 cents. Imagine you accumulate during the earlier period you will reap handsome rewards!!!

 

am a newbie here, and seeking some light too.

Singaporegal, you said that if we buy based on FA, sell on FA, likewise on TA. I don't quite agree with that totally. I am a firm believer in FA initially, but as i go along, i am now believing in TA also and trying to learn about charts and how to interprete them.

In principle, when i decide to buy into a stock, i will always look into the financial reports first. Based on the first 3 lines of the P&L, it will either incite or diminish my interest in the company. Musicwhiz5 said "If one buys part of a company based on value investing principles, one would expect a certain growth for the company which outpaces inflation", I agree with this. If a company need additional 20% of its cost to earn an additional dollar, then it does not make sense to me, even if proft margins are still positive, unless there are special reasons attached to it. This is the same theory as the inflation portion mentioned by MusicWhiz5 because the company will spend 20% effort more.

However, as much as i am a firm believer in FA, i also take into account the sentiment in general and the charts, which is why i believe that FA and TA should be used together. I enter a stock based on FA, but i believe TA will help you to gain max benefits throughout a good company's stock. You can then sell on a high at a certain point of time and buy back when TA indicators reveal a suitable timing.

Appreciate all masteros comments.

PS: which are the most common charts that TA people will use? 

 

I guess everyone here has one common objective; that is to make money in the stock market. As long as one's counters make money in the market, who is to say whether TA/FA is better. Market is irrational as it is dominated by humans and there is no one fixed theory or method to accurately predict such behavior.

As Chairman Mao says, who cares if it is a white cat or black cat, it is a good cat as long as it catches mice.

Musicwhiz, salutes to very good initative on your part. Will be watching and participating in this thread and learn something from you and other forumers out in SJ.

 

what happened for those who buy oversea stock? legwork and agm?

i think watch both TA  anf FA and read all the report of the counters we are in, and always the sentiments too...

just as the market now allow us to cash in in future and warrant...trading.

where we can double it fast....as for FA, it's a real wonderful time to realign the counters we had

 

Thanks for the response... I hope I didn't hijack this thread by bringing in talk of investing/trading philosophy

 

singapore gl good say, that is it, its own principal of law been set by each other.

 

This is a very good thread indeed.

One thing I always believe ... hope to have people critic this belief of mine.... here goes -

(1) If you buy a counter based on TA rules, then you should sell based on those same TA rules

(2) If you buy a counter based on FA valuations, then you should sell based on FA too

 

Musicwhiz5, good job, my cup of tea!  Other than attending AGMs and EGMs another way of finding more about a company's peformance is to be like Victorian who actually does the legwork wherever possible. 

By the way, Vic did you buy any food while there?  I did.  Cheers.  

 

All must BEAR in mind that not to buy shares in the early stage of the correction, price will drop further when force selling and margin call by securities firms next week.