Re: Interactive thread on investment-related questions
For me the valuation metrics are all reasonable. Low ptoe ptos book cash flow etc. Quality of earnings good ( OCF > NET INCOME). However debt - cash on hand is 502.million. OCF only 125 million. So would take at least 4 yrs without div payment to pay off debt. I would prefer if company shrinks balance sheet by sealing off some assets to pay of say 400 million in debt.
Not too worried abt growth rate. The low valuation takes care of that.
Staying away from this stock due to high net debt relative to cash flow.
Re: Interactive thread on investment-related questions
Look forward to Ali Arshad and others providing their input on if above stock passed or failed screen. I think Arshad answered it - growth rate too low.
Re: Interactive thread on investment-related questions
Actually that is an excellent question. I do not believe in constantly getting in and out of the market. Most of funds are in index funds - dollar cost averaging.
Have set aside some funds to pursue my hobby to pick individual stocks. I try to pick stocks that are temporarily out of favor, have low valuation with rock solid balance sheet. And have mkt cap > 10 bill dollars. And been around > 20 years.
And no I do not believe in efficient markets. Markets reached nosebleed levels in 2000 and Oct 2007. Reached rock bottom 2003 spring and 2009 spring.
Re: Interactive thread on investment-related questions
Actually that is an excellent question. I do not believe in constantly getting in and out of the market. Most of funds are in index funds - dollar cost averaging.
Have set aside some funds to pursue my hobby to pick individual stocks. I try to pick stocks that are temporarily out of favor, have low valuation with rock solid balance sheet. And have mkt cap > 10 bill dollars. And been around > 20 years.
And no I do not believe in efficient markets. Markets reached nosebleed levels in 2000 and Oct 2007. Reached rock bottom 2003 spring and 2009 spring.
That's what I am asking. Why do you believe that a stock with > 10b mkt cap and rock solid balance sheet goes 'out of favor'? I would say several analysts would be following a stock with > 10b mkt cap and price would already have adjusted to reflect their assessments. Unless, of course, you are looking for less than market return with lower risk.
Re: Interactive thread on investment-related questions
Look forward to Ali Arshad and others providing their input on if above stock passed or failed screen. I think Arshad answered it - growth rate too low.
I think that you have a different approach than me. It seems that you look at companies from the view of an accountant whereas I view them from the point of view of an investor. Also I think for you liabilities as share of total assets is quite important whereas for me it is something to consider but it is not the overriding concern.
I am a lot more flexible in my approach. Sometimes growth is important for me, sometimes yield is important for me, and sometimes security is important for me, sometimes I speculate and take high risks. The goal at end of the day should be to achieve high rate of return on your investment consistently while minimisng the risks. This can be done with buying just one stock but usually you need to have a well balanced portfolio.
Re: Interactive thread on investment-related questions
I think that you have a different approach than me. It seems that you look at companies from the view of an accountant whereas I view them from the point of view of an investor. Also I think for you liabilities as share of total assets is quite important whereas for me it is something to consider but it is not the overriding concern.
I am a lot more flexible in my approach. Sometimes growth is important for me, sometimes yield is important for me, and sometimes security is important for me, sometimes I speculate and take high risks. The goal at end of the day should be to achieve high rate of return on your investment consistently while minimisng the risks. This can be done with buying just one stock but usually you need to have a well balanced portfolio.
I don't make the distinction between viewing a stock from accountants perspective and investors perspective. I look at Income, Cash flow and balance sheet. All 3 are almost equally important. The valuation should be fair to cheap ( income statement), the quality of earnings should be sound (OCF > net income), FCF should be good ( last 2 from cash flow statement), and balance sheet should be rock solid (cash - debt preferably > 0 debt/ eq < 0.3 cash flow sufficient to wipe out net debt. No room for flexibility here.
I don't differentiate between growth vs value. The growth stocks of yesteryears are value stocks of today. Picked up Intel at 52 wi low today at 21.9. The price you pay matters. As for security I don't apply std definition - that volatility = risk. To me risky stocks are those for which you overpay have poor earnings quality and high debt to equity.
Re: Interactive thread on investment-related questions
That's what I am asking. Why do you believe that a stock with > 10b mkt cap and rock solid balance sheet goes 'out of favor'? I would say several analysts would be following a stock with > 10b mkt cap and price would already have adjusted to reflect their assessments. Unless, of course, you are looking for less than market return with lower risk.
It is not my belief. It is real. Take large cap tech stocks in 2000. They were way way overvalued. By March 2003, they had fallen 80% on average. Was the market efficient in 2000 AND 2003? I don't think so.
Those who bought beaten down quality tech stocks in 2003 did well. After Merck Vioxx scandal, it dropped to 22 with yield of 8%. Now it is at 45 abt 4 years later. You did great. Wasxmarket efficient? No.
Let us look at Pfizer. It was at 55 in 2000 I think with P/E of 40 to 50. Analysts were going gushing over its 30% growth rate. By 2009 it plummetted to 12. So those who believed these useless experts who "follow" these stocks got suckered. In 2009 no analyst liked Prizer. Patent expiration low growth rate etc were reasons given. Wrong again. It yielded 7% and is now at 26! Are big caps efficient? Of course not. There in lies opportunity.
Reason why I restrict to > 10B - those companies around 20 yrs. Bad news does come out due to coverage.
Re: Interactive thread on investment-related questions
It is not my belief. It is real. Take large cap tech stocks in 2000. They were way way overvalued. By March 2003, they had fallen 80% on average. Was the market efficient in 2000 AND 2003? I don't think so.
Those who bought beaten down quality tech stocks in 2003 did well. After Merck Vioxx scandal, it dropped to 22 with yield of 8%. Now it is at 45 abt 4 years later. You did great. Wasxmarket efficient? No.
Let us look at Pfizer. It was at 55 in 2000 I think with P/E of 40 to 50. Analysts were going gushing over its 30% growth rate. By 2009 it plummetted to 12. So those who believed these useless experts who "follow" these stocks got suckered. In 2009 no analyst liked Prizer. Patent expiration low growth rate etc were reasons given. Wrong again. It yielded 7% and is now at 26! Are big caps efficient? Of course not. There in lies opportunity.
Reason why I restrict to > 10B - those companies around 20 yrs. Bad news does come out due to coverage.
I agree with you for the most part. Only that Pfizer is an outlier. The drops were primarily due to 'bad' acquisitions and 2000 and 2003 (I think).
Re: Interactive thread on investment-related questions
I agree with you for the most part. Only that Pfizer is an outlier. The drops were primarily due to 'bad' acquisitions and 2000 and 2003 (I think).
You are absolutely correct. Warner Lambert and then Pharmacia (Pakistani CEO HASSAN). During the Pfizer highflying days they lauded the acquisitions. At the time, Merck was focussing on organic growth. Analysts ridiculed it for not doing big acquisitions like Pfizer. Merck was right though. The Vioxx case noteithstanding Merck trading at about 10% higher level than where it was 10-12 yrs ago. While Pfizer! Is still 50% off.
While acquisitions responsible for some of pfizer drop, the other reason - significant overvaluation 12 yrs ago and significant undervaluation 3 yrs ago.
In current mkt cant find much value. But it will be there. People get fearful and sell. They get enthusiastic and buy.
Mutual fund managers add to this with quarterly window dressing.
Snp 500 Index funds push large cap stocks higher. List goes on. As small investor one can wait and wait tillnopportunity ripe.
Re: Interactive thread on investment-related questions
I don't make the distinction between viewing a stock from accountants perspective and investors perspective. I look at Income, Cash flow and balance sheet. All 3 are almost equally important. The valuation should be fair to cheap ( income statement), the quality of earnings should be sound (OCF > net income), FCF should be good ( last 2 from cash flow statement), and balance sheet should be rock solid (cash - debt preferably > 0 debt/ eq < 0.3 cash flow sufficient to wipe out net debt. No room for flexibility here.
I don't differentiate between growth vs value. The growth stocks of yesteryears are value stocks of today. Picked up Intel at 52 wi low today at 21.9. The price you pay matters. As for security I don't apply std definition - that volatility = risk. To me risky stocks are those for which you overpay have poor earnings quality and high debt to equity.
If you just look at things like P/L, Balance Sheet and Cashflow then that is a very narrow way of looking at the company. I also look at these things but also look at the broader picture e.g the management, the industry, competitors, the macro economy, stage of the cycle, intrinsic value, growth potential, trends. To achieve superior results you have to have superior knowledge or superior insight. Also when to buy is the key. You also need to buy a stock that you would be happy to own for the long term, and then after purchasing you just need to imagine that the market has closed down for 10 years.
Re: Interactive thread on investment-related questions
If you just look at things like P/L, Balance Sheet and Cashflow then that is a very narrow way of looking at the company. I also look at these things but also look at the broader picture e.g the management, the industry, competitors, the macro economy, stage of the cycle, intrinsic value, growth potential, trends. To achieve superior results you have to have superior knowledge or superior insight. Also when to buy is the key. You also need to buy a stock that you would be happy to own for the long term, and then after purchasing you just need to imagine that the market has closed down for 10 years.
Sure. Management matters. Industry matters. As for macro economy and stage of business cycle, when economy is doing well most times that is reflected in prices. When business or economy is at peak of bus cycle prices reflect that. Most times the 3 statements reflect all these metrics.
When you buy good companies at attractive prices you don't have to check prices daily or frequently - as you said. Buffett also has 2 rules as you know- don't lose money. Don't forget rule 1.
What you have suggested most certainly is an improvement over my approach. I am not very good at macroeconomy analysis. Market has flummoxed me when I have tried to incorporate it.
Maybe you can provide a test case of a stock or stocks that now meets your criteria.
Re: Interactive thread on investment-related questions
Sure. Management matters. Industry matters. As for macro economy and stage of business cycle, when economy is doing well most times that is reflected in prices. When business or economy is at peak of bus cycle prices reflect that. Most times the 3 statements reflect all these metrics.
When you buy good companies at attractive prices you don't have to check prices daily or frequently - as you said. Buffett also has 2 rules as you know- don't lose money. Don't forget rule 1.
What you have suggested most certainly is an improvement over my approach. I am not very good at macroeconomy analysis. Market has flummoxed me when I have tried to incorporate it.
Maybe you can provide a test case of a stock or stocks that now meets your criteria.
You don't want to buy at a time when the company is doing well unless you expect it do do even better or to continue its good performance for the next few years. You have to be cautious when the economy is doing well unless the company is going through a bad patch. Remember Buffets words on greed and fear.
My portfolio is quite diversfied, mainly consisting of real estate in mature and emerging markets. I stopped investing in stocks a few years ago...because I could not give it the time that it deserved. However recently I have made a purchase of a stock but in an emerging market. The company is a solid name in its field. The economy is growing and expected to gain momentum further in a few years. The inflation is around 8%. And I will be getting about 15% dividend yield. Basically the downside is negligible but the upside is great. Within about 2 years I can double my money. Even if the price does not increase the dividend itself is sufficient. There is another company that I have been keeping my eyes on. At the moment it is going through a bad patch but things will turn around soon. I was waiting for the shares to hit rock bottom before buying but they hit bottom and bounced back up by 20% within a few days. I am still waiting for the right moment to pay the second stock. Timing is very important. If I get it right I can double my money in 1 year.
I am out of touch with what is happening in the U.S and Europe. If I were to buy a share in the U.S then I would probably avoid tech stocks as they are very volatile. Then I expect at some stage to see a lot of cutbacks in the U.S expenditure as printing money will have to stop. In the light of this I would try to identify a sector that would come out unscathed. Then I would try to find stocks that would outperform the market in that sector.
Re: Interactive thread on investment-related questions
Looks like you have a sound strategy. Buy when there is fear - or blood on the street.
I don't know anything abt real estate. And even less about emerging mkt individual stock. Shanghai index down to 2500 from 8000. Wonder if it is cheap enough.
Yes - spending cuts probably will happen. As for tech stocks being volatile, " volatility is a value investors best friend". So I like volatility - presents opportunity.n
Re: Interactive thread on investment-related questions
That's what I am asking. Why do you believe that a stock with > 10b mkt cap and rock solid balance sheet goes 'out of favor'? I would say several analysts would be following a stock with > 10b mkt cap and price would already have adjusted to reflect their assessments. Unless, of course, you are looking for less than market return with lower risk.
One more point - lower risk does not necessarily mean lower return. By payinf fair to less than fair price, you reduce risk while potentially increasing return.
The SNP500 scares me since it is market cap weighted..apple is 4% of the index. The more expensive a stock gets more the index funds have to buy it. Thus driving price higher. So index funds buy more.
To counter the bias towards privy stocks I have structured individual stock portfolio with stocks that are undererighted. For example. Big Pharmacy were out of favor 3 to 4 yrs ago due to patent expirations. That was an entry point. Now they are fairly valued. Some old tech stocks like Intel appl matls look attract five since they are out of favor.
Re: Interactive thread on investment-related questions
Price volatility is significant price movements within a fairly short period of time. Price volatility is usually caused by earnings volatility. There is a difference between volatility and when the bears rule the market. So I am not convinced that volatility is a friend of the long term investor. Volatility may be a friend but also an enemy of the speculator.
Re: Interactive thread on investment-related questions
Price volatility is significant price movements within a fairly short period of time. Price volatility is usually caused by earnings volatility. There is a difference between volatility and when the bears rule the market. So I am not convinced that volatility is a friend of the long term investor. Volatility may be a friend but also an enemy of the speculator.
Good investors make money during bear markets when everything is beaten down. As for price volatility caused by earnings volatility, value investors love it when price falls due to fluctuations in earnings. In fact that is how one makes money in classic cyclical stocks such as Applied Materials Intel and other semi conductor eqpmt suppliers or chip makers. At trough earnings they may have 3 to 4 quarters of low or even negative earnings. As for stocks with smooth earnings, sometimes smoothness is due to earnings " management".
As for volatility bring enemy of a speculator, lots of things work against a speculator. IMO a speculator should not be confused with aninvestor.
Re: Interactive thread on investment-related questions
You must not confuse a bear market with volatility. Volatility means that a stock's price changes more than normal (or other stocks) in a given time period. This indicates that earnings are unstable and the stock is risky.